Good afternoon, and welcome to CarParts.com First Quarter 2022 Conference Call. 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 turn the conference over to your host Tina Mirfarsi, Vice President of Communications and Culture. Please go ahead.

Hello, everyone, and thank you for joining the call today to discuss our first quarter 2022 results. Joining me today from the company are David Meniane, Chief Executive Officer; and Ryan Lockwood, Chief Financial Officer. The prepared remarks and responses to your questions may contain certain forward-looking statements related to 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. For 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-K and 10-Qs as filed with the SEC, both of which can be found on the 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 like to turn the call over to David.

Thank you, Tina, and good afternoon, everyone. As reported in today's release, CarParts.com achieved record sales, up 15% to $166 million from the year-ago period, and adjusted EBITDA up 165% to a record $9.4 million. This is our ninth consecutive quarter of double-digit year-over-year revenue growth and an 80% increase on a two-year stack. Ryan will go into the details of the financials in just a moment, but there have been some exciting developments at CarParts.com since our last call. We are humbled and honored to take the leadership roles at a truly world-class organization with such an exceptional team. We also want to welcome Kals Subramanian as our Chief Technology Officer. As we continue to invest in technology and expand our executive team to build upon the strong foundation we have established over the years, Kals' deep e-commerce expertise will be of great value to the company. Sanjiv Gomes has moved into our Chief Information Officer position, which will allow him to better focus on engineering and architecture. As this is my first earnings call as CEO, let me take a few minutes to discuss our core commitments as well as where we are focusing our attention. First and foremost, we remain committed to our shareholders to be prudent and disciplined with every dollar we deploy; to our customers to help them get back on the road with quality products at competitive prices; to our team to invest in their safety, growth, and personal development to ensure they have the tools and support they need to succeed and truly feel like owners in our business; and last but not least, to our vendors, partners, communities, and everyone who has been an integral part of the CarParts.com ecosystem for the last 25 years. Our commitment to these stakeholders has always been unwavering and will never change. Our company is on solid ground, both operationally and financially, with plenty of growth runway ahead as we are still a small fish in a huge pond. The total addressable market for aftermarket parts exceeds $300 billion, and we are less than 1% of that amount. We think it's important to communicate the areas of focus you can expect from our leadership team. Outstanding customer service is our number one priority. CarParts.com is made up of our employees, partners, shareholders, and communities, but none of us are here without the customer. Our customer is and has to be at the core of everything we do; laser focus on serving customers and building an incredible user experience is the secret to long-lasting success. Currently, over a third of our e-commerce revenues come from repeat customers, giving us a solid foundation from which to grow. Long-term, we see a huge opportunity to become the number one online destination for auto repair and maintenance. This opportunity starts and ends with our ability to satisfy and delight our valued customers. Number two, operational excellence: as the business continues to grow, we see an opportunity to leverage our operating model by doubling down on operational excellence, high performance, and a winning mindset across the organization. Focusing on driving results, always raising the bar, and aligning people, process, and strategy with the needs of our customers remain core principles for us. Number three, financial discipline: over the last several years, we have invested heavily for profitable growth and these investments are paying off. We will continue to invest in foundational improvements for the business, as well as industry disruptive initiatives in the do-it-for-me space. In markets like these, we know that financial resilience remains key to long-term success. Profitable growth and free cash flow generation are timeless principles that serve companies in good times as well as in times of market uncertainty, which is where we will focus our energy and resources. Number four, innovation: we're very proud of what we have built over the last few years and as we turn to the future, we will double down on innovation and positive disruption. We are encouraged with the early progress we have made towards being able to offer transparent pricing and installation right on our website. We expect various phases of these capabilities to be rolled out as we progress throughout the rest of the year. With that, I'd like to turn it over to Ryan to discuss our financial results.

Thank you, David. In Q1, we generated revenue of $166 million, up 15% from the prior year period, resulting from our continued investment in capacity, inventory position, and warehouse distribution logistics that get us closer to the customer. On a two-year stack, revenue increased 80%. If you'll recall, Q1 of 2021 benefited from the inflow of pandemic-related federal stimulus funds, resulting in increased consumer spending. Gross profit for the quarter was up 24% to a record $61 million, with gross margins improving 280 basis points to 36.8% this year versus 34% last year in the same period. The improved gross margin reflects purchasing and freight savings being driven by our data science and supply chain teams. This sequential increase in margin also showcases the exceptional nature of our business in the face of rising inflation. Net profit for the quarter was $2.1 million versus a loss of $2.7 million in Q1 of 2021. Adjusted EBITDA in Q1 was a record $9.4 million or 5.7% of sales compared to $3.6 million or 2.5% of revenues in the prior year period. We drove the record results from better flow-through from higher gross margins and financial discipline, reflecting our increasing focus on cash and profits. Turning to our balance sheet: at the quarter end, our cash position was $25 million, and we successfully built our inventory to a record $157.9 million. We're currently carrying approximately $40 million or eight weeks of extra inventory to account for our longer lead times in the supply chain. As the supply chain normalizes, we expect this inventory to convert to cash over time. From an intermediate-term perspective, we believe we can fully self-fund all growth initiatives needed to reach over $1 billion in sales. For the first four weeks of Q2, our robust inventory position is helping us against prior year stimulus. Additionally, we continue to see solid margin improvement year-over-year. For fiscal year 2022 net revenues, we continue to project double-digit year-over-year growth, with a strong correlation to the opening cadence of our new distribution centers, with our Texas DC expansion ramping up since the end of March and our Florida warehouse opening towards the end of Q2. As we focus on profitable growth, we believe in our ability to continue to build our market share and execute on our mission. And with that, I'd like to turn it back to David for a supply chain update and some closing remarks.

As Ryan indicated, we closed the quarter with another period of record inventory to support our sales growth. Our goal remains to deliver to 80% to 90% of our customers in one-day transit time. We continue to be excited with our Texas expansion, which is almost fully stocked and already doing outbound shipments. Our brand new Jacksonville, Florida facility is also on schedule and on budget, and we are gradually building up our inventory there. We expect this facility to be operational in the later part of Q2. When Jacksonville is fully functional, we expect to be able to service 55% of our customers within one day and 98% within two days transit time. Q1 was another record for our company. This performance would not have been possible without the incredible dedication from all our teams here in the U.S. and overseas. As I look forward to the next evolution of our company, I am honored, humbled, and excited to be working with such an amazing group of people. As a significant shareholder myself, I look forward to serving our customers and building value by focusing on long-term sustainable and profitable growth. I'm grateful to have this opportunity to serve all stakeholders who have a vested interest in our future. Thank you again to all our team members for coming to work each day, ready to excel, and as we say at CarParts.com, let's get after it. And with that, I'll turn it over to the operator.

Our first question comes from the line of Ryan Sigdahl from Craig-Hallum Capital. Your line is now open.

Great. Thank you.

Good afternoon, guys.

Hey. Good afternoon, Ryan. I’m curious; I don't think you mentioned, but I think gross margin was a record in the quarter, up nicely 300 basis points year-over-year. Was there anything unique or one-time in the quarter, or do you think that level of gross margin is sustainable kind of run rate going forward with the initiatives you guys have?

I'm glad you asked. When we look at margin, I would really look at it over several quarters and the full year since this is how we analyze it. First, we maximize for gross profit dollars after marketing spend and fulfillment, so it's important to focus on the dollars and service levels. Secondly, gross profit is post freight inbound and outbound, which in this market can add a lot of noise, but overall, we have an amazing data science team who takes these data points into account and optimizes for competitiveness and profitability.

And then maybe, Ryan, just to clarify your margin statement on Q2, is that gross margins and EBITDA margins that you're referring to improving year-over-year?

From my prepared remarks on gross margins improving year-over-year, I think the question for year-over-year is about solid margin improvement both EBITDA and gross profit.

Got it. Last one, David, maybe back to you. So newly transitioned to CEO. Congratulations, by the way. Anything you plan to do differently or prioritize as you think about the strategic roadmap over the next several years?

I think in this environment, there is a lot of uncertainty. Profitable growth and free cash flow generation, along with financial discipline and resilience, are critical. What I bring to the table is a laser focus on the customer. It's about having the customer at the center of everything we do, focusing on solving their problems, addressing their needs, and building a strategy and financial plan on top of that.

Great. Thanks, guys. Good luck. I’ll turn it over to others.

Thanks.

Thanks, Ryan.

Thank you. Our next question comes from the line of Ryan Meyers from Lake Street Capital. Your line is now open.

Hey, guys. Thanks for taking my questions. First one from me. I was wondering, if you could just give us an update kind of on the demand environment that you think about your end customers. We see some macro pressures out there, whether it be inflation or overall macro uncertainty. Are you still seeing your end customer purchasing a lot of products and still seeing pretty solid demand?

The short answer is yes. Remember, it's a long-tail business, and it's always at the SKU level, where every SKU and every category has a different elasticity. Ultimately, it's a $300 billion market; we cover less than 1% of that, and we continue to push forward, focusing on bringing the inventory in the right location and right quantities. Our business is unique because we sell in need and not wants. Most of our customers need our parts to keep their cars on the road longer. You're going to face some pressure from the external environment, but if you need your car to live your life, we're a great alternative because we offer high-quality parts at very competitive prices.

That makes sense. Next one for me. What was the contribution of mechanical parts during the quarter and how is that business tracking?

Hard parts accounted for about 29% of the quarter and replacement parts for 66%, with the balance being performance and accessories. This is an increase from a year-over-year basis in mix by about 600 basis points, so hard parts was 23% in Q1 last year and grew to 29% in Q1 this year.

Did that higher contribution from hard parts contribute at all to the strong gross margin during the quarter?

Yes, I think that the increase in gross margin was partly due to the higher contribution from hard parts, which typically carries a higher gross margin. This is one of the drivers you'll see long-term for us to increase our base profitability.

Good to know. And then last for me, just an update on the do-it-for-me offering and how that's tracking right now in the Oregon market?

We’re very excited about the do-it-for-me initiative. It's an opportunity to significantly expand the number of customers we can reach. We aim to build a one-stop destination for auto repair and maintenance, becoming the go-to platform for both do-it-yourself and do-it-for-me customers. We are making a lot of progress and seeing advancements weekly. We hope to show the next evolution of that this year. Though the immediate impact on the top or bottom line will be minimal this year, you should see this become a more significant portion of our business over time. We're using existing resources to build out that capability, so the incremental spend is relatively low, but the opportunity is massive.

Great. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Thomas Forte from D.A. Davidson. Your line is now open.

Great. Thanks for taking my questions. First one is a question, and one follow-up. First off, David, congratulations on being named CEO. Can you discuss your capital allocation priorities, including investing in the business, buybacks, and M&A?

Great question. Right now, in this market with so much volatility, it's all focused on the current roadmap: profitable growth and free cash flow generation. Companies generating significant free cash flow are best positioned to weather whatever is thrown at them. That's why I called it out in my prepared remarks; number one is focus on the customer, but number two is that financial discipline that gives us additional flexibility.

In terms of buybacks, we think the stock is very undervalued at this level. However, all buyback programs are subject to Board approval.

Great. For my follow-up question, you were asked before about installation, but I wanted to know two areas in particular: how should we think about your pricing power? And how, if at all, have you been impacted by inflation in the blue-collar and white-collar labor lines?

Every retailer right now is facing some type of inflationary pressure, and businesses like ours face it from multiple angles. What matters to us is how to turn it into an opportunity. We've invested in a vertically integrated supply chain and are working to connect the dots between manufacturers and the customer. We've aggressively invested in data science to dynamically adjust pricing; our capacity allows for real-time pricing adjustments across channels at the SKU level. Regardless of external forces applied to our business, we can react in real time. The complexity of this business includes more than just the cost of goods; there are customer acquisition costs, fulfillment costs, and competitive landscapes to monitor. Our system allows us to consider these variables and adjust accordingly, which is why we saw an improved margin in Q1.

Great. Thank you, David. Thank you, Ryan.

Thanks.

Thank you. Our next question comes from the line of Darren Aftahi from ROTH Capital Partners. Your line is now open.

Hey, everyone. This is Dillion on for Darren. Thanks for taking my questions. First one, I know you talked about a little bit of the stimulus impact last year that you had on Q1 and Q2. It’s probably hard to quantify, but could you sort of talk about this quarter how big of an impact Grand Prairie had on the year-over-year sales?

We added more capacity since last year, but we’ve also built a great team. Without getting too granular, you can expect us to comp year-over-year every quarter and for a full-year comp over the prior year. So that's the way we look at it more on a longer-term basis.

Yeah, I mean like retailers also sort of have a same-store sales metric. Is there a viable way to look at that for your business?

Yes. David, do you want to take that?

Historically, yes. When it comes to a new distribution center, we look at it on a same-store basis. For an expansion, it's a little more difficult because it involves the same building, team, and assortment being expanded. It's under the same roof, so the same-store basis is trickier to quantify. We turned on the expansion towards the end of Q1, so for January and February, there was little to measure in that way.

Got it. That's helpful. Thank you. Also in terms of OpEx, last year seemed pretty stable at low levels, $58 million this quarter. Is there anything particular in the Q1 number, especially if that's related to marketing of some sort?

For OpEx, the thing to keep in mind, both for this quarter and for Q2 going through the rest of the year, is that we did open the Grand Prairie and Jacksonville facilities. As Grand Prairie is open but we're still ramping up in Jacksonville, there will be costs associated without offsetting revenues in the early stages.

Got it. Thank you. That's it from me.

Thanks.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.