CarParts.com(PRTS) - 2022 Q4 - Annual Report

Front Matter This section outlines filing details, incorporated documents, table of contents, and forward-looking statements Form 10-K Details 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 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][8] Table of Contents 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] Special Note Regarding Forward-Looking Statements 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] - Readers are cautioned not to place undue reliance on forward-looking statements, and the company assumes no obligation to update them publicly[11] PART I This part covers the company's business operations, risk factors, properties, legal proceedings, and mine safety ITEM 1. BUSINESS 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][14] - 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][18][19][20][21] - International operations in the Philippines handle website development, catalog management, back-office support, and the main call center, providing cost-effective technical skills[39] 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] - 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] - The company's strategy focuses on outstanding customer service, operational excellence, financial discipline, and innovation[17] Our Products 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][25][26][27] Our Sales Channels 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][29] Our Fulfillment Operations 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][31] - 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][34] 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][36][37] - Three drop-ship vendors accounted for approximately 9% of total product purchases in fiscal year 2022[37] 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] International Operations 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] 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][46] - Key competitive factors include ease of finding parts, consumer education, proprietary product catalog, broad selection, price, customer service, rapid fulfillment, and easy returns[41] Human Capital 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] - Employee demographics as of December 31, 2022: 39% women and approximately 82% non-white[43] - The company focuses on diversity and inclusion, employee engagement (surveys, training, career growth), and health and safety (policies, procedures, COVID-19 measures)[43][44][45] Intellectual Property 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] - Key trademarks include Carparts.com®, Kool-Vue®, JC Whitney®, Evan Fischer®, SureStop®, TrueDrive®, DriveWire™, and DriveMotive™[49] Government Regulation 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] - The evolving regulatory landscape for online commerce, including potential new taxes and restrictions, could increase compliance burdens and costs[51] 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] Available Information 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][55] ITEM 1A. RISK FACTORS 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][65][67] - 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][72][73] - 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][110][111][112] - 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][153] - 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][86] Risk Factors Summary 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][58][60][61][62][63][66] Risks Related To Our Operations 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][67][70] - 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][73][77] - The company recorded a net loss of $951 thousand for fiscal year 2022, and continued losses could impact liquidity and necessitate additional financing[86][204] - 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][90][93] - 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] - 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] - Demand for aftermarket auto parts is sensitive to economic conditions, unemployment, inflation, and interest rates, potentially leading to deferred maintenance and reduced sales[120] - The business is seasonal, and failure to manage inventory levels to meet fluctuating demand could impact revenue and profitability[122] - Changes in vehicle miles driven, accident rates, or insurance company policies regarding replacement parts could negatively affect revenues[123] - 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] Regulatory And Litigation Risks 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] - 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] - 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][132][134] - 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][136][137] - Inability to protect intellectual property rights (trademarks, trade secrets, domain names) could impair brand recognition and customer loyalty[138][140] - 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] - 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][146][147] Risks Related To Our Use Of Technology 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][149][151] - 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] - 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] - 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] - System failures due to natural disasters, cyber-attacks, or other catastrophic events could prevent website access, reduce sales, and harm reputation[160][161][164] - Failure to respond to rapid technological change could render websites obsolete and adversely affect financial results[166] - Use of social media platforms carries risks of negative commentary, organized boycotts, and potential fines or penalties due to evolving regulations[167][169][170] Risks Related To Our Capital Stock 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][172] - 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][177] - 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] - 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][178][185] - The company does not intend to pay dividends on its common stock for the foreseeable future[180] - Future capital raises through equity issuance may dilute existing stockholders' ownership[181] ITEM 1B. UNRESOLVED STAFF COMMENTS This section indicates that there are no unresolved staff comments from the SEC - No unresolved staff comments were reported[182] ITEM 2. PROPERTIES 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 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] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Mine Safety Disclosures are not applicable to CarParts.com, Inc[185] 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 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] - As of February 28, 2023, there were approximately 6 registered stockholders of record[187] - 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] - 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][191] ITEM 6. [RESERVED] This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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][199][200] - 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][203] - The increase in gross margin was primarily driven by favorable freight costs in 2022[205][222] - Operating expense increased primarily due to higher fulfillment expenses from increased inventory receipts and fulfilled orders, as well as investments in the business[223] - 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][231] - Total debt was $20,669 thousand as of December 31, 2022, primarily consisting of right-of-use obligations-finance[234] - 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][236] Cautionary Statement 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][196] 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] - 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 $21 billion by 2025)[198][199][200] Factors Affecting Our Performance Performance depends on customer acquisition in the online aftermarket and optimizing the supply chain amidst volatility - The company's performance depends on acquiring new customers in the underpenetrated online automotive aftermarket and optimizing its supply chain to manage costs and delivery times amidst global volatility and inflation[201][202][203] Executive Summary This section provides a high-level summary of the company's key financial results for fiscal year 2022 versus 2021 Fiscal Year 2022 vs. 2021 Key Financials (in thousands) | Metric | FY2022 ($) | 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 | $33,607 | 17.0% | | Gross Margin | 34.9% | 33.9% | 1.0 ppt | 2.9% | - The increase in gross margin was primarily driven by favorable freight costs in 2022[205] Non-GAAP measures The company provides non-GAAP financial measures like EBITDA and Adjusted EBITDA for supplemental performance analysis - The company provides non-GAAP financial measures, EBITDA and Adjusted EBITDA, to offer supplemental information for management and investors, aiding in consistent performance comparison by excluding items like stock compensation expense[207][208][209] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | FY2022 ($) | 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 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] - 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][343] - Operating Expense comprises marketing, general and administrative, fulfillment, and technology expenses, including share-based compensation[216] - 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][219] Results of Operations 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] - 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] - 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] - Total other expense, net, increased by $93 thousand (10.6%) in FY2022, primarily due to higher interest expense from finance leases[224] - 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][397] Liquidity and Capital Resources 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] - Working capital was $79,843 thousand as of December 31, 2022, up from $71,808 thousand as of January 1, 2022[229] Cash Flow Summary (in thousands) | Activity | FY2022 ($) | 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] - 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][236] - The company was in compliance with all covenants under the Credit Agreement as of December 31, 2022[241] 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] Recent Accounting Pronouncements 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] Critical Accounting Policies and Estimates 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][249][250][255] - 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][330] - 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][251][252][253][254] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] - 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] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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] Report of Independent Registered Public Accounting Firm 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] - 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] - 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][296] Consolidated Balance Sheets 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 | $95,568 | Consolidated Statements of Operations and Comprehensive Operations This section details the company's revenues, expenses, net loss, and comprehensive income for the fiscal periods Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | FY2022 ($) | 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 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] - Key changes in stockholders' equity during FY2022 included $12,395 thousand in share-based compensation, $1,284 thousand from stock option exercises, and $795 thousand from ESPP issuance[315] Consolidated Statements of Cash Flows This section details cash flows from operating, investing, and financing activities, showing changes in cash Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | FY2022 ($) | 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][231] - 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][232] - Financing activities used $2,153 thousand in FY2022, mainly due to decreased proceeds from stock option exercises and increased payments on finance leases[319][233] Notes to Consolidated Financial Statements 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 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][321] - The fiscal year is 52/53 weeks, ending on the Saturday closest to December 31. FY2022 and FY2021 were both 52-week periods[323] - Key estimates include the net realizable value of inventory and the valuation of deferred tax assets and liabilities[325] - 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][331] - Website and software development costs are capitalized and amortized over two to five years. Capitalized costs were $11,067 thousand in FY2022[332] - 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][341] - Total freight and shipping expense included in cost of sales was $93,593 thousand in FY2022[343] - Advertising costs, a component of marketing expense, were $79,854 thousand in FY2022[345] - Share-based compensation is accounted for under ASC 718, with expense recognized based on grant date fair values for stock options and RSUs[346][347] - 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] Note 2 – Fair Value Measurements 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 $18,767 thousand as of December 31, 2022[361][362] - Long-lived assets and intangibles are measured at fair value on a non-recurring basis for impairment assessment; no impairment charges were recorded in FY2022[363] Note 3 – Property and Equipment, Net This note provides details on the company's property and equipment, including categories and net values Property and Equipment, Net (in thousands) | Category | Dec 31, 2022 ($) | 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] - Construction in process primarily relates to internally developed software[367] Note 4 – Borrowings 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] - As of December 31, 2022, the outstanding revolving loan balance was $0, and standby letters of credit totaled $620 thousand[371] - 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] - 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][375] Note 5 – Stockholders' Equity and Share-Based Compensation 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] - All Series A Preferred Stock automatically converted to common stock in June 2020, resulting in 2,620,687 shares of common stock issued[377] - A $30 million stock repurchase program was authorized in July 2021; $479 thousand was repurchased in FY2021, with no repurchases in FY2022[378][380] - 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] - The 2016 Equity Incentive Plan had approximately 1,432 thousand shares available for future grants as of December 31, 2022[383] - 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] - 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][389][391] - Total share-based compensation expense was $11,296 thousand in FY2022, net of $1,180 thousand capitalized to internally-developed software[392] Note 6 – Net Loss Per Share This note details the computation of basic and diluted net loss per share, including anti-dilutive securities Net Loss Per Share Computation (in thousands, except per share data) | Metric | FY2022 ($) | 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) | $(0.04) | - All potentially dilutive securities were excluded from diluted net loss per share calculation for all periods presented as their inclusion would have been anti-dilutive[393] Note 7 – Income Taxes This note provides information on the income tax provision, effective tax rate, NOLs, and valuation allowance Income Tax Provision (in thousands) | Category | FY2022 ($) | 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] - 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] - 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] Note 8 – Commitments and Contingencies 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 $9,686 thousand in FY2022[401][402] Lease Commitments as of December 31, 2022 (in thousands) | Year | Finance Leases ($) | 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][405] Note 9 – Employee Retirement Plan and Deferred Compensation Plan 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] - 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][410] Note 10 – Product Information 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 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] ITEM 9A. CONTROLS AND PROCEDURES 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] - 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][265] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2022[266] ITEM 9B. OTHER INFORMATION This section states that there is no other information to report - No other information was reported[267] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to the company[268] 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 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][274] - 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] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the Proxy Statement - Executive compensation details are incorporated by reference from the Proxy Statement[272] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 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] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 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] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 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] PART IV This part lists the financial statements and provides a comprehensive index of exhibits filed ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 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][288] - All financial statement schedules are omitted because the required information is included in the consolidated financial statements and notes[279] - 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][281][282][283][284]