[Management View]
Motorcar Parts of America (MPAA) reported record net sales of $757.4 million for FY2025, a 5.5% increase YoY. Gross profit reached $153.8 million, up 16.1% YoY, with a gross margin improvement to 20.3%. Key strategic priorities include mitigating tariff impacts through price increases and supply chain adjustments, reducing dependence on Chinese imports, and enhancing shareholder value through share repurchases and debt reduction.

[Outlook]
For FY2026, MPAA projects net sales between $780 million and $800 million, representing 3%-5.6% YoY growth. Operating income is expected to be between $86 million and $91 million, a 4.3%-10.4% increase YoY. Management anticipates further margin expansion driven by cost-per-unit reductions, higher sales per unit, and increased capacity absorption.

[Financial Performance]
Net sales for Q4 FY2025 increased 1.9% to $193.1 million. Gross profit for Q4 FY2025 rose 10.6% to $38.5 million, impacted by $4.6 million in tariff costs and $3.2 million in noncash expenses. Gross margin for Q4 FY2025 was 19.9%, up from 18.4% a year earlier. EBITDA for Q4 FY2025 was $16.3 million, with adjustments for noncash and one-time cash expenses.

[Q&A Highlights]
Question 1: Selwyn, you mentioned tariffs increasing strategic competitive advantage. Can you expand on how you see tariffs potentially helping out on market share? Are you already having those conversations with customers, and do you think specifically that positions you better to gain share in the global tariff environment?

Answer: We have adjusted our footprint way in advance of tariffs to be less dependent on China. Less than 25% of our imports come from China, so we're ahead of the game. We ship direct from our factories and only pay tariffs when we sell the product. Our competitors house their inventory in the United States and need to replenish inventory with tariff goods, so their cash requirement will be far greater than ours.

Question 2: David, just wondering about the customer price increases. Wondering how that's going to impact gross margin? You have been expanding margin pretty nicely here. Fiscal 25 adjusted gross margin was around 22.5%. With the addition of tariffs and those price increases, do you think you can grow off that for fiscal 26?

Answer: Increasing the numerator and denominator will slightly negatively impact the gross margin. However, other initiatives to expand the gross margin and increase that margin percentage should offset that impact.

Question 3: I was hoping for some clarification on the tariffs. Is what we saw in the quarter a good representation of what we should expect, or are the tariffs moving too much to really project a certain impact at this point?

Answer: The timing impact is unpredictable. We'll see a bit more of it, and it will disappear soon as those price increases and initiatives kick in. We can't give exact guidance on where that's going to go yet.

Question 4: The price increases you talked about, are those the price increases already enacted or expected going forward?

Answer: We have accomplished almost 100% of our intended price increases.

Question 5: Just looking at the guidance. It looks like you're expecting some margin expansion next in the fiscal year. Can you elaborate on some of the catalysts behind that?

Answer: All the initiatives focused on lowering costs per unit and increasing sales per unit. Capacity absorption with more volume. Our momentum right now is quite strong. Naturally, organic absorption is a factor, but we've got various operating initiatives as well that continue.

[Sentiment Analysis]
Analysts expressed cautious optimism regarding MPAA's strategic adjustments and market share growth potential amid tariff impacts. Management maintained a confident tone, emphasizing their proactive measures and strong market position.

[Quarterly Comparison]
| Metric | Q4 FY2025 | Q4 FY2024 |
|-----------------------|-----------|-----------|
| Net Sales | $193.1M | $189.5M |
| Gross Profit | $38.5M | $34.8M |
| Gross Margin | 19.9% | 18.4% |
| EBITDA | $16.3M | N/A |
| Net Loss | $722K | $1.3M |

[Risks and Concerns]
Tariff impacts remain a significant risk, with uncertainty around future changes and timing. Noncash expenses related to foreign exchange losses and core premium amortization also pose challenges. Management's ability to fully offset tariffs and maintain margin expansion is critical.

[Final Takeaway]
Motorcar Parts of America demonstrated strong financial performance in FY2025, with record net sales and gross profit. Strategic adjustments to mitigate tariff impacts and reduce dependence on Chinese imports position the company for potential market share gains. Management's confident outlook for FY2026, supported by price increases and cost reduction initiatives, suggests continued growth and margin expansion. However, ongoing tariff uncertainty and noncash expenses remain key risks to monitor.