Q4 2022 Carparts.Com Inc Earnings Call

March 7, 2023

The conference will begin shortly.

Okay.

Good after noon at this time, all participants will be in a listen only mode. After the presentation. There will be a question 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 and thank you for joining us for the car parts Dot Com fourth quarter 2022 conference call I'd like to start by welcoming me investors and others, who are attending this meeting remotely.

Joining me today from the company are David menu on Chief Executive Officer, Ryan Lockwood, Chief Financial Officer, and Michael Baker, Chief Operating Officer.

Before I turn it over to David to start the meeting I have some important disclosures their prepared remarks and responses to your questions 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 parts Dotcom annual report on Form 10-K, and 10-Qs 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 call.

<unk> Dot Com press release issued today and with that I would now like to turn the call over to David.

Thank you Tina and good afternoon, everyone and thank you for joining us as reported in today's release for Q4 2022, we marked our 12th consecutive quarter of double digit year over year sales growth of $154 5 million.

11, 8% from the prior year.

On a two year stack revenues for the quarter up 27, 2%.

Also for the full fiscal year 2022, we're excited to be company records for both top line at $661 6 million and $26 1 million for adjusted EBITDA for those keeping score. This is our third year in a row of posting record revenue.

A lot happened in 2022 within the organization, we refreshed our executive team opened two buildings increase the size of our credit facility, while extending it for five years and much more.

All of this while helping our customers navigate a much tougher economic environment, our team outperformed and delivered record breaking sales profitability and free cash flow, while optimizing our inventory position.

The key to our success lies in our culture and our commitment to shareholders. We've built an incredible business centered around positive unit economics repeat customer and a laser focus on financial discipline.

All with the intention of maximizing long term shareholder value.

At <unk> Dot Com, we are committed to empowering drivers along their journey and removing the stress from auto repair and maintenance and to keep delivering on this our team has continued executing on four focus areas outstanding customer service operational excellence financial discipline and innovation.

Number one outstanding customer service delivering an outstanding customer experience is the most critical thing we do our customers are already seeing a more streamlined experience on the website as well as faster delivery times today.

Today, we're closer to our customers and our click to delivery times are better than ever.

These tangible improvements are part of the cultural shift that started in 2022 at <unk> Dot com and.

In which every decision starts with the customer as a reminder, repeat customers account for over one third of our E Commerce revenues.

And as we continue to improve our customer experience over time, we see an opportunity to build a long term relationship with our customers one that puts car parts dot com top of mind and makes us the go to destination for all of their automotive needs.

Number two operational excellence since the management team transition last year.

We have doubled down on efficiency and continued our focus on profitable growth. We are very excited to welcome Michael Huffaker as our new Chief operating officer. He comes to US with extensive e-commerce and retail experience at some of the largest companies in the world. Most recently 15 years at Amazon.

Michael shares both our cultural and business mindset, and we look forward to him, bringing its best in class processes to our vertically integrated supply chain and beyond.

Michael will provide further details on the operational improvements the team has made shortly.

Also we are pleased with the recent promotion of Stephanie Urbach to Chief Human Resources Officer.

Stephanie has 25 years of HR experience and genuine care for employees.

Helped us establish a critical foundation for our business.

She has implemented significant changes within the HR function and align our practices with our growth objectives.

She will now focus on developing existing talent to drive performance globally.

Number three financial discipline.

One important highlight is that our business is built on positive unit economics, our adjusted EBITDA was up over 50% in 2022, and we're currently undrawn on our revolver. The key it's focusing on 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.

In the current environment, we have been very intentional on how we deploy capital with a heightened focus on incremental spend related to head count and by reallocating capital from discretionary spend such as upper funnel marketing and branding campaigns into a more customer centric initiatives.

Number four innovation the path to disrupting our industry is by removing the friction from a notoriously burdensome process last year, we launched a new do it for me capability get it installed on our website where customers in select markets can see installation pricing and book an appointment at a certified repair shop.

We're excited to announce that we have doubled our bookings since our last call in November and we are expanding our offering with additional categories.

And with that I would like to turn it over to Michael Michael We're excited to have you and welcome to the team.

Thank you David.

I joined about 90 days ago, and I have had the opportunity to visit our distribution centers walk the floor and hear from our frontline team members.

I've also had the pleasure of visiting our Manila, Philippines corporate office.

One thing that has been clear during my time here. So far is that him directly aligned with our business objectives and our focus on creating an unparalleled customer experience 2022 was a year of expansion for US. We now have over 1 million square feet of built out distribution space strategically positioned close to our customer base, allowing us to cover 90.

8% of the country with a two day transit time and 2023, we will remain laser focused on execution process improvements and operational efficiencies to get more out of our existing network I'm Super excited to be here and I look forward to our team delivering value for our customers and our shareholders.

I'd like to turn it over to Ryan.

Thank you Michael in Q4, we generated revenue of $154 5 million up 11, 8% from the prior year period on a two year stack revenues increased 27, 2% for the full year 2022 revenues were $661 6 million up 13, 6%.

Went from 2021 and up 44, 8% on a two year stack for the first eight weeks of fiscal year 2023, we produced high single digit year over year revenue growth combined with sequential gross margin expansion, we remain committed to balancing growth profitability and free cash flow generation.

For the full year 2023.

Gross profit for the quarter was $51 6 million up eight 9% from the prior year period with gross margin of $33 four versus $34 three for the full year gross profit was $239 million up 17% with gross margins improving to 34, 9%.

Compared to 33, 9% in 2021, both driven by changes in freight charges.

Net loss for the quarter and full year was $6 2 million and 1 million respectively. The fourth quarter GAAP loss was predominantly driven by noncash expenses and seasonally higher freight charges.

For the fourth quarter, we reported adjusted EBITDA of $2 1 million down from $2 6 million.

The change in adjusted EBITDA in the quarter was predominantly driven by seasonal freight charges, which were higher and started earlier than the prior year.

For the full year 2022, we reported adjusted EBITDA of $26 1 million up 55, 5% from 2021, reflecting our commitment to financial discipline positive unit economics, as well as our unyielding focus on balancing profitable growth with free cash flow generation.

Turning to the balance sheet, we ended the quarter with cash and equivalents of $18 8 million and no balance on our revolver line. We ended the year with inventory at $136 million compared to $138 9 million in the prior year. We believe we have ample liquidity and we have no intention or need to raise capital at current valuations.

We continue to focus on self funded growth and at the end of Q4, we were undrawn on our revolving credit facility with an option to expand to $150 million, depending on our inventory levels and certain terms and conditions.

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

Thank you Ryan and everyone, who made the time to join today's call 2022 was our best year ever and we are proud of the company, we continue to build each and everyday.

It's amazing to watch at 25 year Old company go through a full transformation continued to reinvent itself and deliver incredible results.

2022 marks our third consecutive year of double digit growth and since 2019, we have more than doubled our revenues and returned the company to profitability all while building a robust balance sheet.

For 2023 and beyond we continue to put our customers and team members at the center of our strategy and feel prepared to tackle the future with intention focus and discipline as we gained market share. We're in a strong position to thrive and continue delivering profitable growth.

Amid whatever changes the market brings us by leveraging our vertically integrated supply chain proprietary catalog and other advanced capabilities like data science.

Our goal is to continue balancing our investments to be more streamline without compromising on building an extraordinary business, regardless of what is happening in the economy.

We believe that by doing this will benefit our shareholders in the years to come and grow the intrinsic value of our company. We will remain focused on positive unit economics free cash flow generation operational efficiencies and delivering an outstanding customer experience now none of this would be possible without the incredible work and commitment from everyone on <unk>.

Global team you come to work each day to see each new opportunity that comes your way, we're grateful and honored to lead such an amazing organization and as we said Carpark dot com get after it.

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

Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced still withdraw. Your question. Please press star one one again.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Thomas Forte from D. A Davidson.

Great.

One question, one follow up and then David or Ryan great job on the quarter and every year.

First question.

The ability may be limited given the challenging macro environment, but I want to provide at least high level thoughts on revenue growth for 2023.

Sure.

I think let me start by saying that the company. It really is in better shape than it's ever been I think we have a lot of condition conviction in our ability to execute.

Hello.

From a balance transparency with reliability, but.

Right now, there's just a lot of uncertainty with the macro environment, we feel good about our ability to grow mid single digits to high single digits and I think if the economy turns more positive we can grow double digits. So really the takeaway is that we feel good about being able to leverage all the improvements we've made over the last few years, we plan to continue growth.

Even if the environment is challenging.

Great and then for my second question can you talk about how improving supply chain.

Possibly affect your fourth quarter sales and profitability and how it might impact you in 2023.

Sure. So one thing to keep in mind is we're FIFO not LIFO. So when the supply chain improves that improvement goes into landed cost. So unfortunately, unlike some of the LIFO people youre not going to see the benefit until probably the back half.

This year.

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 question first.

First one for me just kind of taking a step backwards you guys talked about the double digit growth in the month of October looks.

It looks like that obviously flowed through for the rest of the quarter you know I'm just curious what you guys saw in those last two months.

From a demand perspective, and kind of how demand is looking for your core customers.

Yes, so back half of last year, we obviously did capitalize on that demand I think the way to categorize consumers right now is that theyre being I think very discerning.

Discerning about how they spend money theyre being cautious and as I kind of mentioned to Tom.

We have a great ability to execute we've done a lot of things right and I think no matter what happens we're in a good position to capitalize.

It's significantly cheaper than the competition, so as people look to save money versus a traditional bricks and brick and mortar I think we'll be able to capture customers. There and then the obvious offset is that here and there are some consumers may choose to defer some spend and then that's what's going to lead to the actual on balance revenue growth.

Got it and then just kind of looking at the do it for me offering sounds like you've doubled the number of bookings from I think it was 1500 last quarter.

Now that you have a couple of quarters under your belt with that what sort of feedback have you guys gotten from customers and mechanics, and what what gets you excited about that for the future.

So the feedback is really good I actually go through and read all the comments individually.

Predominantly every comment.

Along the lines of I am amazed US exist. This is helping me out this made my life so much easier.

In part that means that gives me confidence in the offering that makes it compelling is that someone can in many cases go buy apart and get it installed and solve their problem for cheaper than just buying the part alone from a brick and mortar store, so, especially in a recession I think that that's a great way, we're helping consumers through.

A difficult economic period.

Got it thanks for taking my questions.

Sure.

Thank you one moment for our next question.

Our next question comes from the line of Darren <unk> from Roth M K M.

Hey, guys. Thanks for taking my questions and nice job over quarter two.

Barry first can you talk about.

Sort of a strange weather going on across the country.

It has any impact on your.

Business year to date, good bad or indifferent and then second one.

Your inventory fell sequentially again.

Curious given kind of the size of your business, Brian that comments you made about.

Growth, whether softer times, you better times, what's the right inventory level, you think you guys should have.

Hey, Darrin, it's David I guess I'll take the first part of the question and then I'll hand, it off to Orion.

I think the weather when there's significant disruption kind of slows down the demand in certain regions, but then usually we see a pick up the following week. So we usually see some ups and down during changes in temperature, but over the long term and at least over the course of a year at least historically, we haven't seen a huge impact on sales.

If anything it's the wild swings in temperature that creates potential demand in the future.

I'll take the inventory level, so where we ended the year for inventory is probably where youre going to see us and inventory levels at the end of fiscal year, 2023, obviously quarter by quarter Youll see some fluctuations up and down but we feel pretty good about our inventory position as it sits.

Great. Thanks, guys.

Okay.

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

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Good afternoon 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 Mira <unk>, Vice President of Communications and culture. Please go.

Ahead.

Hello, everyone and thank you for joining us for the car parts Dot Com fourth quarter 2022 conference call I would like to start by welcoming the investors and others, who are attending this meeting remotely joy.

Joining me today from the company are David Mignon, Chief Executive Officer, Ryan Lockwood, Chief Financial Officer, and Michael Hub Baker, Chief operating officer.

Before I turn it over to David to start the meeting I have some important disclosures. They are prepared remarks and responses to your questions 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.

For a discussion of the material risks and other important factors that could affect results.

<unk> Dot Com press release issued today and with that I would now like to turn the call over to David.

11, 8% from the prior year on a two year stack revenues for the quarter up 27, 2% also for the full fiscal year 2022, we're excited to be company records for both top line at $661 6 million and $26 1 million for adjusted EBITDA for those <unk>.

<unk> score this is our third year in a row of posting record revenue.

A lot happened in 2022 within the organization, we refreshed our executive team opened two buildings increase the size of our credit facility, while extending it for five years and much more we did all of this while helping our customers navigate a much tougher economic environment.

<unk> outperformed and delivered record breaking sales profitability and free cash flow, while optimizing our inventory position.

All with the intention of maximizing long term shareholder value.

At <unk> Dot Com, we are committed to empowering drivers along their journey and removing the stress from auto repair and maintenance and to keep delivering on this our team has continued to executing on four focus areas outstanding customer service operational excellence financial discipline and innovation.

Today, we're closer to our customers and our click to delivery times are better than ever.

These tangible improvements are part of the cultural shift that started in 2022 at <unk> Dot com and.

In which every decision starts with the customer as a reminder, repeat customers account for over one third of our E Commerce revenues.

And as we continue to improve our customer experience over time, we see an opportunity to build a long term relationship with our customers one that puts carpark dot com top of mind and makes us the go to destination for all of their automotive needs.

Number two operational excellence since the management team transition last year.

We have doubled down on efficiency and continued our focus on profitable growth. We are very excited to welcome Michael Hefei <unk> as our new Chief operating officer. He comes to US with extensive e-commerce and retail experience at some of the largest companies in the world. Most recently 15 years at Amazon.

Michael shares both our cultural and business mindset, and we look forward to him, bringing its best in class processes to our vertically integrated supply chain and beyond.

Michael will provide further details on the operational improvements the team has made shortly.

Also we are pleased with the recent promotion of Stephanie Urbach to Chief Human Resources Officer.

Stephanie has 25 years of HR experience and genuine care for employees.

Helped us establish a critical foundation for our business.

She has implemented significant changes within the HR function and align our practices with our growth objectives.

She will now focus on developing existing talent to drive performance globally.

Number three financial discipline.

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.

In the current environment, we have been very intentional on how we deploy capital with a heightened focus on incremental spend related to head count and by reallocating capital from discretionary spend such as the upper funnel marketing and branding campaign into a more customer centric initiatives.

Number four innovation the past of disrupting our industry is by removing the friction from a notoriously burdensome process last year, we launched a new do it for me capability get it installed on our website where customers in select markets can see installation pricing and book an appointment at a certified repair shop.

We're excited to announce that we have doubled our bookings since our last call in November and we are expanding our offering with additional categories.

And with that I would like to turn it over to Michael Michael We're excited to have you and welcome to the team.

Thank you David.

I joined about 90 days ago, and I've had the opportunity to visit our distribution centers walk the floor and hear from our frontline team members.

I've also had the pleasure of visiting our Manila, Philippines corporate office.

One thing that has been clear during my time here. So far is that him directly aligned with our business objectives and our focus on creating an unparalleled customer experience 2022 was a year of expansion for US. We now have over 1 million square feet of built out distribution space for steeply position close to our customer base, allowing us to cover 98% of.

The country with a two day transit time and 2023, we will remain laser focused on execution process improvements and operational efficiencies to get more out of our existing network I'm Super excited to be here and I look forward to our team delivering value for our customers and our shareholders.

I'd like to turn it over to Ryan.

'twenty, one and up 44, 8% on a two year stack for the first eight weeks of fiscal year 2023, we produced high single digit year over year revenue growth combined with sequential gross margin expansion, we remain committed to balancing growth profitability and free cash flow generation for the full.

The year 2023.

Compared to 33, 9% in 2021, both driven by changes in freight charges.

Net loss for the quarter and full year was $6 2 million and 1 million respectively. The fourth quarter GAAP loss was predominantly driven by noncash expenses and seasonally higher freight charges.

For the fourth quarter, we reported adjusted EBITDA of $2 1 million down from $2 6 million.

The change in adjusted EBITDA in the quarter was predominantly driven by seasonal freight charges, which were higher and started earlier than the prior year.

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

Thank you Ryan and everyone, who made the time to join today's call 2022 was our best year ever and we are proud of the company, we continue to build each and everyday.

It's amazing to watch at 25 year Old company go through a full transformation continued to reinvent itself and deliver incredible results.

2022 marks our third consecutive year of double digit growth and since 2019, we have more than doubled our revenues and return the company to profitability all while building a robust balance sheet for.

Mid whatever changes the market brings us by leveraging our vertically integrated supply chain proprietary catalog and other advanced capabilities like data science.

Our goal is to continue balancing our investments to be more streamline without compromising on building an extraordinary business, regardless of what is happening in the economy.

Global team you come to work each day to see each new opportunity that comes your way, we're grateful and honored to lead such an amazing organization and as we said the Carpark dot com get after it.

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

Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Draw. Your question. Please press star one one again.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Thomas Forte from D. A Davidson.

Great. Thanks, two questions. One question, one follow up and then David or Ryan great job on the quarter.

But every year.

First question I recognize your visibility may be limited.

Given the challenging macro environment, but I want to provide a high level thoughts on revenue growth for 2023.

Sure.

I think let me start by saying that the company. It really is in better shape than it's ever been I think we have a lot of condition conviction in our ability to execute.

Hello.

And balance transparency with reliability, but.

Right now, there's just a lot of uncertainty with the macro environment, we feel good about our ability to grow mid single digits to high single digits and I.

I think if the economy turns more positive we can grow double digits. So really the takeaway is that we feel good about being able to leverage all the improvements we've made over the last few year. We plan to continue growing even if the environment is challenging.

Great and then for my second question can you talk about how improving supply chain.

Possibly affected your fourth quarter sales and profitability and how it might impact you in 2023.

Sure. So one thing to keep in mind is we're FIFO LIFO. So when the supply chain improves that improvement goes into landed cost. So unfortunately, unlike some of the LIFO people youre not going to see the benefit until probably the back half.

Yes.

Thank you one moment for our next question.

Okay.

Our next.

Question comes from the line of Ryan Meyers from Lake Street capital markets.

Yes, hi, guys. Thanks for taking my question.

First one for me just kind of taking a step backwards you guys talked about the double digit growth in the month of October it.

It looks like that obviously flowed through for the rest of the quarter you know I'm just curious what you guys saw in those last two months.

From a demand perspective, and kind of how demand is looking for your core customers.

Yes, so back half of last year, we obviously did capitalize on that demand I think the way to categorize consumers right now is that theyre being I think very discerning.

Discerning about how they spend money theyre being cautious and as I kind of mentioned to Tom.

We have a great ability to execute we've done a lot of things right and I think no matter what happens we are in a good position to capitalize.

It's significantly cheaper than the competition, so as people look to save money versus the traditional brick and mortar I think we'll be able to capture customers. There and then the obvious offset is that here and there some consumers may choose to defer some spend and then that's what's going to lead to the actual on balance revenue growth.

Got it and then just kind of looking at the do it for me operating sounds like you've doubled the number of bookings from I think it was 1500 last quarter.

Now that you have a couple of quarters under your belt with that what sort of feedback have you guys gotten from customers and mechanics, and what what gets you excited about that for the future.

So the feedback is really good I actually go through and read all the comments individually.

Predominantly every comment.

Along the lines of I am amazed US exist. This is helping me out just made my life so much easier.

That mean that gives me confidence in the offering that makes it compelling is that someone can in many cases go buy apart and get it installed and solve their problem for cheaper than just buying the part alone from a brick and mortar store, so, especially in a recession I think that that's a great way, we're helping consumers through a difficult.

Economic period.

Got it thanks for taking my question.

Sure.

Thank you one moment for our next question.

Our next question comes from the line of Darren <unk> from Roth M K M.

Hey, guys. Thanks for taking my questions and nice job over quarter two.

If I may 1st can you talk about just.

Sort of a strange weather going on across the country.

Okay.

Impact on your <unk>.

Business year to date, good bad or indifferent and then second one.

Inventory fell sequentially again.

Kind of curious given kind of the size of your business, Brian The comments you made about.

Growth, whether softer times, you better times, what's the right inventory level that you think you guys should have.

Hey, Darrin, it's David I guess I'll take the first part of the question and then I'll hand, it off to Ryan.

I think the weather when there's significant disruption kind of slows down the demand in certain regions, but then usually we see a pick up the following week. So we usually see some ups and downs during changes in temperature, but over the long term and at least over the course of a year at least historically, we haven't seen a huge impact on sales.

If anything it's the wild swings in temperature that creates potential demand in the future.

Great. Thanks, guys.

Okay.

Thank you.

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

Q4 2022 Carparts.Com Inc Earnings Call

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