CarParts.com, Inc.

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 pass the conference over to company management. Please go ahead.

Good afternoon and welcome to the Kals Parts.com third quarter 2026 earnings call. Joining us on the call today, our chief executive officer, David Meniane, and our interim chief financial officer, Mark DiSiena. Before we begin, I want to remind everyone that certain statements made during this call, including relating to our expected financial and operating performance, business plans and strategies may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such statements. We encourage you to review the risk factors and cautionary language contained in our most recent annual report on Form 10-K, our quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. Additional information is available on our investor relations website. We undertake no obligation to update any forward-looking statements after the date of this call. Additionally, we will reference both GAAP and non-GAAP financial measures during today's discussion. A full reconciliation of non-GAAP measures to the most directly comparable GAAP measures is included in the press release we issued earlier, which is also available on our IR website. With that, I'll turn the call over to David.

Thank you, Zeya. Q3 2026 marks our third consecutive quarter of positive adjusted EBITDA. That is a milestone our team worked hard for, and it is clear evidence that our transformation is working. Let me put it in context. Before this streak began, we had already strung together four straight quarters of narrowing losses. In Q1, 2026, we turned adjusted EBITDA positive for the first time in several quarters, coming in at 585,000. In Q2, we built on that, reaching $1.8 million in adjusted EBITDA, the strongest result we had posted since Q3 2023. And now, in Q3, we remain positive at $1 million, extending that streak to 3 quarters. This matters because of what it represents. Each quarter, we made deliberate decisions on assortment, on our footprint, on pricing, on advertising efficiency, on how we deploy capital, on which partnership we invest in, on which costs we eliminate. We made these choices intentionally and executed them consistently, including a continuous effort to reshape our fixed cost base. The result is structural improvement, a durable shift in the underlying economics of the business, and one we are excited to build on. A year ago, in Q3 2025, we posted an adjusted EBITDA loss of $2.5 million on net sales of 127.8 million. The business we are running today is fundamentally different, more efficient, more diversified, and increasingly built around recurring revenue streams. We believe the changes we've made to our cost structure and business mix are durable, and they position us to build on this quarter. We also know we are early. $1 million of adjusted EBITDA is a foundation, and our focus now is building on it. Before I go further on the results themselves, I want to make sure everyone is looking at the financials with the full picture in mind, because gross margin percentage on its own does not always capture how business mix is changing. As our dropship business scales through a premium on our own site, expanded assortment in adjacent categories, and through JC Whitney across third-party channels, our reported gross margin percentage will reflect that mix. As a reminder, this model requires less working capital, carries less inventory risk, and generates contribution margin dollars at attractive rates relative to the capital deployed. Dropship eliminates the carrying costs, the fulfillment overhead, and the obsolescence risk that come with a traditional stock model. When you net all that out, the unit economics are compelling. Now, to be clear, this is not a move to an all-dropship model. We will continue to stock and maintain inventory in a disciplined way, particularly where we have a competitive advantage. So when you see the gross margin percentage line move, ask a different question. Are contribution margin dollars growing? Is free cash flow improving? Are we deploying less capital to generate each incremental dollar of revenue? Together with our GAAP results, those are the metrics we use to evaluate the health of our business. The North Star we're managing toward is long-term free cash flow generation and per share value creation for shareholders. That is the framework we use internally, and it is one we believe best captures the value we're building for shareholders over time. Before I get into the operational details of the quarter, I want to highlight two recent initiatives that I believe represent meaningful steps in the evolution of our company. First, Car Parts Plus Rewards. We officially launched our first-ever points-based loyalty program on October 13th, and the early results are strong. Since the soft launch in early September, we have organically enrolled more than 200,000 new members. Free members earn one point per dollar spent. Car Parts Plus Gold at $79 a year, less than the national average cost of a single tow, unlocks three times the points, free shipping on over one million parts, 24-7 roadside assistance, extended returns, and VIP customer support. Beyond enrollment, we are deepening customer engagement, increasing repeat purchases, and growing customer lifetime value while improving the efficiency of our marketing investments over time. and second, we have recently partnered with Klarna, a company whose scale and brand recognition make it a strong offering to power buy now, pay later financing at checkout. It gives our customers greater payment flexibility, particularly when facing unexpected repair expenses, while also creating opportunities to improve conversion and average order value. Two capital initiatives, a loyalty ecosystem and payment flexibility, each one deepens our customer relationships. I want to spend a moment on the architecture of our business because it is key to evaluating where we're headed. We operate two sides of one business. They are distinct, they are interdependent, and together they create something that is difficult to replicate. The first side is the digital layer, the website, the mobile app, the search and fitment catalog, the marketing engine, and the AI-driven personalization infrastructure that ties it all together. Our catalog now spans over 1.5 million parts and accessories. Our mobile app accounted for nearly 15% of e-commerce revenue in Q3. AI is driving real efficiency gains across search relevance and advertising optimization. And those gains are showing up in the operating expense line. The digital layer drives discovery, conversion, and increasingly retention through programs like Car Parts Plus Rewards. and the second side is the physical layer, the supply chain, the distribution network, the fulfillment infrastructure and the last mile capability we're actively building. This is where the durable competitive advantage lives. AI is transforming digital commerce, but it cannot build or operate a distribution center. It cannot negotiate a supplier agreement that took 15 years to develop. Any well-funded competitor can build a website. Very few can replicate what we have built on the physical side. That is our moat. Both layers operating in concert, reinforcing each other at every step of the customer experience. Q3 was a quarter where both sides moved forward meaningfully and the financial results reflected. Let me turn to our two strategic partnerships, both proof points for that platform thesis. Starting with A Premium. We entered the quarter with a premium approaching the $50 million annualized revenue run rate milestone we set as our Q3 marker. And we surpassed it, exiting the quarter at approximately $55 million annualized. The catalog advantage here is real and growing. A-Premium's offering is now six times larger than our legacy private label mechanical catalog, filling fitment gaps we previously could not cover. Contribution margin dollars on A-Premium orders are growing, and the economics per unit remain more than two times as profitable as our legacy private label equivalent. The trajectory toward our long-term $100 million target remains intact. Turning to JC Whitney, we exited the quarter with 7,000 SKUs live on Amazon and added more than 8,000 in early October, bringing the total to 15,000. The annualized revenue run rate increased from $2.5 million in Q2 to approximately 3 million exiting Q3. And last week, we posted a record of roughly 100,000 in weekly revenue, a $5 million annualized pace. We're also working to bring JC Whitney products to Karparts.com, expanding the brand beyond Amazon. It remains a near-term priority, and we expect to launch soon. Both partnerships follow the same Capital Light dropship model. They expand our catalog, improve our working capital profile, and generate contribution margin dollars that are accretive to the overall business. Now let me turn to the physical layer because Q3 was another quarter of real measurable progress. We delivered more than 6,000 packages through our last mile network during the quarter, roughly doubling Q2 space. And we closed out the quarter with three distribution centers actively running next day delivery. Las Vegas, Dallas, and Jacksonville are live, and Chicago is coming soon. The ramp is building. A few hundred packages in Q1, over 3,000 in Q2, over 6,000 in Q3. The medium-term target is 300,000 packages annually, approximately 5% of our total outbound volume, and the ramp is tracking to plan. The economics and sales opportunities in both direct to consumer and commercial customers are compelling as freight costs and delivery times are substantially reduced. Freight is one of the largest cost lines in this business. Every package we route through our own network rather than a national carrier is a package where we control the cost, the timing, and the customer experience. At 300,000 packages, the savings opportunity is substantial, and it compounds as volume scales. The infrastructure is in place. The routing logic is live. What remains is a volume and technology opportunity. driving more packages into the network, improving delivery density and building the data layer that connects our fulfillment systems to the last mile routing engine in real time. That work is well underway and the momentum heading into Q4 gives us every reason to be confident. Now Q3 had its shares of external factors and I want to address them directly. On the tariff front, the environment remained complex. Our sourcing mix is approximately 80% Taiwan and 18% China, with the remainder spread across other geographies. On our IEPA tariff claims, we have now received $4.8 million, representing substantially all of the amount we were pursuing through the formal CBP process. Of that, $1.4 million was recognized in the third quarter and reinvested in targeted pricing and marketing investments to reflect our lower landed cost and stay competitive. The remaining $1.2 million is still sitting in inventory and will flow through cost of goods sold as that inventory sells in future quarters, and we may reinvest that in pricing and marketing as well. On the demand side, consumers remain selective with discretionary spending. We stay disciplined, pulling back advertising spend in the most competitive segments to protect efficiency and profitability, an approach that we have applied consistently and stand behind. Freight costs moderated versus prior periods, though they remain elevated and we are managing them actively. Over time, our last mile build out is the structural answer. We know these conditions well and we have operating in a challenging environment for several quarters now while delivering positive adjusted EBITDA in each of the last three quarters. We have built this business to perform through these conditions. Let me turn to our fee income platform, as part of the business that does not always get the attention it deserves. Our Capital Light revenue layer, spanning the Karparts.com Mastercard, Karparts Plus membership and loyalty, and warranty products, continued to build through Q3, with the annualized run rate now approaching $5 million, up from the roughly $4 million range we were running at through the back half of 2025. CarParts Plus Rewards strengthens our customer ecosystem by encouraging repeat purchases and deepening engagement, while the $79 annual gold membership creates an additional recurring revenue opportunity. The CarParts.com MasterCard continued to add cardholders in Q3, and warranty products remained a steady contributor. across all three were focused on quality over volume. The long-term value is driven by engaged, repeat purchasing customers, not one-time activations. None of this requires inventory, a distribution center, or a freight contract. These revenue streams sit on top of customer relationships we have already built and make the next purchase more likely. This is the structural characteristic that makes this platform compelling, and it is how we build retention at scale. Let me be direct about where we stand and what we're managing toward for the rest of this year. We entered Q3 with three specific markers. On A Premium, our goal was to surpass a $50 million annualized run rate, and we did it. The partnership is now running at approximately $55 million, and we remain on track toward our long-term $100 million target. On JC Whitney, we exited Q3 at approximately $3 million annualized, up from $2.5 million in Q2. and tracking toward our $7.5 million target. And on last mile, our goal is next day delivery from all four distribution centers by year end. Las Vegas, Dallas and Jacksonville are live and we're actively working towards bringing Chicago online in Q4. In Q4, the focus shifts from activation to volume as we build towards 300,000 packages a year. So what does winning look like exiting Q4? a premium running above $55 million annualized, JC Whitney at or approaching $7.5 million, and all four DCs running next-day delivery. Now, I'd like to turn the call over to Mark to walk through our financial results.