CarPartscom Inc

Previous wording

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 1,236,000 SKUs with detailed product descriptions, attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods.

Current wording

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.

Previous wording

For the second quarter of 2024, the Company generated net sales of $144,270, compared with $176,978 for the second quarter of 2023, representing a decrease of 18.5%. The Company incurred a net loss of $8,687 for the second quarter of 2024 compared to a net loss of $671 for the second quarter of 2023. The Company’s net (loss) income 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 $(118) in the second quarter of 2024 compared to $6,302 in the second 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) income.

Current wording

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.

Previous wording

Net sales decreased in the second quarter of 2024 compared to the second quarter of 2023. The decrease in net sales was primarily driven by deliberate price increases to drive gross margin expansion combined with softness in consumer demand. Gross profit decreased by 19.9% to $48,393 and gross margin decreased 70 basis points to 33.5% compared to 34.2% in the second quarter of 2023. The decrease in gross margin was primarily driven by unfavorable freight costs. In fiscal year 2024, gross margin improvement is a central focus of our strategy. Gross margin increased 110 basis points to 33.5% compared to 32.4% in the first quarter of 2024. This improvement was primarily attributable to our price increases and expanded branded gross margins, partially offset by unfavorable freight costs.

Current wording

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.

Previous wording

Total expenses, which primarily consisted of cost of sales and operating expense, increased in the second 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.

Current wording

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.

Previous wording

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) income 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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Thirteen and Twenty-Six Weeks Ended June 29, 2024 Compared to the Thirteen and Twenty-Six Weeks Ended July 1, 2023

Current wording

Thirteen and Thirty-Nine Weeks Ended September 28, 2024 Compared to the Thirteen and Thirty-Nine Weeks Ended September 30, 2023

Previous wording

Net sales decreased $32,708, or 18.5%, for the second quarter of 2024 compared to the second quarter of 2023. Net sales decreased $41,911, or 11.9%, for the twenty-six weeks ended June 29, 2024 (“YTD Q2 2024”) compared to the same period in 2023. The net sales decrease for the second quarter of 2024 and YTD Q2 2024 was primarily driven by deliberate price increases to drive gross margin expansion combined with softness in consumer demand.

Current wording

Net sales decreased $22,113, or 13.3%, for the third quarter of 2024 compared to the third quarter of 2023. Net sales decreased $64,024, or 12.3%, for the thirty-nine weeks ended September 28, 2024 (“YTD Q3 2024”) compared to the same period in 2023. The net sales decrease for the third quarter of 2024 and YTD Q3 2024 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.

Previous wording

Gross profit decreased $12,049, or 19.9%, for the second quarter of 2024 compared to the same period in 2023, and decreased $20,681, or 16.8%, in YTD Q2 2024 compared to the same period of 2023. Gross margin decreased 70 basis points to 33.5% in the second quarter of 2024 compared to 34.2% in the second quarter of 2023. Gross margin decreased 200 basis points to 32.9% for YTD Q2 2024 compared to 34.9% in the same period in 2023. The decrease in gross margin was primarily driven by unfavorable freight costs.

Current wording

Gross profit decreased $3,835, or 7.0%, for the third quarter of 2024 compared to the same period in 2023, and decreased $24,516, or 13.8%, in YTD Q3 2024 compared to the same period of 2023. Gross margin increased 230 basis points to 35.2% in the third quarter of 2024 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. Gross margin decreased 50 basis points to 33.7% for YTD Q3 2024 compared to 34.2% in the same period in 2023. The decrease in gross margin was primarily driven by unfavorable freight costs, partially offset by our price increases.

Previous wording

Operating expense decreased $4,165, or 6.8%, and decreased $5,644, or 4.6%, for the second quarter of 2024 and YTD Q2 2024, respectively, compared to the same periods in 2023. The decrease in operating expense was primarily driven by the decrease in advertising expense.

Current wording

Operating expense increased $3,166, or 5.5%, and decreased $2,478, or 1.4%, for the third quarter of 2024 and YTD Q3 2024, respectively, compared to the same periods in 2023. The increase in operating expense as a percent of net sales for the third quarter and YTD Q3 2024 was primarily related to an increase in marketing spend.

Previous wording

Total other income, net, decreased $246, or 78.3%, for the second quarter of 2024 compared to the same period in 2023, primarily driven by a decrease in interest income due to a lower cash balance in the second quarter of 2024. Total other income, net, decreased $665, or 76.4%, for YTD Q2 2024, respectively, compared to the same period in 2023, primarily driven by the absence of other income attributable to an incentive for a new payment offering program that occurred in the first quarter of 2023.

Current wording

Total other income, net, decreased $479, or 93.2%, for the third quarter of 2024 compared to the same period in 2023, primarily driven by a decrease in interest income due to a lower cash balance in the third quarter of 2024. Total other income, net, decreased $1,144, or 82.7%, for YTD Q3 2024, respectively, compared to the same period in 2023, primarily driven by the absence of other income attributable to an incentive for a new payment offering program that occurred in the first quarter of 2023.

Previous wording

For the thirteen and twenty-six weeks ended June 29, 2024, the effective tax rate for the Company was (0.3)% and (0.8)%, 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.

Current wording

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.

Previous wording

For the thirteen and twenty-six weeks ended July 1, 2023, the effective tax rate for the Company was (26.6)% and 42.6%, 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 of the current period pre-tax (loss) income.

Current wording

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 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.

Previous wording

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 twenty-six weeks ended June 29, 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.

Current wording

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.

Previous wording

During the twenty-six weeks ended June 29, 2024, we primarily funded our operations with cash and cash equivalents generated from operations. As of June 29, 2024, our outstanding revolving loan balance under our Credit Facility was $0. We had cash and cash equivalents of $34,065 as of June 29, 2024, representing a $16,886 decrease from $50,951 of cash as of December 30, 2023. Based on our current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available funds under our Credit Facility will be sufficient

Current wording

During the thirty-nine weeks ended September 28, 2024, we primarily funded our operations with cash and cash equivalents generated from operations. As of September 28, 2024, our outstanding revolving loan balance under our Credit Facility was $0. We had cash and cash equivalents of $38,105 as of September 28, 2024, representing a $12,846 decrease from $50,951 of cash as of December 30, 2023. Based on our current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available funds under our Credit Facility will be sufficient to finance our operations through at least the next twelve months (see “Debt and Available Borrowing Resources” and “Funding Requirements” below).

Previous wording

As of June 29, 2024 and December 30, 2023, our working capital was $63,052 and $80,352, respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory and accounts payable to fluctuate, resulting in changes in our working capital.

Current wording

As of September 28, 2024 and December 30, 2023, our working capital was $57,343 and $80,352, respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory and accounts payable to fluctuate, resulting in changes in our working capital.

Previous wording

The following table summarizes the key cash flow metrics from our consolidated statements of cash flows for the twenty-six weeks ended June 29, 2024 and July 1, 2023 (in thousands):

Current wording

The following table summarizes the key cash flow metrics from our consolidated statements of cash flows for the thirty-nine weeks ended September 28, 2024 and September 30, 2023 (in thousands):

Previous wording

Net cash provided by operating activities for the twenty-six weeks ended June 29, 2024 and July 1, 2023 was $18 and $66,361, respectively. The decrease was primarily driven by a lower net cash inflow from the change in working capital in addition to the net loss during YTD Q2 2024.

Current wording

Net cash provided by operating activities for the thirty-nine weeks ended September 28, 2024 and September 30, 2023 was $8,542 and $57,865, respectively. The decrease was primarily driven by a lower net cash inflow from the change in working capital in addition to the higher net loss for YTD Q3 2024.

Previous wording

For the twenty-six weeks ended June 29, 2024, net cash used in investing activities was primarily the result of additions to property and equipment of $14,567, which are mainly related to leasehold improvements, capitalized website and software development costs, and machinery and equipment. For the twenty-six weeks ended July 1, 2023, net cash used in investing activities was primarily the result of additions to property and equipment of $4,669, which are mainly related to capitalized website and software development costs.

Current wording

For the thirty-nine weeks ended September 28, 2024, net cash used in investing activities was primarily the result of additions to property and equipment of $18,146, which are mainly related to leasehold improvements, capitalized website and software development costs, and machinery and equipment. For the thirty-nine weeks ended September 30, 2023, net cash used in investing activities was primarily the result of additions to property and equipment of $7,380, which are mainly related to capitalized website and software development costs.

Previous wording

Net cash used in financing activities was $2,384 for the twenty-six weeks ended June 29, 2024, primarily due to $2,157 of payments on finance leases. Net cash used in financing activities was $1,329 for the twenty-six weeks ended July 1, 2023, primarily due to $2,467 of payments on finance leases and the $1,052 repurchase of treasury stock, partially offset by $1,969 of proceeds from stock option exercises.

Current wording

Net cash used in financing activities was $3,345 for the thirty-nine weeks ended September 28, 2024, primarily due to $3,243 of payments on finance leases. Net cash used in financing activities was $2,656 for the thirty-nine weeks

Previous wording

Total debt was $14,414 as of June 29, 2024 compared to $16,635 as of December 30, 2023 and primarily consists of right-of-use obligations – finance.

Current wording

Total debt was $13,335 as of September 28, 2024 compared to $16,635 as of December 30, 2023 and primarily consists of right-of-use obligations – finance.

Previous wording

The Company maintains a 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 up to $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 June 29, 2024 and December 30, 2023, our outstanding revolving loan balance was $0, respectively. As of June 29, 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

Current wording

The Company maintains a 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 up to $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. We use the trade letters of credit in the ordinary course of business to satisfy certain vendor obligations.

Previous wording

Loans drawn under the Credit Facility bear interest at a per annum rate equal to either (a) 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 June 29, 2024, the Company’s SOFR based interest rate was 7.44% and the Company’s prime based rate was 9.00%. 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, 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 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 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).

Current wording

Loans drawn under the Credit Facility bear interest at a per annum rate equal to either (a) 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, 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 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 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).

Previous wording

Based on our current operating plan, we believe that our existing cash, 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. Our future capital requirements may, however, vary materially from those now planned or anticipated. Changes in our operating plans, lower than anticipated net sales or gross margins, increased expenses, continued or worsened economic conditions, worsening operating performance by us, or other events, including those described in “Risk Factors” included inPart II, Item 1A may force us to sell assets or seek additional debt or equity financings in the future, including the issuance of additional common stock under a registration statement. As such, there can be no assurance that we would be able to raise such additional financing or engage in asset sales on acceptable terms, or at all. If we are not able to raise adequate additional financing or proceeds from asset sales, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations.

Current wording

Based on our current operating plan, we believe that our existing cash, 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. Our future capital requirements may, however, vary materially from those now planned or anticipated. Changes in our operating plans, lower than anticipated net sales or gross margins, increased expenses, continued or worsened economic conditions, worsening operating performance by us, or other events, including those described in “Risk Factors” included inPart II, Item 1A may force us to sell assets or seek additional debt or equity financings in the future, including the issuance of additional common stock under a registration statement. As such, there can be no assurance that we would be able to raise such additional financing or engage in asset sales on acceptable

Previous wording

assets and liabilities and other related disclosures. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition, uncollectible receivables, inventory, valuation of deferred tax assets and liabilities, intangible and other long-lived assets and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and we include any revisions to our estimates in our results for the period in which the actual amounts become known.

Current wording

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses, as well as the disclosure of contingent assets and liabilities and other related disclosures. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition, uncollectible receivables, inventory, valuation of deferred tax assets and liabilities, intangible and other long-lived assets and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and we include any revisions to our estimates in our results for the period in which the actual amounts become known.