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spk02: Thank you for joining us today to discuss Parts ID Second Quarter 2021 Financial Results. On today's call are Nino Cipena, Chief Executive Officer, and Kalish Agrawal, Chief Financial Officer. I would like to point out that certain statements made during this presentation are forward-looking statements. These forward-looking statements reflect management's judgment and analysis only as of today, and actual results may differ materially from current expectations based on the number of factors affecting PartsID's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference and webcast, we refer you to the disclaimer regarding forward-looking statements included in our second quarter 2021 earnings release, which is furnished to the SEC today on Form 8-K. as well as the company's most recent annual report on Form 10-K and its other filings with the SEC. The company does not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company plans to refer to certain adjusted non-GAAP metrics on this call. Explanation of those metrics and reconciliations of GAAP metrics to those non-GAAP metrics can be found in the earnings release issued earlier today which is also posted on the press releases page of our website at www.partsidinc.com. With that, I'll now turn the call over to Nino Cepina, Chief Executive Officer of PartsID. Nino?
spk03: Thank you, and thanks, everyone, for joining us today. Our second quarter top line performance underscores the progress we are making capturing market share and advancing carid.com's position as a leading digital retailer in the 400 billion automotive aftermarket industry. Revenue grew 15% on top of a strong 46% increase in the year-ago period, Q2 2020 over Q2 2019, which on the two-year basis marked an acceleration compared with our first quarter. As the vaccination rate increased and the economy more broadly reopened, we anticipated consumers would increasingly return to in-person shopping and we'd see some softening in our site traffic versus the prior year period when the majority of brick-and-mortar retail was either shut down or operating under tight restrictions. The work we've done over the past year, expanding and enriching our catalog, combined with ongoing enhancements to our front and back end technology platform to improve the consumer experience and search engine optimization, drove a 9% improvement in conversion rate and a 20% increase in average order value, more than offsetting the lower traffic. To further drive revenue and maximize gross profit dollars, Additional pricing and promotional tests were executed across different categories during the quarter. While we are pleased with the results and will continue to test and incorporate the learnings into our go-forward strategies, these initiatives did add some pressure to gross margin. In addition, shipping surcharges from the 2020 holiday season have persisted, which along with the addition of public company costs of $1.1 million contributed to adjusted EBITDA of $4.2 million in the second quarter compared with $5.5 million a year ago. While adjusted EBITDA was down year over year, we are confident that our technology-driven, capital-efficient business model will drive profitable growth over the long term. With PartsID becoming public only late last year, I know many investors are new to the story. Therefore, I'd like to spend some time discussing our business, the technology platform, and operating model. Kailash will then take you through the financials. After that, we'll open the call to your questions. PartsID is a technology-driven digital commerce company focused on creating custom infrastructure and unique user experiences within niche markets. Our technology is a data and information platform that enables and facilitates a differentiated digital commerce experience for complex product categories, as opposed to a pure e-commerce retailer. The platform integrates software engineering with catalog management, data intelligence, mining and analytics, along with user interface development, which utilizes distinctive rules-based parts fitment software capabilities. To handle the ever-growing need for accurate product and parts data, We utilize cutting-edge computational and software engineering techniques, including Beijing classification, to enhance and improve data records and product information, and ultimately to contribute to the overall development of an engaging user experience. The technology platform is fungible, which we demonstrated by launching seven new verticals, including MotorcycleID.com, BoatID.com, and CamperID.com, in August 2018, which all leverage the same proprietary technology platform and data architecture with a unified shopping cart, enabling customers to shop across verticals and check out seamlessly using one cart. Through the journey of building an end-to-end digital commerce technology platform for complex product parts and accessories, we developed a product portfolio with over 17 million SKUs, a just-in-time fulfillment network, comprising a network of over 1,000 vendor partners, over 5,500 active product brands, over 14 billion data points related to vehicle parts, and proprietary machine learning algorithms for complex fitment industries such as vehicle parts and accessories. There are several key points that highlight the attractiveness of our platform and model and underscore how PartsID is distinguished from the competition. First, our distinctive technology provides accurate fitment data, which enables a successful experience for the auto parts consumer and supplier. Unlike any other consumer product category, the success or failure of selling auto parts and aftermarket accessories comes down to fitment data that sellers like us add to our product offerings. Fitment is the compatibility of each part and accessory to each specific vehicle year, make, model, engine type, trim, and more. Having fitment data that is accurate, complete, and in the right format for each channel is crucial to a superior user experience and a successful customer transaction. Furthermore, our proprietary technology enables us to test and add new product lines and brands rapidly. Second, our product catalog of over 17 million SKUs and 5,500 brands is unrivaled. Our comprehensive catalog is enriched enriched with nearly 14 billion data points related to vehicle parts, advanced 3D imagery, in-depth product descriptions, customer reviews, installation and fitment guides, as well as other rich custom content created in our in-house studio, specifically catering to the needs of the automotive aftermarket industry, and is further complemented by our specialized customer service teams. Third, Our proprietary and capital-efficient fulfillment model allows us to grow rapidly without the need for additional capital. Our network of over 1,000 product vendors has enabled us to scale our catalog size quickly and add new verticals, unlike traditional players that have more capital-intensive businesses. We can test and add new product lines or brands quickly without tying up capital and worrying about inventory obsolescence. Our geo-optimized fulfillment algorithm determines which product vendor to buy from while the sale is being made and incorporates factors such as real-time inventory from our fulfillment network, customer proximity, shipping cost, and profitability. This decentralized, data-driven approach allows us to increase fill rate and delivery speed. Fourth, our superior customer experience is a result of rich content, wide product range, with ease of selection, proprietary fitment data, and highly trained customer service, providing a data-driven engagement platform for discovery and inspiration. This is evident by A, the number of repeat customers defined as customers who made a prior purchase between 2011 to 2020 represented 24.2% of total customers in the second quarter of 2021, compared to 19.3% in the second quarter of 2020. B, our overall product return rate continues to be approximately just 5% versus an industry average of more than 20%. And C, our net promoter score of approximately 66. We have invested over 10 years building our platform, and it's not easy to replicate. In fact, our investment in technology and data is arguably the deepest competitive moat around our business. and it has allowed us to expand it to new verticals, leveraging a capital-efficient, just-in-time inventory model to offer the consumer an extensive selection and experience. With that background, I'll walk through the key highlights from the second quarter and then discuss our long-term growth plans before turning it over to Kalash for a review of the financials. As I outlined during our previous earnings calls, we have been concentrating our efforts on underdeveloped product lines to expand our catalogs. This includes original equipment and repair parts in our core automotive business, as well as our newer verticals, such as motorcycle, boating, RV, slash camper, and power sports. For the second quarter and first six months of 2021, the total value of orders for wheels and tires increased to 20% and 47% year-over-year, respectively, while repair parts were up 17% and 29% year-over-year, respectively. In addition to product expansion, we are also broadening the services available through our platform as we push deeper into the Do It For Me segment of the market to advance CarID.com's position as a one-stop shop and seamless solution for all vehicle enthusiast needs. We have successfully onboarded over 2,100 tire installation locations since the inception of the Tire Installation Network initiative last year. and following some recent technical enhancements in the activation process, we expect to see a steady increase in the number of locations onboarded over the back half of 2021 and into next year. This tire installation service allows customers to visit carid.com, research and choose from a wide variety of tires, and in the same transaction, select a tire installation center near them to schedule an appointment. Shifting to our newer verticals, After an exceptional first quarter for motorcycle, boating, RV, camper, and power sports, sales trends moderated in the second quarter as we lapped our most challenging comparison from 2020. Launched just three years ago, our new verticals were the fastest growing part of our business in 2020 and represented approximately 10% of total revenue, up from low single digits in 2019. The speed at which these businesses have captured share demonstrates the fungibility of our technology led capital efficient model and speaks to the significant opportunity ahead as we continue to expand our new vertical skew count, invest in driving awareness and traffic to these sites, and add experienced category leaders to oversee the further build out of our presence in these markets. As we shared on our last call, we are working on several strategic initiatives including category expansion, developing the new verticals, pricing optimization, online to offline initiatives, brand building, and marketing diversification. Starting first with category expansion and developing the new verticals. Within our core automotive product lines, we are working on developing additional vendor relationships and additional distribution points in order to get customer primity to improve delivery speed. We are also pursuing similar strategies in our new verticals and are making good headway, increasing SKU counts for these fast-growing businesses by onboarding a wide selection of products and brands. Moving next to pricing optimization, we launched several price elasticity tests on additional brands. We have seen continued improvement in sales volume as well as in site conversion rate in many brands where these tests have been launched. We have also recently carried over this methodology to the first batch of brands in some of the new verticals. Next, I'll move to our initiatives in online to offline. As I shared in my earlier remarks, we have successfully onboarded over 2,100 tire installation locations and we're poised to accelerate this number in the coming quarters. We believe tire installation is just the first of many other services we can offer in the future. Finally, I'll move to brand building and marketing diversification. I'm pleased to announce that we recently staffed the marketing leadership position with Evan Frangos now serving as the vice president of marketing. We're thrilled to add someone with Evan's expertise to the team at PartsID, and we look forward to his guidance and strategic oversight of our marketing and brand strategy efforts moving forward. With his experience and longstanding success within the consumer products market, we believe our online retail offerings, customer experience, and communication strategies will be well-positioned to help us continue to grow market share within the automotive and other key retail verticals we operate in. His expertise guiding growth of consumer product stalwarts like Foot Locker and Ideal Image will be a valuable asset as we seek to further broaden our customer base within the U.S. and beyond. Evan will be working to diversify our marketing mix and build on the work we started in 2020. In addition, we have evaluated several different marketing technology partners geared at helping us increase customer retention and grow brand awareness. We expect to finalize a partner before year-end. We are very pleased with the strong gains we achieved in conversion rate and average order value during the second quarter, which allowed us to offset the decline in traffic from record levels a year ago and drive overall revenue growth of 15% on top of 46% a year ago. In addition to increasing conversion rate and average order value, we believe our recent and future success is rooted in product and category expansion, pricing optimization, connecting online to offline with value-added services, growing brand awareness, and efficiently acquiring traffic. As you can see, we have multiple levers for growth that we can pull going forward, especially when it comes to growing brand awareness and acquiring new customers. We are confident that PartsID is positioned for continued growth given our superior customer experience, strategic initiatives, differentiated technology, comprehensive product catalog, and experienced management team. Our focus continues to be long-term profitable growth. We look forward to updating you on our progress as we continue to execute our long-term vision for the company. With that, I'll turn the call over to Kalash to review our financials. Kalash?
spk01: Thanks, Nino. with Nino covering the drivers of our top line and our earning release, and 10Q containing a review of our full second quarter and first six-month financials, I am going to limit my comments to gross margins, expenses, and our balance sheets. Starting with the gross margins, gross margin was 20% in the three-month end-age June 30, 2021, which was slightly lower than the gross margin of 21.3%, in the three months ended June 30, 2020. We, like many businesses, continue to experience higher shipping costs due to continuation of surcharges by shipping carriers. And as Nino mentioned, during the second quarter, we ran pricing and promotional tests in certain categories. While these tests put pressure on the gross margins during the quarter, we believe the learnings from these and future tests will be advanced will advance our core objective of maximizing revenue and gross profits. With respect to the operating expenses, advertising expenses increased 1.6 million or 17.3% for the three months ended June 30, 2021, compared to three months ended June 30, 2020. This increase in advertising costs was primarily attributable to an increase in cost per click, a change in the mix of advertising channels used and pacing up new advertising campaigns and campaign development. Chaining general and administrative expenses increased 2.5 million or 25.1% for the three-month end date June 30, 2021 compared to the three-month end date June 30, 2020. The increase was primarily attributable to an increase of $1.3 million in non-cash share-based expenses associated with grants of restricted stock units and performance-based restricted stock units made during the quarter, and $1.1 million of public operating expenses. It is important to understand that these are ongoing expenses that will be headwind to year-over-year comparison until late this year when we lap the completion of our business combination. Turning to our balance sheet, as of June 30, 2021, we had cash of 27.3 million compared to 22.2 million at December 31, 2020. The increase in cash was primarily driven by net cash provided by operating activities of 9.1 million, partly offset by cash used in investing activities of 3.9 million primarily related to website and software development expenditures. With our capital efficient inventory-like business model, our cash balance puts us in a strong position to continue investing in our growth initiatives and achieve our long-term profit objectives. With that operator, we are now ready to take the questions.
spk02: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow full attention to your questions, we ask that you ask one at a time. You will be allowed to ask follow-up questions. Our first question comes from the line of Maria Rips with Canaccord Genuity. Please proceed with your question.
spk04: Hey, this is Jason for Maria. Thanks for taking the question. I was just wondering if you could share a little more color on the way that revenue trended, the demand trended throughout the quarter as consumers sort of spent more time away from home and reopening. If you saw any change month to month and then on that same topic as we entered into Q3 and the rise of sort of Delta variant cases around the country, if there's been any change in that trend over recent weeks. Thanks a lot.
spk03: Hey, Jason. Nino here. So I'll take the first one, the revenue trend. So April to June Q2, so generally the tax refund demand from February and March continues into mid-May. And then historically for our business, June to September is lower than what we observe in the tax refund season. And then later in the year, the holiday season begins picking up in October. So that's sort of some context around the monthly and quarterly seasonality. With regards to the Delta variant, right now, even with the Delta variant increasing, we don't see any clear change in consumer behavior yet. But we're monitoring very closely, and we're prepared to adjust as needed, including if we need to make adjustments in our marketing spend, and some other areas of the business. But right now, nothing that we're observing.
spk04: Okay, great. And then just one quick follow-up. In terms of the tire installation progress, it seems like they're adding new locations at a really nice pace. Any early learnings or adoption trends among customers with that Do It For Me initiative?
spk03: It's still a very small program. Internally, we still treat it as a proof of concept. even though we've got over 2,100 locations, there's still a lot of technical enhancements and work being done. So we're encouraged, but still a very small piece of the overall business.
spk04: Okay, great. Thanks a lot.
spk02: Thank you. Our next question comes from the line of Mike Baker with DA Davidson. Please proceed with your question.
spk05: Hi, and sorry, I'm in a noisy place, so sorry if there's a lot of background noise, but I'll try to speak clearly. Can you put your revenue this quarter in context with your internal plan? You knew you had a tough comparison, so is this about what you expected? And then you gave us a two-year number, and you said accelerated from the first quarter. Can you tell us what that two-year number was in the first quarter? And one last one along those same lines is the comparison gets even harder in the third quarter. And I think if you sort of do the same two-year trend that you just did, you're going to be down in the third quarter. So how should we think about that? Thanks.
spk03: Hey, Mike, nice to hear from you again, and thank you for the questions. I jotted down the notes. Let me start with the last one, I guess. I'll start from the bottom up on where we expect kind of the business in the third quarter. So here's what we would say to that. So as we've reported today, in the second quarter, we grew 14.5% year over year. Historically, pre-COVID, Q2 has typically been our largest quarter in the year. As you rightly point out, Q3 is going to be our toughest comparison of the year. And as all of us are seeing in the market, we're starting to see some of the benefits from COVID wane. We don't provide official guidance, as you know, but based on pre-COVID sales, we would expect Q3 revenue to be close year over year and significantly up on a two-year basis. With regards to the two-year numbers, I do have some of that available. So The second quarter, we grew 68% over 2019. So $130 million in net revenue this quarter compared to 2019. We did about $77.5 million in the second quarter. So really strong growth on a two-year basis. And actually, you know, strong growth on a year-over-year basis. As I said, it grew 14.5%.
spk05: Okay, great. Another question, I just want to ask about the gross margins. And so can you break up that 130 by the impact of the shipping costs versus the price optimization? And how long do we expect that shipping cost to go on? I mean, I know shipping costs are continuing to rise, but at some point, can you push that through to customers or offset it in some other way? Or do we just absorb it in the cost structure?
spk03: Great question, Mike. I'll tackle that as well. So The shipping costs, which are overall supply chain challenges, right? Everyone is managing as best they can right now, including us. Those shipping surcharges are contributing or account for approximately 50 to 60 basis points on the margin. The remaining 50, 60 basis points are really from pricing and promotional initiatives we had during the quarter. And the real objective there was we have not passed on these surcharges to our customers yet. And the goal there really is to maintain the customer experience as best as possible while not kind of just tossing it over the fence to the customers. So these pricing and promotional changes were really to try and offset as best we can these additional surcharges customers were being faced with right now. In the short term, we see the surcharges continuing, right? At least based on what we're hearing from our partners, our carriers, at least the foreseeable short term, we're going to be managing against these surcharges and this overall supply chain disruption. Hard to comment any further than the immediate short term. However, if we find ourselves continuing with these longer than beyond the short term, we are already examining internally how we would handle that from a long term perspective. Even examining right now, would we make changes to our operating model? in terms of do we want to begin stocking some product for right now, depending on kind of what we forecast those surcharges to be.
spk05: Okay, I'm going to ask two more quick ones. A follow-up on that, when do these, do we expect these pricing tests to eventually be accretive to gross margins, or, excuse me, including in the third quarter, or do we just expect a sort of similar type of gross margin impact in the third quarter? In other words, The shipping costs will continue. How do we think about how the pricing tests continue to impact the gross margins over the coming quarters?
spk03: It will depend. Different price elasticity tests have different levers that we pull. In some cases, we're raising prices. In other cases, we're lowering prices, depending on what really the objective of the test is. So hard to comment long-term, but overall, the margin will continue very likely have some pressure from the supply chain, as I said earlier, going into the rest of the year. Kalash, if you want to add some additional color to that, please do.
spk01: Sure, absolutely. Hey, Mike, the point is until the time supply chain situation gets impacted by COVID, we may see this pressure, but as this pressure goes away or as the supply chain conditions moves out, we should be resorting back to our normal margins in due course.
spk05: Okay, last one real quick. I think originally you had said 9,000 tire installers by year end. Are you on pace for that? I know you said it's going to accelerate in the back half, but that seems like it would take a pretty massive acceleration. Or have there been sort of unforeseen delays or anything around that?
spk03: Thanks. There were some unforeseen technical challenges which we overcame in the second quarter. We believe the number of locations we will activate the rest of the year should accelerate. So, you know, we're encouraged – Right now. Okay, thanks for all the time. Thank you, Mike.
spk02: Thank you. Ladies and gentlemen, this concludes our time allowed for questions. I'll turn the floor back to Mr. Topina for any final comments.
spk03: Yes, I want to say thank you to our staff domestically and internationally for all the work in the second quarter of this year. Thank you to all the analysts and investors for joining the call, and we look forward to keeping everyone updated on our progress in November. Thank you again.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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