PRTS - Earnings call transcript Q4 2019

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Operator

Welcome to the U.S. Auto Parts Fourth Quarter 2019 Conference Call.

On the call from the company are Lev Peker, Chief Executive Officer; and David Meniane, Chief Operating Officer and Chief Financial Officer.

By now, everyone should have access to the fourth quarter 2019 earnings release, which went out today at approximately 4:05 p.m. Eastern Time.

viewed section it of not the available have Relations Investor the you the is release, on If U.S. Auto Parts website at usautoparts.com. being company's is available call webcast, replay a This will on the website through. and be

efforts, remarks securities we in would response forward-looking the remind the statements Before we management contain and and not the potential future a may but are like forward-looking include, coronavirus to differ and uncertainties customers, chain operating and our information, changes federal of metrics, begin, suppliers, events, and are not certain the results results, actual statements supply those of and factors statements questions. on growth and everyone offerings, current statements materially The based involve to to of circumstances to that expected on competitors, in are mitigation your forward-looking prepared future laws, operating tariffs forward-looking and indicators, to from and of statements statements. meaning additional results. impact constitute capital operating statements within limited our do number impact needs could liquidity, cause regarding product tariff in the future and forward-looking The expectations and guarantees financial business key expectations, financial that of deployment, The subject strategies, current our performance. make

in in actual to forward-looking the new statements. be does differ forward-looking contained no and revise and that update statements, if U.S. from a obligation differ in or Securities U.S. results to cause information reasons that to factors discussion for Auto report risk even with of results forward-looking projected available on those the or release future. could to, reports materially in materially the quarterly made may Auto the XX-K detailed projections you Form intend actual on Commission anticipated to or factors or those it becomes call annual We Form refer XX-Q can from these today's any Parts revise all assumes nor update Exchange on the Parts' in any filed

note, the adjusted explanation financial results, Please as of measures SEC be a non-GAAP today, company, discussing delivered detailed today's of the press Investor discussed. in on EBITDA such the GAAP Auto measures to in outlook U.S. which the those substitute can between as not is included release. the non-GAAP with which, financial will non-GAAP non-GAAP addition non-GAAP the Auto measures Parts by and in section this An in on U.S. and be GAAP, for measures of have any financial limitations, information call issued required Regulation Relations G is performance for use The reconciliation GAAP call such are and release website. company's Parts found accordance measure press again, company's the in

that, With Peker. to Lev Thank call you. would now I like over to the turn

You may begin.

Lev Peker

QX Thank Auto XXXX good U.S. and for solid quarter a you, operator, was afternoon. Parts. of

provide As continued is our more our strategy. me run detail year highlights. in through improvement you we turnaround a will know, the our roughly let results the David ago, all but validating on numbers began some and

ended of in Adjusted more gross right our EBITDA debt. Total over eight profit XXXX. was was more fourth our in up guidepost, we revolver the generated EBITDA from they QX with XX% were gross XX% the margin in than parts and strongest We zero as last moving label in private of we the are are double year direction. quarter these a QX results up see from and of than year, proof sales XXXX, Further, years. we

work XXXX. for websites is improve XXXX increased in make of and label of took a continuing the as first think a want and forecasting plan do we're we the inventory consolidation those our the results, momentum lot on to including steps system, drivers we While not and the focus there is of There private an have accomplish number minute done. upon overhauled on business, in sales, improvements, a still on, these to many and we we been and

In place. of year, organization Across associate more growth fact, in we're for our part, of new private time, than on teams through right management pace strategy January XX% our company February and and embraced history. in growth sales, right have label right the this strongest our

with last Merchandising inventory team happy XXXX The technology, that report the year want merchandising journey up Morris. all the and executives, was team, new supply not end accomplished great includes hire first been that at the to personnel. to chain, each team, marketing, I work was center, their done building David hard made could year Chief and without Officer, All final operations, and and key step in last our forecasting, I'm every have for call new person thank work. our we of our our The

some for we've of specific examples progress Now made. the

technology have the the and last easier redesigned to First, to significantly parts for checkout. right team your newly experience a site we also redesigned faster, user our CarParts.com late out is find The website vehicle rolled it and year. make

I we'll have about those call. We next our improvements over the plan rolling next to other talk that few out on and be months, more

efforts. vehicles [ph]. what interested are in. delivering likely like drives, the service to We're we're by improvements and to and customer personalization them our consumers personalized, and marketing to of a be keep value is to of to our type looking sales able Second, also recalls now marketing for car important more records they forward about team learning thus Email the marketing both, made of parts milestones their

for The we our same. the to strived bombarded right to all catalog for but our make options parts kitchen easier sink, continue sell their initiative, we've too with it many customers consumers to the to making products are line company changes staff right your find will and In the with everything of that vehicle.

their fit with our can paradox fixed choice know the initiatives, once right shipments that time we ensure of where remove make customers and by vehicle to back want any their presenting the are road. help will And the with so will at get time, they we forward a purchase; that their vehicle. consumers on right Going best they parts

We're what the XXXX. progress last lies ahead but we pleased excited year made more even in we're about about

While over we will guidance we be providing significant formal we not for that and deliver XXXX, EBITDA to plan say adjusted can growth XXXX.

financial provide I'm Now, David over turn some the going operational David? to highlights. to call to and

David Meniane

you, Thank Lev.

prior on ways team lookout and to calls, the laser-focused on for parts selling on that As efficiency. operational margin, remains we the mentioned always improve be highest generate the our to

that grew year, we're XX% business. business, sales last back on cutting XX% year sales, lower margin approximately and In private of accounted exiting label the from unprofitable with lines and our fully in the proactively to us fourth growth versus margin XX% quarter, product sales our lower private offset branded for the the sales prior in compared nearly of Even happy our label period. decline

We Gross year. to continue for will to on transactions increased profit the address focus our low $XX.X XX% label margin negative business. and $XX.X quarter growing private last million versus and million

gross XX.X% are XX.X% versus points to Our XXX basis up last year. margins over

our of most of focus the gross is expansion, products. margin increase to gross private Profit label this due the on was quarter fourth higher margin and Now consecutive

to due Adjusted EBITDA which than million, was $X.X quarter tax valuation the QX $XX.X was for loss in more net million $XX.X million doubled assets. of a to allowance Total deferred on of the out of we we've year, that initiatives the QX. compared over to over in momentum past $XXX,XXX benefit are reflecting the in executing QX and many XXXX, seeing carry laid

more be continue numbers of very grow for revenue gross double to January margins. strong. If XX% sales than year-over-year, private label digit XXXX and sales while QX solid total Our hold, company all by we leading growth will label for in February for sales, present trends initial to maintaining private

the fiscal no sheet; of and XXXX, we year-end million. Now a balance cash to at turning XX, $X.X revolver debt balance December had

working better inventory capital and mentioned for we've we of the and are made inventory excited improvements SKUs. in new the increased of mind well on safety moving we're space and on turns, fast as to prior us, moving increase stock As make for as that top position, calls, items, position progress created and about SKUs fast inventory moving lowered including number optimization slow stock

execute inventory December outside We're agreement Chase, for who without extended revolver capital. strategy the improvements supported helped JPMorgan baseline Our at working efforts us in turnaround creditor partners process for significant and thankful our optimization and need additional us for capital until very and also years the generate asset three XX, our our for XXXX.

that we'll XXXX. dozen to our to for is year million big in number have that earnings points on of in orders our focusing We conversion basis visitors more caveat. was our than QX update; total with to X% up consolidated focus metrics XX.X compensated QX our Total up where comes We that just our Now XXXX this by which XXX,XXX. rate, dip of QX traffic flagship most XX on reporting traffic as website is down over next QX a in note, ago XXXX, improving and resources. And a XXXX, four. call website the we're please million for XX.X starting down operations but a our running CarParks.com, from QX sites online to compared were over of were to

leading our CarParks.com acquisition this to traffic to Now improvement our and to there including factors overhaul are website, many methodologies. enhancement an flagship

at center just it's is seven and is update operational, Vegas already major operating Another months open nearly full capacity. Las distribution is that our now been fully

moving thus it's tremendous limited effect outbreak And effect remains sympathy on and global our global and has we the coronavirus a concern, on our operations. victims, the have the while trends to on business; far had for

minimal not to situation based we the created any information our but is to China, chain The contingency uncertain, fluid and remains which the of highly estimate plans potential leveraged outbreak our from in diligent help is best of to so supply global as subject Our change. is on coronavirus mitigate be have today, impact disruption.

tends have was we've note, sales than were to that usual, the a on of to would On our with industry. said, negative been another that the as which initiatives the for impact past weather working impact able on. more normally offset the all we With far inclement favorable winter winter be warm milder

to limited seeing continue we're this of to from impact we similar continue from to what Lastly, our customers of most bear financial as see is cost competitors. tariffs, those tariffs and the

With call I'll over back that, Lev? to the Lev. the turn

Lev Peker

our improve to over of that proud team made current to to the David. mention eager has we're you, just the that growth business and we in take XXXX, as on our promise. this show delivering trends label and company, from the to by XXXX date. projects last excited in progress We're QX the team numbers committed we're results the on to not while shared. year, private new And supporting operational Thank are improvements I'm a

today listeners is for significant also committed delivering a where in and XXXX well, the of real XXXX. adjusted breakthrough. very The takeaway that QX to our was made growth is turnaround We're business EBITDA main quarter the progressing

profitable in focused while our efficiency We growing have most been on executing our relentless areas. of and pursuit

As keep now to we I'm look. label the promises still however, mentioned call, and of have growth Robert miles are at grow. room to to team we "we year-over-year right than and improve. opportunities we for for before paraphrase place seizing QX sleep." EBITDA doubled is beginning those the more confident sales to have There continue and opportunities. we go to in The efficiency everywhere continue our Frost, There private our the

up and David for that, With will questions. call Operator? open the I

Operator

your comes Instructions] question. [ph] with Thank question to Ryan of you. line proceed First Craig-Hallum. with [Operator Please

Unidentified Analyst

results date. and Good the afternoon, to solid guys congrats and -- results solid on here

Lev Peker

Thanks.

Unidentified Analyst

of pieces there March you anything perspective from prevent to Maybe chain trend and comp growth thereafter? of continues, you type in continuing a know of even expect if etcetera but to consider would or from that a lot whether you in kind start; in that do or a that or comment know, you -- I either is March and moving supply

David Meniane

March, right March. We good now. feel pretty about not For

Unidentified Analyst

after then, And were months updated a and you over; CarParts.com, what it trends switching it, before your redesigned then relaunched? you ago. on maybe few that the so Can launched website, comment you

Lev Peker

so of think I a in we've specifically, CarParts.com improvements lot seen Yes, conversion.

focused look the different also and been of private pieces, total of lot site CarParts.com on traffic than you it choice a business. the our was if network. are the it is it there we've and speed, redesign wasn't consumer, for our of label Now the paradox the just on really website, moving And at mix been of is reducing also we've

the continue on over if together, we'll all and I that uptrend in put the been So improvements September you conversion. -- think site has of to through see and conversion now from switch we

if CarParts.com rate you other we pretty what feel up it. but sites been where any much a CarParts.com, improvements, On we making So total. our at includes we've to conversion in look probably is converting higher a see you got that good point haven't conversion at where now about than total

Unidentified Analyst

follow-up, specific in Lev. return business without then, do And e-commerce as maybe the directionally, giving And think a just XXXX? guidance, to you can but growth

Lev Peker

Yes.

Unidentified Analyst

Last any question sourcing, I else talked bit you issues it disrupting someone everyone. China the me, to but how it like over disrupt queue. Taiwan could that and and given enough. is turn Any the about in Easy But or for there? then in I'll the seems thoughts, sourcing, U.S. a long and COVID-XX the when operations guess, if little

Lev Peker

from a it sourcing the a of lot know comes kind you from perspective, A Taiwan, hasn't know, have virus. supply our lot a from which Well, we impacted you been of of that parts; really global chain.

can everything domestic stop that of Manila. from whether we do in check. communications contingency doing best perspective, to places we're foreign open our keep travels, to operations From obviously making we employees, plans parts travels, our an doing Our it's China here travels; to keep own in and source is have the supply or chain to stock sure limited, really rates we're different actually from with our we're kind

Unidentified Analyst

guys. Good luck. thanks, Great,

Lev Peker

Thanks.

Operator

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

Gary Prestopino

year-over-year? afternoon, actual commented label stock your rates in a -- you've or improved that be were Couple good either on rates at as improvement it guys. questions number what the just the in on here; private side. much may the you how Could throw Hi, of

Lev Peker

for give fast loaded all So [ph]. for really on fast we exact pretty the Gary, We for out improvements. significant South also buy items, don't you numbers moving last did up I tell is movers, can we and the but saw Vegas, that but substantial year, on not what Virginia seasonal and we only the a

days we was focused inventory get the that as to of label private on of one well to in obviously, in So early as the grow variables our QX, QX.

don't but give we -- So specific number. a out really

Gary Prestopino

obviously, you that really Is on doing and guys year-over-year, inventory kind you to to… down X% Okay. your confidence a you're was why that product that when had what sales up branded of in inventory your you all enough that's were look due up about but loaded

David Meniane

QX. Yes, that's we correct. season, starts to the which Yes, accumulate middle inventory peak try before usually the of around

Gary Prestopino

you more branded; that? here, that that there. where definitely from talking you would do you actually about there and then, could think have you shift last you and to you say said call, could for private you And is -- would label? as the we improvement in room more improvement take it margin you that So label I as also XX, drive Are to private I still think you're gross entail take mean XX%? could mean,

Lev Peker

Yes.

we way the target we about don't So it I a really is, it. think for think have

stock utilize end it fully, then on gross and DCs I we us we DCs putting need think even business, it to out it offers branded some the as we compelling may as our asset in margin. and long have up an that so shipping

to have we feel fill really about so because initiatives, ramp label pretty because parts go definitely a is there; we're catalog. targeting and mind in we that's right millions and as private out can everything now. XX we'll good of We are don't up we out number gaps branded of But we kind that our So, where other there in towards. in

see move bit feel but that number good about I XX. think pretty you we may a little around

Gary Prestopino

you saw Whitney -- Okay. websites in is you that folded are And the if JC many then, website burning [ph] know how do CarParts? or CarParts.com

Lev Peker

No.

Warehouse. CarParts.com, and from Parts Auto now perspective, we e-commerce Whitney So, have JC right a

Gary Prestopino

I'm basis this do on these comparison versus full the down here would the in have; e-commerce where the you all definitely as If you three other you seeing start feel websites that Right. feel And a a from full -- do I'm of had moving phone. overall? marketplace, didn't year have growth that that you the I'm we just then, talking; versus writing you year

Lev Peker

Yes.

Gary Prestopino

away is goal marketplace, move from to right? The really

Lev Peker

because reliance our control our don't own marketplaces, reduce on yes, destiny To we there.

marketplaces. is pace at goal to e-commerce faster a business our so than And our grow

Gary Prestopino

I the though seeing hate is I've get out still they of is aren't you're and these case guy But out What one movement question. asked of that market? Are it then, we're good chain. even doom the reality parts -- to is outside in can't shipping gloom, doing keep it's that and what And a it's port a there there is ship -- been free not the all the about here supply the even ocean. the last fairly it not onto coming parts your because across and Okay. China of and of China. reading last

Lev Peker

That's that starting December. on nature maybe that's season chain. supply inventory And I'll and our stock the our and for do in we up our add, of business, we in thing seeing other that what then we're busy the that is November and

so you and it's And orders the way pretty May; we're placing want to stocked we're think through June about July. whatever so for through, now, it all

so that's times of little of China, are MOQs have and we actually we have we [ph] the parts And ended and that a because pretty small. position inventory why pretty larger; impact for is are China, good bit that longer out lead out in coming up because a

Gary Prestopino

you you have pushback now, orders have agent you placing any there getting that an I over the are or there? from an Lev you're mean, over With anybody employee? do do

Lev Peker

in office an have we No, Shanghai.

Gary Prestopino

okay. Okay,

would getting now? of you're the couple you're on chain from any months into pushback a So that come things now, that not ordering supply

Lev Peker

basically it to in. took are full But the because in for back couldn't Chinese get that workers There to get and workers the another of saying them a Year back factories up ramped so weeks then production. they're XX% the couple extended is about of a four they the to New delay six in they time, week week production by

Gary Prestopino

Okay, thank you.

Operator

comes Our Wunderlich next line with Eric question proceed Securities. your question. from Beder Please up with

Eric Beder

afternoon. Good

bit you've in Let's JC out terms so private and label. take a talk as of a consumer? want brands site, to you do you Whitney the as rolled little What out CarParts.com response these been branded for the where your has about, rolled brand the

Lev Peker

Yes.

So still good we pretty we're really, JC done out hasn't that blog with really I than CarParts.com, we've a for it's positive traffic. us roll actually we just we're and the CarParts.com, but response Whitney as that. mean helping yet more where SEO rolled CarParts.com our working a we've on seen content on have have brand, creating out consumer,

highest a So down to CarParts.com customers that is things going that into the to, we even are idea there and have. of by going lot site rate. the it channels, the has rate of on, is is if the our that it's highest focus but CarParts.com has drive one within sites out conversion one you the the all we of it where that break all we conversion that Even channel, be

we're to to next CarParts.com, the all and So CarParts.com directing as rate. drive sight going to benefit be to that we're from into conversion traffic going well

Eric Beder

the running, overtime? network were get that And fully it's your and are and distribution gathering DCs mean they what up you Once there? does what Great.

Lev Peker

So want DC model for network obviously, stock the the stocking support the we us is is meaning, what have label inventory. ship, do to to private

we the is on open need don't more overtime, right open country what more we're current fourth we'll which capacity in DCs for find our So like little probably feel a up a rather to now. network working we We'd across DC. now but

Eric Beder

first products, out excuse margins label, non to when of some And to me, for the it network some non-branded pieces, your excuse drive [ph]? -- me, some -- the with their and ship of for ability stock higher the the there now? is private to you of branded get for leverage them And the do

Lev Peker

absolutely. Yes,

Eric Beder

the also? you do help that How -- margins do does

Lev Peker

Yes.

product being from So perspective, network branded sold shippers think a margin, was right, if whether captured XX%. to distribution about historically, you through our the they distribution XX% of it's drop it our and

product, store that's like hey, know know -- And capabilities. product, how we to saying is, to we're so our distribute what part how we core of we're

ourselves. to want we by and be margin to know, the ourselves, you able that shipping stocking so, out product by capture And

Eric Beder

Thank Great. That's it. you.

Operator

Sherbetchyan Instructions] question. with proceed your with B. next Riley Our Please comes of question from Financial. [Operator Sarkis line

Sarkis Sherbetchyan

Good afternoon, Lev and David.

Lev Peker

are how you? Hey,

Sarkis Sherbetchyan

I'm well, thanks.

quick going your few questions And margin maintain kind that gross first your mentioned half level I mind margin a maybe really of Can just this seasonally me. the of Just stronger, of help know gross you of for seasonally the weakest you forward. saw level was kind in frame, we may year? expect of quarter. you, you'd what be to

Lev Peker

Yes.

sales. I more think for to the is seasonality the impact

gross our the the margin of think business, underlying entire number I regardless season. the really is to

really remain after low a are. we right don't margin margin, we handle the us. that label provide where where we'll we're margin negative highest on pretty for we this is So on go we continue good Obviously, and stocking now feel guidance going and transactions, have to is but the to on private because focused

Sarkis Sherbetchyan

That sounds good.

be So you range, seems it know, fair a like about the mid-XX% fiscal into call -- here going to consolidated place XXXX?

David Meniane

I'm about not going where to but exact an give right I are we pretty feel number, good now. you

Sarkis Sherbetchyan

All right.

of So, the free flow here the cadence you in XQ, mean, have guys may if go about talk piece about of inventory -- further I the I Can be maybe builds closing cash despite inventory. talk plans XXXX? to that? cash kind on you of your And business; kind the back of

Lev Peker

Yes.

the it's a main to right. inventory drivers but of of is the one obviously business, it's position not the growth So, big one our one, only the

in have going stock, don't it's to difficult If sell you be to it. the really inventory

season inventory also want which to make to but of in starts we the do the have things; middle we we don't sales. and two kind mistake So ramp inventory peak impact support the want to the enough to of down to QX, want

us as we And base; the as we inventory stocking have that have, such is helps as make availability good network, it more as good inventory So, the borrowing feel you us, in for way the about us within faster, in turns sure the DC a is so can. they then, on internally, inventory. The we are, to capacity actually targets that we is as the we structured of inventory inventory. faster long know, ABL that to the more the we we and kind what stocking want have keep long goal as do stay efficient But as turns so where keep much we two-fold. DCs feel the for about

Sarkis Sherbetchyan

question. And guess, Thanks I can off for if prior piggyback the I that. of

capacity you DC current what You be turns us footprint; for finding network inventory the capacity? can that may far your in mentioned as help your triangulate as and current means

Lev Peker

Right.

So of them. can a is there lot do that things increasing there of is -- different increase number capacity; to we a of turns is one

The and a start stock other turns thing of our little you large that and could faster. larger less is, we potentially know, so parts combination chain we small at level, turn supply parts has and part-name parts; a make targeting can them a on

The other empty a for is, more some capabilities stocking our to little is capacity. add space, more bit of racking there do DCs and of potentially thing us have

network So business current and projects bigger is there is the able right private a on lot the be a that to but to the current the goal label for on footprint of different now working support side. we're

Sarkis Sherbetchyan

Great, hop I'll the thanks so in queue. back much.

Operator

Ladies and concludes teleconference. this gentlemen, today's does

participation this your now wonderful Thank you lines may disconnect for You day. have a time. at and

CarParts.com (PRTS) 9 Mar 202019 Q4 Earnings call transcript