Core Viewpoint - CarParts.com is exploring strategic alternatives, including a potential sale, after receiving inbound inquiries, with no set timeline for completion and no certainty of a strategic change [1][2] Company Performance - In the third quarter, CarParts.com reported a 13% decline in net sales year-over-year, totaling $144.8 million, alongside a net loss of $10 million [3] - The sales decrease was attributed to deliberate price increases aimed at higher value customers, gross margin expansion, and challenges in the consumer environment, as well as one-time impacts from external events [4] Strategic Initiatives - The company has invested significantly in building a vertically integrated supply chain and a nationwide fulfillment network to enhance its eCommerce experience and mobile app [3] - CarParts.com is undergoing a re-platforming process to improve performance and reduce development cycles, with expectations to capitalize on opportunities in the $400 billion auto parts market [5] User Engagement - The cumulative downloads of CarParts.com's mobile app have more than doubled to over 550,000 at the beginning of the year, indicating growing user engagement despite sales challenges [4]

Financial Performance and Key Metrics - The company achieved over $2 billion in annual sales for the first time, with a year-over-year net sales growth of 4.1% [8][10] - Consolidated net sales for Q4 2024 were $534 million, an 8% increase year-over-year, driven by strong customer demand [13][30] - Adjusted operating margin for Q4 was 17.5%, expanding 210 basis points compared to the same period last year [14][33] - Adjusted diluted EPS increased by 40% to $2.20 for the quarter [15][33] - Free cash flow for Q4 was $63 million, allowing for $54 million in debt repayment [15][41] Business Segment Performance - Light Duty segment saw net sales increase by 11% year-over-year, with a segment profit margin of 20.1%, up 350 basis points [35][36] - Heavy Duty segment experienced an 8% decline in net sales due to ongoing market challenges, with plans for new product development to capture market share when conditions improve [37][28] - Specialty Vehicles segment reported a 5% increase in net sales, driven by new product initiatives and an expanded dealer network [39][28] Market Data and Key Metrics - Vehicle miles traveled increased year-over-year, contributing to strong POS growth in the Light Duty segment [26] - The Heavy Duty market remains soft, with delayed repairs impacting sales performance [78][81] - Specialty Vehicle market showed signs of stabilization, but inflation and high interest rates continue to affect new machine acquisition [96] Company Strategy and Industry Competition - The company emphasizes innovation as a core strategy, focusing on new product development and operational excellence [16][20] - Plans to diversify and optimize the supply chain to enhance flexibility and reduce country-specific concentration [23] - The acquisition pipeline remains robust, with expectations for improved M&A activity as trade uncertainties clear [24][69] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the operational model and strategic growth opportunities for 2025, despite uncertainties around tariffs and macroeconomic factors [46][48] - The company expects net sales growth of 3% to 5% in 2025, with light duty driving solid sales growth [48][49] - Heavy Duty segment is expected to see flattish sales growth, while Specialty Vehicle is projected to experience modest growth [49] Other Important Information - The company has a new $500 million stock repurchase plan effective January 1, 2025, expiring in December 2027 [42][94] - The balance sheet remains strong, with net debt reduced to $426 million and total liquidity at $642 million [43][44] Q&A Session Summary Question: Update on tariff exposure related to China - Management indicated that approximately 30% of purchases will come from the U.S. in 2025, with 30% to 40% from China, making the current tariff situation manageable [61][60] Question: Early signs in the heavy-duty market and channel expansion - Management noted that the heavy-duty market is stabilizing, with a focus on new product launches and productivity initiatives [64][65] Question: Heavy-duty market performance drivers - Delayed repairs are impacting the heavy-duty market, with expectations for a robust ramp-up once the market inflects [78][81] Question: M&A pipeline opportunities - The M&A pipeline is robust across all segments, but activity has slowed due to trade uncertainties [69] Question: Capital allocation priorities - The company prioritizes debt management, internal investments, and then M&A, with share buybacks being opportunistic [93][94] Question: Specialty Vehicle market dynamics - The Specialty Vehicle market is down overall, but the company has focused on non-discretionary repair parts and channel expansion to outperform [97][96] Question: Margin profile of complex electronics - Complex electronics within the light vehicle segment have a strong margin profile, typically outperforming the overall business [108] Question: Inflation rate and pricing outlook - Management anticipates a low single-digit inflation rate in the absence of tariffs, with general inflation affecting costs [111]

Financial Data and Key Metrics Changes - Net sales for Q4 were $833 million, down 5.6% year-over-year, with adjusted EBITDA of $110 million and a margin of 13.2%, a decrease of 160 basis points year-over-year [6][7][18] - Adjusted free cash flow was $72 million for Q4, up from $55 million in the same period last year, and total liquidity was approximately $1 billion [7][22] - Adjusted net earnings per diluted share in Q4 were $0.71, impacted by a high effective tax rate of 41.5% [19][22] Business Line Data and Key Metrics Changes - The aftermarket segment saw a year-over-year increase of 4.9% due to higher volume and pricing, while fuel systems segment sales were down 11.7% [17][20] - Adjusted operating income was $78 million with a 9.4% adjusted operating margin, reflecting a year-over-year decrease [18] - The aftermarket segment margin decreased by 140 basis points to 14.9%, while fuel systems segment margins improved by 110 basis points to 11.4% [20] Market Data and Key Metrics Changes - Combined commercial vehicle markets accounted for 39% of revenues, with OES and independent aftermarket at 34% and LPV OE at 27% [11] - The industry is expected to see light vehicle ICE sales down in the low single-digit range globally, while CV sales are expected to increase in the low to mid single-digit range [23][24] Company Strategy and Development Direction - The company aims to continue focusing on financial discipline, growing its aftermarket, commercial, and industrial OE business, and leveraging human and manufacturing capital efficiently [13][14] - The company is entering 2025 from a position of strength, with a strong free cash flow generating business and an increased share repurchase program [14][28] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro environment remains challenging, with expectations for a flat to modest increase in sales in 2025, impacted by exchange rates [25][26] - The company is focused on operational efficiencies and exploring new growth areas, with adjusted EBITDA projected to be between $450 million and $490 million for 2025 [27][28] Other Important Information - The company returned $256 million to shareholders via dividends and share buybacks in 2024, reflecting confidence in cash flow generation [12][14] - The company is actively pursuing M&A opportunities that align with its strategic goals while maintaining financial discipline [58] Q&A Session Summary Question: CapEx details and impact on margins - The CapEx for the year was $105 million, primarily for new machinery and program launches, with expectations that these investments will support future margin improvements [30][31] Question: Aerospace and defense market entry - The second product win in aerospace and defense is with the same customer, utilizing the same facility and equipment, with expectations for more opportunities following quality certification [34][36] Question: Tax rate concerns - The high tax rate is due to inefficiencies in the legacy structure, with ongoing efforts to address these issues over the long term [44][46] Question: Segment expectations for 2025 - The company anticipates continued softness in light vehicle sales but expects growth in the aftermarket segment to offset some of the declines [49][50] Question: M&A opportunities - The company is looking for specific assets to expand its commercial vehicle and aftermarket exposures, focusing on profitable companies that can add EPS [58][59] Question: GDi market penetration - Current GDi penetration rates are around 60-65%, with the company maintaining mid-teen market share and expecting further gains through new program launches [61][62]