Q2 2024 CarParts.com Inc Earnings Call
Speaker Change: 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.
Operator: After the presentation, there will be a question-and-answer session. Please note, this call is being recorded.
Operator: 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 Mirfarsi, Senior Vice President of Global Communications and Culture.
Tina Mirfarsi: I would not like to pass the conference over to our host, Tina Mirfarsi, Senior Vice President of Global Communications and Culture. Please go ahead.
Speaker Change: Tina Mirfarsi, Senior Vice President of Global Communications and Culture. Please go ahead.
Tina Mirfarsi: Hello everyone, and thank you for joining us for the CarParts.com second quarter conference call. Joining me today are David Meniane, Chief Executive Officer; Ryan Lockwood, Chief Financial Officer; and Michael Huffaker, Chief Operating Officer.
Tina Mirfarsi: Hello everyone, and thank you for joining us for the CarParks.com Second Quarter conference call. Joining me today are David Meniane, Chief Executive Officer, Ryan Lockwood, Chief Financial Officer, and Michael Huffaker, Chief Operating Officer.
Tina Mirfarsi: Hello everyone, and thank you for joining us for the CarParts.com second quarter conference call. Joining me today are David Meniane, Chief Executive Officer, Ryan Lockwood, Chief Financial Officer, and Michael Huffaker, Chief Operating Officer.
Tina Mirfarsi: Before I turn it over to David to start the meeting, I have some important disclosures. The 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 risks and uncertainties associated with the business.
Tina Mirfarsi: Before I turn it over to David to start the meeting, I have some important disclosures. The prepared remarks and responses to your questions could contain certain forward-looking statements related to the business as defined by the federal securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with the business. For a discussion of material risks and other important factors that could affect results, please refer to the carparts.com annual report on Form 10-K and 10-Q as filed with the SEC, both of which can be found on our Investor Relations website.
Speaker Change: Before I turn it over to David to start the meeting, I have some important disclosures. The prepared remarks and responses to your questions could contain certain forward-looking statements related to the business under the federal securities laws.
Speaker Change: Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with the business.
Tina Mirfarsi: For a discussion of the material risks and other important factors that could affect results, please refer to the CarParks.com Annual Report on Form 10-K and 10-Qs as filed with the SEC, both of which can be found on our 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 CarParks.com press release issued today.
David Meniane: For a discussion of the material risks and other important factors that could affect results, please refer to the carparts.com annual report on Form 10-K and 10-Q as filed with the SEC, both of which can be found on our Investor Relations website.
Tina Mirfarsi: 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 carparts.com press release issued today.
David Meniane: 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 carparts.com press release issued today. And with that, I would now like to turn the call over to David.
David Meniane: And with that, I would now like to turn the call over to David. Thank you, Tina, and thanks everyone for joining us today. I'd like to start with the most important takeaways from this quarter before I turn it over to Ryan to review our financial performance in detail. Last quarter, we discussed our emphasis on financial discipline by focusing on driving growth and net margins, accelerating efficiency and effectiveness to quickly deliver improved profitability, and achieving a path to sustainable and profitable growth with strong long-term free cash flow. In the second quarter, we made significant progress on growth margin and operating efficiencies, which reinforces our confidence that we're on the right track.
David Meniane: Thank you, Tina, and thanks everyone for joining us today. I'd like to start with the most important takeaways from this quarter before I turn it over to Ryan to review our financial performance in detail. Last quarter, we discussed our emphasis on financial discipline by focusing on driving growth and net margins, accelerating efficiency and effectiveness to quickly deliver improved profitability, and achieving a path to sustainable and profitable growth with strong long-term free cash flow.
David Meniane: In the second quarter, we made significant progress on gross margin and operating efficiencies, which reinforces our confidence that we're on the right track. We expect fiscal year 2024 to be a low-watermark year as we execute on the changes we have been making.
David Meniane: Thank you, Tina, and thanks, everyone, for joining us today. I'd like to start with the most important takeaways from this quarter before I turn it over to Ryan to review our financial performance in detail.
Speaker Change: Last quarter, we discussed our emphasis on financial discipline.
Ryan Lockwood: by focusing on driving growth and net margins, accelerating efficiency and effectiveness to quickly deliver improved profitability and achieving a path to sustainable and profitable growth with strong long-term free cash flow.
Ryan Lockwood: In the second quarter, we made significant progress on gross margin and operating efficiencies, which reinforces our confidence that we're on the right track.
David Meniane: We expect fiscal year 2024 to be a low-water mark year as we execute on the changes we have been making. This should position us for a strong fiscal 2025 and beyond. And we are confident in our roadmap and our opportunity as a leading online retailer in a highly fragmented $400 billion auto parts market. In the first half of the year, we updated our pricing and marketing acquisition strategies to target more profitable customers and generate higher growth margins. As a result, in the second quarter, we saw sequential margin improvement, with product margins at 54 percent, up 210 basis points from Q1.
Ryan Lockwood: We expect fiscal year 2024 to be a low-water mark year as we execute on the changes we have been making.
David Meniane: This should position us for a strong fiscal 2025 and beyond, and we are confident in our roadmap and our opportunity as a leading online retailer in a highly fragmented $400 billion auto parts market. In the first half of the year, we updated our pricing and marketing acquisition strategies to target more profitable customers and generate higher gross margins. As a result, in the second quarter, we saw sequential margin improvement with product margins at 54%, 210 basis points from Q1.
Speaker Change: This should position us for a strong fiscal 2025 and beyond, and we are confident in our roadmap and our opportunity as a leading online retailer in a highly fragmented $400 billion auto parts market.
Ryan Lockwood: In the first half of the year, we updated our pricing and marketing acquisition strategies to target more profitable customers and generate higher gross margins.
Ryan Lockwood: As a result, in the second quarter, we saw sequential margin improvement with product margins at 54% of 210 basis points from Q1.
David Meniane: We expect Q3 to be sequentially higher. Combined with the cost reduction initiatives I'll discuss in a moment, we anticipate better unit economics, all less volume.
David Meniane: We expect Q3 to be sequentially higher. Combined with the cost reduction initiatives I'll discuss in a moment, we anticipate better unit economics on less volume. However, pricing actions and beginning to change the overall profile of our customers negatively impacted sales, which were down to $144 million from $177 million in the prior year period.
Ryan Lockwood: We expect Q3 to be sequentially higher. Combined with the cost reduction initiatives I'll discuss in a moment, we anticipate better unit economics on less volume.
David Meniane: However, pricing actions and beginning to change the overall profile of our customers negatively impacted sales, which were down to $144 million from $177 million in the prior year period.
Ryan Lockwood: However, pricing actions and beginning to change the overall profile of our customers negatively impacted sales, which were down to $144 million from $177 million in the prior year period.
David Meniane: Our operational highlights for the quarter were asked to follow. We continue to optimize our product and price assessment to maximize the profitability of our e-commerce channel. Our mobile app continues to drive strong momentum, with over 450,000 downloads, more than double the number from the beginning of the year. In addition, in just 12 months after launching, mobile app sales accounted for 8% of our total e-commerce revenue. We expect direct in-app purchases to drive savings and advertising spend by reducing our reliance on search engines and performance marketing, as well as incentivizing repeat purchases. Second, we continue to invest in our marketing channels.
David Meniane: Our operational highlights for the quarter were as follows. We continue to optimize our product and price assortment to maximize the profitability of our e-commerce channel. Our mobile app continues to drive strong momentum with over 450,000 downloads, more than double the number from the beginning of the year. In addition, in just 12 months after launching, mobile app sales accounted for 8% of our total e-commerce revenue, with approximately 80% of our customers shopping on mobile. Over time, we expect direct in-app purchases to drive savings and advertising spend by reducing our reliance on search engines and performance marketing, as well as incentivizing repeat purchases.
Ryan Lockwood: Our operational highlights for the quarter were as follows.
Ryan Lockwood: We continue to optimize our product and price assortment to maximize the profitability of our e-commerce channel. Our mobile app continues to drive strong momentum with over 450,000 downloads, more than double the number from the beginning of the year.
Ryan Lockwood: In addition, in just 12 months after launching, mobile app sales accounted for 8% of our total e-commerce revenue.
Ryan Lockwood: With approximately 80% of our customers shopping on mobile, over time we expect direct in-app purchases to drive savings in advertising spend by reducing our reliance on search engines and performance marketing, as well as incentivizing repeat purchases.
David Meniane: Second, we continue to invest in our marketing channels. We are making strides in building brand awareness and recognition for our leading digital-first and customer-centric automotive e-commerce strategy, which is critical to capturing our target high-value customer base. In July, we launched our first ever comprehensive brand campaign, our Now That's My Speed campaign, along with our new tagline, Quality Parts, Price Right, running across top social media platforms, YouTube, and connected TV. This campaign highlights our customer value propositions, our extensive selection of over 1 million quality parts at competitive prices, and our hassle-free e-commerce solution.
David Meniane: We are making strides on building brand awareness and recognition of our leading digital first and customer centric automotive e-commerce strategy, which is critical to capturing our target high value customer base. In July, we launched our first ever comprehensive brand campaign. Our Now That's My Speed campaign, along with our new tagline, Quality Parts, Price Rights, is running across top social media platforms, YouTube, and connected TV. This campaign highlights our customer value propositions, our extensive selection of over 1 million quality parts at competitive pricing, and our hassle-free e-commerce solution. We are committed to moving up the marketing funnel to establish CarParts.com as one of the most trusted and recognizable brands in the industry.
Ryan Lockwood: Second, we continue to invest in our marketing channels. We are making strides on building brand awareness and recognition of our leading digital-first and customer-centric automotive e-commerce strategy, which is critical to capturing our target high-value customer base.
Ryan Lockwood: In July , we launched our first ever comprehensive brand campaign.
Ryan Lockwood: Our Now That's My Speed campaign, along with our new tagline, Quality Parts, Price Right, is running across top social media platforms, YouTube, and connected TV.
Ryan Lockwood: This campaign highlights our customer value propositions, our extensive selection of over one million quality parts at competitive pricing, and our hassle-free e-commerce solution.
David Meniane: We are committed to moving up the marketing funnel to establish CarParts.com as one of the most trusted and recognizable brands in the industry. Our goal is to become the go-to destination for all automotive repair and maintenance needs, capitalizing on our infrastructure, website traffic, and customer list. We also want to welcome our new Chief Marketing Officer, Christina Tilleen, who brings over 20 years of experience in marketing with an extensive background in building global brands and award-winning campaigns across several Fortune 500 companies, including Google, Twitter, Visa, and Procter & Gamble.
Ryan Lockwood: We are committed to moving up the marketing funnel to establish CarParts.com as one of the most trusted and recognizable brands in the industry.
David Meniane: Our goal is to become the go-to destination for all automotive repair and maintenance needs, capitalizing on our infrastructure, website traffic, and customer lists.
Ryan Lockwood: Our goal is to become the go-to destination for all automotive repair and maintenance needs capitalizing on our infrastructure, website traffic, and customer lists.
David Meniane: We also want to welcome our new chief marketing officer, Christina Thilling, who brings over 20 years of experience in marketing with an extensive background in building global brands and award-winning campaigns across several Fortune 500 companies, including Google, Twitter, Visa, and Procter and Gamble. At CMO, Christina will lead our strategic marketing initiatives as we continue to expand our market presence, drive customer engagement, and increase awareness for CarParts.com. We are confident that her strategic marketing vision and proven track record will help propel our company forward. We are thrilled to have her on the team.
Speaker Change: We also want to welcome our new Chief Marketing Officer, Christina Tallin, who brings over 20 years of experience in marketing with an extensive background in building global brands and award-winning campaigns across several Fortune 500 companies, including Google, Twitter, Visa, and Procter & Gamble.
David Meniane: As CMO, Christina will lead our strategic marketing initiatives as we continue to expand our market presence, drive customer engagement, and increase awareness for carparts.com. We are confident that her strategic marketing vision and proven track record will help propel our company forward. We are thrilled to have her on the team.
Speaker Change: At CMO, Christina will lead our strategic marketing initiative.
Speaker Change: As we continue to expand our market presence, drive customer engagement, and increase awareness for carparts.com, we are confident that her strategic marketing vision and proven track record will help propel our company forward. We are thrilled to have her on the team.
David Meniane: And third, we make significant progress on the upgrade of our logistics and reduction of our freight costs. We've identified opportunities for pick, packs, and shipping optimization that will drive reductions in freight costs and improve margins. Combined with our product margin improvement, we believe we can continue to improve growth margin after freight in the third quarter. Higher growth margin percentage, combined with operational efficiencies, should result in increased profitability for the company. In June, our new Las Vegas fulfillment center became operational and is now shipping more than 10% of our network volume. As we exit the year, we expect this building to handle close to 20% of the company volume as we service the western part of the country.
David Meniane: And third, we made significant progress on the upgrade of our logistics and the reduction of our freight costs. We've identified opportunities for pick, pack, and shipping optimization that will drive reductions in freight costs and improve margins. Combined with our product margin improvement, we believe we can continue to improve gross margin after freight in the third quarter. Higher gross margin percentage combined with operational efficiencies should result in increased profitability for the company. In June, our new Las Vegas Fulfillment Center became operational and is now shipping more than 10% of our network volume.
Speaker Change: And third, we made significant progress on the upgrade of our logistics and reduction of our freight costs. We've identified opportunities for pick, pack, and shipping optimization that will drive reductions in freight costs and improve margins.
Speaker Change: Combined with our product margin improvement, we believe we can continue to improve gross margin after freight in the third quarter. Higher gross margin percentage combined with operational efficiencies should result in increased profitability for the company.
Speaker Change: In June , our new Las Vegas Fulfillment Center became operational and is now shipping more than 10% of our network volume. As we exit the year, we expect this building to handle close to 20% of the company volume as we service the western part of the country.
David Meniane: As we exit the year, we expect this building to handle close to 20% of the company volume as we service the Western part of the country. The facility's assortment, paired with a state-of-the-art AI-powered PIC module and extensive conveyance, allows for a significant reduction in operating costs. This investment was made to drive operating leverage and growth in the form of process efficiencies and improve conversion for customers in the region. We expect those savings to start ramping in the second half of 2024 and be fully realized in 2025. I'll now turn the call over to Ryan to lead us through our financial results.
David Meniane: The facility's assortment paired with the state-of-the-art AI-powered pick module and extensive conveyance allows for significant reduction in operating costs. This investment was made to drive operating leverage and growth in the form of processes and improve conversion for customers in the region. We expect those savings to start ramping in the second half of 2024 and fully realize in 2025.
Speaker Change: The facilities assortment paired with a state-of-the-art AI-powered PIC module and extensive conveyance
Speaker Change: allows for a significant reduction in operating costs.
Speaker Change: This investment was made to drive operating leverage and growth in the form of process efficiencies and improve conversion for customers in the region. We expect those savings to start ramping in the second half of 2024 and fully realize in 2025.
Ryan Lockwood: I'll now turn the call over to Ryan to lead us through our financial results. Thank you, David. In Q2, we reported revenues of 144.3 million, down 18% from 177 million last year. The decline was driven primarily by deliberate price increases to drive gross margin expansion, combined with softer consumer demand. Gross profit for the quarter was 48.4 million, down approximately 20% compared to the prior year. Gross margin was 33.5% of sales, down from 34.2% in the prior year period and up sequentially from 32.4% last year. Gross margin improvement from increased prices and expanded brand margins related to our efforts in the quarter were offset by higher euro beer freight costs.
Ryan Lockwood: Thank you, David. In Q2, we reported revenues of $144.3 million, down 18% from $177 million last year. The decline was driven primarily by deliberate price increases to drive gross market expansion, combined with softer consumer demand. Gross profit for the quarter was $48.4 million, down approximately 20% compared to the prior year. Gross margin was 33.5% of sales, down from 34.2% in the prior year period and up sequentially from 32.4% last year. Gross margin improvement from increased prices and expanded brand margins related to our efforts in the quarter were offset by higher year-over-year freight costs. As David mentioned, driving growth and net margin to strengthen financial discipline is the central part of our strategy, and we expect to see continued improvement in the quarters ahead.
Speaker Change: I'll now turn the call over to Ryan to lead us through our financial results.
Ryan Lockwood: Thank you, David. In Q2, we reported revenues of $144.3 million, down 18% from $177 million last year. The decline was driven primarily by deliberate price increases to drive gross market expansion, combined with softer consumer demand.
Speaker Change: Gross profit for the quarter was $48.4 million down approximately 20% compared to the prior year. Gross margin was 33.5% of sales down from 34.2% in the prior year period and up sequentially from 32.4% last year.
Speaker Change: Gross margin improvement from increased prices and expanded brand margins related to our efforts in the quarter were offset by higher year-over-year freight costs.
Ryan Lockwood: As David mentioned, driving gross and net margin to strengthen financial discipline is the central part of our strategy, and we expect to see continued improvement in the quarters ahead. Gap net loss for the quarter was 8.7 million compared to net loss of 0.7 million in the prior year period, primarily driven by lower flow through from gross margin combined with certain one-time costs. We reported adjusted EBITDA loss of 0.1 million, down from 6.3 million in the prior year period, primarily due to costs related to the move and opening of our new Las Vegas facility. Technology transformation costs, as well as special project expenses related to our strategy refocus.
Speaker Change: As David mentioned, driving growth and net margin to strengthen financial discipline is the central part of our strategy, and we expect to see continued improvement in the quarters ahead.
Ryan Lockwood: Gap net loss for the quarter was $8.7 million, compared to a net loss of $0.7 million in the prior year period, primarily driven by lower flow-through from gross margin, combined with certain one-time costs. We reported an adjusted EBITDA loss of $0.1 million, down from $6.3 million in the prior year period, primarily due to costs related to the move and opening of our new Las Vegas facility. Technology transformation costs... as well as special project expenses related to our strategy refocus.
David Meniane: Gap net loss for the quarter was $8.7 million compared to net loss of $0.7 million in the prior year period, primarily driven by lower flow-through from gross margin combined with certain one-time costs.
Speaker Change: We reported adjusted EBITDA loss of $0.1 million, down from $6.3 million in the prior year period, primarily due to costs related to the move and opening of our new Las Vegas facility.
Speaker Change: technology transformation costs, as well as special project expenses related to our strategy refocus. The total amount of expenses outside of our normal operations was approximately $2.8 million in the quarter.
Ryan Lockwood: The total amount of expenses outside of our normal operations was approximately 2.8 million in the quarter. Turning to the balance, we ended the quarter with 34 million of cash and no revolver debt. We generated $354,000 of interest income in the second quarter. Our significant cash position and untapped revolver continues to support our business plan. As we finalize the up opening of our new semi-automated Vegas fulfillment center, our free cash flow should improve. The inventory balance at quarter end was 109 million versus 114 million in the prior year.
Ryan Lockwood: The total amount of expenses outside of our normal operations was approximately $2.8 million in the quarter. Turning to the balance sheet, we ended the quarter with $34 million of cash and no revolver debt. We generated $354,000 of interest income in the second quarter. Our significant cash position and untapped revolver continue to support our business. As we finalize the opening of our new semi-automated Vegas fulfillment center, our free cash flow should improve.
Speaker Change: Turning to the balance sheet, we ended the quarter with $34 million of cash and no revolver debt. We generated $354,000 of interest income in the second quarter.
Speaker Change: Our significant cash position and untapped revolver continues to support our business plan.
Speaker Change: As we finalize the opening of our new semi-automated Vegas fulfillment center, our free cash flow should improve.
Ryan Lockwood: The inventory balance at quarter end was $109 million versus $114 million in the prior year, tuning to our Outlook for 2020. For the full year, we expect revenues at the low end of our guidance range of $600 million to $625 million, reflective of our gross margin improvement focus for the year. We remain in line with our previously stated gross profit margin guidance of 33% plus or minus 100 basis points.
Speaker Change: The inventory balance at quarter end was $109 million versus $114 million in the prior year.
Ryan Lockwood: Turning to our outlook for 2024. For the full year, we expect revenues at the low end of our guidance range of 600 million to 625 million, reflective of our gross margin improvement focus for the year. We were made in line with our previously stated gross profit margin guidance of 33% plus or minus 100 basis points. As we've outlined, we are positioning car parts for the future to our work to balance gross margin expansion and revenue. These improvements span our entire business, from customer-facing improvements to enhance product assortment and process changes that are making us more efficient across every operating group at the company.
Speaker Change: Turning to our Outlook for 2024.
Speaker Change: For the full year, we expect revenues at the low end of our guidance range of $600 million to $625 million, reflective of our gross margin improvement focus for the year. We remain in line with our previously stated gross profit margin guidance of 33% plus or minus 100 basis points.
Ryan Lockwood: As we've outlined, we are positioning car parts for the future through our work to balance gross margin expansion and revenue. These improvements span our entire business, from customer-facing improvements to enhanced product assortment and process changes that are making us more efficient across every operating group at the company. We are forging a path that we expect will result in achieving sustainable and significantly positive adjusted EBITDA next year, while working towards achieving a 6-8% adjusted EBITDA margin and enhanced free cash flow generation in the medium term.
Ryan Lockwood: Thanks, Ryan.
Ryan Lockwood: As we've outlined, we are positioning car parts for the future through our work to balance gross margin expansion and revenue. These improvements span our entire business, from customer-facing improvements to enhanced product assortment and process changes that are making us more efficient across every operating group at the company.
Ryan Lockwood: We are forging a path that we expect will result in achieving sustainable and significantly positive adjusted EBITDA next year. While working towards achieving a 6 to 8% adjusted EBITDA margin and enhanced free cash flow generation, Indian medium term. We expect to emerge from this period of transition strongly positioned to capture the tremendous and growing opportunity in front of us within a highly fragmented and underserved $400 billion automotive aftermarket. Our customers are excited by our offering, and our business is becoming more efficient, highly differentiated, scalable, and difficult to replicate. We remain firmly focused on becoming the go-to destination for all automotive repair and maintenance needs.
Ryan Lockwood: We are forging a path that we expect will result in achieving sustainable and significantly positive adjusted EBITDA next year, while working towards achieving a 6-8% adjusted EBITDA margin and enhanced free cash flow generation in the medium term.
Ryan Lockwood: We expect to emerge from this period of transition strongly positioned to capture the tremendous and growing opportunity in front of us within a highly fragmented and underserved $400 billion automotive aftermarket. Our customers are excited by our offering, and our business is becoming more efficient, highly differentiated, scalable, and difficult to replicate. We remain firmly focused on becoming the go-to destination for all automotive repair, and I would like to thank each and every person across our global teams for their hard work and commitment as we continue to execute on our transformation. Thank you, everyone, for joining today's call. We'll now turn it over to the operator and open it up for your questions.
Ryan Lockwood: We expect to emerge from this period of transition, strongly positioned to capture the tremendous and growing opportunity in front of us within a highly fragmented and underserved $400 billion automotive aftermarket.
Ryan Lockwood: Our customers are excited by our offering, and our business is becoming more efficient, highly differentiated, scalable, and difficult to replicate. We remain firmly focused on becoming the go-to destination for all automotive repair and maintenance needs.
Ryan Lockwood: I would like to thank each and every person across our global teams for their hard work and commitment as we continue to execute on our transformation.
Speaker Change: I would like to thank each and every person across our global teams for their hard work and commitment as we continue to execute on our transformation. Thank you everyone for joining today's call. We'll now turn it over to the operator and open it up for your questions.
Ryan Lockwood: Thank you, everyone, for joining today's call.
Operator: We'll now turn it over to the operator and open it up for your questions. Again, please stand by when we compile the Q&A roster.
Operator: As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ryan Sigdahl from Craig Hallam Capital Group.
Speaker Change: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Ryan Sigdahl: Our first question comes from the line of Ryan Sigdahl from Craig Hallum Capital Group. Hey, good afternoon, guys.
Speaker Change: Our first question comes from the line of Ryan Sigdahl from Craig Hallam Capital Group.
Ryan Ronald Sigdahl: Hey, good afternoon, guys. Hey, Ryan, how are you? I want to start with guidance. So Q2, normally the seasonally strongest quarter from a volume standpoint, revenue standpoint, even at the low end of your guidance range, it implies sequentially revenue will be up in the back half of Q3, Q4, on average, I guess, relative to Q2. So I guess what gives you that confidence, given it seems you guys are prioritizing margin over price and volume here?
Ryan Sigdahl: Hey Ryan, how are you? Good.
Ryan Lockwood: One starts with guidance. So Q2 normally is the strongest quarter from a volume standpoint or revenue standpoint. Even at the low end of your guidance range, it implies sequentially revenue will be up in the back half, Q3, Q4 on average, I guess relative to Q2. So I guess what gives you that confidence given it seems to you guys are prioritizing marginal reprised and volume here. Yeah, I think we're going to end up trying to run. It's a little bit unconventional, I guess, given prior seasons, but we do think that we can run a little bit flatish through the whole back half comparable to Q2.
Speaker Change: Hey, good afternoon, guys. Hey, Ryan, how are you?
Ryan Ronald Sigdahl: Good. I want to start with guidance. So Q2, normally seasonally strongest quarter from a volume standpoint, revenue standpoint, even at the low end of your guidance range, it implies sequentially revenue will be up.
Ryan Ronald Sigdahl: In the back half, Q3, Q4. On average, I guess, relative to Q2, so I guess what gives you that confidence?
Ryan Lockwood: Yeah, I think we're going to end up, you know, trying to run. It's a little bit unconventional, I guess, given prior seasons, but we do think that we can run a little bit flattish through the whole back half, comparable to Q2. And I think what gives us confidence is a lot of things that David mentioned. We have a lot of projects that are backloaded, coming out essentially every month from now until the end of the year. And we think a lot of those are going to give us a tailwind on revenues.
Speaker Change: Given, it seems you guys are prioritizing margin over price and volume here.
Speaker Change: Yeah, I think we're gonna end up, you know, trying to run it's a little bit
Speaker Change: Unconventional, I guess, given prior seasons, but we do think that we can run a little bit flat-ish.
Ryan Lockwood: And I think what gives us the confidence is a lot of the things that David mentioned. We have a lot of projects that are backloaded, coming out essentially every month from now until the end of the year, and we think a lot of those are going to give us a tailwind on revenues.
Speaker Change: through the whole back half comparable to Q2. And I think what gives us the confidence is a lot of the things that David mentioned. We have a lot of projects that are backloaded coming out essentially every month from now until the end of the year. And we think a lot of those are going to give us a tailwind on revenues.
Ryan Lockwood: Can you maybe elaborate or give us a little more time for him on what those specific projects are? Yeah, Ryan and David, we have a number of things on the e-commerce roadmap and the mobile app. We have some stuff around search, we have upsell cross-sell, we have several fee income initiatives, and at the same time, it's combined with kind of a more fully comprehensive marketing roadmap. We just launched our campaign, which is showing early signs of positive progress. At the same time, we have a sort of an expansion, so we have a very aggressive roadmap. But I think we definitely have the confidence that we can hit the numbers.
Ryan Lockwood: Can you maybe elaborate or give us a little more timeframe on what those specific projects are? Yeah.
Speaker Change: Bye-bye.
David Meniane: Yeah, Ryan and David, we have a number of things on the e-commerce roadmap and the mobile app. We have some stuff around search.
Speaker Change: Can you maybe elaborate or give us a little more time frame on what those specific projects are?
Speaker Change: Yeah, Ryan, it's David. We have a number of things on the e-commerce roadmap and the mobile app.
David Meniane: We have upsell, cross-sell, and several fee income initiatives. And at the same time, it's combined with kind of a more fully comprehensive marketing roadmap. We just launched our campaign, which is showing early signs of positive progress. At the same time, we have assortment expansion. So, you know, we have a very aggressive roadmap, but I think we definitely have the confidence that we can hit the numbers.
David Meniane: We have some stuff around search, we have upsell, cross-sell, we have several fee income initiatives, and at the same time, it's combined with...
David Meniane: kind of a more fully comprehensive marketing road map. We just launched our campaign, which is showing early signs of positive progress. At the same time, we have assortment expansion. So we have a very aggressive road map, but I think we definitely have the confidence that we can hit the numbers.
Michael Huffaker: Then just searching over to the Vegas D.C. with a transition, I guess any quantifiable metrics you can share on efficiency gains, leveraging technology more on that facility, but anything you can share kind of old versus new there?
Michael Huffaker: Then just switching over to the Vegas DC transition, I guess any quantifiable metrics you can share on efficiency gains, leveraging technology more on that facility, but anything you can share about old versus new there.
Speaker Change: Then just switching over to the Vegas, D.C. with a transition, I guess any quantifiable metrics you can share on efficiency gains, leveraging technology more, I know in that facility, but anything you can share kind of old versus new there?
Michael Huffaker: Yeah, hey, this is Michael. So we're in the early days of the building; we've been open for about two weeks thus far, and we are meeting our weekly ramp-up plan to take the building to full entitlement. Over the course of next year, we would expect to get about $2 million in efficiency savings out of this building, comparably, over the previous. So we will spend the rest of this year ramping up and optimizing the building, and then we expect $2 million in savings for 2025. Great, Ryan. And then I believe you mentioned increased profitability in the company, starting QG at a provider.
Michael Huffaker: Yeah, hey, this is this is Michael. So we're in the early days of the building. We've been open for about two weeks thus far, and we are meeting our weekly ramp-up plan to take the building to full entitlement. Over the course of next year, we would expect to get about $2 million in efficiency savings out of this building, comparably, over the previous building. So we will spend the rest of this year ramping up and optimizing the building, and then we expect $2 million in savings.
Speaker Change: All right.
Speaker Change: Yeah, hey, this is Michael. So we're in early days of the building. We've been open for about two weeks.
Speaker Change: thus far.
Speaker Change: And we are meeting our weekly ramp-up plan to take the building to full entitlement. Over the course of next year, we would expect to get about $2 million in efficiency savings out of this building.
Speaker Change: comparably over the previous. So we will we will spend the rest of this year ramping up and optimizing the building and then we expect two million dollars in savings for 2025.
Ryan Lockwood: Great, Ryan. And then I believe you mentioned increased profitability in the company starting QG, Brian or David; I don't remember who said it in the prepared remarks. If I take 2.8 million of the non-recurring cost, add that back to EBITDA in Q2, so it doesn't look like you guys did that in your reconciliation, I guess. What's the relative benchmark for improvement? Is it quarter over quarter, year over year? Just help us think about kind of the EBITDA and profitability ramp through the rest of the year. Thanks, Ryan.
Speaker Change: Great, Ryan. And then I believe you mentioned increased profitability in the company starting QG. Ryan or David, I don't remember who said in the prepared remarks.
Ryan Lockwood: I remember we said in the preparatory remarks.
Ryan Lockwood: If I take $2.8 million of the non-recurring cost, add that back to EBITDAQ in Q2, it doesn't look like you guys did that in your reconciliation. I guess what's the relative benchmark for improvement is a quarter of a quarter of a year every year. Just help us think about kind of the EBITDAQ profitability ramp through the rest of the year. Thanks, Ryan. I think what we're really alluding to is we believe that we'll have gross margin expansion. So what happens is we really saw some pretty good sequential gross margin expansion through, sequentially every month through Q2.
Speaker Change: If I take $2.8 million of the non-recurring cost and add that back to EBITDA in Q2, because it doesn't look like you guys did that in your reconciliation, I guess, what's the relative...
Speaker Change: Benchmark for Improvement. Is it quarter over quarter, year over year? Just help us think about kind of the EBITDA and profitability ramp through the rest of the year.
Ryan Lockwood: Thanks, Ryan. I think what we're really alluding to is that we believe that we'll have gross margin expansion. So what happened is, you know, we really saw some pretty good sequential gross margin expansion sequentially every month through Q2. And we expect that to continue through the remainder of the year. So we think that Q3 gross margin should be higher than Q2, and full EBITDA through the remainder of the year. You know, we're working hard to try and maximize that, but it's obviously going to be, you know, contingent on certain of the projects that David mentioned launching and then us capturing that profitability as well as, you know, balancing some of this improvement with these investments that it takes to get these projects launched.
Speaker Change: Thanks, Ryan. I think what we're really alluding to is we believe that we'll have gross margin expansion. So what happens is, you know, we really saw some pretty good sequential gross margin expansion through sequentially every month through Q2.
Ryan Lockwood: And we expect that to continue through the remainder of the year. So we think that Q3 gross margin should be higher than Q2. I think for full EBITDAQ through the remainder of the year, we're working hard to try and maximize that. But it's obviously going to be contingent on certain of the project that David mentioned launching. And then us capturing that profitability as well as balancing some of this improvement with these investments that it takes to get these projects launched.
Speaker Change: And we expect that to continue through the remainder of the year. So we think that Q3 gross margins should be higher than Q2. You know, I think for
Speaker Change: Full EBITDA through the remainder of the year.
Speaker Change: We're working hard to try and maximize that, but it's obviously going to be contingent on certain of the projects that David mentioned launching, and then us capturing that profitability as well as balancing some of this improvement with these investments that it takes to get these projects launched.
Ryan Lockwood: Last one from me, Ryan. You previously said 30 million of cash exiting the year estimated. Any update to that now? That sounds about right. I would say 25 to 35 million of cash to exit the year dependent on inventory.
Ryan Lockwood: Last one from me. Ryan, you previously said 30 million of cash leaving the year estimated.
Ryan Lockwood: Any update to that? No. That's
Speaker Change: Last one from me. Ryan, you previously said $30 million of cash exiting the year estimated. Any update to that now?
Ryan Lockwood: That sounds about right. I would say 25 to 35 million dollars of cash to exit the year, dependent on inventory.
Ryan: That sounds about right. I would say $25 to $35 million of cash to exit the year dependent on inventory.
Ryan Lockwood: I'll turn it over to the others. Thanks.
Ryan Ronald Sigdahl: I'll turn it over to the others. Thanks guys. Good luck. Thanks, Ryan.
Ryan Lockwood: Thanks, Ryan. Thank you.
Speaker Change: I'll turn it over to the others. Thanks, guys. Good luck. Thanks, Ryan.
Ryan Peters: Our next question comes from the line of Ryan Peters from Lake Street Capital Markets. Yep.
Operator: Our next question comes from the line of Ryan Peters from Lake Street Capital Markets.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ryan Peters from Lake Street Capital Markets.
Ryan Peters: Yep. Hi guys.
Ryan Peters: Hi, guys. Take my question. First one for me. This is kind of a follow-up on the first question that Ryan had asked, what he didn't guide into. Can you maybe talk about what you've seen here in Q3 so far and what some of these initiatives, how they've played out. And if you've seen, in fact, some of that, you know, booking that sequential or, sorry, that seasonal trend that you guys have seen in the past, just kind of talk about what you've seen so far here in Q3. Yeah, so far in Q3, it's actually a little tricky.
Ryan Peters: Yep, hi guys, thanks for taking my questions.
Ryan Peters: First one for me, just kind of a follow up on the first question that Ryan had asked about hitting the guidance y'all. Can you maybe talk about what you've seen here in Q3 so far and what you know some of these initiatives how they've played out and if you've seen in fact some of that.
Speaker Change: Bucking that seasonal trend that you guys have seen in the past, just kind of talk about what you've seen so far here in Q3.
Ryan Peters: Thanks for taking my question. The first one for me is just kind of a follow up on the first question that Ryan had asked about hitting the guidance. Can you maybe talk about what you've seen here in Q3 so far? And how some of these initiatives have played out? And if you've seen, in fact, some of that, you know, bucking that sequential or, sorry, that seasonal trend that you guys have seen in the past, just kind of, you know, talk about what you've seen so far here in Q3.
Ryan Lockwood: You know, we had some, you know, a little bit of a headwind because we're moving Vegas, which was planned and expected. So when we move inventory from one location to another, it becomes non-saleable temporarily while it's on the truck and in the containers until it gets unloaded. And so that makes the read on the current quarter a little tough. And like everybody else, you're probably talking to on your other calls. We were impacted by CrowdStrike, as well as a lot of our vendors that we work with. FedEx, for example, I believe, is one of them.
Speaker Change: Yes, so far in Q3, it's actually a little tricky, you know, we had some...
Ryan Lockwood: Yeah, so far in Q3, it's actually a little tricky, you know; we had some, you know, a little bit of a headwind because we're moving Vegas, which was planned and expected. So when we move inventory from one location to another, it becomes non-saleable temporarily while it's on the truck and in the containers until it gets unloaded.
Speaker Change: You know, a little bit of a headwind because we're moving Vegas, which was planned and expected. So when we move inventory from one location to another, it becomes non-salable temporarily while it's on the truck and in the containers.
Ryan Lockwood: And so that makes the read on the current quarter a little tough. And like everybody else you're probably talking to on your other calls, we were impacted by CrowdStrike, as well as a lot of our vendors that we work with. FedEx, for example, I believe is one of them. And we don't really know how many customers were impacted. So despite that, we still feel on track for the quarter. The most recent week, which we just completed, which was pretty clean, is on track. So we still feel good about the quarter. But the read so far on P7 is a little bit behind, but a little bit of that was planned.
Speaker Change: until it gets unloaded. And so that makes the read on the current quarter a little tough. And like everybody else you're probably talking to on your other calls, we were impacted by CrowdStrike, as well as a lot of our vendors that we work with FedEx, for example, I believe is one of them.
David Meniane: And we don't really know how many customers were impacted. So despite that, we still fill on track for the quarter. The most recent week, which that we just completed, which is pretty clean, is on track. So we still feel good about the quarter. But the read so far on P7 is a little bit, a little bit behind, but a little bit of that was planned.
Speaker Change: and we don't really know how many customers were impacted.
Speaker Change: So, despite that, we still feel on track for the quarter. The most recent week that we just completed, which was pretty clean, is on track. So we still feel good about the quarter, but the read so far on P7 is a little bit behind, but a little bit of that was planned.
David Meniane: Yeah, and if I can add to that, it's David Ryan.
David Meniane: Yeah, and if I can add to that, David, Ryan, I think, like, if you take a step back, and you look at the margin profile that we started with at the beginning of the year, that's not a margin profile that we were comfortable with. And so, and you know, some of it is macro or related to our customer base, but there's definitely some variables that are within our control. And so, what I'm happy about is that we took significant action around pricing, promotions, and discounts, warehouse operations, and overall cost structure, which we talked about on the last call. So, you know, the good news is we acted quickly, and we made significant progress.
David Meniane: I think like if you take a step back and you look at the margin profile that we started with at the beginning of the year, that's not a margin profile that we were comfortable with. And so, you know, some of it is macro or related to our customer base, but there's definitely some variables that are within our control. And so what I'm happy about is that we took significant action around pricing, promotions, and discounts, warehouse operations, and overall cost structure, which we've talked about. On the last call, so, you know, the good news is we acted quickly and we made significant progress.
Speaker Change: And if I can add to that, it's David, Ryan, I think...
David Meniane: Like, if you take a step back and you look at the margin profile that we started with at the beginning of the year, that's not a margin profile that we were comfortable with. And so, you know, some of it is macro or related to our customer base, but there's definitely some variables that are within our control.
David Meniane: And so, what I'm happy about is that we took significant action around pricing, promotions and discounts, warehouse operations, and overall cost structure, which we've talked about on the last call. So, you know, the good news is we acted quickly and we made significant progress.
David Meniane: So, you know, for me, the evidence points that I'm looking at are, you know, Q2 had a better gross margin than Q1, and we expect Q3 to be a better gross margin than Q2. There's some noise in the P&L in Q2, because of one-time costs and the Vegas move. But you know, once we cycle through these expenses, I think the P&L is going to be much cleaner, and I have full confidence that next year, both the top line and the bottom line will look significantly better. So, you know, it's definitely a transition year for us, but I think we have visibility on much better numbers in the next six months.
David Meniane: So, you know, for me, the evidence points that I'm looking at is, you know, Q2 was better gross margins in Q1. We expect Q3 to be better gross margin than Q2. You know, there's some noise in the PNL in Q2 because of one-time cost and the Vegas move. But, you know, once we cycle through these expenses, I think the PNL is going to be much cleaner. And I have full confidence that next year both top line and bottom line will look significantly better.
David Meniane: So, you know, for me, the evidence points that I'm looking at is...
Speaker Change: Q2 was better gross margin than Q1, we expect Q3 to be better gross margin than Q2. There's some noise in the P&L in Q2 because of one-time cost and the Vegas move.
Speaker Change: But, you know, once we cycle through these expenses, I think the P&L is going to be much cleaner and I have full confidence that next year both top line and bottom line will look significantly better.
David Meniane: So, you know, it's definitely, it's a transition year for us, but I think we have visibility on much better numbers in, you know, in the next six months.
Speaker Change: So, you know, it's definitely, it's a transition year for us, but I think we have visibility on much better numbers in, you know, in the next six months.
Ryan Peters: Okay, got it. And then thinking about some of the more price-sensitive segments that have been a drag on the business, you know, on the path, like lighting and mirrors. I think you guys have called out.
David Meniane: Okay, got it. And then thinking about some of the more price sensitive segments that have been a drag on the business, you know, in the past, like lighting and mirrors, I think you guys have called out, have you seen any changes there in the demand environment at all? Or are some of those customers still trading down for, you know, more inferior products?
Speaker Change: Okay, got it. And then thinking about some of the more price sensitive segments that have been a drag on the business, you know, in the past, like lighting and mirrors, I think you guys have called out, I mean, have you seen any changes?
David Meniane: I mean, have you seen any changes there in a demand environment at all, or is it still some of those customers are trading down for, you know, more interior type products? Yeah, that's a great question. You know, historically our customer was definitely the price-sensitive lower income, you know, discount-seeking customer and you know, part of the exercise that we're going through is kind of a very deep segmentation, trying to focus on the customer base that has a higher propensity for returning more profitable, more efficient marketing spend. And so, you know, we're shooting on lower volume, but more profitable customers.
Speaker Change: there in the demand environment at all, or is it still some of those customers are trading down for, you know, more inferior type products?
David Meniane: Yeah, that's a great question. You know, historically, our customer was definitely the price-sensitive, lower-income, discount-seeking customer. And part of the exercise that we're going through is kind of a very deep segmentation trying to focus on the customer base that has a higher propensity for returning, more profitable, and more efficient marketing spend. And so we're shooting for lower volume but more profitable customers. We haven't seen a change from Q1 to Q2. The environment is still quite tough.
Speaker Change: Yeah, that's a great question. You know, historically, our customer was definitely the price-sensitive, lower-income, discount-seeking customer. And part of the exercise that we're going through is...
Speaker Change: kind of a very deep segmentation trying to focus on the customer base that has a higher propensity for returning, more profitable, more efficient marketing spend. And so, you know, we're shooting on lower volume, but more profitable customers.
David Meniane: You know, we haven't seen a change from Q1 to Q2. The environment is still quite tough. So if you look at our top line, I'd say, you know, some of it is not specific to carpaths.com. It's more macro and that customer base. And some of it is intentional, you know, raising prices, less reliance on discounts and promotions. Now, the good news is if you combine that with all the initiatives around operational efficiency, you know, it should trickle down to the bottom line.
David Meniane: So if you look at our top line, I'd say, you know, some of it is not specific to carparts.com. It's more macro in that customer base. And some of it is intentional, you know, raising prices, less reliance on discounts and promotions. Now, the good news is that if you combine that with all the initiatives around operational efficiency, it should trickle down to the bottom line. Now, obviously, it's going to take a couple quarters. But I think, long-term, focusing on that customer that is more profitable for us is going to pay off.
Speaker Change: You know, we haven't seen a change from Q1 to Q2, the environment is still quite tough.
Ryan Peters: Okay, I got it. Thanks for taking my question.
Speaker Change: So if you look at our top line, I'd say, you know, some of it is not specific to carparts.com. It's more macro in that customer base. And some of it is intentional, you know, raising prices, less reliance on discounts and promotions.
Speaker Change: Now, the good news is if you combine that with all the initiatives around operational efficiency, you know, it should trickle down to the bottom line. Now, obviously, it's going to take a couple quarters, but I think long term, like focusing on that customer that is more profitable for us is going to pay off.
Ryan Peters: Now, obviously, it's going to take a couple quarters, but I think long term, like focusing on that customer that is more profitable for us, is going to pay off. Okay, got it. Thanks for taking my question. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: This concludes today's conference call. Thank you for participating.
Operator: You may now disconnect. Thank you.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.