NASDAQ:PRTS CarParts.com Q3 2024 Earnings Report $0.83 +0.03 (+3.26%) As of 11:46 AM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast CarParts.com EPS ResultsActual EPS-$0.17Consensus EPS -$0.11Beat/MissMissed by -$0.06One Year Ago EPSN/ACarParts.com Revenue ResultsActual Revenue$144.75 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ACarParts.com Announcement DetailsQuarterQ3 2024Date10/29/2024TimeAfter Market ClosesConference Call DateTuesday, October 29, 2024Conference Call Time5:00PM ETUpcoming EarningsCarParts.com's Q1 2025 earnings is scheduled for Tuesday, May 13, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by CarParts.com Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 29, 2024 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Good afternoon. At this time, all participants will be in a listen only mode. After the presentation, there will be a question and answer session. Please note this call is being recorded. I would now like to pass the conference over to our host, Tina Mefarsi, Senior Vice President of Global Communications and Brands. Operator00:00:21Please go ahead. Speaker 100:00:24Hello, everyone, and thank you for joining us for the carparts.com 3rd quarter conference call. Joining me today are David Mignon, Chief Executive Officer Ryan Lockwood, Chief Financial Officer and Michael Huffaker, Chief Operating Officer. Before I turn it over to David to start the meeting, I have some important disclosures. The prepared remarks and responses to your questions could contain certain forward looking statements related to the business under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with the business. Speaker 100:01:03For a discussion of the material risks and other important factors that could affect results, please refer to the carparts.com annual report on Form 10 ks and 10 Qs as filed with the SEC, both of which can be found on our Investor Relations website. On the call, both GAAP and non GAAP financial measures will be discussed. A reconciliation of GAAP to non GAAP financial measures is provided in the carparts.com press release issued today. And with that, I would now like to turn the call over to David. Speaker 200:01:38Thank you, Tina, and thanks, everyone, for joining us today. Over the Q3, we made progress against our plan to position CarParts for a strong fiscal 2025 and beyond. We began the year by refocusing our strategy on 3 key elements. Number 1, driving gross and net margin. Number 2, accelerating efficiency and effectiveness to quickly deliver improved profitability. Speaker 200:02:03And number 3, achieving sustainable growth with strong long term free cash flow. In line with this strategy, we focused on driving margin improvement and saw pre freight margins increase to 54.6% in the 3rd quarter from 50.8% in the prior year quarter. The improvement was driven by lower input product costs and updates to our pricing and customer acquisition strategies to target a higher value consumer base as well as less reliance on promotions and discounts. This higher value customer is seeking quality parts with value pricing and provides a higher margin profile with better unit economics long term. We continue to have high confidence in our roadmap with several evidence points that we will share today, somewhat early in the journey, but showing positive momentum. Speaker 200:02:55We expect to emerge from this transition period, position to capture the growing opportunity in front of us within a fragmented and underserved $400,000,000,000 auto parts market. Customers value our offering and our business model is highly differentiated, scalable and difficult to replicate. As a reminder, we generate e commerce traffic on carparks.com in excess of 100,000,000 visits per year. Our nationwide fulfillment network is now at 1,200,000 square feet with 2 day shipping capabilities in the majority of the country and our infrastructure is backed by a proprietary catalog that includes both collision and mechanical parts with a complete assortment of private label and premium branded parts creating a competitive moat. I'd like to call out now that we saw 3 weeks of impact from Hurricane Selene and Milton on our business across Florida, Georgia, Tennessee, North and South Carolina and Virginia. Speaker 200:03:56Our facility in Jacksonville, Florida was briefly closed, is undamaged and now back to shipping at full volume. We will continue to watch for residual impacts on our business in the region and our thoughts go out to anyone impacted by these devastating storms. Now I'll provide some details around the progress we've made in each of our strategic pillars before turning the call over to Ryan for a financial update. First, we continue to optimize our product and service assortment to maximize the profitability of our e commerce channel. Over the last 12 months, we've been working on replatforming carparts.com to increase performance and shorten our development cycles. Speaker 200:04:36This initiative requires a full commitment of our technical resources to deliver new website experience and infrastructure. And I'm proud to announce that carparce.com is now in a best in class cloud based infrastructure that allows us to roll out new features faster than ever. Historically, our legacy monolith infrastructure prevented us from making meaningful changes to our shopping experience. We can now deliver new features quickly and in parallel at a lower cost, which we expect will result in increasing order patterns, conversion and basket size. We have recently rolled out several strategic initiatives that took about 2 weeks each that historically would have taken us 6 to 9 months to roll out, such as our partnership with Simple Tire, offering a full assortment of tires with installation, our new shipping and product protections, our VIN lookup that has over 30,000 uses in just 2 weeks. Speaker 200:05:32Although early in the journey, all these initiatives are seeing take rates and usage higher than anticipated. Over the next two quarters, we're committed to delivering additional revenue generating features such as AI powered product recommendations, a loyalty program as well as other marketing technology enhancements to make our marketing dollars work smarter. Our mobile app continues to perform with over 550,000 organic downloads to date. Today, 80% of our customers shop on mobile and we expect direct in app purchases to drive customer acquisition savings over time by reducing our reliance on search engine and performance marketing while incentivizing repeat purchases. On the product assortment side, we continue to invest in new categories with an attractive margin profile that target a more affluent customer base. Speaker 200:06:26In the Q3, we focused our efforts on 3 specific areas, all of which showed positive early results. Our OE premium brands are up 24% year over year. Our European brands are up 23% year over year. And finally, our wholesale commercial sales channel excluding the impact of our Vegas move is up mid single digits. These three categories accounted for approximately 5% of our overall business in the quarter and are expected to grow rapidly as we continue to expand our assortment, helping change our customer profile and increase EBITDA margin. Speaker 200:07:02We will provide a more detailed update on our next call. Next, we continue to invest in additional growth opportunities that will increase brand awareness and recognition while expanding our marketplace presence and customer base. We're happy to announce the launch of our eBay store in Canada with a full assortment of mechanical parts. We're leveraging our best in class catalog and marketplaces capabilities to capture incremental revenue in this new global market. Early signs are positive and as we continue to ramp up, we believe it could become a top line revenue driver. Speaker 200:07:39On the Amazon front, we have recently completed a pilot leveraging the Amazon fulfillment network to offer a selection of our private label parts. This program offers Amazon shoppers our private label products with same and next day delivery with prime badging to generate incremental top line revenues at an attractive financial profile. Although this initiative is in its early days, we're seeing a double digit lift on the products we tested. Lastly, we continue to manage and address rising freight costs by capturing optimization efficiencies and upgrading our logistics. Freight costs continue to be a headwind in the Q3 at approximately 19.3 percent of sales. Speaker 200:08:21However, as we discussed last quarter, our efforts around inventory placement and freight optimization helped us absorb some of the impact. On the logistics side, our old Las Vegas facility has been decommissioned and we're excited about our new fully operational facility, which we expect to enhance operating leverage, improve process efficiencies and boost customer conversion in the region with full savings realized starting in 2025. The facility is now shipping over 20% of our network volume on track with our initial target. The new facilities assortment paired with a state of the art AI powered PIK module and extensive conveyance allows for increased gross margin through lower freight costs as well as a significant reduction in operating costs respectively. We will continue our focus on gross margin improvement combined with driving efficiencies and cost savings as we transition into a more profitable business. Speaker 200:09:18I'll now turn the call over to Ryan to lead us through our financial results. Speaker 300:09:23Thank you, David. In Q3, we reported revenues of $144,800,000 up slightly from the prior quarter and down 13% from $166,900,000 last year. The decline was driven primarily by a combination of deliberate price increases to focus on higher value customers, support gross margin expansion, a continued challenging consumer environment in industry and one time impacts from the CrowdStrike issue and Hurricanes Helene and Milton in the quarter. Gross profit for the quarter was $51,000,000 down approximately 7% compared to the prior year. Gross margin was 35.2%, up from 32.9% in the prior year period and up sequentially from 33.5% last quarter. Speaker 300:10:10Gross margin improvement resulted from increased prices and lower product costs resulting in expanded product margins, partially offset by higher year over year freight costs. GAAP net loss for the quarter was $10,000,000 compared to net loss of $2,500,000 in the prior year period, primarily driven by increased marketing spend and lower net revenue resulting in lower flow through. We reported adjusted EBITDA loss of $1,200,000 down from adjusted EBITDA of $3,000,000 in the prior year period due to lower sales and expenses outside of our normal operations, which include brand awareness and marketing investments, overlapping software expenses related to our digital transformation, as well as one time costs related to the move and setup of our Las Vegas facility. On a year to date basis, the total amount of expenses outside of our normal operations and other one time costs impacting our P and L add up to approximately $6,000,000 We are confident that these investments will generate a significant ROI over the next few years. Turning to the balance sheet. Speaker 300:11:15We ended the quarter with $38,000,000 of cash and no debt. We generated $345,000 of interest income in the 3rd quarter. Our significant cash position and untapped revolver continues to support our business plan. The inventory balance at quarter end was $97,000,000 We're pleased with the work our team has done to improve inventory efficiency and similar to previous years, we expect inventory to rise slightly as we get ready for our peak season early next year. Turning to our outlook for 2024. Speaker 300:11:45Due to the unexpected and continued impact from the hurricanes, we are narrowing and lowering our full year revenue guidance by $5,000,000 to $595,000,000 to $600,000,000 However, we're narrowing our expected gross margin guidance to the high end of the range from 32% to 34%, up to 33% to 34%. Speaker 200:12:07Thanks, Ryan. We're focused on elevating carpar.com to a leading position in the market with improvements across our entire business from customer experience and product assortment to operational efficiencies and we expect to see continued improvement in 2025 and beyond as we continue to target higher value customers with better unit economics. We're excited to see the early results of the investments we made this year, including our new website, mobile app, newly expanded warehouse in Las Vegas, as well as the new higher margin products and services we launched. In addition, as we anniversary the headcount reductions and large CapEx projects from 2024, we expect free cash flow to be significantly higher year over year in 2025. We're driving a path that we expect will result in achieving sustainable and significantly positive adjusted EBITDA in 2025 as we emerge from this low watermark year while working towards achieving a 6% to 8% adjusted EBITDA margin and enhanced free cash flow generation in the medium term. Speaker 200:13:11I would like to thank our global team for their hard work and commitment throughout our transformation. Thank you everyone for joining today's call. We'll now turn it over to the operator to open it up for questions. Operator00:13:24Thank Our first question comes from the line of Ryan Sigdahl from Craig Hallum Capital Group. Speaker 400:13:54Hey, good afternoon, David, Ryan. Speaker 300:13:56Hey, how are you doing? Speaker 400:13:58Good, good. I want to start with the revenue, how we work our way down, but what caused the acceleration of growth sequentially? Historically, just seasonality, sales are usually down from Q2 to Q3. Combine that with price increases that you took, likely giving up some volume for margins. I guess I'm surprised there. Speaker 400:14:19So I guess where are you guys seeing success and what really drove that? Speaker 200:14:24Hey, Ryan, it's David. Yes, definitely the first time that Q3 is higher than Q2. I think a lot of it is just inventory driven, pricing action, some of the marketing initiatives, the new website. It's just relentless execution across the board. I think obviously we would have liked to do more, but it's most of it is blocking and tackling. Speaker 400:14:52So then moving kind of that relentless execution, I guess moving down really nice gross margin, but we get to OpEx and it was several $1,000,000 higher than expected, I mean $5,000,000 more than us. I heard higher freight, which seems like a consistent something we hear every quarter. So I guess curious how systemic that is versus your ability and confidence that you can actually get that under control and then what else is really in OpEx causing that big sequential increase? Speaker 200:15:22Yes. So if you look at so on the gross margin, Q2 was higher than Q1 and Q3 was higher than Q2. If you unpack OpEx, you got about $2,200,000 of expenses that are outside of normal operations and without those we would have been profitable. So the majority of it was brand awareness, marketing investments as well as the setup and the transfer to the new building in Vegas. On top of that, we took some of the money, some of the extra margin that we generated. Speaker 200:15:54We reinvested into performance marketing. So during the quarter, we saw increased competition on performance marketing and some of it is due to just soft consumer demand. But we're also seeing a lot of the retailers fighting to capture the same dollars from consumers. And on top of that, it's obviously an election year. So it's about 100 basis points of additional marketing dollars that we spent that we took from gross margin. Speaker 200:16:16So you take the $2,200,000 of OpEx and then you take an extra 100 basis points that kind of walks you to that number. But election is definitely a component I think because we're seeing a lot of competition on performance marketing. Speaker 400:16:33And you think that's a good trade off, I guess, leaning in on performance marketing while leaning in on price to hopefully offset or partially offset it? Speaker 200:16:41Yes. I mean, it's always a balance in terms of cutting price to increase conversion in the short term or making additional marketing investments. We have pretty good repeat purchase rates. So a lot of it is making an investment to acquire a customer that we think is going to come back. The mobile app is probably one of the best evidence points to look at. Speaker 200:17:03We launched it last year. We're now up to 550,000 organic downloads. And if you unpack the numbers of the mobile app, you have, call it, 8% of revenue. So it's about $25,000,000 of revenue going through the app. The conversion is higher. Speaker 200:17:18The AOV is higher, average order value. The repeat purchase rate is higher. So I feel pretty good about increasing marketing a little bit in the short term to capture that customer so that we can remarket to them in the future, especially during peak season. Speaker 400:17:35One more for me. Good to see kind of the adjacencies with tires with Canada and Amazon. You've also talked about kind of protection plans, subscriptions, memberships. I guess where are we at with kind of the adjacent opportunities to upsell customers? Speaker 200:17:52Yes. I'm glad you bring this up and it ties into the pressures for performance marketing, but also freight. So if you look at our business just being an e commerce company, the two main drivers of profitability are performance marketing and freight. And obviously these are always going to be challenges. And so what we think is the big opportunity is to leverage the traffic that we get on carparts.com and the mobile app and you're talking about 100,000,000 users. Speaker 200:18:21You're talking about 3,000,000 to 4,000,000 customers that place orders every year on carparts.com and how do we generate incremental revenue from these customers at a very high margin. And so fee income in all these adjacent spaces, whether it's product protection, shipping protection, a membership, loyalty program, eventually potentially a credit card, wheels and tires, that's very high margin income that flows through the bottom line. So unfortunately we had some challenges with our website historically. Now we're completely done. We've re platformed our website completely and now we can start rolling out new features almost every couple of weeks. Speaker 200:18:59So we just launched product protection, shipping protection, the wheels and tires and over time I think there's going to be a big opportunity for us to get incremental profitability with that fee income and you don't need as much transactions because it's pure margin. Speaker 400:19:17Thanks guys. Turn it over to the others. Speaker 200:19:19Good luck. Thank you, Ryan. Thanks, Ryan. Operator00:19:22Thank you. At this time, I am showing no further questions. This concludes today's conference call. Thank you for participating.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCarParts.com Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) CarParts.com Earnings HeadlinesCarParts.com Sets First Quarter 2025 Conference Call for Tuesday, May 13, 2025April 22, 2025 | prnewswire.comAnalysts’ Opinions Are Mixed on These Consumer Cyclical Stocks: CarParts.com Inc (PRTS) and PUMA SE NPV (OtherPMMAF)April 17, 2025 | markets.businessinsider.comThink NVDA’s run was epic? You ain’t seen nothin’ yetAsk most investors and they’ll probably tell you Nvidia is the undisputed AI stock of the decade. In 2023, it surged 239%. And in 2024, it soared another 171% on the year… But what if I told you there was a way to target those types of “peak Nvidia” profit opportunities in 24 hours or less?May 7, 2025 | Timothy Sykes (Ad)CarParts.com and Safe Parking LA Unveil Heartfelt Documentary on "Fix-It Day 2025"April 3, 2025 | prnewswire.comRBC Capital Sticks to Their Hold Rating for CarParts.com Inc (PRTS)March 28, 2025 | markets.businessinsider.comCarParts.com, Inc. (NASDAQ:PRTS) Q4 2024 Earnings Call TranscriptMarch 27, 2025 | insidermonkey.comSee More CarParts.com Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like CarParts.com? Sign up for Earnings360's daily newsletter to receive timely earnings updates on CarParts.com and other key companies, straight to your email. Email Address About CarParts.comCarParts.com (NASDAQ:PRTS), together with its subsidiaries, operates as an online provider of aftermarket auto parts and accessories in the United States and the Philippines. It offers replacement parts, such as parts for the exterior of an automobile; mirror products; engine and chassis components, as well as other mechanical and electrical parts; and performance parts and accessories. The company sells its products to individual customers through its flagship website www.carparts.com and app; online marketplaces, including third-party auction sites and shopping portals; and auto parts wholesale distributors. The company was formerly known as U.S. Auto Parts Network, Inc. and changed its name to CarParts.com, Inc. in July 2020. CarParts.com, Inc. was incorporated in 1995 and is headquartered in Torrance, California.View CarParts.com ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's Earnings Upcoming Earnings Monster Beverage (5/8/2025)Coinbase Global (5/8/2025)Brookfield (5/8/2025)Anheuser-Busch InBev SA/NV (5/8/2025)ConocoPhillips (5/8/2025)Shopify (5/8/2025)Cheniere Energy (5/8/2025)McKesson (5/8/2025)Enbridge (5/9/2025)Petróleo Brasileiro S.A. - Petrobras (5/12/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 5 speakers on the call. Operator00:00:00Good afternoon. At this time, all participants will be in a listen only mode. After the presentation, there will be a question and answer session. Please note this call is being recorded. I would now like to pass the conference over to our host, Tina Mefarsi, Senior Vice President of Global Communications and Brands. Operator00:00:21Please go ahead. Speaker 100:00:24Hello, everyone, and thank you for joining us for the carparts.com 3rd quarter conference call. Joining me today are David Mignon, Chief Executive Officer Ryan Lockwood, Chief Financial Officer and Michael Huffaker, Chief Operating Officer. Before I turn it over to David to start the meeting, I have some important disclosures. The prepared remarks and responses to your questions could contain certain forward looking statements related to the business under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with the business. Speaker 100:01:03For a discussion of the material risks and other important factors that could affect results, please refer to the carparts.com annual report on Form 10 ks and 10 Qs as filed with the SEC, both of which can be found on our Investor Relations website. On the call, both GAAP and non GAAP financial measures will be discussed. A reconciliation of GAAP to non GAAP financial measures is provided in the carparts.com press release issued today. And with that, I would now like to turn the call over to David. Speaker 200:01:38Thank you, Tina, and thanks, everyone, for joining us today. Over the Q3, we made progress against our plan to position CarParts for a strong fiscal 2025 and beyond. We began the year by refocusing our strategy on 3 key elements. Number 1, driving gross and net margin. Number 2, accelerating efficiency and effectiveness to quickly deliver improved profitability. Speaker 200:02:03And number 3, achieving sustainable growth with strong long term free cash flow. In line with this strategy, we focused on driving margin improvement and saw pre freight margins increase to 54.6% in the 3rd quarter from 50.8% in the prior year quarter. The improvement was driven by lower input product costs and updates to our pricing and customer acquisition strategies to target a higher value consumer base as well as less reliance on promotions and discounts. This higher value customer is seeking quality parts with value pricing and provides a higher margin profile with better unit economics long term. We continue to have high confidence in our roadmap with several evidence points that we will share today, somewhat early in the journey, but showing positive momentum. Speaker 200:02:55We expect to emerge from this transition period, position to capture the growing opportunity in front of us within a fragmented and underserved $400,000,000,000 auto parts market. Customers value our offering and our business model is highly differentiated, scalable and difficult to replicate. As a reminder, we generate e commerce traffic on carparks.com in excess of 100,000,000 visits per year. Our nationwide fulfillment network is now at 1,200,000 square feet with 2 day shipping capabilities in the majority of the country and our infrastructure is backed by a proprietary catalog that includes both collision and mechanical parts with a complete assortment of private label and premium branded parts creating a competitive moat. I'd like to call out now that we saw 3 weeks of impact from Hurricane Selene and Milton on our business across Florida, Georgia, Tennessee, North and South Carolina and Virginia. Speaker 200:03:56Our facility in Jacksonville, Florida was briefly closed, is undamaged and now back to shipping at full volume. We will continue to watch for residual impacts on our business in the region and our thoughts go out to anyone impacted by these devastating storms. Now I'll provide some details around the progress we've made in each of our strategic pillars before turning the call over to Ryan for a financial update. First, we continue to optimize our product and service assortment to maximize the profitability of our e commerce channel. Over the last 12 months, we've been working on replatforming carparts.com to increase performance and shorten our development cycles. Speaker 200:04:36This initiative requires a full commitment of our technical resources to deliver new website experience and infrastructure. And I'm proud to announce that carparce.com is now in a best in class cloud based infrastructure that allows us to roll out new features faster than ever. Historically, our legacy monolith infrastructure prevented us from making meaningful changes to our shopping experience. We can now deliver new features quickly and in parallel at a lower cost, which we expect will result in increasing order patterns, conversion and basket size. We have recently rolled out several strategic initiatives that took about 2 weeks each that historically would have taken us 6 to 9 months to roll out, such as our partnership with Simple Tire, offering a full assortment of tires with installation, our new shipping and product protections, our VIN lookup that has over 30,000 uses in just 2 weeks. Speaker 200:05:32Although early in the journey, all these initiatives are seeing take rates and usage higher than anticipated. Over the next two quarters, we're committed to delivering additional revenue generating features such as AI powered product recommendations, a loyalty program as well as other marketing technology enhancements to make our marketing dollars work smarter. Our mobile app continues to perform with over 550,000 organic downloads to date. Today, 80% of our customers shop on mobile and we expect direct in app purchases to drive customer acquisition savings over time by reducing our reliance on search engine and performance marketing while incentivizing repeat purchases. On the product assortment side, we continue to invest in new categories with an attractive margin profile that target a more affluent customer base. Speaker 200:06:26In the Q3, we focused our efforts on 3 specific areas, all of which showed positive early results. Our OE premium brands are up 24% year over year. Our European brands are up 23% year over year. And finally, our wholesale commercial sales channel excluding the impact of our Vegas move is up mid single digits. These three categories accounted for approximately 5% of our overall business in the quarter and are expected to grow rapidly as we continue to expand our assortment, helping change our customer profile and increase EBITDA margin. Speaker 200:07:02We will provide a more detailed update on our next call. Next, we continue to invest in additional growth opportunities that will increase brand awareness and recognition while expanding our marketplace presence and customer base. We're happy to announce the launch of our eBay store in Canada with a full assortment of mechanical parts. We're leveraging our best in class catalog and marketplaces capabilities to capture incremental revenue in this new global market. Early signs are positive and as we continue to ramp up, we believe it could become a top line revenue driver. Speaker 200:07:39On the Amazon front, we have recently completed a pilot leveraging the Amazon fulfillment network to offer a selection of our private label parts. This program offers Amazon shoppers our private label products with same and next day delivery with prime badging to generate incremental top line revenues at an attractive financial profile. Although this initiative is in its early days, we're seeing a double digit lift on the products we tested. Lastly, we continue to manage and address rising freight costs by capturing optimization efficiencies and upgrading our logistics. Freight costs continue to be a headwind in the Q3 at approximately 19.3 percent of sales. Speaker 200:08:21However, as we discussed last quarter, our efforts around inventory placement and freight optimization helped us absorb some of the impact. On the logistics side, our old Las Vegas facility has been decommissioned and we're excited about our new fully operational facility, which we expect to enhance operating leverage, improve process efficiencies and boost customer conversion in the region with full savings realized starting in 2025. The facility is now shipping over 20% of our network volume on track with our initial target. The new facilities assortment paired with a state of the art AI powered PIK module and extensive conveyance allows for increased gross margin through lower freight costs as well as a significant reduction in operating costs respectively. We will continue our focus on gross margin improvement combined with driving efficiencies and cost savings as we transition into a more profitable business. Speaker 200:09:18I'll now turn the call over to Ryan to lead us through our financial results. Speaker 300:09:23Thank you, David. In Q3, we reported revenues of $144,800,000 up slightly from the prior quarter and down 13% from $166,900,000 last year. The decline was driven primarily by a combination of deliberate price increases to focus on higher value customers, support gross margin expansion, a continued challenging consumer environment in industry and one time impacts from the CrowdStrike issue and Hurricanes Helene and Milton in the quarter. Gross profit for the quarter was $51,000,000 down approximately 7% compared to the prior year. Gross margin was 35.2%, up from 32.9% in the prior year period and up sequentially from 33.5% last quarter. Speaker 300:10:10Gross margin improvement resulted from increased prices and lower product costs resulting in expanded product margins, partially offset by higher year over year freight costs. GAAP net loss for the quarter was $10,000,000 compared to net loss of $2,500,000 in the prior year period, primarily driven by increased marketing spend and lower net revenue resulting in lower flow through. We reported adjusted EBITDA loss of $1,200,000 down from adjusted EBITDA of $3,000,000 in the prior year period due to lower sales and expenses outside of our normal operations, which include brand awareness and marketing investments, overlapping software expenses related to our digital transformation, as well as one time costs related to the move and setup of our Las Vegas facility. On a year to date basis, the total amount of expenses outside of our normal operations and other one time costs impacting our P and L add up to approximately $6,000,000 We are confident that these investments will generate a significant ROI over the next few years. Turning to the balance sheet. Speaker 300:11:15We ended the quarter with $38,000,000 of cash and no debt. We generated $345,000 of interest income in the 3rd quarter. Our significant cash position and untapped revolver continues to support our business plan. The inventory balance at quarter end was $97,000,000 We're pleased with the work our team has done to improve inventory efficiency and similar to previous years, we expect inventory to rise slightly as we get ready for our peak season early next year. Turning to our outlook for 2024. Speaker 300:11:45Due to the unexpected and continued impact from the hurricanes, we are narrowing and lowering our full year revenue guidance by $5,000,000 to $595,000,000 to $600,000,000 However, we're narrowing our expected gross margin guidance to the high end of the range from 32% to 34%, up to 33% to 34%. Speaker 200:12:07Thanks, Ryan. We're focused on elevating carpar.com to a leading position in the market with improvements across our entire business from customer experience and product assortment to operational efficiencies and we expect to see continued improvement in 2025 and beyond as we continue to target higher value customers with better unit economics. We're excited to see the early results of the investments we made this year, including our new website, mobile app, newly expanded warehouse in Las Vegas, as well as the new higher margin products and services we launched. In addition, as we anniversary the headcount reductions and large CapEx projects from 2024, we expect free cash flow to be significantly higher year over year in 2025. We're driving a path that we expect will result in achieving sustainable and significantly positive adjusted EBITDA in 2025 as we emerge from this low watermark year while working towards achieving a 6% to 8% adjusted EBITDA margin and enhanced free cash flow generation in the medium term. Speaker 200:13:11I would like to thank our global team for their hard work and commitment throughout our transformation. Thank you everyone for joining today's call. We'll now turn it over to the operator to open it up for questions. Operator00:13:24Thank Our first question comes from the line of Ryan Sigdahl from Craig Hallum Capital Group. Speaker 400:13:54Hey, good afternoon, David, Ryan. Speaker 300:13:56Hey, how are you doing? Speaker 400:13:58Good, good. I want to start with the revenue, how we work our way down, but what caused the acceleration of growth sequentially? Historically, just seasonality, sales are usually down from Q2 to Q3. Combine that with price increases that you took, likely giving up some volume for margins. I guess I'm surprised there. Speaker 400:14:19So I guess where are you guys seeing success and what really drove that? Speaker 200:14:24Hey, Ryan, it's David. Yes, definitely the first time that Q3 is higher than Q2. I think a lot of it is just inventory driven, pricing action, some of the marketing initiatives, the new website. It's just relentless execution across the board. I think obviously we would have liked to do more, but it's most of it is blocking and tackling. Speaker 400:14:52So then moving kind of that relentless execution, I guess moving down really nice gross margin, but we get to OpEx and it was several $1,000,000 higher than expected, I mean $5,000,000 more than us. I heard higher freight, which seems like a consistent something we hear every quarter. So I guess curious how systemic that is versus your ability and confidence that you can actually get that under control and then what else is really in OpEx causing that big sequential increase? Speaker 200:15:22Yes. So if you look at so on the gross margin, Q2 was higher than Q1 and Q3 was higher than Q2. If you unpack OpEx, you got about $2,200,000 of expenses that are outside of normal operations and without those we would have been profitable. So the majority of it was brand awareness, marketing investments as well as the setup and the transfer to the new building in Vegas. On top of that, we took some of the money, some of the extra margin that we generated. Speaker 200:15:54We reinvested into performance marketing. So during the quarter, we saw increased competition on performance marketing and some of it is due to just soft consumer demand. But we're also seeing a lot of the retailers fighting to capture the same dollars from consumers. And on top of that, it's obviously an election year. So it's about 100 basis points of additional marketing dollars that we spent that we took from gross margin. Speaker 200:16:16So you take the $2,200,000 of OpEx and then you take an extra 100 basis points that kind of walks you to that number. But election is definitely a component I think because we're seeing a lot of competition on performance marketing. Speaker 400:16:33And you think that's a good trade off, I guess, leaning in on performance marketing while leaning in on price to hopefully offset or partially offset it? Speaker 200:16:41Yes. I mean, it's always a balance in terms of cutting price to increase conversion in the short term or making additional marketing investments. We have pretty good repeat purchase rates. So a lot of it is making an investment to acquire a customer that we think is going to come back. The mobile app is probably one of the best evidence points to look at. Speaker 200:17:03We launched it last year. We're now up to 550,000 organic downloads. And if you unpack the numbers of the mobile app, you have, call it, 8% of revenue. So it's about $25,000,000 of revenue going through the app. The conversion is higher. Speaker 200:17:18The AOV is higher, average order value. The repeat purchase rate is higher. So I feel pretty good about increasing marketing a little bit in the short term to capture that customer so that we can remarket to them in the future, especially during peak season. Speaker 400:17:35One more for me. Good to see kind of the adjacencies with tires with Canada and Amazon. You've also talked about kind of protection plans, subscriptions, memberships. I guess where are we at with kind of the adjacent opportunities to upsell customers? Speaker 200:17:52Yes. I'm glad you bring this up and it ties into the pressures for performance marketing, but also freight. So if you look at our business just being an e commerce company, the two main drivers of profitability are performance marketing and freight. And obviously these are always going to be challenges. And so what we think is the big opportunity is to leverage the traffic that we get on carparts.com and the mobile app and you're talking about 100,000,000 users. Speaker 200:18:21You're talking about 3,000,000 to 4,000,000 customers that place orders every year on carparts.com and how do we generate incremental revenue from these customers at a very high margin. And so fee income in all these adjacent spaces, whether it's product protection, shipping protection, a membership, loyalty program, eventually potentially a credit card, wheels and tires, that's very high margin income that flows through the bottom line. So unfortunately we had some challenges with our website historically. Now we're completely done. We've re platformed our website completely and now we can start rolling out new features almost every couple of weeks. Speaker 200:18:59So we just launched product protection, shipping protection, the wheels and tires and over time I think there's going to be a big opportunity for us to get incremental profitability with that fee income and you don't need as much transactions because it's pure margin. Speaker 400:19:17Thanks guys. Turn it over to the others. Speaker 200:19:19Good luck. Thank you, Ryan. Thanks, Ryan. Operator00:19:22Thank you. At this time, I am showing no further questions. This concludes today's conference call. Thank you for participating.Read morePowered by