[Special Note Regarding Forward-Looking Statements](index=4&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section cautions readers about forward-looking statements, highlighting inherent risks and the company's non-obligation to update them - The report contains forward-looking statements based on management's beliefs and assumptions, identified by terms like 'anticipates,' 'believes,' 'estimates,' 'expects,' and 'intends' These statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[11](index=11&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements and should review the 'Risk Factors' section for a detailed discussion of potential risks The company assumes no obligation to update these statements publicly unless required by law[11](index=11&type=chunk) PART I. Financial Information [ITEM 1. Financial Statements](index=5&type=section&id=ITEM%201.%20Financial%20Statements) This section presents CarParts.com's unaudited consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes [Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Consolidated%20Balance%20Sheets%20%28Unaudited%29) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity as of September 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (In Thousands) | Metric | September 30, 2023 | December 31, 2022 | Change | % Change | | :-------------------------------- | :------------------- | :------------------ | :----- | :------- | | Cash and cash equivalents | $66,679 | $18,767 | $47,912 | 255.3% | | Total current assets | $206,763 | $167,871 | $38,892 | 23.2% | | Total assets | $270,822 | $238,399 | $32,423 | 13.6% | | Total current liabilities | $119,571 | $88,028 | $31,543 | 35.8% | | Total liabilities | $153,157 | $128,327 | $24,830 | 19.3% | | Total stockholders' equity | $117,665 | $110,072 | $7,593 | 6.9% | [Consolidated Statements of Operations and Comprehensive Operations (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Operations%20%28Unaudited%29) This section presents the company's unaudited financial performance, including net sales, gross profit, and net (loss) income for the thirteen and thirty-nine weeks ended September 30, 2023 Consolidated Statements of Operations Highlights (In Thousands, Except Per Share Data) | Metric (Thirteen Weeks Ended) | Sep 30, 2023 | Oct 1, 2022 | Change | % Change | | :------------------------------ | :----------- | :---------- | :----- | :------- | | Net sales | $166,864 | $164,807 | $2,057 | 1.2% | | Gross profit | $54,817 | $56,148 | $(1,331) | -2.4% | | (Loss) income from operations | $(2,917) | $(281) | $(2,636) | -938.1% | | Net (loss) income | $(2,517) | $(948) | $(1,569) | -165.5% | | Basic net (loss) income per share | $(0.04) | $(0.02) | $(0.02) | -100.0% | | Diluted net (loss) income per share | $(0.04) | $(0.02) | $(0.02) | -100.0% | | Metric (Thirty-Nine Weeks Ended) | Sep 30, 2023 | Oct 1, 2022 | Change | % Change | | :------------------------------- | :----------- | :---------- | :----- | :------- | | Net sales | $519,334 | $507,080 | $12,254 | 2.4% | | Gross profit | $177,810 | $179,245 | $(1,435) | -0.8% | | (Loss) income from operations | $(3,125) | $6,101 | $(9,226) | -151.2% | | Net (loss) income | $(2,137) | $5,273 | $(7,410) | -140.5% | | Basic net (loss) income per share | $(0.04) | $0.10 | $(0.14) | -140.0% | | Diluted net (loss) income per share | $(0.04) | $0.09 | $(0.13) | -144.4% | [Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29) This section details changes in stockholders' equity, including common stock, additional paid-in capital, treasury stock, and accumulated deficit, for the periods presented Stockholders' Equity Highlights (In Thousands) | Metric | September 30, 2023 | December 31, 2022 | Change | % Change | | :-------------------------- | :------------------- | :------------------ | :----- | :------- | | Common Stock (Amount) | $60 | $57 | $3 | 5.3% | | Additional Paid-in Capital | $309,106 | $297,265 | $11,841 | 4.0% | | Treasury Stock | $(9,766) | $(7,625) | $(2,141) | 28.1% | | Accumulated Deficit | $(182,888) | $(180,751) | $(2,137) | 1.2% | | Total Stockholders' Equity | $117,665 | $110,072 | $7,593 | 6.9% | - The company repurchased **495 thousand shares** of common stock for a total cost of **$2,141 thousand** during the thirty-nine weeks ended September 30, 2023[23](index=23&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the thirty-nine weeks ended September 30, 2023 Consolidated Statements of Cash Flows Highlights (Thirty-Nine Weeks Ended, In Thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change | % Change | | :------------------------------------ | :----------- | :---------- | :----- | :------- | | Net cash provided by operating activities | $57,865 | $5,702 | $52,163 | 914.8% | | Net cash used in investing activities | $(7,297) | $(10,502) | $3,205 | 30.5% | | Net cash (used in) provided by financing activities | $(2,656) | $3,808 | $(6,464) | -169.8% | | Net change in cash and cash equivalents | $47,912 | $(1,490) | $49,402 | -3315.6% | | Cash and cash equivalents, end of period | $66,679 | $16,654 | $50,025 | 300.4% | [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, borrowings, equity, and contingencies [Note 1 – Basis of Presentation and Description of Company](index=9&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation%20and%20Description%20of%20Company) This note describes CarParts.com as an online auto parts retailer, its product categories, and the change in functional currency for its Philippines subsidiary - CarParts.com, Inc. is an online provider of aftermarket auto parts and accessories, selling through its flagship website and online marketplaces[27](index=27&type=chunk) - Product categories include replacement parts (e.g., body parts, Kool-Vue® mirrors), hard parts (e.g., engine components, Evan Fischer® catalytic converters), and performance parts/accessories (e.g., JC Whitney®)[28](index=28&type=chunk) - Effective July 3, 2022, the functional currency of the Philippines subsidiary changed from local currency to the U.S. dollar, impacting foreign currency gains and losses to be included in net (loss) income prospectively[31](index=31&type=chunk) [Note 2 – Borrowings](index=11&type=section&id=Note%202%20%E2%80%93%20Borrowings) This note details the company's $75 million asset-based revolving credit facility, its terms, interest rates, and outstanding balances - The company has an asset-based revolving credit facility of **$75,000 thousand**, with an uncommitted ability to increase to **$150,000 thousand**, maturing on June 17, 2027[34](index=34&type=chunk) Revolving Loan and Letters of Credit (In Thousands) | Metric | September 30, 2023 | December 31, 2022 | | :----------------------------- | :------------------- | :------------------ | | Outstanding revolving loan balance | $0 | $0 | | Outstanding standby letters of credit | $1,100 | $620 | - Interest rates are based on Adjusted SOFR (**6.92%** as of Sep 30, 2023) or an alternate prime base rate (**8.50%** as of Sep 30, 2023), plus applicable margins[35](index=35&type=chunk) [Note 3 – Stockholders' Equity and Share-Based Compensation](index=11&type=section&id=Note%203%20%E2%80%93%20Stockholders%27%20Equity%20and%20Share-Based%20Compensation) This note outlines common stock option and RSU activity, including grants, exercises, and forfeitures, alongside the company's stock repurchase program Stock Option Activity (Thirty-Nine Weeks Ended September 30, 2023) | Activity | Common Shares | | :-------------------------------- | :-------------- | | Granted options | 0 | | Exercise of options | 1,655 | | Forfeiture of options | 68 | | Expiration of options | 9 | Restricted Stock Unit (RSU) Activity (Thirty-Nine Weeks Ended September 30, 2023, In Thousands) | Metric | Shares | | :------------------------------------ | :----- | | Vested and expected to vest (Dec 31, 2022) | 3,132 | | Awarded | 2,239 | | Vested | (1,032) | | Forfeited | (724) | | Awards outstanding (Sep 30, 2023) | 3,615 | - The company repurchased **495 thousand shares** of common stock for **$2,141 thousand** during the thirty-nine weeks ended September 30, 2023, at an average price of **$4.33 per share** Approximately **$27,379 thousand** remains authorized under the stock repurchase program[39](index=39&type=chunk) [Note 4 – Net (Loss) Income Per Share](index=13&type=section&id=Note%204%20%E2%80%93%20Net%20%28Loss%29%20Income%20Per%20Share) This note presents the computation of basic and diluted net (loss) income per share, explaining the exclusion of anti-dilutive securities Net (Loss) Income Per Share (In Thousands, Except Per Share Data) | Metric | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Oct 1, 2022 | Thirty-Nine Weeks Ended Sep 30, 2023 | Thirty-Nine Weeks Ended Oct 1, 2022 | | :------------------------------------ | :-------------------------------- | :------------------------------- | :----------------------------------- | :---------------------------------- | | Net (loss) income allocable to common shares | $(2,517) | $(948) | $(2,137) | $5,273 | | Weighted-average common shares outstanding (basic) | 57,179 | 54,481 | 56,252 | 54,009 | | Basic net (loss) income per share | $(0.04) | $(0.02) | $(0.04) | $0.10 | | Diluted net (loss) income per share | $(0.04) | $(0.02) | $(0.04) | $0.09 | - For the thirteen and thirty-nine weeks ended September 30, 2023, and the thirteen weeks ended October 1, 2022, all outstanding potentially dilutive securities were excluded from diluted net loss per share calculation because their effect would have been anti-dilutive[41](index=41&type=chunk) [Note 5 – Income Taxes](index=13&type=section&id=Note%205%20%E2%80%93%20Income%20Taxes) This note discusses the company's income tax provision, effective tax rates, and the full valuation allowance against deferred tax assets Effective Tax Rates | Period | Effective Tax Rate | | :------------------------------------ | :----------------- | | Thirteen Weeks Ended Sep 30, 2023 | (4.7)% | | Thirty-Nine Weeks Ended Sep 30, 2023 | (22.7)% | | Thirteen Weeks Ended Oct 1, 2022 | (5.5)% | | Thirty-Nine Weeks Ended Oct 1, 2022 | 2.2% | - The effective tax rate differed from the U.S. federal statutory rate due to state income taxes, Philippines subsidiary income, share-based compensation, and changes in the valuation allowance[43](index=43&type=chunk)[44](index=44&type=chunk) - The company maintains a full valuation allowance against its deferred tax assets, with no material change in the amount of deferred tax assets not considered more likely than not to be realized[45](index=45&type=chunk) [Note 6 – Commitments and Contingencies](index=15&type=section&id=Note%206%20%E2%80%93%20Commitments%20and%20Contingencies) This note details legal matters, including asbestos-related lawsuits and ordinary course litigation, and management's assessment of their financial impact - A wholly-owned subsidiary, WAG, is a defendant in several asbestos-related lawsuits, but maintains liability insurance coverage and is not expected to incur significant out-of-pocket costs[47](index=47&type=chunk) - The company is subject to ordinary course litigation, including a negligence claim for a workplace injury in Texas, which is in the discovery stage with trial scheduled for 2024 The company intends to vigorously defend itself[48](index=48&type=chunk) - Management believes the final disposition of legal matters will not have a material adverse effect on the company's financial position, results of operations, or cash flow[48](index=48&type=chunk) [Note 7 – Product Information](index=15&type=section&id=Note%207%20%E2%80%93%20Product%20Information) This note summarizes the company's revenue distribution by product type, categorizing sales into House Brands and Branded products across Replacement Parts, Hard Parts, and Performance categories Revenue Distribution by Product Type | Product Type | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Oct 1, 2022 | Thirty-Nine Weeks Ended Sep 30, 2023 | Thirty-Nine Weeks Ended Oct 1, 2022 | | :---------------- | :-------------------------------- | :------------------------------- | :----------------------------------- | :---------------------------------- | | House Brands: | | | | | | Replacement Parts | 64 % | 68 % | 65 % | 67 % | | Hard Parts | 19 % | 18 % | 19 % | 20 % | | Performance | 1 % | 1 % | 1 % | 1 % | | Branded: | | | | | | Replacement Parts | 1 % | 1 % | 1 % | 1 % | | Hard Parts | 9 % | 7 % | 8 % | 7 % | | Performance | 6 % | 5 % | 6 % | 4 % | | Total | 100 % | 100 % | 100 % | 100 % | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of CarParts.com's financial performance, liquidity, and capital resources for the reported periods, including key trends and accounting policies [Cautionary Statement](index=16&type=section&id=Cautionary%20Statement) This statement advises readers that the section contains forward-looking statements subject to risks and uncertainties, and historical results are not indicative of future performance - This section contains forward-looking statements regarding business strategies, operations, financial condition, and prospects, which are subject to risks and uncertainties detailed in the 'Risk Factors' section[51](index=51&type=chunk)[52](index=52&type=chunk) - Readers are advised not to place undue reliance on these statements, as actual results may differ materially from expectations, and historical results are not indicative of future performance[52](index=52&type=chunk) [Overview](index=16&type=section&id=Overview) This section describes CarParts.com's business as an online auto parts provider, its strategic pillars, and supporting industry trends like an aging U.S. vehicle fleet - CarParts.com is a leading online provider of aftermarket auto parts, selling through its website and online marketplaces, utilizing a proprietary product database with approximately **1,020,000 SKUs**[53](index=53&type=chunk)[60](index=60&type=chunk) - The company's strategy is built on four pillars: outstanding customer service (extensive assortment, competitive pricing, digital-first experience), operational excellence (continuous improvement, process optimization), financial discipline (cost optimization, cash flow management), and innovation (evolving products/services)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) - Key industry trends supporting growth include the increasing number of automotive SKUs, the expanding and aging U.S. vehicle fleet (average age **12.5 years** in 2023), and the projected growth of online auto parts sales to **$21 billion** by 2025[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) [Executive Summary](index=18&type=section&id=Executive%20Summary) This summary highlights CarParts.com's Q3 2023 financial performance, including net sales growth, increased net loss, and decreased gross profit and Adjusted EBITDA Q3 2023 Executive Summary Financial Highlights (In Thousands) | Metric | Q3 2023 | Q3 2022 | Change | % Change | | :------------- | :----------- | :----------- | :--------- | :------- | | Net sales | $166,864 | $164,807 | $2,057 | 1.2% | | Net loss | $(2,517) | $(948) | $(1,569) | -165.5% | | Gross profit | $54,817 | $56,148 | $(1,331) | -2.4% | | Gross margin | 32.9% | 34.1% | -120 bps | -3.5% | | Adjusted EBITDA | $3,048 | $6,254 | $(3,206) | -51.3% | - The decrease in gross margin was primarily driven by unfavorable freight costs and a shift in product mix[65](index=65&type=chunk) - Total expenses, including cost of sales and operating expense, increased in Q3 2023 compared to Q3 2022[66](index=66&type=chunk) [Non-GAAP Measures](index=18&type=section&id=Non-GAAP%20measures) This section defines and reconciles non-GAAP measures like EBITDA and Adjusted EBITDA to net (loss) income, explaining their use in evaluating operating performance - EBITDA is defined as net (loss) income before interest (income) expense, net, income tax provision, depreciation and amortization expense, and amortization of intangible assets[67](index=67&type=chunk)[68](index=68&type=chunk) - Adjusted EBITDA is defined as EBITDA before share-based compensation expense[68](index=68&type=chunk) Adjusted EBITDA Reconciliation (In Thousands) | Metric | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Oct 1, 2022 | Thirty-Nine Weeks Ended Sep 30, 2023 | Thirty-Nine Weeks Ended Oct 1, 2022 | | :-------------------------- | :-------------------------------- | :------------------------------- | :----------------------------------- | :---------------------------------- | | Net (loss) income | $(2,517) | $(948) | $(2,137) | $5,273 | | Depreciation & amortization | $4,430 | $3,406 | $12,596 | $9,671 | | Amortization of intangible assets | $8 | $26 | $28 | $81 | | Interest (income) expense, net | $(449) | $433 | $(323) | $1,066 | | Taxes | $114 | $49 | $396 | $118 | | EBITDA | $1,586 | $2,966 | $10,560 | $16,209 | | Stock compensation expense | $1,462 | $3,288 | $8,158 | $7,786 | | Adjusted EBITDA | $3,048 | $6,254 | $18,718 | $23,995 | [Results of Operations](index=21&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of CarParts.com's net sales, gross margin, operating expenses, and other income/expense for the reported periods [Net Sales and Gross Margin](index=21&type=section&id=Net%20Sales%20and%20Gross%20Margin) This section analyzes changes in net sales and gross margin, attributing shifts to demand, freight costs, and product mix for the reported periods Net Sales and Gross Margin Performance (In Thousands) | Metric | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Oct 1, 2022 | Thirty-Nine Weeks Ended Sep 30, 2023 | Thirty-Nine Weeks Ended Oct 1, 2022 | | :---------- | :-------------------------------- | :------------------------------- | :----------------------------------- | :---------------------------------- | | Net sales | $166,864 | $164,807 | $519,334 | $507,080 | | Cost of sales | $112,047 | $108,659 | $341,524 | $327,835 | | Gross profit | $54,817 | $56,148 | $177,810 | $179,245 | | Gross margin | 32.9 % | 34.1 % | 34.2 % | 35.3 % | - Net sales increased by **1.2%** for Q3 2023 and **2.4%** for YTD Q3 2023, primarily driven by continued demand[73](index=73&type=chunk) - Gross margin decreased by **120 basis points** in Q3 2023 and **110 basis points** in YTD Q3 2023, mainly due to unfavorable freight costs and a shift in product mix[74](index=74&type=chunk) [Operating Expense](index=21&type=section&id=Operating%20Expense) This section details the increase in operating expenses, driven by business investments and advertising, partially offset by improved distribution center efficiency Operating Expense (In Thousands) | Metric | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Oct 1, 2022 | Thirty-Nine Weeks Ended Sep 30, 2023 | Thirty-Nine Weeks Ended Oct 1, 2022 | | :---------------- | :-------------------------------- | :------------------------------- | :----------------------------------- | :---------------------------------- | | Operating expense | $57,734 | $56,729 | $180,935 | $173,144 | | Percent of net sales | 34.6 % | 34.4 % | 34.8 % | 34.1 % | - Operating expense increased by **1.8%** for Q3 2023 and **4.5%** for YTD Q3 2023, driven by business investments and higher advertising expense, partially offset by improved distribution center fulfillment costs[75](index=75&type=chunk) [Total Other Income (Expense), Net](index=23&type=section&id=Total%20Other%20Income%20%28Expense%29%2C%20Net) This section explains the significant increase in other income (expense), net, primarily due to higher interest income from increased cash balances and interest rates Total Other Income (Expense), Net (In Thousands) | Metric | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Oct 1, 2022 | Thirty-Nine Weeks Ended Sep 30, 2023 | Thirty-Nine Weeks Ended Oct 1, 2022 | | :-------------------------- | :-------------------------------- | :------------------------------- | :----------------------------------- | :---------------------------------- | | Other income (expense), net | $514 | $(318) | $1,384 | $(710) | | Percent of net sales | 0.3 % | (0.2)% | 0.3 % | (0.1)% | - Total other income (expense), net, increased significantly by **261.6%** for Q3 2023 and **294.9%** for YTD Q3 2023, primarily due to higher interest income from increased interest rates and cash balance[77](index=77&type=chunk) [Income Tax Provision](index=23&type=section&id=Income%20Tax%20Provision) This section discusses the income tax provision and effective tax rates, noting factors like state taxes, Philippines subsidiary income, and valuation allowance changes Income Tax Provision (In Thousands) | Metric | Thirteen Weeks Ended Sep 30, 2023 | Thirteen Weeks Ended Oct 1, 2022 | Thirty-Nine Weeks Ended Sep 30, 2023 | Thirty-Nine Weeks Ended Oct 1, 2022 | | :------------------ | :-------------------------------- | :------------------------------- | :----------------------------------- | :---------------------------------- | | Income tax provision | $114 | $49 | $396 | $118 | | Percent of net sales | 0.1 % | 0.0 % | 0.1 % | 0.0 % | - Effective tax rates for Q3 2023 and YTD Q3 2023 were **(4.7)%** and **(22.7)%**, respectively, differing from the U.S. federal statutory rate due to state taxes, Philippines subsidiary income, share-based compensation, and valuation allowance changes[78](index=78&type=chunk)[79](index=79&type=chunk) - The company maintains a full valuation allowance against deferred tax assets, with no material change in the assessment of realizability[80](index=80&type=chunk) [Foreign Currency](index=23&type=section&id=Foreign%20Currency) This section states that the impact of foreign currency fluctuations on the company's operations, primarily from the Philippines and Canada, was not material - The impact of foreign currency fluctuations, primarily related to offshore operations in the Philippines and sales in Canada, was not material to the company's operations[81](index=81&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's liquidity position, cash flow activities, and debt structure, affirming sufficient resources for the next twelve months [Sources of Liquidity](index=23&type=section&id=Sources%20of%20Liquidity) This section identifies cash and cash equivalents from operations and available debt financing as primary liquidity sources, sufficient for near-term operational needs - The company primarily funded operations with cash and cash equivalents generated from operations during the thirty-nine weeks ended September 30, 2023[82](index=82&type=chunk) Cash and Cash Equivalents (In Thousands) | Metric | September 30, 2023 | December 31, 2022 | Change | % Change | | :-------------------------- | :------------------- | :------------------ | :----- | :------- | | Cash and cash equivalents | $66,679 | $18,767 | $47,912 | 255.3% | - Management believes existing cash, investments, cash flows from operations, and available debt financing will be sufficient to finance operational cash needs for at least the next twelve months[82](index=82&type=chunk) [Working Capital](index=25&type=section&id=Working%20Capital) This section presents the company's working capital and notes its fluctuations due to historical business seasonality affecting cash, inventory, and accounts payable Working Capital (In Thousands) | Metric | September 30, 2023 | December 31, 2022 | Change | % Change | | :------------- | :------------------- | :------------------ | :----- | :------- | | Working capital | $87,192 | $79,843 | $7,349 | 9.2% | - Working capital fluctuates due to historical seasonality in the business, affecting cash, inventory, and accounts payable[84](index=84&type=chunk) [Cash Flows](index=25&type=section&id=Cash%20Flows) This section provides a summary of cash flow activities, including significant increases in operating cash flow and changes in investing and financing activities Key Cash Flow Metrics (Thirty-Nine Weeks Ended, In Thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change | % Change | | :------------------------------------ | :----------- | :---------- | :----- | :------- | | Net cash provided by operating activities | $57,865 | $5,702 | $52,163 | 914.8% | | Net cash used in investing activities | $(7,297) | $(10,502) | $3,205 | 30.5% | | Net cash (used in) provided by financing activities | $(2,656) | $3,808 | $(6,464) | -169.8% | | Net change in cash and cash equivalents | $47,912 | $(1,490) | $49,402 | -3315.6% | | Cash and cash equivalents, end of period | $66,679 | $16,654 | $50,025 | 300.4% | [Operating Activities](index=25&type=section&id=Operating%20Activities) This section highlights the substantial increase in net cash provided by operating activities, primarily driven by improved working capital management - Net cash provided by operating activities increased significantly to **$57,865 thousand** for the thirty-nine weeks ended September 30, 2023, from **$5,702 thousand** in the prior year, primarily due to a higher net cash inflow from changes in working capital[86](index=86&type=chunk) [Investing Activities](index=25&type=section&id=Investing%20Activities) This section details net cash used in investing activities, primarily for additions to property and equipment, including capitalized website and software development costs - Net cash used in investing activities was **$7,297 thousand** for the thirty-nine weeks ended September 30, 2023, primarily for additions to property and equipment, mainly capitalized website and software development costs[87](index=87&type=chunk) [Financing Activities](index=25&type=section&id=Financing%20Activities) This section outlines net cash used in financing activities, driven by finance lease payments and stock repurchases, partially offset by stock option exercises - Net cash used in financing activities was **$2,656 thousand** for the thirty-nine weeks ended September 30, 2023, driven by payments on finance leases (**$3,592 thousand**) and treasury stock repurchases (**$2,151 thousand**), partially offset by proceeds from stock option exercises (**$2,604 thousand**)[88](index=88&type=chunk) [Debt and Available Borrowing Resources](index=25&type=section&id=Debt%20and%20Available%20Borrowing%20Resources) This section details the company's debt, including its undrawn revolving credit facility, and discusses restrictive covenants and borrowing base limitations Total Debt (In Thousands) | Metric | September 30, 2023 | December 31, 2022 | Change | % Change | | :------------- | :------------------- | :------------------ | :----- | :------- | | Total debt | $17,774 | $20,669 | $(2,895) | -14.0% | - The company's Credit Facility provides a revolving commitment of up to **$75,000 thousand**, with an option to increase to **$150,000 thousand**, maturing on June 17, 2027 No revolving loan balance was outstanding as of September 30, 2023[90](index=90&type=chunk) - The Credit Agreement includes restrictive covenants and a borrowing base, which could limit financing and operational flexibility or require immediate loan repayment if conditions are not met[91](index=91&type=chunk)[92](index=92&type=chunk) [Funding Requirements](index=26&type=section&id=Funding%20Requirements) This section assesses the sufficiency of current funding for the next twelve months, while acknowledging potential future capital needs and adverse event impacts - Based on the current operating plan, existing cash, investments, cash flows from operations, and available debt financing are believed to be sufficient for operational cash needs for at least the next twelve months[93](index=93&type=chunk) - Future capital requirements may vary, and adverse events could necessitate additional debt or equity financings, asset sales, or a reduction in planned expenditures[93](index=93&type=chunk) [Seasonality](index=26&type=section&id=Seasonality) This section notes the seasonal nature of the business, influenced by external factors, which is expected to continue impacting financial results - The business is seasonal, with demand and product mix affected by external factors and historical trends, which may materially impact financial results[94](index=94&type=chunk) [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses management's critical accounting estimates and assumptions, highlighting inventory valuation and confirming no significant policy changes in the quarter - Financial statements require estimates and assumptions for revenue recognition, receivables, inventory, deferred tax assets, long-lived assets, and contingencies[95](index=95&type=chunk)[96](index=96&type=chunk) - No significant changes to critical accounting policies occurred during the thirteen weeks ended September 30, 2023[98](index=98&type=chunk) - The valuation of inventory, specifically the inventory reserve, is identified as a critical accounting policy[98](index=98&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section assesses the company's exposure to interest rate and foreign currency risks, concluding that hypothetical changes would not materially impact financial statements [Interest Rate Risk](index=28&type=section&id=Interest%20Rate%20Risk) This section discusses the company's exposure to interest rate risk from its revolving credit facility, noting no material impact with a zero outstanding balance - The company is exposed to interest rate risk from its revolving loan under the Credit Facility, which bears interest based on SOFR or a prime rate[100](index=100&type=chunk) - As of September 30, 2023, with a **$0** outstanding balance on the revolving loan, a hypothetical **100 basis point** change in interest rates would not materially affect interest expense and cash flows[100](index=100&type=chunk) [Foreign Currency Risk](index=28&type=section&id=Foreign%20Currency%20Risk) This section addresses foreign currency risk from international operations, concluding that a 10% exchange rate change would not materially impact financial statements - Purchases from Asian suppliers are U.S. dollar-denominated, but exchange rate changes could impact product costs Operating expenses from the Philippines subsidiary are paid in Philippine Pesos, making them susceptible to exchange rate fluctuations[101](index=101&type=chunk) - A hypothetical **10%** change in foreign currency exchange rates would not have a material impact on the consolidated financial statements[101](index=101&type=chunk) - The company does not currently use derivative financial instruments to manage foreign currency risk[101](index=101&type=chunk) [ITEM 4. Controls and Procedures](index=28&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section details the evaluation of disclosure controls and procedures, confirming their effectiveness and reporting no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=28&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures at a reasonable assurance level, ensuring timely and accurate financial reporting - The principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the reporting period[102](index=102&type=chunk) - They concluded that the disclosure controls and procedures are designed at a reasonable assurance level and are effective in ensuring timely and accurate reporting of information required under the Exchange Act[104](index=104&type=chunk) [Changes in Internal Control Over Financial Reporting](index=30&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that no material changes occurred in internal control over financial reporting during the most recent fiscal quarter - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[106](index=106&type=chunk) [Inherent Limitations on Internal Controls](index=30&type=section&id=Inherent%20Limitations%20on%20Internal%20Controls) This section acknowledges the inherent limitations of internal controls, which provide reasonable, not absolute, assurance against error and fraud - Disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives, and management does not expect them to prevent or detect all error and fraud[107](index=107&type=chunk) PART II. Other Information [ITEM 1. Legal Proceedings](index=30&type=section&id=ITEM%201.%20Legal%20Proceedings) This section incorporates legal proceedings information from Note 6 of the financial statements and refers to the 'Risk Factors' section for related risks - Information on legal proceedings is incorporated by reference from 'Note 6 – Commitments and Contingencies' in Part I, Item 1 of this report[109](index=109&type=chunk) - Additional risks associated with legal proceedings are discussed in the 'Risk Factors' section in Part II, Item 1A[109](index=109&type=chunk) [ITEM 1A. Risk Factors](index=30&type=section&id=ITEM%201A.%20Risk%20Factors) This section outlines various risks, including operational, regulatory, technological, and capital stock-related factors, that could materially affect the company's business and financial performance [Risk Factors Summary](index=30&type=section&id=Risk%20Factors%20Summary) This summary categorizes key risks facing the company, covering operational, regulatory, technology, and capital stock aspects that could impact financial results - The company's business is subject to risks related to operations, including dependence on suppliers in Taiwan and China, reliance on third-party delivery services, higher wage costs, and commodity price increases[111](index=111&type=chunk) - Regulatory and litigation risks include potential for continued net losses, restrictions from the Credit Agreement, asset impairment, product liability lawsuits, and challenges from OEMs regarding intellectual property[115](index=115&type=chunk) - Technology-related risks involve dependence on search engines, bandwidth/data center providers, security threats (e.g., ransomware), open-source software, system failures, and the need to respond to technological change[117](index=117&type=chunk)[118](index=118&type=chunk) - Risks related to capital stock include stock price volatility, fluctuating operating results, potential failure of internal controls, anti-takeover provisions in charter documents, and dilution from future capital raises[118](index=118&type=chunk) [Risks Related To Our Operations](index=34&type=section&id=Risks%20Related%20To%20Our%20Operations) This section details operational risks, including supplier dependence, delivery service reliance, wage and commodity cost increases, and intense market competition - Dependence on suppliers in Taiwan and China for the majority of products exposes the company to complex regulatory regimes, logistical challenges, and risks from political instability, currency fluctuations, and tariffs[119](index=119&type=chunk)[121](index=121&type=chunk)[124](index=124&type=chunk) - Reliance on third-party delivery services for inbound and outbound shipping means increased fees or service interruptions could harm reputation and financial condition[126](index=126&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - Higher wage costs (due to minimum wage laws, inflation) and increased commodity prices (fuel, plastic, steel) could negatively impact margins and profitability[131](index=131&type=chunk)[132](index=132&type=chunk) - The online market for aftermarket auto parts is less developed; failure to attract new online customers or adapt to shifting mobile and marketplace shopping behaviors could adversely impact sales and financial results[133](index=133&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - Loss of access to third-party marketplaces (e.g., eBay, Amazon), which account for a significant portion of revenues (**35.3%** in YTD Q3 2023), or increased operating costs on these platforms, could substantially reduce revenues[139](index=139&type=chunk) - Continued net losses could severely impact liquidity, potentially requiring additional financing, asset sales, or curtailment of operations[141](index=141&type=chunk) - The Credit Agreement imposes restrictive covenants and a borrowing base, which could limit financial and operational flexibility, and failure to meet covenants could severely impact liquidity[142](index=142&type=chunk)[143](index=143&type=chunk)[147](index=147&type=chunk) - Dependence on key suppliers (top ten suppliers represented **~52%** of purchases in YTD Q3 2023) and drop-ship suppliers (three represented **~12%** of purchases) means interruptions or difficulties could lead to product shortages, higher costs, and declining sales[151](index=151&type=chunk)[155](index=155&type=chunk) - Challenges with international operations in the Philippines, including staffing, regulatory changes, political instability, and currency fluctuations, could limit business growth[157](index=157&type=chunk) - Interruptions in fulfillment operations or inability to accommodate increased demand could lead to sales declines and reputational harm[159](index=159&type=chunk)[160](index=160&type=chunk) - Intense competition from online and offline retailers, large marketplaces, and direct-selling suppliers, coupled with low barriers to entry, could result in reduced sales, lower margins, and loss of market share[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[165](index=165&type=chunk) - Failure to offer a broad selection of competitively priced products or maintain sufficient inventory could lead to revenue decline[166](index=166&type=chunk) - Loss of key personnel or inability to attract qualified employees could harm business and operations[167](index=167&type=chunk) - Foreign exchange risk from international operations, particularly in the Philippines, could impact product costs and operating results[168](index=168&type=chunk) - The proprietary product catalog database is a competitive advantage; if stolen, damaged, or replicated by competitors, this advantage could be lost[169](index=169&type=chunk) - Adverse economic conditions (unemployment, inflation, rising interest rates) can reduce demand for aftermarket auto parts, impacting sales and operating results[171](index=171&type=chunk) - Seasonality in the business can strain operations, leading to potential overstocking or understocking issues[172](index=172&type=chunk) - Decreased vehicle miles driven or accident rates could reduce demand for auto parts, negatively affecting revenues[173](index=173&type=chunk) - Increased sales tax collection requirements in more states will eliminate a competitive advantage and could adversely affect sales[174](index=174&type=chunk)[175](index=175&type=chunk) - The ability to use net operating loss (NOL) carryforwards to offset future income may be limited by ownership changes or state-level restrictions[176](index=176&type=chunk)[178](index=178&type=chunk) - Inaccurate estimates of the addressable market size could mean lower future growth than anticipated[179](index=179&type=chunk) [Regulatory And Litigation Risks](index=54&type=section&id=Regulatory%20And%20Litigation%20Risks) This section outlines risks from new tariffs, product liability, privacy laws, OEM intellectual property challenges, and evolving environmental and ESG regulations - New tariffs imposed by the U.S. government could force price increases or operational changes, materially harming revenue or operating results[180](index=180&type=chunk) - Exposure to product liability lawsuits, especially for defective or malfunctioning parts, could lead to substantial damages, exceeding insurance limits, and harm reputation[181](index=181&type=chunk) - Failure to comply with evolving privacy laws (e.g., CCPA) and regulations, or to adequately protect customer data, could result in legal actions, fines, reputational damage, and loss of customers[182](index=182&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) - Challenges by OEMs to the aftermarket auto parts industry, including claims of intellectual property infringement, could restrict or prohibit sales of certain products and increase costs[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - Inability to protect intellectual property rights (trademarks, trade secrets, domain names) could impair brand and lead to customer loss[190](index=190&type=chunk) - Involvement in litigation and compliance with numerous laws and regulations could result in substantial judgments, fines, legal fees, and reputational harm[191](index=191&type=chunk) - Changes in tax laws or regulations (e.g., Tax Cuts and Jobs Act) could adversely affect business operations and financial performance[192](index=192&type=chunk) - Existing or future government regulations related to e-commerce, consumer protection, or environmental laws could expose the company to liabilities and costly operational changes[193](index=193&type=chunk)[195](index=195&type=chunk) - Global climate change or regulatory responses to it could decrease demand for auto parts or increase operational costs[196](index=196&type=chunk) - Increased public attention and new regulatory initiatives related to ESG matters may expose the company to negative public perception and additional costs[197](index=197&type=chunk) [Risks Related To Our Use Of Technology](index=60&type=section&id=Risks%20Related%20To%20Our%20Use%20Of%20Technology) This section addresses technology risks, including dependence on search engines, cybersecurity threats, system failures, and the need to adapt to rapid technological change - Dependence on search engines and other online sources to attract visitors means changes in algorithms, increased competition for ads, or fee increases could harm customer acquisition and results[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Reliance on bandwidth, data center providers, and other third parties means any service failure or interruption could disrupt business and lead to customer loss[202](index=202&type=chunk) - Security threats, including cyber-attacks like ransomware, could expose the company to liability, business interruption, significant damages, and reputational harm (e.g., June 2020 ransomware attack incurred **$100,000** in expenses)[203](index=203&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) - Dependence on open-source software exposes the company to uncertainty, potential liability for intellectual property infringement, and the risk of being forced to release proprietary source code[208](index=208&type=chunk) - System failures due to natural disasters, power loss, or cyber threats could prevent website access, reduce sales, and harm reputation[209](index=209&type=chunk)[211](index=211&type=chunk) - Problems with the design, integration, or implementation of IT systems, including the recently implemented ERP system, could interfere with business operations and financial reporting[212](index=212&type=chunk) - Failure to respond to rapid technological change could render websites obsolete and adversely affect financial results[213](index=213&type=chunk) - Use of social media platforms carries risks of negative commentary harming reputation and potential fines or penalties due to evolving regulations[214](index=214&type=chunk)[216](index=216&type=chunk) [Risks Related To Our Capital Stock](index=68&type=section&id=Risks%20Related%20To%20Our%20Capital%20Stock) This section discusses risks related to the company's capital stock, including price volatility, fluctuating operating results, internal control failures, and potential dilution - The common stock price has been and may continue to be volatile due to various factors, including company performance, market expectations, and industry trends, potentially leading to losses for stockholders[217](index=217&type=chunk)[218](index=218&type=chunk) - Future operating results are expected to fluctuate quarterly due to factors beyond control, such as demand, competition, supplier relationships, and macroeconomic conditions[219](index=219&type=chunk)[223](index=223&type=chunk) - Failure to maintain an effective system of internal control over financial reporting or comply with Section 404 of Sarbanes-Oxley could impact financial reporting accuracy, prevent fraud, and cause stock price decline[222](index=222&type=chunk) - Provisions in charter documents, such as a classified Board of Directors and restrictions on stockholder actions, could deter takeover efforts and inhibit stockholders from receiving an acquisition premium[223](index=223&type=chunk)[224](index=224&type=chunk) - The company does not intend to pay cash dividends on its common stock for the foreseeable future[227](index=227&type=chunk) - The share repurchase program, authorized up to **$30 million** in July 2021, does not guarantee enhanced shareholder value and could affect stock price and cash reserves[228](index=228&type=chunk) - Future capital raises through equity issuance may dilute existing stockholders' ownership[229](index=229&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section summarizes common stock repurchases during Q3 2023, detailing shares bought, average price, and remaining authorization under the program Common Stock Repurchases (Thirteen Weeks Ended September 30, 2023, In Thousands) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :-------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | | July 2, 2023 to July 29, 2023 | — | $— | $28,473 | | July 30, 2023 to August 26, 2023 | 245 | $4.47 | $27,379 | | August 27, 2023 to September 30, 2023 | — | $— | $27,379 | | Total | 245 | $4.47 | | [ITEM 3. Defaults Upon Senior Securities](index=74&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[231](index=231&type=chunk) [ITEM 4. Mine Safety Disclosures](index=74&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the company[232](index=232&type=chunk) [ITEM 5. Other Information](index=74&type=section&id=ITEM%205.%20Other%20Information) This section reports that no directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q3 2023 - No directors or executive officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the thirteen weeks ended September 30, 2023[233](index=233&type=chunk) [ITEM 6. Exhibits](index=75&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, XBRL instance documents, and taxonomy extension documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) from the Principal Executive Officer and Principal Financial Officer[235](index=235&type=chunk) - XBRL-related documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104) are filed or incorporated by reference[235](index=235&type=chunk)

Financial Data and Key Metrics Changes - The company reported $177 million in sales for Q2 2023, a slight increase from $176 million in the same period last year, marking the 14th consecutive quarter of year-over-year growth and the highest sales level in the company's history [12][41] - Adjusted EBITDA was $6.3 million, down from $8.3 million in the prior year, primarily due to higher freight costs and increased performance marketing spend [42][43] - Gross profit for the quarter was $60.4 million, down from $61.9 million in the prior year, with a gross margin of 34.2%, down from 35.1% [38][42] - The company ended the quarter with $79 million in cash and no revolver debt, up from $15 million in the prior year [44] Business Line Data and Key Metrics Changes - The company has seen a rise in the usage of its Buy Now Pay Later offerings, indicating a shift in customer purchase patterns [14] - The national brand assortment has expanded to a revenue run rate of $100 million, compared to under $50 million in 2021 [16] Market Data and Key Metrics Changes - The company noted that the consumer has been under increased pressure throughout the year, with lighter-than-expected tax refunds impacting spending patterns [97] - There is a pent-up demand for auto repairs as consumers generally do not prefer to keep their vehicles in disrepair [99][104] Company Strategy and Development Direction - The company is focusing on six strategic pillars: e-commerce fundamentals, digital transformation, assortment and catalog, marketing and customer experience, innovation, and supply chain and logistics [19][20] - The launch of a new mobile app aims to reduce customer acquisition costs and reliance on paid channels, enhancing the customer experience [21][22] - The company is committed to building strong relationships with branded partners and capturing a larger market share through improved customer experience and product offerings [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning despite short-term pressures from the macroeconomic environment, highlighting unit growth and positive unit economics [56][57] - The company anticipates that as consumer confidence rebounds, customers will return to the market for repairs [14] - Management emphasized the importance of balancing growth and profitability while maintaining a robust balance sheet [45] Other Important Information - The company repurchased 250,000 shares during the quarter for approximately $1.05 million, with $28.5 million remaining under the current share repurchase program [40] - The company is investing in supply chain technology to enhance efficiency and safety for associates [102] Q&A Session Summary Question: Can you talk about the health of consumers on CarParts since the beginning of the year? - Management noted that consumers have been under increased pressure, with lighter tax refunds impacting spending patterns, but there is a historical trend of pent-up demand for auto repairs [97][99] Question: How is the company leveraging artificial intelligence and automation? - Management indicated that they are embracing AI as a significant opportunity and are making intelligent investments in automation to improve efficiency and safety [91][92] Question: What are the expectations for the second half of the year? - Management expressed optimism about capturing demand as consumer confidence rebounds, despite current macroeconomic pressures [56][104]

Company Participants Thomas Forte - D.A. Davidson Ryan Sigdahl - Craig Hallum Capital Group Ryan Myers - Lake Street Capital Markets Tina Mirfarsi CarParts.com, Inc. (NASDAQ:PRTS) Q1 2023 Earnings Conference Call May 2, 2023 5:00 PM ET Conference Call Participants Good afternoon. At this time, all participants will be in a listen-only mode. After the presentation, there will be a question-and-answer session. Please note, this call is being recorded. Hello everyone and thank you for joining us for the CarPar ...

Financial Data and Key Metrics Changes - The company reported a net loss of $6.2 million for the fourth quarter and $1 million for the full year 2022, primarily due to non-cash expenses and higher seasonal freight charges [5] - Adjusted EBITDA for Q4 was $2.1 million, down from $2.6 million, while for the full year 2022, adjusted EBITDA was $26.1 million, up 55.5% from 2021 [6][5] - Cash and equivalents at the end of the quarter were $18.8 million, with no balance on the revolving credit line, and inventory decreased to $136 million from $138.9 million year-over-year [7] Business Line Data and Key Metrics Changes - Revenue for Q4 2022 was $154.5 million, an increase of 11.8% year-over-year, and for the full year, revenue was $661.6 million, up 13.6% from 2021 [24][38] - Gross profit for Q4 was $51.6 million, up 8.9%, with a gross margin of 33.4%, while for the full year, gross profit was $230.9 million, up 17%, with gross margins improving to 34.9% [25][24] Market Data and Key Metrics Changes - The company experienced high single-digit year-over-year revenue growth in the first eight weeks of fiscal year 2023, along with sequential gross margin expansion [24] - Repeat customers accounted for over one-third of e-commerce revenues, indicating a strong customer retention strategy [28] Company Strategy and Development Direction - The company aims to focus on outstanding customer service, operational excellence, financial discipline, and innovation to drive growth [44] - For 2023 and beyond, the company plans to maintain a customer-centric strategy while leveraging its vertically integrated supply chain and advanced capabilities [10][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow mid-single digits to high single digits, with potential for double-digit growth if the economy improves [26] - The management acknowledged the current macroeconomic uncertainty but emphasized the company's strong position to capitalize on market opportunities [26] Other Important Information - The company has undergone significant changes in its executive team and operational processes, which are expected to enhance efficiency and profitability [15][42] - The introduction of the "Do-It-For-Me" service has doubled bookings, indicating positive customer feedback and potential for future growth [20][49] Q&A Session Summary Question: Can you provide high-level thoughts on revenue growth for 2023? - Management indicated that while visibility is limited due to the macro environment, they expect to grow mid-single digits to high single digits, with potential for double-digit growth if conditions improve [30][26] Question: How has improving supply chain affected fourth quarter sales and profitability? - Management noted that improvements in the supply chain would positively impact landed costs, but benefits may not be fully realized until the latter half of the year [45] Question: What impact has the weather had on business? - Management stated that significant weather disruptions can slow demand temporarily, but historically, they have not seen a major long-term impact on sales [58] Question: What is the right inventory level for the business? - Management indicated that the current inventory level is appropriate and expected to remain stable throughout fiscal year 2023, with fluctuations expected quarter-to-quarter [59]

Front Matter This section outlines filing details, incorporated documents, table of contents, and forward-looking statements [Form 10-K Details](index=1&type=section&id=Form%2010-K%20Details) This section details the Form 10-K filing information, including registrant name, incorporation state, and NASDAQ listing Fiscal Year 2022 Form 10-K Filing Information | Indicator | Detail | | :--- | :--- | | Registrant Name | CARPARTS.COM, INC. | | State of Incorporation | Delaware | | Fiscal Year Ended | December 31, 2022 | | Commission File Number | 001-33264 | | Trading Symbol | PRTS | | Exchange | The NASDAQ Stock Market LLC (NASDAQ Global Market) | | Well-known seasoned issuer | No | | Filer Status | Accelerated filer | | Common Stock Outstanding (as of Feb 27, 2023) | **54,804,764 shares** | | Market Value of Non-Affiliate Common Stock (as of Jul 1, 2022) | **~$372.0 million** | [Documents Incorporated by Reference](index=1&type=section&id=Documents%20Incorporated%20by%20Reference) Portions of the 2023 Annual Meeting proxy statement are incorporated by reference into Part III of this Form 10-K - Portions of the proxy statement for the 2023 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K[7](index=7&type=chunk)[8](index=8&type=chunk) [Table of Contents](index=3&type=section&id=Table%20of%20Contents) This section presents the detailed table of contents for the Annual Report on Form 10-K, outlining all parts and items - The table of contents provides a structured overview of the 10-K report, detailing all items from Part I to Part IV, including Business, Risk Factors, Financial Statements, and Exhibits[9](index=9&type=chunk) [Special Note Regarding Forward-Looking Statements](index=4&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This cautionary statement advises that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements identified by terms like 'anticipates,' 'expects,' 'intends,' and 'will,' which are subject to risks and uncertainties that could cause actual results to differ materially[11](index=11&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, and the company assumes no obligation to update them publicly[11](index=11&type=chunk) PART I This part covers the company's business operations, risk factors, properties, legal proceedings, and mine safety [ITEM 1. BUSINESS](index=5&type=section&id=ITEM%201.%20BUSINESS) CarParts.com, Inc. is a leading online provider of aftermarket auto parts, offering over 913,000 SKUs via its website and marketplaces - CarParts.com, Inc. is a leading online provider of aftermarket auto parts and accessories, offering over **913,000 SKUs** through its flagship website (www.carparts.com) and online marketplaces[13](index=13&type=chunk)[14](index=14&type=chunk) - The company's strategy is built on four pillars: outstanding customer service, operational excellence, financial discipline, and innovation, aiming to simplify vehicle repair and maintenance[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) - International operations in the Philippines handle website development, catalog management, back-office support, and the main call center, providing cost-effective technical skills[39](index=39&type=chunk) [Overview](index=5&type=section&id=Overview) This section introduces CarParts.com, Inc.'s business model, product offerings, and strategic focus - CarParts.com, Inc. is an online provider of aftermarket auto parts and accessories, aiming to simplify the online shopping experience for customers[13](index=13&type=chunk) - The company sells over **913,000 SKUs** primarily through its website (www.carparts.com) and online marketplaces, utilizing a proprietary product database for vehicle-specific applications[14](index=14&type=chunk) - The company's strategy focuses on outstanding customer service, operational excellence, financial discipline, and innovation[17](index=17&type=chunk) [Our Products](index=7&type=section&id=Our%20Products) The company's products are categorized into replacement parts, hard parts, and performance parts and accessories - Products are broadly classified into replacement parts (exterior, wear and tear, body repair, e.g., Kool-Vue® mirrors), hard parts (engine/chassis, mechanical/electrical, e.g., Evan Fischer® catalytic converters), and performance parts and accessories (enhance performance, upgrade functionality, improve appearance, e.g., JC Whitney®)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) [Our Sales Channels](index=7&type=section&id=Our%20Sales%20Channels) Sales channels include online platforms (website, marketplaces) and offline wholesale distributors - Sales channels include online (flagship website www.carparts.com and third-party online marketplaces like eBay and Amazon) and offline (auto parts wholesale distributors)[28](index=28&type=chunk)[29](index=29&type=chunk) [Our Fulfillment Operations](index=7&type=section&id=Our%20Fulfillment%20Operations) Customer orders are fulfilled via stock-and-ship from company distribution centers or direct drop-ship from suppliers - Customer orders are fulfilled via two methods: stock-and-ship (merchandise stored in company distribution centers in VA, IL, NV, TX, FL) and drop-ship (shipped directly from suppliers)[30](index=30&type=chunk)[31](index=31&type=chunk) - The proprietary Auto-Vend™ system electronically selects vendors, prioritizing company warehouses first, then appropriate third-party vendors based on customer location, cost, and service history[32](index=32&type=chunk)[34](index=34&type=chunk) [Suppliers](index=9&type=section&id=Suppliers) Products are sourced from Asia-Pacific manufacturers for house brands and U.S.-based distributors for branded products - Products are sourced from two primary regions: house brands from Asia-Pacific manufacturers/distributors (stock-and-ship, over **70,000 SKUs**) and branded products from U.S.-based drop-ship manufacturers/distributors (over **843,000 SKUs**)[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - Three drop-ship vendors accounted for approximately **9% of total product purchases** in fiscal year 2022[37](index=37&type=chunk) [Marketing](index=9&type=section&id=Marketing) Online marketing efforts include paid search, SEO, affiliate programs, and email to attract and retain customers - Online marketing efforts include paid search advertising, SEO, affiliate programs, email marketing, and online shopping engines to attract, convert, and retain customers[38](index=38&type=chunk) [International Operations](index=9&type=section&id=International%20Operations) Offshore operations in the Philippines provide website development, catalog management, and customer support - Offshore operations in the Philippines, established in April 2007, provide website development, catalog management, back-office support, and call center services at lower costs[39](index=39&type=chunk) [Competition](index=10&type=section&id=Competition) The auto parts industry is highly competitive and fragmented, with various online and offline competitors - The auto repair information and parts industry is highly competitive and fragmented, with competition from national auto parts retailers (e.g., AutoZone), large online marketplaces (e.g., Amazon, eBay), other online retailers, local independents, wholesale distributors, and direct-to-consumer manufacturers[40](index=40&type=chunk)[46](index=46&type=chunk) - Key competitive factors include ease of finding parts, consumer education, proprietary product catalog, broad selection, price, customer service, rapid fulfillment, and easy returns[41](index=41&type=chunk) [Human Capital](index=10&type=section&id=Human%20Capital) The company employs 1,532 individuals across the US and Philippines, focusing on diversity, engagement, and safety - As of December 31, 2022, the company had **1,532 employees** (**976 in the US**, **556 in the Philippines**), supplemented by independent contractors[42](index=42&type=chunk) - Employee demographics as of December 31, 2022: **39% women** and approximately **82% non-white**[43](index=43&type=chunk) - The company focuses on diversity and inclusion, employee engagement (surveys, training, career growth), and health and safety (policies, procedures, COVID-19 measures)[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) [Intellectual Property](index=12&type=section&id=Intellectual%20Property) The company protects its trademarks, patents, copyrights, and trade secrets through legal and technical measures - The company protects its intellectual property (trademarks, service marks, domain names, patents, copyrights, trade secrets) through laws, regulations, contractual provisions, and technical measures[48](index=48&type=chunk) - Key trademarks include Carparts.com®, Kool-Vue®, JC Whitney®, Evan Fischer®, SureStop®, TrueDrive®, DriveWire™, and DriveMotive™[49](index=49&type=chunk) [Government Regulation](index=12&type=section&id=Government%20Regulation) The company is subject to consumer protection laws, privacy regulations, and evolving online commerce rules - The company is subject to federal and state consumer protection laws, including those related to privacy, deceptive trade practices, and product safety[50](index=50&type=chunk) - The evolving regulatory landscape for online commerce, including potential new taxes and restrictions, could increase compliance burdens and costs[51](index=51&type=chunk) [Seasonality](index=12&type=section&id=Seasonality) The business experiences seasonality across categories, geographies, and channels, impacting financial results - The business is somewhat seasonal, with various categories, geographies, and channels experiencing seasonality based on external factors, which could materially impact financial condition and results of operations[52](index=52&type=chunk) [Available Information](index=12&type=section&id=Available%20Information) Annual, Quarterly, and Current Reports are available free of charge on the Investor Relations section of the website - Annual, Quarterly, and Current Reports (10-K, 10-Q, 8-K) are available free of charge on the Investor Relations section of the corporate website (www.carparts.com/investor) after filing with the SEC[53](index=53&type=chunk)[55](index=55&type=chunk) [ITEM 1A. RISK FACTORS](index=14&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces operational dependencies, intense competition, regulatory challenges, technology reliance, and financial volatility risks - The company is highly dependent on suppliers in Taiwan and China for the majority of its products, exposing it to complex regulatory regimes, logistical challenges, and geopolitical risks[57](index=57&type=chunk)[65](index=65&type=chunk)[67](index=67&type=chunk) - Reliance on third-party delivery services for both inbound and outbound shipping creates risks related to increased fees, service interruptions, and potential harm to reputation and financial condition[57](index=57&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The company operates in a competitive and fragmented auto parts industry with low barriers to entry, facing larger competitors and direct sales from suppliers, which could lead to reduced sales and profitability[57](index=57&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) - Security threats, including ransomware attacks, to IT infrastructure pose risks of liability, business interruption, and reputational damage, as demonstrated by a **$100,000** expense from a 2020 ransomware attack[62](index=62&type=chunk)[153](index=153&type=chunk) - The company recorded a **net loss for fiscal year 2022** and may continue to incur losses, which could severely impact liquidity and necessitate additional financing or operational curtailment[57](index=57&type=chunk)[86](index=86&type=chunk) [Risk Factors Summary](index=14&type=section&id=Risk%20Factors%20Summary) Key risks are categorized into operations, regulatory, technology, and capital stock, covering various business aspects - Key risks are categorized into operations, regulatory and litigation, technology use, and capital stock, covering dependencies on suppliers and delivery, competition, economic conditions, data security, and financial performance[57](index=57&type=chunk)[58](index=58&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[66](index=66&type=chunk) [Risks Related To Our Operations](index=18&type=section&id=Risks%20Related%20To%20Our%20Operations) Operational risks include dependence on foreign suppliers, third-party logistics, competition, and economic conditions - Dependence on Taiwan and China for product sourcing exposes the company to regulatory, logistical, and geopolitical risks, including potential tariffs and import restrictions[65](index=65&type=chunk)[67](index=67&type=chunk)[70](index=70&type=chunk) - Reliance on third-party delivery services for inbound and outbound shipping means increased fees (e.g., fuel surcharges) or service interruptions could harm business and financial condition[72](index=72&type=chunk)[73](index=73&type=chunk)[77](index=77&type=chunk) - The company recorded a **net loss of $951 thousand** for fiscal year 2022, and continued losses could impact liquidity and necessitate additional financing[86](index=86&type=chunk)[204](index=204&type=chunk) - Operations are restricted by a credit agreement with covenants that limit financing and operational flexibility, and borrowing capacity is subject to a borrowing base[87](index=87&type=chunk)[90](index=90&type=chunk)[93](index=93&type=chunk) - High dependence on key suppliers (top ten accounted for **~51% of product purchases** in FY2022) means interruptions or unfavorable terms could adversely affect business and results of operations[99](index=99&type=chunk) - The proprietary product catalog database is a key competitive advantage; its theft, damage, or replication by competitors could lead to a loss of this advantage[119](index=119&type=chunk) - Demand for aftermarket auto parts is sensitive to economic conditions, unemployment, inflation, and interest rates, potentially leading to deferred maintenance and reduced sales[120](index=120&type=chunk) - The business is seasonal, and failure to manage inventory levels to meet fluctuating demand could impact revenue and profitability[122](index=122&type=chunk) - Changes in vehicle miles driven, accident rates, or insurance company policies regarding replacement parts could negatively affect revenues[123](index=123&type=chunk) - The company is now required to collect sales tax in more states following the South Dakota v. Wayfair decision, which could increase costs for customers and reduce competitive advantage[124](index=124&type=chunk) [Regulatory And Litigation Risks](index=38&type=section&id=Regulatory%20And%20Litigation%20Risks) Regulatory and litigation risks stem from tariffs, product liability, privacy laws, intellectual property, and tax changes - New tariffs imposed by the U.S. government could force price increases or operational changes, negatively impacting sales, gross margin, and profitability[129](index=129&type=chunk) - Exposure to product liability lawsuits, especially for parts obtained overseas, could result in substantial damages and harm business and reputation, potentially exceeding insurance coverage[130](index=130&type=chunk) - Failure to comply with evolving privacy laws (e.g., CCPA) and adequately protect customer data could lead to legal actions, reputational damage, and loss of customers[131](index=131&type=chunk)[132](index=132&type=chunk)[134](index=134&type=chunk) - Challenges by OEMs to the aftermarket auto parts industry, including intellectual property infringement claims, could restrict sales of certain products and increase business costs[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) - Inability to protect intellectual property rights (trademarks, trade secrets, domain names) could impair brand recognition and customer loyalty[138](index=138&type=chunk)[140](index=140&type=chunk) - Changes in tax laws or regulations, such as the Tax Cuts and Jobs Act, could adversely affect business operations and financial performance, including the value of deferred tax assets[142](index=142&type=chunk) - Existing or future government regulations, including environmental laws and ESG matters, could expose the company to liabilities, costly operational changes, and reduced customer demand[143](index=143&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) [Risks Related To Our Use Of Technology](index=44&type=section&id=Risks%20Related%20To%20Our%20Use%20Of%20Technology) Technology risks involve reliance on search engines, data centers, cyber-attacks, system failures, and rapid change - Dependence on search engines and other online sources to attract customers means changes in algorithms, increased competition for ads, or higher fees could harm customer acquisition and results[148](index=148&type=chunk)[149](index=149&type=chunk)[151](index=151&type=chunk) - Reliance on bandwidth and data center providers, and other third parties, means any service failure or interruption could disrupt business and lead to customer loss[152](index=152&type=chunk) - Security threats, including ransomware attacks (e.g., June 2020 attack costing **$100,000**), could expose the company to liability, business interruption, and reputational damage[153](index=153&type=chunk) - Dependence on open-source software exposes the company to uncertainty and potential liability, including the risk of being forced to release proprietary source code[159](index=159&type=chunk) - System failures due to natural disasters, cyber-attacks, or other catastrophic events could prevent website access, reduce sales, and harm reputation[160](index=160&type=chunk)[161](index=161&type=chunk)[164](index=164&type=chunk) - Failure to respond to rapid technological change could render websites obsolete and adversely affect financial results[166](index=166&type=chunk) - Use of social media platforms carries risks of negative commentary, organized boycotts, and potential fines or penalties due to evolving regulations[167](index=167&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) [Risks Related To Our Capital Stock](index=52&type=section&id=Risks%20Related%20To%20Our%20Capital%20Stock) Capital stock risks include price volatility, fluctuating operating results, internal control failures, and anti-takeover provisions - The common stock price has been and may continue to be volatile, ranging from **$0.88 to $23.26 per share** between February 2007 and December 31, 2022, potentially resulting in losses for stockholders[171](index=171&type=chunk)[172](index=172&type=chunk) - Future operating results are expected to fluctuate due to various factors beyond control, including demand, competition, and macroeconomic conditions, potentially failing to meet market expectations[173](index=173&type=chunk)[177](index=177&type=chunk) - Failure to maintain an effective system of internal control over financial reporting or comply with Section 404 of Sarbanes-Oxley could lead to inaccurate financial reporting and a decline in stock price[176](index=176&type=chunk) - Charter documents contain provisions (e.g., authorized preferred stock, classified board, restrictions on stockholder actions) that could deter takeover efforts, limiting stockholders' ability to receive an acquisition premium[177](index=177&type=chunk)[178](index=178&type=chunk)[185](index=185&type=chunk) - The company does not intend to pay dividends on its common stock for the foreseeable future[180](index=180&type=chunk) - Future capital raises through equity issuance may dilute existing stockholders' ownership[181](index=181&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=56&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) This section indicates that there are no unresolved staff comments from the SEC - No unresolved staff comments were reported[182](index=182&type=chunk) [ITEM 2. PROPERTIES](index=56&type=section&id=ITEM%202.%20PROPERTIES) As of December 31, 2022, the company leased 1,296,000 square feet for headquarters and distribution centers Leased Properties as of December 31, 2022 | Property Type | Location | Square Footage (approx.) | | :--- | :--- | :--- | | Corporate Headquarters & Distribution Centers | Torrance, CA; Illinois; Virginia; Nevada; Texas; Florida (U.S.) | **1,280,000 sq ft** | | Office Space | Philippines | **16,000 sq ft** | | **Total Leased Space** | | **1,296,000 sq ft** | [ITEM 3. LEGAL PROCEEDINGS](index=56&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Legal proceedings information is incorporated by reference from 'Note 8-Commitments and Contingencies' in the financial statements - Legal proceedings information is incorporated by reference from 'Note 8-Commitments and Contingencies' in the financial statements[184](index=184&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=56&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine Safety Disclosures are not applicable to CarParts.com, Inc[185](index=185&type=chunk) PART II This part covers market information for common equity, management's discussion, market risk, and financial statements [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=57&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) This section details common stock trading on NASDAQ, stockholder information, dividend policy, and the stock repurchase program - Common stock trades on NASDAQ under the symbol 'PRTS'[187](index=187&type=chunk) - As of February 28, 2023, there were approximately **6 registered stockholders** of record[187](index=187&type=chunk) - No dividends were paid on common stock in fiscal year 2022, and the company does not anticipate paying cash dividends in the foreseeable future[188](index=188&type=chunk) - A **$30 million stock repurchase program** was authorized in July 2021. **$479 thousand** was repurchased in December 2021 at an average price of **$11.99 per share**. As of December 31, 2022, approximately **$29.5 million remained available**[190](index=190&type=chunk)[191](index=191&type=chunk) [ITEM 6. [RESERVED]](index=59&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is reserved and contains no information [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=59&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial condition and results of operations, highlighting key trends and liquidity - The company's strategy is supported by industry trends: increasing number of automotive SKUs, an expanding and aging U.S. vehicle fleet (**average age 12.2 years** in 2022), and projected growth of online auto parts sales to **over $21 billion by 2025**[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) - Key factors affecting performance include acquiring new customers in an underpenetrated online market and optimizing the supply chain to manage costs and delivery times[202](index=202&type=chunk)[203](index=203&type=chunk) - The increase in gross margin was primarily driven by favorable freight costs in 2022[205](index=205&type=chunk)[222](index=222&type=chunk) - Operating expense increased primarily due to higher fulfillment expenses from increased inventory receipts and fulfilled orders, as well as investments in the business[223](index=223&type=chunk) - Net cash provided by operating activities increased to **$15,368 thousand** in FY2022 from a net cash used of **$(6,988) thousand** in FY2021, driven by decreased net loss and lower working capital outflow[230](index=230&type=chunk)[231](index=231&type=chunk) - Total debt was **$20,669 thousand** as of December 31, 2022, primarily consisting of right-of-use obligations-finance[234](index=234&type=chunk) - The asset-based revolving Credit Facility was amended in June 2022, increasing the commitment to **$75 million** (from **$30 million**) with an option to increase to **$150 million**, maturing June 2027. No outstanding revolving loan balance as of December 31, 2022[235](index=235&type=chunk)[236](index=236&type=chunk) [Cautionary Statement](index=59&type=section&id=Cautionary%20Statement) This statement cautions readers about forward-looking information within the MD&A, noting actual results may differ - This section serves as a cautionary statement regarding forward-looking statements within the MD&A, advising readers that actual results may differ materially due to various risks and uncertainties[195](index=195&type=chunk)[196](index=196&type=chunk) [Overview](index=61&type=section&id=Overview) This section provides an overview of CarParts.com, Inc. and key industry trends supporting its growth - CarParts.com, Inc. is a leading online provider of aftermarket auto parts, leveraging a proprietary product database and an efficient online sales model[197](index=197&type=chunk) - Industry trends supporting growth include the increasing number of automotive SKUs, an expanding and aging U.S. vehicle fleet (**average age 12.2 years** in 2022), and the growth of online auto parts sales (projected **over $21 billion by 2025**)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) [Factors Affecting Our Performance](index=61&type=section&id=Factors%20Affecting%20Our%20Performance) Performance depends on customer acquisition in the online aftermarket and optimizing the supply chain amidst volatility - The company's performance depends on acquiring new customers in the underpenetrated online automotive aftermarket and optimizing its supply chain to manage costs and delivery times amidst global volatility and inflation[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) [Executive Summary](index=63&type=section&id=Executive%20Summary) This section provides a high-level summary of the company's key financial results for fiscal year 2022 versus 2021 Fiscal Year 2022 vs. 2021 Key Financials (in thousands) | Metric | FY2022 ($) | FY2021 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | **$661,604** | **$582,440** | **$79,164** | **13.6%** | | Net Loss | **$(951)** | **$(10,339)** | **$9,388** | **-90.8%** | | Adjusted EBITDA | **$26,113** | **$16,791** | **$9,322** | **55.5%** | | Gross Profit | **$230,890** | **$197,283** | **$33,607** | **17.0%** | | Gross Margin | **34.9%** | **33.9%** | **1.0 ppt** | **2.9%** | - The increase in gross margin was primarily driven by favorable freight costs in 2022[205](index=205&type=chunk) [Non-GAAP measures](index=63&type=section&id=Non-GAAP%20measures) The company provides non-GAAP financial measures like EBITDA and Adjusted EBITDA for supplemental performance analysis - The company provides non-GAAP financial measures, EBITDA and Adjusted EBITDA, to offer supplemental information for management and investors, aiding in consistent performance comparison by excluding items like stock compensation expense[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | FY2022 ($) | FY2021 ($) | FY2020 ($) | | :--- | :--- | :--- | :--- | | Net loss | **$(951)** | **$(10,339)** | **$(1,513)** | | Depreciation & amortization | **13,607** | **9,895** | **7,657** | | Amortization of intangible assets | **108** | **110** | **102** | | Interest expense, net | **1,421** | **1,089** | **1,694** | | Taxes | **632** | **351** | **307** | | **EBITDA** | **$14,817** | **$1,106** | **$8,247** | | Stock compensation expense | **$11,296** | **$15,685** | **$7,778** | | **Adjusted EBITDA** | **$26,113** | **$16,791** | **$16,025** | [Components of Results of Operations](index=65&type=section&id=Components%20of%20Results%20of%20Operations) This section defines the components of net sales, cost of sales, operating expense, and other income/expense - Net Sales are generated from online (www.carparts.com, online marketplaces) and offline (wholesale distributors, collision repair shops) channels, with online being primary[214](index=214&type=chunk) - Cost of Sales includes direct product costs, outbound freight/shipping (**$93,593 thousand** in FY2022), warehouse supplies, and warranty costs, offset by purchase discounts[215](index=215&type=chunk)[343](index=343&type=chunk) - Operating Expense comprises marketing, general and administrative, fulfillment, and technology expenses, including share-based compensation[216](index=216&type=chunk) - Other Income, Net includes miscellaneous income/expense and interest income, while Interest Expense covers revolving loan, letters of credit, deferred financing cost amortization, and finance lease interest[217](index=217&type=chunk)[219](index=219&type=chunk) [Results of Operations](index=67&type=section&id=Results%20of%20Operations) This section analyzes the company's net sales, gross profit, operating expenses, and net loss for the fiscal year Results of Operations as Percentage of Net Sales | Metric | FY2022 (%) | FY2021 (%) | FY2020 (%) | | :--- | :--- | :--- | :--- | | Net sales | **100.0%** | **100.0%** | **100.0%** | | Cost of sales | **65.1%** | **66.1%** | **65.0%** | | Gross profit | **34.9%** | **33.9%** | **35.0%** | | Operating expense | **34.8%** | **35.4%** | **34.9%** | | Income (loss) from operations | **0.2%** | **(1.5)%** | **0.1%** | | Total other expense, net | **(0.1)%** | **(0.2)%** | **(0.3)%** | | Loss before income taxes | **(0.0)%** | **(1.7)%** | **(0.2)%** | | Income tax provision | **0.1%** | **0.1%** | **0.1%** | | Net loss | **(0.1)%** | **(1.8)%** | **(0.3)%** | - Net sales increased by **$79,164 thousand** (**13.6%**) in FY2022 compared to FY2021, driven by strong demand[221](index=221&type=chunk) - Gross profit increased by **$33,607 thousand** (**17.0%**), and gross margin improved by **100 basis points to 34.9%** in FY2022, primarily due to favorable freight costs[222](index=222&type=chunk) - Operating expense increased by **$23,845 thousand** (**11.6%**) in FY2022, mainly due to higher fulfillment expenses from increased order processing and business investments[223](index=223&type=chunk) - Total other expense, net, increased by **$93 thousand** (**10.6%**) in FY2022, primarily due to higher interest expense from finance leases[224](index=224&type=chunk) - The income tax provision increased by **$281 thousand** (**80.1%**) in FY2022. The company maintained a valuation allowance of **$37,565 thousand** against deferred tax assets due to cumulative losses[225](index=225&type=chunk)[397](index=397&type=chunk) [Liquidity and Capital Resources](index=68&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flows, working capital, debt, and credit facility - The company's operations were funded by cash from operations and borrowings under its Credit Facility. Cash and cash equivalents increased by **$623 thousand to $18,767 thousand** as of December 31, 2022[227](index=227&type=chunk) - Working capital was **$79,843 thousand** as of December 31, 2022, up from **$71,808 thousand** as of January 1, 2022[229](index=229&type=chunk) Cash Flow Summary (in thousands) | Activity | FY2022 ($) | FY2021 ($) | FY2020 ($) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | **$15,368** | **$(6,988)** | **$(19,068)** | | Net cash used in investing activities | **$(12,517)** | **$(11,551)** | **$(9,758)** | | Net cash (used in) provided by financing activities | **$(2,153)** | **$902** | **$62,361** | | Net change in cash and cash equivalents | **$623** | **$(17,658)** | **$33,529** | - Total debt was **$20,669 thousand** as of December 31, 2022, primarily from right-of-use obligations-finance[234](index=234&type=chunk) - The Credit Facility was amended in June 2022, increasing the revolving commitment to **$75 million** (from **$30 million**) and allowing for an **additional $75 million increase**, maturing June 2027. No outstanding revolving loan balance as of December 31, 2022[235](index=235&type=chunk)[236](index=236&type=chunk) - The company was in compliance with all covenants under the Credit Agreement as of December 31, 2022[241](index=241&type=chunk) [Seasonality](index=74&type=section&id=Seasonality) The business experiences seasonality across categories, geographies, and channels, impacting financial results - The business is somewhat seasonal, with various categories, geographies, and channels experiencing seasonality based on external factors, which could materially impact financial condition and results of operations[246](index=246&type=chunk) [Recent Accounting Pronouncements](index=74&type=section&id=Recent%20Accounting%20Pronouncements) The company did not adopt any recently issued accounting pronouncements during fiscal years 2022 or 2021 - The company did not adopt any recently issued accounting pronouncements during fiscal years 2022 or 2021[247](index=247&type=chunk) [Critical Accounting Policies and Estimates](index=74&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant judgment, particularly in inventory valuation and income tax estimates - Critical accounting policies and estimates involve significant judgment, particularly in the valuation of inventory (reserves for obsolete/slow-moving products) and income taxes (realization of deferred tax assets and uncertain tax positions)[248](index=248&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk)[255](index=255&type=chunk) - The company uses the FIFO method for inventory and values it at the lower of cost or net realizable value, with provisions for obsolete inventory based on expected disposition and recoverable values[249](index=249&type=chunk)[330](index=330&type=chunk) - Deferred tax assets are recognized for future tax consequences, with a valuation allowance established when realization is not more likely than not, considering cumulative losses and future profitability[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=76&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks from interest rate changes and foreign currency fluctuations, with minimal impact - Interest rate risk is associated with the revolving loan under the Credit Facility, but a hypothetical 100 basis point change would not materially affect interest expense or cash flows, as there was no outstanding revolving loan balance as of December 31, 2022[257](index=257&type=chunk) - Foreign currency risk primarily stems from operating expenses in the Philippines, paid in Philippine Pesos. A hypothetical **10%** change in exchange rates would not have a material impact on consolidated financial statements[258](index=258&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=76&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section incorporates audited consolidated financial statements, including balance sheets, operations, and cash flows - The audited consolidated financial statements and supplementary data are incorporated by reference from Part IV, Item 15 of this report[259](index=259&type=chunk) [Report of Independent Registered Public Accounting Firm](index=93&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) RSM US LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting - RSM US LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2022, in conformity with U.S. GAAP[290](index=290&type=chunk) - The firm also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[291](index=291&type=chunk) - Inventory Reserves were identified as a critical audit matter due to the high degree of auditor judgment and subjectivity in evaluating management's assumptions regarding expected disposition and recoverable values[295](index=295&type=chunk)[296](index=296&type=chunk) [Consolidated Balance Sheets](index=98&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, including assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability/Equity | Dec 31, 2022 ($) | Jan 1, 2022 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | **$18,767** | **$18,144** | | Inventory, net | **$136,026** | **$138,851** | | Total current assets | **$167,871** | **$168,602** | | Total assets | **$238,399** | **$235,336** | | Accounts payable | **$57,616** | **$67,372** | | Total current liabilities | **$88,028** | **$96,794** | | Total liabilities | **$128,327** | **$139,768** | | Total stockholders' equity | **$110,072** | **$95,568** | [Consolidated Statements of Operations and Comprehensive Operations](index=99&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Operations) This section details the company's revenues, expenses, net loss, and comprehensive income for the fiscal periods Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | FY2022 ($) | FY2021 ($) | FY2020 ($) | | :--- | :--- | :--- | :--- | | Net sales | **$661,604** | **$582,440** | **$443,884** | | Gross profit | **$230,890** | **$197,283** | **$155,366** | | Operating expense | **$230,239** | **$206,394** | **$155,071** | | Income (loss) from operations | **$651** | **$(9,111)** | **$295** | | Net loss | **$(951)** | **$(10,339)** | **$(1,513)** | | Basic and diluted net loss per share | **$(0.02)** | **$(0.20)** | **$(0.04)** | | Weighted-average common shares outstanding | **54,137** | **51,381** | **42,333** | [Consolidated Statements of Stockholders' Equity](index=100&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section presents changes in stockholders' equity, including net loss, share-based compensation, and stock transactions - Total stockholders' equity increased from **$95,568 thousand** as of January 1, 2022, to **$110,072 thousand** as of December 31, 2022, despite a net loss, primarily due to share-based compensation and actuarial gains[315](index=315&type=chunk) - Key changes in stockholders' equity during FY2022 included **$12,395 thousand** in share-based compensation, **$1,284 thousand** from stock option exercises, and **$795 thousand** from ESPP issuance[315](index=315&type=chunk) [Consolidated Statements of Cash Flows](index=101&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details cash flows from operating, investing, and financing activities, showing changes in cash Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | FY2022 ($) | FY2021 ($) | FY2020 ($) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | **$15,368** | **$(6,988)** | **$(19,068)** | | Net cash used in investing activities | **$(12,517)** | **$(11,551)** | **$(9,758)** | | Net cash (used in) provided by financing activities | **$(2,153)** | **$902** | **$62,361** | | Net change in cash and cash equivalents | **$623** | **$(17,658)** | **$33,529** | | Cash and cash equivalents, end of period | **$18,767** | **$18,144** | **$35,802** | - Operating activities generated **$15,368 thousand** in cash in FY2022, a significant improvement from cash used in prior years, primarily due to decreased net loss and lower working capital outflow[319](index=319&type=chunk)[231](index=231&type=chunk) - Investing activities consistently used cash, primarily for additions to property and equipment, including capitalized website and software development costs (**$12,585 thousand** in FY2022)[319](index=319&type=chunk)[232](index=232&type=chunk) - Financing activities used **$2,153 thousand** in FY2022, mainly due to decreased proceeds from stock option exercises and increased payments on finance leases[319](index=319&type=chunk)[233](index=233&type=chunk) [Notes to Consolidated Financial Statements](index=102&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's accounting policies, estimates, and financial statement items [Note 1 – Summary of Significant Accounting Policies and Nature of Operations](index=102&type=section&id=Note%201%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Nature%20of%20Operations) This note outlines the company's business, fiscal year, use of estimates, inventory valuation, and revenue recognition - The company is an online provider of aftermarket auto parts, selling replacement, hard, and performance parts through its website and online marketplaces, and offline to wholesale distributors[320](index=320&type=chunk)[321](index=321&type=chunk) - The fiscal year is 52/53 weeks, ending on the Saturday closest to December 31. FY2022 and FY2021 were both 52-week periods[323](index=323&type=chunk) - Key estimates include the net realizable value of inventory and the valuation of deferred tax assets and liabilities[325](index=325&type=chunk) - Inventory is valued at the lower of cost or net realizable value using the FIFO method, with provisions for obsolete and slow-moving items. Inventory in-transit was **$17,444 thousand** as of December 31, 2022[330](index=330&type=chunk)[331](index=331&type=chunk) - Website and software development costs are capitalized and amortized over two to five years. Capitalized costs were **$11,067 thousand** in FY2022[332](index=332&type=chunk) - Revenue from product sales is recognized upon shipment, net of promotional discounts and return allowances. No single customer accounted for more than **10% of net sales**[336](index=336&type=chunk)[341](index=341&type=chunk) - Total freight and shipping expense included in cost of sales was **$93,593 thousand** in FY2022[343](index=343&type=chunk) - Advertising costs, a component of marketing expense, were **$79,854 thousand** in FY2022[345](index=345&type=chunk) - Share-based compensation is accounted for under ASC 718, with expense recognized based on grant date fair values for stock options and RSUs[346](index=346&type=chunk)[347](index=347&type=chunk) - Effective July 3, 2022, the functional currency of the Philippines subsidiary changed from local currency to the U.S. dollar, with foreign currency gains/losses now included in net loss[357](index=357&type=chunk) [Note 2 – Fair Value Measurements](index=113&type=section&id=Note%202%20%E2%80%93%20Fair%20Value%20Measurements) This note describes the fair value hierarchy used for financial instruments and assets, including cash and equivalents - The company uses a three-tier fair value hierarchy (Level 1, 2, 3). Cash and cash equivalents are classified as Level 1 assets, valued at **$18,767 thousand** as of December 31, 2022[361](index=361&type=chunk)[362](index=362&type=chunk) - Long-lived assets and intangibles are measured at fair value on a non-recurring basis for impairment assessment; no impairment charges were recorded in FY2022[363](index=363&type=chunk) [Note 3 – Property and Equipment, Net](index=113&type=section&id=Note%203%20%E2%80%93%20Property%20and%20Equipment%2C%20Net) This note provides details on the company's property and equipment, including categories and net values Property and Equipment, Net (in thousands) | Category | Dec 31, 2022 ($) | Jan 1, 2022 ($) | | :--- | :--- | :--- | | Machinery and equipment | **$10,660** | **$10,525** | | Computer software (purchased and developed) and equipment | **$24,143** | **$14,785** | | Vehicles | **$305** | **$251** | | Leasehold improvements | **$2,457** | **$1,772** | | Furniture and fixtures | **$513** | **$395** | | Construction in process | **$10,341** | **$11,170** | | Less accumulated depreciation and amortization | **$(24,129)** | **$(18,162)** | | **Property and equipment, net** | **$24,290** | **$20,736** | - Depreciation and amortization expense for property and equipment was **$13,607 thousand** in FY2022[364](index=364&type=chunk) - Construction in process primarily relates to internally developed software[367](index=367&type=chunk) [Note 4 – Borrowings](index=115&type=section&id=Note%204%20%E2%80%93%20Borrowings) This note details the company's credit facility, including commitment amounts, interest rates, and covenant compliance - The asset-based revolving Credit Facility was amended on June 17, 2022, increasing the revolving commitment to **$75,000 thousand** (from **$30,000 thousand**) with an option to increase to **$150,000 thousand**, maturing June 17, 2027[370](index=370&type=chunk) - As of December 31, 2022, the outstanding revolving loan balance was **$0**, and standby letters of credit totaled **$620 thousand**[371](index=371&type=chunk) - Loans bear interest at SOFR plus an applicable margin (**1.50%-2.00%**) or an alternate prime base rate. As of December 31, 2022, SOFR-based rate was **5.96%** and prime-based rate was **7.50%**[372](index=372&type=chunk) - The Credit Agreement includes customary restrictive covenants and events of default, and the company was in compliance with all covenants as of December 31, 2022[374](index=374&type=chunk)[375](index=375&type=chunk) [Note 5 – Stockholders' Equity and Share-Based Compensation](index=117&type=section&id=Note%205%20%E2%80%93%20Stockholders%27%20Equity%20and%20Share-Based%20Compensation) This note covers changes in stockholders' equity, public offerings, stock repurchase programs, and share-based compensation - In August 2020, the company completed a public equity offering, raising **$60,531 thousand** in net proceeds[376](index=376&type=chunk) - All Series A Preferred Stock automatically converted to common stock in June 2020, resulting in **2,620,687 shares** of common stock issued[377](index=377&type=chunk) - A **$30 million** stock repurchase program was authorized in July 2021; **$479 thousand** was repurchased in FY2021, with no repurchases in FY2022[378](index=378&type=chunk)[380](index=380&type=chunk) - The 2021 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at a discount. **107 shares** were issued under ESPP in FY2022[381](index=381&type=chunk) - The 2016 Equity Incentive Plan had approximately **1,432 thousand shares** available for future grants as of December 31, 2022[383](index=383&type=chunk) - Total intrinsic value of exercised stock options was **$4,085 thousand** in FY2022. Unrecognized share-based compensation expense for stock options was **$814 thousand** as of December 31, 2022[385](index=385&type=chunk) - **2,677 thousand Restricted Stock Units (RSUs)** were granted in FY2022 (**1,634 time-based**, **1,043 performance-based**). Unrecognized compensation expense for RSUs was **$19,598 thousand** as of December 31, 2022[386](index=386&type=chunk)[389](index=389&type=chunk)[391](index=391&type=chunk) - Total share-based compensation expense was **$11,296 thousand** in FY2022, net of **$1,180 thousand** capitalized to internally-developed software[392](index=392&type=chunk) [Note 6 – Net Loss Per Share](index=122&type=section&id=Note%206%20%E2%80%93%20Net%20Loss%20Per%20Share) This note details the computation of basic and diluted net loss per share, including anti-dilutive securities Net Loss Per Share Computation (in thousands, except per share data) | Metric | FY2022 ($) | FY2021 ($) | FY2020 ($) | | :--- | :--- | :--- | :--- | | Net loss allocable to common shares | **$(951)** | **$(10,339)** | **$(1,584)** | | Weighted-average common shares outstanding (basic and diluted) | **54,137** | **51,381** | **42,333** | | Basic and diluted net loss per share | **$(0.02)** | **$(0.20)** | **$(0.04)** | - All potentially dilutive securities were excluded from diluted net loss per share calculation for all periods presented as their inclusion would have been anti-dilutive[393](index=393&type=chunk) [Note 7 – Income Taxes](index=123&type=section&id=Note%207%20%E2%80%93%20Income%20Taxes) This note provides information on the income tax provision, effective tax rate, NOLs, and valuation allowance Income Tax Provision (in thousands) | Category | FY2022 ($) | FY2021 ($) | FY2020 ($) | | :--- | :--- | :--- | :--- | | Total current taxes | **$632** | **$351** | **$307** | | Total deferred taxes | **$112** | **$(7,035)** | **$(678)** | | Valuation allowance | **$(112)** | **$7,035** | **$678** | | **Income tax provision** | **$632** | **$351** | **$307** | - The effective tax rate for FY2022 was **(198.0)%**, differing from the U.S. federal rate primarily due to non-deductible share-based compensation and the change in valuation allowance[394](index=394&type=chunk) - As of December 31, 2022, federal NOL carryforwards were **$103,323 thousand** (expiring from 2029) and state NOL carryforwards were **$80,280 thousand** (expiring from 2023)[397](index=397&type=chunk) - A valuation allowance of **$37,565 thousand** was maintained against deferred tax assets as of December 31, 2022, due to cumulative losses in recent years[397](index=397&type=chunk) [Note 8 – Commitments and Contingencies](index=126&type=section&id=Note%208%20%E2%80%93%20Commitments%20and%20Contingencies) This note details the company's lease commitments, including finance and operating leases, and legal proceedings - The company leases its corporate headquarters and distribution centers in the U.S. and office space in the Philippines. Total lease cost was **$9,686 thousand** in FY2022[401](index=401&type=chunk)[402](index=402&type=chunk) Lease Commitments as of December 31, 2022 (in thousands) | Year | Finance Leases ($) | Operating Leases ($) | Total ($) | | :--- | :--- | :--- | :--- | | 2023 | **$5,839** | **$5,551** | **$11,390** | | 2024 | **$5,031** | **$5,528** | **$10,559** | | 2025 | **$3,985** | **$5,139** | **$9,124** | | 2026 | **$3,002** | **$4,464** | **$7,466** | | 2027 | **$1,723** | **$4,424** | **$6,147** | | Thereafter | **$5,737** | **$4,039** | **$9,776** | | **Total minimum payments required** | **$25,317** | **$29,145** | **$54,462** | | Present value of lease obligations | **$20,669** | **$25,983** | **$46,652** | - The company is a defendant in asbestos-related lawsuits and ordinary course litigation, but does not expect material adverse effects due to liability insurance coverage[404](index=404&type=chunk)[405](index=405&type=chunk) [Note 9 – Employee Retirement Plan and Deferred Compensation Plan](index=127&type=section&id=Note%209%20%E2%80%93%20Employee%20Retirement%20Plan%20and%20Deferred%20Compensation%20Plan) This note describes the company's 401(k) retirement plan and the Management Deferred Compensation Plan - The company offers a 401(k) defined contribution retirement plan, with discretionary matching contributions totaling **$850 thousand** in FY2022[407](index=407&type=chunk) - The Management Deferred Compensation Plan allows highly compensated employees to defer salary/bonus, informally funded by mutual funds held in a rabbi trust. As of December 31, 2022, assets were **$491 thousand** and liabilities were **$697 thousand**[408](index=408&type=chunk)[410](index=410&type=chunk) [Note 10 – Product Information](index=129&type=section&id=Note%2010%20%E2%80%93%20Product%20Information) This note provides a breakdown of revenue distribution by product type, distinguishing between house and branded products Revenue Distribution by Product Type | Product Type | FY2022 (%) | FY2021 (%) | FY2020 (%) | | :--- | :--- | :--- | :--- | | **House Brands** | | | | | Replacement Parts | **67%** | **68%** | **71%** | | Hard Parts | **20%** | **18%** | **17%** | | Performance | **1%** | **1%** | **1%** | | **Branded** | | | | | Replacement Parts | **1%** | **1%** | **1%** | | Hard Parts | **7%** | **7%** | **6%** | | Performance | **4%** | **5%** | **4%** | | **Total** | **100%** | **100%** | **100%** | [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=76&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) This section states that there have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[260](index=260&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=78&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2022, providing reasonable assurance for timely and accurate SEC reporting[262](index=262&type=chunk) - Management concluded that internal controls over financial reporting were effective as of December 31, 2022, based on the COSO 2013 framework, with no material weaknesses identified[263](index=263&type=chunk)[265](index=265&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2022[266](index=266&type=chunk) [ITEM 9B. OTHER INFORMATION](index=78&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) This section states that there is no other information to report - No other information was reported[267](index=267&type=chunk) [ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS](index=80&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to the company[268](index=268&type=chunk) PART III This part incorporates information on directors, executive compensation, security ownership, related transactions, and accounting fees [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=81&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information on directors, executive officers, corporate governance, and the Code of Ethics is incorporated by reference - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders[271](index=271&type=chunk)[274](index=274&type=chunk) - The company has adopted a Code of Ethics and Business Conduct applicable to all directors, officers, and employees, available on its investor relations website[274](index=274&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=81&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information regarding executive compensation is incorporated by reference from the Proxy Statement - Executive compensation details are incorporated by reference from the Proxy Statement[272](index=272&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=81&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information on security ownership of beneficial owners, management, and equity compensation plans is incorporated by reference - Security ownership information for certain beneficial owners and management, and details on equity compensation plans, are incorporated by reference from the Proxy Statement[273](index=273&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=81&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information concerning certain relationships, related transactions, and director independence is incorporated by reference - Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement[274](index=274&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES](index=83&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement - Details on principal accounting fees and services are incorporated by reference from the Proxy Statement[275](index=275&type=chunk) PART IV This part lists the financial statements and provides a comprehensive index of exhibits filed [ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES](index=84&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements and provides a comprehensive index of exhibits filed - The section includes a list of financial statements: Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations and Comprehensive Operations, Stockholders' Equity, and Cash Flows, along with Notes to Consolidated Financial Statements[278](index=278&type=chunk)[288](index=288&type=chunk) - All financial statement schedules are omitted because the required information is included in the consolidated financial statements and notes[279](index=279&type=chunk) - A detailed Exhibit Index is provided, listing various agreements (e.g., Stock Purchase, Credit), equity incentive plans, employment agreements, and certifications (e.g., CEO/CFO certifications)[280](index=280&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk)

Carparts.Com, Inc. (NASDAQ:PRTS) Q3 2022 Earnings Conference Call November 9, 2022 5:00 PM ET Company Participants Tina Mirfarsi - VP, Communications and Culture David Meniane - CEO, SVP & Director Ryan Lockwood - CFO Conference Call Participants Thomas Forte - D.A. Davidson & Co. Ryan Meyers - Lake Street Capital Markets Dillon Heslin - ROTH Capital Partners Ryan Sigdahl - Craig-Hallum Operator Good afternoon, and welcome to the CarParts.com Third Quarter 2022 Conference Call. [Operator Instructions]. I wo ...

Financial Data and Key Metrics Changes - The company reported record sales of $176 million for Q2 2022, representing a 12% year-over-year increase and a 44% increase on a two-year stack [7][17] - Gross profit reached a record $62 million, up 16%, with gross margins improving by 120 basis points to 35% compared to 33.9% in the same period last year [18] - Net income for the quarter was $4.1 million, compared to $2.1 million in Q2 2021, while adjusted EBITDA was $8.3 million, flat compared to the previous year [19] Business Line Data and Key Metrics Changes - The mechanical parts business comprised 27% hard parts, 67% replacement parts, and 6% performance parts, remaining flat year-over-year [57] - The company aims for a long-term target of 45% to 50% mechanical parts, 45% to 50% collision parts, and 5% to 10% performance accessories [58] Market Data and Key Metrics Changes - The company is currently carrying approximately $40 million or eight extra weeks of inventory to account for longer lead times in the supply chain [21] - The company expects to convert excess inventory back to cash as the supply chain normalizes over the next six to twelve months [51] Company Strategy and Development Direction - The company is focusing on four areas: outstanding customer service, operational excellence, financial discipline, and innovation [8] - The strategy includes redefining the company from a parts provider to a customer-oriented company with a digital-first experience [9] - The company is expanding its offerings to include the ability for customers to find trusted local mechanics for repairs, which has already seen hundreds of successful bookings [14][33] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about achieving double-digit year-over-year growth in the second half of 2022 despite broader macroeconomic challenges [24][38] - The company is prioritizing free cash flow and operational efficiencies before investing in new fulfillment centers [34][36] - Management expressed confidence in handling potential cost pressures in 2023 due to effective hedging strategies [68] Other Important Information - The company has entered into a $150 million, five-year credit facility with JPMorgan Chase, enhancing liquidity for growth without tapping capital markets [7][20] - The Jacksonville distribution center is nearly fully operational and expected to contribute positively during the 2023 peak season [37] Q&A Session Summary Question: Can you talk about your gross margin performance? - Management highlighted that gross margins improved due to leveraging data science and a vertically integrated supply chain [30] Question: Where are you now with your do-it-for-me efforts? - Management indicated that hundreds of successful bookings have been completed, and while it may not contribute significantly to topline revenue immediately, it is expected to be a game changer in the long run [31][33] Question: What are your plans for additional fulfillment center square footage? - Management stated that the focus is currently on maximizing the existing network's efficiency before considering new investments [34][36] Question: How contributory was the Jacksonville center to topline? - Management noted that quantifying the contribution is challenging due to the focus on delivery speed and optimization [47] Question: What is the current state of container pricing and logistics? - Management observed signs of improvement in supply chain conditions and expects inventory levels to decrease over time [50][51] Question: How is the do-it-for-me initiative being marketed? - Management mentioned that the current customer base is the primary source for this initiative, with no additional marketing costs incurred [52][54] Question: What feedback have you received from mechanics regarding the do-it-for-me offering? - Management reported positive feedback from mechanics and customers, indicating a successful partnership and an expanded addressable market [64]

Financial Data and Key Metrics Changes - CarParts.com achieved record sales of $166 million, up 15% year-over-year, and adjusted EBITDA increased 165% to a record $9.4 million [6][16] - Gross profit rose 24% to $61 million, with gross margins improving by 280 basis points to 36.8% compared to 34% in the same period last year [17][18] - Net profit for the quarter was $2.1 million, compared to a loss of $2.7 million in Q1 2021 [18] Business Line Data and Key Metrics Changes - Hard parts contributed approximately 29% of sales, while replacement parts accounted for 66%, with a year-over-year increase in hard parts mix by about 600 basis points [41] Market Data and Key Metrics Changes - The total addressable market for aftermarket parts exceeds $300 billion, with CarParts.com capturing less than 1% of that market [10] Company Strategy and Development Direction - The company is focused on outstanding customer service, operational excellence, financial discipline, and innovation [11][12][13][14] - Plans to expand the "do-it-for-me" market, aiming to become a one-stop destination for auto repair and maintenance [14][46] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about demand despite macroeconomic pressures, emphasizing that the business serves essential needs [40] - The company expects to continue double-digit year-over-year revenue growth for fiscal year 2022, correlating with the opening of new distribution centers [21] Other Important Information - The company is currently carrying approximately $40 million in extra inventory to account for longer lead times in the supply chain [20] - The Texas distribution center is almost fully stocked, and the Jacksonville facility is on schedule to be operational by the end of Q2 [23] Q&A Session Summary Question: Was there anything unique affecting gross margin this quarter? - Management indicated that gross margin improvements are sustainable and driven by data science optimization [30] Question: How is the company navigating supply chain challenges? - Management highlighted their capabilities in demand planning and logistics to ensure parts availability and speed to customers [32] Question: What are the capital allocation priorities? - The focus is on profitable growth and free cash flow generation, with potential for stock buybacks subject to Board approval [50][52] Question: How is the demand environment for end customers? - Management confirmed solid demand, noting that the business addresses essential needs rather than discretionary spending [40] Question: What is the contribution of mechanical parts during the quarter? - Hard parts contributed 29% of the mix, which positively impacted gross margin [41][44] Question: Update on the do-it-for-me offering? - The initiative is progressing well, with expectations for it to become a larger part of the business over time [46]

CarParts.com Inc. (NASDAQ:PRTS) Q4 2021 Earnings Conference Call March 1, 2022 5:00 PM ET Company Participants Lev Peker - CEO Ryan Lockwood - SVP of Finance David Meniane - COO & CFO Conference Call Participants Darren Aftahi - ROTH Capital Partners Victoria James - D.A. Davidson Operator Good afternoon, and welcome to CarParts.com Fourth Quarter 2021 Conference Call. [Operator Instructions] On the call from the company are Lev Peker, Chief Executive Officer; David Meniane, Chief Operating Officer and Chi ...

CarParts.com (NASDAQ:PRTS) Q3 2021 Earnings Conference Call November 2, 2021 5:00 PM ET Company Participants Lev Peker - Chief Executive Officer David Meniane - Chief Operating Officer and Chief Financial Officer Conference Call Participants Ryan Sigdahl - Craig-Hallum Thomas Forte - D.A. Davidson Operator Welcome to the CarParts.com Third Quarter 2021 Earnings Conference Call. On the call from the company is Lev Peker, the Chief Executive Officer; and David Meniane, Chief Operating Officer and Chief Financ ...