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spk05: Thank you for joining us today to discuss Part ID Second Quarter 2022 Financial Results. On today's call are Nino Trapina, Chief Executive Officer, and Kalis 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 Parts ID business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our second quarter 2022 earnings release, which was furnished to the SEC today on Form 8K, 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 these metrics and reconciliations of GAAP metrics to deal 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. Finally, as a reminder, a slide presentation is accompanying today's prepared remarks. The presentation is viewable through the webcast link located at www.partsidinc.com. With that, I'll turn the call over to Nino Trepina, Chief Executive Officer of PartsID. Nino?
spk06: Good afternoon, and thank you for joining us. It's great to reconnect with you today to share the details of PartsID's second quarter results. 2022 is proving to be a volatile year with an economic environment marked by inflation, supply chain bottlenecks, and a shift in consumer spending patterns. At the root of this volatility are the aftershocks of the COVID-19 pandemic and the global effects of the war launched by Russia against Ukraine. While the Fed and other central banks work to curb inflation and stabilize the global economy, we remain squarely focused on our customers and our suppliers and ensuring that PartsID is their preferred platform for automotive and other vehicle parts and accessories in any environment. We're also very focused on judiciously pushing and pulling the levers within our control to steer Parts ID in a financially responsible manner through this period. On each of these fronts, we are seeing positive traction, which Kailash and I will detail on this call. Cars remain an important pillar in everyone's day-to-day lives. Whether you're driving an older vehicle, which requires more repairs and maintenance, or you're the type to outfit your muscle car with custom wheels and an aftermarket exhaust system, or somewhere in between, consumers have a very emotional connection to their cars. This emotional connection, combined with the projected growth in the markets we serve, means that interest in our category is ongoing. And we're seeing consumers remain engaged and responsive to the right combination of wide selection, competitive prices, and highly trained customer service, The PartsID platform model flexes to deliver this outcome across different macroeconomic environments, and we're seeing it do so today, including in our unit economics, which continue to be healthy across the business, including improvements in our adjacent verticals. For example, while sessions in the second quarter to our platform were down 15.5% year over year, users were only down 5.7%. Consumer demand is still there. However, their discretionary spending is being diverted to necessities such as gas, food, and travel in this inflationary environment. Since becoming a public company at the end of 2020, we have repeatedly stated our goal to drive long-term profitable growth. While this environment is volatile, our intention is unchanged and we are laser focused on achieving this goal. Our priority right now is to steer the business to positive adjusted EBITDA and positive free cash flow. Our cost reductions demonstrate our resolve. We are building for the long term, but coming in each day thinking about the next set of steps on the path there. With an addressable market in the US estimated at more than $400 billion, which remains significantly under-penetrated online compared to other sectors of retail, We are truly excited about what the future holds for PartsID. Turning now to slide four. Consistent with our recent earnings calls, I will provide a brief overview of our business, the technology platform, and our operating model, especially for those investors that are still new to our story. PartsID is a technology-driven digital commerce company on a mission to transform the $400 billion-plus U.S. auto aftermarket and the $100 billion plus adjacent complex parts markets we serve by focusing on the customer's needs and using purpose-built technology and proprietary data to create unique user experiences where customers can quickly and easily find all the parts and accessories they need and get customer support by highly trained agents. All of this is designed to ensure that not only will they come back in the future, but they will tell their friends and families too. We work to achieve this through our platform business model, which brings together over 1,000 industry suppliers, more than 5,000 active brands, over 18 million product SKUs, and over 14 billion product and fitment data points. There are several key points that highlight the attractiveness of our platform business model and underscore how PartsID is distinguished from the competition. First and foremost, our purpose-built digital commerce platform, combined with our proprietary fitment data, delivers a highly differentiated customer experience. As just one example, our exclusive shop by service type feature allows customers to view and purchase all the products needed for a specific repair or maintenance task at once. This feature helps the customer avoid the frustration that comes with forgetting to order an item that is required to complete a task such as changing their brakes. Second, our product catalog of more than 18 million products used in over 5,000 brands is unrivaled. Our comprehensive catalog is 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 specifically catering to the needs of the automotive aftermarket industry. To handle the ever-growing need for accurate product and parts data, we utilize cutting-edge computational and software engineering techniques, including Bayesian classification, to enhance and improve data records and product information and ultimately to contribute to the overall development of an engaging user experience. Third, our asset-light and capital-efficient fulfillment model allows us to grow organically. Our network of over 1,000 suppliers has enabled us to scale our catalog size quickly and to add adjacent verticals unlike others that have more capital-intensive businesses. Overall, our differentiated and enhanced customer experience is demonstrated by one, Our catalog size, two, despite the supply chain disruptions and inflationary environment that began in 2021 and continues today, our net promoter score remains above 60. Three, our overall product return rate across all eight verticals continues to be between just 5% to 6% versus industry averages of more than 20%. In a category as complex as parts and accessories, this is truly incredible. and underscores just how effective our technology and data are. Fourth, but certainly not least, repeat customer revenue, which is defined on this slide, represented 37.8% of total revenue this quarter, up from 34.9% in the second quarter of 2021, demonstrating the loyal customer following we continue to build. 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. With that background, I'll walk through the key highlights from the second quarter of 2022, and then I will turn it over to Kailash for a review of the financials. After Kailash finishes, I will cover our key growth opportunities and the strategic initiatives we're executing against to capture that growth. After that, we'll open the lines of questions. Turning now to slide five. Our outsized revenue results in the second quarter of 2021 due to the stimulus tailwinds made for a challenging comparison this quarter. Net revenue was down 20% year over year. However, when compared to Q2 of 2020, revenue grew by 12%. In addition, revenue increased 10% compared to Q1 of this year. Kalash will detail this further soon. Compared to Q2 2021, we saw a lower number of orders due to a 15.5% decrease in traffic and a 15.4% decrease in conversion rate that was partly offset by a 10.3% increase in average order value. The decreases in traffic and site conversion rates were due to widespread reduction in changes in consumer discretionary spending when compared to the stimulus-fueled spending in Q2 a year ago. coupled with the impact of inflation on consumer sentiment. Discretionary dollars have now gone to things like gas, food, and travel. The 10.3% increase in average order value was largely due to passing higher shipping and inflation-related costs to the consumer. Moving on to customer trends. We continue to realize positive trends with repeat customers. In the second quarter, the percentage of repeat customers increased 13.5% to 27.6% of customers compared to the second quarter of 2021. In addition, the percentage of repeat customer revenue increased 8.3% to 37.8% of revenue. Customers have confidence purchasing from us and more of them are spending over $1,000. We are very excited about the consistent positive trends we are seeing from repeat customers and we have a number of projects underway including email marketing strategies to continue moving these important repeat customer metrics in the right direction. Turning now to slide six. Supply chain disruptions continue to impact the broader industry due in part to continued factory closures and poor backlogs around the world. Our team continues to navigate through these challenges by leveraging secondary and tertiary vendors within our extensive vendor network to source products and in some instances, We are working to establish direct relationships with suppliers. We have also enhanced the wheels and tires geo-sourcing algorithm to improve margin and order to delivery time. These actions have enabled us to hold down cost increases where possible. If necessary, we have continued to pass some of these increases onto retail prices to protect margins. Along with supply chain challenges, the decline in new vehicle production and sales is also impacting the industry. While accessory sales have moderated as a result, we are building on the repair parts momentum as consumers are increasingly choosing to hold onto and repair their existing vehicles rather than wait months and pay over MSRP for new vehicles. Recently, we added approximately 100 new repair brands and 30 suppliers, strengthening our position in the repair category. While the dollar volume is still small, original equipment repair parts revenue increased more than 100% compared to Q2 of 2021. In addition, this quarter we launched a repair parts private label house brand called ID Select, which is already a top 10 repair brand by revenue. We are very pleased with the reception thus far, and we look forward to broadening the ID Select brand in the future. Inflation continues to be a major factor as well. One notable and clear advantage of our platform business model is the breadth of similar products available to a consumer to trade down the product value spectrum as prices increase. By offering customers options down the value spectrum during times like this, we can capture sales which competitors with a stock and ship model may lose due to their limited product assortment and options. We are leaning into this on the platform and with our call center representatives. Next. As I mentioned earlier, PartsID has strong ties to Ukraine. It is home to many of our independent contractors. Fortunately, many of them have been able to migrate to safer regions in Ukraine or to other countries and are continuing to work remotely. PartsID has no physical assets in the country, and fortunately, we haven't experienced any material disruption to regular business activities to date. We are closely monitoring the situation. both the safety of our team members and the need to maintain operations. As the situation continues to evolve, we'll adapt with any needed temporary or longer-term adjustments as appropriate. While these factors are a substantial headwind today, we are intently focused on protecting profitability and prudently managing cash. Near the end of the second quarter, we began implementing a global reduction of force, which, when completed, will reduce our personnel-related expenses by more than 20%. We have also optimized our advertising investment to the most profitable opportunities. In addition, we are evaluating opportunities to reduce shipping costs, which will benefit our customers. Lastly, since June, the company began moderating capital investments and is taking additional steps to enhance our bottom line. Kallash will detail the projected impact to cash flow momentarily. With that, I'll turn it over to Kailash for a review of the financials. Kailash.
spk01: Thanks, Nino. Good afternoon to everyone. Nino took us through our revenue results compared to the second quarter of 2021, but I want to also provide a look at our progress compared to the last quarter on slide eight. Despite a very challenging environment, we increased top line revenue by 9.4 million or 9.9% from the first quarter of 2022. Additionally, our operating loss improved by 3.9 million and adjusted EBITDA improved by 3 million. Increased revenue, gross margins, and advertising expenses optimizations were primary factors, primary drivers of our increased operating performance quarter over quarter. As Nino mentioned, we took significant cost reductions measures in the quarter, so we expect to see continued improvement in our cost structure manifest in quarter three and quarter four. In total, we anticipate that our actions to date will save company approximately 12 million on an annualized basis. Turning to slide nine, we improved gross margin by 20 basis points quarter over quarter. largely due to the margin-protecting measures Nino detailed. We also saw significant year-over-year margin improvement within our adjacent verticals and repairs and reparts business of 23.5% and 11.4% respectively. While we believe that supply chain constraints will continue to be headwind for the remainder of this year, the actions we have already taken combined with continued margin improvements within our adjacent verticals, repairs and OE parts business are intended to protect and grow margins going forward. As a reminder, we operate a capital efficient, just-in-time inventory business model. Since we don't carry inventory, we don't have a fulfillment cost in our operating expenses. to properly compare our gross margins with competition requires an adjustment of a competitor's gross margin for their fulfillment cost. Turning now to our balance sheet and our cash flow dynamics on slide 10, cash decreased by 8.5 million in the three months ended June 30, 2022, primarily due to changes in working capital, 7.7 million, and capital expenditure, 1.7 million. The cash used in networking capital primarily consisted of decrease in customer deposits of 7.1 million driven largely by reduction in average unshipped and unbeliever days from 11.6 to 9.6 days and 24.9% decrease in value of orders received in June 2022 compared to March 2022. This brought total assets to 40.7 million at June 30 compared to 49.2 million at March 31, 2022. Since June 2022, the company implemented deductions in both operating and capital expenditures that are intended to stop the cash burn and achieve approximately 12 million in annualized savings. I will now turn the call back to Nino for review of our strategic initiatives. Nino.
spk06: Thank you, Kailash. Turning to slide 12, you can see that our runway for long-term growth is substantial. The specialty automotive equipment market in the U.S. was estimated to be a $48 billion market, and it is estimated that 52% of this market is online and is growing faster than brick and mortar. This is very promising, as the specialty segment includes interior and exterior accessories, custom wheels, and performance products, which combine to represent approximately 70% of our sales. The overall US automotive market is estimated to be $439 billion. We've invested heavily in growing our aftermarket repair and original equipment product lines, and we are seeing this work yield very positive results. We now have 34 major manufacturer brands, including Dodge, Jeep, Hyundai, and Lexus, and approximately 2 million original equipment product SKUs, which has significantly broadened our product selection to now provide customers with a diverse range of both aftermarket and original equipment parts, all in a one-stop shop platform. Next, looking to the right of this slide, is the estimated market size opportunity for the seven adjacent verticals we launched in 2018. These verticals are highly fragmented, and in most cases, there is no dominant online leader. This presents a substantial opportunity for us. Within these adjacent verticals, we're focused on boating, power sports, motorcycle, and RV slash camper, which combine to represent an estimated $22 billion of total addressable market annually. Addressing these large and growing markets with our asset-light, capital-efficient business models, is an enormous opportunity, and we've only scratched the surface. We believe we're on the right path for growth, both to the benefit of our customers and our shareholders. Turning now to slide 13, despite the near-term market headwinds we detailed earlier, there are many significant industry tailwinds at our back as well. First, the U.S. auto parts e-commerce market share is projected at over $22 billion by 2023. This is up from $16 billion in 2020. Second, the specialty equipment segment of the industry is forecasted to grow to $55 billion by 2024, up from a record $50.9 billion last year. Third, miles driven rebounded back to pre-pandemic levels earlier this year, driving strong demand for repair and maintenance products. So far in 2022, cumulative travel is up another 3.8%. Fourth, many of the adjacent industries we serve are experiencing growth and are projected to continue growing. And finally, EV adoption is accelerating, and we believe we're well-positioned to capture this emerging category with our asset-light platform model, which is designed to easily add new and emerging categories like EV to our catalog. Turning next to slide 14. We continue to execute against our strategic initiatives and we're orienting the business to succeed across each of these dimensions through a technology-first approach and investing accordingly, positioning our platform to adapt to the ebbs and flows in the macroeconomic environment. Our aftermarket repair and original equipment catalog continues to expand as we added 100 new repair brands and 30 new suppliers. In addition, we launched our private label repair brand, ID Select, Furthermore, original equipment revenue grew more than 100% year over year. We are excited about what this growing area of our business will add, both from a top line and a margin perspective. Growth in our adjacent verticals continues to accelerate as we build out product selection there as well. This quarter, we launched Arc Moto Gear on MotorcycleID.com, the first in-house private label brand for an adjacent vertical outside of CarID.com. Riders can choose from a complete line of jackets, pants, boots, and gloves in a variety of sizes and styles. We also increased efficiency within our camper and RV vertical through eight new direct relationships with suppliers, and we onboarded nearly 30 new brands across four verticals as part of a growing vendor partnership this quarter. As we continue to expand product partnerships and efficiencies, the outlook for adjacent verticals continues to strengthen. With regards to customer acquisition and retention, repeat customer revenue increased 8.3% to 37.8% of revenue this quarter. We believe we can continue growing repeat customer revenue and we have a number of projects underway to help do so. This quarter we launched a new email subscriber acquisition program. In addition, we piloted and scaled new advertising campaign types with automation technologies across bidding, targeting, and budget optimization that should continue to drive customer acquisition and retention. Lastly, we continued to make progress in pricing and profit optimization. We saw overall company margins improve 20 basis points quarter over quarter as we implemented a number of cost strategies in the second quarter. We also saw substantial year-over-year margin improvement in the adjacent verticals and repair and OE parts businesses, 23.5% and 11.4% respectively. Looking ahead, we feel very confident about our ability to drive increased profitability for the company despite today's challenging operating environment. Turning next to slide 15. Before we open up the call for Q&A, I want to leave you with the six key areas of our company's strategic vision. Private label expansion, online to offline Do It For Me services, forward positioning of vendor inventory, international expansion, a mobile app, and evolving into a two-sided marketplace are the key areas of long-term opportunity for Parts ID. Private label expansion and online to offline DIFM services are some of the most exciting areas of future growth for the company. As I mentioned earlier, in the second quarter we launched two new private label brands, ID Select for repair parts and Arcimoto Gear in the motorcycle vertical. Our private label business today is small. This presents a big opportunity for us to increase gross margin long term as we develop and scale these brands. With regards to our Do It For Me initiatives, as we reported last quarter, we now have over 7,000 tire installation locations integrated to caridea.com. And while the revenue from this pilot is small right now, it's up over 100% year over year. The DISM segment is very attractive to us, and we are continuing to lay the foundation for future growth here for other products and services well beyond tires. Next, forward positioning inventory will drive lower costs and increase shipping speed. And as we look to the future, we believe our tech-enabled digital commerce platform and data intelligence can be replicated internationally, further expanding our market. Additionally, serving our customers with a mobile app is expected to further enhance the customer experience while also increasing long-term purchase frequency. And finally, long-term we are positioning ourselves to evolve our platform model into a parts and accessories marketplace for buyers and sellers aided by our purpose-built technology and proprietary data. Turning now to slide 16. In closing, despite a challenging macroeconomic environment, we continue to deliver value to our customers make progress in our strategic initiatives, and provide our suppliers with an efficient and effective channel to drive their sales. In addition, while we remain focused on developing a differentiated and enhanced platform for purchasing parts and accessories, we are also taking the necessary steps to stay ahead of this dynamic business environment and steering PartsID in a financially responsible manner to consistently deliver profitable growth. Finally, I'd like to thank the entire ParseID team, both domestically and internationally, for their dedication, hard work, and commitment to serving our customers. With that, we'll open the call for questions.
spk05: Thank you. We will now be conducting a question and answer session. If you would 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 two if you would 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. One moment, please, while we poll for your questions. Our first question has come from the line of Maria Rips with Canaccord. Please proceed with your questions.
spk02: Great. Good afternoon, and thanks for taking my questions. So appreciate all the color on the Q2 trends and understanding that you're not providing guidance, but how should investors think about your performance in Q3 in the context of sort of softening macro environment versus much easier comms for you? And is there anything you can share about both traffic and conversion trends so far this quarter?
spk06: Hey, good afternoon, Maria. This is Nino. I'll cover your question and I'll let Kalash piggyback. So Demand in accessories continues to be moderated, but we're continuing to see strong demand in the repair business and the original equipment business. As we stated, demand in repair grew 9% year over year, and margins improved 11.4%. We have a big sale actually starting tomorrow on the platform, which will run for several days, featuring many of our top vendors and our top brands. We expect these sort of promotional events will help kind of pull demands from these consumers who have tightened up their belts, and we can continue to drive demand in these key accessories categories for our business.
spk02: Great. Thank you so much. Is Kailash going to add to the answer, or should I ask my second question?
spk01: I would say to your second question on the conversion trains and the traffic trains, we won't expect any material improvements in those trains in the quarter three. Generally, quarter three has been lower than quarter two, and we do believe those seasonality trains will continue as before.
spk02: Got it. That makes sense. And then you noted that you increased your gross margin targets. How do you sort of current target compared to your prior allocular cobalt seeding? I think you said 23% by December of 2024. And what should drive that? Is it largely sort of growth within your higher margin adjacent verticals? Or do you see a few other drivers there as well?
spk01: I'll take this question, Maria. The product mix is one of the important lever which impacted our margins. And the second is the supply chain constraints. So product mix is a repair parts and adjacent vertical where our margins are comparatively lower than our core business or the series business. And we are working very hard to improve the margins and adjacent verticals and repair parts. And as you saw for the adjacent vertical, we improved the margin by 23.5% and for the repair parts by 11.4%. So we expect this improvements to continue in the adjacent vertical and repair parts. And as regards our other businesses, we are working very aggressively to improve the gross margins. This is our number one priority for increasing the gross margin of our business. But certainly in long run, we do believe that the private label, which carries 40 to 50% margins, shipping cost optimization and speed initiatives are important levers protecting our margin to 23 to 23.5% range in the future. While these improvements are underway, the current microeconomic factors are slowing your progress.
spk06: Maria, also, let me go back to your conversion rate question. I missed it when you first asked it. We have a number of initiatives underway right now to continue finding opportunities to improve conversion rate. Earlier this year, we developed a new competency internally to accelerate A-B testing across user interface changes, pricing changes, and other site experience changes. We've completed our first two tests. We have an active test running right now with a backlog of other A-B tests ready to go. So we do believe we are hunting for these conversion rate enhancements and opportunities, and we're going to be realizing the benefit of those. In addition, one of the big initiatives we have going on now is revisiting our transportation and shipping costs. This is an opportunity where we feel there is substantial room to renegotiate these terms. We're not going to comment too much further on that given the open discussions that are being had, but we believe that is an opportunity for us to obtain later in the year, which will then likely pass on most of those savings to the consumer, which will also have an impact on conversion rate.
spk02: Got it. Thank you so much for the call, Anina. Thank you, Kailash.
spk05: Thank you. Our next question has come from the line of Michael Baker with DA Davidson. Please proceed with your questions.
spk03: Okay, so I guess I'm going to ask again about the third quarter just to help set expectations. So some of your metrics you're talking about sequentially and you're pointing out that your sales grew in the second quarter sequentially versus the first quarter. Should we expect sequential growth in the third quarter as well? and then that would translate into year-over-year growth, or said differently maybe, you know, I appreciate the tough comparisons, but you're up against a double-digit decline from a year ago, so tough comparisons aren't an issue in the third quarter. Can we expect sales to be up on a year-over-year basis in the third quarter?
spk06: Mike, what we're seeing now in the environment is very similar to what we observed in the second quarter. And we're managing this environment closely, utilizing promotions to help stir up demand in our accessories business, pricing optimization, and more. The second quarter historically has been our largest quarter. So take that context. And we do expect our repair business to continue with the strong momentum. And we do expect some opportunities as we kind of get some new initiatives off the ground in the coming weeks and quarters now. But the second quarter is typically our largest quarter.
spk03: Okay. So I guess that can help set some expectations. Okay. You know, I also wanted to ask about some of the other metrics, which you were referring to in terms of year-over-year growth, things like return customers, et cetera. Those are up year-over-year, but a number of metrics, including – Return rates, repeat customers, net promoter scores are down from the first quarter. So is there anything seasonally, seasonality that we should think about in there? Any reason why 2Q would be naturally lower versus the first quarter?
spk06: Well, from a net promoter score perspective, it is still north of 60, and we still feel very good about the net promoter score. The Hard to say. I mean, the supply chain is persisting much longer than any of us had expected. That, combined with the effects of inflation, where discretionary spending is going and more, is having a direct impact on our business that we just don't think is going to be changing much from Q2 so far.
spk03: Okay. One last one. We talked about right at the end there, slide 15, I think it was, initiative around forward moving the inventory, you know, forward positioning the inventory. Does that mean, can you describe what that means? To me it means, or the question I get is, are you taking possession of the inventory and, you know, storing it somewhere close to the customer to help ship, which I understand that will cut down on delivery times, but that sort of goes against the whole business model of, you know, never really owning the inventory. Or maybe I just understand what, you know, forward inventory, maybe I don't understand what that means.
spk06: Yeah, Mike. Yeah, it's a great question. Let me clarify. This is essentially trying to obtain inventory from our vendors on consignment so we can position it closer to the consumer. And the benefits here are twofold. First, it'll help reduce shipping costs because we'll have a near predicted demand. Second, we can increase delivery speed. And because of the reduced cost of shipping, the increased speed of delivery should have a direct impact on our conversion rate. And the objective there is to work with our vendors those who don't have national distribution of fulfillment, to kind of supplement their existing network with our own locations through our third-party fulfillment provider.
spk03: So you'd rent the facility, presumably, but you still wouldn't own the inventory. Is that the right way to think about it?
spk06: That's correct.
spk03: Okay. Thanks. Understood.
spk05: Thank you. Our last questions will come from the line of Mike Albanese with EF Hutton. Please proceed with your questions.
spk04: Yeah, great. Thanks, guys. Appreciate you taking the call. Just a couple quick ones for you here. I just wanted to touch on the cost reduction. If you could just kind of help me understand, I guess, the breakdown of the 12 mil. I know, you know, presumably some of it's GNA. There's also CapEx in there, advertising, et cetera. But if you could just kind of detail that a little bit more and help me understand the breakdown. Sure thing.
spk06: Mike, I'm going to defer to Kalash on this.
spk01: Hey, Mike. There are three or four key initiatives under the $12 million bucket. One is certainly an advertising expenses optimization. That's one of the biggest levers there. And the way we manage the advertising expenses is Most of it is a performance base, and being a performance base, we are unable to decide which of the campaigns which are working for us and which are the campaigns which are not working for us are not profitable, and we can optimize those expenditures there. So that is the first bucket. The second bucket is our development cost, what we have, the resources in Ukraine, and the part of that cost is OPEX as well as CAPEX, and we have been able to market optimize those costs heavily during this difficult environment. And third bucket is G&A. G&A includes many levers, including personal, including insurances, and all these we have looked very carefully and optimized to bring the expenses in line with the current economic activity or the revenue. And we can expand further as and when required. The biggest advantage for us is our cost structure is extremely variable. Most of our costs varies directly with the revenue, and examples are the cost of goods sold. We don't have a fixed fulfillment cost at our end. Second is advertising. Again, as I was explaining, it's majorly performance-based revenue. Merchant fees and call center expenses, we can vary at a very short run rate. The merchant processing fees vary directly with the revenue, and our G&A base is also low. So we have a lot of lever in adjusting our cost to our economic model or to our revenue model.
spk04: Okay, great. That's helpful. And then I guess more specifically on the website development cost, I mean, is this, you know, where you'd be looking to cut there? Is it more UI-related, like user interface-related? And, you know, I'm assuming there's, you know, a lot of development costs going into kind of the optimization of the fitment data, and I'm assuming you're not you know, going to want to, I guess, jigger with that too much. But just help me understand, I guess, where there's room to reduce costs from a website development aspect.
spk06: So, excuse me, Clash. Mike, great question. We're reprioritizing all those development projects and those data projects. There are a number which we will, you know, temporarily put on hold as we focus our limited resources on the biggest moving things. but we're not going to compromise on the things that give us our competitive advantage, which include the most robust and accurate shipment data in the industry, our unique and differentiated shopping technology platform. We're not going to compromise in those areas. We're going to work around that to really reduce some support resources and some other maintenance resources that we can currently proceed with a limited team. Right.
spk04: Got it. Okay. Thanks, guys. That's it for me. Appreciate you taking the questions.
spk05: Thank you. We have reached the end of our question and answer session. I would now like to turn the call back over to Nino Trevino for any closing comments.
spk06: Yes. Thank you, everyone, for joining this afternoon's call. We look forward to updating everyone on our progress next quarter as well. Thank you.
spk05: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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