All right, so the potential for online disruption in the automotive aftermarket has always been a big question that comes up. So that is why we're happy to host the next company, CarParts.com. CarParts.com is a 100% pure-play online provider of aftermarket parts. So speaking with us today is Ryan Lockwood, Chief Financial Officer. The company has 57 million shares at $0.70 for a market cap of $40 million and net cash of about $20 million. Ryan, thank you for being here.
Hey, thank you everybody for coming. I'm going to skip to here. So it's very interesting. You know, our company, it's a very large pure-play e-commerce website. We have 100 million visitors annually. We actually have the number one eBay store in the entire world, regardless of category or geography. Last year we had 6.8 million orders. This year is going to be slightly lower, but still a significant amount of orders. I'll mention, I'll go into detail on a later page, but actually we fulfill the majority of these orders through our own fulfillment network. We have 1.25 million sq ft of warehouse. We launched a mobile app recently that has 550,000 downloads. And this we think is going to be an important driver of operating leverage. So right now, advertising expense runs about 13% of sales, and each click costs about 18%.
But as many of us use the Amazon app to shop directly with Amazon, we bypass Google. The hope is that similarly, as our customers download the app and utilize it, advertising expense should come down. And we have a very strong repeat rate with our customers. Over 30% of revenues derive from repeat customers on a 12-month lookback. Last year we had $676 million of revenue. This year we updated our guidance. It's going to be lower. It's $595 million -$600 million, but that was part of our strategy to increase gross margins, given the newer, tougher macro environment. We have 1,500 team members globally. You know, I'll kind of skip through this. Make everyone's life easier on a shorter time frame.
So the part that's really interesting is the auto parts industry is very large and incredibly fragmented. You know, the total addressable market, $405 billion, expected TAM of $435 billion. A lot of the, you know, brick and mortar stores, you know, I think O'Reilly was just up here, they actually don't represent the majority of sales to customers. So a lot of people are either shopping online, people go to their local shop, they take their car in to get repaired, but it's highly fragmented. And the amount of cars on the road and the age of cars continues to go up every year.
The e-commerce market is very underpenetrated. You know, it's 22% overall e-commerce online penetration, much higher. I think it's travel at 70% or electronics. It's much higher as well. Auto parts are still very low penetration, but we have seen a shifting in consumer behavior as people are becoming more, open to buying online. A lot of people, because of YouTube, are more open to learning about how to repair their car online and learning about how to, you know, install a headlight, change their brakes. And then once they learn from the tutorial, the next logical thing is to just click and buy. And we have, you know, hundreds of online tutorials that are teaching people how to do this. And it's a great source of free traffic.
So one thing that we do that's very different versus a lot of people is we have a really amazing seamless online experience because online is our primary method of distribution. So our app and our website are incredibly fast. We've launched a lot of amazing improvements such as VIN Lookup. Today we have launched Upsell and cross-sell . We started, we added a lot of assortment like wheels and tires. And so there's a lot of things that we do where if you shop on, say, a RockAuto, a lot of you guys have a computer up. If you pull RockAuto, the website experience is just, I think, a little bit, less consumer-friendly is what I'll say to be politically correct.
We have a very large cross-channel reach. We've been around for a long time. Over 10 million email subscribers, 238,000 followers. Our website gets over 100 million visits. And we're actually mobile-first. 80% of our traffic comes from mobile. And as I mentioned, you know, we have a lot of, people that have cumulatively downloaded the app. It's actually over 8% of revenue. We sell everything. This is another interesting fact about us. So replacement parts, or as some people call it, collision parts, we're the second largest importer of collision parts in the country, behind LKQ. Hard parts we also sell: brake discs, wheel hubs, shocks, and struts. So what's interesting is if you go to an O'Reilly or AutoZone, you're mostly only buying hard parts. If you work with someone like an LKQ, you're mostly only buying replacement parts. We actually have a full assortment of over 1 million SKUs, so people can complete the entire job.
You know, our extensive proprietary catalog, 85% of what we sell is private label. So our catalog is something that we're developing ourselves in-house. We have over 100 category specialists, that are helping to build the data, make sure fitment is good. And we also have a broad selection of, you know, the best-known brands, if for any car guys that are familiar with these.
As I mentioned earlier, we have an integrated supply chain network. You know, over 1 million sq ft of warehouse footage across the entire country. We can hit 99% of population in two days, across our five distribution centers. We actually have a beautiful warehouse up here in Las Vegas that we just opened, state of the art, if anyone wants a tour, so our customer experience, as I mentioned, is really good, so I think it's, when people think of car parts, I think a lot of people believe it's a very transitory purchase where someone buys and never comes back. Actually, our return revenue, and on 12-month lookback, which I think is important, some people promote lookbacks, or they say 10-year lookback. In just a 12-month lookback, a lot of people buy from us and repurchase and come back, and I think the important thing to remember is, in a lot of the country, people have multiple cars.
Every, literally every person over 16 in a household has a car in some parts of the country. So people will buy from us for the, you know, husband might buy brakes for his truck, and then he might buy a bumper for his son. So we actually do a very good job of leveraging and maintaining customers once we acquire them. Net Promoter Score is very high, and we have very good customer satisfaction rates. So what are we trying to do to increase, you know, our adjusted EBITDA and grow the company over time? So, you know, supercharging the automotive e-commerce and mobile app experience. Getting away from Google has been, is going to be a primary factor for us. It's the way we've primarily acquired customers in the past, but it's not completely efficient in the long run, and expanding our product assortment and services.
This company was founded on collision parts, but, you know, this new management team that has come in over the last couple of years has, we have dramatically increased the things that we sell, in the auto space because there's, as a large e-commerce player, we have the economies of scale to negotiate with top-tier suppliers and sell items we never used to sell. So wheels and tires, European parts, Japanese parts, and increasing brand awareness. I think it's kind of interesting if you guys walk around the mall here and said, "Hey, you need to buy car parts online tonight. Where would you buy them?" You said our name, and probably everyone's going to say Amazon or AutoZone. So I look at that as an opportunity where, as we build brand awareness, how can we drive more consumer engagement and conversion? Because we are, we do have a broader selection than some of our competitors, and we're significantly cheaper.
You know, this year we worked really diligently on, you know, realigning our customer segmentation. You know, for people who may not be aware, it's a very tough environment for the lower-income consumer right now. And, you know, the number one, I think, you know, job of a retailer is don't give a coupon to someone who would have bought anyways. And so what we've tried to do is essentially reprice a lot of our products and retarget away from promotion and focus more on, I think, a higher margin and more likely to repeat consumer.
As I mentioned, we launched a new mobile app, and we actually replatformed our whole website. So if you look at the major two investments we made this year, one was moving our Las Vegas facility up the street and doubling the size. And the second one was making a new website where our old website was actually so old you had to type and code, and product developments would take six to nine months. Our new website, now we can launch things essentially every two weeks. So we've improved the search engine. We added Upsell Cross-Sell. We added shipping protection, extended warranty, VIN Lookup. And it's one of these things where, to us, these are just table stakes of what you would expect from a company, in 2024, but this website never had it. And so we've been making significant upgrades to be able to add revenue that doesn't have a gross profit hit from freight or to increase basket size.
You know, so the other thing that we've been doing is trying to drive customer acquisition away from Google, so we invested in two new YouTube channels, where they do instructional videos, both in English and in Spanish, and we've had significant good click-through, and it's all free, so for some reason, if you search for a tutorial on Google, I don't know why they just always want to send you to YouTube. I think the two might be related, so but once you build it out, it's a perpetual asset that people always click through, and we don't pay, and so this has been a great source of free traffic for us.
We've also engaged with a lot of social media influencers where we're sending, they're called micro influencers, where we're sending people some free parts, which are nothing for us at cost, but getting hundreds to millions, hundreds of thousands to millions of views, into our site, which is very efficient. Financial profile, you know, we have a very stable balance sheet despite what we're trading. You know, $38 million of cash. We had $97 million of inventory on the books at the end of the quarter. And our pre-freight margins are in the mid-50%s.
We have to-- we show it on the books as $97 million due to the, you know, GAAP rule of lower of cost or net realizable value. But if you double that to street value and then take some kind of a discount to it, you know, we technically have about $200 million of inventory, $38 million of cash, and then $75 million on the asset-based credit line. You know, A, we have a lot of room for liquidity if the economy got worse, but B, on a liquidation value versus our market value, we think it's very attractive. You know, we've had significant revenue growth in the past. It's a little bit tighter this year just given the macro, but we do believe we're able to get back to those old revenue levels over time. And we did purchase shares in 2023. This year we've been a little bit more frugal just to be cautious given the macro. But I think over the long run, as we return to significant free cash flow, the goal is to return shares, return value to shareholders through repurchases.
So I tried to leave some time for questions. Hopefully that was good.
Yeah, perfect. Thank you so much. Just, some fundamental data, if you could kind of, your typical customer, you touched on it, but maybe, some people provide like salary or I know you talked about, you know, where they might fall in that, any details around there, versus the average ticket size.
Yeah, so on a customer basis, the average household income for the vast majority of our customers is under $100,000 a year. And it's, and we don't know how many people are in the household, but we do know how many cars they generally, buy for because we know the email address and the amount of cars. So most people are under $100,000 of income, but have multiple cars, three or four cars or more. So you assume it's someone that's, you know, the head of household with a multifamily, you know, the wife has a car, the husband has a car, two children have cars. It's predominantly male as our customer base. And then our average basket size or average order value ranges from about $100-$120, which is about one and a half to two items per basket.
Great. And then I know you touched on the collision aspect of your business. Do you have a breakout between kind of collision, maintenance, hard parts?
Yeah, the we do about, like 70% is collision parts, around 23% is going to be mechanical parts, and 2% is other, roughly speaking. It fluctuates through the year with seasonality, but that's a good back of the envelope.
Great. And then lastly, just a clarification question. Do you have any kind of do it for me customer, a do it for me customer base?
We did experiment with a do it for me solution, but we turned that off when we replatformed the website. We're working on a new one, with a partner where they'll come to your house and install the car. So we're hoping to launch that, relaunch DIFM next year. But for right now, we don't.
And you did touch on this, but you doubled revenues from 2019 to 2023. At that point, where do you believe you're taking share from? But then also now, you know, we do know the industry has slowed, but just any thoughts you have on kind of 2020 results?
Sorry, say I got a little lost on that.
Yep. So we'll just start with the first question. You, you know, you doubled revenues 2019 to 2023. Where do you think you were taking share at that point?
Oh, yeah. I think that when we were taking share, part of it was this company was really underinvested. So for people who don't know the story, the management team that you have at CarParts.com now was a new management team that all came in in 2019 and 2020. So we made a lot of changes. The website was like a 12-second page load speed. Warehouse, we only had Virginia and Chicago for 500,000 sq ft, and click-to-ship was, I think, like seven days. So there was a lot of low-hanging fruit to clean up. So by getting click-to-ship down to 12 hours and getting page load speeds to one to two seconds and increasing assortment, it gave us the capacity to grow at an opportune time.
I think as the stimulus waned, we did get a pullback, but we definitely didn't pull back to those pre-COVID levels. You know, we've only pulled back about, you know, 10% or 11%.
I see a question out there.
Just on the collision side, I mean, how much of your business is or gets either a headwind or a tailwind from weather every year?
Yeah, that's a great question. So, interestingly, our peak season we see is kind of late March, mid-March, and it goes through May. So we think that is a combination of two things. Number one is weather gets better. You know, we're out in Southern California, so I have to remind myself no one's changing brakes or changing a bumper in Buffalo in January.
But I think that there is a buildup of people having issues through their cars, especially collision from inclement weather that builds up. And then when the weather gets better, combined with, you know, tax refunds and people have some more money in their pocket, they fix all their winter issues. You know, we did see a big pullback in spend because of the two hurricanes, but we do expect to see some rebound, and we're actually seeing a little bit already in those areas where people had damage and now they need to fix it. So it's related, but I don't have an exact correlation for you.
Forgive me for missing it, but a DIY versus professional or installer mix on from your sales mix?
So for our sales mix, we're almost 100% DIYers. We do about 5% as kind of wholesale business, which is either us dropshipping or selling to distributors or shops. But the 95% is, you know, selling to people who are just doing it themselves.
Why wouldn't that be a major source of growth?
It is. So that's one of our major focuses for 2025. The variable contribution margin on B2B for us is significantly better than direct-to-consumer. We hired a new salesperson that's going, you know, the way you build B2B really is kind of door-to-door on the distributor and mom-and-pop side. And then on the fleet side, as an executive team, we're outreaching to a lot of the large, nationwide fleets, such as CarMax, Carvana, where we sell to them, but we're like a tier two supplier, not a tier one supplier. So one of our major focuses is to grow B2B, next year.
A quick question just on competition. You know, so recognizing you're a unique player within the space, are you seeing anything new or fresh out of the mass market side, particularly like a Walmart?
No, not really. Walmart, they have a platform for people to sell. We sell on Walmart, similar to kind of how you have third-party sellers on Amazon. But not really anything new from that perspective as new entrants. The one thing we do see some new entrants is, people like Chinese sellers on eBay, where they ship direct from China to here with the de minimis rule, and you get your product in, you know, a month. But if you're not in a rush, it can be very price competitive. So we've seen a little bit of pressure from that.
You have the product in the right place for the time it's. [audio distortion]
I think for a lot of people, it is important to get it, but I think it's a balance where you think about a lower-end consumer where there's a lot of people who are behind on bills, maxed out credit cards, and they're trying to save that $100 really actually matters. And so they say, hey, I'll just drive with a broken headlight for a month where the car does still get you to work and you just cross your fingers you don't get a ticket. But that $100 really does matter to some of these customers. It's a tough environment for low-income consumers right now.
And then you kind of brought it up. If you were to ask someone, you know, where do you buy a part online? I think you mentioned Amazon or AutoZone, but you're talking about marketing against that. Can you talk about the investment, the spend, and how you're able to, what's the opportunity?
Yeah, I think that's a great question. So we've hired a new CMO, Christina Thelin . She's from Procter & Gamble, Visa, Google, so great pedigree. We did a big marketing push this summer, which was, probably, you know, a half a year or a year's worth of spend compressed into three months because we were trying to beat the, presidential election advertising, which was very, we knew was going to be very costly. So I think you're going to see us do continued efforts through social media, you know, upper funnel, you know, generic upper funnel, which is connected TV or, YouTube commercials and things like that, and trying to just build brand awareness also through events.
Perfect. I think you alluded to. I don't know if you gave a number around, but the price differential between you and maybe some of these competitors that we discussed.
Yeah. So on a private label to branded or private label to private label side, we're 50%-70% cheaper than the big four auto guys. You know, branded to branded, I'll be honest, we're probably more expensive because they have more buying power than us. But what's interesting is a private label part and a branded part are generally actually made in the same factories. There's only so many Tier 1 factories in the world. Most of them are in China, Taiwan, some out of Mexico, Turkey, Spain. But we all, the dirty secret is that we all source from the same place. So just depending on the label that's on the box, you may pay more. And you know, I think if you're interested in whether we're actually cheaper, you can just kind of price shop items for your car, but price shop kind of real stuff like brakes, wheel hub, shock and strut kit. You know, if you look at like windshield wipers, I'll be honest, we're not going to be like 70% cheaper.
I have done that. So you know, 2024 for the whole market is, you know, has slowed a bit. The aftermarket's talked about some deferral. Collision talks about, you know, a pullback from insurance and pullback in spending. Can you talk about that impact on your business and maybe at some point an inflection in what you're thinking there?
Yeah, I think AutoZone said it best, you know, during 2008, 2009 is that people generally defer. They don't actually just decide not to buy. Most people don't want hot air conditioning or they don't want brakes that are squeaky or a window that doesn't go up. What we've always seen historically in this industry is people will defer, defer, defer, and then eventually convert. I think we're in that deferral phase. Probably my impression would be kind of post-election or post some interest rate cuts, we'll start to see that consumer relief. I think people will finally, you know, capitulate and convert because they'll feel more comfortable.
Yeah. Then I think you also discussed your Las Vegas, the new Vegas, distribution center. Clearly, a lot of conversation today has been getting, you know, these tens, hundreds of thousands of SKUs to the right place on time. We mentioned the one-month wait period, but oftentimes there is more of an immediacy of need. Can you talk about your distribution and how you've grown that over time?
Yeah. So our distribution centers are really way well laid out across the country. You know, we can hit 99% of the customers in two days. We're in all the smile states. So we have a very large facility in Texas where a lot of people are moving to, just opened a 180,000 sq ft facility in Florida, which a lot of people are moving to. And you know, our new Las Vegas facility is double the size of the old facility. So what we found is that for every one day extra we tell someone it will take to ship up to like an estimated delivery date on a part, we lose 6% conversion.
So by doubling the size of our Las Vegas facility, and the way we laid it out, actually, it's more than 100% capacity. It's like about 150% capacity versus the old location. We expect conversion to be significantly better on the West Coast because everyone's going to see a faster delivery time where we can duplicate inventory into that location rather than having West Coast people receiving a bumper from, say, Texas or Chicago. It's also going to be cheaper. So I think we're going to save about $1 per unit shipped out of there. It's going to save probably about $1 million a year in labor, because of the way the facility is laid out with semi-automated pick module, tons of conveyance, AI, layer on placement of inventory. So it's our most technologically advanced facility that we've built.
Wow. And then, in your third quarter 2024 call, you highlighted the 400 basis points of exit rate gross margin expansion. Can you discuss your strategy around margin and then kind of that focus on that repeat customer?
Yeah. So from the gross margin perspective, it's a lot of, you know, blocking and tackling, you know, re-renegotiating input agreements with vendors. It's pricing. So we have an amazing data science team with multiple PhDs on it. So everywhere we can push price, we try to. It's increasing assortment to higher margin items. Now that we have the new website, it'll be a lot of driving people who land on a website on a branded part to our private label offering, which we believe is an equivalent quality, but better gross margin for us. And then the second part of your question, I think, was on operating leverage. Kind of.
Sure.
Yeah. I mean, it's, I think operating leverage, you know, we've made a lot of strides on improving, you know, our warehouse efficiency. So I think warehouse is going to be, you know, millions of dollars cheaper next year. Advertising actually probably is similar to this year because we do need to build more brand awareness and get away from Google. But on a fixed OpEx basis, there just won't be as much noise, I think, next year. I mean, we moved a warehouse, we replatformed our front end. We had a lot of large tentpole projects this year. Next year, I think operating leverage against fixed operating leverage should be better just from the simplification of what we're doing.
Yeah. And you recently discussed some partnerships with Amazon and eBay. Look, I've been following the company for a while. Historically, you had moved away a little from these. How are you kind of better positioned now to have these be better margin customers?
Yeah. So it's interesting. Amazon has always been pretty strong margin because a lot of people open the Amazon app and just shop without price comparing. So we've always had pretty strong margins on Amazon because we price to a less discriminate customer, price discriminate customer. eBay, we didn't necessarily try to aggressively move away. We love our relationship with eBay and we're the largest store in the world, but also at the same time, we don't control our customer there. So I think our major investments were on CarParts.com, the domain, and that naturally just grew at a faster rate.
But eBay Canada, which we just launched recently, is going to be interesting for us because we've never done international expansion. I believe the Canadian auto parts industry, it's not significant, compared to America. I think it's about 4% of the size of the American industry. But again, if we capture a similar size as our eBay business, I think it's going to be a nice bolt-on for revenue and profitability. For Amazon, we started to send some SKUs to be shipped, our smaller, easier to transport SKUs that are, you know, boxed like headlights. We started to do some Amazon FBA to see if we can increase the price even more, going back to what I mentioned about, what we know about conversion on shipping times. And kind of, I think to this gentleman's question about people who want it fast, how much are they willing to pay?
So we're piloting, you know, shipping through FBA to see if we can charge even more to expand margins.
Yep. And then, you discussed the kind of the quality of your site. You've discussed some investment in replatforming as well. Can you just give an update on that?
Yeah. So the new website is on a platform called Bloomreach. It's the same platform used by Total Wine or, I believe Neiman Marcus. So it lets us develop really fast. So in the old days, and by old days, I mean earlier this year even, we had to code everything from scratch, which was kind of when I got here was a crazy proposition and this company, as I mentioned, it was a new management team.
We've just had a lot of things that we've fixed over the years. So, you know, we did an ERP migration. We expanded, we overdoubled our warehouse. We fixed a lot of backend systems. And we finally got to a point where we felt comfortable that we could now tackle the front end website. So it's something we've wanted to do for years, but really needed supporting infrastructure behind it to make it successful. So we finally launched that this year. And we've literally rolled out an exciting new feature every two weeks. So, you know, I think the ability to, as I mentioned, for gross margins, you know, the ability to upsell, cross-sell. So someone buys, you know, a window switch, you need a trim tool to put that on. And we can buy these for pennies on the dollar and sell them to consumers for $5, $10 . It goes in the box.
It doesn't change the size or weight of the box, but that's just incremental gross margin we never got before. It's just one example. If you're buying an oil filter, we should offer you oil or vice versa. So I think there's a lot of no-brainer things that this company never did, but it was always a technological limitation. Now we think we finally have the resources to offer a bunch of these exciting things that other people have always done. So it's not that we're taking any gambles. We know people should upsell, cross-sell, or we know people prefer 360 images, or we know people prefer video. So it's just blocking and tackling, and I think bringing the website up to regular 2024 e-commerce standards.
Great. And balance sheet with no debt. When do you kind of, you've had these positive, strong investments, kind of when do you see the inflection point in generating cash?
Yeah. So, you know, we haven't given forward guidance on cash, or free cash flow, but we think we're very close again. So we were free cash flow positive, I think, all the way up until this year. We'll kind of see what happens with the election and interest rates and the consumer next year.
Great. Ryan, it was nice to have you in person this year. Thank you so much. Thanks for being here.
Thank you.
And as I previously mentioned, we did have a last-minute cancellation on the last fireside chat. So everyone, thank you so much for being here today. It's been a pleasure. Thank you for asking questions. Once again, please reach out to Ryan or I if you have any questions on the company or the trends that we discussed.
Thank you.