Q3 2022 Carparts.Com Inc Earnings Call

November 9, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

Yeah.

Good afternoon, and welcome to the car parts of Dot Com third quarter 2022 conference call. At this time, all participants will be in a listen only mode. After the presentation. There will be a question and answer session. Please note. This call is being recorded.

I would now like to pass the conference over to our host Tina Mirror Farsi, Vice President of Communications and culture. Please go ahead.

Hello, everyone. Thank you for joining the call today to discuss our third quarter 2022 results.

Joining me today from the company are David Mignon, Chief Executive Officer, and Ryan Lockwood, Chief Financial Officer.

Their prepared remarks and responses to your questions could contain certain forward looking statements related to the business under the federal Securities laws.

Actual results may differ materially from those contained in or implied by these forward looking statements due to the risks and uncertainties associated with the business.

A discussion of the material risks and other important factors that could affect results. Please refer to the car parts Dot Com annual report on Form 10-K, and 10-Q as filed with the SEC both of which can be found on the Investor Relations website.

On the call both GAAP and non-GAAP financial measures will be discussed a reconciliation of GAAP to non-GAAP financial measures is provided in the car Parc Dot Com press release issued today with that I would now like to turn the call over to David.

Thank you Tina and good afternoon, everyone as reported in today's release for Q3 2022, our team achieved our best third quarter sales on record of $165 million up 16% versus the same period last year, and marking our 11th quarter in a row of double digit year over year sales growth on the <unk>.

Two year stack revenues were up 37%.

Like many throughout the United States, our customers are not immune from the inflationary pressures, causing them to tightened their belts. However, we have two things working in our favor first many of our items are less discretionary as consumers push to keep their vehicles on the road longer.

And second we believe that is while it's continued to be pressured by high interest rates and inflation. Some customers who were previously do it for me customers will step into the do it yourself space in order to save money.

Regardless of the circumstances that bring customers to <unk> dot com, we remained committed to simplifying their journey and removing the stress from auto repair and maintenance towards this endeavor. Our team has continued executing on our four areas of focus outstanding customer service operational excellence financial discipline and innovation.

Number one outstanding customer service, whether it is placing an order over the phone with one of our trained agents or helping connect the customer to a certified mechanic simplifying and removing the friction of auto repair is at the forefront of everything we do we're excited to announce that we have successfully upgraded to a new customer service platform on <unk> Dot com.

That allows shoppers to get better support in real time with E Mail and chat right from their mobile device as a reminder, over one third of our E. Commerce revenues come from repeat customers and we will continue to focus on improving our experience to get that number higher over the long term.

Number two operational excellence aligning people process and strategy with the needs of our customers is in our DNA, we continue to optimize our supply chain and invest in new tools to find operational efficiencies in our distribution centers, whether it is with inventory placement strategies or smarter technologies, we're striving to get more out of.

Our current network to deliver constantly improving customer experience, while making our operation more efficient.

On the technology front, we're happy to report that we have officially completed our ERP upgrade as many of you know our legacy system with over 15 years old and we are extremely thankful for the amazing work of our technology and business teams over the last two years to get us to our best in class platform number three financial discipline. Our business is built on positive.

Unit economics, we focus on optimizing the profitability of every transaction and maximizing gross profit dollars.

While revenues and gross margin percentage may fluctuate. Our overall goal is to always optimize for dollars internally, we like to say you can't deposit percentages in the bank.

As reported in today's release, we generated another quarter of strong adjusted EBITDA of $6 3 million up 173% from a year ago in times of market uncertainty profitable growth and free cash flow generation are more important than ever and we're we continue to focus our energy and resources.

Number four innovation.

To disrupting our industry is by growing our addressable market and getting our customers to come back to car parks dot com for all their repair and maintenance needs last quarter, we launched a new do it for me capability on our web site, where customers in select markets can see installation pricing and book an appointment for certain part names at a certified repair shop in their area.

We recently surpassed 1500 bookings with the service and our finding from our customers that this is a compelling value proposition of course, it's still very early for this new solution, but we believe that continued momentum will allow us to refine and optimize the technology and logistics to provide a seamless customer experience from.

Pricing standpoint in some cases shopping on our website may offer customers an opportunity to be less for parts and labor than they would for just the parts at a brick and mortar or dealership.

We believe this is a highly compelling offering, especially in times when consumers are trying to be mindful of their spend and we are working on the messaging in test markets, Brian will now discuss our financial results.

In Q3, we generated revenue of $165 million up 16% from the prior year period on a two year stack revenue increased 37% for the month of October we continued to see double digit year over year revenue growth, we remain committed to balancing growth profitability.

And free cash flow generation.

Gross profit for the quarter was $56 1 million up 19% with gross margins, improving 70 basis points to 34, 1% this year versus 33, 4% last year in the same period.

The improved gross margin continues to reflect the purchasing and freight optimization as well as our use of advanced pricing algorithms, all being driven by our data science and supply chain teams net.

Net loss for the quarter was 0.9 million, mostly driven by noncash expenses.

Adjusted EBITDA in Q3 was up 173% from the same period last year to $6 3 million.

Our unyielding focus on balancing growth with profitability and free cash flow generation resulted in a company record for third quarter adjusted EBITDA.

Now turning to the balance sheet at quarter end, our cash position was $16 7 million and our inventory was $155 million.

Supply chain pressures ease, we will continue to reduce excess safety stock, which will flow to cash over time and as a result, we believe we have ample liquidity and no intention or need to raise capital at current valuations. We continue to focus on self funded growth and at the end of Q3, we had 59 million.

Available on our revolving credit facility with an option to expand to $150 million, depending on our inventory levels.

On the fulfillment side, we are now at over 1 million square feet of fully built out warehouse space that can reach 98% of our customers within two day transit time, we.

We continue to invest in best in class technology tools to drive operational efficiencies throughout our network, but most importantly, bringing the best talent to build a world class supply chain.

While we intend on expanding our footprint in the coming years to get closer to our customers at this point, we see an opportunity to get more shipments out of our existing network.

And with that I'd like to turn it back to David for some closing remarks.

Yes.

Thank you Ryan and everyone for joining today's call Q3 was the 11th quarter of double digit year over year growth for our company. This performance would not have been possible without the incredible dedication from all of our teams across the globe. We continue to focus on our customers our people and our core business, we are grateful to be <unk>.

With such an amazing group of people.

There is a lot happening in the macroeconomic environment, we intend on balancing our investments to be more streamlined without compromising on building an extraordinary business and growing the intrinsic value of our company. We believe that this will benefit our shareholders in the years to come we see staying laser focused on positive unit economics free cash flow.

<unk> operational efficiencies and delivering an outstanding customer experience is key to building, an exceptional and durable company for a long term stakeholders.

Thank you again to all our team members, who are coming to work each day ready to crush it and as we say a PARP ourselves.

Great.

Now I'll turn it over to the operator to open it up for questions.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Thomas Forte from Dot Com.

Great David and Brian Congrats on a really good quarter. My one question one follow up so can you talk about your current marketing strategy and what your thoughts are at a high level on your current customer acquisition cost and maybe how that's faring versus recent trends.

Sure Tom I'll take the first part generically speaking as a percent of sales AD spend was basically flat from a marketing strategy basis, nothing has particularly changed I don't know if David you want to elaborate I think a couple of things Tom.

Obviously, historically, we've been mostly focused on performance marketing now over the next couple of years I think there is an opportunity to invest in customer experience.

The way, we think about it is everything is part of an ecosystem like if you think of our supply chain getting closer to the customer or our assortment expanding to have.

Collision and mechanical parts on top of traditional marketing I think there is an opportunity to bring all of this together to deliver an outstanding customer experience and I think for US It is still early.

And there is an opportunity to capture more and more customers over the long term.

Great. So for my follow up question.

It seems like Youre doing an amazing job of operating the business as efficiently as possible to improve your near term profitability.

Are there other areas you've identified that could potentially improve their near term profitability even more.

Hey, Tom Thanks for the question, obviously for Us and as David already mentioned his prepared remarks, we're laser focused on the balance between growth and profitability specifically focusing on gross profit dollars that obviously flows down to the remainder of the P&L, we're very very laser focused on how we allocate capital.

And I think taking a step back for us the number one priority is maintaining a strong foundation for the business and we have no reason to raise capital at these levels.

That's why financial discipline is so important to us.

Thank you David Thank you Ryan.

Thanks.

Thank you one moment for our next question.

Our next question comes from the line of Ryan Meyers from Lake Street capital markets.

Hey, guys. Thanks for taking my questions.

Brian kind of alluded to this a little bit on the last question, but given the strength that you guys have adjusted EBIT This quarter.

What was kind of the big driver that allows you to sort of block your seasonal pattern, whereas profitability is a little bit weaker in the second half of the year.

And then do you sort of expect us to continue here in the fourth quarter.

That's a great question back half profitability being a little bit lighter is really more specifically around Q4, all the carriers introduce a.

Holiday surcharge and actually started earlier than ever this year and then also it's a little bit of the revenue weakness that youll see at the top line in the fourth quarter because of people deferring spend to do Christmas purchases or travel.

Third quarter I think historically, we've had fairly okay profitability at the bottom line are fairly consistent.

Got it makes sense and then kind of as we think about growth maybe in the fourth quarter and then on the out years is there any sort of change in the outlook, especially kind of as you guys focus a little bit more on profitability or are we still safe to assume this double digit topline growth for the foreseeable future.

Sure as I mentioned in my prepared remarks first month of Q4, we continued to see double digit growth, but at the end of the day, we really try to not let the tail lagged the dog. The our focus is going to be on gross profit dollars and balancing that revenue growth and profitability through that.

Focus so I think we'll kind of see how revenues turn out for the remainder of this quarter and next year. The real key is that we're focused on the profitability in a nominal basis and not worrying so much about the percentages.

Got it that makes sense. Thanks for taking my questions. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Dillon Heslin from Roth Capital Partners.

Yeah.

Hey, guys. Thanks for taking my questions wanted to pass along my congratulations as well.

If I could start for the first one on operating cost.

Yes, that's the second quarter in a row I believe or you've seen sequential decline. So I just wanted to talk about.

Where youre getting that efficiency from and what's sustainable there just given that in that same three quarters, you've actually grid.

Growing your distribution footprint.

Hey, Thanks, Great question I think for the the way to think about operating expenses. The majority of our operating expenses are variable. So when we drive efficiencies through the business, whether it's marketing or fulfillment or call center that flows to the bottom line. The fixed portion obviously, we try to maintain through.

Eric financial disciplines, such as making sure every head count is really going to add an ROI or every technology contract is going to have an identifiable ROI. So it is something that we're going to continue to do.

As we try to drive forward long term profitability at the bottom line.

Got it thank you.

As a follow up and with the mobile mechanics 1.5 thousand bookings I think you mentioned.

What is that on a base of like how many customers were.

Was that available to the actually like interacted with the offering.

So I'll cover.

The do it for me so the <unk> hundred bookings that we had were a traditional mechanics, so not mobile mechanic, it's us connecting our customer that's on core plus dot com and is looking for a place or mechanics to do that repair.

It is 500 customer each booking is an individual customer now the way it's working right now it's in test markets for certain part names. So it's a little hard to break out.

I think that over time. This is probably one of the biggest opportunities in the biggest game changer for our company now it doesn't contribute to the top line and probably won't contribute to the topline in 2023, but we made a big push to get this going in and the team has done an exceptional job I think what it does is it really expands the total addressable market and the number of customers that we can reach.

So I am glad you are calling it out because I think it's I think it's a big move for us it's going to be a long term process and its still very early but I'm excited about it.

Great. That's helpful. Thank you.

Thank you.

One moment for our next question.

Our next question comes from the line of Ryan Macdonald from Craig Hallum.

Good afternoon, David Ryan.

Ryan I appreciate the comments on October trends curious I know, it's only a few days week here in November but anything notable from a directional at least trend line in the business.

In November thus far nothing.

Nothing notable for us again going back to it.

The focus is going to be on maximizing gross profit dollars I don't want to get too hung up on the double digit percentage, it's really about nominal gross profit dollars. The way we look at it internally.

Helpful.

The consumer activity.

The data you have.

Anything jump out that surprised you either puts takes have you seen any faster return to retail so to speak from consumers.

Within the online market share dynamics.

Yes, Ryan it's David I think if you were talking about the macro im glad youre, bringing it up because its something thats been popping up a lot and want to make sure. We address it I think we're doing a lot of things right.

Between our supply chain, our technology investments in the team that we built over the last four years, but.

To your point like our customers are not immune to inflation.

And we're definitely acknowledging the fact that the macro around us is changing or evolving I think what's important is for companies like us, especially after experiencing hyper growth or transformation is to acknowledge that the environment is changing now for me I think we can keep the same aggressive mindset and be laser focused on building a great business.

But at the same time kind of claim defensive moves and be fiscally conservative and create resilience in the business. So we mentioned it a couple of times in the remarks, and I think I just want to emphasize the fact that the focus is on.

Profitability free cash flow doubling down on the fundamentals and servicing our customers I also think that youre going to see some of our competition not as ready.

For the macroeconomic environment as we are and there might be an opportunity for us to capture market share. There is and there is always an opportunity for us to take business away from our competition and that's the intention that's the focus for the next few years is let's take share.

Yes.

On the do it for me test.

So it sounds like good reception early from the customers, but what are you hearing from the repair shop partners that are your sand and work to what's their feedback.

The feedback has been pretty good ultimately traditionally the mechanics are not out there looking for business a lot of it is local so I think what we offer.

Those partner mechanics, as an opportunity to capture business that they wouldn't capture otherwise.

The other thing too is because they are not capturing the margin on the parts that they sell we're allowing them to charge a slightly higher price and have the margin on the labor to make up for that loss I think it's still early but I think what I wanted to emphasize is that this is.

This is an initiative that we've been talking about for a while and for the last seven months, we basically made a big push and wanted to make sure that people understand yes. We have now over 1000 customers that are going through.

Through the experience and it's working I think there's plenty more opportunities for us to grow that business, but at a minimum we're starting to see traction and to see that theres a need for that yeah and Ryan if I. This is Brian . This is Ryan if I can jump in one thing Thats interesting is even though the mechanically charge a little bit more on the labor our customers are still getting a huge benefit so I recently looked.

At one application a customer through our website could get a headlight installed fully through one of our certified repair shops that we're partnered with and do that for cheaper than driving to a local brick and mortar buying the park coming home and realizing they don't know how to install it so especially going to recession I think that's a very compelling offering. So the mechanics are winning our customers are winning obviously were going.

Sell more parts it feels like a very good offering for everybody.

Yeah, No we're excited about the opportunity there.

On pricing so we've heard.

A lot of your big box competitors, basically say, we've taken a lot of price hasnt impacted demand we have pricing power.

And especially in the non discretionary categories that you guys, primarily play and mechanical and and collision, especially so so I guess have you taken price do you think there's more opportunity to take price.

Going forward.

Yes, I think it really depends on the park name in the category and the environment.

Obviously in November and December typically you have a little less pricing power because to Ryan's point some of the spend gets deferred I think we've done a good job of building those data science capabilities, and we constantly evaluate pricing basically in real time.

A lot of times it goes up sometimes it goes down net net I think we've done a pretty decent job of absorbing the impact of inflation in transportation costs.

But it is a constant evolution and obviously, we've got to focus on delivering an experience versus trying to be always the lowest price. So I think the main focus for us now and long term is.

From figuring more value to the customer in terms of quality in terms of service levels and not just pricing.

Thanks, guys. Good luck.

Thank you I appreciate it.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

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Good afternoon, and welcome to the car parts of Dotcom third.

Order 2022 conference call at this time, all participants will be in a listen only mode. After the presentation. There will be a question and answer session. Please note. This call is being recorded.

I'd now like to pass the conference over to our host Tina Mirror Farsi, Vice President of Communications and culture. Please go ahead.

Hello, everyone. Thank you for joining the call today to discuss our third quarter 2022 result joy.

Joining me today from the company are David Mignon, Chief Executive Officer, and Ryan Lockwood, Chief Financial Officer.

Their prepared remarks and responses to your questions could contain certain forward looking statements related to the business under the federal Securities laws.

Actual results may differ materially from those contained in or implied by these forward looking statements due to the risks and uncertainties associated with the business.

For a discussion of the material risks and other important factors that could affect results. Please refer to the car Park Dotcom annual report on Form 10-K, and 10-Q as filed with the SEC both of which can be found on the Investor Relations website.

On the call both GAAP and non-GAAP financial measures will be discussed a reconciliation of GAAP to non-GAAP financial measures is provided in the car Parc Dotcom press release issued today with that I would now like to turn the call over to David.

On the two year stack revenues were up 37%.

Regardless of the circumstances that bring customers to <unk> dot com, we remain committed to simplifying their journey and removing the stressed from auto repair and maintenance.

This endeavor. Our team has continued executing on our four areas of focus outstanding customer service operational excellence financial discipline and innovation number one outstanding customer service, whether it is placing an order over the phone with one of our trained agents or helping connect the customer to a certified mechanic Sims.

<unk> and removing the friction of auto repair is at the forefront of everything we do we're excited to announce that we have successfully upgraded to a new customer service platform on <unk> Dot com that allows shoppers to get better support in real time with E Mail and chat right from their mobile device as a reminder, over one third of our E Commerce revenues.

From repeat customers and we will continue to focus on improving the experience to get that number higher over the long term.

Number two operational excellence aligning people process and strategy with the needs of our customers is in our DNA, we continued to optimize our supply chain and invest in new tools to find operational efficiencies in our distribution centers, whether it is with inventory placement strategies, we're smarter technologies, we're striving to get more out of.

Of our current network to deliver a constantly improving customer experience, while making our operation more efficient.

Unit economics, we focus on optimizing the profitability of every transaction and maximizing gross profit dollars.

While revenues and gross margin percentage may fluctuate. Our overall goal is to always optimize for dollars internally, we like to say you can't deposit percentages in the bank.

As reported in today's release, we generated another quarter of strong adjusted EBITDA of $6 3 million up 173% from a year ago.

That market uncertainty profitable growth and free cash flow generation are more important than ever and we're we continue to focus our energy and resources.

Number four innovation.

Past the disrupting our industry is by growing our addressable market and getting our customers to come back to the car Park Dot com for all of their repair and maintenance needs last quarter, we launched a new do it for me capability on our web site, where customers in select markets can see installation pricing and book an appointment for certain part names at a certified repair shop in their area.

A pricing standpoint in some cases shopping on our website may offer customers an opportunity to pay less for parts and labor than they would for just the parts at a brick and mortar or dealership.

We believe this is a highly compelling offering, especially in times when consumers are trying to be mindful of their spend and we are working on the messaging in tough markets, Brian will now discuss our financial results.

Okay.

Generation.

Gross profit for the quarter was $56 1 million up 19% with gross margins, improving 70 basis points to 34, 1% this year versus 33, 4% last year in the same period.

The improved gross margin continues to reflect the purchasing and freight optimization as well as our use of advanced pricing algorithms, all being driven by our data science and supply chain teams.

Net loss for the quarter was 0.9 million, mostly driven by noncash expenses adjusted.

Adjusted EBITDA in Q3 was up 173% from the same period last year to $6 3 million.

Our unyielding focus on balancing growth with profitability and free cash flow generation resulted in a company record for third quarter adjusted EBITDA.

Now turning to the balance sheet at quarter end, our cash position was $16 7 million and our inventory was $155 million.

Our supply chain pressures ease, we will continue to reduce excess safety stock, which will flow to cash over time and as a result, we believe we have ample liquidity and no intention or need to raise capital at current valuations. We continue to focus on self funded growth and at the end of Q3, we had 59 million.

Available on our revolving credit facility with an option to expand to $150 million, depending on our inventory levels.

On the fulfillment side, we are now at over 1 million square feet of fully built out warehouse space that can reach 98% of our customers within two day transit time.

We continue to invest in best in class technology tools to drive operational efficiencies throughout our network, but most importantly, bringing the best talent to build a world class supply chain.

While we intend on expanding our footprint in the coming years to get closer to our customers at this point, we see an opportunity to get more shipments out of our existing network.

And with that I'd like to turn it back to David for some closing remarks.

Yes.

Working with such an amazing group of people.

We see staying laser focused on positive unit economics free cash flow generation operational efficiencies and delivering an outstanding customer experience is key to building an exceptional and durable company for a long term stakeholders.

Thank you again to all our team members, who are coming to work each day ready to crush it and as we say a PARP ourselves Tom accurate.

Now I'll turn it over to the operator to open it up for questions.

Sure.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Thomas Forte from Darko.

Great David Ryan Congrats on a really good quarter Hi, one question one follow up so can you talk about your current marketing strategy and what your thoughts are at a high level on your current customer acquisition costs and then maybe how that's faring versus recent trends.

Obviously, historically, we've been mostly focused on performance marketing now over the next couple of years I think there is an opportunity to invest in customer experience.

The way, we think about it is everything is part of an ecosystem like if you think of our supply chain getting closer to the customer or our assortment expanding to have.

Collision and mechanical parts on top of traditional marketing I think theres an opportunity to bring all of this together to deliver an outstanding customer experience and I think for US it's still early.

And there is an opportunity to capture more and more customers over the long term.

Great.

So for my follow up question.

It seems like Youre doing an amazing job of operating the business as efficiently as possible.

Prove your near term profitability.

There are other areas, you've identified that could potentially improve their near term profitability even more.

Hey, Tom Thanks for the question obviously for us.

David already mentioned his prepared remarks, we're laser focused on the balance between growth and profitability specifically focusing on gross profit dollars that obviously flows down to the remainder of the P&L. We're very very laser focused on how we allocate capital and I think taking a step back for us the number one prior.

<unk> is maintaining a strong foundation for the business and we have no reason to raise capital at these levels. That's why financial discipline is so important to us.

Thank you David Thank you Ryan.

Thanks.

Thank you one moment for our next question.

Our next question comes from the line of Ryan Meyers from Lake Street capital markets.

Hey, guys. Thanks for taking my questions.

Brian kind of alluded this a little bit on the last question, but given the strength that you guys had adjusted EBIT This quarter.

What was kind of the big driver that allows you to sort of block your seasonal pattern, whereas profitability is a little bit weaker in the second half of the year.

Then do you sort of expect us to continue here in the fourth quarter.

That's a great question back half profitability being a little bit lighter is really more specifically around Q4, all the carriers introduce a <unk>.

Third quarter, I think historically, you've had fairly okay profitability at the bottom line are fairly consistent.

Sure as I mentioned in my prepared remarks first month of Q4, we continued to see double digit growth, but at the end of the day, we really try to not let the tail wag the dog, where our focus is going to be on gross profit dollars and balancing that revenue growth and profitability through that.

Got it that makes sense. Thanks for taking my questions. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Dillon Heslin from Roth Capital Partners.

Yeah.

Hey, guys. Thanks for taking my question I, just wanted to pass along my congratulations as well.

If I could start for the first one on operating cost.

Yes, thats the second quarter in a row, I believe or you've seen sequential decline. So I just wanted to talk about.

Where youre getting that efficiency from and what's sustainable there just given that in that same three quarters, you've actually great.

Growing your distribution footprint.

Eric financial disciplines, such as making sure every head count is really going to add an ROI or every technology contract is going to have an identifiable ROI. So it's something that we're going to continue to do.

As we try to drive forward long term profitability at the bottom line.

Got it thank you and as a follow up and with the mobile mechanics 1.5 thousand bookings I think you mentioned.

What is that on a base of like how many customers were.

Was that available to the actually interacted with the offering.

So I'll cover that.

The do it for me so the <unk> hundred bookings that we had were a traditional mechanics, so not mobile mechanic it's us.

Connecting our customer that's on car parts dot com and <unk>.

Looking for a place or mechanics to do that repair.

It is 500 customer each booking is an individual customer now the way it's working right now it's in test markets for certain part names. So it's a little hard to break out, but I think that over time. This is probably one of the biggest opportunities in the biggest game changer for our company now it doesn't contribute to the top line and probably won't contribute to the top line in 2023.

But we made a big push to get this going in and the team has done an exceptional job I think what it does is it really expands the total addressable market and the number of customers that we can reach so I am glad you are calling it out because I think it's I think it's a big move for US it is going to be a long term process and its still very early but I'm excited about it.

Great. That's helpful. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Ryan Macdonald from Craig Hallum.

Good afternoon, David Ryan.

Ryan I appreciate the comments on October trends curious I know, it's only a few days week here in November but anything notable from a directional at least trend line in the business in.

In November thus far.

Nothing notable for us again going back to it.

The focus is going to beyond that maximizing gross profit dollars I don't want to get too hung up on the double digit percentage, it's really about nominal gross profit dollars. The way we look at it internally.

Helpful as Youll get the consumer activity.

The data you have.

Anything jump out that surprised you either puts takes have you seen any.

Faster return to retail so to speak from consumers.

Or within the online market share dynamics.

Between our supply chain, our technology investments in the team that we built over the last four years, but two.

Your point like our customers are not immune to inflation and we're definitely acknowledging the fact that the macro around us is changing or evolving I think what's important is for companies like us, especially after experiencing hyper growth or transformation is to acknowledge that the environment is changing now for me I think we can keep the same.

<unk> aggressive mindset and be laser focused on building a great business, but at the same time kind of claim defensive moves and be fiscally conservative and create resilience in the business. So we mentioned it a couple of times in the remarks, and I think I just want to emphasize the fact that the focus is on.

Profitability free cash flow doubling down on the fundamentals and servicing our customers I also think that youre going to see some of our competition not as ready.

For the macroeconomic environment as we are and there might be an opportunity for us to capture market share. There is an offer there's always an opportunity for us to take business away from our competition and that's the intention that's the focus for the next few years is let's take share.

Yes.

On the do it for me test.

So it sounds like good reception early from the customers, but what are you hearing from the repair shop partners that are your sand and work to what's their feedback.

The feedback has been pretty good ultimately traditionally the mechanics are not out there looking for business a lot of it is local so I think what we offer those partner mechanics, as an opportunity to capture business that they wouldn't capture otherwise.

The other thing too is because they are not capturing the margin on the parts that they sell we're allowing them to.

Charges slightly higher price and have the margin on the labor to make up for that loss I think it is still early but I think what I wanted to emphasize is that this is.

This is an initiative that we've been talking about for a while and for the last seven months, we basically made a big push and wanted to make sure that people understand yes, we have now over 1000 customers that are going.

Through the experience and it's working I think there is plenty more opportunities for us to grow that business, but at a minimum we're starting to see traction and to see that there is a need for that yeah and Ryan if I. This is Brian . This is Ryan if I can jump in one thing Thats interesting is even though the mechanically charged a little bit more on the labor our customers are still getting a huge benefit so I recently looked.

Sell more parts it feels like a very good offering for everybody.

Yeah, No we're excited about the opportunity there.

On pricing so we've heard.

A lot of your big box competitors, basically say, we've taken a lot of price hasnt impacted demand, we have pricing power and.

And especially in the non discretionary categories that you guys, primarily play and mechanical and collision.

Specialty cell. So I guess have you taken price do you think there's more opportunity to take price.

Going forward.

Yes, I think it really depends on the park name in the category and the environment.

Obviously in November and December typically you have a little less pricing power because to Ryan's point some of the spend gets deferred I think we've done a good job of building those the data science capabilities and we constantly evaluate pricing basically in real time.

Lot of times it goes up sometimes it goes down net net I think we've done a pretty decent job of absorbing the impact of inflation in transportation costs.

But it's a constant evolution and obviously, we've got to focus on delivering an experience versus trying to be always the lowest price. So I think the main focus for us now and long term is.

Figuring more value to the customer in terms of quality in terms of service levels and not just pricing.

Thanks, guys. Good luck.

Thank you I appreciate it.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2022 Carparts.Com Inc Earnings Call

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