PRTS

• Core Strategic Rebuild Progress

  • 18 months ago, management shifted strategy from unprofitable top-line growth to a profitability-focused rebuild, and Q2 2026 marks the sixth consecutive quarter of improving key metrics, with the highest adjusted EBITDA since Q3 2023.
  • The company completed a 1-for-10 reverse stock split during the quarter and regained compliance with NASDAQ's minimum bid price requirement, removing regulatory uncertainty.
  • The business is structured as two connected layers: a digital customer-facing layer (website, app, search, marketing) and a physical infrastructure layer (global supply chain, distribution network, fulfillment, inventory, last-mile delivery). Management connects the two layers via data, AI, and customer ownership to build a durable competitive advantage, as physical infrastructure and decades of scale cannot be easily replicated by digital-only entrants.

• Partnership and Brand Expansion

  • The A-Premium dropship partnership is on track to exceed $100 million annualized revenue long-term, with a catalog 6x larger than the company's private label mechanical offering that improves product coverage without incremental working capital burden.
  • J.C. Whitney is in early launch: 7,000 SKUs are live on Amazon, with 23,000 additional SKUs from the full 30,000 SKU catalog coming soon. Management plans to launch J.C. Whitney products on Karparts.com in the near term to capture incremental revenue and first-party customer data.

• Operational and AI Initiatives

  • Last-mile delivery initiative: Q2 2026 delivered over 3,000 packages, more than double Q1 2026 volume, with next-day delivery active in 2 of 4 company-owned distribution centers. The company is targeting 300,000 annual packages (≈5% of total outbound volume) concentrated in high-cost big and bulky non-conveyable parts, with a goal to roll out next-day delivery across all 4 distribution centers. At scale, this is expected to meaningfully reduce freight costs and improve customer experience.
  • AI strategy leverages the company's 30 years of proprietary proprietary fitment data, customer transaction history, return patterns, and supplier relationships, which cannot be replicated by new entrants relying on generic third-party AI models. AI is used across the business to improve advertising efficiency, product fitment accuracy, recommendations, dynamic pricing, and fulfillment routing, creating a compounding, defensible ecosystem rather than a standalone tool.
  • High-margin fee income (from Karparts.com MasterCard, memberships, warranties) now has an annualized run rate near $5 million, up from over $4 million last quarter, providing capital-light incremental revenue that improves customer lifetime value.
  • Inventory discipline: Ending inventory was $84 million, down $7 million from the end of Q1 2026, as dropship volumes reduce reliance on owned inventory. The company secured an undrawn $25 million revolving credit facility during the quarter, ending the period with $38 million in cash and no outstanding revolver debt.

• The company maintains its target of achieving full-year free cash flow positivity in 2026.
• A-Premium is expected to cross the $50 million annualized gross revenue run rate in the near term, with a long-term path to exceed $100 million annual revenue.
• J.C. Whitney is expected to see its current $2.5 million Amazon annualized revenue run rate roughly triple in the short term, with a medium-term target of $25 million total annual revenue at attractive margins with minimal inventory commitments. Management targets a $7.5 million annualized run rate for J.C. Whitney by the end of 2026, with products live on Karparts.com by year-end.
• The last-mile delivery initiative is targeting full deployment of next-day delivery across all 4 company distribution centers by the end of 2026, reaching 300,000 annual packages.
• With the company's fixed cost base now substantially reduced, future revenue growth is expected to increasingly translate into earnings and free cash flow, rather than being absorbed by operating expenses.

The company reports overall net sales of $135.6 million in Q2 2026, a 10.7% year-over-year decline from $151.9 million in Q2 2025. By product segment mix: 1. Private label: Represented 76% of total Q2 2026 revenue, down from 81% in Q1 2026, as the company shifts focus to higher-margin strategic branded partnerships. 2. A-Premium (strategic branded partnership): Annualized gross revenue run rate approached $50 million in Q2 2026, up from $45 million at the end of Q1 2026, and contributed to the growing branded segment share. A-Premium revenue is more than twice as profitable as legacy private label mechanical revenue and requires virtually no owned inventory. 3. J.C. Whitney: 7,000 SKUs are live on Amazon, generating a $2.5 million annualized revenue run rate in Q2 2026. By channel segment mix: 1. Owned channels (company e-commerce site, mobile app, commercial channels): Represented 70% of total Q2 2026 revenue, up from 69% in Q1 2026, as the company prioritizes these higher net contribution margin, lower working capital intensity channels. 2. Marketplaces: Represented 30% of total Q2 2026 revenue, down from 31% in Q1 2026. Retained customer revenue from owned channel engagement (mobile, email, SMS, push notifications) reached 10.5% of total e-commerce revenue in Q2 2026, up from 10% in Q1 2026. Mobile app revenue accounted for 14.2% of e-commerce revenue, up from 14% in Q1 2026. Gross profit totaled $45.1 million (33.2% gross margin) in Q2 2026, up year-over-year. Adjusted EBITDA was $1.8 million, an improvement of $4.9 million from a negative $3.1 million adjusted EBITDA in Q2 2025. Total operating expenses were $48.3 million, a $13.9 million (22%) year-over-year reduction.

• Forward-looking results are subject to material uncertainties and risks that could cause actual outcomes to differ materially from guidance, including general macroeconomic and business environment headwinds impacting customer discretionary spending. Inflation and elevated oil prices directly increase product and freight costs, which required pricing adjustments that negatively impacted demand in Q2 2026.
• The company notes that the profitability rebuild is ongoing, and six quarters of improvement do not represent completion of the company's strategic goals.
• Dependence on macroeconomic trade policy: the company is exposed to tariff and sourcing costs, though it has now collected substantially all of its pursued IEPA tariff claims.

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