CarParts.com, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Hello, everyone, thank you for joining us for the CarParts.com second quarter 2026 conference call.

Joining me today, David Meniane, Chief Executive Officer. Before I turn over to David, I have some important disclosures. Our remarks on this call could contain certain forward-looking statements related to our company and our strategic initiatives under the federal securities laws. Actual results may differ materially, and those contained herein are implied by the forward-looking statements due to various risks and uncertainties. For a discussion of the material risks and other important factors that could affect results, please refer to the CarParts.com annual report on Form 10-K and the quarterly reports on Form 10-Q, each as filed with the SEC, all of which can be found on our investor relations website. On the call, both GAAP and non-GAAP financial measures will be discussed.

A reconciliation of GAAP to non-GAAP financial measures is provided in the press release that we issued today. With that, I'd like to turn the call over to David.

In the second quarter of 2026, we delivered our highest adjusted EBITDA since the third quarter of 2023. Adjusted EBITDA was $1.8 million, an improvement of $4.9 million from the same quarter last year. This is our sixth quarter in a row of improvements in the metrics that matter the most: efficiently acquiring customers, improving operational execution, and maintaining disciplined cost control. These gains are not the result of simply spending less. They reflect a structurally stronger business built on better merchandising, broader assortment, more effective marketing, and an increasingly efficient digital platform. A year ago, Q2 2025 adjusted EBITDA was negative $3.1 million. Our significant improvement goes back to a decision we made about 18 months ago. Rebuild this business around profitability. Every quarter since, we have moved further in that direction.

This quarter is a milestone, the strongest evidence yet that the rebuild is producing real earnings power, not a single good quarter. It came in a quarter that experienced meaningful headwinds in the overall health of our customers as well as business environment. A reminder on how we manage this business. We manage the contribution margin dollars and profitability, not reported gross margin percentage. Our mix is shifting toward dropship through our partnership with A-Premium and our upcoming J.C. Whitney launches, that shift will keep moving our gross margin percentage in ways that say little about the underlying economics. Under our stock ship model, fulfillment costs sit in operating expenses. Under dropship, they do not. The gross margin percentage is lower, but there's no fulfillment expense behind it. The net effect can be a lower gross margin and a higher net margin.

We also continue to thoughtfully build CarParts.com as two sides of one business. A digital layer, our website, our mobile app, our search, our catalog, our marketing, and the physical layer of global supply chain, distribution network, fulfillment infrastructure, inventory, and last-mile capability. Most people see the e-commerce and digital side. We see both. The advantage is not simply having both layers. It is how effectively we connect it through data, AI, and customer ownership. One quick corporate note before I get into the trajectory. During the quarter, we completed a reverse stock split and regained compliance with Nasdaq's minimum bid price requirement. Mark will cover the mechanics. It is housekeeping, not operating, but it removes the distraction and the focus stays where it belongs. Turning to the trajectory. Q1 2026 crossed into positive adjusted EBITDA for the first time since Q1 2024.

Q2 built directly on that with sequential improvement in gross margin, fixed operating expenses, and adjusted EBITDA, all in the same quarter. Each quarter, we said the model was working. Six quarters in, the pattern is the story. This continues to be an execution story. The restructuring is behind us. What you're seeing is the output of a leaner organization operating against a disciplined plan, we still have more leverage to pull. On our A-Premium partnership, the annualized gross revenue run rate is now approaching the $50 million mark we have been discussing with investors for the past two quarters. We continue to see a longer-term path that we believe will eventually exceed $100 million. All that at attractive contribution margin and without the working capital burden of owned mechanical inventory.

Our legacy private label mechanical business requires significant inventory investment, plus the fulfillment and logistic expenses that come with it. A-Premium revenue is more than twice as profitable as our legacy owned mechanical revenue while requiring virtually no inventory. It is better profitability and better working capital efficiency at the same time. A-Premium's catalog remains six times larger than our private label mechanical offering. In a fitment-specific business, coverage is a durable competitive advantage. Expanding our catalog increases the likelihood that customers find exactly the part they need on their first visit, all while requiring very little incremental working capital. We remain in the early stages of what this partnership can become J.C. Whitney remains at 7,000 SKUs live on Amazon, those SKUs are now performing at a $2.5 million annualized revenue run rate. That's a start, not a plateau.

More SKUs from the 30,000-SKU catalog are on the way. We expect this run rate to roughly triple in the short term, with room to grow well beyond that as the remainder of the catalog scales. We also plan to launch these products on CarParts.com in the near term. Amazon keeps working for us, and adding on our own site is incremental on every dimension we care about. More volume, more visibility for the brand, and a direct relationship with the customers that give us first-party insight into what they buy and what they buy next. That feeds into personalization, retention, and marketing efficiency. Over the medium term, we see a path to $25 million in revenue from J.C. Whitney at very attractive margins and very little inventory commitments. Back to the two-layer framework from last quarter.

The framework has not changed. Neither has the plan. The second quarter built directly on the first. The numbers are still small, but the direction is what matters. In the second quarter, we delivered over 3,000 packages to our last-mile network, more than double the first quarter, running next-day delivery for our own channel in 2 out of 4 distribution centers. That is deliberately constrained while we make the operational and technology adjustments. We are building towards 300,000 packages annually, which we believe would represent approximately 5% of our outbound volume, concentrated in the big and bulky non-conveyable parts where our scale is deepest and outbound carrier costs are highest. The near-term step is straightforward. Two buildings today, all four next. That is execution rather than invention. The buildings are already ours, the routes are already proven. The remaining work is mostly operational and technology adjustments.

Digital execution keeps getting cheaper to replicate. Warehouses, fulfillment network, last-mile reach, three decades of supplier scale do not. AI will optimize physical infrastructure, it will not replace it. At 300,000 packages annually, the economics become meaningful. At scale, they become structural, with real potential to reduce freight as a percentage of revenue. Faster delivery wins in exactly the categories where we are the strongest. Our strategy is to own in both layers, own the demand layer, and build durable competitive advantage in the physical one. Our distribution network, our last-mile initiative, our global sourcing partnership, and the J.C. Whitney brand reflect a coherent view of where we see the real advantages in this industry will live over the next several years.

The first quarter was the proof point, the second quarter is the next one. The direction of our capital allocation is deliberate, and we're executing against it today. Our customer-facing AI solutions continue to perform well. We have begun layering product recommendations and AI-assisted sales and conversion tools on top of them. The tools are not the point. What matters is the system underneath them. Over three decades, our business has accumulated something that takes time and expertise to build and is hard to replicate at this scale. Fitment data across essentially every vehicle on the road, purchase and return history across millions of those vehicles, and catalog depth built on hundreds of supplier relationships. A new entrant can rent a frontier model tomorrow.

It cannot rent 30 years of observed behavior, the fitment accuracy, the return patterns, and the repeat purchase signals that only come from decades of real transactions. These components reinforce each other. Every customer interaction sharpens a recommendation. Every return improves the catalog. Every fulfillment decision improves the next one. AI is what ties the signals together and turns them into better decisions across the whole system, each improvement compounds. That is what makes our AI offensive rather than defensive. Applied to this proprietary system, it lets us do things a competitor running the same model cannot do as well. Advertise more efficiently, get the fitment right the first time, recommend the adjacent part, price dynamically, then pack, shift, and route the order. It touches how we sell and how we deliver. It's an ecosystem, not a tool.