Q1 2021 Carparts.Com Inc Earnings Call
Good day, and thank you for standing by and welcome to the car parts first quarter 2021 earnings conference call at the time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session and you will need to press star one on your telephone please be and.
And by that today's conference is being recorded.
And require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker of today last Speaker CEO. Please go ahead.
Thank you operator, and good afternoon, everyone. During the quarter was sort of the bus sales that reinforce our confidence in achieving our long term goal of <unk>.
One eighth of 25% compounded top line growth for new investors and we encourage you and reviewing our investor deck available on our Investor Relations page at the car part of the Dot com.
Revenues and gross profit for the quarter were up 65 per cent compared to last year as whatsapp and other occurred in both.
We're excited about our future of the fastest growing retailer and the sector and the best possession of the company is to disrupt the auto parts industry with our two step direct to consumer model.
Our focus remains on our mission of helping people and get back on the road throw our strategy of right parts right time right place.
Alright, parkman and ensuring our customers can find the complete solution that said their vehicles and.
During the quarter, we made tremendous progress with new technology that improves the search capabilities on our website and will continue to expand into the mechanical parts of market was more products and more inventory as.
As we progressed through the second and third quarter, we feel great about our hard parts inventory possession and look forward to helping customers get back on the road during the speech mechanical repair season.
Our proprietary catalog of constantly expanding and we continue to add new products as long as the new obligations sets and kits.
We think having the right parts to solve the customers' problem is the main reason more than 30% of our revenue comes from repeat purchases on the one year look back.
Right time means getting the customers back on the road quickly.
We're happy to report that our Texas facility is now 60% fall and were expected to reach full inventory of capacity this year.
The added capacity of was a significant driver of our year over year as well as sequential growth.
And the success, we achieved is a testament of star data science inventory forecasting and global sourcing teams.
By optimizing the assortment and Texas, we were able to increase our sales capabilities and despite the facilities still being in the ramp up stages.
Additionally, our warehouse operations team worked tirelessly to fulfill an unprecedented amount of customer orders across our entire network.
Alright place means empowering our customers to choose how they want to repair and maintain their vehicles.
Whether theyre a do it yourself or do it for me customer we're committed to offering them the resources tools and turnkey solutions and services to get them back on the road.
We'll continue to refine the experience of our users are having with our mobile and mechanic partners by carefully analyzing each interaction. Our goal is to have a seamless experience and ultimately expand the pool of potential customers.
And the analogy we use internally is that Netflix started by mailing of the Dvds, but eventually evolved and delivering a complete turnkey solution strength to your television and changing the way people consume content over.
Over the next few years and we also expect to of all from a parts only supplier for delivering turnkey solutions that disrupt the auto repair industry.
We recently completed a survey of our existing customers and found that roughly one out of every seven and <unk> parts from us and takes us to a repair shop to the effects of health.
Helping customers find that the repair shop, and the mobile and mechanic option is the natural evolution of our business as we seek to just sort of the 300 billion. The do it for me and do it yourself automotive aftermarket I will now turn it over to David.
As Len briefly touched on Q1 was another record quarter for revenue, making it our fifth consecutive quarter of significant year over year growth, we generated revenues of $144 8 million up 65% from prior year sales of $87 8 million. The increase was primarily driven by growth across all.
All channels and supported by increased capacity for from our Grand Prairie distribution Center.
Gross profit grew significantly to $49 2 million up 65% year over year gross margin was up 10 basis points year over year to 34%, primarily driven by mix offset by inbound and outbound freight.
Total net loss for the quarter was $2 7 million compared to a net loss of $1 million and Q1 and 2020, mostly driven by increased non cash charges. Adjusted EBITDA in Q1 was $3 6 million down from $4 3 million last year with the decrease driven primarily by the continued ramp of our Texas DC adverse weather.
And targeted investments and brand awareness campaigns that did not exist in the prior year quarter.
As we've mentioned before we don't manage our business quarter to quarter, and we're working hard to create and infrastructure that can support the top line CAGR of 20 to 25 per cent and we continue to believe and the long run we can achieve 8% to 10% EBITDA margin. As a reminder, we have visibility into all the levers that will give us the operating leverage to us.
<unk> those margins and none of them are moon shots.
Turning to our balance sheet at the quarter and our cash position improved to $45 9 million from $35 8 million driven by working capital improvements.
Our inventory also grew $8 6 million the $97 9 million at the end of the quarter, our credit facility remains undrawn with $30 million of potential availability with the option to flex up to $40 million of capacity based on current inventory levels.
On the supply chain side are now expanding network is operating at full outbound capacity and we're excited to announce we're in discussion to expand our Texas warehouse with the space next door, we will be adding 156000 square feet of space, making Grand Prairie one of our largest facilities. This expansion will allow us to continue to grow our assortment of parts.
And as well as overall sales were committed to growing our footprint and the financially disciplined manner to get closer to our customers and increase of inventory availability. This location will also include a world class will call and return center for customers and the region.
On the marketing side, we continue to focus on building brand awareness for our flagship site car parts of Dot com with partnerships with NASCAR professional fight Lee two car garage on motor trend Donuts media on Youtube and the new National TV campaign, with Daytona 500 winner, Michael Mcdowell and front row Motorsports, we will of course be.
Discipline, and our investment philosophy deploy capital only where we see opportunities to accelerate our growth and where we believe we can earn a significant return on investment.
And lastly, 11, and I would like to send the huge thank you to all of our frontline teams that have worked relentlessly to continue serving our customers and such a difficult environment their hard work and commitment of car parts of Dot Com has been incredible and we could not have had this such an amazing quarter without each and every one of them with that I'll turn the call back over to Lev.
Thanks, David and the past few months average new car prices have clauses of $40000 Mark for the first time ever as both of the use the new car market become less affordable drivers are keeping their cars longer which results in increased maintenance and repairs and we believe our robust us market was tight supply and the prohibitively high cost of a new car.
And this will act as a tailwind for our business for years to come.
And as I have mentioned previously we're uniquely positioned to serve the growing EV market is 90% of our products are agnostic to the powertrain gas electric or hybrid.
Finally, before I close the call I'd like to welcome and Henry Maier to our board of directors Henry as of 35 year veteran of the Fedex Corporation, where he currently serves as president and CEO of the Fedex ground operating units our industry is ripe for disruption and with the and we're going to continue to leverage our proprietary catalog global supply chain as well as.
<unk> and marketing capabilities.
We believe our investments and delighting the customer will allow us to become the number one trusted destination for auto maintenance and repair and with that I'd like to hand over to the operator to open it up for questions.
As a reminder, task of question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Tom for from D. A Davidson. Your line is now open.
Great. Thank you. So one question and one follow up so for my initial question.
And last quarter, you had talked about the.
Supply chain challenges that were holding back your ability to fully ramp.
And Prairie, Texas fulfillment center.
Can you clarify are you of 100% fully ramped now.
Hi, Tom It's David Great question, Yes, we have we have a great supply chain team and we're very proud of what we've accomplished over the last three months.
Every retailer is feeling the impact right now our Texas facility is operating at full outbound capacity, but its not for where about 60% for.
And so props to the team for being able to receive additional inventory as well as shipped record numbers on the outbound side I think we're very excited about is that we were able to improve that inventory position, we had $98 million of inventory on the books.
And at the end of the quarter and and we're going to keep pushing.
Excellent and then for my follow up question I wanted to ask you. The one that I thought would be most interesting over the next 12 months.
So there's a lot of press about the chip shortages for new cars.
When we think about the.
Negative impact that could have on new car manufacturing and then the assumption that that's kind of forced consumers to keep their current cars longer.
How much debt affect your business over the next 12 months.
Yes, I think it's definitely a tailwind for us and and all.
As the fleet gets older and people are maintaining and keeping the vehicles longer and it's definitely a tailwind for us and they think is going to go beyond 12 months I think is going to be a tailwind.
And for a long time, because the old because.
And we've been selling a lot of new cars over the last seven years or so and they are now entering our sweet spot on.
So as of the fleet gets older and as people keep their cars longer and it's definitely going to be of tailwind for us for for a while to go.
Excellent alright, and so I wanted one last question last quarter, you talked about and initiative your mobile mechanic, which I believe is in beta.
Give us an update on that and then what signs of it would take for you to expand the effort out of beta.
Yes, we're constantly looking and were analyzing every interaction and we'll have with our customers we want to make sure that we'll do it the right way.
And what's the right partners.
And so we're going to keep it on the data at least until the end of the year and then start extending us from there.
Excellent. Thank you for taking my questions.
Thanks.
Thank you. Our next question comes from the line of Darrin.
Johnny from Roth Capital Partners. Your line is now open.
Hey, guys and good afternoon, and thanks for taking my question.
Work on the results a.
Couple of if I may.
If you look at the revenue number for the quarter and your comments about 50% capacity on the last call like is it sort of us fair to assume about $25 million of sales came from Texas and the quarter.
Hey, Darrin, it's David Yes, it's safe to assume that last year. The the network was running at full capacity and revenue capacity is about 120.
So all of that incremental sales came from the additional DC.
Which is obviously why we're very excited about expanding it even more and taking the space next door.
So you kind of took the words and move out from us.
And second question, but I'm just curious if you had for capacity like what are you seeing I mean, obviously the man, but what are you seeing specifically, that's causing you to expand so quickly and then of the derivative I know in the past you guys have talked about maybe having another locale and the geography, maybe up in the northeast.
Like how quickly would you kind of add on to D C capacity and and non Texas geographies.
And it's great question, obviously, and we're very happy about the last three Dcs and how they turned out I think all three exceeded expectations and got to full capacity very quickly.
And we accomplished pretty much for everything we wanted it.
It's kind of of two for one and you are closer to the customer and you can hold more inventory.
Ultimately, we want the customers to get their parts faster and I think it's a testament to the business that we're building.
On the way to think about it is the more inventory we carry the more customers we can get back on the road.
And as far as our supply chain decisions.
And we've shown us that we know where to put the disease, we know what inventory to put in there and ultimately the by shipping faster to the customers we can be more competitive.
So the ultimate goal is always to get to 80%, 80% to 90% of the population within one day.
Texas is just one step and the whole equation and you can expect more Dcs and.
We started looking already for the next one and we're constantly trying to be one step ahead and as soon as we have something to announce.
You can expect the press release from us.
Got it and then I guess my and my last one you guys made some commentary about improvement.
Sure.
Can you just talk about like.
In the lifestyle and calls since you kind of out of the data science team and invested and do that.
Like when you look at the user interface.
Product of the website we're on.
Areas of improvement that you think and kind of happen on the next six to 12 months.
Yeah, I think it's going to be everywhere is the answer and now we're constantly trying to get customers to the right part.
That's one of our pillars and so the experience is going to continuously evolve to make sure that the customers can find the right parts for their vehicle, it's a little bit easier in collision and then there is and mechanical parts.
So our next challenge us to make that the experience as seamless as possible and mechanical parts because there are a lot of variances.
And the customer I can't really understand the differences between the different brands. So.
And so we're trying to make it easier for them.
Again, all in an effort to make sure of that they've got the right parts for their vehicle.
Great. Thank you.
Thank you. Our next question comes from the line of Scot Ciccarelli from RBC capital markets. Your line is now open.
Hey, guys Scot Ciccarelli.
I guess I had a follow up on the inventory.
And as well it seems like a couple of months ago, you guys were.
And I'm very concerned about inventory flow.
And I guess I'm trying to reconcile your 65% top line growth.
The inventory constraints, you kind of intimated and a couple of months ago. So I guess I'm just wondering like did where you able of source better was it a function of better execution on your side et cetera. If you can just kind of help connect those dots that'd be great.
Hey, Scott David Great question, I think it's a combination of everything again, we have a great team and the team that comes from the sourcing the logistics the forecasting selecting the containers and leveraging our relationships with ocean carriers overseas vendors as well as domestic vendors. So.
Prioritizing, which skus, we bring in and focusing our efforts on on bringing in the Skus that will turn quickly.
Both on the private brand side and the other premium brands that we don't own.
We're 60% for.
So the the the warehouses and full but we're operating at full capacity. So again like amazing execution from the team and working together and a coordinated efforts to the leverage our supply chain.
Got it and then so how quickly neither one of the other follow ups and David is how quickly can you adjust your inventory orders I mean, because what we do know that the whole supply chain and jump back up right. So how quickly can you adjust those orders as your AI systems are able to identify kind of where you're seeing the most of them.
And.
Yes, we adjust and semi real time, so we placed buys throughout the week and and weekly now of the lead times are longer and our industry. So on the replacement parts.
It's usually three four months on mechanical sometimes longer.
But we do have some great relationships with with premium brands, we're able to source of domestically.
I think we've done a pretty good job of trying to diversify our supply chain. So.
We're leveraging new partnerships, we're leveraging existing partnerships, but we're constantly reacting in real time and.
And and trying to pivot as we get new information.
And then just to clarify so.
The comments sorry. This is love for the comments, we made last quarter about filling the D. C. So when we opened the new DC, we order to a certain level of sales and I think when we were talking about last quarter of what we're talking about actually filling the D C. But the sales were coming and faster than we were anticipating so that's why we're not actually able to make it.
Fall and that's why we're getting the expansion and now we're placing bigger buys so that the day she can get fuller, but you know.
It was more related to how full the D. C is not that it's not operating at full capacity.
Got it and then finally like how much of a contributor was mechanical parts and the quarter and I know that the at least the future initiative, but I'm just wondering how material it and I've been in the quarter.
Yes, so for Q1 and remember, it's not particularly of the season for mechanical parts, but it's about 23% of our sales for Q1.
So if you look at the nonperformance and accessories piece of our business it was bigger than than historically and again over time, we're trying to get that mix closer to 50 50 right now it's about 70 525, but all of the initiatives that we have are underway. The assortment is expanding both on the stock ship and drop ship side. So.
We're pretty confident that over time, we're going to get to the number that we want.
Got it thanks, a lot guys. Thanks.
Thanks Scott.
Yes.
Thank you. Our next question comes from the line of Ryan <unk> from Craig Hallum Capital. Your line is now open.
Good afternoon, guys nice quarter.
And how you view the difference and I guess focus internally on driving more website traffic versus improving inventory selection and and really conversion on that do you think you'd need more eyeballs on the website or just more inventory and better conversion.
I think it's both right.
It never hurts to have more traffic and you're always optimizing for conversion and average order value and aware of.
We're doing a lot of things around selling the job, making sure that the customer can buy tools that they need in order to do the job.
And if they need two of something that we're selling them as of Sept building kits understanding really the pain points for customers and what it is that they need to buy it together.
And so and merchandising is going to continue to evolve in order to you know to make sure that we're satisfied customers need.
And so we're always optimizing for conversion on the <unk> and we're always trying to get more eyeballs on the site.
And then as far as seasonality goes normally stronger and the first half just the industry and you guys inventories getting bigger and bigger you're filling capacity I guess do you think you can more than offset industry seasonality. This year on a revenue basis.
Throughout the year.
Yes, I think.
And I think first half.
Is definitely the strongest for us just like us for the rest of the industry.
But it's mostly because of Q4 so.
If you look at our last year.
We pretty much have the slot revenues all the way through so Q2 Q3 and Q4.
So we kind of expect to the selling of the capacity of the whole time.
Yes, I think and if I can add to that Ryan I think the seasonality is on the background of of a company that's growing extremely fast I think and over the last two years, we've made a ton of investments and those investments are starting to pay off not just and talent and supply chain and inventory and brand awareness and whether it's the mechanical stuff for the EV stuff.
We have a great team and we have positive unit economics. So overall, we're pretty excited about the state of the business.
Great one more for me, we've seen pretty nice acceleration across the industry out of zone.
Many of the brick and mortar big box stores.
The stimulus checks reopening and et cetera have you guys seen any change in your business.
More recently March April even into May here kind of us those I've seen an acceleration or do you think it's and overall industry acceleration. Thanks.
Yes, I think so great question I think we feel really good about Q2.
If you look at the current business, we have more inventory.
We have more capacity, both inbound and outbound.
And you look at inventory on the balance sheet and was $98 million, which is the highest in company history.
That combined with the expansion next door and Texas.
So you have a great team you have a lot of investments and the supply chain. We're finally, starting to get some brand awareness. So we feel really good about Q2.
Thanks, guys I'll hop back in the queue. Good luck.
Yes.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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