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Table of Contents

S

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2024

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission file number: 001-33264

Graphic

CARPARTS.COM, INC.

(Exact name of registrant as specified in its charter)

Delaware

68-0623433

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer

Identification No.)

2050 W. 190th Street, Suite 400, Torrance, CA 90504

(Address of Principal Executive Office) (Zip Code)

(424) 702-1455

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

PRTS

The NASDAQ Stock Market LLC

(NASDAQ Global Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  

As of October 22, 2024, the registrant had 57,399,643 shares of common stock outstanding, $0.001 par value.

Table of Contents

CARPARTS.COM, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2024

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

4

Consolidated Balance Sheets (Unaudited) at September 28, 2024 and December 30, 2023

4

Consolidated Statements of Operations and Comprehensive Operations (Unaudited) for the Thirteen and Thirty-nine Weeks Ended September 28, 2024 and September 30, 2023

5

Consolidated Statements of Stockholders’ Equity (Unaudited) for the Thirteen and Thirty-nine Weeks Ended September 28, 2024 and September 30, 2023

6

Consolidated Statements of Cash Flows (Unaudited) for the Thirty-nine Weeks Ended September 28, 2024 and September 30, 2023

7

Notes to Consolidated Financial Statements (Unaudited)

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

20

ITEM 4.

Controls and Procedures

21

PART II. OTHER INFORMATION

ITEM 1.

Legal Proceedings

21

ITEM 1A.

Risk Factors

21

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

ITEM 3.

Defaults Upon Senior Securities

44

ITEM 4.

Mine Safety Disclosures

44

ITEM 5.

Other Information

44

ITEM 6.

Exhibits

46

Unless the context requires otherwise, as used in this report, the terms “CarParts.com,” the “Company,” “we,” “us” and “our” refer to CarParts.com, Inc. and its subsidiaries. Unless otherwise stated, all amounts are presented in thousands.

Carparts.com®, Kool-Vue®, JC Whitney®, Evan Fischer®, SureStop®, TrueDrive®, DriveWire, and DriveMotive, amongst others, are our current and pending trademarks in the United States. All other trademarks and trade names appearing in this report are the property of their respective owners.

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements included in this report, other than statements or characterizations of historical or current fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. Any forward-looking statements included herein are based on management’s beliefs and assumptions and on information currently available to management. We have attempted to identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” “will likely continue,” “will likely result” and variations of these words or similar expressions. These forward-looking statements include, but are not limited to, statements regarding future events, our future operating and financial results, financial expectations, expected growth and strategies, our ability to acquire additional market share, current business indicators, capital needs, financing plans, capital deployment, liquidity, contracts, litigation, product offerings, customers, acquisitions, competition and the status of our facilities. Forward-looking statements, no matter where they occur in this document or in other statements attributable to the Company involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” in Part II, Item 1A of this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

3

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, In Thousands, Except Par Value Data)

September 28,

December 30,

    

2024

    

2023

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

38,105

$

50,951

Accounts receivable, net

 

8,427

 

7,365

Inventory, net

 

97,235

 

128,901

Other current assets

 

6,477

 

6,121

Total current assets

 

150,244

 

193,338

Property and equipment, net

 

34,494

 

26,389

Right-of-use - assets - operating leases, net

28,029

19,542

Right-of-use - assets - finance leases, net

11,808

15,255

Other non-current assets

 

3,064

 

3,331

Total assets

$

227,639

$

257,855

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities:

 

Accounts payable

$

59,715

$

77,851

Accrued expenses

 

19,020

 

20,770

Right-of-use - obligation - operating, current

5,668

4,749

Right-of-use - obligation - finance, current

3,655

4,308

Other current liabilities

 

4,843

 

5,308

Total current liabilities

 

92,901

 

112,986

Right-of-use - obligation - operating, non-current

24,797

16,742

Right-of-use - obligation - finance, non-current

9,680

12,327

Other non-current liabilities

 

3,062

 

2,969

Total liabilities

 

130,440

 

145,024

Commitments and contingencies

 

Stockholders’ equity:

 

Common stock, $0.001 par value; 100,000 shares authorized; 57,386 and 56,303 shares issued and outstanding as of September 28, 2024 and December 30, 2023 (of which 3,786 are treasury stock)

 

61

 

60

Treasury stock

 

(11,912)

 

(11,912)

Additional paid-in capital

 

322,337

 

312,874

Accumulated other comprehensive income

 

870

 

783

Accumulated deficit

 

(214,157)

 

(188,974)

Total stockholders’ equity

 

97,199

 

112,831

Total liabilities and stockholders' equity

$

227,639

$

257,855

See accompanying notes to consolidated financial statements (unaudited).

4

Table of Contents

CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS

(Unaudited, in Thousands, Except Per Share Data)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28,

September 30,

September 28,

September 30,

    

2024

    

2023

    

2024

    

2023

Net sales

$

144,751

$

166,864

$

455,310

$

519,334

Cost of sales (1)

 

93,769

 

112,047

 

302,016

 

341,524

Gross profit

 

50,982

 

54,817

 

153,294

 

177,810

Operating expense

 

60,900

 

57,734

 

178,457

 

180,935

Loss from operations

 

(9,918)

 

(2,917)

 

(25,163)

 

(3,125)

Other income (expense):

 

Other income, net

 

345

 

874

 

1,136

 

2,427

Interest expense

 

(310)

 

(360)

 

(896)

 

(1,043)

Total other income, net

 

35

 

514

 

240

 

1,384

Loss before income taxes

 

(9,883)

 

(2,403)

 

(24,923)

 

(1,741)

Income tax provision

 

135

 

114

 

260

 

396

Net loss

 

(10,018)

 

(2,517)

 

(25,183)

 

(2,137)

Other comprehensive (loss) gain:

 

 

 

 

  

Foreign currency adjustments

 

 

 

87

 

Unrealized (loss) gain on deferred compensation trust assets

 

 

(21)

 

 

27

Total other comprehensive (loss) gain

 

 

(21)

 

87

 

27

Comprehensive loss

$

(10,018)

$

(2,538)

$

(25,096)

$

(2,110)

Net loss per share:

Basic and diluted net loss per share

$

(0.17)

$

(0.04)

$

(0.44)

$

(0.04)

Weighted-average common shares outstanding:

 

  

 

  

 

  

 

  

Shares used in computation of basic and diluted net loss per share

 

57,334

 

57,179

 

56,897

 

56,252

(1)Excludes depreciation and amortization expense which is included in operating expense.

See accompanying notes to consolidated financial statements (unaudited).

5

Table of Contents

CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, In Thousands)

Accumulated

Additional

Other

Total

Common Stock

Paid-in-

Treasury

Comprehensive

Accumulated

Stockholders’

   

Shares

   

Amount

   

Capital

   

Stock

   

Income

   

Deficit

   

Equity

Balance, December 31, 2022

54,653

$

57

$

297,265

$

(7,625)

$

1,126

$

(180,751)

$

110,072

Net income

1,051

1,051

Issuance of shares in connection with stock option exercise

972

1

1,523

1,524

Issuance of shares in connection with restricted stock units vesting

495

1

1

Issuance of shares in connection with BOD fees

1

6

6

Issuance of shares in connection with ESPP

42

221

221

Share-based compensation

4,170

4,170

Unrealized gain on deferred compensation trust assets

24

24

Balance, April 1, 2023

56,163

$

59

$

303,185

$

(7,625)

$

1,150

$

(179,700)

$

117,069

Net loss

(671)

(671)

Issuance of shares in connection with stock option exercise

279

446

446

Issuance of shares in connection with restricted stock units vesting

431

Issuance of shares in connection with BOD fees

1

5

5

Share-based compensation

2,937

2,937

Stock repurchase

(250)

(5)

(1,047)

(1,052)

Unrealized gain on deferred compensation trust assets

24

24

Balance, July 1, 2023

56,624

$

59

$

306,568

$

(8,672)

$

1,174

$

(180,371)

$

118,758

Net loss

(2,517)

(2,517)

Issuance of shares in connection with stock option exercise

404

1

635

636

Issuance of shares in connection with restricted stock units vesting

105

Issuance of shares in connection with BOD fees

1

6

6

Issuance of shares in connection with ESPP

73

262

262

Share-based compensation

1,640

1,640

Stock repurchase

(245)

(5)

(1,094)

(1,099)

Unrealized loss on deferred compensation trust assets

(21)

(21)

Balance, September 30, 2023

56,962

$

60

$

309,106

$

(9,766)

$

1,153

$

(182,888)

$

117,665

Balance, December 30, 2023

56,303

$

60

$

312,874

$

(11,912)

$

783

$

(188,974)

$

112,831

Net loss

(6,478)

(6,478)

Issuance of shares in connection with restricted stock units vesting

243

1

(323)

(322)

Issuance of shares in connection with BOD fees

8

8

Officers and directors stock purchase plan

3

Issuance of shares in connection with ESPP

75

202

202

Share-based compensation

2,824

2,824

Foreign currency adjustments

87

87

Balance, March 30, 2024

56,624

$

61

$

315,585

$

(11,912)

$

870

$

(195,452)

$

109,152

Net loss

(8,687)

(8,687)

Issuance of shares in connection with restricted stock units vesting

455

(106)

(106)

Issuance of shares in connection with BOD fees

7

11

11

Officers and directors stock purchase plan

2

3

3

Share-based compensation

3,517

3,517

Balance, June 29, 2024

57,088

$

61

$

319,010

$

(11,912)

$

870

$

(204,139)

$

103,890

Net loss

(10,018)

(10,018)

Issuance of shares in connection with restricted stock units vesting

97

(32)

(32)

Issuance of shares in connection with BOD fees

12

12

12

Officers and directors stock purchase plan

4

3

3

Issuance of shares in connection with ESPP

185

157

157

Share-based compensation

3,187

3,187

Balance, September 28, 2024

57,386

$

61

$

322,337

$

(11,912)

$

870

$

(214,157)

$

97,199

See accompanying notes to consolidated financial statements (unaudited).

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CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, In Thousands)

Thirty-Nine Weeks Ended

September 28,

September 30,

    

2024

    

2023

Operating activities

Net loss

$

(25,183)

$

(2,137)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization expense

 

13,436

 

12,596

Amortization of intangible assets

 

33

 

28

Share-based compensation expense

 

8,967

 

8,158

Stock awards issued for non-employee director service

 

31

 

17

Stock awards related to officers and directors stock purchase plan from payroll deferral

7

Gain from disposition of assets

 

(70)

 

(75)

Amortization of deferred financing costs

 

49

 

49

Changes in operating assets and liabilities:

Accounts receivable

 

(1,063)

 

(3,185)

Inventory

 

31,666

 

11,616

Other current assets

 

(355)

 

1

Other non-current assets

 

261

 

(199)

Accounts payable and accrued expenses

 

(19,352)

 

31,208

Other current liabilities

 

(465)

 

386

Right-of-use obligation - operating leases - current

1,259

613

Right-of-use obligation - operating leases - long-term

(772)

(723)

Other non-current liabilities

 

93

 

(488)

Net cash provided by operating activities

 

8,542

 

57,865

Investing activities

Additions to property and equipment

 

(18,146)

 

(7,380)

Payments for intangible assets

 

(76)

 

Proceeds from sale of property and equipment

 

92

 

83

Net cash used in investing activities

 

(18,130)

 

(7,297)

Financing activities

Borrowings from revolving loan payable

 

168

 

159

Payments made on revolving loan payable

 

(168)

 

(159)

Payments on finance leases

 

(3,243)

 

(3,592)

Repurchase of treasury stock

 

 

(2,151)

Net proceeds from issuance of common stock for ESPP

359

483

Statutory tax withholding payment for share-based compensation

 

(461)

 

Proceeds from exercise of stock options

 

 

2,604

Net cash used in financing activities

 

(3,345)

 

(2,656)

Effect of exchange rate changes on cash

 

87

 

Net change in cash and cash equivalents

 

(12,846)

 

47,912

Cash and cash equivalents, beginning of period

 

50,951

 

18,767

Cash and cash equivalents, end of period

$

38,105

$

66,679

Supplemental disclosure of non-cash investing and financing activities:

Right-of-use operating asset acquired

$

12,857

$

Right-of-use finance asset acquired

$

$

784

Accrued asset purchases

$

907

$

658

Share-based compensation expense capitalized in property and equipment

$

561

$

589

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes

$

48

$

180

Cash paid during the period for interest

$

896

$

1,042

Cash received during the period for interest

$

1,136

$

1,365

See accompanying notes to consolidated financial statements (unaudited).

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CARPARTS.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In Thousands, Except Per Share Data)

Note 1 – Basis of Presentation and Description of Company

CarParts.com, Inc. (including its subsidiaries) is a leading online provider of aftermarket auto parts and accessories. The Company sells its products primarily to individual consumers through its flagship website located at www.carparts.com, our app, and online marketplaces. Our corporate website is also located at www.carparts.com/investor. References to the “Company,” “we,” “us,” or “our” refer to CarParts.com, Inc. and its consolidated subsidiaries.

The Company’s products consist of replacement parts serving the wear and tear and body repair market, hard parts to serve the maintenance and repair market, and performance parts and accessories. The replacement parts category is primarily comprised of body parts for the exterior of an automobile as well as certain other mechanical or electrical parts that are not related to the functioning of the engine or drivetrain. Our parts in this category typically replace original body parts that have been damaged as a result of general wear and tear or a collision. In addition, we sell an extensive line of mirror products, including parts from our own house brand called Kool-Vue®, which are marketed and sold as aftermarket replacement parts and as upgrades to existing parts. The hard parts category is primarily comprised of engine components and other mechanical and electrical parts including our house brand of catalytic converters called Evan Fischer®. These hard parts serve as replacement parts that are generally used by professionals and do-it-yourselfers for engine and mechanical maintenance and repair. We also offer other parts and accessories (formerly referred to as performance parts and accessories), which includes certain performance versions of many parts sold in each of the above categories, including parts from our own house brand, JC Whitney®. Other parts and accessories is also comprised of parts that upgrade existing functionality of a specific part or improve the physical appearance or comfort of the automobile.

The Company is a Delaware C corporation and is headquartered in Torrance, California. The Company has employees located in both the United States and the Philippines.

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to U.S. Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company as of September 28, 2024 and the consolidated results of operations and cash flows for the thirteen and thirty-nine weeks ended September 28, 2024 and September 30, 2023. The Company’s results for the interim periods are not necessarily indicative of the results that may be expected for any other interim period, or for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 30, 2023, which was filed with the SEC on March 8, 2024 and all our other periodic filings, including Current Reports on Form 8-K, filed with the SEC after the end of our 2023 fiscal year, and throughout the date of this report.

Based on our current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available debt financing will be sufficient to finance our operational cash needs through at least the next twelve months.

Recent Accounting Standard Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280) “Improvements to Reportable Segment Disclosures,” which requires disclosure of incremental segment information on an annual and interim basis. The ASU is effective for fiscal years

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beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the effect of this pronouncement on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure, which expands the disclosures required for income taxes, primarily through changes to the rate reconciliation and income taxes paid information. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

Note 2 – Borrowings

The Company maintains an asset-based revolving credit facility ("Credit Facility") that provides for, among other things, a revolving commitment, which is subject to a borrowing base derived from certain receivables, inventory, and property and equipment. The Credit Facility provides for the revolving commitment in an aggregate principal amount of $75,000 and allows for an uncommitted ability to increase the aggregate principal amount by an additional $75,000 to $150,000, subject to certain terms and conditions. The Credit Facility matures on June 17, 2027. As of September 28, 2024 and December 30, 2023, our outstanding revolving loan balance was $0, respectively. As of September 28, 2024 and December 30, 2023, the outstanding standby letters of credit balance was $680, respectively, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheets.

Loans drawn under the Credit Facility bear interest, at the Company’s option, at a per annum rate equal to either (a) Adjusted Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 1.50% to 2.00% per annum based on the Company's fixed charge coverage ratio, or (b) an “alternate prime base rate” subject to an increase from 0.00% to 0.50% per annum based on the Company’s fixed charge coverage ratio. As of September 28, 2024, the Company’s SOFR based interest rate was 6.94% and the Company’s prime based rate was 8.50%. A commitment fee, based upon undrawn availability under the Credit Facility bearing interest at a rate of either 0.20% or 0.25% per annum based on the amount of undrawn availability, is payable monthly. Under the terms of the credit agreement with JPMorgan Chase Bank, N.A. (the “Credit Agreement”), cash receipts are deposited into a lock-box, which are at the Company’s discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing under the Credit Agreement. The cash dominion period is triggered in an event of default or if “excess availability,” as defined under the Credit Agreement, is less than $9,000 (12% of the aggregate revolving commitment) for three consecutive business days and will continue until, during the preceding 45 consecutive days, no event of default existed and excess availability has been greater than $9,000 at all times (with the trigger subject to adjustment based on the Company’s revolving commitment). In addition, in the event that the Company’s required excess availability related to the “Covenant Testing Trigger Period” (as defined under the Credit Agreement) is less than $7,500 (10% of the aggregate revolving commitment) for three consecutive business days, the Company shall be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0, and continuing until excess availability has been greater than or equal to $7,500 at all times for 45 consecutive days (with the trigger subject to adjustment based on the Company’s revolving commitment).

Note 3 – Stockholders’ Equity and Share-Based Compensation

Options and Restricted Stock Units

The Company had the following common stock option activity during the thirty-nine weeks ended September 28, 2024:

Granted options to purchase 100 common shares.
Exercise of 0 options to purchase common shares.
Forfeiture of 5 options to purchase common shares.
Expiration of 91 options to purchase common shares.

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The following table summarizes the Company’s restricted stock unit ("RSU") activity for the thirty-nine weeks ended September 28, 2024, and details regarding the awards outstanding and exercisable as of September 28, 2024 (in thousands):

Weighted Average

Grant Date

Aggregate

    

Shares

    

    

Fair Value

    

Intrinsic Value

Vested and expected to vest as of December 30, 2023

3,609

 

Awarded

2,293

 

Vested

(1,054)

 

Forfeited

(88)

 

Awards outstanding, September 28, 2024

4,760

 

$

6.37

 

$

4,311

Vested and expected to vest as of September 28, 2024

4,760

 

$

6.37

 

$

4,311

During the thirty-nine weeks ended September 28, 2024, 1,054 RSUs that vested were time-based and 0 were performance-based.

For the thirteen and thirty-nine weeks ended September 28, 2024, we recorded compensation costs related to stock options and RSUs of $3,187 and $9,528, respectively. For the thirteen and thirty-nine weeks ended September 30, 2023, we recorded compensation costs related to stock options and RSUs of $1,640 and $8,747, respectively. As of September 28, 2024, there was unrecognized compensation expense related to stock options and RSUs of $15,387 that will be expensed through September 2028.

Note 4 – Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

    

September 28, 2024

    

September 30, 2023

    

September 28, 2024

    

September 30, 2023

Net loss per share:

 

  

 

 

  

 

Numerator:

 

  

 

  

 

  

 

  

Net loss allocable to common shares

$

(10,018)

$

(2,517)

$

(25,183)

$

(2,137)

Denominator:

 

  

 

  

 

  

 

  

Weighted-average common shares outstanding (basic and diluted)

 

57,334

 

57,179

 

56,897

 

56,252

Basic and diluted net loss per share

$

(0.17)

$

(0.04)

$

(0.44)

$

(0.04)

For the thirteen and thirty-nine weeks ended September 28, 2024 and September 30, 2023, all outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per share as the effect of including such securities would have been anti-dilutive.

Note 5 – Income Taxes

The Company is subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2019-2023 remain open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the tax years 2020-2023 remain open.

For the thirteen and thirty-nine weeks ended September 28, 2024, the effective tax rate for the Company was (1.4)% and (1.0%), respectively. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, income of our Philippines subsidiary that is subject to different effective tax rates, share-based compensation that is either not deductible for tax purposes or for which the tax deductible amount is different than the financial reporting amount, and a change in the valuation allowance that offset the tax on the current period pre-tax loss.

For the thirteen and thirty-nine weeks ended September 30, 2023, the effective tax rate for the Company was (4.7)% and (22.7)%, respectively. The effective tax rate differed from the U.S. federal statutory rate primarily due to

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state income taxes, income of our Philippines subsidiary that is subject to different effective tax rates, share-based compensation that is either not deductible for tax purposes or for which the tax deductible amount is different than the financial reporting amount, and a change in the valuation allowance that offset the tax of the current period pre-tax loss.

The Company accounts for income taxes in accordance with ASC Topic 740 - Income Taxes (“ASC 740”). Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets. We currently have a full valuation allowance against our deferred tax assets. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. For the thirty-nine weeks ended September 28, 2024, there was no material change from fiscal year ended December 30, 2023 in the amount of the Company's deferred tax assets that are not considered to be more likely than not to be realized in future years.

Note 6 – Commitments and Contingencies

Leases

During the first quarter of 2024, the Company entered into a lease agreement for a new distribution center in Las Vegas, Nevada. The lease commenced on February 1, 2024 with a eighty-seven month lease term set to expire in April of 2031. The Company is obligated to pay approximately $186 in monthly base rent (rent abatement for three months in the first year), which shall increase by 4% each year beginning on the second-year anniversary of the lease term. In accordance with ASU 842Leases (“ASC 842”), the Company recorded $12,857 in Right-of-use assets – operating, non-current, and $12,018 in Right-of-use obligation – operating, non-current, with $839 recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet at the commencement of the lease.

Legal Matters

Asbestos. A wholly-owned subsidiary of the Company, Automotive Specialty Accessories and Parts, Inc. and its wholly-owned subsidiary Whitney Automotive Group, Inc. ("WAG"), are named defendants in several lawsuits involving claims for damages caused by installation of brakes during the late 1960’s and early 1970’s that contained asbestos. WAG marketed certain brakes, but did not manufacture any brakes. WAG maintains liability insurance coverage to protect its and the Company’s assets from losses arising from the litigation and coverage is provided on an occurrence rather than a claims made basis, and the Company is not expected to incur significant out-of-pocket costs in connection with this matter that would be material to its consolidated financial statements.

Ordinary course litigation. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business, including, for example, claims relating to product liability, workplace injuries, intellectual property rights, and employment matters. For example, a worker, who was directly employed by the Company’s third party labor contracting firm at the Company’s Grand Prairie, TX warehouse has filed a negligence claim in the Superior Court of the State of California, Los Angeles County, Central District relating to a workplace injury from March 2021. In July 2024, the Court granted the Company’s motion for summary judgement. Appeals could be filed by the plaintiff and the Company intends to continue to defend itself vigorously, although there can be no assurance that there will not be some liability. As of the date hereof, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cash flow of the Company. The Company maintains liability insurance coverage to protect the Company’s assets from losses arising out of or involving activities associated with ongoing and normal business operations.

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Note 7 – Product Information

As described in Note 1 above, the Company’s products consist of replacement parts serving the wear and tear and body repair market, hard parts to serve the maintenance and repair market, and other parts and accessories (formerly referred to as performance parts and accessories). The following table summarizes the approximate distribution of the Company’s revenue by product type.

    

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2024

    

September 30, 2023

    

September 28, 2024

    

September 30, 2023

    

House Brands

 

  

 

  

 

  

 

  

 

Replacement Parts

 

62

%  

63

%  

63

%  

65

%  

Hard Parts(1)

 

20

%  

20

%  

19

%  

19

%  

Other(1)

 

1

%  

1

%  

1

%  

1

%  

Branded

 

  

 

  

 

  

 

  

 

Replacement Parts

 

2

%  

2

%  

2

%  

2

%  

Hard Parts(1)

 

14

%  

13

%  

14

%  

12

%  

Other(1)

 

1

%  

1

%  

1

%  

1

%  

Total

 

100

%  

100

%  

100

%  

100

%  

(1)During the first quarter of 2024, we updated the product classification of certain parts to better reflect their part category. Prior period figures have been updated to reflect the new presentation.

Note 8 – Subsequent Events

Employment Agreement Amendments

On October 28, 2024, the Company entered into amendments to the employment agreements with David Meniane, Chief Executive Officer, Michael Huffaker, Chief Operating Officer, Ryan Lockwood, Chief Financial Officer, and Kalamegam Subramanian, Chief Technology Officer. The amendments modify the equity acceleration and severance provisions in connection with a Change in Control, as defined in the Company's 2016 Equity Incentive Plan.

Under the amended agreements, all equity awards that are assumed, substituted or otherwise continued as part of a Change in Control will accelerate in full if the executive's employment is terminated without Cause or the executive resigns for Good Reason within three months before or twelve months following a Change in Control.

In the event of a termination without Cause or resignation for Good Reason in connection with a Change in Control, Mr. Lockwood and Mr. Subramanian will receive 12 months of salary continuation and COBRA premium reimbursements (increased from 6 months in their original agreements).

The amendments do not modify any other terms of the executives' employment agreements.

The foregoing description of the amendments is qualified in its entirety by reference to the full text of each amendment, copies of which will be filed as exhibits to the Company’s Annual Report on Form 10-K for the year ending December 28, 2024.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In Thousands, Except Per Share Data, Or As Otherwise Noted)

Cautionary Statement

You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this report. Certain statements in this report, including statements regarding our business strategies, operations, financial condition, and prospects are forward-looking statements. Use of the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would”, “will likely continue,” “will likely result” and similar expressions that contemplate future events may identify forward-looking statements.

The information contained in this section is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the U.S. Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at http://www.sec.gov. The section entitled “Risk Factors” set forth in Part II, Item 1A of this report, and similar discussions in our other SEC filings, describe some of the important factors, risks and uncertainties that may affect our business, results of operations and financial condition and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf. You are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management’s opinions only as of the date thereof. We do not assume any obligation to revise or update forward-looking statements. Finally, our historic results should not be viewed as indicative of future performance.

Overview

We are a leading online provider of aftermarket auto parts, including replacement parts, hard parts, and performance parts and accessories. We principally sell our products to individual consumers through our flagship website at www.carparts.com, our app, and online marketplaces. Our proprietary product database maps our SKUs to product applications based on vehicle makes, models and years. Our corporate website is located at www.carparts.com/investor. The inclusion of our website addresses in this report does not include or incorporate by reference into this report any information on our websites.

We believe by disintermediating the traditional auto parts supply chain and selling products directly to customers online allows us to efficiently deliver products to our customers. Our vision of “Empowering Drivers Along Their Journey” underscores our mission to create a trusted platform that simplifies the historically stressful experience of vehicle maintenance & repair.

We have a significant opportunity to become the go-to destination for all automotive repair and maintenance requirements by focusing on our evolved strategy around: optimizing supply chain management and upgrading logistics, investing in technology, expanding into new business lines, and driving year-over-year increases in new customers, as well as repeat business from our existing customer base, all while maintaining our financial discipline approach of evaluating investments based on their impact on profitability.

To this end, we are continually working to transform our fulfillment center footprint. In June 2024, we began operations in our new semi-automated facility in Las Vegas, Nevada, which we expect to reduce last-mile transportation expenses to the West Coast and enhance customer service through expedited delivery. Furthermore, we continuously expand our technological capabilities, product offerings, and service portfolio to stay ahead of competitive pressures. By investing in new categories, brands, customer types and revenue streams across both premium and value segments, we seek to maximize gross profit and capture a larger market share.

In tandem, we have refined our eCommerce experience and marketing strategy, focusing on enhancing the mobile app experience, building brand awareness through innovative owned content channels, and fostering direct customer relationships. These efforts aim to position CarParts.com as the ultimate destination for vehicle maintenance knowledge

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and product purchases, thereby reducing reliance on performance marketing channels and improving customer acquisition efficiency.

Industry-wide trends that support our strategy and future growth include:

1.Number of SKUs required to serve the market. The number of automotive SKUs has grown dramatically over the last several years. In today’s market, unless the consumer is driving a high volume produced vehicle and needs a simple maintenance item, the part they need is not typically on the shelf at a brick-and-mortar store. We believe our user-friendly flagship website provides customers with a favorable alternative to the brick-and-mortar shopping experience by offering a comprehensive selection of approximately 1,429,000 SKUs with detailed product descriptions, attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods.
2.U.S. vehicle fleet expanding and aging. The average age of U.S. light vehicles, an indicator of auto parts demand, reached a new record-high of 12.6 years in 2024, according to the U.S. Auto Care Association. We believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs. In many cases we believe these older vehicles are driven by Do-It-Yourself (“DIY”) car owners who are more likely to handle any necessary repairs themselves rather than taking their car to the professional repair shop.
3.Growth of online sales. The U.S. Auto Care Association estimated that overall revenue from online sales of auto parts and accessories would reach over $23 billion by 2026. Improved product availability, lower prices and consumers’ growing comfort with digital platforms are driving the shift to online sales. We believe that we are well positioned for the shift to online sales due to our history of being a leading source for aftermarket automotive parts through our flagship website, app, and online marketplaces.

Factors Affecting our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed in Part II, Item IA, of this Quarterly Report on Form 10-Q and in Part I, Item IA, in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.

Executive Summary

For the third quarter of 2024, the Company generated net sales of $144,751, compared with $166,864 for the third quarter of 2023, representing a decrease of 13.3%. The Company incurred a net loss of $10,018 for the third quarter of 2024 compared to a net loss of $2,517 for the third quarter of 2023. The Company’s net loss before interest (income) expense, net, income tax provision, depreciation and amortization expense, amortization of intangible assets, plus share-based compensation expense, workforce transition costs, and distribution center costs (“Adjusted EBITDA”) of $(1,162) in the third quarter of 2024 compared to $3,048 in the third quarter of 2023. Adjusted EBITDA is not a Generally Accepted Accounting Principle (“GAAP”) measure. See the section below titled “Non-GAAP measures” for information regarding our use of Adjusted EBTIDA and a reconciliation from net loss.

Net sales decreased in the third quarter of 2024 compared to the third quarter of 2023. The decrease in net sales was primarily driven by deliberate price increases to focus on higher value customers, support gross margin expansion, a continued challenging consumer environment in the industry, and one-time impacts from the Crowd Strike issue and hurricanes Helene and Milton in the quarter. Gross profit decreased by 7.0% to $50,982 and gross margin increased 230 basis points to 35.2% compared to 32.9% in the third quarter of 2023. The increase in gross margin was primarily driven by our price increases and lower product costs resulting in expanded product margins, partially offset by unfavorable freight costs.

Total expenses, which primarily consisted of cost of sales and operating expense, increased in the third quarter of 2024 compared to the same period in 2023. The changes in both cost of sales and operating expense are described in further detail under — “Results of Operations” below.

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Non-GAAP measures

Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other provisions of the Exchange Act, define and prescribe the conditions for use of certain non-GAAP financial information. We provide EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA consists of net loss before interest (income) expense, net; income tax provision; depreciation and amortization expense; amortization of intangible assets; while Adjusted EBITDA consists of EBITDA before share-based compensation expense, workforce transition costs, and distribution center costs.

The Company believes that these non-GAAP financial measures provide important supplemental information to management and investors. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s operations that, when viewed with the GAAP results and the accompanying reconciliation to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting the Company’s business and results of operations.

Management uses Adjusted EBITDA as one measure of the Company’s operating performance because it assists in comparing the Company’s operating performance on a consistent basis by removing the impact of share-based compensation expense as well as other items that we do not believe are representative of our ongoing operating performance. Internally, this non-GAAP measure is also used by management for planning purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; and for evaluating the effectiveness of operational strategies. The Company also believes that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the ongoing operations of companies in our industry.

This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. In addition, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from the Company’s non-GAAP measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

The table below reconciles net loss to Adjusted EBITDA for the periods presented (in thousands):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2024

September 30, 2023

    

September 28, 2024

September 30, 2023

Net loss

$

(10,018)

$

(2,517)

$

(25,183)

$

(2,137)

Depreciation & amortization

 

4,956

 

4,430

 

13,436

 

12,596

Amortization of intangible assets

 

12

 

8

 

33

 

28

Interest (income) expense, net

 

(35)

 

(449)

 

(240)

 

(323)

Income tax provision

 

135

 

114

 

260

 

396

EBITDA

$

(4,950)

$

1,586

$

(11,694)

$

10,560

Stock compensation expense

$

3,057

$

1,462

$

8,967

$

8,158

Workforce transition costs(1)

26

617

Distribution center costs(2)

705

1,882

Adjusted EBITDA

$

(1,162)

$

3,048

$

(228)

$

18,718

(1)We incurred workforce transition costs, primarily related to severance, as part of our recent workforce reductions.
(2)We incurred certain non-recurring costs, primarily overlapping rent expense, attributable to moving to our new Las Vegas, Nevada distribution center.

15

Table of Contents

Results of Operations

The following table sets forth selected statements of operations data for the periods indicated, expressed as a percentage of net sales:

 

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

    

September 28, 2024

    

September 30, 2023

    

September 28, 2024

    

September 30, 2023

Net sales

 

100.0

%  

100.0

%  

100.0

%  

100.0

%

Cost of sales

 

64.8

 

67.1

 

66.3

 

65.8

 

Gross profit

 

35.2

 

32.9

 

33.7

 

34.2

 

Operating expense

 

42.1

 

34.6

 

39.2