CarParts.com, Inc.

Welcome to the CarParts.com second quarter 2021 conference call. On the call from the company are Lev Peeker, Chief Executive Officer, and David Mignon, Chief Operating Officer and Chief Financial Officer. By now, everyone should have access to the second quarter 2021 earnings release, which went out today at approximately 4.01 p.m. Eastern time. If you have not viewed the release, it is available in the investor relations section of the company's website at carparts.com slash investor. This call will be available for replay via the webcast archived at carparts.com slash investor. Before we begin, we would like to remind everyone that the prepared remarks contain certain forward-looking statements within the meaning of the federal security laws, and management may take additional forward-looking statements in response to your questions. The forward-looking statements include but are not limited to statements regarding future events, our future operating and financial results, financial expectations, expected growth and strategies, key operating metrics, and current business indicators, capital needs and deployment, liquidity, product offerings, customers, suppliers, competitors, the impact of tariffs, and our tariff mitigation efforts, and the potential impact of coronavirus on our supply chain and operating results. The forward-looking statements are based on current information and expectations, are subject to uncertainties and changes in circumstance, and do not constitute guarantees of future performance. The forward-looking statements involve several factors that could cause actual results to differ materially from those statements. We refer all of you to the risk factors contained in CarParts.com annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission for a detailed discussion on the factors that could cause actual results to differ materially from those projected in any forward-looking statement. CarParts.com assumes no obligation to nor does it intend to update or revise any forward-looking projections that may be made in today's release or cause to update or revise the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Please note that on today's call, in addition to discussing GAAP financial measures and the outlook for the company, non-GAAP financial measures such as adjusted EBITDA will be discussed. An explanation of carparts.com's use of non-GAAP financial measures in this call and the reconciliation between GAAP and non-GAAP measures required by SEC Regulation G is included in the carparts.com press release issued today, which, again, can be found on the investor relations section of the company's website. The non-GAAP information is not a substitute for any performance measures derived and recorded with GAAP and such non-GAAP measures have limitations which are detailed in the company's press release. With that, I would now like to turn the call over to CEO, Lev Peeker.

Thank you, Operator, and good afternoon, everyone. I would like to thank all the team members of carparts.com for their hard work and dedication. Revenues in the quarter climbed 32.5% from Q2 last year to a company record $157.5 million. This was the sixth consecutive quarter of year-over-year growth. As online penetration grows, we continue to take share, and during the quarter, we ramped up our new Grand Prairie facility to better serve continuing levels of high demand. This allowed us to pull back on marketing spend and achieve a company record that just exceeded that of $8.3 million. As we have stated before, marketing spend is just one of the many levers we can pull to achieve our long-term target of 8% to 10% adjusted EBITDA margin. As sales continue to grow, we're confident in our ability to increase profitability over time. As a reminder, we believe our focus on right part, right time, right place will allow us to achieve a CAGR of 20% to 25% top-line growth over the long term. Let me give you a quick update on each of the three pillars of our strategy. Right part means ensuring our customers can find the complete solution that fits their vehicle on our website. We completed the rollout of our new search technology that makes it easier and faster for our customers to find parts and get back on the roads. We also completed the rollout of Salesforce and are very excited with the results, allowing for increased scalability with more self-service tools that simplify the entire customer journey. As you know, our strategy has been to focus on stock ship house brands, but our model is flexible enough to adapt to changes in the environment. As we continue to experience extremely strong levels of demand for our products, we were able to leverage our vertically integrated supply chain to serve our customers, as well as supplement our offering with branded inventory from our partners. Right time is getting our customers back on the road quickly by expanding our footprint and fulfillment capabilities. Our Grand Prairie facility in Texas is almost full, and we are excited about getting our newly contracted extended space in the building operational. As previously announced, we'll be extending the space by 156,000 square feet to a total of 366,000, as well as opening up a new 180,000 square foot facility in Jacksonville, Florida. This will give us over 1.2 million square feet in warehouse distribution capacity and gives us the ability to reach 99% of the country in two days and 55% in one day transit time. We expect the Grand Prairie extension to be operational in Q1 of 2022 and the Jacksonville warehouse to be operational by the end of Q2 2022. We're also evaluating different options for automation to be implemented throughout the distribution network to help us increase capacity and boost operational efficiencies. 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. During the quarter, we worked on improving our mobile mechanic data to identify existing customers that would be interested in specific repairs based on products purchased. And while still early in the testing, we received great feedback. I will now turn it over to David to provide some financial highlights.

Thanks, Lev. I too would like to thank the team for working through one of the most difficult environments that anyone has ever seen. And through it all, the team was able to deliver significant top-line growth, record profitability, and continued execution of our mission of getting drivers back on the road. We generated record revenues of $157.5 million. up 32.5% versus prior year of 118.9%. The increase was primarily driven by continued strong demand, the expanded capacity coming from our Texas distribution center, and the additional product offering of branded inventory from our partner network. Gross profit was also a record, 53.3 million, up 30.7% from prior year. Gross margin was 33.9%, versus 34.3% in the prior year. The difference was in part due to a shift in mix in branded products, which typically carry a higher selling price but lower gross margin percentage, as well as continued pressure from inbound and outbound freight. As we've stated before, we optimize for gross profit dollars after customer acquisition and fulfillment costs, and we continue to believe that in the long term, we can achieve adjusted EBITDA in the 8% to 10% range, given all the levers we have at our disposal. Total net income from the quarter was $2.1 million compared to $1.6 million in Q2 of last year. The increase was driven primarily by significant sales growth. We also delivered substantially higher adjusted EBITDA in Q2, with a record $8.3 million, up 48% from $5.6 million last year. Now turning to our balance sheet, at the quarter end, our cash position was $33.1 million as we continue to build our inventory position. Now as a reminder, our ABL remains undrawn with $30 million of potential availability and the option to flex up to $40 million of capacity. We're also announcing a share repurchase program of up to $30 million. The program gives us a flexible way to return value to our shareholders when we see unwarranted volatility in our stock, and we intend to be opportunistic with repurchases. An important driver to our decision-making will, of course, be the potential ROI of any dollar spent, whether it's an investment into our shares, inventory, supply chain, or technology. We're incredibly proud of the accomplishments achieved by the team over the last few years, and we're excited about delivering on our strategy in the years ahead. We remain committed to our philosophy of financial discipline. We will only deploy capital where we see opportunities to accelerate our growth while earning a significant return on investment. With that, I'll turn the call back over to Lev.