PARTS iD, Inc. Class A

Thank you for joining us today to discuss PartsID's third quarter 2022 financial results. On today's call are Nino Chapina, Chief Executive Officer, and Kailash Agrawal, Chief Financial Officer. I would like to point out that certain statements made during the 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 a number of factors affecting Parts ID'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 the conference call and webcast. We refer you to the disclaimer regarding forward-looking statements included in our third quarter 2022 earnings release, which was furnished to the SEC today on Form 8-K, as well as the company's most recent annual report, Form 10-K, and other filings with the SEC. The company does not undertake any obligations 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 those non-GAAP metrics can be found in the earnings release issued earlier today, which is also posted on the press release page of our website at www.partsidinc.com. Finally, as a reminder, a slide presentation is accompanying today's prepared remarks. This presentation is viewable from the webcast link located at www.partsidinc.com. With that, I'll turn the call over to Nino Chapina, Chief Executive Officer of Parts ID. Nino?

Thank you. Good afternoon, and thank you for joining us. It's great to reconnect with you today to share the details of PartsID's third quarter results. We remain intently focused on managing the elements of our business within our control to steer the organization in a financially responsible manner through this period of intense macroeconomic pressure. While an inflation-weary U.S. consumer resulted in lower top-line results in the third quarter, The expense saving measures we implemented last quarter led to notable progress in profitability. As you'll recall, in the second quarter, we undertook several cost-saving actions, including reducing headcount in light of the market slowdown, further optimizing advertising spend, and reducing corporate overhead and select capital expenditure. These actions combined will provide an estimated $12 million in annualized savings. These efforts allowed us to achieve an improvement in third quarter adjusted EBITDA compared with a year ago, despite net revenue declining 22% in the quarter. I am encouraged by this first sign of progress as we continue to focus on improving the business fundamentals around revenue, margin expansion, and enhancing operational efficiency. Since becoming a public company at the end of 2020, we have repeatedly stated our goal to drive long-term profitable growth Our top priority is positive adjusted EBITDA and positive free cash flow. And the expense savings measures we've implemented over the last 120 days are significant steps towards achieving those priorities. We recognize that we have a long path ahead of us, but the team and I remain intently focused on executing the priorities that will guide PartsID towards sustainable and profitable growth. Turning now to slide four. For investors new to the PartsID story, I'll start with a very brief overview of our business, the technology platform, and our operating model. 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. Our platform business model brings together over 1,000 industry suppliers, more than 4,500 active brands, over 18 million product SKUs, and over 14 billion product and fitment data points. With the customer at the center, we use proprietary technology and data to create unique user experiences where customers can quickly and easily find their parts and accessories through a blend of our easy-to-use platform and highly skilled sales and customer service agents. 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. This is evidenced by our product return rate, which continues to be approximately just 6% compared to industry averages of more than 20%. Second, our product catalog of more than 18 million products used in over 4,500 brands is unrivaled. Third, our asset light and capital efficient fulfillment model with over 1,000 suppliers has enabled us to scale our catalog size quickly and to add adjacent verticals, unlike many others that have substantially more capital intensive businesses. With that brief background, I'll walk through the key highlights from the third quarter of 2022 And then I'll turn it over to Kailash for a review of our financials. After Kailash finishes, I will cover our key growth opportunities and the strategic initiatives to capture that growth. After that, we'll open the line to questions. Turning now to slide five. Macroeconomic factors, including inflation and low consumer savings rates, are impacting discretionary spending and continues to be a headwind for net revenue compared to 2020 and 2021. Historically, car accessories have not fared well during recessionary times. However, I'm encouraged by our success with repeat customers, which contributed 34.5% of revenue in the third quarter despite this challenging environment. Customers continue to demonstrate confidence purchasing from us, and the number of them spending over $1,000 continues to grow. We are excited about the consistent positive trends we are seeing from repeat customers And we have a number of projects underway, including email marketing programs, to continue moving these important repeat customer metrics in the right direction. Compared to the third quarter of 2021, we saw a lower number of orders due to a 28% decrease in traffic and a 9.5% decrease in conversion rate that was partly offset by a 5.8% increase in average order value. The decreases in traffic and site conversion rate are attributed to a widespread reduction in consumer discretionary spending coupled with our purposeful reduction in advertising spending and a decrease in organic search traffic attributed to search engine algorithm changes. The 5.8% increase in average order value is primarily due to us passing higher shipping and inflation-related costs to the consumer. 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 partnering closely with key suppliers to more precisely forecast inventory availability and manage against back orders and cancellations. We believe these efforts are working. In the third quarter, order cancellation rate decreased nearly 12%, compared to the third quarter of last year and more than 6% compared to the second quarter of this year. Along with the supply chain challenges, the decline in new vehicle production and sales is also impacting the industry. While accessory sales have declined significantly 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. Last quarter, we launched a repair parts private label house brand called ID Select, which is now a top 10 repair brand by revenue with over 45,000 SKUs. While this is still a small portion of our business, this quarter, original equipment revenue increased nearly 50% year over year. Additionally, the combined repair and OE margin expanded by nearly 16% this quarter. For the first nine months of 2022, repair parts sales and profit are both up 10% compared to the first nine months of 2021. Inflationary pressures continue to be a sizable headwind. In response, we continue to raise prices judiciously across the most impacted segments of our business to offset margin pressure. 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 have managed this disruption with modest impact 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 and productivity. As the situation continues to evolve, we'll adapt with any needed adjustments as appropriate. While these factors are a challenge today, we are intently focused on protecting profitability and prudently managing cash. Late last quarter, we implemented a global expense-saving program which reduced our personnel-related expenses by more than 20%. We also optimized our advertising investment to the most profitable opportunities. In addition, late last month, we negotiated a new shipping contract though we anticipate will yield more than 15% net in lower outbound shipping rates. These measures together will create meaningful operating leverage that are projected to help offset the pressures I just detailed. While we have more work to do, the work we've completed over the last two quarters are intended to enable us to weather the current macroeconomic environment and positions us as a more profitable company once headwinds subside. With that, I'll turn it over to Kalash.

Thanks, Nino. Good afternoon, everyone. Turning now to our performance on slide eight, while we continue to experience demand pressure, we are pleased to have made progress with our profitability profile this quarter. In compared to third quarter of 2021, we made significant improvement in adjusted EBITDA, particularly considering the 22.1% decrease in top line revenue. Adjusted EBITDA this quarter was a positive $159,000 compared to a $138,000 loss in the year-ago period. We also saw a significant improvement in degree of operating loss this quarter as we improved gross margins, optimized our advertising spend, and implemented additional SG&A saving initiatives. Compared to the third quarter of 2021, we reduced operating loss by nearly 30% this quarter. As we discussed last quarter, we took significant operating and capital expenditure optimization measures in mid-quarter two and expected the savings to materialize fully over the course of third and fourth quarter this year. At the end of quarter three, we have realized approximately 84% of the savings. In total, we anticipated that these actions will save the company $12 million on an analyzed basis. We continue to make additional headway with our expense base this quarter. Recently, we negotiated an improved shipping contract that is projected to yield a 15% net reduction in outbound shipping costs. Turning to slide nine, you can see that we improved gross margins by 20 basis points quarter over quarter for the second consecutive quarter. We also saw significant year-over-year margin improvements within our adjacent verticals and repairs and OE parts business of 35.1% and 15.6% 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 of business are intended to protect and grow margins going forward. As a reminder, we primarily operate a capital-efficient, just-in-time inventory business model. Since we have negligible inventory, we do not have fulfillment cost in our operating expenses. To properly compare our gross margins with the competition requires an adjustment of competitors' gross margin for their fulfillment cost. Turning now to our balance sheet and cash flow dynamics, on slide 10, cash decreased by 3.1 million in the three months ended September 30, 2022. Primarily, due to change in working capital of 2.1 million, a significant improvement from 7.7 million decreased in working capital last quarter. The cash used in the net working capital since December 31, 2021, primarily consisted of a decrease in customer deposits of 6.7 million driven largely by 29.8% decrease in value of orders received in September 2022 compared to December 2021 and a reduction in average unshipped and undelivered days from 11.6 to 9.6 days and decrease in accounts payable of 4.4 million. brought total assets to 37.1 million at September 30 compared to 52.5 million at December 31. The company has recently implemented several measures to support its liquidity. Since June 2022, company implemented deductions in both operating and capital expenditures that are intended to drive operating profitability and achieve approximately 12 million in annualized savings. The new shipping contract will approximately be saving 15% net outbound shipping cost. Additionally, the company recently announced a new 5 million senior secured term loan in a transaction led by JGB Capital, LLP, intended to be used for working capital and liquidity needs. The company also has the ability in JGB's sole discretion to receive up to additional $5 million of incremental senior secure date pursuant to the credit agreement. I will now turn the call back to Nino for review of our strategic initiatives. Nino.