PRTS - Earnings call transcript Q4 2018

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Operator

Welcome to the U.S. Auto Parts fourth quarter 2018 conference call.

On the call from the company are Lev Peker, Chief Executive Officer and Neil Watanabe, Chief Financial Officer. By now, everyone should have access to the fourth quarter 2018 earnings release, which went out today at approximately 4:00 PM Eastern Time.

If you have not received your release, it is 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 March company's

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

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

Lev Peker

online. rejoin to Thank short years team Auto Consumers several have to the has X% five only and you by operator just to to Parts privilege at sales changes. at its category offline shift CAGR. continued years than In with their seen an since signifying large and XXXX, U.S. honor at and billion, departure, XXXX company as DIY continue and expected auto online online aftermarket XXXX. grown Since the good afternoon, between after my It's spending while XXXX parts auto habits considerable momentum. CEO CAGR company approximately an have the $XX industry shopping Further, parts about is sales more XX% auto grown double parts

its auto its Over the more aftermarket premier when years, itself like aftermarket parts sales online serves customer were XXX of of operated through parts than several e-commerce owned as Auto through Whitney multiple marketplaces. Parts well channels, Auto Today, U.S. Parts a providers some third-party as the back years, JC variety has brands as catalogs. of of with one including websites, U.S. established online being and sold dating

not have XXXX the and to the results full Norfolk. of some performed financial at XX setbacks, potential were disappointing of which struck the various out the certainly has control largely Port the such to as encountered been Over its issue its with months, of last company's everyone. was company customs

as declines other the hand, challenges. believe the issues been largely our by since structural from opposed e-commerce QX continued reflected revitalize On its have the business to company business, e-com the e-commerce to struggle XXXX. struggled has also driven as internally channel traffic I

in and personnel, joining opportunities profitable Parts investments and revenue strategies Auto just in of two our fact, multiple already U.S. channel This marketing revitalize In the e-commerce growth. have designed and since will reallocation XXXX. identified to technology new to incremental return months in company, over the require we resources rejoining

some changes results to much are XXXX. be is we near-term the setbacks revenue last continue from the Parts to U.S. in year, to to by will of done to growth work and be committed making there return impacted Auto Although necessary

base to chain have large and X.X and supply engaged to the which label products through further efficient consumer more in would results talented But over details to million before build XXXX. QX commenting serve of products, plans, associates, We I our solid auto a a like year expertise to us strong specifically for foundation to than private from growing turn highly a walk for our parts. with and Neil? call and branded full label the on private and Neil industry

Neil Watanabe

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

quarter of nature part customs increased one-time that down well was fourth carrier the million in driven period and associated $XX.X XX% marketplace branded issue QX to to perspective. discussed a restated to with the margin period. in-stock both in to sales are carrier ago excess freight the X% were accounted was due quarter was we fees our e-commerce resulting The an to traffic we of from decrease and of industry as calls of attributable compared year private label fees in costs Gross compared net driven Moving parts the goods as XX.X% reflect our At period. have cost. a that to all decrease Please change. in fourth for expense Net the ago same the the sales one prior fourth on cost to anticipate sales ago a from port change time, of as results. a and has year the partners now our decline. in quarters in in This reduction and lower X% a near-term. rates million a previous in in The label primarily compared in customs Private on fiscal don't port and by have as that costs year XX.X% that costs in continued as the from auto were issue. sales XX% them rise sales were decrease freight more with X.X% recognizing competitive opposed incurred by primarily representing to and and and to the channel quarter, gotten quarter XXXX note XXXX $XX.X amortizing to these of the

freight to We margins impact in XXXX. to competitive both gross continue expect and pressures

steps available through to readily of products these competitors, our a We supply our closer to offset are freight some such taking pressures savings. customer not realize label private experience as getting chain better to exclusive changes customer delivering to developing the by making and

$XX.X in OpEx quarter Total $XX.X million on. the was year. compared million, last fourth Moving to

share, were per compared XX.X% $X.X million executive year million expenses, $X.X $X.XX to As the primarily quarter. year a a with Adjusted issue management the other with million loss our ago $X.X EBITDA that including related associated note in was our in net $X.X compared the severance executive of team. EBITDA per loss customs the within to and $X.X in was $X.XX compensation percentage to million by quarter. loss and fourth back Net losses changes. share of stock-based prior or compared costs OpEx or quarter's the costs of associated adds quarter this adjusted expense, with Please cost million, increase transition a driven XX.X%, of to revenues,

along lower aforementioned with a X.X%. sales was in by compared decline rates adjusted traffic driven As anticipate the further primarily in-stock the lower to quarter percentage EBITDA customs to XXXX. sales of to adjusted lower in-stock our was marketplace rates EBITDA e-commerce to issue. lower decrease to these The that revenue, first and sites, the We of X.X% due impact due in

resulting faster in key Now was to issue. came well last in to points reduced X.X% customs let such impact year, compared year our period our conversion to for for and driven, X.X% the orders reflecting year, XXXX year better site taking Online of to our to which platform credit basis operating by defined shift same was improvements process. quality declines value, as marketplace, XX.X% with website card through consideration dollars returns, from fourth QX card XXXX. down higher year XX.X% Net through the Quickly were order JC the decrease from sites in quarter, product and XX% part, full $XXX.X in spend to results. mix XXXX. Whitney increased $XXX.X some Gross details reduced our compared improvements million includes e-commerce marketing in as for compared XX in compared XXXX. million, $XX to the reflecting Traffic million, paid of compared to to in in XX.X sources to in fraud a up points both in million ago fulfillment, in positive the for running at December to credit sales the product account last me speed. $XX from was compared after margin total sales returns on metrics XX.X XX.X% product to XX.X% provide as average our you capture, into due traffic reduction the Revenue traffic and a quarter. Conversion XX basis our retained approval QX and as

been fees, have team reduced incurring to legal year million XXXX. issue. Excluding $X.X with in of share in or $XX.X fees net would and loss million margin per the the million in share, $XX.X XX.X%. loss Net despite of a cost XXXX or XXXX port transition carrier Total $X.X in per compared $XX OpEx customs was executive current gross our compared and in to $X.XX million, XXXX XXXX to $X.XX million associated income in

in income in XXXX $XX.X million, allowance Jobs tax in Tax the year income was included to a of for reminder, EBIT net benefit compared the the million impacts due XXXX. addition changes to valuation Act. to $XX.X and Cuts Adjusted a in million the $XX.X As

At our the inventory XX, with of and fiscal debt Turning to to $X.X We inventory sheet. XXXX, million, of of XXXX ended compared continue to XXXX. of $X revolver cash a of December million year-end had compared cash at $XX.X optimization productivity. the and million, we $XX.X million balance no on balance end to we the at quarter focus

quality of the out stocks, at felt resulting anticipated inventory the in improved. composition While inventory our level not and we some were levels we of

XX, one-year-old is direct update to which XXXX, and strategy was of inventory December the of Parts. provide than and I result an of assortment sourcing tariffs productivity. U.S. less on as Auto impact approximately would fact, the In our XX% our a like effective

of administration by three were groups last there initiated reminder, year. tariffs As the different

of The sales. first X% than our less two annual currently groups net represent

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

our working to to not well business of administration you If seen price have to similarly of material third are to as a consumer get agreed consumers, tariffs most has have OEMs. needs given may purchase a tariffs XX% part later undisclosed date. as impact the a regardless these they to as until postpone of their As the to heard, group car we to through plans a the cost we Overall, part, increase the a all competitors of that going affect our likely again, increase. pass

tariffs to competitors through be in would to to consumers our which profits, our are gross and the continue maintain as well. any additional goal Our approach cost the taking pass be seems

will the monitor developments of update With Lev. will continue tariff to and shareholders changes turn over our the I accordingly. back We that, call any to

Lev Peker

Thank Neil. you

company As designed identified to Auto have we I opportunities mentioned return Parts the to several earlier, since joining U.S. growth.

catalog our experience architecture, and any through. deliver at time channel. user is the deliver any right mission the we and we device to backend or parts, enhance simple, To channel to deliver on right our best-in-class part restructure any company Our data the right a through need sell

have the team. has team first who the on and e-commerce we help rebuild company has Officer to I hired Chief landscape. taken of world-class the begun new navigate a to our been us build to a start to marketing have last deliver Marketing strengthen actions month, One evolving In to mission our the

look also marketing undergoing our strategy. by teams growth, started new team our These these user a supported team, is analytics tremendous building UX. technology are in expanded Manila. that growth which of teams both have Both support on and experience UX execute additions and the We critical to both and marketing, U.S. are technology to will and

a a spreading review operations, our Following from internal most clear to deploy it of need total receive marketplaces. grown greater We driven attention was the which effort of why these and methodologies more on same focused be did where in and allow This resulted user past. and catalog be strong our consumers better believe business focus that team our last order experience In of competitive the than too but shop of plan we websites experience. by for the is placing a to number present or up marketing to now our data users at it process stronger marketplace will advantage. we more revenue we the operate. two missteps part are were the The a channel. has resources share with than approach takes sites trajectory years our assets lack of they focus, to years my our of in efficiently, to thin. our of with of real we enhance marketplace need to and significant still take our that restructuring provide development make a This the approach, is reducing discovery the on we simplified a similar We products our reality will catalogue and a that to

summarize, that at best as marketplaces, across practices continue adhere better channel. to thin the do to on and in optimizing to prefer both To focus shop our resources and stores continue to will fewer a and and who want customers our sites channels. we many job sites growing them resources and opposed targeting will marketplace spreading On we we to

addition to backend perspective, platforms new sites in help investment frontend of require this some focus, help and us return technology to and team Reducing of we and personnel will the of number systems. our In initiatives. From shift strategies. way are in related up process the enhancing year marketing to modernize these the of a speed our new and by would technology our growth additional

to Customers' Transparency receive for today have same expectations the is better the speed, organization regardless ensure we competitors, out post deliver proper experience, product, that experience on always of customers the including we shipping This just ensuring site ease are repeat a but not web a expectations check customer. have all come by customer discovery e-commerce direct of same their and the setting the our by times. vertical. better. players, will that from likelihood and of lead includes experience expect on of and to shaped or best they accuracy purchase increase and focused of technology Our our the experiences to

In be channels influencers also will paid will initiatives, require organic making new and various terms retention efforts into marketing These traffic new investments in and both better while marketing media brand in social to awareness. drive and also a of we implementation of tapping and CRM investments marketing.

growth work very to be moving initiatives our forward. While excited take I am much implementation The have take step is as will ahead, time before we of journey to a the will there back done. for

the from However, end realizing benefits year. of our towards of we expect the investments begin to some this

Parts back timeframe adjusted issuing but be look of EBITDA. all the ahead now not guidance we chapter. that stakeholders positive for short leading questions. are my well the The that, for opportunities year growth into company, many I revenue call U.S. as will delivering and for as Given expectation will Auto we forward With note every to for this the the with we XXXX, open have team next and

Operator

[Operator Instructions].

first line Research. SCC proceed with your from Our the comes question. of from Beder Eric question Please

Eric Beder

afternoon. Good

Lev Peker

Good afternoon Eric

Eric Beder

Hi. Could in label? correct at Actually, little where you when do can year? margins And for where think of here? the where look a do should you go? And these, talk be of did here we what it it private up mix you end private-label think take some terms about bit can

Lev Peker

mix I private Well, around for the label on ended up the year, think XX%.

focusing also a our I to higher re merchandising allow around bit strategy fewer and of grow. to focus sites our gross strategy think products. have quite margin on it room We will still that

will to There private are tailored names that have that our some all the all private label will label at part that products now have today. don't and thinking we some is Breaks, just any we of have. starters gaps where alternators are we where the examples. be fill sites So we one

parts are we out fill all So going to names. the

products We hard to also that find. label to private want bring are in

examples mix brought advantage. And our also little enjoy we then Those are in are higher a And at margins. harder to strategy competitive we recently stay around AOV XX%. They want sell accessories, our items. us dash they to to find. the around of continue that higher to are bit a that Some and are which private-label MAP for But trucks. covers items focus branded at performance allow will

we as we as margins, do as Now our products. branded private label more mix know well really what it products, will margin higher shift to into don't

not are do headwinds that also it sure is we are because really will So margins some what freight to experiencing. there we

bring larger parts, ship are So or them. as we they plastic it's in whether expensive more metal, to

profile we margin not label quite but So are opportunity there the of of a in lot private yet, sure still.

Eric Beder

look third have you third goal they when And the parties Great. is period. or shrink products are you now, at offering to amount the to have the just of less parties, right

Lev Peker

perspective, what SKUs. that. dropship a we So fewer specific that I may you year, parts think But the make, are has for to customer we may assortment is specific may still full model, We see reduce every very actually make. vehicles, from see a carrying of carry want us that sure the you make to choices

we seven. instead brands, XX may or carrying So of five carry

vehicle that at name now we evaluation going level are at a a So part through right level. and

they sure the SKUs, have. which customer on can making customer are the So number and you parts. But of are we when the us the may right that focusing the we choice turn will picking in see make the reduce number of dropshippers reduce

Eric Beder

impact what here? expect have I customs assume, be, of be to the for customs so that did the you remaining that will that the for the given issues question. changes QX issue, the accounting cost we should in Last you

Neil Watanabe

there the piece period will we Well, $XXX,XXX quarter. has incurred QX, just stated, that issue customs will appropriate and range. else to some the that expensed we Eric, as relative XXXX, moved expensing expense been a really, is in trailing be be into quarter, of cost we back Everything we in as first the incurred that transload in approximately anything

to what customs incurred So QX. the to that carrier the your the for for and that's is we expense we question anticipate the which freight for relative QX, matter costs remaining

Lev Peker

different I SKUs we being Eric, supply caused And think what disruption U.S. up domestically. in far as however just as the at chain to as the happened the issue add were correct, have held customs, the product costs customs decisions about in to our make and to sourcing a that, so

And times. extended so it our lead

for supply the still the of most of bled So kind even part, though the QX. dealt sort with, is customs chain into issue,

some of by out that the stock so to our And some that are caused seeing part disruption in supply chain. we of is issues names

in stock. are that while that So in is is mostly today in and not bit real of numbers seeing we really seeing capturing XXXX and we the are opportunity because out little an there XXXX, only higher cost cost a we are the

Eric Beder

So QX you expect that to XXXX? end by

Lev Peker

Correct.

Eric Beder

XXXX. Well, Okay. for good guys luck

Operator

Gary Our your Barrington Prestopino from next question line comes from Please question. proceed Research. the with of

Gary Prestopino

order Hi. give questions Good for in e-commerce Can afternoon. number what some just quarter? the of couple was questions. me Neil, here. you value orders average A the marketplace and

Neil Watanabe

number gave We for had the consolidated. Yes. we combined

are get another the Do number Gary? We question, that getting you in second. will We income you one for number. have

Gary Prestopino

you what to your little that be I of in are lift terms of with saying, assumptions And what be going having doing, into and And fact this want will what get the a probably credit down to based is are tap on which to EBITDA your that Yes. revolving this of you for to line you growth then CapEx are trying more the year? bit your all year?

Neil Watanabe

you. me Let the question answer for CapEx the

to We and be in our forecasting around $X.X approximately XXXX. million. for XXXX are from CapEx planning up That's $X million

as based utilized purchases. at zero based systems quarter-end we to platforms. Relative have on always reconfigure at each our but to investments are have will our revolvers. a been of IT historically, we various capital, over the seasonality making the as revolver, that something through we on as we will definitely year be mentioned, the the on throughout infrastructure well that and run have prior be sites P&L in through get years will will and lot both the that investing As increased that credit the we and But facility

we facility zero. that are past may the quarters in XXXX be have We that there will in at quarter-end on credit anticipating balance where a the some it's been

some So these clean down there that investments revolver. et been zero, and timing that based purchases, I to of we could cetera, hopefully be we some XXXX you have the that flavor will It's just some at quarter-end able on always but inventory have of to have level of gives used we in that quarters some balance. think

Gary Prestopino

lot Lev, And what terms in cetera in to what Okay. then things through a company. went rightsize of about, of terms you are talked et you going there and you of do, what you saw, try this to

Is just company us you this et to et all adding going the going going to have cetera, got very to it? people, it simply, see growth or technology, do give around If to long could this get is about the XXXX? be to two-year maybe ramp? architecturing Is cetera. technology summarize the take You it you be back? to you a turn how that issues you talking And what key of are to adding at are

I so appreciate where just So from. coming we know you that, are would

Lev Peker

Yes.

that it fits. that simply, way at mean you at sure make the mission sure are we right it your you place. I is, by to the And for the to about think, right want vehicle. thinking put parts it we buy to the right parts right So is, to is we make We get time want that our what the

got So to data. catalog show our them we have and

for to show you got so pick. The ship easier becomes right we you We have have time you be that choices it to fewer quickly. got able to to is it to

have that to inventory position. we make So sure is our the in right

which for have are matter yourself to part, is, are to be you want it sure install part to we have whether we close do right are to you it regardless And Meaning, into place somebody want else on we you and deliver the shopping the tapping to going it's market. of also able whether to to device the want are doesn't customer. start for make or install the We you it do-it-for-me the going you, you. to how that

strategy the So that's simplified.

on Now, to three that, we in order execute that One need identified. to have up I marketing. areas going shore are is to

third user technology. one the And other one is The is experience.

So those towards place. all and you the this three will part, year three I the that areas this year right identified. and Right be into just see will throughout right investment things time,

thinking So that's we how kind of are it. about

timing, know, investment and you towards you expect to so to as well year. definitely it's but far the can't quarters benefits will it of spread rush it into are spill of with some out really we this the much we to trying our but year, the end that kind see As next timed over

Gary Prestopino

Okay. Thank you.

Neil Watanabe

average So versus was the Gary, the e-com was was year marketplace $XXX. $XX versus quarter year. order $XX prior value for for fourth the The prior $XX

based on mix we a marketplace of had the little year So category. we the versus and $XX. was the pricing in was higher changes on in both total, The $XX that decline as than we a bit on prior for product have stated, e-com that side as had got more we aggressive

order Internet, value total average our in So went $X.

Gary Prestopino

putting more the going more the one revenues establish? what driving Are of marketplaces? on you that through what sites result e-commerce emphasis the try be Can I terms ask to question just and are to Is you growth, you doing, e-commerce an want the Lev? end versus site here of in of

Lev Peker

Yes.

business to the to to be and allow focus same and the on to business. in to discovery, So grow adhere our growing to at goal to the and on e-commerce that e-commerce pre will purchase themselves and the grow the best focus rate customer marketplaces marketplaces experience really post to marketplaces practices grow the is really

Gary Prestopino

you. Thank Okay.

Operator

remarks. session. management the for to of closing now And will I end the reached have return call question-and-answer We over the

Lev Peker

look month Cowen of Aftermarket Thank you in you results we then. at Consumer as all Symposium for report forward first Conference. to I to We in Of meeting couldn't this chat The joining the May. you well call as our Morgan later speaking some when quarter We forward with the look today. Stanley Future with April. the next

Operator

Thank disconnect And conference. today's concludes this participation. time. may at your your This lines you you for

CarParts.com (PRTS) 7 Mar 192018 Q4 Earnings call transcript