MOTORCAR PARTS OF AMERICA INC: Annual Investor Guide

I’ve put together this guide to help you understand how Motorcar Parts of America (MPA) is performing. My goal is to break down their filings into plain English so you can decide if this company fits your investment goals.

1. What does this company do?

Think of MPA as a key player in the "keep it running" side of the car industry. They don't make new cars. Instead, they remanufacture and distribute heavy-duty and light-vehicle aftermarket parts.

They specialize in "non-discretionary" parts. If your alternator, starter, brake master cylinder, or wheel hub assembly fails, you have to replace them to drive. They sell to the "Do-It-Yourself" crowd and professional repair shops. They carry about 44,000 different parts under brands like Quality-Built®, Pure Energy®, and various private-label programs. Their business model relies on a "core exchange" system: they collect used parts from customers, remanufacture them to meet or exceed original specifications, and resell them.

2. How did they perform this year?

MPA turned a corner in the fiscal year ending March 31, 2026:

• Revenue: Sales reached $789.8 million, up 4.3% from $757.4 million in 2025. This growth came from higher demand for their products.
• Profit: After two years of losses, the company returned to profit. They reported a net profit of $12.4 million, compared to a loss of $19.5 million in 2025.
• Earnings Per Share (EPS): Shareholders saw a profit of $0.64 per share, a significant improvement from the $0.99 loss per share in 2025.
• Gross Profit: They generated $159.9 million in gross profit, up from $153.8 million the previous year. Their profit margin held steady at 20.2%.

3. Financial Health and the "Debt Squeeze"

MPA is managing a complex financial picture:

• Debt Load: They owe $94.7 million on their revolving credit facility, up from $90.8 million. This loan is secured by almost all of the company's assets.
• Convertible Notes: They have $39 million in related-party notes due in 2029. If these are converted into stock, the company will issue more shares, which reduces your ownership percentage.
• Costly Cash Flow: To get cash faster, MPA sells some of its customer invoices to banks at a discount. In 2026, they discounted $620.6 million in invoices, costing them $32 million in fees. This is an expensive way to bridge the gap between shipping parts and getting paid.
• Supplier Finance: A program where banks pay suppliers early grew to $42.1 million in 2026, up from $33.7 million in 2025. This lets MPA delay paying its own suppliers, using bank credit to manage cash.

4. Shareholder Returns & Leadership

• Buybacks: The company is actively buying back its own stock. In 2026, they reduced the total share count from 19.4 million to 18.9 million.
• Leadership Stability: The company has long-term employment agreements with leaders like CEO Selwyn Joffe. This suggests a consistent, long-term strategy, though it also means the company’s direction is heavily tied to one individual.

5. Major Wins and Risks

• The Win: Their "core exchange" system is environmentally friendly and lowers raw material costs. They also launched over 237 new part numbers, covering 54 million vehicles, which expands their market.
• The Customer Concentration Risk: This is a major vulnerability. In fiscal 2026, their three largest customers accounted for 85% of total sales. Because these are exclusive supply deals, MPA often grants price discounts or marketing support to keep these giants happy. Losing any one of these contracts would severely hurt the company.
• Audit Confirmation: For 2026, the company received an "unqualified opinion" from Ernst & Young, confirming that the financial records are accurate.

6. Future Outlook

Management is betting on the transition to electric vehicles by using their diagnostic tools to serve that market. While they returned to profit this year, their heavy reliance on a few customers, the high cost of their invoice-discounting programs, and their debt remain key areas for investors to watch.

Final Thought for Investors: MPA has successfully returned to profitability and is expanding its product catalog, which is a positive sign. However, before investing, consider whether you are comfortable with their high debt levels and the fact that 85% of their revenue comes from just three customers. If you are looking for a stable, low-risk investment, the customer concentration risk might be a dealbreaker; if you believe in their turnaround and growth strategy, the current valuation may be worth a closer look.