CarParts.com, Inc. (PRTS) Q4 2021 Earnings Call Transcript

Image source: The Motley Fool.

CarParts.com, Inc. (PRTS 0.41%)
Q4 2021 Earnings Call
Mar 01, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to CarParts.com fourth quarter 2021 conference call. [Operator instructions] On the call from the company are Lev Peker, chief executive officer; David Meniane, chief operating officer and chief financial officer; and Ryan Lockwood, senior vice president of finance. [Operator instructions] Please note, this call is being recorded. The prepared remarks and responses to your questions could contain certain forward-looking statements related to business under the federal securities laws.

Actual results may differ materially from the 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 CarParts.com annual report on Form 10-K and 10-Q as filed with the SEC, both of which can be found on our Investor Relations website. On today's call, certain figures, unless otherwise stated, compare a 52-week period in 2021 to a 53-week period in 2022, Also 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.

With that, I would now like to turn the call over to CEO Lev Peker. Sir, you may begin.

Lev Peker -- Chief Executive Officer

Thank you, operator, and good afternoon, everyone. Today, CarParts.com is pleased to report another solid quarter and year, achieving our eighth consecutive quarter of double-digit year-over-year growth. This is also the third consecutive year of significant double-digit growth, with net sales up 34% compared to 2020, excluding the extra week. For all of 2021, we generated $582 million in revenues and $16.8 million in adjusted EBITDA.

In just 3 years, seeing hard work of our entire team, we have doubled the size of the business. In addition, we're growing our capacity in '22 as our expansion in Grand Prairie, Texas and new distribution center in Jacksonville, Florida fully come online. Over the past three years, we have expanded our gross profit margin from 27% up to almost 34% despite the challenging global supply chain environment. Three years ago, we had 17 slow and disjointed websites and now have one flagship website that receives over 100 million visits a year.

Our click-to-ship times used to be several days. Now the majority of orders ship out in less than 18 hours with our goal to reducing the time to 12 hours. Three years ago, we only had 2 DCs totaling, about 500,000 square feet of space. Now we have six distribution centers and 1.25 million square feet of warehouse space and have over 2,100 team members across the globe.

Most importantly, over the past few years, we have significantly strengthened our foundation, which allows us to adapt to a rapidly changing external environment. And are laying the groundwork to disrupt the $300 billion automotive aftermarket industry that remains highly fragmented and has not changed in nearly 100 years. We would like to reiterate our long-term target of 20% to 25% CAGR top line with 8% to 10% adjusted EBITDA margins as we execute our operating strategy of right part through a time right place. Now let me briefly update you on our progress.

With right parts, we are committed to ensuring our customers can find a complete solution that fits their vehicle. We have over 2 million staff hours invested in our proprietary catalog, which includes parts, fitment, pictures, and applications for both house brands, as well as premium branded products. Our catalog represents a powerful competitive advantage and is a major barrier to entry for all the competitors. Over the last year, we have reorganized our merchandising team into our category management structure that is allowing us to grow our assortment and prioritize new applications.

This approach incorporates a highly curated product offering, strategic pricing, owned brand expansion, and optimized sourcing, all implemented through a financially disciplined execution plan. For right time, over the last couple of years, we have focused on expanding our distribution footprint and getting closer to our customers. Our goal remains to be able to deliver to 80% to 90% of our customers in one day transit time. The most recent additions to our network have been our Grand Prairie, Texas expansion, as well as a brand-new facility in Jacksonville, Florida.

And I'm happy to report that both facilities are on time and on budget. When Jacksonville is fully functional, we expect to be able to service 55% of our customers within one day and 98% within two days stands at time. Turning to Right Place, over the past several quarters, we have been testing various approaches to assist our customers in finding and mechanics to help with the repairs. The early results have been encouraging and the pace of interest continues to grow.

To meet the anticipated demand over the next 12 to 18 months, we plan to build automation into the process with the end goal of customers being able to pay for the part and the installation right on our website as well as booked the appointments. I will now turn it over to Ryan, SVP of finance, to review our financials, and then David will provide the supply chain operational update. 

Ryan Lockwood -- Senior Vice President of Finance

Thanks, Lev. As previously mentioned, in Q4, we generated revenue of $138 million, up 23% year over year after excluding the extra week in 2020. For the full year, we generated revenue of $582 million, up 34% from 2020, excluding the extra week and up 89% on a two-year stack. Gross profit for the quarter was up 14% to $47 million, and gross profit was up 27% to $197 million for the full year.

Gross profit margins were 34.3% for the quarter and 33.9% for the year. Net loss for the quarter was $5 million versus $3.5 million in Q4 2020. For the year, the net loss was $10.3 million, which reflects the impact of approximately $26 million of noncash items. Adjusted EBITDA in Q4 was $2.6 million, compared to $1 million in the prior-year period despite additional investments into the supply chain.

For the year, adjusted EBITDA reached $16.8 million. This represents a 62% improvement from where the company was three years ago despite heavy investments into the business to strengthen our foundation for growth, as well as additional expenses related to expanding our DC network. As a reminder, we do not back out these one-time start-up costs from adjusted EBITDA. Turning to our balance sheet.

At the quarter end, our cash position was $18 million, and inventory pursuant to our goal of supporting our double-digit growth plan stood at a record $139 million, which includes approximately $40 million of safety stock. Our ABL remains undrawn with $30 million available and the option to accordion to $40 million, should the need arise. To summarize our liquidity position, we strategically chose to carry additional inventory, which in a normal supply chain environment we would not need to be carrying. As we think about, number one, our inventory and safety stock; number two, our currently undrawn line of credit; and number three, our free cash flow, we feel comfortable with our current liquidity.

Additionally, we can also continue to drive existing DC efficiency with very minimal capital investment, which will help to achieve our revenue growth plans. During the fourth quarter, we repurchased 40,000 shares for approximately $480,000. We believe our valuation is attractive and thought it prudent to return capital to our shareholders, even in a very short trading window. For the first eight weeks of the year, our robust inventory position is helping us post double-digit revenue growth against prior-year stimulus.

Additionally, we are seeing solid margin improvement, both sequentially and year over year. For fiscal year 2022 net revenues, we expect double-digit year-over-year growth with a strong correlation to the opening cadence of our two new distribution centers with our Texas expansion at the end of Q1 and our Florida warehouse at the end of Q2. And with that, I'd like to turn it over to David. 

David Meniane -- Chief Operating and Financial Officer

Thanks, Ryan. As we mentioned on previous calls, we leverage our vertically integrated supply chain by optimizing for parts availability and delivery speed, which are at the core of our investment philosophy. We remain committed to our goal of covering 80% to 90% of the country in one-day transit time. To update our shareholders on our progress, we're excited that our Texas expansion is on time and on budget.

We're currently receiving the inventory we ordered last year and expect this facility to significantly increase our inventory and outbound shipping capacity over the coming weeks. As for our brand new Jacksonville, Florida facility, it's also on schedule and on budget, and we're slowly building up inventory. We expect this facility to increase our capacity in the later part of Q2, and we'll provide an update on our next call. I want to thank our extraordinary supply chain operations team, which has been relentless in meeting aggressive deadlines type budgets and in driving us to be more competitive.

On the technology side, we continue to invest in world-class supply chain and data science tools. Over time, we expect these improvements to drive meaningful same-store efficiencies further increasing our revenue and profitability even in an inflationary environment. Finally, for our long-term shareholders listening today, 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.

We would also like to thank our CarParts.com team. We're incredibly lucky to collaborate with such an exceptional group of individuals each and every day. Your dedication to the mission of helping drivers get back on the road is inspirational. Let me turn it back to Lev. 

Lev Peker -- Chief Executive Officer

Thanks, David. While the overall stock market has shown significant volatility, our underlying business has improved year-over-year, maintaining profitable growth within an overall auto market, which continues to trend favorably. For example, data from experience shows that the number of vehicles aged six to 12 years has grown to account for almost a third of all vehicles in operation. These vehicles are too old for their original warranties and require more replacement parts, which we expect to be a strong tailwind in driving our success for the foreseeable future.

With over 300,000 square feet of warehouse space coming online, a record amount of inventory and an amazing team, I have never been more confident in our ability to serve our customers and get them back on the road. New vehicles are in short supply, which is driving a robust used vehicle market that bodes well for additional maintenance and repairs as the vehicles are conditioned for resell. And the sorting prices in the new and used vehicle markets are likely to push more consumers into holding on to their vehicles longer. With 300 million cars on the road and the total addressable automotive aftermarket being over $300 billion, we remain firm in our belief that it will be a strong and enduring demand for companies that can help the average driver with our car repair and maintenance.

Lastly, given our current capital position, our undrawn line of credit, and the amount of safety stock on inventory, we believe that we have enough liquidity to continue delivering on our mission of Right Parts. Right Time. Right Place without tapping the capital markets in the near future. I would now like to turn it over to the operator for questions. 

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Darren Aftahi of ROTH Capital Partners. Your line is open. 

Darren Aftahi -- ROTH Capital Partners -- Analyst

Hey, guys. Thanks for taking my question. If I could just kind of expand on the '22 kind of commentary you gave. So given last year, there was some stimulus money around in the first quarter and kind of beginning of the second quarter, with your comments about Texas coming online in the Q1 and Jacksonville 2Q.

Can you just kind of help us understand maybe the cadence of the year and how that might look a little different than normal? So that's question one. And then second one on upgrade. How do we think about kind of gross margins? And I know you guys have been tapping into dynamic pricing. Will we see more of that going forward? And do you have the pricing power to offset any kind of incremental shipping costs? Thanks. 

David Meniane -- Chief Operating and Financial Officer

Hi, Darren, it's David. So I'll take the first question on the cadence of the new DCs, and then I'll let Ryan chime in on the margin piece. So yes, you're absolutely right. We're in the process of expanding our footprint.

So over the next few weeks, we are launching basically the Texas expansion that's coming online. Towards the end of Q2, we're going to have our Florida warehouse going online. And then in Q3, we have a couple of holidays. But overall, we feel pretty good about the additional inventory and the capacity there.

So I think the key takeaway is that, long term, the goal is still the same. It's to get closer to the customers. It's to be able to cover 80% to 90% of the country within one-day transit time. And at the same time, increase our capacity.

And I think that leads into the second part of your question around freight. 

Ryan Lockwood -- Senior Vice President of Finance

Sure. So Darren, obviously, as we get close to the customers, margins are post freight. So that's going to be helpful. And when we think about margin, it is over the long term, over several quarters, the full year, and toward our long-term targets.

So if you -- and you mentioned, can we continue to push price? I think if you look at 2020 margins, excluding Q3 where we had one-time favorable uplift, really margin only compressed 50 basis points. It's a great testament to our teams on supply chain, data science, inventory planning. So we've proven that we have the ability to maintain margins already, and we're very happy with where they're turning out this year.

Operator

Thank you. Our next question comes from Victoria James of D.A. Davidson. Your line is open.

Victoria James -- D.A. Davidson -- Analyst

Thanks for taking my question. So just one for me. Can you provide an update on the [Inaudible] when that's going to meaningfully impact your P&L?

Lev Peker -- Chief Executive Officer

This is Lev, Victoria. I think, right now, we have a small team dedicated to the effort. There is a little bit of technology spend that's going into building out the automated solution, but it's not a drag on our EBITDA, and it's part of our overall budget. And I think in terms of one, it's going to be meaningfully adding to our revenue, as well as to our EBITDA.

I think that's probably a conversation for next year. We're not there yet, and we're kind of looking at this as we want to offer customers a choice and then that's what's going to drive us into the shop. So that's kind of how we're looking at it. So not a drag and not an add definitely for this year, and then we'll see next year.

Victoria James -- D.A. Davidson -- Analyst

Thank you. 

Operator

[Operator signoff]

Duration: 19 minutes

Call participants:

Lev Peker -- Chief Executive Officer

Ryan Lockwood -- Senior Vice President of Finance

David Meniane -- Chief Operating and Financial Officer

Darren Aftahi -- ROTH Capital Partners -- Analyst

Victoria James -- D.A. Davidson -- Analyst

More PRTS analysis

All earnings call transcripts