CarParts.com Q2 2026 Earnings Call - Adjusted EBITDA Turns Positive as Strategic Pivot to Profitable Growth Accelerates

Conference Operator: Good afternoon. At this time, all participants will be in a listen-only mode. Please note this call is being recorded. I would now like to turn the conference over to our host, Mark DiSiena, Interim Chief Financial Officer. Please go ahead.

Mark DiSiena, Interim Chief Financial Officer, CarParts.com: 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.

David Meniane, Chief Executive Officer, CarParts.com: 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.

The companies that win in an AI-driven commerce will not be the ones with the best models. Those will be widely available. They will be the ones whose data, supplier relationships, and physical execution were already in place and connected when the models arrive. Digital tools are becoming replicable. The system we have built around them is not. Now back to Q2. Q2 handed us a set of trade-offs. Inflation, oil prices, and tariffs moved directly into product and freight costs during the quarter. We responded with real-time pricing actions to protect gross profit dollars, accepting some impact on demand as prices moved higher. That is the trade-off we chose, and it is reflected in the margin line. What matters is that we still expanded margin and grew adjusted EBITDA in the same quarter we absorbed that cost.

That is what a lowered fixed cost base and a leaner operation buys you. Gross margin expanded to 33.2%, up both sequentially and year-over-year on favorable mix and freight optimization. Mark will walk through the bridge. Net sales were $135.6 million compared to $151.9 million in Q2 last year. A decline we view as intentional. We chose profitable customer acquisition over unprofitable revenue. Ultimately, we believe the value of the company will be judged by free cash flow generated, not simply a larger top-line number. One more lever before I look ahead. Fee income continues to perform, with the run rate now closer to $5 million, up from the more than $4 million we discussed last quarter. As the CarParts.com Mastercard, CarParts+ membership, and our warranty products build out a capital-light platform.

It deepens engagement, it drives repeat purchasing, and it lifts customer lifetime value with no inventory behind it. Looking ahead, our path to sustainable free cash flow continues to run through the same controllable levers that produced this quarter’s results. Growing contribution margin dollars, maintaining a disciplined cost structure, and improving capital efficiency as J.C. Whitney and A-Premium scale. The cost base is now low enough that future revenue growth should increasingly translate into earnings and cash flow rather than being absorbed by operating expenses. We are far from declaring victory. Six quarters of improvement is evidence the plan works, not proof the job is done. Our target remains to be free cash flow positive in 2026. Three markers we’re focused on between now and then. A-Premium path to $50 million annualized run rate. J.C.

Whitney at roughly $7.5 million annualized run rate, exiting this year with products live on CarParts.com. Next-day delivery running out of all four distribution buildings. Those are the markers we’re managing to, and we will report against them next quarter. With that, I will turn it over to Mark to walk through the financial results in detail.

Mark DiSiena, Interim Chief Financial Officer, CarParts.com: Thank you, David. Before getting into the numbers, a quick calendar note. Q2 2026 included 13 weeks consistent with Q2 2025. Year-over-year comparisons are directly comparable. As David noted, we managed to contribution margin dollars rather than gross margin percentage. Please keep that in mind as I walk through the mix shift. In the second quarter, we reported net sales of $135.6 million compared to $151.9 million in Q2 2025, down 10.7%. The decrease was primarily driven by our deliberate optimization of advertising spend towards higher return, higher intent customers, along with real-time pricing actions taken in response to higher freight costs during the quarter. Gross margin for the quarter was $45.1 million. Gross margin was 33.2%, up 70 basis points from 32.5% in the first quarter of 2026 and up 40 basis points from 32.8% in Q2 2025.

The improvement reflects favorable product mix and freight optimization during the quarter. GAAP net loss for the second quarter was $3.2 million compared to a net loss of $12.7 million in Q2 2025. Adjusted EBITDA for the second quarter was positive $1.8 million compared to a loss of approximately $3.1 million in Q2 2025, an improvement of $4.9 million year-over-year. The difference between our GAAP net loss and adjusted EBITDA is primarily non-cash: depreciation, amortization, and share-based compensation. This is our sixth consecutive quarter of sequential improvement and our highest adjusted EBITDA since the third quarter of 2023. Total operating expenses for the second quarter were $48.3 million, compared to $62.2 million in Q2 2025. A reduction of approximately $13.9 million or 22% year-over-year, driven by improved marketing efficiency, fixed cost reductions, and warehouse productivity. That efficiency reflects better targeting and merchandising, not simply lower spend.

Turning to the balance sheet. We ended the second quarter with $38 million in cash and no revolver debt outstanding. Inventory was approximately $84 million, down from approximately $91 million at the end of the first quarter, reflecting continued discipline on owned inventory as dropship volumes grow. On liquidity, during the quarter, we entered into a $25 million revolving credit facility with First Business Bank, maturing in March 2028. As of quarter end and as of today, the revolver remains undrawn. On share count, during the quarter we completed a one through ten reverse stock split effective May 26th to regain compliance with Nasdaq’s minimum bid price requirement. As of July 30th, 2026, we had approximately 8,065,000 shares of common stock outstanding. Our convertible notes are $25.4 million, with a conversion price of $12 per share on a split-adjusted basis.

On tariffs and sourcing, we continue to monitor the environment closely. Our IEEPA tariff claims, we have now received $4.4 million, representing substantially all of the amount we were pursuing through the formal CBP process. Of that, $2.2 million was recognized in the second quarter and reinvested in targeted pricing and marketing investments to reflect our lower landing costs and stay competitive. The remaining $2.2 million is still sitting inventory and will flow through cost of goods sold as that inventory sells in future quarters, and we may invest that in pricing and marketing as well. Turning to our partnership metrics. The A-Premium partnership is now generating an annualized revenue run rate approaching $50 million, up from approximately $45 million exiting the first quarter. All at attractive contribution margins and without the working capital burden of owned mechanical inventory.

On product mix, private label represented approximately 76% of revenue in Q2 compared to 81% in first quarter, with the difference reflecting continued growth in strategic branded partnerships like A-Premium. collision replacement parts in our filing represented approximately 63% of our revenue compared to 67% in the first quarter. The shift is hard parts growth from A-Premium, not softness in our core, big and bulky, non-conveyable category. Turning to channel mix. Owned channels, our e-commerce site, mobile app, commercial channels represented approximately 17% of revenue in Q2, up from 69% in the first quarter, with marketplaces at approximately 30%. The continued shift towards owned channel reflects higher net contribution margin and lower working capital intensity. Our retention in mobile, email, SMS, and push notifications represented approximately 10.5% of e-commerce revenue in Q2, up from 10% in the first quarter.

Mobile app revenue was approximately 14.2% of e-commerce revenue, up from 14% in the first quarter. Both continue to move in the direction we want, a growing share of revenue coming from customers we already have. With that, I will turn the call back over to David for closing remarks.

David Meniane, Chief Executive Officer, CarParts.com: Thank you, Mark. Before I close, let me put this quarter in a longer frame. 18 months ago, we made a choice. We could keep acquiring customers at any cost, a strategy that grew top line, but not necessarily in the most profitable manner, or we could refocus on profitable growth, higher value customers, and long-term loyalty. We chose the second. We decided to become a fit-for-purpose company, the right size, the right cost base, and the right shape for the business we actually want to build. The work since has not been exactly glamorous, but it has paid off and created the foundation for our future. Marketing optimization, assortment and inventory rationalization, a quiet and deliberate technology and AI roadmap. We sold our foreign captive operations. We consolidated buildings. Every one of those decisions was necessary, and every one of them prepared us for this moment.

Along the way, we earned things that do not show up in any single quarter. The trust of strategic investors who joined us with deep operating experience and a shared long-term view. Partnerships that expanded our product and customer reach without the working capital drag. This year, A-Premium and related products have crossed $1 million in weekly gross revenue several times and are still growing with almost no inventory commitment. Owned inventory that is working harder with room to improve. A mobile app that drives over 14% of e-commerce revenue and rising. A growing high-margin fee income business. An early but real last mile capability, delivering our own packages to our own customers. That is the foundation. From here, we shift our focus to growth and innovation. We will prioritize profitable growth and build the company we will be proud of years from now.

I am more excited about what comes next than I have been at any point on this journey. New products, new categories, new brands, new customer experiences, and building out JC Whitney, a brand with a history that spans over 100 years on the foundation we spent the last 18 months laying. This quarter is one step of that, and there are many more ahead. I want to recognize our team. Quarter after quarter of disciplined, relentless execution is what produced these results. Our people stayed focused on the plan, served our customers, and delivered. I am proud of what this team has accomplished, and I am even more confident about where we go from here. With that, I’ll turn it back over to the operator.

Conference Operator: This concludes today’s meeting. You may now disconnect.