PARTS iD, Inc. Class A

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?

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.

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.