Core Insights - CarParts.com, Inc. has appointed Christina Thelin as Chief Marketing Officer, who will report directly to CEO David Meniane and oversee various marketing functions [1][2] - Thelin brings over 20 years of marketing experience, having previously served as CMO in the tech industry and worked with Fortune 100 brands such as Google, Procter & Gamble, Visa, and Twitter [2] - The company emphasizes enhancing customer experience, engagement, and brand recognition as part of its growth strategy [2] Company Overview - CarParts.com is a technology-driven eCommerce company that offers over 1 million high-quality automotive parts and accessories, operating for over 25 years [3] - The company focuses on customer satisfaction and affordability, aiming to simplify the automotive repair process through a user-friendly website and app [3] - CarParts.com is headquartered in Torrance, California, and is committed to empowering drivers along their journey [3]

Company Overview - CarParts.com, Inc. is a technology-driven eCommerce company that offers over 1 million high-quality automotive parts and accessories [6] - The company has been operating for over 25 years and has established itself as a premier destination for drivers seeking repair and maintenance solutions [6] - CarParts.com is headquartered in Torrance, California [8] Business Model and Commitment - The company places the customer at the forefront of its operations, evident in its easy-to-use, mobile-friendly website and app [6] - CarParts.com aims to simplify the automotive repair process, eliminating uncertainty and stress associated with vehicle maintenance [6] - The company is committed to affordability and customer satisfaction, ensuring swift delivery of top-quality parts from leading brands across the nation [6] Upcoming Events - CarParts.com will hold a conference call on July 30, 2024, at 2:00 p.m. Pacific Time to discuss its financial results for the second quarter ended June 29, 2024 [4] - The results will be reported in a press release prior to the call [4] - The conference call will be hosted by CEO David Meniane, CFO Ryan Lockwood, and COO Michael Huffaker, followed by a question and answer period [5]

Today, CarParts.com proudly debuts its first major campaign in over two decades. The future of DIY car care is here with CarParts.com. The brand's new campaign, "Now That's My Speed," showcases how easy it is to access over 1 million parts at your fingertips with the CarParts.com app. "Our customers have always been at the center of our business," said David Meniane, Chief Executive Officer of CarParts.com. "This campaign was developed using extensive testing to ensure our message resonates deeply with our ...

Ryan Sigdahl - Craig-Hallum Capital Group Ryan Meyers - Lake Street Capital Markets. Operator 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. Tina Mirfarsi Hello, everyone and thank you for joining us for the CarParts.com first quarter conference call. Joining me today are David Meniane, Chief Executive Officer; Ryan Lockwood, Chief Financial Officer; and Michael Huffak ...

Financial Performance - Net sales for Q1 2024 were $166.3 million, a decrease of 5% compared to $175.5 million in Q1 2023[6] - Gross profit was $53.9 million, down from $62.6 million, resulting in a gross margin of 32.4%, a decline of 320 basis points year-over-year[7] - The company reported a net loss of $6.5 million, or $0.11 per share, compared to a net income of $1.1 million, or $0.02 per share in the prior year[7] - Adjusted EBITDA for Q1 2024 was $1.1 million, significantly lower than $9.4 million in Q1 2023[7] - Net loss for the thirteen weeks ended March 30, 2024, was $6,478 million, compared to a net income of $1,051 million for the same period in 2023[28] Guidance and Projections - The company aims for net sales in the range of $600 million to $625 million for the full year 2024, down from previous guidance of $662 million to $688 million[13] - Gross margin is expected to be around 33%, plus or minus 100 basis points, which is an improvement from the previous guidance of 31%[13] - The company is targeting a 6-8% Adjusted EBITDA margin in the medium term while increasing free cash flow generation[6] Cash and Liquidity - Cash balance as of March 30, 2024, was $46.0 million, with no revolver debt, down from $51.0 million at the end of the previous fiscal year[9] - Cash and cash equivalents decreased to $46,046 million from $50,951 million, a decline of about 11.5%[28] - Net cash provided by operating activities was $3,652 million, a significant decrease from $32,781 million in the prior year[28] - Cash received during the period for interest was $437 million, compared to $11 million in the prior year, indicating improved interest income[28] Assets and Liabilities - Total assets increased to $263,224 million as of March 30, 2024, up from $257,855 million on December 30, 2023, representing a growth of approximately 2.7%[26] - Total current liabilities remained relatively stable at $112,188 million, slightly down from $112,986 million[26] - Total stockholders' equity decreased to $109,152 million from $112,831 million, reflecting a decline of approximately 3.0%[26] Inventory and Capital Expenditure - Inventory levels decreased to $120,015 million from $128,901 million, a reduction of about 6.9%[26] - Additions to property and equipment amounted to $7,431 million, compared to $2,745 million in the same period last year, indicating increased capital expenditure[28] Operational Focus - The mobile app now contributes over 8% of total eCommerce revenue, with 38% of revenue coming from repeat customers[3] - The company is focusing on margin expansion through pricing optimization, marketing, supply chain, and technology improvements[5] - The company reported a depreciation and amortization expense of $4,025 million, up from $3,919 million in the previous year[28]

Financial Data and Key Metrics - Q4 2023 sales were $156 million, bringing full-year 2023 sales to a record-breaking $676 million, up 2% YoY and 16% on a 2-year stack [13] - Adjusted EBITDA for Q4 was $1 million, and $19.7 million for the full year 2023, down from $26.1 million in 2022 [13][30] - Gross profit for Q4 was $51.6 million, flat YoY, while full-year gross profit was $229.4 million, down slightly from $230.9 million in 2022 [16] - GAAP net loss for Q4 was $6.1 million, compared to $6.2 million in the prior year, and full-year GAAP net loss was $8.2 million versus $1 million in 2022 [27] - The company repurchased 726,000 shares in Q4, bringing total repurchases in 2023 to 1.2 million shares [13][31] Business Line Data and Key Metrics - The mobile app now generates over 7% of total e-commerce revenue, with over 250,000 downloads [20][29] - Revenue from the friction category (brakes and rotors) increased by over 40% YoY, accounting for approximately 5% of total volume [20] - The third-party premium brands business grew over 25% YoY, now a profitable $100 million revenue business [21] - Website traffic reached over 100 million visits in 2023, with 38% of e-commerce revenue coming from repeat customers [20] Market Data and Key Metrics - The company saw sustained price deflation due to macroeconomic challenges, with unit growth of approximately 8% in Q4 2023 [13] - The automotive aftermarket is valued at $389 billion, and the company is well-positioned to capture market share as consumer confidence rebounds [13] - The company expects revenue growth in 2024 to range from -2% to +2%, driven by deflation and mid- to high single-digit unit growth [8] Company Strategy and Industry Competition - The company is focusing on expanding its tech and product offerings, including growing third-party premium brands and enhancing the e-commerce experience [21][64] - A new semi-automated facility in Las Vegas is expected to open in Q2 2024, driving operating leverage and reducing last-mile transportation costs [14][22] - The company is prioritizing marketing and branding efforts, including YouTube content, which saw a 10x increase in views YoY in early 2024 [7][64] - The company aims to reduce marketing spend from 12.3% to 10% of revenue, with a focus on app engagement and organic growth [45][49] Management Commentary on Operating Environment and Future Outlook - The company faced a challenging macroeconomic environment in 2023, with price compression and deflation impacting margins [8][9] - Management expects deflation to continue through the first three quarters of 2024, with gross profit margins projected to be around 31% ±100 basis points [8] - The company is focused on cost reduction initiatives, including the elimination of 150 global roles, expected to save $10 million annually [62] - Management remains confident in the company's long-term growth potential, citing a large TAM, an aging car fleet, and low online penetration in the automotive aftermarket [52][58] Other Important Information - The company ended 2023 with $51 million in cash and an untapped revolver of up to $75 million [13][24] - Inventory at the end of Q4 was $129 million, down from $136 million in the prior year [31] - The company renewed its share repurchase program through July 2026, with $25 million remaining [31] Q&A Session Summary Question: Focus areas for 2024 and cost reduction efforts [35] - Management highlighted three key priorities for 2024: e-commerce experience and app engagement, product offering expansion, and marketing/branding [41] - The company is deferring some initiatives, such as the do-it-for-me offering, to focus on immediate growth opportunities [53] Question: Impact of cost reductions and gross margin guidance [47][59] - The company reduced 15% of corporate roles and 10% of frontline roles, with annualized savings of $10 million [47] - Gross margin guidance for 2024 is 31% ±100 basis points, impacted by deflation and outbound freight costs [59] Question: Mobile app growth and marketing spend flexibility [49] - The mobile app has seen strong organic growth, with higher average selling prices and repeat purchase rates [49] - The company aims to reduce marketing spend by 100-200 basis points over the next few years [49] Question: Revenue guidance range and factors influencing it [51] - Revenue guidance for 2024 is -2% to +2%, with the range influenced by price compression, deflation, and macro factors [51] Question: Do-it-for-me offering and its contribution in 2024 [53] - The do-it-for-me initiative is a long-term bet, but the company is deferring it to focus on immediate growth opportunities in 2024 [53]

Financial Performance - For fiscal year 2023, the company generated net sales of $675,729, an increase of 2.1% compared to $661,604 in fiscal year 2022[199]. - The company incurred a net loss of $8,223 in fiscal year 2023, compared to a net loss of $951 in fiscal year 2022[199]. - Gross profit decreased by 0.6% to $229,406, with a gross margin decline of 100 basis points to 33.9% in fiscal year 2023[200]. - Operating expenses increased by $9,048, or 3.9%, for fiscal year 2023, totaling $239,287, representing 35.4% of net sales[218]. - Adjusted EBITDA for fiscal year 2023 was $19,687, down from $26,113 in fiscal year 2022[206]. - The company’s net loss before interest, taxes, depreciation, and amortization was $19,687 in fiscal year 2023[199]. - The increase in net sales was primarily driven by continued demand despite a decrease in gross margin due to unfavorable freight costs[217]. - Total other income increased by $2,773, or 285.9%, for fiscal year 2023 compared to fiscal year 2022, primarily due to higher interest income from increased interest rates and cash balance[219]. - Income tax provision decreased by $487, or 77.1%, from $632 in fiscal year 2022 to $145 in fiscal year 2023[220]. Cash Flow and Debt Management - Cash and cash equivalents rose to $50,951 as of December 30, 2023, representing a $32,184 increase from $18,767 as of December 31, 2022[222]. - Net cash provided by operating activities increased to $50,001 for the fiscal year ended December 30, 2023, compared to $15,368 for the prior year[225]. - Total debt decreased to $16,635 as of December 30, 2023, down from $20,669 as of December 31, 2022[228]. - The Company maintains a revolving Credit Facility with a principal amount of up to $75,000, which can be increased to $150,000 under certain conditions[229]. - The Company had no outstanding revolving loan balance as of December 30, 2023[230]. Tax and Deferred Assets - The Company maintained a valuation allowance of $38,458 against deferred tax assets due to cumulative losses in recent years[220]. - Federal and state NOL carryforwards were $105,224 and $84,780, respectively, with federal NOL carryforwards beginning to expire in 2029[221]. Market Trends and Product Offering - The average age of U.S. light vehicles reached a record-high of 12.5 years in 2023, indicating increased demand for aftermarket parts[197]. - The U.S. Auto Care Association projects that online sales of auto parts and accessories will reach approximately $21 billion by 2025, supporting the company's growth strategy[198]. - The company offers approximately 1,047,000 SKUs on its flagship website and app, providing a comprehensive selection for consumers[196]. Investment Activities - Net cash used in investing activities was $11,901 for the fiscal year ended December 30, 2023, primarily due to additions to property and equipment[226].

TORRANCE, Calif. – March 7th, 2024 – CarParts.com, Inc. (NASDAQ: PRTS), one of the leading eCommerce providers of automotive parts and accessories, and a one-stop shop for vehicle repair and maintenance needs, is reporting results for the fourth quarter and fiscal year ended December 30,2023. Fiscal Year 2023Summary vs. Fiscal Year 2022 Fourth Quarter 2023Summary vs.Year-Ago Quarter Management Commentary CarParts.com Reports Highest Fiscal Year Sales in Company History Record Fiscal Year Sales of $676 milli ...

CarParts.com, Inc. (NASDAQ:PRTS) Q3 2023 Earnings Conference Call October 30, 2023 5:00 PM ET Company Participants Tina Mirfarsi - SVP, Communications and Culture David Meniane - CEO Michael Huffaker - COO Ryan Lockwood - CFO Conference Call Participants Ryan Sigdahl - Craig-Hallum Capital Group Darren Aftahi - ROTH MKM Ryan Meyers - Lake Street Operator 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 n ...

[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)