PRTS - Earnings call transcript Q3 2018

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Operator

Welcome to the U.S. Auto Parts Third 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 third quarter 2018 earnings release, which went out today at approximately 4:00 PM Eastern Time.

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

impact reasons and press again difficulty and information EBITDA a carryforwards, will detailed EBITDA, revise in due call addition becomes press U.S. new on not EBITDA those to differ of actual today, such GAAP in call Company’s of GAAP required non-GAAP derived to The Parts’ long-term adjusted forward-looking future forward-looking succession future results the reports in future. use actual quarterly in like this update financial not adjusted or website. uncertainties U.S. outlook the to in questions. within and revise and a the that net actual if of Investor in and changes of The and materially company, Auto Exchange Officer, release section differ between contained current accurate an our the and is made financial to expectations discussed. of U.S. today’s intend Company’s or detailed nor The to those Regulation guidance financial filed is be to in have release. operating which but release from are on Commission statement. on forecasts results that to additional the limitations, anticipated events, you based of and We plan suppliers and all does or Auto have G XX-K include any cause forward-looking note results update the remind discussing making and Please in would obligation forward-looking and Chief with forward-looking to future measures to laws variability non-GAAP to information financial meaning materially in our we materially Form projected significant are and for our competition. Auto the that securities income Parts subject Factors for factors forward-looking measures statements Annual discussion measures from could Parts net XX-Q Executive measures are of and projections from Auto non-GAAP a to, the reconciliation forward-looking available Form future and customers the that that we any explanation following note needs in may could and for it a which the Securities Risk GAAP. are begin, the or assumes which contain certain factors expectations, cause on on any refer for and these financial new statements The net differ U.S. no we everyone those Before do on results on the Parts’ reconciliation high number guarantees constitute are deployment, non-GAAP statements the statements. non-GAAP to involve those the the performance in with measure substitute projections by SEC not even these Please Report included the your can loss that not a current call, circumstances today’s in operating and performance. Relations accordance may and be the management prepared with a statements offerings, could operating federal statements liquidity, statements business metrics be projected remarks strategies, And statements information results, response regarding to indicators, capital growth of found limited including product income. expected key of make in forward-looking

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

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

Aaron Coleman

next us Board for me as and plan and have well quarter life It’s stepping our afternoon, our Company’s store a And opportunities a ahead chapter this during career honor CEO my Good such lead mutually I this results. for next joining as to Thank Parts. everyone, thank in an cycle. operator. group third agreed Earlier and that look working will through months. XXXX several been the the dynamic down discuss U.S. you, the privilege hard upon forward succession as to to of the the period what’s Auto many for you month, a I

conversion in continued Turning work sites and revenue our quarter, QX, e-commerce to our enhance as reflected consistent to on by experience improvements capture. we the the customer in

sites, traffic growth. improving return remain Although, our to focused we lower our to we keenly continued to traffic to acquisition experience on our

the on different. over customer through regards. the no product both well-positioned later our And quality, Neil reward and results. one the business our the gone marketplace on Ultimately, broad in sales During a to expand assortment. we We’ve I’d in Neil? to call. focus through update similar this partners like marketplace platform. makes turn our in this remain marketplace on short-term third we first, of partners experienced presence a very also that their with past, where that and affects an we platform it lower cycles due to reduction companies their quarter, partner expect our experience to I’ll But walk search be over channel to to adversely quarter on situation

Neil Watanabe

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

quarter year-ago Moving driven in was quarter one our a million the marketplace This results. third a third by the $XX.X decline. with sales on to Net primarily in decrease channel compared in $XX.X X% to partners. sales million quarter, our of were

year-ago the from of compared which in-stock Also e-commerce QX XX% X% reduction sales wholesale offline a in to issue in XX% from X% Customs XX.X% a sales increased in attributable port of rates to were decrease was driven Private carrier label margin as period. period. as down comprised is with was up our QX, issue. revenues X% and net well freight and our Gross of experienced associated sales, resulting Customs sales that primarily by XX.X% the QX accounted The in also decrease million. in in were We $X.X to note year-ago and fees to cost costs. traffic lower compared the for

fees, these gross would margin Excluding XX.X%. been have

two we to treatment amortization issue, remain to of result of XX% margins to Custom gross a the quarters. expect from the port XX% between carrier continue As next the fees and over

Total and fees carrier the XXXX, in of quarter these a to to year. amortization million. $XXX,XXX compared the we port million last was prior expect than currently fiscal OpEx basis, we $X.X $XX.X year. For approximate were the million On third $XX.X dollar less

$X.X per EBITDA compared year million to was XX.X% sale issue EBITDA in a income in million of AutoMD which the Adjusted adds year-ago prior was percentage compared compared this the or share quarter stock-based per the quarter. $X.X million of third in the XX.X%. million our back or expense OpEx $X.XX revenues, million adjusted $X.X removes quarter. As with that and $X.XX income received and net from the QX. in was asset, to Net to Customs share costs Note of $X.X closed $X.X compensation associated quarter’s the

the was primarily with was decline and driven to by the to X.X%. marketplace As in a due revenue, compared in-stock to X.X% issue. lower EBITDA along percentage sites, e-commerce The adjusted rates of aforementioned our lower decrease Customs traffic sales

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

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

XXXX. no we one attributable million We continue million normalize quarter year-end ended cash of We at also balance to with to which $X.X of the optimization with vendors, million our focus had the compared the of of timing inventory to revolver at XXXX. million a million during and cash cash the we is shipping end $X.X our inventory compared And payments of debt the of balance $XX.X of of $X.X on productivity. will fourth to expect $XX.X quarter. fiscal

would for tariffs quarterly administration. reselling are our that three last review of There like the detailed have by our been initiated products from tariffs imported the listeners groups I on discussed As China. update about of to different call, announced

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

and group, a impact. which have included on August XX SKUs, approximately implemented second of material The not XX, our will was

in XX was September on implemented and was group billion reported $XXX as scope. third The

The third and majority industry sales. net covers impacts group our our XX% the of of

tariffs along goal to our consumers maintain As cost will previously pass be discussed, and gross profit. to the our in any

competitive However, will the our strategies back the over monitor we landscape turn I’ll accordingly. call pricing With that, adjust to and Aaron.

Aaron Coleman

execution further to In On and partnerships. driven the initiatives From our our continue lower channel conversion of the due these goal we e-comm work experience. improve decline validate continues our customer sites e-commerce we’ve third and the to to our work marketplace we a by perspective, unfavorable product organic road the from see Neil. to map several quarter, expanding you, revitalizing traffic continue third we that sites, initiatives economics. traffic towards in enhance accomplished. new in of our quarter, Thank to acquisition decline paid deployed traffic a customer The and a

enhanced should partnering recently well search with due have mentioned platform. marketing experienced their believe improvements, with to external new channel traffic reduction expertise trends. focus marketing our customer acquisition marketing as as our We channel, into conversion sales capabilities presence the roadmap In new to as improved our translate I our through our to will acquisition in lower hires continue into marketplace strategies. partners restructure a auto of product We strategies on one we while earlier, help translate

levels. are improve to experience. own images, strong positively customer is the these around applications, that Our over optimizing past, accomplished In responded with to evolving fundamentally time. our titles, tremendous their data they’re service and ensure to partners constantly presence them with marketplace their listing changes platforms we’ve This

as XX% over While this the It’s providing quarter, different. time, our marketplace continued customer one that experience worth have that more in believe noting incrementally this of will as the of experienced in began marketplace exceptional comps comp presence challenging product no with also marketplace with enable QX, XPL we more took going model to newest which Walmart.com, a growth Amazon. we to bit step we our being a an our These forward. quarter Despite partner, partner, assortment implementation get sales scale direct partners, back product quarter than an assortment third and it easier broad lower we with to the supported with this of all channel made XXXX, well year. this

While the believe very the early presents we these revenue partnerships in strong, process, new opportunities long-term. new over

a as we business, continue side trends, of chain, result relevant high revenue the service solid assortment On to levels. of the experience merchandising our wholesale which supply efficient and

Customs net current percentage compared our sales to mid outlook, we on will as we’ve a quarter marketplace on the decline as issued lower of XXXX, expect outlook a updated discussed now to single-digits sales. XXXX in primarily Turning compared import limitations decrease to low compares result and well This issue and to XXXX. to ability growth a as to basis than of the last previously percentage single-digit our our expected

in the With from up we for given sale business expect nature, low-end our the results, costs adjusted of to to from also come the $XX representation cost call To at the given EBITDA a million well million. that, non-recurring issued guidance adjusted assets, nature. their and CEO EBITDA of to Customs transition the AutoMD now We previously issue will range more as incurred related $XX of our that open extraordinary note excludes core our of proceeds questions. provide accurate as its

Operator

At Our Great, [Operator from Barrington Prestopino question will conducting is thank Research. we session. be from ahead. Gary you. time, question-and-answer this a Please first go Instructions]

Gary Prestopino

good the how there is that? But long relationships shed running? anything these have rate? can more take I you’re of like Amazon on Anything new kind in I early Walmart been the Hi, they it, and two and actually relationship. been mean What’s with up afternoon. you the realize

Aaron Coleman

But and clarify, as doing that model. Amazon, to new only seller. traditional of the With and end with quarter. established tests Yes, last is for Gary, relationship beginning just began this relationship a the the XPL historical marketplace quarter the last quarter. at of we’ve we thanks limited around question. The really And had the them

assortment limited, that So it’s has model. bit a been different relatively little

up the in So success we set wanted scale to to those make future. we’re sure that

So early very that’s on.

quickly. In relationship. terms assortment that more adding Walmart, a And traditional we’ll very of is be marketplace our of

are full that today, of quarter. first The our this and to of assortment SKUs probably increasing thousands couple live label be of end we’ll the private first by

Gary Prestopino

you eventually How many would there? SKUs have on

Aaron Coleman

least We’ll SKUs branded private our our world is to probably – plus that can on will we that have assortment data or that close SKUs are focused class. sure our at label make and XX,XXX,

well it of XX,XXX. over north So time, will be

Gary Prestopino

total that hear say the Okay. did this going is be that Neil, And $X.X I to fees then, you is right? in port million, year

Neil Watanabe

first will There project the year of That’s will the a fees we correct. amortization for approximate into and of quarter. million. year, be $X.X But about for through The year port $XXX,XXX. this also be are to to going legal fiscal component be the that the fees we which be amortized year XXXX, of as well,

Gary Prestopino

Okay.

million So $X.X $XXX,XXX. of worth legal,

are So those backed adjusted right? EBITDA, that of

Neil Watanabe

That’s correct.

As as year. EBITDA for the adjusted for our projections well

Gary Prestopino

I search get with you’ve do historically take the the the prior some where And this back partner when Okay. is happening? channel does past to long question issues How had in you restored then last reductions to in or of presence. these to you were with have for it that

Aaron Coleman

question. changes on continual platforms sorry, a The be question. are will Gary, a basis. good Yes, that Yes, good making

a some of a dozen. So platforms hundreds year, changes make couple make of some

think adjustments having we in They’re and best care levels rewarded So trying that the know over seen always the making always user sure try really of those data focus we’ve it our at great we continue day What to focus class. product service their end having things get areas. interface. to try present in Nor to if and on always their of time, – to them. presence. are to we those engineer. on to don’t the to that making best vary. the really change And take adjust want reverse is trying assortment, we algorithms. we’ll sure what’s do make past, three does We necessarily change world to that this the with we And we They’re

Gary Prestopino

could could if So as this probably into I read XXXX lines, between well? continue the

Aaron Coleman

At this There’s gets in sure we a difficult our that year. point, a comp The there. very we’re QX data, make XX% lot marketplace QX. we’re of script, One, quarter adding last into same QX as and said couple different always the assortment, of to in optimize. terms in things a of I was more trying easier comp we’re improving the

Gary Prestopino

you. Okay, thank

Operator

is Please Small Research. Cap [Operator Instructions] question Consumer go Our from next ahead. Beder from Eric

Eric Beder

Good afternoon.

Aaron Coleman

Good afternoon, Eric.

Eric Beder

you should and traffic in But conversion? issues Could you of Hi. – working year, business, there? bit should your conversion. know a see vendor. into we we I in So own little of start look resumption in had terms other come a When gains with traffic seeing you talk next be and your back forward you’re to support positive – of that

Aaron Coleman

proud over company Yes, in about that entire accomplished what experience. six should real conversion team, overall so terms and quarters – the the be of improving think I last customer the the they’ve

move focused Clearly, on as their parties last as initiatives. as metrics in our help right seen make improvements us we’ve and by quarterly both more customer being So in acquisition in strategies. we’re well And to those need certainly to refine third internal talent bring going customer we deploying to the indicated direction traffic. call, we

And so in were those to a to starting where over October in opportunity favorable couple trends bit there. some And you’ll traffic And there’s comp in of QX. come compared of we to see our we little life a think even that more strategies the see of certainly we’re quarters. next

is the traffic So working. we opportunity And side. certainly think more the that a that lot story conversion there’s on

Eric Beder

the tariff And when at you issue. look

on you we’re on the you of sample being has smaller that the coming put already on see products. result going on? many you’ve raised one prices to that tariffs One So tariffs every more you’ve pretty much – through, your ones the

Neil Watanabe

imported products of from second the the product. cost Well, was tariff, of the XX% first China, the the Eric, assessment on on and

and go on into to effect January X. scheduled increase The to third XX% at XX, issued September went a on was XX% tariff, which

we our on the price pass As increase that selling are profit under are margins negatively not to tariffs to plans to call, stated affected. our ensure continue our our

And haven’t two tell. all sales first we any on could items closely clearly affected that. the tariffs, any private seen products, pricing continue cost sales strategies third, on advantage to cost have monitor going to And early we’ll the tariffs, of branded offerings On we We our we to to to resistant it’s a on little which impact want the OEM. by We that modifications accordingly. providers our which demand. label believe low and pricing make both over still

Aaron Coleman

follow-up the marketplace, we’ll we’ll as the Eric, carefully, demand if the And watch put we’ll takes increases just curve on Neil to certain into elasticity said, shapes. that, and see a

to and responding to maximize versus gross going We’re to part kind part we’ll dollars one gross competitors name and see, consumers look are are name profit different ways. try of which one percentage. which to profit in responding And by

Eric Beder

okay. Interesting,

terms completely of on in in had we the Customs, you’ve operational it operational financial Are I In Customs now the behind so business. an first had business impact the the of Customs the of year? impact know also the impact. we mentioned half

Aaron Coleman

of Yes, the indicate have to product us that we either this seen in around made the clear, we the of August. was since the impact resurface the and beginning thought is those To us, impact, we follow-up of last behind wanted we was was this and end to was quarter. of behind be July comments what flow some the chain supply not

Eric Beder

cash the – a you’d uses inflated When this cash, is be little I be share here? year Is Okay, the look stock something there and it potential know at bit is, where would question quarter. and is buyback, the you this final looking that here.

Aaron Coleman

the come. the believe this of robust going that have is the in to that board capital. we deployment one consider the this is they’ll on areas And confident a We’re that quarter best and quarters conversations of to certainly

Eric Beder

Good the and luck guys. season Okay, holiday congrats. for

Aaron Coleman

Eric. you, Thank

Operator

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

Aaron Coleman

with to thank want today. Noble’s at January. the call forward for I in Investor joining everyone you to meeting of We look Conference the some

next road periodic over our non-deal doing shows months. the We’re

we we next chat don’t when fourth then, with our report speaking you March. in results forward If look to quarter you

Neil Watanabe

you. Thank

Operator

This today’s concludes teleconference.

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

CarParts.com (PRTS) 29 Oct 182018 Q3 Earnings call transcript