PRTS - Earnings call transcript Q2 2018

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Operator

Welcome to the U.S. Auto Parts Second Quarter 2018 Conference Call.

On the call from the company are Aaron Coleman, Chief Executive Officer; and Neil Watanabe, Chief Financial Officer. By now everyone should have access to the second quarter 2018 earnings release, which went out today at approximately 4 p.m. Eastern time.

received of it's the not Investor on have portion Relations U.S. you your available release, the If Auto Parts website U.S. at usautoparts.net by clicking on the Parts tab. Investor Auto Relations be website is on call being and replay This webcast, the August through will company's XX, XXXX. a available

include to and would remarks not forward-looking additional response statements management the may begin, within that the of to certain everyone The in like make we the remind your forward-looking Before federal statements meaning we prepared contain securities statements questions. statements financial laws, forward-looking future expected operating to, are liquidity, operating customers suppliers and indicators, growth key product our but future events, deployment, ,and business and limited regarding strategies, needs current financial expectations, metrics, competition. and offerings, capital results, and and

and information, expectations and current on are in to and future based are not statements do performance. uncertainties circumstances guarantees changes constitute of subject Forward-looking

be carryforwards, included measures in note will explanation Auto and in or measures the EBITDA. financial the revise following Auto actual Parts financial discussed, in becomes that anticipated the release outlook derived in U.S. assumes to revise non-GAAP GAAP the for EBITDA and number contained guidance including limitations could materially in not today's statements with have the forward-looking of non-GAAP Forward-looking this note by or which press factors and measures difficulty projections Factors in Risk from of non-GAAP use Please income reconciliation statements due U.S. Form information any Report GAAP from accordance our of forward-looking XX-Q call, actual GAAP, intend projections the in results and An to or financial to adjusted the non-GAAP statements. Commission adjusted could on Parts' income. call net available actual forecasts materially with these differ to and you We discussing materially if may future. no those of does Exchange could release. U.S. required net these of impact that long-term made results and in making and of even involve projected discussion today, refer which be filed update between future information forward-looking a all Auto The factors substitute Parts nor in addition Investor the of operating a release results results SEC Relations the Form and obligation from quarterly those again detailed to today's reports high is call Securities Auto measure reconciliation Please new are in for detailed the variability Parts' significant to, website. update to cause company, company's on measures to, for on we company's Annual EBITDA section differ and G a the the accurate that that differ the on on be those with projected such loss statements. the not in which XX-K are non-GAAP net Regulation a is the performance it found reasons U.S. any to cause have a any those can on that press or

a a projected without result, are to unable we quantify efforts. As net unreasonable income

be Coleman. loss, over net and revenue, to with to like discontinued net reporting data reported, segment. points which the to we'll are exception margin, that, excludes income gross discussing call please comparing turn but and financial all online discussed expense not stated, including With of operating now limited addition, I Aaron our basis AutoMD to advertising, would calculated net that note Unless otherwise sales. using percentage and In also sales the

Aaron Coleman

discuss to and Good Operator. XXXX everyone thank our you for us you, joining second Thank results. afternoon quarter

an our the provide to wanted Security pending United I Trade. Court Department against U.S. quarter, the litigation in International second the update States Homeland of into on get we of Before

earnings call, Homeland of on on Security, U.S. being wrongfully United allegedly manufacturer. asserts to seizing trademarks overly by held process agency and has ensure basis the the our by been that expeditiously the United of Protection, bonding mentioned to Customs requirements we our that States. automotive are arising the remove As procedures burdensome counterfeit States lawsuit last grilles flow Border commenced Department grilles Customs Auto imported the and our Parts the that into infringe of lawsuit and from goods the automobile original We the the wrong an

our Customs not United alleged and bonding the to granted with requirements XXX inability from injunction in order flow counterfeit be ordered but our a that Despite to obtain Auto entry underlying At manner. containers time, granted; issues best process the on containers of motion many of we U.S. shipping During enforcing only was it's implicated for use that continue to be order, court of process was And Court in any as shipping import Customs into products favorable expeditious fashion. the experience to States. Parts efforts the would its the from not product Customs Auto trademark holding allegation other grilles must shipments order approximately our arising Parts court U.S. Customs well. quarter, our Customs of infringement preliminary restrained second to a the our the that by an of products type in carried timely all

which X% of our holding. out grilles seized accounted for due the the So stock less Customs many experience to began rates of although revenue, were categories of automotive we across other than backlog annual containers initially to

been also the with as containers costs fees to fees the with believe our for for quarter negatively expenses litigation We Customs the together at second our from us associated impacted as and increased related released finally behind port hold remained which of have We operating with stock well the of all resulting non-grille unreleased increased July. been and out had carrier port. the and largely the also time lower quarter. significant of as parts is disruption increased sales, lower the the seizers of product of higher These end do the and legal rate, to we up product containers bonding our period chain supply experienced as margins, gross began at incur associated the

rest to incur in supply fees and However expensive infringe a any effort importing the This that believe we of will margin gross much procure over United avoid growth entire chain for and total do firmly margin with States as expenses carrier and to the trademarks. grilles near-term alternative This begun revenues we disruption, from an impact revenue. not reduce the the on of these fees disruption and port was continuing next category to three chain. ongoing alternative accounts future grilles fact outside X% have operating supply quarters. port automotive and and carrier sources gross The approximately the to the will treatment to less associated despite seized our unreleased and our products also all amortization annual the of our continue for

Neil any we to continue authorized which grilles which importing would for will us turn second sell. believe do prevent be We the allegation to believe we With or otherwise to help grilles to trademark results. are our allegation ability not violate law over I'll to infringement options the from that, quarter trademark not expedite the alleged should to call Nor has do merit. import evaluate we as our our

Neil Watanabe

Thank following all press I the that key AutoMD listeners and being remind financials unless as a to I'd noted you, AutoMD second our specifically metrics, segment of metrics like in Aaron, everyone. good an XXXX. of also dissolution well the of operating the is which provide would discontinued summary exclude today as reported subsidiary operations the the like quarter reported business afternoon of as in release overview

decrease to decrease disclosed results, Customs were net sales to e-commerce primarily in lower resulting ago compared our second the quarter decrease Moving in-stock previously issue. and year e-commerce to second with our $XX.X quarter driven on X% by from in attributable traffic in the rates sales in million a million $XX quarter the

$X.X Private in Also from in that sale sales was wholesale lower were a given in carrier of Norfolk. was decrease of period. margins to year XX% up sales QX net label XX.X% Customs period. higher the QX with in experienced by also issue XX% which the sales in XX% rates associated products accounted product fees at comprised year the port flat million. our compared note partially costs were and reduction QX to of offline and well The revenues We resulting and same Gross in-stock ago to for as is in-stock the slight including the ago as on compared XX% with rates. freight marketplace in the port higher margin unreleased lower associated factors

quarters the company the fees, to a of to compared result typical of between over to margin these XX% the three range to XX% range. XX% XX% treatment amortization our gross As expects next

amortization currently $XX compared the approximate to quarter the port we second OpEx to $X.X was and in Total XXXX, million expect of $XX.X carrier year. fiscal million For these last million. fees

adds to costs or share allowance $X.X the As second cumulative release from the the increase higher of net losses. from included OpEx by $X.X was per million issue our million XXXX period compared EBITDA prior-year per or the million compared the negative was quarter. was of $X.X the a a to quarter share resulting loss issue. expense $X.XX XX.X% Customs Customs which $XX.X operating $XX.X tax XX.X% associated cost net stock-based compared back with compensation and with Note revenue, percentage million aforementioned in of that million legal driven Adjusted quarter. year-ago the Net credit to valuation resulting a on income our in in $X.XX

compared margin percentage the decrease was driven decline from lower X.X% traffic. and by sales The primarily of net adjusted a and issue aforementioned in revenue, organic the a pay and gross X.X%. EBITDA As Customs was resulting to

basis traffic. Despite decreased improved the compared is made to for year-over-year of investments of Now prior a our X.X%. were e-commerce during improvements compared was versus acquisition Total rates, value the in orders improved This and last year. on E-commerce $X.XX cost rates orders QX of the also increase Revenue an customer consideration, working. provide versus mix period. the quarter. increased lower let to and XXX,XXX which to XX% product in sites after we increased in with the taking period. amount made as of conversion of by returns, we increase to enhance payment The a payment experience fulfillment XXX,XXX to the $XXX actual compared year-ago in that QX on process, our $X.XX in dollars our fifth This details In our the quarter, quarter row capture, retained efficiency XXX,XXX the capture. average our operating quarter defined with year-ago the of the improved core second to the XX us tells sales, in an paid result point conversion are metrics to the gross into XX% XX% return me organic a year. to second order $XXX order at was customer key fill orders some to driven capture

June no XXth balance XXXX, XX, we at quarter. to Turning sheet, had for consecutive debt the the revolver

products also and of $X.X of like balance for $X.X with of imported had that completed XXXX. the are attributable the We a cash million of a inventory timing million to This three by to the China. debt cash mention review of quarter contemplated groups have revolver vendors. no we payments XXXX. There flat the the that been compared compared of detailed end of to our to is from administration. year-end $XX.X I'd We with announced million one shipping increase recently fiscal of was also have ended tariffs tariffs different which at

on implemented X approximately our of XXX approximately sales. July was of which group first represents X.X% SKUs included net which The our

has The material second and of a which will SKUs yet implemented approximately impact. not includes not group our have XX been revenue

consumers not also group the profits. turn note majority to billion will any would and scope. call and been believe with the of is along $XXX to to our gross cost be that is has yet that cover We over I group would maintain third our the Aaron. implemented third It pass that, to tariffs With goal the important The back in industry.

Aaron Coleman

Neil. Thank you,

experience and mobile the partnerships. believe with enhancing all Despite sales the continued conversion post Let and are issue, tell improvements e-commerce with building additional and our trends. made sites, insight capabilities the flagship the product focus focus process due the begin marketplace improved their in Difficult without during we've We've thanking decline marketing investments we from On channel on e-com We're our of lower we encountered economic. the for improving on of and to are improving site purchase roadmap accurately the our our fees, how consulting we executing to have and customer and by organic to all to U.S. our through to in the to promise. process, to traffic customer to in us goal core consistent of our product our conversion. experience customer checkouts, experience conversion, challenges, improve initiatives deploying the bearing results assess continue Parts continued accelerating have attributed traffic acquisition initiatives to Customs the early our a and our e-commerce lower discovery experience. which these our experience reversing me Auto value. of continued on in Despite performed to long-term is customers Customs e-commerce landing paid product We're have a improvement fruit. growth pages, changes rates, improved process we e-commerce of revitalizing of decline in valuing team the sites leadership the traffic members however business in-stock our quarter goal our would disruption and show expanding a the that

quarter assets pleased global marketplace present to Again committing double-digit the purchasing in our label base. development was generating which a business which were we this a private Stop X.X% wherever begin Our sales we agreement about our ongoing customer year-ago and June come. on expansive work of to compared to marketplace major during a down of I'm will products believe excited parts an sales I continue marketplace sell AutoMD improvements tremendous We're well branded Nevertheless million. growth. to we our consecutive two-year to new our channel than we Power through this the sold us This the to significantly marketplace to more with their enhance to like opportunity our a to as would recently online as that automotive marketplace network to online. selling for retailer sites products $X.X streak issue. expanding signed were partner years Customs also our marketplace. that automotive large e-commerce to as result announce very our for report ends for are customers quarter being we presents made partially

AutoMD operation. solely last proceeds we on operations recall, operation and may media as you a AutoMD As shutdown transaction solely our We'll focus our core year our the to business. utilizing we're core to focus use cash from this on

now previously marketplace issues on net Turning lower to to expected percentage our compares to compared a basis compared import limitations the we a primarily to guidance to the result for growth the low-single-digit quarter, and and target as sales XXXX of XXXX. than to current on low-single-digits of Custom grille sales XXXX which for our ability expect decrease issued

well excluding extraordinary provide representation the of adjusted Given core for results. of assets, AutoMD the issues the we're our from its these as Customs to our incurred EBITDA items as accurate sale nature materiality of a cost more the and the business of nature non-recurring

million issue to sales for issued a that, $XX the up as than to to the $XX.X our adjusted guidance $XX marketplace to now With we between target $XX we'll result and lower attributable However now of are and compared of and previously expect lost open million sales, range the it our EBITDA million expected question. call million. Customs revising

Operator

you. [Operator this conducting question-and-answer Instructions]. time, thank we be Great, At a will session.

go ahead. Consumer question first Small Research. Cap Eric Beder from Our from is Please

Eric Beder

Hey.

forward, going Neil Just those grille be on how Customs so about cost dramatized we those accounting should one the modeling? think quick going question, to expense are

Neil Watanabe

of the based really been there's on Eric, two Customs incurred have buckets issue. You costs that know,

which one goods as The indicated the part $X.X carrier are over first port be we going through end of the are related which direct of is and the to have of incurred three quarters costs was next fees Those costs amortized we cost million. which to the calculation. approximately July

other due costs, of loss us. containers flow the center abnormal these indirect the The distribution based costs believe are as costs QX and that our and processing incurred. the product in productivity expensed is will indirect cost these costs of The in of legal to other is our lost to on be are XXX impact been and We receives stock these due absorbed sales behind and which these costs indirect the negative items out have delayed. direct

Eric Beder

the website, and now more Okay. of can other pieces customer what about you Aaron the so of talk that drive to you going to doing impact some the results traffic would in forward changes do kind how you or future? be expect you're thinking to about

Aaron Coleman

Yes, similar released that making I that -- discovery, prepared experience should so progress site similar We've promise made flagship past of comments checkout entire the the our couple across journey say quarters. customer websites significant comments speed, across we've the enhancements -- to the the to easier. on include product

mobile with into initiatives and app in we've addition -- In and pages improvements the accelerated releases progressive translating website web significant progressive improved are these conversion. mobile experience

the on internal In new on our on improvements of that reverse translates in in and I parties investing customer you capture. the review acquisition revenue addition quarters marketing to trying we've on be those trends third made the to into we'll to strategies as metrics purchase resources to additional is the as improved deploy forward look all investments. next engaging and updating leadership the you experience Where couple well so traffic see we post that need

Eric Beder

if additionally higher on that and would cost this final is these through go but tariffs you that, guess flipside And the the I obviously so of are there tariffs does of is then to affect increases have new I on is do of I add of probably the to to round want higher question whether customers bring these this more little, you've when to to come customers if seen you prices website you and of believe your continue Historically there. terms mean price in that cars. pricing also in ceiling what it the flexibility costs level new uncertainty raise

Aaron Coleman

see impact couple because that as steps a that relatively to certainly obviously incur in you will two something round try value-oriented layering there majority the the in that and the had because there's the cover imports. When product certainly we're there's will everything Sure, were are currency of things. but people our even two we’re we we unpack to that's pleased of than lot and smaller others so higher at to look first a that our one we our with -- I'll well similar the many on and participating the third things tariffs of right different a maybe product supply dealing seems into are fluctuations much that else, or many rounds cost as now everybody chain, multi-step and inputs cost that process. have inputs it think in higher that go anticipated

we're pass have in how it option demand. will that others there But inflation going do value-oriented are are to into affects increase have the what even and along cost we the in So alternatives see out to that we'll very still our and and compared to doing translate the we the see marketplace. that to focused to that there to with be best think input a consumer

Eric Beder

this a is more of it SKUs SKUs big still business you uncertainties part on? this adding you've obviously this adding had talk Okay. focused I about business quarter to always that lot And more finally usually of know a

Aaron Coleman

of assortment. focused got Yes, different those of one absolutely a initiatives growth and around is product lot we've

candidate. year these we last pay we volume on to the similar identifying We past continue invest to terms were where will in of and SKUs to similarly in

So area. we that continuing in to are invest

Operator

Louis from Partners. Our [indiscernible] go ahead. next Beth is from Please question

Unidentified Analyst

Hello? Hello?

Aaron Coleman

Beth. Hi,

Unidentified Analyst

afternoon. guys. hi Hi, Good

understand out major Aaron the expect issue do my be and I the right but XXXX, into cut or additive growth XXXX, the I get we then this Neil, traffic So want tremendous. and down I I it's mid-single-digit the really look I seems to you guess to you model and online guidance mean back out look is is to retailers grille top-line online as and that to then as the actually to say, to major in with mean this leverage guess should retailers be the

Aaron Coleman

the question. thank Yes, for you

provided So partnerships and in over headwind obviously for underlying around we're try the guidance we for traffic we haven't the we've as XXXX the product be trying it's the translate six of believe we're growth obviously but where headwinds a possible first time. obviously growth had foreseeable company for investing or or much that that future but the we and some initiatives area to months position assortment in third-party believe to year will grilles in the next mitigate to Customs growth with the conversion even this as going whether we're year initiatives will into a new

Unidentified Analyst

value if Yes, the value today that's and I you away times the the your the stock if should so guidance mean today? the midpoint million of your million at business valuations look if be take the $XX of you enterprise you the for of I'm valuation at in EBITDA enterprise three you that's, is and take it’s generous $XX to looking business cash EBITDA

Neil Watanabe

Yes,sure.

Unidentified Analyst

guys So my why question question back my next is you aren’t buying -- stock? next is

Neil Watanabe

we more few repurchase that that be our won’t private this had repurchase months have stock ago other at our we renew repurchase stock and some last of is moment. very reviews out that be currently other and build stock inventory program label, value we were of a few the cash cash can to but program product areas that the not to No, versus initiatives, we while we’re say the cetera better et use there there to made return had benefit some of things customer type decisions building our the items experience utilized feel business and expired repurchase and of board deemed projects repurchase and our any with that program they capital

Aaron Coleman

looking quarter value and is two most there of always the that basis. and is and future I’ll so the value at and this discussions will And on a active there I'm that comments, allocation in be they just say next one in do similar the create ways The regular will capital plans created maybe quarters of sure how looking that be shareholder it purchase differently. and be can easily stock quarter they’re of that past has to considered and been it board phrase

other the where that a Just of prepared vendor note of the in higher in normal Neil’s getting as there bag is bit you cash quarter reviewed. at a one there are terms from is if still end is a remarks, whole the than remember payment terms that

So that’s a component of that excess cash.

Unidentified Analyst

that, your wouldn’t again of is this the company even start agreement -- associated put say understand a mean head leverage I’m company which to terms got signed I��m saying you're little grow of your the I market if you’ve global major valued I'm all but with of going scratching in you’ve the to still, automotive now -- for some a you enterprise bit cost program? you balance -- on perfect an why top-line grilles dollars should right, EBITDA. kind confused just your three that, had share on with initiate and year some another couple I valuation just in get small Yes, my million times repurchase retailer sheet, the arguably to -- you've storm I'm

Neil Watanabe

that communicate continually evaluating and best I said feedback your with uses they’re as and the board certainly understand of capital. the will I Yes,

Unidentified Analyst

Okay.

do to think for rest XXXX? the going year be for So XXXX the what for be along they’re those of then will expenditures what you your and lines,

Neil Watanabe

-- the provided with of CapEx we provided haven’t guidance the range $X.X XXXX we specific Well, on and to for $X million a side,

Aaron Coleman

Correct.

Neil Watanabe

that about committed the now. Million we for year through we we that to provided we’re and the we're as halfway and -- and invest halfway guidance year hit before expect

Unidentified Analyst

next you think be And year it will those levels? same Great. do along

Neil Watanabe

for next what provided past that the guidance $X and million would that that between change the at for significantly Well, in of years can I we’ve haven’t anything tell years. we is couple three been CapEx in you of I around just $X exact terms spend, see million don’t next and year the

Operator

ahead. [Operator Instructions]. [ph] Please Steven And from ABL question is next go our from Investments. Branstetter

Unidentified Analyst

Good afternoon gentlemen.

an You global that agreement with stated that call? signed not from retailer; was we that assume Amazon last was major do a the you

Aaron Coleman

call, from so the a one. last is That it was new

Unidentified Analyst

So a one? have a it Do this when new date starts? retailer is you

Aaron Coleman

June with The contract up new quarter. assortment this in ramp will product and next is we over

all and always up start our more with of that expected make the and operations then of are catalogue. marketplace new with executing we So our we’ll as ramp and more partnerships subset assortment we sure a

Unidentified Analyst

there a the is? disclose who Is reason not to retailer

Aaron Coleman

Really just to sure got a that permission sides. on we’ve both making names use

we’ll So that working be in short. on

Unidentified Analyst

permission possibly release if the agreement? permission is granted, press upon completion granted when look So at your we then the is of

Aaron Coleman

Yes, that's what we hope.

Unidentified Analyst

Okay, release about press talking a mentions a we leadership, company? what are leadership of part to changes, sale

Aaron Coleman

great in No, referencing mention that here make through to was experience going the to seeing. if I and made -- conversion even changes in progress where we’ve traffic to to some that reverse I marketing clearly supply on know what customer we’re believe of try changes we’re we’re address try my improvements on the side, so improvement I that think to chain the

other So marketing in talent engaging our third-parties board of strategies. marketing all we’ll working we’re be to and and internally also going evaluate to bring

side. So it’s the marketing specifically on

Unidentified Analyst

So price, basically is in gone what issue that AdWords has is the the up by you're Google facing?

Aaron Coleman

is across channels. The multiple marketing

So some the couple we’ve -- campaigns economics includes some which work the organic certainly SCM we’ve we as the seen headwinds some paid of of some making headwinds on shopping or on transaction, presence, terms and in that seen last negative that we from get away each from disciplined margin. sure were of margin the as making pulled of we’ve incremental we to over around low been unit years

economics that we're sure segmentation that trying experience more converting was to as is change got we things figure to part of on out that things but so we've to strategy, make it that the got all nature we’ve we're traffic. the So unit acquisition of website how that from the doing improve customer terms of arrive messaging, to people in also focus they good,

Unidentified Analyst

And through Okay. with be released was reason to they it took there or two months issue all piece-by-piece? container a the going them on

Aaron Coleman

was delayed what's it processing whole was did of as we a Their have some a visibility four weeks; into were going low very some have why didn't lot on didn't actually we and throughput to side. closer months. much their We but as on on it -- of were were lot visibility in

Unidentified Analyst

for there payment delays? to from lawyers the opportunity your Is government for an these seek

Aaron Coleman

Yes, pending any litigation. sort we on really comment of don't

Operator

Thank management session. any you. to like back the floor the This concludes I turn to comments. would over closing question-and-answer for

Neil Watanabe

or during all be meeting September, with we you the call that We look joining of in today. Gateway in attending will Canaccord the forward at for Conference Thank the our some over August with periodic you to you our Liolios Conference in we to third of look results chat or If we report speaking next Shows then, November. we next when the quarter couple non-deal forward Road months. don't

Operator

This today’s teleconference. concludes

lines disconnect time. may at You you Thank this participation. for your again your

CarParts.com (PRTS) 8 Aug 182018 Q2 Earnings call transcript