Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America, Inc. Fiscal 2025 Third Quarter Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Gary Maier, Vice President, Corporate Communications and Investor Relations at Motorcar Parts of America. Please go ahead.

Thank you, Regina. Thanks, everyone, for joining us for our call this morning. Before I begin, I will turn the call over to Selwyn Joffe, Chairman, President, and Chief Executive Officer, and David Lee, the company's Chief Financial Officer. Let me remind everyone of the Safe Harbor statement included in today's press release. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during today's conference call. Such forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties, some of which are beyond the control of the company and are subject to change based upon various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the various SEC filings. With that, I'd like to begin the call and turn it over to Selwyn Joffe.

Thank you, Gary. I appreciate everyone joining us today. We are certainly encouraged by our record sales, gross margin improvement, and solid cash flow generation for the fiscal 2025 third quarter. Our initiatives to enhance profitability are gaining traction. Our team continues to be focused on continuous improvements, and we are excited by the opportunities for the balance of fiscal 2025 and beyond. We generated approximately $34.4 million of cash from operating activities during the fiscal third quarter, primarily due to strong operating profits. We remain focused on initiatives to enhance profitability, including gross margin expansion and neutralizing working capital, which should continue to result in strong cash flow generation. With regard to our balance sheet, our positive cash flow and related initiatives enabled us to reduce net debt by $30.3 million for the fiscal third quarter, resulting in a 26% reduction to $84 million from $114 million. In addition, as highlighted in our earnings press release this morning, we repurchased 268,130 shares or $2.1 million at an average price of $7.82 under our current reauthorized repurchase authorization program. We anticipate further opportunities to enhance shareholder value through strong cash generation and the neutralization of working capital. I should mention that rotating electrical, a 50-plus year flagship category, continues to generate solid performance. We expect further opportunities to add retail and traditional customers despite some recent market softness. As I've mentioned many times, the replacement of alternators and starters cannot be deferred. If these products are broken, your car is not drivable, and the aging car park remains a favorable tailwind with multiple replacement opportunities for the life of the vehicle. We are also particularly excited by the continued success of our emerging and second-largest category, brake-related products. We expect continued success in this category based on our quality, customer service, and capacity to meet demand. We anticipate strong demand as we enter the important spring repair season. Importantly, accelerating brake-related product sales saw purchasing and production efficiencies, which contribute to gross margin improvement. Our team is doing an exceptional job to further enhance performance metrics. We look forward to continued sales growth for this important nondiscretionary product category. As I previously mentioned, and as referenced in the exhibits to our earnings release, there are various factors relating to our financial performance that are non-cash and beyond our control, particularly the current sharply unfavorable non-cash mark-to-market foreign exchange loss from Mexican lease liabilities and forward contracts. A strengthening dollar versus the peso results in large non-cash mark-to-market expenses, which we internally eliminate when evaluating our underlying results. We are continuing to look at opportunities to minimize these non-cash expenses, including funding our Mexico operations with pesos from sales in Mexico. As our sales in Mexico continue to grow, we will purchase fewer forward contracts to meet our peso obligations, which will lessen the impact of non-cash foreign exchange expense fluctuation. Obviously, interest rates, particularly applicable to vendor finance programs utilized by our customers, are a headwind. On a positive note, interest rates have decreased. If this trend continues, this should benefit profitability. Utilizing our low-cost global footprint will facilitate further operating efficiency. We are actively implementing additional initiatives to further enhance gross margin. Let me take a moment to highlight a few key near-term strategic initiatives that support our favorable outlook. With respect to our diagnostic business, as I've previously mentioned, we are experiencing great success with our JBT one bench top test, and we remain focused on achieving the $100 million milestone for diagnostic equipment. Additional service-related revenue is expected as more testers are deployed, which includes repairs, software, and database updates. These contributions will increase as the installed base matures. We also expect more opportunities outside North America as the business evolves. With regard to our heavy-duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supplying alternators and starters to our channel partners, who are leaders in the heavy-duty aftermarket. Our growth opportunities continue to gain momentum across multiple platforms, such as agriculture, class A trucks, refrigeration, construction, material handling, and transit and motor coach. Our Dixie brand is also evolving as an important supplier to the heavy-duty original equipment manufacturers. We will remain focused on sales growth, profitability, and neutralizing working capital. Profitability will continue to grow organically. From a strategic standpoint, we are continuing to leverage our great products manufactured at state-of-the-art facilities, solid customer relationships, industry-leading SKU coverage, and order fill, not to mention our value-added merchandising and marketing support. Our hard parts sales in Mexico continue to gain momentum as we experience increased demand for our aftermarket parts. The rate of growth in this market is exciting, and we are well-positioned to utilize our footprint to meet the growing demand. We are focused on increasing share in this region. We continue to benefit and grow sales via our relationships with US-based retailers and warehouse distributors, gaining a presence in this emerging market, as well as through Mexican distributors. Favorable long-term dynamics continue to bode well for the company, and we are extremely well-positioned for sustainable top and bottom-line growth in our hard parts business as well as testing solutions. We are focused on growth across all product lines, including our quality-built brand, which is gaining market share within the professional segment. This includes our most recent additions to our portfolio of brake calipers, brake pads, and rotors. I reiterate that as we grow these product lines, we expect overall gross margin accretion. We are beginning to see that. It is worth reiterating that 98.8% of US cars are comprised of internal combustion engines and hybrid engines. Nondiscretionary aftermarket parts for the internal combustion engine market will be here for decades, an outlook supported by recently updated industry data showing that the average age of vehicles is now 12.8 years plus. One of our key competitive advantages is the ability to offer a broad range of applications for all makes and models. We remain focused on newer model applications and our ability to meet expected demand as these vehicles enter the replacement market. I'll now turn the call over to David Lee to review our results in detail.

Thank you, Selwyn, and good morning, everyone. I encourage everyone to read the earnings press release issued this morning as well as the 10-Q that will be filed later today. Let me first reiterate key financial performance metrics for the fiscal 2025 third quarter that we highlighted in this morning's news release. Net sales increased 8.3% for a fiscal third quarter record of $186.2 million. Gross profit increased 49.4% to a record $44.9 million. Net income for the quarter was $2.3 million. We generated cash from operating activities of $34.4 million and reduced net bank debt by $38.3 million. We repurchased 268,130 shares for $2.1 million. Non-cash items reduced net income by $5 million and gross profit by $3.4 million for the quarter, as detailed in the exhibit. Net sales for the fiscal 2025 third quarter increased 8.3% to a third quarter record of $186.2 million from $171.9 million in the prior year. Gross profit for the fiscal 2025 third quarter increased 49.4% to a record $44.9 million from $30 million a year earlier. I should mention that gross profit for the quarter was impacted by non-cash expenses. The non-cash expenses reflect core and finished good premium amortization and revaluation of core on customer shelves, which are unique to certain of our products and required by GAAP. The total for these non-cash expenses in the quarter was approximately $3.4 million or a 1.8% impact on gross margin. Gross margin for the fiscal 2025 third quarter was 24.1% compared with 17.5% a year earlier. Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs, we are also focused on other initiatives to enhance gross margin. Predominantly due to a $2.5 million non-cash mark-to-market foreign exchange loss compared with a $3.1 million non-cash mark-to-market foreign exchange gain in the prior year and a $1.8 million increase in expense resulting from currency exchange rates compared with a year ago. Operating expenses were $27.3 million compared with $20.5 million last year. I should note that excluding these items above, operating expenses decreased by $627,000 to $23.6 million compared with $24.2 million a year earlier. For those of you who are not familiar with our operations, our leases in Mexico are US dollar-denominated leases. However, the leases are recorded in pesos at our Mexico subsidiary. As a result, the fixed US dollar leases, which are paid in US dollars, are remeasured at the end of every period to reflect the current exchange rate, resulting in a $1.9 million non-cash foreign exchange impact on lease liabilities for the third quarter. Additionally, the company purchases forward peso contracts, which are also remeasured at the end of every period to reflect the current exchange rate, which resulted in a $585,000 non-cash foreign exchange impact on forward contracts for the fiscal third quarter. I might add that we are starting to reduce the purchase of peso forward contracts by utilizing pesos generated through our Mexican sales subsidiary to fund our operations there, which will reduce the impact of gains and losses from the remeasurement at the end of each period to reflect the current exchange rate. We are continuing to analyze opportunities to reduce exposure to the foreign exchange impact of lease liabilities and the impact of foreign currency forward contracts. Interest expense for the fiscal third quarter decreased by $3.9 million to $14.4 million from $18.3 million a year ago, impacted by lower average outstanding balances under the company's credit facility and lower interest rates. For the third quarter, income tax expense was $1.1 million compared with $37.3 million income tax expense for the prior year, primarily due to a $37.5 million US federal and state deferred tax asset valuation allowance under US GAAP for the prior year, which is non-cash and does not impact any operating metrics. The effective tax rate for the fiscal third quarter was due in part to the inability to recognize the benefit of losses at specific jurisdictions. However, we expect these losses will be utilized against future profits, which will benefit future tax rates. Obviously, there are various factors impacting the tax effect. Net income for the fiscal 2025 third quarter was $2.3 million or $0.11 per diluted share, including the impact of non-cash expenses of $5 million or $0.24 per diluted share, as detailed in exhibit one in this morning's earnings press release. Net loss for the prior year was $47.2 million or $2.40 per share, including the impact of non-cash expenses of $40.4 million or $2.06 per share and cash expenses of $1.4 million or $0.07 per share, as detailed in exhibit one. As previously explained, higher sales volume and operating efficiencies will further improve EBITDA for the fiscal third quarter was $20.4 million, reflecting the $6.6 million impact of non-cash expenses detailed in exhibit five of this morning's earnings press release. EBITDA before the impact of non-cash expenses mentioned above was $27 million for the third quarter. Now let me discuss the nine-month results. Net sales for the fiscal 2025 nine-month period increased 6.8% to a record $564.2 million from $528.2 million a year ago. Gross profit for the fiscal 2025 nine-month period increased 18% to a record $115.3 million from $97.8 million a year earlier. Gross margin for the fiscal 2025 nine-month period was 20.4% compared with 18.5% a year earlier. Gross margin for the fiscal 2025 nine-month period was impacted by $10.3 million or 1.8% of non-cash expenses and $1.3 million or 0.2% of one-time cash expenses, as detailed in exhibit four in this morning's earnings press release. In addition to the items detailed in exhibit four, gross profit for the current nine-month period was also impacted by $4 million or 0.7% of certain one-time expenses for onboarding new business. Net loss for the fiscal 2025 nine-month period was $18.7 million or $0.95 per share, including the impact of non-cash expenses of $22.4 million or $1.13 per share and one-time cash expenses of $3.3 million or $0.17 per share, as detailed in exhibit two in this morning's earnings press release. Net loss for the prior nine-month period was $50.6 million or $2.58 per share, including the impact of non-cash expenses of $49.5 million or $2.53 per share and cash expenses of $5.8 million or $0.30 per share, as detailed in exhibit two. In addition to the items detailed in exhibit two, as previously noted, results for the current nine-month period were also impacted by $4 million or $0.15 per share of certain one-time expenses for onboarding new business. EBITDA for the fiscal 2025 nine-month period was $34 million. EBITDA was impacted by $29.8 million of non-cash expenses as well as $4.4 million in one-time cash expenses detailed in exhibit five of this morning's earnings press release. EBITDA before the impact of non-cash and cash expenses mentioned above was $68.2 million for the current period, despite the impact of certain one-time $4 million of expenses for onboarding new business. Now we will move on to cash flow and key corporate items. The company generated cash of approximately $34 million in operating activities during the fiscal 2025 third quarter. We anticipate an increase in operating profit and gross margin on a year-over-year basis for fiscal 2025 and the generation of positive cash flow for the year, supported by organic growth from customer demand and operating efficiencies from our global footprint expansion. In addition to our goal of generating increased operating profits, we are diligently focused on opportunities to neutralize working capital, including customer product demand planning, enhanced inventory management, and further extending our vendor payment terms. We expect increasing financial performance from both the new and existing product lines, including our emerging brake categories. Net bank debt decreased by $30.3 million during the fiscal third quarter to $84 million from $114.3 million. Total cash and availability was approximately $138.8 million. I should mention that for every one-point reduction in interest rates, interest expense for accounts receivable discount programs offered by customers is reduced by approximately $6 million. For further explanation on the items that impacted results and non-GAAP financial measures, please refer to exhibits one through five in this morning's earnings press release. I would now like to open the line for questions.

We will take our first question from the line of Derek Soderbergh with Cantor Fitzgerald. Please go ahead.

Yeah. Good morning, guys. Thanks for taking my questions. Just wanted to start with the tariff environment quickly. Selwyn, you've sort of been through a similar tariff environment before. Can you sort of clue us in on what conversations you're having with suppliers and customers, and how we should think about the potential impact of tariffs on the business? And then, given your fairly global manufacturing footprint, is there a scenario where you shift around manufacturing at all?

Okay. So let me, let me, there's a lot there, and obviously, it's very fast-evolving and a lot going on. Just to start with the general environment, there are hundreds of suppliers that are implementing tariff surcharges for the Chinese tariffs, and we're one of them. So we have implemented tariff surcharges. I'm sure, and again, this is speculation, but I've listened to various public forums where our customers are talking about passing these tariffs on to consumers. You know, we have been somewhat fortunate in that over the last number of years, we've become less dependent on China, even though we still do have a relatively decent-sized tariff base that we'd have to pay tariffs on, but we don't believe that our out-of-pocket will be material. And so, you know, at this point, again, we're managing through it, but, you know, we think we're gonna be fine.

Got it. That's helpful. And then just on the gross margins, it looks like the story is playing out really nicely here. Is there any way you could maybe quantify some of the gross margin expansion? Quite a big step up year over year. You know, it sounds like you've gotten some favorable scale pricing, accretion. Is there any way to quantify those that drove that expansion?

Yes. And then let me deal with that one. We can only talk about the segments, and you know, we have limited. But I think the story is, you know, on a simplistic basis, which nothing is simple, is wherever we have product revenue, we have initiatives going to implement more and more efficiencies. And as our revenue continues to grow, you know, the overhead absorption is a natural, and we talked about production and efficiencies. It all comes naturally as well as us working through it and various automation initiatives and all sorts of initiatives to continue, and they're paying off. And, you know, we relocated a Torrance facility that is, you know, essentially, there's no more production or distribution there. So that's all into Mexico right now. As far as changing our footprint, I think you'd asked that. I don't think we're any worse off than anybody, but I will come as I think we're better off than the general competitor. It seems that, you know, there's a floor of 25% tariffs on Chinese goods right now, and now there's this extra 10% surcharge. So there's 35%, and if we look at our other main operating venues, Mexico, obviously, we came close to having tariffs there, but it looks like, and again, I don't know, but from my readings, it looks like the Mexican and US governments are cooperating. Canada is relatively minor for us. So I don't see us moving right now any production or anything.

Got it. That's helpful. And David, just, you know, looking at cash generation, it's been pretty strong here, paying down debt, like interest expense is gonna come down. You know, I guess, looking ahead, how do you plan on using cash? You know, you bought back some shares here. Is that the expectation to continue that? Can you just talk about the use of cash going forward?

Yes. You hit it on the nail. So we're gonna continue to generate good cash flow, pay down debt, be opportunistic with share purchases, and do all the right things to increase shareholder value.

Got it. That's helpful. It's all for me. Thanks, guys.

Thank you. Appreciate it, Derek.

Again, for any questions, press star one on your telephone keypad. Our next question will come from the line of Bill Dezellem with Tieton Capital Management. Go ahead.

Thank you. I also want to follow up on gross margin and hoping you can provide a bit more perspective. In this context, your sales in December were lower than they were in September. I think that's the normal seasonal pattern. And yet, your gross profit dollars were higher in December at nearly $45 million versus about $41 million in the September quarter. So you had lower sales and higher gross profit dollars. Would you talk in more detail about kind of that specific swing and the success there?

You know, we continue to be focused on every quarter being more efficient with our operating model. So in the December quarter, we were even more efficient than the September quarter. So all those initiatives we have to expand gross margin, dollars, and percentage are really paying off. And we will continue to be focused on expanding margins.

And following up on that, what initiative or initiatives were most impactful sequentially?

You know, people used to ask me that about the restaurant business. What does it take to have a successful business in the restaurant business? And I used to quote a famous restaurateur. It's not one thing. It's a thousand little things. And so, I mean, it's focused around production efficiencies is really where there's a lot of activity as we scale the production facilities. So when you have economies of scale and you're able to reallocate and allocate production volume in a more efficient manner, I mean, that's why you get these results. It's sort of like you're able to fill each of the channels of need for production in a different production arena. So volume, and we've been talking about this, volume is definitely part of that. And then the ability of us to have a seasoned workforce. We've never had a great workforce, a very knowledgeable workforce, and as they grow and get more seasoned on the new product lines, we're seeing tremendous inroads and great innovation in terms of, again, becoming more efficient. So there's no one thing. I mean, I think that our strategy is to eliminate waste wherever we can and neutralize working capital. That makes it easier.

And I think that's where my favorable were down even if seasonally the norm. And yet your gross profit was up. Nice. That just seemed extraordinary.

Yeah. Then it also relates to how much production you've got in the quarter. We had new business coming on for production. So the volume is not, you know, for manufacturing activities, mine volume for us is not directly related to sales always. I mean, we are ramping up for new business. So, again, the different initiatives take effect of producing initiatives and apply to volume and no volume, but having overall volume allows you to get those concessions.

And I think you all have talked on the last call or two about how you have additional brake business that would be ramping in calendar 2025. So this calendar year. So are we seeing the production benefits flow through the margin of that business that will then see the sales benefits in the March and following quarters?

Yeah. Actually, you're seeing a little bit of an intro. We do have new business that's being ramped up, but in the beginning, as you're building inventory for this new business, there's some inefficiencies because you're building some lower volume items. We should see those margins get better as we roll this business out, and that's going quite well. Thank you.

Alright. That's helpful. And relative to the brake caliper ramp-up to whatever normalized volumes are, where are we at in that ramp process?

I would say it's hard to tell that because, you know, to give you a number. I will give you a number in a moment. But one thing is you set out to begin a new category. You design a facility that you think can hit a certain benchmark. And as you operate it, you learn from it, and I'm happy to say that I think that our capacity will end up being greater than we anticipated it to be. So our expansion opportunities in that facility will be greater. But so it's a moving target as to what the denominator is. The numerator, we know what to do with it. But there's a lot of opportunity for growth that I, you know, so I don't want to, I mean, I can give you a percentage, but it's not a helpful percentage because we're more efficient at a lower percentage of capacity today than we thought we would ever be. And so, and what that means is that the factory opportunity has grown without additional, you know, CapEx, or we are able to produce more units, and then we'll even get more efficient out of that facility as time goes on. But we are a major player. I mean, I don't know if we're the second-largest brake caliper provider in the US today or not, but we're certainly up there.

And just to make sure I'm clear on all that, that's really helpful that you mentioned in your opening remarks that the rotating electrical business is operating efficiently. And that continues to be the case. And then historically, the brake caliper business has not been running efficiently simply because of the low volumes as you start to ramp that business. But as you're growing towards number two or number one in the country, you are having better margins or better efficiency even at the lower volume than you anticipated as your staff and employees have learned how to simply do things better. And this happens to be the quarter where a lot of that culminated and becomes more visible. Is that a fair characterization before I step offline?

No. Let me just clarify one thing is that we're still doing the higher volumes, but the point I'm trying to make is the capacity has actually grown from what our initial anticipation is. So, yes, we're getting these efficiencies. These efficiencies are still evolving. So they're not culminated. I mean, this is definitely an evolving program that we're doing. And again, as new product lines get more mature, they know their volume. So it's mostly accurate, but we are producing higher volumes already. But we have what I would say is additional opportunity to take that capacity up even higher than we thought it could go.

Great. Thank you for the clarification. Congratulations.

Thank you. Appreciate the questions.

And that will conclude our question and answer session. I will now turn the meeting back over to Selwyn Joffe for closing remarks.

Okay. Well, in summary, we remain bullish about our outlook. We remain laser-focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet demand for nondiscretionary products as well as from our diagnostic testing. Recent proposals by the Trump administration about tariffs continue to make headlines. At this point, there's a lot of speculation. We will take appropriate action as necessary, including customer surcharges to offset the tariff on goods from Mexico and Canada, should they be imposed. With regard to China, we have notified our customers that we are implementing a surcharge to offset China's recently announced tariffs. We continue to leverage our expertise and solid customer and supply chain relationships. This includes our supply chain vendor finance program that benefits our suppliers. Our liquidity is strong. We have the resources, capacity, and capability to enhance shareholder value.

In closing, I must recognize the contributions of all our team members who are continuously focused on providing the highest level of service. We are all committed to being the industry leader for parts and solutions that move our world today and tomorrow. We also appreciate the continued support of our shareholders and thank everyone again for joining us for the call. We look forward to speaking with you when we host our fiscal 2025 fourth quarter call in June and at various investor conferences and meetings. Thank you.

That will conclude today's meeting. Thank you all for joining. You may now disconnect.