MPAA

Thank you for standing by, and welcome to the Motorcar Parts of America Inc. Fiscal 2026 Third Quarter Conference Call and webcast. [Operator Instructions] I'd now like to turn the call over to Gary Maier, Vice President, Corporate Communications and Investor Relations. You may begin.

Thank you, Rob. Thanks, everyone, for joining us for our call today for our Fiscal 2026 3rd quarter. Before I turn the call over to Selwyn Joffe, Chairman, President and Chief Executive Officer; and David Lee, the company's Chief Financial Officer, I'd like to 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 these 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 our various filings with the Securities and Exchange Commission. I would now like to turn the call over to Selwyn Joffe and to begin the call.

Okay. Thank you, Gary. I appreciate everyone joining us today. This is a day of contradictions for MPA, where our quarterly results were less than expected, but our outlook continues to gain favorable momentum. With the change in industry dynamics, especially related to the liquidation of the brake-related businesses of one of our competitors and the tailwinds of the growing age of our car population, we are well positioned. Results for the quarter were disappointing, particularly given our optimism in early November. As I noted at that time, one of our largest customers had reduced purchases. We believe that ordering activity from this large customer would resume faster. In fact, it did not. And as a result, we did not achieve our targets in the third quarter. We are pleased that we are now seeing a recovery with regard to this particular customer's ordering activity. Nevertheless, we are adjusting our year-end sales guidance for fiscal 2026 due to lower sales to this customer in the third quarter and a less-than-expected full recovery in the fourth quarter. Our outlook continues to be positive. We have secured numerous commitments for new business with many more pending, Specifically, we believe the gains in our braking business will result in overall increased margins due to operating efficiencies and the utilization of our facilities. We also expect to continue to generate positive cash flow on an annual basis and focus on deploying capital to maximize shareholder value, including share repurchases and debt reduction. I might add that the company has strong liquidity to take advantage of its opportunities. In short, the fundamentals of our business are strong. With regard to our [ EV emulator ] business, which is a highly regarded brand with proprietary technology and a long history of serving blue chip customers across the automotive, aerospace, electronics and research sectors, we are exploring strategic alternatives. We are focused and committed to being the leading supplier of nondiscretionary automotive aftermarket parts. We believe our financial strength and reputation across the retail and professional industry provide distinct competitive advantages. We offer a well-respected portfolio of products and services and have the capacity and ability to benefit from our state-of-the-art North American operational footprint. We are well positioned to enhance our leadership position. As I've highlighted before, the average age of U.S. light vehicles continues to rise. Most recent industry data shows that the average age has risen to 12.8 years from 12.5 years in 2024. In addition, the number of vehicles on the road climbed to 295.9 million, from $291.1 million a year ago. We expect increased replacement opportunities for the life of vehicles, particularly with customers holding on to their vehicles for longer. We continue to leverage our strengths, offering our customers great products, industry-leading SKU coverage and order fill rates, supported by value-added merchandising and marketing support. In short, we are all committed and focused on our customers, offering quality products and services with rational pricing. Our quality built brand name products are offered to the professional installer market through warehouse distributors and continue to gain name recognition and market share. With regard to our heavy-duty business, we continue to leverage our reputation and industry position in this market, focused on opportunities to further enhance operating efficiencies that enhance margins. We anticipate continued momentum, particularly with regard to supplying alternators and starters to our channel partners who are leaders in the heavy-duty aftermarket segment. We are becoming an increasingly important supplier to the [ heavy-duty rotating electrical ] market. We are experiencing increased demand for our aftermarket parts in Mexico which complements our existing strategic operational and distribution footprint there. As a point of reference, there are approximately 36 million vehicles in the Mexico market, up 2.8% from last year. with an average age of 16.2 years. As our [ Eurospace ] retailers and warehouse distributor customers expand throughout Latin and South America, we are well positioned to benefit while supporting their growth. With regard to our diagnostic business, our JBT-1 Bench Top Tester that leads the industry, and the installed base has continued to grow with additional service-related revenue related to software and database updates anticipated. We also expect more opportunities outside North America as the business evolves, including potential new applications that complement and leverage our technology. We believe the outlook is bright for nondiscretionary aftermarket parts, and we are focused on leveraging our capability and capacity to offer a broad range of SKUs, all makes and models with a newer or older vehicles. While the industry has experienced some recent headwinds due to consumers deferring certain repairs, deferment is not really a long-term option for our nondiscretionary products. If your car doesn't start or stuck, you're not driving. We believe we have meaningful opportunities for further growth as the competitive landscape changes. I would now like to turn the call over to David.

Thank you, Selwyn, and good morning, everyone. Let me begin by addressing the effect of the quarter on our fiscal 2026 year-end guidance. We now estimate sales for the fiscal year from the previously mentioned customer will be impacted by up to approximately $50 million through its disclosure of stores and consolidation of distribution centers. As a result, we are revising our fiscal '26 sales guidance down to between $750 million to $760 million. Operating income is expected to be between $72 million and $79 million, with depreciation and amortization of approximately $10 million and does not include certain noncash and onetime expenses. While we are disappointed in revising guidance down, this is primarily a result of the magnitude of this event involving this customer. I might add that orders from this customer are rebounding and we are optimistic about this customer's growth. Moving on, let me outline several topics I want to discuss. We will go over analytics for the fiscal third quarter, sales momentum and opportunities. Gross margin expansion, cash flow, balance sheet, liquidity and debt leverage, share repurchases and potential strategic alternatives for our [ EV emulated ] business. Let's start with analytics for the fiscal third quarter. Unfortunately, our fiscal third quarter included an unusual situation, as Selwyn noted, specifically the large sales decrease to one of our large customers. The reduced sales negatively impacted our gross margin and consequently our overall financial results. However, we believe this is temporary and sales activity is already beginning to regain momentum this current quarter, which is expected to also positively contribute to gross margin and results. Let's talk about sales momentum. From a sales perspective, as we regain sales momentum for this customer, combined with new business commitments that Selwyn referenced earlier as well as other meaningful opportunities we believe the company will benefit in several ways near term, including gross margin expansion, continued annual cash flow generation, net bank debt reduction and opportunities to increase shareholder value. In short, the fundamentals of our business are strong. Now let's talk about gross margin in more detail. Gross margin was 19.6% compared with 24.1% a year earlier. I might add that gross margin on a sequential basis increased to 19.6% for the quarter compared with 18.0% for the fiscal first quarter and 19.3% for the fiscal second quarter. For the fiscal third quarter, returns remained at historical levels, while sales temporarily decreased, which resulted in an increase of returns on a percentage basis of sales. Additionally, with lower sales volume, we experienced lower capacity absorption combined with product mix that impacted gross profit and gross margin. Gross margin is expected to continue to improve in the current fiscal fourth quarter on a sequential basis, benefiting from increased ordering activities from the large customer sales decrease we noted earlier. We remain focused on overall gross margin accretion, supported by strong momentum and greater utilization of brake-related capacity. We're also focused on positive impacts to overall gross margin from further improvements in operating efficiencies supported by benefiting from our tariff mitigation initiatives, better pricing for scrap sales as we gain more market share for our products, additional opportunities to relocate certain operations to our low-cost facilities globally, including Mexico and additional cost reductions. These initiatives are expected to positively impact overall gross margin. We are planning to provide guidance for next fiscal 2027 and during our fiscal year-end call in June. Regarding our cash flow, balance sheet and liquidity. For the 9-month period, the company generated cash of $23.7 million with net bank debt decreasing by $10.9 million to $70.5 million from $81.4 million. This net bank debt reduction was after share repurchases of $8.4 million. For the past 2 years through December 31, 2025, we have generated cash from operating activities of approximately $60 million or approximately $3.06 per share per outstanding share on average. And we reduced net bank debt by approximately $32.3 million. For the trailing 12 months ended December 31, '25, we have generated cash from operating activities of approximately $32.8 million. Our liquidity remains strong with total cash and availability of approximately $146 million as of December 31, 2025, enabling us to take advantage of the numerous opportunities that we have discussed. We remain focused on increasing operating profit and gross margin and generating positive cash flow supported by growth and operating efficiencies from our global footprint. In addition to our goal of generating increased operating profits, including benefits from our gross margin expansion initiatives previously explained, we expect further opportunities to neutralize working capital. Supported by customer product demand planning, enhanced inventory management and extending our vendor payment terms, including growing our supply chain finance program offered to our vendors. Regarding our debt leverage, based on information in our filings, EBITDA for the trailing 12 months ended December 31, 2025, was $68.1 million. EBITDA before the impact of noncash and onetime cash expenses was $84 million for the same period. To recap, our net bank debt was $70.5 million at December 31, 2025, and compared with EBITDA before the impact of noncash and onetime cash expenses mentioned above, of $84 million for the 12 months ended December 31, 2025. Resulting in a net bank debt-to-EBITDA ratio of [ 0.84 ]. As Selwyn stated earlier, we are also committed to further opportunities to enhance shareholder value, including share repurchases. For the 9-month period, the company repurchased 669,472 shares for $8.4 million at an average share price of $12.47. With regard to our [ EV emulator ] business, which is a noncore asset, we plan to explore strategic alternatives to capitalize on its proprietary industry-leading technology. Let me mention that for the 9 months ended December 31, 2025, we have invested in research and development for the state-of-the-art next-generation [indiscernible] emulator, which we believe will be a significant product for the EV market. For further details on the results, please refer to the earnings press release issued this morning. I would now like to open the line for questions.

[Operator Instructions] Your first question comes from the line of Brian Nagel from Oppenheimer.

So first I want to raise the topic want [indiscernible] with the sales disruption that came as a result of the buying patterns of the customer you're calling out. So completely announced I guess this is the second quarter we've seen this impact. You talked about rebound in purchasing I guess the question I want to ask is, how should we think about where we go from here? Was this a one-type reset? Or do you expect that purchasing from this customer will be more subdued going forward?

I think for the most part, it's onetime, but this customer did close down a number of stores, and so the number of stores you numerically represent a 15% reduction. And so our outlook is to assume a 15% reduction. However, we are optimistic that the changes and that this customer made will result in positive things happening to them. But for our outlook, we're remaining conservative and have pulled back our expectations by 15%.

Okay. Then someone, I guess, maybe you started to answer this question right, but as you look at just an overall healthy sector, right, healthy demand trends out there. With this customer having closed stores, presumably there's been some market share shift. Does that give you an opportunity then to cater better to the stores that are now taking up the market share where these competitive stores were closed?

No question. We have our relative share in that market and there's no question that we will see getting fair share there as well. . So I'm not sure where it goes, but we're across the board with coverage on market share in those marketplaces.

Your next question comes from the line of Derek Soderberg from Cantor Fitzgerald.

So David, just looking at the implied guidance, it looks like for 4Q on an operating income basis, seems like we're stepping up a bit here. And just kind of wondering if you can walk us through how to get to some of that math. Gross margins, it feels like are going to step up a little bit sequentially, just assuming some of the G&A and sales and marketing is going to be flattish. I guess I'm curious if anything is going to be happening in the FX impact bucket for OpEx I'm just trying to see if you can guys can break down some of the OpEx numbers for 4Q. Help us better understand that.

Good question. So we do expect gross margins in the fourth quarter to increase sequentially compared to the third quarter. And we're also looking at reductions in total operating expenses, all those metrics and cost reductions will help us get into the guidance range.

Got it. And then anything with the currency? I know the peso has been strengthening against the dollar. Anything sort of unusual that maybe you guys are seeing happening in 4Q that we should be aware of or might potentially be an impact to 4Q numbers?

The 4Q as the peso gets strong, it will have an impact on our noncash impact of lease liabilities. So we break that out on a separate line item and it's noncash. So it will have an impact there. .

Got it. Got it. And then, Selwyn, there was a part in the press release on nonstrategic assets. I was wondering if you could talk a bit about what sort of assets maybe plan on doing a divestiture or kind of stepping away from some of these nonstrategic aspects of the business. I was wondering if you wanted to provide any detail on that?

Yes, I'm happy to do that. We have an [ electric vehicle emulation ] business, which syncs in with simulation, emulation and testing of the electronic drivetrain and it's state-of-the-art technology, which I think David mentioned, we've continued -- we're actually launching, as we speak, a new generation of that, which even makes it more unique. But the challenge for us is that, that distribution channel is on the OE side of the business. And we focus really on OES, regional equipment service to the aftermarket. So we don't really -- that's not really where we deal and so I think that strategically, there may be some better opportunities for that business in the right distribution patch. It's an outstanding product, very unique product and an exciting product, but just doesn't fit with our continued focus on the aftermarket.

And there are no further questions at this time. I will now turn the call back over to Selwyn Joffe for closing remarks.

Okay. Thank you very much, and I appreciate the questions. Just would say in summary, we are very bullish about our outlook, notwithstanding this temporary headwind, which we experienced in the quarter. We remain laser-focused on further efficiencies and fully benefiting from a not easily duplicated global platform. to meet demand and grow market share for our nondiscretionary products as well as for our exciting diagnostic testing business. Our liquidity is strong. Our leverage is low, and we have the resources, capacity and capability to further enhance shareholder value. Let me reiterate a few key strategic initiatives: growing sales of our existing product lines. continuous operational efficiency improvements to further enhance margins mitigating tariffs and increasing cash conversion by increased profitability and neutralizing working capital. In closing, we appreciate the contributions of all of 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 2026 year-end results in June and at various investor conferences and meetings in the interim. Thank you so much.

This concludes today's conference call. You may now disconnect.

Thank you for standing by. My name is Eric, 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 2026 Second Quarter Conference Call. [Operator Instructions] And I'd now like to turn the call over to Gary Maier, Vice President, Corporate Communications and Investor Relations. Please go ahead.

Thank you, Eric, and thanks, everyone, for joining us for our fiscal second quarter call. Before I turn the call over to Selwyn Joffe, Chairman, President and Chief Executive Officer; and David Lee, the company's Chief Financial Officer, I'd like to 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 the company. 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 filings with the SEC. With that, I'd like to begin the call and turn the call over to Selwyn.

Thank you, Gary. I appreciate everyone joining us today. We have experienced strong consecutive quarters, and I want to highlight our first half performance, and David will discuss both the quarter and 6-month period in more detail as well as trailing 12-month metrics. For the first half, we reported continued sales growth of $31.8 million or 8.4%, gross profit improvement of $6.2 million or 8.8%, strong operating cash flow of $31.9 million and net bank debt reduction of $24.6 million as well as share repurchases of 287,910 shares for $3.4 million at an average share price of $11.65. This reflects well on our annual guidance and the future. We continue to focus on opportunities to further enhance shareholder value. We remain focused and committed to being the leading supplier of nondiscretionary automotive aftermarket parts. Our team is focused on continuous improvement and success. We are excited by the opportunities for growth moving forward, particularly given the rapidly changing industry environment. Equally important, we believe our financial strength and flexibility provide a distinct competitive advantage. As you know, we offer a well-respected portfolio of products and services and have the capacity and ability to benefit from our state-of-the-art North American operational footprint. In short, we are well positioned to be the industry leader. As I've highlighted before, the average age of U.S. light vehicles has risen to 12.8 years from 12.6 years in 2024. In addition, the number of vehicles on the road climbed to 293.5 million from 289 million a year ago. We expect increased replacement opportunities for the life of vehicles, particularly with consumers holding on to their cars for longer and new car prices recently reaching all-time highs. We are encouraged by the continued success of our second largest product category, brake offerings, which includes brake calipers manufactured at our production operation in Mexico. Our team is doing an exceptional job to further gain market share for the entire brake product line as well as of our other nondiscretionary product offerings. We continue to leverage our strengths, offering our customers great products, industry-leading SKU coverage and order fill rates, supported by value-added merchandising and marketing support. In short, we are all committed and focused on our customers, offering quality products and services with rational pricing. Our quality-built brand name products are offered to the professional installer market through warehouse distributors and continue to gain market share. As production volume increases for certain newer hard part products such as brake-related offerings, we expect enhanced operating efficiency and overall margin improvement. With regard to our heavy-duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supplying alternatives and starters to our channel partners who are leaders in the heavy-duty aftermarket segment. Our growth opportunities continue to gain momentum. We are becoming an increasingly important supplier to the heavy-duty rotating electric market with opportunities to expand our Quality-Built brand name. We are experiencing increased demand for our aftermarket products in Mexico, which complements our existing strategic operational and distribution footprint there. As our U.S.-based retailers and warehouse distributor customers expand throughout Latin and South America, we are well positioned to benefit while supporting their growth. With regard to our Diagnostic business, our JBT-1 Bench Top Tester leads the industry and the installed base is continuing to grow with additional service-related revenue related to software and database updates anticipated. We also expect more opportunities outside North America as the business evolves, including potential new applications that complement and leverage our technology. We remain focused on benefiting from cost reduction initiatives to enhance margins, including strategic supply chain sourcing changes and capitalizing on our North American footprint. As I mentioned, we believe the outlook is bright for nondiscretionary aftermarket parts for the internal combustion engine market, and we are focused on leveraging our capability and capacity to offer a broad range of SKUs for all makes and models with the newer or older vehicles. While the industry has expressed some recent headwinds due to consumers deferring certain repairs as well as the impact of the recent government shutdown, deferment is not really a long-term option for our nondiscretionary products. If your car doesn't start or stop, you're not driving. We believe that there are meaningful opportunities for further growth as the competitive landscape changes. Before I turn the call over to David to review our results in details, let me summarize. From a sales perspective, we expect continued organic growth for our business, supported by favorable long-term industry tailwinds and our strong financial position. Our commercial heavy-duty market continues to grow. Our brake-related business is gaining further traction, particularly brake calipers. In addition, our sales in the Mexico market are growing nicely, and we expect this momentum will continue and expand throughout the region. Finally, our diagnostic business continues to grow nicely, and we look forward to ongoing success. I should mention that net sales for the quarter reflected 2 unusual events that offset each other. First, we reduced our customer core returns accrual in connection with the realignment of inventory at certain customer distribution centers, which resulted in a onetime gain for the quarter. This onetime revenue recognition of $14.8 million nominally contributed $643,000 to profitability, reduced gross margin by 1.1% and was completely neutral to cash flow. In simple terms, we lost some business and picked up some other business. Second, one of our largest customers delayed purchases in an amount that offset the core revenue. This delay is temporary, and we anticipate it will result in increased orders during the second half of the year. I want to emphasize that we are excited by our progress and future opportunities and that we are confirming our guidance for fiscal 2026. This onetime core revenue is not included in our revenue guidance. As referenced in the exhibits to our earnings release, there are various factors relating to our financial performance that are noncash and beyond our control, particularly noncash mark-to-market foreign exchange, which can have a positive or negative impact on our Mexican lease liabilities and forward contracts that we purchase. We are focused on opportunities to minimize noncash expenses such as gains or losses related to foreign exchange, including funding our Mexican operations with pesos from our sales in Mexico. As our sales in Mexico continue to grow, we have reduced our purchases of forward peso contracts. We expect over time, we will eliminate the need to purchase these contracts. I would now like to turn the call over to David.

Thank you, Selwyn, and good morning, everyone. Let me summarize key financial performance metrics for the fiscal '26 second quarter that we highlighted in this morning's news release and additional information will be available in the 10-Q that will be filed later today. Net sales increased 6.4% to $221.5 million. Gross profit increased 3.5% to a second quarter record of $42.7 million, generated $21.9 million of cash from operating activities and reduced net bank debt by $17.7 million to $56.7 million, repurchased 90,114 shares for $1.4 million at an average price of $15.41. Now let me discuss our results in more detail. Net sales for the fiscal '26 second quarter increased $13.3 million or 6.4% to $221.5 million from $208.2 million in the prior year. Net sales for the quarter reflect $14.8 million of core revenue in connection with the realignment of inventory at certain customer distribution centers, offset by the timing of purchases by one of our largest customers, as Selwyn mentioned previously. Gross profit for the fiscal '26 second quarter increased 3.5% to a second quarter record of $42.7 million from $41.3 million a year earlier. I should mention that gross profit for the quarter was also impacted by noncash expenses. The noncash expenses reflect core and finished goods premium amortization and revaluation of cores on customer shelves, which are unique to certain of our products and required by GAAP. The total for all noncash expenses in the quarter was approximately $3.6 million or a 3% impact to gross margin as detailed in Exhibit 3 in this morning's press release. Gross margin for the fiscal '26 second quarter was 19.3% compared with 19.8% a year earlier. In addition to the noncash expenses previously explained, gross margin for the fiscal '26 second quarter was also impacted by onetime cash expenses of $698,000 or a 0.3% impact to gross margin as detailed in Exhibit 3 of this morning's earnings press release. I should note, excluding the noncash expenses and onetime cash expenses, gross margin on an adjusted basis increased slightly as detailed in Exhibit 3. Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs, we remain focused on other initiatives to enhance gross margins. Operating expenses were $26.4 million for the fiscal '26 second quarter compared with $28.8 million last year, which benefited from a $1.5 million noncash mark-to-market foreign exchange gain compared with a $5.4 million noncash mark-to-market foreign exchange loss in the prior year. The remaining increase includes increased general and administrative expenses at our offshore locations, increased commissions and increased research and development expenses. Operating income for the fiscal '26 second quarter increased 30.8% to $16.4 million from $12.5 million in the prior year. Interest expense for the fiscal second quarter decreased by $1.5 million to $12.7 million from $14.2 million a year ago, reflecting lower average outstanding balances under the company's credit facility and lower interest rates compared with a year ago. For the second quarter, income tax expense was $3.6 million compared with $912,000 for the prior year. The effective tax rate for the fiscal '26 second quarter reflects in part the inability to recognize the benefit of losses at certain 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 loss for the fiscal '26 second quarter was $2.1 million or $0.11 per share compared with a net loss of $3 million or $0.15 per share for the prior year. Net loss was impacted by noncash expenses of $4.8 million or $0.25 per share and was impacted by onetime cash expenses of $523,000 or $0.03 per share as detailed in Exhibit 1. As previously explained, higher sales volumes and operating efficiencies will further improve results. EBITDA for the fiscal second quarter was $16.5 million, reflecting $6.3 million of noncash expenses and $698,000 of onetime cash expenses detailed in Exhibit 5 of this morning's earnings press release. EBITDA before the impact of noncash expenses and onetime cash expenses mentioned above was $23.5 million for the second quarter. Now let me discuss the 6-month results. Net sales for the fiscal '26 6-month period increased $31.8 million or 8.4% to a record $409.8 million from $378.1 million. Net sales for the 6-month period reflects $14.8 million of core revenue in connection with the realignment of inventory at certain customer distribution centers, offset by the timing of purchases by one of our largest customers. Gross profit for the fiscal '26 6-month period increased to a record $76.6 million from $70.5 million a year earlier. Gross margin for the fiscal '26 6-month period was 18.7% compared with 18.6% a year earlier. Gross margin for the fiscal '26 6-month period was impacted by $7.4 million or 2.5% of noncash expenses and $2.1 million or 0.5% of onetime cash expenses as detailed in Exhibit 4. Net income for the fiscal '26 6-month period was $893,000 or $0.04 per diluted share, impacted by noncash expenses of $3.5 million or $0.17 per diluted share and onetime cash expenses of $1.6 million or $0.08 per diluted share compared with a net loss of $21 million or $1.07 per share a year ago, impacted by various items detailed in Exhibit 2 in this morning's earnings press release. EBITDA for the fiscal '26 6-month period was $37.2 million. EBITDA was impacted by $4.6 million of noncash expenses as well as $2.1 million in onetime cash expenses detailed in Exhibit 5 of this morning's earnings press release. EBITDA before the impact of noncash and onetime cash expenses mentioned above was $43.9 million for the current period. Now let me move on to cash flow and key corporate items. The company generated cash of $21.9 million in operating activities during the fiscal '26 second quarter and generated $31.9 million in operating activities for the fiscal '26 6-month period compared with $2 million for the prior year fiscal '25 6-month period. We remain focused on increasing operating profit and gross margin and generating positive cash flow, supported by growth and operating efficiencies from our global footprint expansion. In addition to our goal of generating increased operating profits, we expect further opportunities to neutralizing working capital, supported by customer product demand planning, enhanced inventory management and expanding our vendor payment terms. Net bank debt decreased by $17.7 million during the fiscal '26 second quarter to $56.7 million from $74.4 million and decreased $24.6 million during the fiscal '26 6-month period to $56.7 million from $81.4 million. As explained previously, EBITDA before the impact of noncash and onetime cash expenses mentioned above was $43.9 million for the 6 months ended September 30, 2025. Based on information provided above and in our previous filings, EBITDA for the 12 months ended September 30, 2025, was $73.9 million. EBITDA before the impact of noncash and onetime cash expenses was $95.5 million for the same period. To recap, our net bank debt was $56.7 million at September 30, 2025, compared with EBITDA before the impact of noncash and onetime cash expenses mentioned above of $95.5 million for the 12 months ended September 30, 2025. For the past 2 years through September 30, 2025, we have generated cash from operating activities of approximately $122 million or approximately $6.21 per outstanding share on average, and we reduced net bank debt by approximately $98 million. For the 12 months ended September 30, 2025, we have generated cash from operating activities of approximately $75 million. Our liquidity remains very strong with total cash and availability of approximately $161 million. During the fiscal '26 second quarter, the company repurchased 90,114 shares for $1.4 million at an average price of $15.41 under its current authorization program, supported by solid cash generation from operating activities. For the 6-month period, the company repurchased 287,910 shares for $3.4 million at an average share price of $11.65. For further explanation on the reconciliation of items that impacted results and non-GAAP financial measures, please refer to Exhibits 1 through 5 in this morning's earnings press release. I would now like to open the line for questions.

[Operator Instructions] Your first question comes from the line of Brian Nagel with Oppenheimer.

So a couple of questions. First off, Selwyn, you mentioned in your comments just on the effects of deferral. This has been a topic that we've heard from a number of companies within your space later. So I guess the question I have is if you could expand a little bit. I mean recognizing like you said in your comments, I mean, this is a break-fix type industry. So any type of deferral will be short-lived. But I guess the question I have is, what are you seeing? Is there -- was there a measurable impact on the quarter from the deferral.

Yes. There's some -- okay, great. Yes. So the questions are regarding the deferral. I think it's -- there's a customer that has gone through some operational changes, in particular, relating to their warehousing and as a result of that, we've had some purchases deferred for the quarter. We believe that customer is committed to continuing inventory levels and don't believe that there is any fundamental difference to that. And so the -- we mentioned the $14 million of core revenue was offset by a reduction of about the same amount by that deferral. And we expect that we'll pick up that deferral in the back 6 months of that year. So I think the net wash -- I mean, all in all, the numbers would have been better had we not had the deferral. But excluding the revenue that -- from the core revenue, I mean, it still meets all of our annual guidance expectations. And quite frankly, we're excited about the performance of the company right now with significant cash flow generation, debt payback, cash flows basically coming from profitability and working capital, excluding the calls. And the fundamental outlook for our business, while there are some changes in the revenue, that's not abnormal for us, we expect that we will continue to maintain our momentum.

That's helpful. And then I guess the second question -- so that was -- the second question I have is just on consumer behavior. And I think you mentioned -- maybe we're probably -- I think we're using the term deferral twice. I mean that's in terms of specific customer of yours. But then also, if I heard you correctly, you were talking about at the consumer lever -- I'm sorry, at the consumer level, you're seeing some type of maybe demand deferral as consumers are pushing off projects longer. I just want to make sure I heard that correctly because that's something I think we've heard elsewhere.

Yes, yes. I think anywhere with this discretion, Brian, there seems to be some deferral and some uncertainty. But for the majority of our products, for all of our products, they're nondiscretionary. The vehicle will not operate without replacing them. It is -- you are capable of deferring -- replacing your brakes for a little bit, but not too long. I mean you've got to get the job done. So I think with our product lineup, the deferral -- that deferral is different than the onetime deferral on some restructuring of warehousing. But that deferral, I think, is more nominal on us than others.

Your next question comes from the line of Derek Soderberg with Cantor Fitzgerald.

Can you talk about just market share trending? Any trends in market share for your core as well as braking business? And then additionally, there's been some news flow regarding the First Brands situation. Wondering if you could talk about whether or not there are any sort of knock-on effects from what's going on there? And then I've got a follow-up.

Yes. I think market share for us, I mean, it fluctuates a little bit, but I don't see any major material changes in market share right now. I think if we look at the momentum of our business, our brake-related products are certainly the ones that are picking up momentum faster than others. Relative to First Brands, difficult for me to comment. I mean it's sad that something like that is cast a veil over our industry. Having said that, I think for customers that are reliable, have integrity, have great -- good products and I mean, I think there's going to be lots of opportunities. So I mean -- but really much more than that, I couldn't comment.

Got it. And then as my follow-up, I wanted to touch on cash flow. Really good generation here. It looks like trailing 12 months free cash flow is around $70 million, something like that. And you guys have been buying back shares. Can you talk about how you plan on utilizing further cash flow? Wondering if the repurchases will continue? And then just looking at debt levels, how comfortable are you with where it's at? Do you plan on continuing to reduce debt as well?

Yes. I think, look, in light of what's happened to the stock today, I mean, certainly, I think really to the extent we have liquidity to the extent that we think that there's an undervaluation. I mean, I think that we'll continue to buy back stock. I mean we do have an authorization out there to repurchase stock. So we'll have to look at that and continue, as far as the debt levels, I mean, our debt levels are very low. I think it continue -- will continue to get lower. Right now, we think that having liquidity is going to leave us in a good stead to be able to take advantage of numerous opportunities that will be unfolding in the marketplace. And so we're excited about that. I think we're sitting in a good position and having lots of liquidity will be helpful.

There are no further questions at this time. I would now like to turn the call over to Selwyn Joffe for closing remarks. Please go ahead.

Thank you. In summary, I mean, we continue to be bullish about our outlook. We remain laser-focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet demand and grow market share for our nondiscretionary products as well as for our diagnostic testing business. We continue to leverage our expertise and solid customer and supply partnerships. Our liquidity is strong. Our leverage is low, and we have the resources, capacity and capability to further enhance shareholder value. Let me reiterate our strategic focus, growing sales of our existing product lines, continuous operational efficiency improvements to further enhance margins, and we are making great progress there, mitigating tariffs and increasing cash conversion by increased profitability and neutralization of working capital. In closing, we appreciate 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 2026 third quarter conference call in February and at various investor conferences and meetings. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.