Welcome to the CarParts.com Second Quarter Conference Call. On the call from the company are Lev Peker, Chief Executive Officer and David Meniane, Chief Operating Officer and Chief Financial Officer. By now, everyone should have access to the second quarter 2020 earnings release, which went out today at approximately 4:05 p.m. Eastern Time. If you have not viewed the release, it is available in the Investor Relations section of the CarParts.com website at CarParts.com/investor. This call will be available for replay via the webcast archive at carparts.com/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 securities laws, and management may make additional forward-looking statements in response to your questions. The forward-looking statements include, but are not limited to, statements regarding future events or 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 circumstances 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 the CarParts.com’s 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 can cause actual results to differ materially from those projected in any forward-looking statements. 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 call, or to update or revise the reasons actual results could differ materially from those anticipated in any 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 results 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 measure derived in accordance with GAAP and such non-GAAP measure has limitations, which are detailed in the company's press release. With that, I would now like to turn the call over to CEO Lev Peker.

Thank you, operator, and good afternoon, everyone. We're proud to announce we had a record-breaking quarter in terms of sales and gross profit, marking another period of significant growth for our company. Additionally, we drove exceptional year-over-year bottom line improvements in both net income and adjusted EBITDA. Our accelerated momentum was the result of increasing eCommerce demand tailwinds, which points to the continued success of our strategy and the resilience of our business. This also reflects the countless operational improvements we have made over the past 18 months. As we continue to navigate the effects of the pandemic, the health and safety of our team remains our top priority. Our frontline teams in our distribution centers have access to personal protective equipment and adhere to strict social distancing and sanitation standards. Meanwhile, our corporate and contact center teams are still working efficiently and productively from home. We're incredibly grateful for our team's flexibility and hard work over these past few months. One of the leading indicators of our business is miles driven, which in June were down 20% from pre-COVID levels. However, miles driven improved as the quarter went on, from down as much as 60% in April to now down 20% compared to pre-COVID levels, so things are moving in the right direction. Despite these challenges, the DIY auto parts margin has performed exceptionally well, especially online. We believe consumers have grown increasingly comfortable buying their auto parts online. Industry reports show the overall eCommerce penetration for total retail sales reached 28% for Q2 compared to 17% in Q1, while auto parts remains largely under-penetrated online in the mid-single digits. We believe that the industry will continue to experience a shift online, and we're well positioned to take advantage of this new demand over the long term as we continue to execute our strategy. Over the last 18 months, we began building the foundation for a modern and scalable eCommerce company. While we couldn't have predicted the pandemic, we have planned for significant growth and the shift from offline to online. Starting in Q1 and continuing into Q2, the investments we made in our technology, marketing, and supply chain last year were clear differentiators in our ability to execute. Between our expanded distribution footprint, improved site speed, and faster shipping times, we believe that we’re creating sticky customer relationships that will prove to be resilient over time. We'll look forward to delighting our customers and believe that this larger and more loyal customer base, along with significant new customer acquisitions, will lead to continued growth. Now moving onto key operational updates for the quarter. First and foremost, following our sales growth and inclusion in the Russell 2000 Index, we decided that we needed a new name that reflected the tech-forward company that we have become. As many of you likely saw last month, we announced we have rebranded to CarParts.com. This development marks the combination of our efforts to consolidate our websites over the past few quarters and will enable us to optimize how we're perceived and positioned in the market, as well as how we allocate our marketing dollars. In addition to being a best-in-class auto parts seller, this name change aligns with our positioning as a leading eCommerce and technology company. As we've highlighted on previous conference calls, we have made significant investments in creating more efficient backend operations and optimizing our users' digital experience, so we've internally developed software and our proprietary catalog. We're so much more than an auto parts company now. We often use the analogy that we inherited Blockbuster and we're now building Netflix. On the site consolidation side, we're happy to announce that we're now officially down to one website, CarParts.com. Being one brand with one site allows us to be more efficient with our marketing and improve our brand presence both online and offline. We have recently increased our efforts in upper funnel marketing strategy designed to introduce our brand to a broader audience, both through our NASCAR partnership with driver Michael McDowell and through various TV commercials. Before I pass the call to David to review our financial results for the quarter, I want to welcome Nanxi Liu to our Board of Directors. Nanxi is the CEO and Co-Founder of Enplug, a leading digital display software company used by Fortune 500 companies, and she was named one of Forbes 30 Under 30 and Fortune’s 10 most promising women entrepreneurs. She brings immense technology and e-commerce experience to the Board, and we're thrilled to welcome her to the CarParts.com team. With that, I'll turn it over to David to walk through our financials and other operational highlights.

Thanks, Lev. With more consumers buying their parts online, our team is more focused than ever on operational excellence and financial discipline as we continue to expand our eCommerce business. As Lev mentioned, Q2 marks another set of company records with our highest net sales ever, which increased 61% to $118.9 million compared to $73.7 million last year. The increase was primarily driven by triple-digit growth in revenues from CarParts.com. Gross profits for the quarter nearly doubled to a company record of $40.8 million versus $21.8 million last year, with gross margin up 480 basis points to 34.3% versus 29.5% last year. This also marks our sixth consecutive quarter of gross margin expansion. The increase in margin is partially due to product mix, as well as leveraging long-term strategic partnerships to buy premium branded products directly from the manufacturers and remove steps in the supply chain. Total net income from the quarter improved significantly to $1.6 million compared to a net loss of $1.5 million in Q2 2019. Adjusted EBITDA in Q2 increased four times to $5.6 million compared to $1.4 million in Q2 of 2019. The strong increase stems from all the investments and improvements made over the past 18 months in all areas of our business, including operations, technology, marketing, supply chain, customer service, and much more. For the month of July, our net sales continue to remain strong with year-over-year growth of over 60% even while the entire country has begun using the stay-at-home restrictions. While we typically don't provide any guidance, given the current uncertainty caused by COVID-19, we are providing these insights. Turning to the balance sheet. At fiscal quarter end June 27, 2020, we had a cash balance of $24.9 million compared to just $2.3 million at the end of 2019. The strong increase was primarily driven by higher cash flow from operations and working capital improvements. The final call out on our balance sheet is the conversion of our preferred shares. On June 19, 2020, our outstanding Series A convertible preferred stock automatically converted into 2.62 million common shares. These securities have been outstanding since 2013, and we want to thank our founders for helping the company back then when it needed the capital. Although we're very proud of the results and the improvements we've made to the business, we still have much work to do. Our most immediate area of focus will continue to be optimizing our inventories to keep up with the increase in consumer demand. During the second quarter, customers were placing orders at such high volume that we couldn't replenish our inventory in time due to our longer lead times. Even with most of the United States opening up and even stay-at-home orders, our demand continues to be strong. Demand is simply outpacing our supply. And unlike other industries where one product can be substituted for another, in auto parts, you either have it or you don't. Our inventory levels have already started coming back up, and we have experienced minimal supply chain disruptions due to COVID-19. Additionally, as we continue to expand our product offering, we have begun to diversify our supply chain geographically with new partnerships in India, Korea, and Mexico. With the continued growth in our business, we also decided to accelerate the timing of our additional supply chain investments as we strive to get closer to our customers and increase our footprint. As we recently announced, we will be opening a new distribution center in Grand Prairie, Texas later this year. This opening will add 210,000 square feet of warehouse capacity and provide us with the ability to deliver to 61% of the country in one day. With that, I'll turn the call back over to Lev.

As David mentioned, we're very proud of our strong second-quarter performance and the momentum we have sustained throughout 2020. Our work over the past 18 months to optimize our supply chain, marketing, and technology capabilities is paying off, and we're continuing to drive further improvements in these areas. Across our business, we're actively expanding our teams, both in the U.S. and abroad, including at our contact center in the Philippines. As always, we'll remain financially disciplined and be extremely mindful in our capital allocation decisions. As always, we want to thank our warehouse associates for their hard work, as well as all of our team members for their support and commitment to the new CarParts.com. With that, we'll open up the call for questions.

At this time, we will be conducting the question-and-answer session. Our first question comes from Ryan Sigdahl with Craig-Hallum Capital. Your line is now open.

First off, just want to start on the monthly sales cadence, if you would, if you could break that down within the quarter and then you noted supply chain constraints. If you could also comment on those, kind of within the quarter, if you saw a greater impact in any month?

So, as far as breaking the sales monthly during the quarter, we don't really do that, Ryan. If you look at your entire quarter, we feel really good about the performance. Also for July, year-over-year sales are up more than 60% that's total top-line. As far as supply chain disruption, we didn't really face any. Our suppliers in Taiwan and in China didn't really say anything past Chinese New Year. So, nothing more than a week or two.

Good. Then just on, nice operating margin expansion in the quarter, despite you guys ramped up some marketing spend. How should we think about operating leverage going forward versus reinvestment in the business?

So, it's definitely a good question and something we think about all the time. Obviously, we don't really manage the business in quarters. And those of the shareholders that know us, they understand that we’re operators first. The long-term objective is really to build a sustainable and profitable business. So that means managing your OpEx. As revenues grow, some of our operating expenses are variable, some of them are fixed. So there is, in my opinion, as sales continue to grow, there is going to be some operating leverage, but we do have some investments to make in technology, marketing, and supply chain. We're really focused on spending the money where it makes the most sense. And obviously, we give a priority to anything that has a positive ROI, and we'll trim other areas that are less efficient.

And then just last question for you and then I'll turn it over to the others. How is the JC Whitney rebranding going and then also SKU expansion? Just any more detail there would be helpful? Thanks.

So from a SKU extension perspective, we're in the process right now of adding mechanical parts. So it's about 10,000 new SKUs that should land sometime in Q4 and those will be launched under different brand names. We're working on some of that right now. As far as JC Whitney goes, JC Whitney is going to be our brand for performance and accessories and we have our first set of products that we already ordered and that should be landing towards the end of this quarter or early Q4. So we have some thunder and a few other products that we're coming out with. So, the JC Whitney is going to be reserved specifically for performance and accessories.

And then maybe just a quick follow-up, if I may. The private label collision parts that you have today, which is core part of your business, are those staying under the brands that they currently have or what's the plans there?

Right now, staying under the same brands but that may change.

I have a couple of questions. Usually, you would provide information on the growth of private label sales and the percentage shift from Q2 last year to Q2 this year. Are you still willing to share that information?

Yes. So, this information is included in the Q. The way to think about it is now the majority of business is private label or what we call our house brands. So moving forward, we're kind of not really going to call it out in the prepared remarks but it'll be in the queue. But for Q2, 80% was our private label and 13% was branded and that’s compared to 79% private label last year and 21% branded.

Okay. In the last quarter, you were at about 91% branded. Did you change anything in the categorization?

No, there are two factors to consider here. The mills experienced substantial growth, leading to a decrease in our inventory positions during the quarter. As a result, the in-stock position for private label is lower, which impacts our sales from private label, so we compensate through branded sales. Additionally, we have formed long-term strategic partnerships with several premium brands, allowing us to sell premium branded products on CarParts.com at margins comparable to our private label. This opens up many opportunities on the branded side that were previously unavailable.

Okay, so that's good news on the branded side. Okay, very good. A couple other questions here. I noticed that your shares outstanding really jumped and you converted that converted and it’s 2.6 million shares but you're now showing 47 million shares. So, is that all just options in the money that have come into play here?

Yes, I think the number is slightly lower. On a fully diluted basis, I think you're pretty close. Yes, you are correct. If you remember, most of the executive team, 18 out of 20 members on the exec team are new to the business. Last year when we all joined the company, we just didn't have cash. So a part of our compensation includes performance-based options and shares. And as the company continues to perform, the team will vest some of these options. So that's part of the increase in share count.

Okay. And then just a couple more and then I'll turn it over and somebody else can go. As far as your excess capacity now, of course your four DCs. Where are you? Are you basically almost kind of maxed out in the sense?

So, if you look at the three DCs that are operational, so LaSalle, Vegas, and Virginia, we're basically operating at full steam. So we definitely needed Grand Prairie, Texas to kind of keep up with the growth. That will give us an additional plus 35% footprint, so that's receiving capacity and outbound capacity at the same time. So that should give us a little boost to keep up with what's going on in the marketplace.

And that will come on stream in December, right?

It might be sooner. Early in Q4 is what we’re targeting.

Okay. And then one last question. In terms of when you said you had some problems with inventory, you had some stockouts, things of that nature. How do you treat the customer in that regard? So, you keep the customer satisfied? I mean, do you back order for them? Do you give them some kind of a discount? What do you do to entice the customer to stick with what they ordered?

No. Due to long lead times, it's quite challenging to back order for a customer. We also find it hard to have clear visibility on our inventory in transit. Typically, when we notice that we're running low on stock, we begin to pull down listings from all our marketing channels. Therefore, it's unlikely that a customer will be able to place an order for a product that is out of stock.

All right. So they just say that you don’t have a part then?

Yes, they don't see it.

Good afternoon, gentlemen. You had mentioned maintenance parts on the previous call. Where are you at with that today?

Yes. So that's part of our mechanical offering as well. So, we have breaks and some other things. So, it's going to be a Q4, Q1 initiative.

Okay. And you had mentioned some partnerships, I guess, maybe in China or other areas, to bring in, I guess, more inventory. Has that already happened or is that in the works?

No. A lot of that has already happened and it's more of a diversification of our supply chain. So historically most of our parts came from Taiwan and China and now we've diversified a little bit and a small percentage of our business now comes from India, Korea, and Mexico.

Thank you. Our next question comes from Eric Beder with SCC Research. Your line is now open. Eric, your line is open. Please check your mute button. And our next question comes from Gary Prestopino with Barrington Research. Your line is open.

I would like to ask a follow-up question. You mentioned making investments in fulfillment and other areas for growth. Can you clarify if this includes the Grand Prairie, Texas distribution center? What specific initiatives are you undertaking?

That's the majority of it, but we're constantly making investments in the other DCs. We're kind of holding ourselves up to a higher SLA. So when a container comes in, we want to receive it faster and when an order comes in, we want to ship it out faster. So that includes making some small investments in the DCs that we organize the flow and make sure that we can ship off the orders as quickly as possible.

And our ultimate goal, just to add to that, we measure click-to-delivery, and the ultimate goal for us and where we're going to go over the next, call it several years, is one day click-to-delivery, which means the DCs will have to get the order out within 12 hours, and then we'll have to be close enough to the customer in order to get that delivery the next day.

So as you've refined your processes here and you cut down on your websites. Are you really where you want to be and then it's just a matter of, you gotta fine-tune it and then obviously you got to add more distribution and more SKUs?

Yes. So, in terms of websites, we’re already there. So we're at one website that’s CarParts.com. In terms of fulfillment capabilities, we still have a lot of work to do there.

Okay. And when you say a lot of work, Lev, I don't mean to press you on this. But I mean, what exactly is there besides like is that opening up a new DC and all that? Is it just a better execution?

Yes. I mean, there's automation that can go into DCs that can speed up how quickly the order gets out of the DC. So, we're looking at some of that. We have to evaluate our fulfillment network with four DCs. That’s pretty easy to order SKUs. But as we kind of open up and think about more DCs, we have to start thinking about do we do how hub-and-spoke model? Do we want to touch SKUs multiple times? So, there's just a lot of work we need to do around our fulfillment capabilities as we continue to grow.

Okay, that helps. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect at this time. Thank you for your participation.