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spk01: Good day, and thank you for standing by. Welcome to the Car Parts First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Les Peeker, CEO. Please go ahead.
spk05: Thank you, Operator, and good afternoon, everyone. During the quarter, we saw robust sales that reinforced our confidence in achieving our long-term goal of 20% to 25% compounded top-line growth. For new investors, we encourage you reviewing our investor deck available on our investor relations page at carparts.com. Revenues and gross profits for the quarter were up 65% compared to last year as we set another record in both. We're excited about our future as the fastest growing retailer in the sector and the best positioned company to disrupt the auto parts industry with our two-step direct-to-consumer model. Our focus remains on our mission of helping people get back on the road through our strategy of right part, right time, right place. Right part means ensuring our customers can find a complete solution that fit their vehicle. During the quarter, we made tremendous progress with new technology that improves the search capabilities on our website, and we continue to expand into the mechanical parts market with more products and more inventory. As we progress through the second and third quarter, we feel great about our hard parts inventory position and look forward to helping customers get back on the road during this peak mechanical repair season. Our proprietary catalog is constantly expanding, and we continue to add new products as well as new applications, sets, and kits. We think having the right parts to solve the customer's problem is the main reason more than 30% of our revenue comes from repeat purchases and a one-year look back. Right time means getting the customers back on the road quickly. We're happy to report that our Texas facility is now 60% full and we're expected to reach full inventory capacity this year. The added capacity was a significant driver of our year-over-year as well as sequential growth. The success we achieved is a testament to our data science, inventory forecasting, and global sourcing teams. By optimizing the assortment in Texas, we were able to increase our sales capabilities despite the facility still being in the ramp-up stages. Additionally, our warehouse operations team worked tirelessly to fulfill an unprecedented amount of customer orders across our entire network. Right Place means empowering our customers to choose how they want to repair and maintain their vehicle. Whether they're a do-it-yourself or do-it-for-me customer, we're committed to offering them the resources, tools, and turnkey solutions and services to get them back on the road. We continue to refine the experience our users are having with our mobile mechanic partners by carefully analyzing each interaction. Our goal is to have a seamless experience and ultimately expand our pool of potential customers. The analogy we use internally is that Netflix started by mailing you the DVDs but eventually evolved in delivering a complete turnkey solution straight to your TV and changing the way people consume content. Over the next few years, we also expect to evolve from a parts-only supplier to delivering turnkey solutions that disrupt the auto repair industry. We recently completed a survey of our existing customers and found that roughly one out of every seven buys parts from us and takes it to a repair shop to be fixed. Helping customers find that repair shop and their mobile mechanic option is a natural evolution of our business as we seek to disrupt the $300 billion do-it-for-me and do-it-yourself automotive aftermarket. I will now turn it over to David.
spk06: As Lev briefly touched on, Q1 was another record quarter for revenue, making it our fifth consecutive quarter of significant year-over-year growth. We generated revenues of $144.8 million, up 65% from prior year sales of $87.8 million. The increase was primarily driven by growth across all channels and supported by increased capacity from our Grand Prairie Distribution Center. Gross profit grew significantly from to 49.2 million, up 65% year-over-year. Gross margin was up 10 basis points year-over-year, to 34%, primarily driven by mix, offset by inbound and outbound freight. Total net loss for the quarter was 2.7 million, compared to a net loss of 1 million in Q1 2020, mostly driven by increased non-cash charges. Adjusted EBITDA in Q1 was 3.6 million, down from 4.3 million last year, with the decrease driven primarily by the continued ramp of our Texas D.C. adverse weather and targeted investments in brand awareness campaigns that did not exist in the prior year quarter. As we've mentioned before, we don't manage our business quarter to quarter, and we're working hard to create an infrastructure that can support a top-line CAGR of 20% to 25%, and we continue to believe in the long run we can achieve 8% to 10% EBITDA margin. As a reminder, we have visibility into all the levers, that will give us the operating leverage to achieve those margins and none of them are moonshots. Turning to our balance sheet, at the quarter end our cash position improved to $45.9 million from $35.8 million driven by working capital improvements. Our inventory also grew $8.6 million to $97.9 million at the end of the quarter. Our credit facility remains undrawn with $30 million of potential availability with the option to flex up to $40 million of capacity based on current inventory levels. On the supply chain side, our now expanded network is operating at full outbound capacity, and we're excited to announce we're in discussion to expand our Texas warehouse with the space next door. We'll be adding 156,000 square feet of space, making Grand Prairie one of our largest facilities. This expansion will allow us to continue to grow our assortment of parts as well as overall sales. We're committed to growing our footprint in a financially disciplined manner to get closer to our customers and increase inventory availability. This location will also include a world-class roll call and return center for customers in the region. On the marketing side, we continue to focus on building brand awareness for our flagship site, CarParts.com, with partnerships with NASCAR, Professional Fight League, Two Car Garage on Motor Trend, Donut Media on YouTube, and a new national TV campaign with Daytona 500 winner Michael McDowell and Front Row Motorsports. We will, of course, be disciplined in our investment philosophy, deploy capital only where we see opportunities to accelerate our growth, and where we believe we can earn a significant return on investment. Now, lastly, Lev and I would like to send a huge thank you to all our frontline teams that have worked relentlessly to continue serving our customers in such a difficult environment. Their hard work and commitment to carparts.com has been incredible, and we could not have had such an amazing quarter without each and every one of them.
spk05: With that, I'll turn the call back over to Lev. Thanks, David. In the past few months, average new car prices have crossed the $40,000 mark for the first time ever. As both the used and new car market become less affordable, drivers are keeping their cars longer, which results in increased maintenance and repairs. We believe a robust used market with tight supply and the prohibitively high cost of new cars will act as a tailwind for our business for years to come. And as I have mentioned previously, we're uniquely positioned to serve the growing EV market as 90% of our products are agnostic to the powertrain, gas, electric, or hybrid. Finally, before I close the call, I'd like to welcome Henry Mayer to our Board of Directors. Henry is a 35-year veteran of FedEx Corporation, where he currently serves as President and CEO of the FedEx Ground Operating Units. Our industry is ripe for disruption, and we're going to continue to leverage our proprietary catalog, global supply chain, as well as technology and marketing capabilities. We believe our investments in delighting the customer will allow us to become the number one trusted destination for auto maintenance and repair. And with that, I'd like to hand it over to the operator to open it up for questions.
spk01: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes in the line of Tom Ford from DA Davidson. Your line is now open.
spk02: Great, thank you. So one question and one follow-up. So for my initial question, last quarter you had talked about the supply chain challenges that were holding back your ability to fully ramp the Grand Prairie Texas Fulfillment Center. So can you clarify, are you 100% fully ramped now?
spk06: Hi, Tom. It's David. Great question. Yeah, you know, we have a great supply chain team, and we're very proud of what we've accomplished over the last three months. I think every retailer is feeling the impact. Right now, our Texas facility is operating at full outbound capacity, but it's not full. We're about 60% full. So, you know, props to the team for being able to receive additional inventory as well as ship record numbers on the outbound side. I think what we're very excited about is that we were able to improve that inventory position. We got $98 million of inventory on the books at the end of the quarter, and we're going to keep pushing.
spk02: Excellent. And then for my follow-up question, I wanted to ask you the one that I thought would be most interesting over the next 12 months. So there's a lot of press about the chip shortages for new cars. When we think about the negative impact that could have on new car manufacturing and then the assumption that that's going to force consumers to keep their current cars longer, how might that affect your business over the next 12 months?
spk05: Yeah, I think it's definitely a tailwind for us. And as the fleet gets older and people are maintaining and keeping their vehicles longer, it's definitely a tailwind for us. And I think it's going to go beyond 12 months. I think it's going to be a tailwind for a long time to go because we've been selling a lot of new cars over the last seven years or so, and they're now entering our sweet spot. So as the fleet gets older... And as people keep their cars longer, it's definitely going to be a tailwind for us for a while to go.
spk02: Excellent. All right, so I wanted one last question. Last quarter, you talked about an initiative, your mobile mechanic, which I believe is in beta. Can you give us an update on that? And then what signs it would take for you to expand the effort out of beta?
spk05: Yeah, we're constantly looking and we're analyzing every interaction we have with our customers. We want to make sure that we do it the right way and with the right partners. So we're going to keep it in beta at least until the end of the year and then start expanding it from there.
spk02: Excellent. Thank you for taking my questions. Thanks.
spk01: Thank you. Our next question comes from the line of Darren Octahi from Roth Capital Partner. Your line is now open.
spk04: Hey, guys, good afternoon. Thanks for my question. Nice work on the on the results. A couple by May. If you look at the rev number for the quarter and your comments about 50% capacity on the last call, like is it sort of fair to assume about 25 million of sales came from Texas in the quarter?
spk06: Hey, Darren, it's David. Yes, it's safe to assume that. Last year, the network was running at full capacity, and revenue capacity is about 120. So all that incremental sales came from the additional DC, which is obviously why we're very excited about expanding it even more and taking the space next door.
spk04: So you kind of took the words out of my mouth for my second question, but I'm just curious if you had full capacity sales Like, what are you seeing? I mean, obviously there's demand, but what are you seeing specifically that's causing you to expand so quickly? And then as a derivative, I know in the past you guys have talked about maybe having another locale in the geography, maybe up in the northeast. Like, how quickly would you kind of add on to D.C. capacity and non-Texas geographies?
spk06: Yeah, it's a great question. Obviously, we're very happy about the last three DCs and how they turned out. I think all three exceeded expectations and got to full capacity very quickly. We accomplished pretty much everything we wanted. It's It's kind of a two-for-one. You're closer to the customer, and you can hold more inventory. Ultimately, we want the customers to get their parts faster, and I think it's a testament to the business that we're building. You know, the way to think about it is the more inventory we carry, the more customers we can get back on the road. You know, as far as our supply chain decisions, what we've shown is that, you know, we know where to put the DCs. We know what inventory to put in there, and ultimately that by shipping faster to the customers, we can be more competitive, right? So, you know, the ultimate goal is always to get to 80%, 80% to 90% of the population within one day. At Texas, it's just one step in the whole equation, and you can expect more DCs. And, you know, we started looking already for the next one. We're constantly trying to be one step ahead. And as soon as we have something to announce, you can expect a press release from us.
spk04: Got it. And then I, I guess my, my last one, you guys made some commentary about improvement, uh, in search. Can you just talk about like, um, in the life cycle, since you kind of added the data science team and invested into that, like when you look at the user interface and product of the website, like, like where areas of improvement that you think can kind of happen in the next six or 12 months?
spk05: Yeah, I think it's going to be everywhere is the answer. We're constantly trying to get customers to the right part. That's one of our pillars. And so the experience is going to continuously evolve to make sure that the customers can find the right parts for their vehicle. It's a little bit easier in collision than it is in mechanical parts. So our next challenge is to make that experience as seamless as possible in mechanical parts because there are a lot of variances. and the customer can't really understand the differences between different brands. So we're trying to make it easier for them, again, all in an effort to make sure that they get the right part for their vehicle.
spk04: Great. Thank you.
spk01: Thank you. Our next question comes from the line of Scott Ciccarelli from RBC Capital Markets. Your line is now open.
spk03: Hey, guys. Scott Ciccarelli. I guess I had a follow-up on the inventory as well. It seems like a couple months ago you guys were, you know, very concerned about, you know, inventory flow. And I guess, you know, I'm trying to reconcile your 65%, you know, top-line growth with the inventory constraints you kind of intimated at a couple months ago. So I guess I'm just wondering, like, did – Were you able to source better? Was it a function of better execution on your side, et cetera? If you can just kind of help connect those dots, that would be great.
spk06: Hey, Scott, David, great question. I think it's a combination of everything. Again, we have a great team, and the team that comes from the sourcing, the logistics, the forecasting, selecting the containers, leveraging our relationships with ocean carriers, overseas vendors, as well as domestic vendors, so prioritizing which SKUs we bring in and focusing our efforts on bringing in the SKUs that will turn quickly. You know, both on the private brand side and the other premium brands that we don't own, you know, we're 60% full. So the warehouse isn't full, but we're operating at full capacity. So, again, like amazing execution from the team and working together in coordinated efforts to leverage our supply chain.
spk03: Got it. And then so how quickly, maybe one of the other follow-ups then, David, is how quickly can you – adjust your inventory orders? I mean, you know, because we do know that the whole supply chain jumped back up, right? So, you know, how quickly can you adjust those orders as your AI systems are able to identify kind of where you're seeing the most demand?
spk06: Yeah, we adjust in semi-real time, so we place buys throughout the week and weekly. Now, the lead times are longer in our industry, so on the replacement parts, it's usually three, four months. On mechanical, sometimes longer. But we do have some great relationships with premium brands. We're able to source domestically. I think we've done a pretty good job at, you know, trying to diversify our supply chain. So, you know, we're leveraging new partnerships. We're leveraging existing partnerships. But we're constantly reacting in real time and trying to pivot as we get new information.
spk05: And then just to clarify, so, you know, the comments – sorry, this is Lev. So the comments we made last quarter about filling the DC. So when we open a new DC, we order to a certain level of sales. And I think when we were talking about last quarter, we were talking about actually filling the DC, but the sales were coming in faster than we were anticipating. So that's why we're not actually able to make it full. And that's why we're getting the expansion. And now we're placing bigger buys so that the DC can get fuller. But it was more related to how full the DC is, not that it's not operating at full capacity.
spk03: Got it. And then finally, how much of a contributor was mechanical parts in the quarter? I know that's at least a future initiative, but I'm just wondering how material it might have been in the quarter.
spk06: Yeah, so for Q1, and remember, it's not particularly the season for mechanical parts, but it's about 23% of our sales for Q1. So if you look at, you know, the non-performance and accessories piece of our business, it was bigger than historically. And, again, over time, we're trying to get that mix closer to 50-50. Right now it's about, you know, 75-25. But, you know, all the initiatives that we have are underway. The assortment is expanding, both on the stock ship and drop ship side. So, you know, we're pretty confident that over time we're going to get to the number that we want. Thanks a lot, guys. Thanks, Scott.
spk01: Thank you. Our next question comes from the line of Ryan Sigdahl from Craig Hallam Capital. Your line is now open.
spk00: Good afternoon, guys. Nice quarter. I'm curious how you view the difference and, I guess, focus internally on driving more website traffic versus improving inventory selection and really conversion on that. Do you think you need more eyeballs on the website or just more inventory and better conversion?
spk05: I think it's both, right? It never hurts to have more traffic, and you're always optimizing for conversion and average order value. We're doing a lot of things around selling the job, making sure that the customer can buy tools that they need in order to do the job. If they need two of something, that we're selling them as a set. Building kits, understanding really the pain points for customers and what it is that they need to buy together. And so merchandising is going to continue to evolve in order to make sure that we satisfy every customer's need. So we're always optimizing for conversion on AOV, and we're always trying to get more eyeballs on the site.
spk00: Then as far as seasonality goes, normally stronger in the first half, just the industry. You guys' inventory is getting bigger, you're filling capacity. I guess you think you can more than offset industry seasonality this year on a revenue basis and grow throughout the year?
spk05: Yes. I think, you know, again, I think first half is definitely the strongest for us, just like it is for the rest of the industry. But it's mostly because of Q4. So, you know, if you look at our last year, we pretty much had flat revenues all the way through. So Q2, Q3, and Q4. So we kind of expect to be selling at capacity the whole time.
spk06: Yeah, I think, and if I can add to that, Ryan, I think the seasonality is on the background of a company that's growing extremely fast. I think, you know, over the last two years, we've made a ton of investments, and those investments are starting to pay off, not just in talent, in supply chain, in inventory, in brand awareness, whether it's, you know, the mechanical stuff or the EV stuff. You know, we have a great team, and we have positive unit economics. So overall, we're pretty excited about the state of the business.
spk00: Great. One more for me. We've seen pretty nice acceleration across the industry, AutoZone, O'Reilly, many of the brick-and-mortar big box stores with stimulus checks, reopening, etc. Have you guys seen any change in your business more recently, March, April, even into May here, kind of as those have seen an acceleration, or do you think it's an overall industry acceleration? Thanks.
spk06: Yeah, I think, so great question. I think we feel really good about Q2. You know, if you look at the current business, we have more inventory. We have more capacity, both inbound and outbound. You know, you look at inventory on the balance sheet, it was 98 million, which is the highest in company history. That combined with the expansion next door in Texas. So you have a great team. You have a lot of investments in the supply chain. We're finally starting to get some brand awareness. So we feel really good about Q2.
spk00: Thanks, guys. I'll hop back in the queue. Good luck.
spk01: Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.
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