Exchange: NASDAQ | Sector: Consumer Cyclical | Industry: Auto Parts
Q1 2025
Published: Aug 8, 2024
Earnings Highlights
Revenue of $169.89M up 6.4% year-over-year
EPS of $-0.92 decreased by 1% from previous year
Gross margin of 17.2%
Net income of -18.09M
"We were encouraged by our record sales performance for the quarter and remain optimistic about the quarters ahead and achieving our full-year targets." - Selwyn Joffe
Motorcar Parts of America Inc (MPAA) QQ1 2025 Results: FX Headwinds, Margin Recovery Initiatives, and Accelerating Growth Opportunities
Executive Summary
Motorcar Parts of America Inc. (MPAA) reported QQ1 2025 net sales of $169.9 million, up 6.4% year over year, driven by copper of growth in rotating electrical and brake product lines and ongoing global footprint expansion. Gross profit rose 9.8% to $29.2 million with a 17.2% gross margin, modestly higher than the prior year’s 16.6%. However, the quarter was heavily burdened by non-cash items including a $11.1 million foreign exchange loss tied to lease liabilities and forward contracts, and a $2.9 million severance expense related to strategic cost reductions. As a result, operating income was negative at $(6.46) million and net income declined to $(18.1) million, or $(0.92) per share, versus a year-ago loss of $(1.4) million and $(0.07) per share. EBITDA, excluding the aforementioned non-cash and cash items, was positive at $14.4 million, illustrating the ongoing profitability potential once non-operational headwinds subside. Management underscored a multi-year cost-reduction program expecting approximately $7 million in annualized savings, with roughly 90% impacting cost of goods sold. They also highlighted ongoing growth catalysts including: (i) brake program volume acceleration and better inventory turns, (ii) rapid new part-number introductions (targeting at least 800 per year), (iii) expansion of Diagnostic equipment and services, (iv) a Malaysia wheel hub manufacturing facility opened in 2024 to bolster competitiveness, and (v) strong cross-border expansion in Hard Parts within Mexico. For the full year, management guided to $746–$766 million in sales, implying mid-single-digit growth, with operating income before non-cash and one-time severance expected in the $90–$95 million range, representing margin expansion as volumes and price increases drive accretion. The company also maintained a substantial liquidity position (~$90 million available) and a debt-heavy balance sheet with net debt around $248 million. Investors should weigh the near-term FX and integration costs against a multi-pillar growth thesis centered on brake, diagnostics, and cross-border expansion in Mexico, with a path to cash flow generation and debt reduction through improved working capital and operating efficiencies.
Key Performance Indicators
Revenue
169.89M
QoQ: -10.34% | YoY:6.38%
Gross Profit
29.17M
17.17% margin
QoQ: -17.88% | YoY:9.81%
Operating Income
-6.46M
QoQ: -151.09% | YoY:-161.83%
Net Income
-18.09M
QoQ: -1 451.64% | YoY:-1 182.62%
EPS
-0.92
QoQ: -1 452.94% | YoY:-1 172.48%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $169.887 million in Q1 2025, up 6.4% YoY from $159.7 million in Q1 2024; QoQ declined by 10.34% from the prior quarter (Q4 2024: $189.478 million).
Gross Profit: $29.174 million, up 9.8% YoY; gross margin 17.17% vs 16.6% prior year, reflecting mix benefits and ongoing price increases offset by higher returns in the quarter.
Operating Income: $(6.456) million, vs prior year period; operating margin of -3.80% (YoY and QoQ significant deterioration due to FX and cost actions, see commentary below).
Net Income and EPS: Net loss $(18.085) million or $(0.92) per share (diluted) in Q1 2025; YoY and QoQ declines reflect non-cash FX losses and one-time severance costs.
EBITDA: $(1.147) million reported; EBITDA before non-cash and cash items was $14.4 million in the quarter, illustrating the impact of non-cash foreign exchange adjustments and severance on reported EBITDA.
Financial Highlights
Revenue and profitability metrics:
- Revenue: $169.887 million in Q1 2025, up 6.4% YoY from $159.7 million in Q1 2024; QoQ declined by 10.34% from the prior quarter (Q4 2024: $189.478 million).
- Gross Profit: $29.174 million, up 9.8% YoY; gross margin 17.17% vs 16.6% prior year, reflecting mix benefits and ongoing price increases offset by higher returns in the quarter.
- Operating Income: $(6.456) million, vs prior year period; operating margin of -3.80% (YoY and QoQ significant deterioration due to FX and cost actions, see commentary below).
- Net Income and EPS: Net loss $(18.085) million or $(0.92) per share (diluted) in Q1 2025; YoY and QoQ declines reflect non-cash FX losses and one-time severance costs.
- EBITDA: $(1.147) million reported; EBITDA before non-cash and cash items was $14.4 million in the quarter, illustrating the impact of non-cash foreign exchange adjustments and severance on reported EBITDA.
- Cash flow and liquidity: Net cash provided by operating activities $(20.841) million; free cash flow $(21.331) million; cash and cash equivalents at period end $7.531 million; total liquidity around $90 million. Net bank debt stood at $136.3 million at quarter end, with total debt $255.6 million and cash and short-term investments of $9.418 million.
- Balance sheet health: Total assets $977.955 million; total liabilities $710.786 million; stockholders’ equity $267.169 million; current ratio 1.38x; debt ratio 0.261x; tangible leverage still elevated given employed working capital investments and FX headwinds.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
169.89M
6.38%
-10.34%
Gross Profit
29.17M
9.81%
-17.88%
Operating Income
-6.46M
-161.83%
-151.09%
Net Income
-18.09M
-1 182.62%
-1 451.64%
EPS
-0.92
-1 172.48%
-1 452.94%
Key Financial Ratios
currentRatio
1.38
grossProfitMargin
17.2%
operatingProfitMargin
-3.8%
netProfitMargin
-10.6%
returnOnAssets
-1.85%
returnOnEquity
-6.77%
debtEquityRatio
0.96
operatingCashFlowPerShare
$-1.06
freeCashFlowPerShare
$-1.08
priceToBookRatio
0.45
priceEarningsRatio
-1.67
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management commentary highlights by theme:
- Performance and outlook: Selwyn Joffe emphasized record quarterly sales and optimism for achieving full-year targets, noting that gross profit and gross margins improved and that FX and onetime severances weighed on results but should abate with ongoing cost initiatives. He stated, We were encouraged by our record sales performance for the quarter and remain optimistic about the quarters ahead and achieving our full-year targets. He also highlighted a favorable second quarter trend after a choppy first quarter, with a strong July.
- Margin and efficiency initiatives: The executives cited margin accretion from higher volumes, price increases, and cost-cutting measures, including a multiyear relocation to a lower-cost footprint and a targeted annualized savings of about $7 million, 90% of which reduces COGS.
- Operational levers: The company is accelerating brake-related product sales, improving inventory turns, and leveraging a global footprint to neutralize working capital. They also discussed inventory and accounts payable initiatives and a Supply Chain Finance program to bolster liquidity.
- Growth platforms: The team underscored strong momentum in Brake Caliper and other brake categories, expanding wheel hubs manufacturing in Malaysia, continued Hard Parts growth in Mexico, and expanding diagnostic capabilities with potential high-margin service revenues and international opportunities.
- Market dynamics: Selwyn noted near-term choppiness in the industry, with June regaining momentum, and highlighted that non-discretionary aftermarket parts will remain a steady demand driver given vehicle age (average 12.8 years) and a high US share of hybrids and IC vehicles.
We were encouraged by our record sales performance for the quarter and remain optimistic about the quarters ahead and achieving our full-year targets.
— Selwyn Joffe
Net sales increased 6.4% to a first quarter record, $169.9 million.
— David Lee
Forward Guidance
Management provided explicit 2025 guidance:
- Net sales target: $746 million to $766 million for fiscal year 2025, implying growth of approximately 3.9% to 6.6% year over year.
- Operating income before non-cash and one-time severance: $90 million to $95 million; depreciation and amortization around $11 million; other non-cash items around $17 million (core/finished good amortization and share-based compensation).
- EBITDA and margins: The company expects margin accretion from higher volumes, price increases, and cost-cutting initiatives; EBITDA in the core business (before non-cash and cash items) is anticipated to improve as operating leverage and efficiency gains compound.
- Cash flow: Positive cash flow for the full fiscal year is anticipated, supported by organic growth and working-capital initiatives, including extended supplier terms and inventory optimization.
Assessment: The guidance hinges on successful execution of the Brake program ramp, Diagnostics adoption, and the Mexico expansion, along with stabilization of FX headwinds and raw-material costs. Investors should monitor: (i) the pace of brake and diagnostic product ramp, (ii) realized benefits from working-capital optimization programs (AP/payables and inventory), (iii) currency dynamics (foreign exchange exposure and hedging effectiveness), and (iv) evolving automotive end-market demand in the US and Mexico.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MPAA Focus
17.17%
-3.80%
-6.77%
-1.67%
MNRO
37.20%
4.52%
0.90%
30.44%
SMP
27.00%
4.41%
1.38%
20.74%
SRI
20.00%
-0.14%
-2.21%
-20.42%
PLOW
19.80%
-6.71%
-3.85%
-16.74%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Longer-term, MPAA presents a multi-channel growth story anchored by non-discretionary replacement parts, a leading brake platform, and scalable Diagnostics and Heavy-Duty offerings. The QQ1 2025 results reflect meaningful one-time and FX headwinds that obscured the underlying operating leverage from higher volumes and cost-reduction initiatives. The company’s guidance for mid-single-digit top-line growth and margin accretion as volume and efficiency gains materialize supports a constructive medium-term view, provided management can sustain the cost-reduction trajectory and successfully execute the brake-diagnostic-Mexico expansion playbook. Key catalysts include (1) stabilization and potential reversal of FX headwinds, (2) accelerated ramp of Brake and Diagnostics programs, (3) realization of working-capital improvements, and (4) execution of the Malaysia and Mexico expansion plans. Investors should monitor cash flow realization, gross margin progression through mix and returns normalization, and the pace of debt reduction as positive cash flow emerges.
Key Investment Factors
Growth Potential
Multi-year growth runway across brake components, hard parts, and Diagnostics. Expect at least 800 new part numbers per year to sustain leadership in non-discretionary replacement parts. The Mexico opportunity is highlighted as north of a $100 million revenue potential with expanding retail channel penetration and manufacturing footprint in the region. The Diagnostics business is positioned to generate >$100 million of equipment sales over three years with additional service revenue as testers roll out.
Profitability Risk
Significant non-cash FX losses from lease liabilities and forward contracts (material in QQ1 2025), high leverage with net debt ≈ $248 million, and substantial exposure to cyclical aftermarket demand. Returns were higher than normal in 1Q, pressuring margins. Industry choppiness and macro headwinds could delay ramp and cross-sell opportunities. EV adoption and potential shifts in the engine mix may alter long-term demand in the diagnostics and non-electrical parts segments. The rate of growth in Mexico and abroad depends on macro conditions and competitive dynamics from regional players.
Financial Position
Liquidity remains robust with >$90 million available; balance sheet shows total assets of ~$978 million and substantial liabilities (~$711 million), with stockholders’ equity of ~$267 million. Leverage metrics are elevated (debt-to-capitalization around 0.489, debt-to-equity near 0.96), reflecting ongoing capital investments and working-capital needs to support growth. Management aims to neutralize working capital and pay down debt through cash flow improvements and efficiency programs.
SWOT Analysis
Strengths
Diversified product portfolio across rotating electrical, brakes, hard parts, and Diagnostics with broad SKU coverage.
Leading brake caliper position and expanding brake product lines enabling margin accretion through scale and efficiency gains.
Strategic global footprint (Malaysia manufacturing, global services) enabling cost efficiencies and competitive advantage.
Strong liquidity cushion (~$90 million available) and a targeted working-capital optimization program (AP terms, inventory management, SCF program).
Emerging growth platforms (Mexico Hard Parts, Diagnostics expansion) supported by new-part-number cadence (800 per year) and higher install-base penetration.
Weaknesses
Significant near-term profitability headwinds due to non-cash FX losses and one-time severance costs.
High leverage with substantial net debt and a negative near-term EBITDA under reported items.
Returns volatility and higher-than-normal returns impacting gross margin in QQ1 2025.
Reliance on timing of new program ramp and cross-border expansion to realize projected margin accretion.
Opportunities
Mexico market opportunity anticipated to exceed $100 million; expanding U.S. retailer partnerships into Mexico with direct-shipment capabilities.
Diagnostics business adoption by major chains; potential to generate high-margin service revenues as testers deploy.
Brake and wheel hub manufacturing expansion lowers landed costs and improves inventory turns.
Supply Chain Finance program driving supplier liquidity and improved working capital dynamics.
Threats
FX volatility and mark-to-market losses remain a material near-term risk to earnings.
Macro consumer demand weakness and deferral of non-discretionary repairs could pressure volumes.
Industry competition and potential shifts toward hybrid/ICE vs. EV powertrains affecting diagnostic and testing demand.
Significant debt burden vs. cash generation potential may constrain strategic flexibility if market conditions deteriorate.
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