Q1 2021 Parts Id Inc Earnings Call
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Thank you for joining us today to discuss parts I DS first quarter 2021 financial results.
On today's call are Dino Cioppino, Chief Executive Officer and.
And collage Agarwal, Chief Financial Officer.
I would like to point out that certain statements made during this presentation are forward looking statements.
These forward looking statements reflect management's judgment and analysis only as of today and actual results may differ materially from current expectations.
Just on a number of factors affecting parts Ids business.
Accordingly, you should not place undue reliance on these forward looking statements.
For a more thorough discussion of the risks and uncertainties associated with forward looking statements to be made and this conference call and webcast. We refer you to our first quarter 2021 earnings release.
Which was furnished to the S. E C. Today on form 8-K, as well as the company's most recent annual report on form 10-K, and its other filings with the SEC.
The company does not undertake any obligation to update or alter any forward looking statements, whether as a result of new information future events and otherwise.
In addition, the company's plan the company plans to refer to certain adjusted non-GAAP metrics on this call.
Explanation of these of those metrics and reconciliations of GAAP metrics to those non-GAAP metrics can be found and the earnings release issued earlier today, which is also posted on the press release page of our website at Www parts I D Inc. Dot com.
With that I'd now I'll turn the call over to Nino Cioppino Chief Executive Officer.
Our parts I D Nino.
Thank you and thanks, everyone for joining us for our first quarter earnings call.
2021 is off to a great start we entered the year with a lot of momentum and our business and.
Sound strategies in place to continue driving strong revenue and adjusted EBITDA growth.
Our third quarter results demonstrate that our strategies are working as we grew net revenue, 54% year over year and increased adjusted EBITDA by 83% year over year.
Even as we faced some cost and expense headwinds.
Given the parts I D and a relatively new company.
I'd like to spend some time discussing our business the technology platform and operating model before getting into the key drivers of our recent performance.
Carlos will then take you through the financials after that we'll open the call to your questions.
Of course ideas and technology, driven digital Congress company focused on creating custom infrastructure and unique user experiences within niche markets.
Our technology is a data and information platform that enables and facilitates a differentiated digital commerce experience for complex products categories as opposed to a pure e-commerce retailer.
The platform integrates software engineering and catalog management data and intelligence mining and analytics, along with the user interface development, which utilizes distinctive rules based parts fitment software capabilities.
To handle the ever growing need for accurate product and parts data.
And utilized cutting edge computational and software engineering techniques, including Beijing classification to <unk>.
Enhanced and improved data records and product information and ultimately to contribute to the overall development of and engaging user experience.
Technology platform, and fungible, which we've demonstrated by launching seven new verticals and August 2018, including motorcycle IV, dotcom, and <unk> dot com and <unk> Dot com, which all leverage the same proprietary technology platform and data architecture with a unified shopping cart, enabling.
<unk> to shop across verticals and seamlessly checkout using one car.
Through the journey of building and end to end digital Congress technology platform for complex product parts and accessories, we developed a product portfolio with over 17 million Skus, a just in time fulfillment network comprising over 1000 and vendor partners.
Over 5500 active product brands over 14 billion data points related to vehicle parts.
And proprietary machine learning algorithms for complex fitment industries, such as vehicle parts and accessories.
There are several key points that highlight the attractiveness of our platform, our operating model and underscore how parts IC as distinguished from the competition.
First our distinctive technology provides accurate data, which enables a successful experience for the auto parts consumer and supplier.
Unlike any other consumer product category.
SaaS or failure of selling parts comes down and fitting and day data that sellers like us add to our product offerings.
10 minutes and compatibility of each part and century to each specific vehicle year make model engine type trim and more.
And having fitment data that is accurate and complete and and the right format for each channel is crucial to a superior user experience and a successful customer transaction.
Furthermore, our proprietary technology enables us to test and add new product lines and brands rapidly.
Second.
Our product catalog of over 17 million Skus and 5500 brands is unrivaled.
Our comprehensive catalog is enriched with nearly 14 billion data points related to vehicle parts advanced <unk> imagery in depth product descriptions customer reviews installation and fitting and guides as well as other rich custom content created and in our in house studio specific.
And the catering to the needs of the automotive aftermarket industry and is further complemented by specialized customer service.
Third our proprietary and capital efficient fulfillment model allows us to grow rapidly without the need for additional capital R.
Our network of over 1000 product vendors has enabled us to scale, our catalog size quickly and add new verticals.
Like traditional players that have more capital intensive businesses.
We can test and add new product lines and brands and quickly without tying up capital and without worrying about inventory obsolescence.
And Joe optimized fulfillment algorithm determines which product vendor to buy from while the sales being made and incorporate factors such as real time inventory from our fulfillment network.
Customer proximity shipping cost and profitability.
This decentralized data driven approach allows us to increase fill rate and delivery speed.
Fourth.
And purion customer experience as a result of rich content wide product range with ease of selection.
Piety, fitment data and highly trained customer service, providing a data driven engagement platform for discovery and inspiration.
This is evident by the.
And the number of repeat customers defined as customers and the first quarter of 2021, who had made a prior purchase between 2011 and 2020 represented 20 point 26, 9% of total customers and the first quarter of 2021.
Our overall product return rate continues to be approximately 5% first and industry average of more than 20% and our net promoter score of approximately 67.
We have invested over 10 years building our platform and it's not easy to replicate in fact, our investment and technology and data is arguably the deepest competitive moat around our business and.
And it has allowed us to expand into new verticals, leveraging a capital efficient just in time inventory model to offer the consumer and extensive selection and experience.
With that background I'll walk through the key highlights from the first quarter and then I'll discuss our long term growth plans before turning it over to Carlos for a review of the financials.
As I outlined during our fourth quarter earnings call in March we have been concentrating our efforts on underdeveloped product lines to expand our catalog.
This includes original equipment and repair parts and our core automotive business as well as our newer verticals such as motorcycle boding Canfor and power sports.
In addition to profit product expansion. We are also broadening the services available through our platform as we push deeper into the do it for me segment of the market.
To advance core I'd dot comp position and a one stop shop and seamless solution for all vehicle enthusiasm needs.
We have successfully partnered with over 2000 and tire installation locations and we're on track and have over 9000 tire installation locations by the end of this year.
This tire installation and service allows customers to visit <unk> Dot Com research and choose from a wide variety of tires and and the same transaction and select the tire installation center near them to schedule an appointment.
Shifting to our newer verticals, we experienced exceptional growth and motorcycle power sports boating, and marine and RV campus during the first quarter.
With the total value of orders received within each growing by 80% or more over the first quarter of 2020.
While we are very pleased pleased with our recent results. We believe we have only just begun to unlock the potential of our unique technology led capital efficient inventory life business model.
And we shared on our last call. We are working on several strategic initiatives, including category expansion and developing the new verticals.
<unk> optimization online to offline initiatives brand building and marketing diversification.
Starting first with category expansion and developed with the new verticals.
Within our core automotive product lines, we are working on developing additional vendor relationships and large relatively underdeveloped categories, such as original equipment and repair parts were.
We are also pursuing similar strategies and our new verticals and we're making good headway increasing SKU counts for these fast growing businesses by Onboarding and Wi selection of products and brands.
Moving next to pricing optimization.
We launched several price elasticity tests on additional brands.
We have seen continued improvement and sales volume as well as in site conversion rate and many brands, where these tests have been launched.
We have also recently carried over this methodology.
First batch of brands and some of the new verticals.
Next I'll move to our initiatives and online to offline.
And as I shared in my earlier remarks, we have successfully partnered with over 2000 and tire installation locations and we're on track and.
Over nine and tire installation locations by the end of this year.
We believe higher installation is just the first of many other services, we can integrate partners with and offer and the future.
Finally, I'll move to brand building and marketing diversification.
We are increasing our investment in connected TV and video and social media advertising to build on the work we started in 2020.
In addition, there is work underway to grow E mail subscribers the facility building more personalized customer communication and relationships.
In conclusion.
We are very encouraged by the growth and customer acquisition and retention and the first quarter.
And this combined with improvements and our conversion rate drove net revenue growth of 54% versus the first quarter of 2020.
In addition, we're excited about the continued momentum and our new verticals, which experienced exceptional growth.
All many growing in excess of over 80% versus the same period last year.
We believe the key drivers of our success is rooted in product and category expansion pricing optimization connecting online to offline with value added services growing brand awareness, increasing average order value and conversion.
Yeah.
We are confident that parts idea is positioned for continued growth.
And our superior customer experience and strategic initiatives differentiated technology comprehensive product catalog and experienced management team.
Our focus continues to be long term profitable growth.
We look forward to updating you on our progress as we continue to execute our long term vision for the company.
With that I'll turn the call over to <unk> to review our financials.
Yeah.
Thanks Neil.
No covering the drivers of our top line and what I mean, the list and then continuing on reveal.
First quarter financials, I'm going to limit my comments and gross margin expenses, I know and balance sheets.
Starting with gross margin gross margin was 24, 9% and the team months ended March 31, 2021, which was slightly lower than the gross margin.
<unk> and cope with it and three months ended March 31 and 2020.
Like many businesses are experiencing higher shipping costs due to continuation of such diverse by shipping and yes.
With respect to operating expenses.
<unk> expenses increased $4 4 million.
72, 3%.
For the three months ended March 31 2021.
Compared to the three months ended March 31 2020.
This increase and advertising costs was primarily attributable to an increase and paid traffic and the three months ended March 31, 2021, well.
Jane and makes up advertising channel used and.
And this thing up new advertising campaigns and content development.
G&A expenses and fees.
$2 7 million parts have you inputs and three months ended March 31 2021.
Two three months ended March 31 2020.
And this increase was primarily attributable to and in fees up.
Got it and one point and $1 million in merchant and service provider processing fees and.
Fees and revenue and $2 $1 2 million up a public company operating expenses at.
It is important to understand that is that ongoing expenses debt was the headwind to year over year comparisons until we lap the completion upward business combination and that does this year.
And then you've got a balance sheet.
As of March 31, 2021, we had a cash up dollar per.
$37 4 million compared to $92 2 million at December 31, and 2020.
And fifth and cash was primarily driven by net cash provided by operating activities of <unk>.
And the 17 million, partly offset by cash used in investing activities $1 8 million, primarily related to website and software development expenditures.
The total capital efficient inventory light business model our cash.
Cash balances puts us in a strong position to continue investing and growth initiatives and other.
Long term profit objectives with that operator, we are now ready to take the questions.
Yeah.
At this time, we'll be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is and the question queue.
You May press Star two if you would like to remove your question from the queue.
And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question today is from Maria Rips of Canaccord. Please proceed with your question.
Great. Thank you for taking my questions and congrats on the very strong revenue in the quarter can you maybe talk about key drivers behind the SaaS revenue growth accelerating in Q1 and did you see any benefit from the latest round of stimulus checks in the quarter and sort of related to that are you able to share any color on whether.
This strength is continuing and Egypt.
I'm Maria and.
Thank you for joining the call. Let me take your can you unpack your questions just one at a time and first one just being about.
Revenue growth and the quarter with key drivers.
Yeah, I just wanted to ask about the key drivers behind it sounds revenue acceleration in Q1 relative to what you look.
In Q4, and I just wanted to see if you saw any benefit from the stimulus checks and the quarter and.
And the last part of the question is whether youre able to comment on what you're seeing in Q2.
Okay.
What we had.
Very strong underlying trends and our core business.
Exceptional growth and our newer verticals as I mentioned many of the new verticals grew in excess of 80%.
Conversion rate was very strong as was average order value so really firing across many all cylinders and this is in addition to the momentum coming into the year.
In terms of the pandemic or rather the government stimulus check.
The first quarter was aided by some degree of benefit from government sales.
Absolutely, especially in January or March windows separately.
But it's difficult to isolate the impact from the stimulus.
From all of these strategic initiatives. The Great example is our net revenue increased 54% versus last year total, but as I, just articulated earlier and the new the new verticals and many of them exceeded 80% growth.
And so difficult to isolate but.
And we definitely believe there was some.
Mild impact from the government stimulus.
In terms of Q2, we don't comment on the current model on the current month excuse me.
But otherwise I would just say we're pleased with what we saw so far but we certainly know we have a tough quarter and front of us given the year over year.
Stimulus that was released in the second quarter of last year.
Got it that's very helpful and Nina and just a quick follow up.
And sort of newer verticals and you mentioned that you see and exceptional sales growth there.
And you expand your catalog of products with the addition of original equipment parts and and again and you'll verticals does that change the type of customer that you attract to the platform and that sort of do you need to adjust your marketing message and to educate consumers about the expanding breadth of your cash.
Catalog.
Yes, so when you're referring to I believe is kind of the difference between the DIY. The do it for me consumer and even the professional consumer quality and mechanic our body shops.
So what we expect is as we continue to expand into new categories, such as original equipment and repair parts. We believe organically that will bring the professional consumer to our business. He is looking for partners. Today, we don't have a volume based business for the professional and consumer that's certainly something we're discussing internally and potentially.
For the future to help kind of accelerate the adoption of <unk> I'd dot com by these professionals will we believe we're going to make a lot of we're going to penetrate back consumer segment strongly just given the expansion into those key product categories. They typically shop owner.
Got it that's very helpful and maybe one last question if I could.
Looks like you had a pretty healthy level of advertising spend in Q1 can you maybe talk about just how can marketing efforts both in Q1 and for the balance of the year and how are you thinking about sort of the timing and depth of TD campaign. This year compared to last year and that can you maybe talk about whether you're seeing any CPM inflation and social media and if that's impacted.
And your marketing strategy.
Yes.
Your observations are correct our advertising revenue.
Advertising and rate, we deleveraged by about 100 basis points.
<unk>.
Couple of key reasons for that is and whenever theres strong demand and the marketplace as we experienced in the first quarter, we're going to be aggressive to capture that demand, especially knowing that the new customer acquisition, we can pull and helps kind of facilitate repeat business and the future given our.
The superior experience.
We're going to balance it so we're not going to invest and advertising for the sake for the sake of growth and it's not profitable. So we're going to balance the top line opportunities and capturing that demand.
We're continuing to monitor the bottom line in terms of profitability.
We do have a number of experiments on the marketing side going on as I mentioned in my opening remarks.
And to continue leaning into TV and other video testing. This year, we have a couple of test lined up coming up soon we're going to be increasing our investment and social media, which we kicked off last year and I think this sideways into the other part of your question. Just regarding are we experiencing any kind of increase I think you said and CPM or cost per page.
And on the Facebook side or just in general and general Yes, we're seeing a rising cost per page session. That's really primarily due to how competitive some of the search engine advertising auctions has been during this quarter and then on the social media side, the Cpm's are increasing.
There's really two reasons for that.
First reason is we've significantly increased our investing and the social media advertising year over year and then the second part of that is most likely do although we can't exactly.
Determined that with 100% protection is that.
Apple's implementation of iOS, 14, which is blocking it.
Cookies on devices are enabling consumers to opt out.
And we believe is probably impacting some degree of CPM rates, but it's unclear how much so far.
Got it that's very helpful and I. Thank you very much.
Thank you.
The next question is from Mike Baker of D. A Davidson. Please proceed with your question.
Hey, Thanks, guys.
Just on the top line is there.
Anything you can tell us about maybe different market set of.
Opened up earlier than others. During the first quarter are now that all of you know many local economies are opening up.
What kind of trends Youre seeing I guess, what I'm getting at is.
People sort of go back to work and and maybe have less time for hobbies at home.
How does that impact your business.
Hi, Mike Nice to hear for you and thank you for the question.
This is a tough question I mean miles driven are still down.
Versus prior years I was looking earlier it looks like they're up slightly to April last year, but still significantly down.
<unk>.
It doesn't necessarily impact our business too much given that we're primarily and the accessories business, which is.
Not really dependent on miles driven but I think at the core of your question you're getting at are the lockdown restrictions have we observed any difference across the country based on the lockdown restrictions again, a difficult question, especially given that a big part of the country, specifically the Midwest and south are already open.
And have softened masked mandates.
But really and looking at the data and the first quarter, we'd get and observe any material differences by state due to lockdown measures.
However, what I would say is in February.
Given the extreme temperatures and snow storms across large parts of the country and even with regard to some of the southern states like Texas and certainly observed some changes for a very brief period and the middle of February but related to the lockdown difficult to say, but I would say, we haven't really observed anything there.
Yeah.
Okay. Thanks, and then maybe I don't.
And if this can help illuminate the situation, but did you talk about repeat customers I think you said and I know who purchased between 2011 and.
And last year, and then bought again is a repeat customer.
Is there any way to know maybe new customers, who joined you guys last year during the pandemic as people did take on more hobbies and are you seeing those customers be any more sticky or come back and and repeat.
And if so can you quantify that thanks.
It's a leading indicator so.
We did have a brief analysis to understand kind of the customers, who purchase and the prior year, how much of them contribute to kind of the repeat customer rate in any given quarter.
Yes.
I won't disclose the exact figures, but we know it's a leading indicator and certainly a predictive atrophy, we can use going forward.
Well so great.
And any indicator and predictive is it moving and the right direction and I guess is the key question.
Yes.
Okay. Thanks for that.
And one more if I could just on the gross margin Clos.
So shipping impact to do as you said I think it's impacting a lot of companies.
And any quantification or maybe can you. Please tell us what would gross margins have been up if not for the shipping costs.
Oh, Hey, Mike Okay, that's fair.
Absolutely disappoint and 5% the total impact is because of the shipping and this is due to the continuation of the holiday surcharge and Baidu.
Big shipping.
Carriers and they.
And they did not they took away the surcharges agenda levy at the time of holidays. So we are negotiating with them and.
Hopefully.
And with the volume so real how.
Maybe how are better reserves, but.
Too early to comment on debt.
And and.
So a couple of follow ups, and so 5% surcharge and not a 500 basis point impact I presume, but and then.
So five 5% impact study.
Okay I got you and then.
Is that something that your typical youre able to pass onto customers or do you see you know a pushback.
Or maybe cart abandonment or something like that and if you try to raise your your shipping prices.
Oh, absolutely, we do pass and the majority, but here, we decided not to pass on this ex subsets and.
And it will be at those surcharge and just to keep on Williams.
So that's what this is and we make from time to time.
But as you know the majority of the cases to be dual class handy.
Chip and Costa Rica stomach.
From our government carrier and order shipping expenses.
And we charge back to because so much but and the appropriate cases, we do offer concessional artificially.
Okay. So one more follow up and then I'll turn it over should we expect that kind of gross margin pressure to continue shipping costs are still high I guess, what I'm asking is is there any plan to pass it through and this in the coming quarters or should we continue to expect pressure. Thanks.
Hum.
And I will say, maybe Jade Carter is supposed to be a fill and negotiating with the oh and carriers and if Oh and negotiations are successful then.
And that they should really be off.
Okay. Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
There are no additional questions at this time I would like to turn the call back to Nino Cioppino for closing remarks.
Yes. Thank.
Thank you operator, I'd like to say, thank you to the entire parts Ivy team here domestically and across the globe for helping kind of drive this.
Great first quarter performance by the company. Thank you to the analysts and investors for joining the call today and we look forward to updating everyone on our Q2 results and August Thank you.
Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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