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What changed in CarParts.com, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CarParts.com, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+165 added−191 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-08)

Top changes in CarParts.com, Inc.'s 2024 10-K

165 paragraphs added · 191 removed · 140 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeITEM 1. BUSINESS Overview CarParts.com, Inc. is a leading online provider of aftermarket auto parts and accessories. Our mission is to provide an easy online shopping experience to help customers get back on the road quickly. We principally sell our products, identified as stock keeping units (“SKUs”), to individual consumers through our flagship website at www.carparts.com and online marketplaces.
Biggest changeWe principally sell our products, identified as stock keeping units (“SKUs”), to individual consumers through our flagship website, www.carparts.com , and online marketplaces. Our easy-to-use, mobile-friendly website and newly launched mobile app provide customers with a comprehensive selection of approximately 1,047,000 SKUs, complete with detailed product descriptions, attributes, and photographs.
Branded Product . Serving as a stocking distributor for many branded products, we have developed and implemented application programming interfaces with the majority of our branded, drop ship suppliers that allow us to electronically transmit orders, check inventory availability, and receive the shipment tracking information which is easily passed on to our customers.
Serving as a stocking distributor for many branded products, we have developed and implemented application programming interfaces with the majority of our branded, drop ship suppliers that allow us to electronically transmit orders, check inventory availability, and receive the shipment tracking information which is easily passed on to our customers.
Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge on the Investor Relations section of our corporate website located at www.carparts.com/investor as soon as reasonably practicable after such reports are electronically filed with, or 5 Table of Contents furnished to, the Securities and Exchange Commission (“SEC”).
Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge on the Investor Relations section of our corporate website located at www.carparts.com/investor as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).
None of our employees are represented by a labor union and we consider employee relations to be good. Diversity and Inclusion We strive to build and create a culture where each person feels valued, respected and understood. As of December 31, 2022, the makeup of our employees consisted of 39% women and approximately 82% non-white.
None of our employees are represented by a labor union and we consider employee relations to be good. Diversity and Inclusion We strive to build and create a culture where each person feels valued, respected and understood. As of December 30, 2023, the makeup of our employees consisted of 39% women and approximately 82% non-white.
We consider a number of factors in determining which items to stock in our distribution centers, including which products can be purchased at a meaningful discount to domestic prices for similar items, which products have historically sold in high volumes, and which products may be out of stock when we attempt to fulfill via drop-ship. Drop-Ship Fulfillment .
We consider a number of factors in determining which items to stock in our distribution centers, including which products can be purchased at a 2 Table of Contents meaningful discount to domestic prices for similar items, which products have historically sold in high volumes, and which products may be out of stock when we attempt to fulfill via drop-ship.
Our online sales channel primarily consists of our flagship e-commerce website www.carparts.com . We also sell our products through online marketplaces, including third-party auction sites and shopping portals, which provide us with access to additional consumer segments. The majority of our online sales are to individual consumers. Offline Sales Channel .
Our online sales channel primarily consists of our flagship, mobile-friendly eCommerce website www.carparts.com , and app. We also sell our products through online marketplaces, including third-party auction sites and shopping portals, which provide us with access to additional consumer segments. The majority of our online sales are to individual consumers. Offline Sales Channel .
The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website.
The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website. 5 Table of Contents
We have developed relationships with several United States-based auto parts distributors that operate their own distribution centers and can deliver products directly to our customers. We internally developed a 2 Table of Contents proprietary distributor selection system, Auto-Vend™, which allows us to electronically select multiple vendors for a given order.
Drop-Ship Fulfillment . We have developed relationships with several United States-based auto parts distributors that operate their own distribution centers and can deliver products directly to our customers. We internally developed a proprietary distributor selection system, Auto-Vend™, which allows us to electronically select multiple vendors for a given order.
In addition, we are a significant customer for many of our drop-ship vendors and have long standing relationships and contracts with many of these suppliers. For the fiscal year ended December 31, 2022, three of our drop-ship vendors accounted for approximately 9% of our total product purchases. We currently have over 843,000 branded SKUs in our product selection.
In addition, we are a significant customer for many of our drop-ship vendors and have long standing relationships and contracts with many of these suppliers. For the fiscal year ended December 30, 2023, three of our drop-ship vendors accounted for approximately 11% of our total product purchases. We currently have over 971,000 branded SKUs in our product selection.
References to 2022, 2021, and 2020 relate to the 52-week fiscal year ended December 31, 2022, the 52-week fiscal year ended January 1, 2022, and the 53-week fiscal year ended January 2, 2021, respectively. 1 Table of Contents Our Products We offer a broad selection of aftermarket auto parts.
References to 2023, 2022, and 2021 relate to the 52-week fiscal year ended December 30, 2023, the 52-week fiscal year ended December 31, 2022, and the 52-week fiscal year ended January 1, 2022, respectively. Our Products We offer a broad selection of aftermarket auto parts.
Human Capital Our ability to recruit, retain, and develop our employees is key to our long-term growth and success. As of December 31, 2022, we had 976 employees in the United States and 556 employees in the Philippines for a total of 1,532 employees. Additionally, we rely on independent contractors and temporary personnel to supplement our workforce.
Human Capital Our ability to recruit, retain, and develop our employees is key to our long-term growth and success. As of December 30, 2023, we had 1,080 employees in the United States and 615 employees in the Philippines for a total of 1,695 employees. Additionally, we rely on independent contractors and temporary personnel to supplement our workforce.
Our house brands suppliers offer products which are generally less expensive and we believe provide better value for our consumers. As a result, our mix shift towards house brands product has continued to increase on a year-over-year basis. We stock-and-ship our house brands products in our distribution centers. We currently have over 70,000 house brands SKUs in our product selection.
Our house brands suppliers offer products which are generally of the same quality as a branded product while being less expensive and we believe provide better value for our consumers. We stock-and-ship our house brands products in our distribution centers. We currently have over 76,000 house brands SKUs in our product selection. Branded Product .
During the heighted risk times of the recent COVID-19 pandemic, we implemented safety modifications at all workforce locations and provided enhanced safety measures to safeguard our employees at our distribution centers. 4 Table of Contents Intellectual Property Our intellectual property, including trademarks, service marks, domain names, patents, copyrights and trade secrets, is an important part of our business.
Intellectual Property 4 Table of Contents Our intellectual property, including trademarks, service marks, domain names, patents, copyrights and trade secrets, is an important part of our business.
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Our user-friendly website, and mobile-friendly platform, provide customers with a comprehensive selection of over 913,000 SKUs with detailed product descriptions, attributes and photographs. We have developed a proprietary product database that maps our SKUs to product applications based on vehicle makes, models and years to help ensure the right part for each specific vehicle is provided.
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ITEM 1. BUSINESS Overview CarParts.com, Inc. is a technology-driven eCommerce company dedicated to revolutionizing the way drivers shop for parts. With over 25 years of operation, CarParts.com serves as an end-to-end solution for automotive repair and maintenance resources, offering a seamless online shopping experience that empowers drivers along every part of their journey.
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Our online sales channel and relationships with suppliers enable us to eliminate intermediaries in the traditional auto parts supply chain and to offer a broader selection of SKUs than can easily be offered by offline retailer competition. We were incorporated in California in 1995 as a distributor of aftermarket auto parts and launched our first website in 2000.
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Utilizing our proprietary product database, we ensure a seamless match between our SKUs and vehicle specifications, guaranteeing the right part fitment. We leverage our online sales channel and global supplier relationships to eliminate intermediaries in the traditional auto parts supply chain, enabling us to offer an unparalleled selection of SKUs compared to offline retail competitors.
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We reincorporated in Delaware in 2006 and expanded our online operations, increasing the number of SKUs sold through our e-commerce network, adding additional websites, improving our internet marketing proficiency, and commencing sales on online marketplaces.
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Established in California in 1995 as an aftermarket auto parts distributor, the Company – then-known as U.S. Auto Parts Network, Inc. – embarked on a digital transformation journey in 2000, with the launch of our first retail website.
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In July of 2020, we changed the name of our company to CarParts.com, Inc. as we consolidated our network of websites into one e-commerce flagship website, www.carparts.com . In January of 2021, we launched the first electric vehicle (EV) and hybrid focused online shopping hub at www.carparts.com/ev .
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Following our reincorporation in Delaware in 2006, we expanded our online operations, bolstering our eCommerce network, launching additional websites, refining our internet marketing strategies, and commencing sales on various online marketplaces. In July 2020, we officially rebranded to CarParts.com and consolidated our web presence into one single eCommerce destination .
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Our vision of “Empowering Drivers Along Their Journey” focuses on creating a trusted platform that takes the stress out of vehicle repair and maintenance. We believe our strategy consists of four areas of focus: outstanding customer service, operational excellence, financial discipline, and innovation.
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In the third quarter of 2023, we added a mobile app, available on both iOS and Android, enabling our customers to conveniently shop from their phones. Driven by our commitment to providing unparalleled customer experience, we use world-class design principles and the latest technology to power our user-friendly website and app.
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Outstanding Customer Service means delivering an extensive assortment of competitively priced, quality parts to drivers looking for simple, stress-free vehicle care in an unparalleled digital-first experience. We accomplish this by leveraging our vertically integrated supply chain, expanding our domestic footprint to get closer to the customer, and improving our website and user experience.
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Our vision of “Empowering Drivers Along Their Journey” underscores our mission to create a trusted platform that simplifies the historically stressful experience of vehicle maintenance & repair.
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Operational Excellence means creating a culture of continuous improvement. We focus on optimizing processes, eliminating bottlenecks, and improving communication and collaboration within our organization. This requires a commitment to ongoing learning and development as well as embracing new technologies and processes.
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We have a significant opportunity to become the go-to destination for all automotive repair and maintenance requirements by focusing on our evolved strategy around: optimizing supply chain management and upgrading logistics, investing in technology, expanding into new business lines, and driving year-over-year increases in new customers, all while maintaining our financial discipline approach of evaluating investments based on their impact on profitability.
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Financial Discipline means optimizing costs and managing financial resources in a prudent and responsible manner in order to drive shareholder value. At an organizational level, our goal is to optimize cash flow, control costs, and allocate resources effectively. Innovation means ensuring that our company continues to evolve and deliver products and services that meet our customers evolving needs.
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To this end, we are working to transform our fulfillment center footprint and are opening a new semi-automated facility in Las Vegas, Nevada, which we expect to reduce last-mile transportation expenses to the West Coast and enhance customer service through expedited delivery. Furthermore, we continuously expand our technological capabilities, product offerings, and service portfolio to stay ahead of competitive pressures.
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There are currently products and services that are not widely available to customers that we believe are areas of opportunity. With meticulous execution, these innovations have the chance to build more value for our shoppers while creating additional revenues or profits in the future. Our corporate website is located at www.carparts.com/investor .
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By investing in new categories, brands, customer types and revenue streams across both premium and value segments, we seek to maximize gross profit and capture a larger market share. In tandem, we have refined our eCommerce experience and marketing strategy, focusing on enhancing the mobile app experience, building brand awareness through innovative owned content channels, and fostering direct customer relationships.
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We report on a 52/53-week fiscal year, ending on the Saturday nearest the end of December.
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These efforts aim to position CarParts.com as the ultimate destination for vehicle maintenance knowledge and product purchases, thereby reducing reliance on performance marketing channels and improving customer acquisition efficiency. Our corporate website is located at www.carparts.com/investor . 1 Table of Contents We report on a 52/53-week fiscal year, ending on the Saturday nearest the end of December.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanging carriers could have a negative effect on our business and operating results due to reduced visibility of order status and package tracking and delays in order processing and product delivery, and we may be unable to engage alternative carriers on a timely basis, upon terms favorable to us, or at all.
Biggest changeChanging carriers could have a negative effect on our business and operating results due to reduced visibility of order status and package tracking and delays in order processing and product delivery, and we may be unable to engage alternative carriers on a timely basis, upon terms favorable to us, or at all. 9 Table of Contents Higher wage costs due to changes in federal and state minimum wage laws, or due to unstable market conditions, could adversely affect our business. ​ Changes in federal and state minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefit costs.
The factors that could cause our operating results to continue to fluctuate include, but are not limited to: ● fluctuations in the demand for aftermarket auto parts; ● fluctuations in the availability of products for resale; ● price competition on the Internet or among offline retailers for auto parts; ● our ability to attract visitors to our websites and convert those visitors into customers, including to the extent based on our ability to successfully work with different search engines to drive visitors to our websites; ● our ability to successfully sell our products through third-party online marketplaces or the effects of any price increases in those marketplaces; ● competition from companies that have longer operating histories, larger customer bases, greater brand recognition, access to merchandise at lower costs and significantly greater resources than we do, like third-party online market places and our suppliers; ● our ability to maintain and expand our supplier and distribution relationships without significant price increases or reduced service levels; ● our ability to borrow funds under our Credit Facility; ● the effects of seasonality on the demand for our products; 25 Table of Contents ● our ability to accurately forecast demand for our products, price our products at market rates and maintain appropriate inventory levels; ● our ability to build and maintain customer loyalty; ● our ability to successfully integrate our acquisitions; ● infringement actions that could impact the viability of the auto parts aftermarket or portions thereof; ● the success of our brand-building and marketing campaigns; ● our ability to accurately project our future revenues, earnings, and results of operations; ● government regulations related to use of the Internet for commerce, including the application of existing tax regulations to Internet commerce and changes in tax regulations; ● technical difficulties, system downtime or Internet brownouts; ● the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure; and ● macroeconomic conditions that adversely impact the general and automotive retail sales environment.
The factors that could cause our operating results to continue to fluctuate include, but are not limited to: ● fluctuations in the demand for aftermarket auto parts; ● fluctuations in the availability of products for resale; ● price competition on the Internet or among offline retailers for auto parts; ● our ability to attract visitors to our websites and convert those visitors into customers, including to the extent based on our ability to successfully work with different search engines to drive visitors to our websites; ● our ability to successfully sell our products through third-party online marketplaces or the effects of any price increases in those marketplaces; ● competition from companies that have longer operating histories, larger customer bases, greater brand recognition, access to merchandise at lower costs and significantly greater resources than we do, like third-party online market places and our suppliers; 25 Table of Contents ● our ability to maintain and expand our supplier and distribution relationships without significant price increases or reduced service levels; ● our ability to borrow funds under our Credit Facility; ● the effects of seasonality on the demand for our products; ● our ability to accurately forecast demand for our products, price our products at market rates and maintain appropriate inventory levels; ● our ability to build and maintain customer loyalty; ● our ability to successfully integrate our acquisitions; ● infringement actions that could impact the viability of the auto parts aftermarket or portions thereof; ● the success of our brand-building and marketing campaigns; ● our ability to accurately project our future revenues, earnings, and results of operations; ● government regulations related to use of the Internet for commerce, including the application of existing tax regulations to Internet commerce and changes in tax regulations; ● technical difficulties, system downtime or Internet brownouts; ● the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure; and ● macroeconomic conditions that adversely impact the general and automotive retail sales environment.
Such provisions include the following: ● our Board of Directors are authorized, without prior stockholder approval, to create and issue preferred stock which could be used to implement anti-takeover devices; ● advance notice is required for director nominations or for proposals that can be acted upon at stockholder meetings; ● stockholders and stockholder nominees for director are required to provide detailed information, regarding both the relevant stockholder and nominee, in connection with stockholder nominations for director; 26 Table of Contents ● our Board of Directors is classified such that not all members of our board are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace all or a majority of our directors; ● stockholder action by written consent is prohibited except with regards to an action that has been approved by the Board of Directors; ● special meetings of the stockholders are permitted to be called only by the chairman of our Board of Directors or by a majority of our Board of Directors; ● stockholders are not permitted to cumulate their votes for the election of directors; and ● stockholders are permitted to amend certain provisions of our bylaws only upon receiving at least 66 2/3% of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.
Such provisions include the following: ● our Board of Directors are authorized, without prior stockholder approval, to create and issue preferred stock which could be used to implement anti-takeover devices; ● advance notice is required for director nominations or for proposals that can be acted upon at stockholder meetings; ● stockholder and stockholder nominees for director are required to provide detailed information, regarding both the relevant stockholder and nominee, in connection with stockholder nominations for director; ● our Board of Directors is classified such that not all members of our board are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace all or a majority of our directors; ● stockholder action by written consent is prohibited except with regards to an action that has been approved by the Board of Directors; ● special meetings of the stockholders are permitted to be called only by the chairman of our Board of Directors or by a majority of our Board of Directors; ● stockholders are not permitted to cumulate their votes for the election of directors; and ● stockholders are permitted to amend certain provisions of our bylaws only upon receiving at least 66 2/3% of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.
We have incurred, and may in the future incur, additional freight and container costs and may also continue to incur increased costs relating to workforce shortages, overtime charges, and detention costs at one or more of our distribution center.
We have incurred in the past, and may in the future incur, additional freight and container costs and may also continue to incur increased costs relating to workforce shortages, overtime charges, and detention costs at one or more of our distribution center.
The ERP is designed to accurately maintain the company's books and records and provide important information to the company's management team for use in the operation of the business. The Company's ERP has required the investment of significant human and financial resources.
The ERP is designed to accurately maintain the company's books and records and provide important information to the company's management team for use in the operation of the business. The Company's ERP required the investment of significant human and financial resources.
Any outstanding indebtedness would have important consequences, including the following: ● we would have to dedicate a portion of our cash flow to making payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions or other general corporate purposes; ● certain levels of indebtedness may make us less attractive to potential acquirers or acquisition targets; 12 Table of Contents ● certain levels of indebtedness may limit our flexibility to adjust to changing business and market conditions, and make us more vulnerable to downturns in general economic conditions as compared to competitors that may be less leveraged; and ● as described in more detail above, the documents providing for our indebtedness contain restrictive covenants that may limit our financing and operational flexibility.
Any outstanding indebtedness would have important consequences, including the following: ● we would have to dedicate a portion of our cash flow to making payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions or other general corporate purposes; ● certain levels of indebtedness may make us less attractive to potential acquirers or acquisition targets; ● certain levels of indebtedness may limit our flexibility to adjust to changing business and market conditions, and make us more vulnerable to downturns in general economic conditions as compared to competitors that may be less leveraged; and ● as described in more detail above, the documents providing for our indebtedness contain restrictive covenants that may limit our financing and operational flexibility.
These risks are discussed in more detail below and include, but are not limited to, risks related to the following: Risks Related To Our Operations ● We are dependent upon relationships with suppliers in Taiwan and China for the majority of our products. ● We depend on third-party delivery services, both inbound and outbound, to deliver our products to our distribution centers and customers, and any increases in the fees could adversely affect our financial condition. ● Higher wage costs due to changes in federal and state minimum wage laws could adversely affect our business. ● If commodity prices such as fuel, plastic and steel increase, our margins may be negatively impacted. ● Purchasers of aftermarket auto parts may not choose to shop online. ● Shifting online consumer behavior of purchasers of aftermarket auto parts. ● If hosts of third-party marketplaces limit our access, we could lose a substantial portion of our revenues. ● While the COVID-19 pandemic did not significantly adversely affect our financial condition and results of operations for fiscal year 2022, in the future our business could be affected by the effects from COVID-19 or another pandemic. ● We recorded a net loss for fiscal year 2022 and it is possible that net losses could continue in the future. ● Our operations are restricted by our credit agreement, and our ability to borrow funds under our credit facility is subject to a borrowing base. ● If our assets become impaired, we may be required to record a significant charge to earnings. ● We are highly dependent upon key suppliers. ● Inability to manage the challenges associated with our international operations. ● If our fulfillment operations are interrupted for any significant period of time, our sales could decline. ● We face intense competition and operate in an industry with limited barriers to entry. ● Failure to offer a broad selection of products at competitive prices or to maintain sufficient inventory. ● We rely on key personnel and may need additional personnel for the success and growth of our business. ● As a result of our international operations, we have foreign exchange risk. 6 Table of Contents ● Our product catalog database could be stolen, misappropriated or damaged, or a competitor might create a substantially similar catalog without infringing our rights. ● Economic conditions have had, and may continue to have an adverse effect on the demand for aftermarket auto parts and could adversely affect our sales and operating results. ● The seasonality of our business places increased strain on our operations. ● Vehicle miles driven have fluctuated and may decrease. ● We will be required to collect and pay more sales taxes, and possibly for other fees and penalties. ● Our ability to use net operating loss carryforwards to offset future income may be limited. ● Our estimate of the size of our addressable market may prove to be inaccurate.
These risks are discussed in more detail below and include, but are not limited to, risks related to the following: Risks Related To Our Operations ● We are dependent upon relationships with suppliers in Taiwan and China for the majority of our products. ● We depend on third-party delivery services, both inbound and outbound, to deliver our products to our distribution centers and customers, and any increases in the fees could adversely affect our financial condition. ● Higher wage costs due to changes in federal and state minimum wage laws could adversely affect our business. ● If commodity prices such as fuel, plastic and steel increase, our margins may be negatively impacted. ● Purchasers of aftermarket auto parts may not choose to shop online. ● Shifting online consumer behavior of purchasers of aftermarket auto parts. ● If hosts of third-party marketplaces limit our access, we could lose a substantial portion of our revenues. ● In the future, our business could be affected by the effects from a prolonged COVID-19 outbreak or another pandemic. ● During fiscal year 2023, we recorded a net loss, and it is possible that net losses could continue in the future. ● Our operations are restricted by our credit agreement, and our ability to borrow funds under our credit facility is subject to a borrowing base. ● If our assets become impaired, we may be required to record a significant charge to earnings. ● We are highly dependent upon key suppliers. ● Inability to manage the challenges associated with our international operations. ● If our fulfillment operations are interrupted for any significant period of time, our sales could decline. ● We face intense competition and operate in an industry with limited barriers to entry. ● Failure to offer a broad selection of products at competitive prices or to maintain sufficient inventory. ● We rely on key personnel and may need additional personnel for the success and growth of our business. ● As a result of our international operations, we have foreign exchange risk. ● Our product catalog database could be stolen, misappropriated or damaged, or a competitor might create a substantially similar catalog without infringing our rights. 6 Table of Contents ● Economic conditions have had, and may continue to have, an adverse effect on the demand for aftermarket auto parts and could adversely affect our sales and operating results. ● The seasonality of our business places increased strain on our operations. ● Vehicle miles driven have fluctuated and may decrease. ● We may be required to collect and pay more sales taxes, and possibly for other fees and penalties. ● Our ability to use net operating loss carryforwards to offset future income may be limited. ● Our estimate of the size of our addressable market may prove to be inaccurate.
Prolonged effects of COVID-19, or a future pandemic, could also potentially disrupt our operations through, but not limited to, shipping container shortages, transportation delays, and changes in our operating procedures, including the need for additional cleaning and safety protocols. ​ During fiscal year 2022, we recorded a net loss, and our net losses may continue in the future.
Prolonged effects of COVID-19, or a future pandemic, could also potentially disrupt our operations through, but not limited to, shipping container shortages, transportation delays, and changes in our operating procedures, including the need for additional cleaning and safety protocols. ​ During fiscal year 2023, we recorded a net loss, and our net losses may continue in the future.
Additionally, if we are unable to successfully implement any new IT system, remediate, update or integrate our existing systems at times when necessary, our financial positions, results of operations and cash flows could be negatively impacted. ​ If we do not respond to technological change, our websites could become obsolete and our financial results and conditions could be adversely affected.
Additionally, if we are unable to successfully implement any new IT system, remediate, update or integrate our existing systems at times when necessary, our financial position, results of operations and cash flows could be negatively impacted. ​ If we do not respond to technological change, our websites could become obsolete and our financial results and conditions could be adversely affected.
In addition, because many of our suppliers are outside of the United States, additional factors could interrupt our relationships or affect our ability to acquire the necessary products on acceptable terms, including: ● political, social and economic instability, and the risk of war or other international incidents in Asia, Europe, or abroad; ● fluctuations in foreign currency exchange rates that may increase our cost of products; ● imposition of duties, taxes, tariffs or other charges on imports; ● difficulties in complying with import and export laws, regulatory requirements and restrictions; ● natural disasters and public health emergencies, such as the COVID-19 pandemic or other future pandemics, impacting countries from which we purchase product; ● import shipping delays resulting from foreign or domestic labor shortages, slow-downs, or stoppage; and ● the failure of local laws to provide a sufficient degree of protection against infringement of our intellectual property; ● imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business; ● financial or political instability in any of the countries in which our product is manufactured; ● potential recalls or cancellations of orders for any product that does not meet our quality standards; ● disruption of imports by labor disputes or strikes and local business practices; ● political or military conflict involving the U.S. or any country in which our suppliers are located, which could cause a delay in the transportation of our products, an increase in transportation costs and additional risk to product being damaged and delivered on time; 8 Table of Contents ● heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods; ● inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and ● our ability to enforce any agreements with our foreign suppliers.
In addition, because many of our suppliers are outside of the United States, additional factors could interrupt our relationships or affect our ability to acquire the necessary products on acceptable terms, including: ● political, social and economic instability, and the risk of war or other international incidents in Asia, Europe, or abroad, including, but not limited to, the effects of disputes between China and Taiwan and Russia’s invasion of Ukraine; ● fluctuations in foreign currency exchange rates that may increase our cost of products; ● imposition of duties, taxes, tariffs or other charges on imports; ● difficulties in complying with import and export laws, regulatory requirements and restrictions; ● natural disasters and public health emergencies, such as the COVID-19 pandemic or other future pandemics, impacting countries from which we purchase product; ● import shipping delays resulting from foreign or domestic labor shortages, slow-downs, or stoppage; and ● the failure of local laws to provide a sufficient degree of protection against infringement of our intellectual property; ● imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business; ● financial or political instability in any of the countries in which our product is manufactured; ● potential recalls or cancellations of orders for any product that does not meet our quality standards; ● disruption of imports by labor disputes or strikes and local business practices; 8 Table of Contents ● political or military conflict involving the U.S. or any country in which our suppliers are located, which could cause a delay in the transportation of our products, an increase in transportation costs and additional risk to product being damaged and delivered on time; ● heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods; ● inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and ● our ability to enforce any agreements with our foreign suppliers.
Any such foreign law or regulation, any new U.S. law or regulation, or the interpretation or application of existing laws and regulations to the Internet or other online services or our business in general, may have a material adverse effect on our business, prospects, financial condition and results of operations by, among other things, impeding the growth of the Internet, subjecting us to fines, penalties, damages or other liabilities, requiring costly changes in our business operations and practices, and reducing customer demand for our 20 Table of Contents products and services.
Any such foreign law or regulation, any new U.S. law or regulation, or the interpretation or application of existing laws and regulations to the Internet or other online services or our business in general, may have a material adverse effect on our business, prospects, financial condition and results of operations by, among other things, impeding the growth of the Internet, subjecting us to fines, penalties, damages or other liabilities, requiring costly changes in our business operations and practices, and reducing customer demand for our products and services.
Specifically, such covenants restrict our ability and, if applicable, the ability of our subsidiaries to, among other things: ● incur additional debt; 11 Table of Contents ● make certain investments and acquisitions; ● enter into certain types of transactions with affiliates; ● use assets as security in other transactions; ● pay dividends on our capital stock or repurchase our equity interests; ● sell certain assets or merge with or into other companies; ● guarantee the debts of others; ● enter into new lines of business; ● pay or amend our subordinated debt; and ● form any subsidiary investments.
Specifically, such covenants restrict our ability and, if applicable, the ability of our subsidiaries to, among other things: ● incur additional debt; ● make certain investments and acquisitions; ● enter into certain types of transactions with affiliates; ● use assets as security in other transactions; ● pay dividends on our capital stock or repurchase our equity interests; ● sell certain assets or merge with or into other companies; ● guarantee the debts of others; ● enter into new lines of business; ● pay or amend our subordinated debt; and ● form any subsidiary investments.
Our ability to use net operating loss carryforwards to offset future income may be limited. ​ Under legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), federal net operating losses (“NOLs”) incurred in taxable years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning before December 31, 2017, is limited.
Our ability to use net operating loss carryforwards to offset future income may be limited. ​ 17 Table of Contents Under legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), federal net operating losses (“NOLs”) incurred in taxable years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning before December 31, 2017, is limited.
Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We also license technology and related databases from third parties to facilitate elements of our e-commerce platform.
Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We also license technology and related databases from third parties to facilitate elements of our eCommerce platform.
In addition, such failure could damage our reputation, inhibit sales, and adversely affect our business. Our e-commerce system is dependent on open-source software, which exposes us to uncertainty and potential liability. We utilize open-source software such as Linux, Apache, MySQL, PHP, Fedora and Perl throughout our web properties and supporting infrastructure although we have created proprietary programs.
In addition, such failure could damage our reputation, inhibit sales, and adversely affect our business. Our eCommerce system is dependent on open-source software, which exposes us to uncertainty and potential liability. We utilize open-source software such as Linux, Apache, MySQL, PHP, Fedora and Perl throughout our web properties and supporting infrastructure although we have created proprietary programs.
We face intense competition and operate in an industry with limited barriers to entry, and some of our competitors may have greater resources than us and may be better positioned to capitalize on the growing e-commerce auto parts market. The auto parts industry is competitive and highly fragmented, with products distributed through multi-tiered and overlapping channels.
We face intense competition and operate in an industry with limited barriers to entry, and some of our competitors may have greater resources than us and may be better positioned to capitalize on the growing eCommerce auto parts market. The auto parts industry is competitive and highly fragmented, with products distributed through multi-tiered and overlapping channels.
In order to expand our business, we must successfully offer, on a continuous basis, a broad selection of auto parts that meet the needs of our customers, including by being the first to market with new SKUs. Our auto parts are used by 15 Table of Contents consumers for a variety of purposes, including repair, performance, improved aesthetics and functionality.
In order to expand our business, we must successfully offer, on a continuous basis, a broad selection of auto parts that meet the needs of our customers, including by being the first to market with new SKUs. Our auto parts are used by consumers for a variety of purposes, including repair, performance, improved aesthetics and functionality.
Our Credit Facility also provides for an option to increase the aggregate principal amount from $75,000 to $150,000, subject to certain terms and conditions. Our credit agreement with JPMorgan originally entered into on April 26, 2012 (as amended, the “Credit Agreement”) includes a number of restrictive covenants.
Our Credit Facility also provides for an option to increase the aggregate principal amount from 11 Table of Contents $75,000 to $150,000, subject to certain terms and conditions. Our credit agreement with JPMorgan originally entered into on April 26, 2012 (as amended, the “Credit Agreement”) includes a number of restrictive covenants.
In particular, we rely on Google as an important marketing channel, and if Google changes its algorithms or if competition increases for advertisements on Google or on our marketplace channels, we may be unable to cost-effectively attract customers to our products. Our agreements with our marketing providers generally have terms of one year or less.
In particular, we rely on Google as an 21 Table of Contents important marketing channel, and if Google changes its algorithms or if competition increases for advertisements on Google or on our marketplace channels, we may be unable to cost-effectively attract customers to our products. Our agreements with our marketing providers generally have terms of one year or less.
Any mix shift in sales to marketplace channels or increase in associated commissions and costs, could result in lower gross margins, and as a result, our business and financial results may suffer. 10 Table of Contents If the hosts of third-party marketplaces limit our access to such marketplaces, our operations and financial results will be adversely affected.
Any mix shift in sales to marketplace channels or increase in associated commissions and costs, could result in lower gross margins, and as a result, our business and financial results may suffer. If the hosts of third-party marketplaces limit our access to such marketplaces, our operations and financial results will be adversely affected.
In addition, the increasing consolidation among auto parts suppliers may disrupt or end our relationship with some suppliers, result in product shortages and/or lead to less competition and, consequently, higher prices. Furthermore, as 13 Table of Contents part of our routine business, suppliers extend credit to us in connection with our purchase of their products.
In addition, the increasing consolidation among auto parts suppliers may disrupt or end our relationship with some suppliers, result in product shortages and/or lead to less competition and, consequently, higher prices. Furthermore, as part of our routine business, suppliers extend credit to us in connection with our purchase of their products.
In the past we have filed litigation to protect our intellectual property rights. The outcome of such litigation can be uncertain, and the cost of prosecuting such litigation may have an adverse impact on our earnings. We have common law trademarks, as well as pending federal trademark registrations for several marks and several 19 Table of Contents registered marks.
In the past we have filed litigation to protect our intellectual property rights. The outcome of such litigation can be uncertain, and the cost of prosecuting such litigation may have an adverse impact on our earnings. We have common law trademarks, as well as pending federal trademark registrations for several marks and several registered marks.
In addition, our customers could lose confidence in 22 Table of Contents our ability to protect their personal information, which could cause them to stop shopping on our sites altogether. Such events could lead to lost sales and adversely affect our results of operations. We also could be exposed to government enforcement actions and private litigation.
In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to stop shopping on our sites altogether. Such events could lead to lost sales and adversely affect our results of operations. We also could be exposed to government enforcement actions and private litigation.
For example, our headquarters and the majority of our infrastructure, including some of our servers, are located in Southern California, a seismically active region. We also maintain offshore and outsourced 23 Table of Contents operations in the Philippines, an area that has been subjected to a typhoon and a volcanic eruption in the recent past.
For example, our headquarters and the majority of our infrastructure, including some of our servers, are located in Southern California, a seismically active region. We also maintain offshore and outsourced operations in the Philippines, an area that has been subjected to a typhoon and a volcanic eruption in the recent past.
As laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees or third parties acting at 24 Table of Contents our direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.
As laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.
We have implemented and will continue to implement several strategies to attempt to overcome the challenges created by our suppliers selling directly to our customers and potential customers, including optimizing our pricing, continuing to increase our mix of house brands products and improving our websites, which may not be successful.
We have 15 Table of Contents implemented and will continue to implement several strategies to attempt to overcome the challenges created by our suppliers selling directly to our customers and potential customers, including optimizing our pricing, continuing to increase our mix of house brands products and improving our websites, which may not be successful.
Certain suppliers may exit the industry which may impact our ability to procure parts and may adversely impact gross margin as the remaining suppliers increase prices to take advantage of limited competition. 16 Table of Contents The seasonality of our business places increased strain on our operations. Our business is somewhat seasonal in nature.
Certain suppliers may exit the industry which may impact our ability to procure parts and may adversely impact gross margin as the remaining suppliers increase prices to take advantage of limited competition. The seasonality of our business places increased strain on our operations. Our business is somewhat seasonal in nature.
The occurrence of unanticipated events often rapidly drives the adoption of legislation or regulation affecting the use of data and the way we conduct our business; in fact, there are active discussions among U.S. 18 Table of Contents legislators around adoption of a new U.S. federal privacy law.
The occurrence of unanticipated events often rapidly drives the adoption of legislation or regulation affecting the use of data and the way we conduct our business; in fact, there are active discussions among U.S. legislators around adoption of a new U.S. federal privacy law.
In addition, we have and post on our websites our own privacy policies and practices concerning the collection, use and disclosure of customer data. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, U.S.
In addition, we have and post on our websites our own privacy policies and practices concerning the 18 Table of Contents collection, use and disclosure of customer data. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, U.S.
With respect to our marketing channels, we rely on relationships with providers of online services, search engines, shopping comparison sites and e-commerce businesses to provide content, advertising banners and other links that direct customers to our websites. We rely on these relationships as significant sources of traffic to our websites.
With respect to our marketing channels, we rely on relationships with providers of online services, search engines, shopping comparison sites and eCommerce businesses to provide content, advertising banners and other links that direct customers to our websites. We rely on these relationships as significant sources of traffic to our websites.
Risks Related To Our Capital Stock Our common stock price has been and may continue to be volatile, which may result in losses to our stockholders. The market prices of technology and e-commerce companies generally have been extremely volatile and have recently experienced sharp share price and trading volume changes.
Risks Related To Our Capital Stock Our common stock price has been and may continue to be volatile, which may result in losses to our stockholders. The market prices of technology and eCommerce companies generally have been extremely volatile and have recently experienced sharp share price and trading volume changes.
If we are unable to continue to adapt our mobile device shopping experience from desktop based online shopping in ways that improve our customer’s mobile experience and increase the engagement of our mobile customers our sales may decline and our business and financial results may suffer.
If we are unable to continue to adapt our mobile device shopping experience from desktop based online shopping 10 Table of Contents in ways that improve our customer’s mobile experience and increase the engagement of our mobile customers our sales may decline and our business and financial results may suffer.
We are subject to federal and state consumer protection laws and regulations, including laws protecting the privacy of customer non-public information and regulations prohibiting unfair and deceptive trade practices, as well as laws and regulations governing businesses in general and the Internet and e-commerce and certain environmental laws.
We are subject to federal and state consumer protection laws and regulations, including laws protecting the privacy of customer non-public information and regulations prohibiting unfair and deceptive trade practices, as well as laws and regulations governing businesses in general and the Internet and eCommerce and certain environmental laws.
Any Internet network interruptions or problems with our websites could: ● prevent customers from accessing our websites; ● reduce our ability to fulfill orders or bill customers; ● reduce the number of products that we sell; ● cause customer dissatisfaction; or ● damage our brand and reputation.
Any Internet network interruptions or problems with our websites could: ● prevent customers from accessing our websites; ● reduce our ability to fulfill orders or bill customers; ● reduce the number of products that we sell; ● cause customer dissatisfaction; or 23 Table of Contents ● damage our brand and reputation.
Any interruptions in our fulfillment operations for any 14 Table of Contents significant period of time, including interruptions resulting from the expansion of our existing facilities or the transfer of operations to a new facility, could damage our reputation and brand and substantially harm our business and results of operations.
Any interruptions in our fulfillment operations for any significant period of time, including interruptions resulting from the expansion of our existing facilities or the transfer of operations to a new facility, could damage our reputation and brand and substantially harm our business and results of operations.
While management has concluded that our internal controls over financial reporting were effective as of December 31, 2022, we have in the past identified, and could in the future identify, a significant deficiency or material weakness in internal control over financial reporting or fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
While management has concluded that our internal controls over financial reporting were effective as of December 30, 2023, we have in the past identified, and could in the future identify, a significant deficiency or material weakness in internal control over financial reporting or fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
Increased labor costs brought about by changes in minimum wage laws, inflation, other regulations or prevailing market conditions could increase our expenses and have an adverse impact on our profitability. 9 Table of Contents ​ If commodity prices such as fuel, plastic and steel increase, our margins may be negatively impacted.
Increased labor costs brought about by changes in minimum wage laws, inflation, other regulations or prevailing market conditions could increase our expenses and have an adverse impact on our profitability. ​ If commodity prices such as fuel, plastic and steel increase, our margins may be negatively impacted.
In January 2023, we were deemed to be PCI compliant by PCI DSS 3.2.1, the new security standards as issued by the PCI Council.
In January 2024, we were deemed to be PCI compliant by PCI DSS 3.2.1, the new security standards as issued by the PCI Council.
Furthermore, it is not clear how existing laws such as those governing issues such as property ownership, sales and other taxes, trespass, data mining and collection, and personal privacy apply to the Internet and e-commerce.
Furthermore, it is not clear how existing laws such as those governing issues such as property ownership, sales and other taxes, trespass, data mining and collection, and personal privacy apply to the Internet and eCommerce.
Shifting consumer behavior indicates that our customers are becoming more inclined to shop for aftermarket auto parts through their mobile devices. Mobile customers exhibit different behaviors than our more traditional desktop based e-commerce customers.
Shifting consumer behavior indicates that our customers are becoming more inclined to shop for aftermarket auto parts through their mobile devices. Mobile customers exhibit different behaviors than our more traditional desktop based eCommerce customers.
In addition, recent trends indicate that customers may be more inclined to shop for aftermarket auto parts through marketplace websites such as Amazon and eBay as opposed to purchasing parts through e-commerce channels.
In addition, recent trends indicate that customers may be more inclined to shop for aftermarket auto parts through marketplace websites such as Amazon and eBay as opposed to purchasing parts through eCommerce channels.
If a successful claim were brought against us, it could expose us to significant liability. If we are unable to protect our intellectual property rights, our reputation and brand could be impaired and we could lose customers.
If a successful claim were brought against us, it could expose us to significant liability. 19 Table of Contents If we are unable to protect our intellectual property rights, our reputation and brand could be impaired and we could lose customers.
We are highly dependent upon key suppliers and an interruption in such relationships or our ability to obtain parts from such suppliers could adversely affect our business and results of operations. Our top ten suppliers represented approximately 51% of our total product purchases during the fiscal year ended December 31, 2022.
We are highly dependent upon key suppliers and an interruption in such relationships or our ability to obtain parts from such suppliers could adversely affect our business and results of operations. Our top ten suppliers represented approximately 52% of our total product purchases during the fiscal year ended December 30, 2023.
The Internet and the e-commerce industry are characterized by rapid technological change, the emergence of new industry standards and practices and changes in customer requirements and preferences.
The Internet and the eCommerce industry are characterized by rapid technological change, the emergence of new industry standards and practices and changes in customer requirements and preferences.
Risks Related To Our Capital Stock ● Our common stock price may continue to be volatile, which may result in losses to our stockholders. 7 Table of Contents ● Our future operating results may fluctuate and may fail to meet market expectations. ● Failure to maintain an effective system of internal control over financial reporting or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could cause our stock price to decline. ● Our charter documents could deter a takeover effort, which could inhibit your ability to receive an acquisition premium for your shares. ● We do not intend to pay dividends on our common stock. ● Future capital raises may dilute our existing stockholders’ ownership.
Risks Related To Our Capital Stock ● Our common stock price may continue to be volatile, which may result in losses to our stockholders. ● Our future operating results may fluctuate and may fail to meet market expectations. 7 Table of Contents ● Failure to maintain an effective system of internal control over financial reporting or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could cause our stock price to decline. ● Our charter documents could deter a takeover effort, which could inhibit your ability to receive an acquisition premium for your shares. ● We do not intend to pay dividends on our common stock. ● We cannot guarantee that our share repurchase program will enhance shareholder value and share repurchases could affect the price of our common stock. ● Future capital raises may dilute our existing stockholders’ ownership.
Third-party marketplaces account for a significant portion of our revenues. Our sales on third-party marketplaces (including eBay and Amazon) represented a combined 35.2% of total sales in the fiscal year ended December 31, 2022. We anticipate that sales of our products on third-party marketplaces will continue to account for a significant portion of our revenues.
Third-party marketplaces account for a significant portion of our revenues. Our sales on third-party marketplaces (including eBay and Amazon) represented a combined 35.6% of total sales in the fiscal year ended December 30, 2023. We anticipate that sales of our products on third-party marketplaces will continue to account for a significant portion of our revenues.
The Company’s outstanding letters of credit balance as of December 31, 2022 was $620, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheet. If our assets become impaired, we may be required to record a significant charge to earnings.
The Company’s outstanding letters of credit balance as of December 30, 2023 was $680, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheet. If our assets become impaired, we may be required to record a significant charge to earnings.
For the fiscal year ended December 31, 2022, our product purchases from three drop-ship suppliers represented approximately 9% of our total product purchases. Because we outsource to suppliers a number of these traditional retail functions relating to those products, we have limited control over how and when orders are fulfilled.
For the fiscal year ended December 30, 2023, our product purchases from three drop-ship suppliers 13 Table of Contents represented approximately 11% of our total product purchases. Because we outsource to suppliers a number of these traditional retail functions relating to those products, we have limited control over how and when orders are fulfilled.
The existence of any such deficiencies or weaknesses, even if remediated, may also lead to the loss of investor confidence in the reliability of our financial statements, could harm our business and negatively impact the trading price of our common stock. Such deficiencies or material weaknesses may also subject us to lawsuits, regulatory investigations and other penalties.
The existence of any such deficiencies or weaknesses, even if remediated, may also lead to the loss of investor confidence in the reliability of our financial statements, could harm our business and negatively impact the trading price of our common stock.
Demand for our products has been and may continue to be adversely affected by general economic conditions, unemployment levels, inflation, rising interest rates from the U.S. Federal Reserve as a response to inflation, or other heightened cost pressures on consumers.
We sell aftermarket auto parts consisting of replacement parts, hard parts, and performance parts. Demand for our products has been and may continue to be adversely affected by general economic conditions, unemployment levels, inflation, rising interest rates from the U.S. Federal Reserve as a response to inflation, or other heightened cost pressures on consumers.
Additional laws and regulations may be adopted with respect to the Internet, the effect of which on e-commerce is uncertain.
Additional 20 Table of Contents laws and regulations may be adopted with respect to the Internet, the effect of which on eCommerce is uncertain.
Problems with the design, integration or implementation of these systems could interfere with our business and operations. ​ We recently completed a multi-year implementation of a new global enterprise resource planning system (ERP).
We recently implemented a new enterprise resource planning system in fiscal year 2022, and we may occasionally update or integrate other IT systems. Problems with the design, integration or implementation of these systems could interfere with our business and operations. ​ We recently completed a multi-year implementation of a new global enterprise resource planning system (ERP) in fiscal year 2022.
For example, the Company and its executive officers maintain Facebook, Instagram, Twitter, LinkedIn, and other social media accounts, where marketing and other information relevant to customers and investors is disseminated.
We also use social media platforms as marketing tools or as channels to disseminate information. For example, the Company and its executive officers maintain Facebook, Instagram, Twitter, LinkedIn, and other social media accounts, where marketing and other information relevant to customers and investors is disseminated.
Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of any such litigation if it were initiated. The initiation of any such litigation or an unfavorable result could have a material adverse effect on our financial condition and results of operations. Our future operating results may fluctuate and may fail to meet market expectations.
The initiation of any such litigation or an unfavorable result could have a material adverse effect on our financial condition and results of operations. Our future operating results may fluctuate and may fail to meet market expectations.
Further, we use promotions as a way to drive sales, these promotional activities may not drive sales and may adversely affect our gross margins. 21 Table of Contents Similarly, if any free search engine, shopping comparison site, or marketplace site on which we rely begins charging fees for listing or placement, or if one or more of the search engines, shopping comparison sites, marketplace sites and other online sources on which we rely for purchased listings, increases their fees, or modifies or terminates its relationship with us, our expenses could rise, we could lose customers and traffic to our websites could decrease.
Similarly, if any free search engine, shopping comparison site, or marketplace site on which we rely begins charging fees for listing or placement, or if one or more of the search engines, shopping comparison sites, marketplace sites and other online sources on which we rely for purchased listings, increases their fees, or modifies or terminates its relationship with us, our expenses could rise, we could lose customers and traffic to our websites could decrease.
We cannot ensure that we can recover all the increased costs through price increases, and our suppliers may not continue to provide the consistent quality of product as they may substitute lower cost materials to maintain pricing levels, all of which may have a negative impact on our business and results of operations. ​ Purchasers of aftermarket auto parts may not choose to shop online, which would prevent us from acquiring new customers who are necessary to the growth of our business.
We cannot ensure that we can recover all the increased costs through price increases, and our suppliers may not continue to provide the consistent quality of product as they may substitute lower cost materials to maintain pricing levels, all of which may have a negative impact on our business and results of operations.
If we do not successfully expand our fulfillment capabilities in response to increases in demand, our sales could decline. In addition, our distribution centers are susceptible to damage or interruption from human error, fire, flood, power loss, telecommunications failures, terrorist attacks, acts of war, break-ins, earthquakes and similar events.
In addition, our distribution centers are susceptible to damage or interruption from human error, fire, flood, power loss, telecommunications failures, terrorist attacks, acts of war, break-ins, earthquakes and similar events. We do not currently maintain back-up power systems at our fulfillment centers.
Any substantial disruption of our technology infrastructure could cause interruptions or delays in our business and loss of data or render us unable to accept and fulfill customer orders or operate our websites in a timely manner, or at all. We recently implemented a new enterprise resource planning system, and we may occasionally update or integrate other IT systems.
Any substantial disruption of our technology infrastructure could cause interruptions or delays in our business and loss of data or render us unable to accept and fulfill customer orders or operate our websites in a timely manner, or at all.
We do not currently maintain back-up power systems at our fulfillment centers. We do not presently have a formal disaster recovery plan and our business interruption insurance may be insufficient to compensate us for losses that may occur in the event operations at our fulfillment center are interrupted.
We do not presently have a formal disaster recovery plan and our business interruption insurance may be insufficient to compensate us for losses that may occur in the event operations at our fulfillment center are interrupted. In addition, alternative arrangements may not be available, or if they are available, may increase the cost of fulfillment.
Our charter documents could deter a takeover effort, which could inhibit your ability to receive an acquisition premium for your shares. Provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders.
Provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders.
In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. 17 Table of Contents Our estimate of the size of our addressable market may prove to be inaccurate. ​ Data for retail sales of auto products is collected for most, but not all channels, and as a result, it is difficult to estimate the size of the market and predict the rate at which the market for our products will grow, if at all.
Our estimate of the size of our addressable market may prove to be inaccurate. ​ Data for retail sales of auto products is collected for most, but not all channels, and as a result, it is difficult to estimate the size of the market and predict the rate at which the market for our products will grow, if at all.
The majority of orders for our auto parts products are filled from our inventory in our distribution centers, where all our inventory management, packaging, labeling and product return processes are performed. Increased demand and other considerations may require us to expand our distribution centers or transfer our fulfillment operations to larger or other facilities in the future.
The majority of orders for our auto parts products are filled from our inventory in our distribution centers, where all our inventory management, packaging, labeling and product return processes are performed.
While our financial condition and results of operations for fiscal year 2022 were not significantly adversely affected by the COVID-19 pandemic, a prolonged future outbreak, or another pandemic and its effects, potentially could affect fiscal year 2023 or beyond. ​ COVID-19 has had, and may continue to have, negative impacts on economic conditions in the United States and worldwide.
A prolonged future outbreak from COVID-19, or another pandemic and its effects, potentially could affect future years. ​ The COVID-19 pandemic has had, and may continue to have, negative impacts on economic conditions in the United States and worldwide.
In the event our product catalog is damaged or is stolen, copied or otherwise replicated to compete with us, whether lawfully or not, we may lose an important competitive advantage and our business could be harmed.
In the event our product catalog is damaged or is stolen, copied or otherwise replicated to compete with us, whether lawfully or not, we may lose an important competitive advantage and our business could be harmed. 16 Table of Contents Economic conditions have had, and may continue to have, an adverse effect on the demand for aftermarket auto parts and could adversely affect our sales and operating results.
There can be no assurance that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all, or that we would be able to modify our existing Credit Agreement.
There can be no assurance that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all, or that we would be able to modify our existing Credit Agreement. 12 Table of Contents While we did not have any outstanding revolver loan debt under our Credit Agreement as of December 30, 2023, we may have outstanding revolver loan debt in the future.
However, following the Supreme Court decision in South Dakota v. Wayfair, the Company is now required to collect sales tax in any state which passes legislation requiring out of state retailers to collect sales tax even where they have no physical nexus.
Wayfair (“Wayfair”), online sellers can be required to collect sales tax in any state which passes legislation requiring out of state retailers to collect sales tax even where they have no physical nexus.
Negative commentary regarding us or the brands that we sell may be posted on social media platforms or similar devices at any time and may harm our reputation or business. Consumers value readily available information concerning retailers and their goods and services and often act on such information without further investigation and without regard to its accuracy.
Negative commentary regarding us or the brands that we sell may be posted on social media platforms or similar devices at any time and may harm our reputation or business.
However, given the rapidly evolving nature and proliferation of cyber threats, our controls may not prevent or identify all such attacks in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations, and we cannot eliminate the risk of human error or employee or vendor malfeasance.
If successful, any of these attacks could negatively affect our reputation, damage our network infrastructure and our ability to sell our products, harm our relationship with customers that are affected and expose us to financial liability. 22 Table of Contents Given the rapidly evolving nature and proliferation of cyber threats, our internal controls relating to cybersecurity may not prevent or identify all such attacks in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations, and we cannot eliminate the risk of human error or employee or vendor malfeasance.
The harm may be immediate without affording us an opportunity for redress or correction. In addition, social media platforms provide users with access to such a broad audience that collective action against our website and marketplace stores, such as boycotts, can be more easily organized.
In addition, social media platforms provide users with access to such a broad audience that collective action against our website and marketplace stores, such as boycotts, can be more easily organized. If such actions were organized, we could suffer reputational damage as well as physical damage to our stores and merchandise.
We will be required to collect and pay more sales taxes, and could become liable for other fees and penalties, which could have an adverse effect on our business. We have historically collected sales or other similar taxes only on the shipment of goods to customers in the states of California, Virginia, Illinois, and Ohio.
We may be required to collect and pay more sales taxes, and could become liable for other fees and penalties, which could have an adverse effect on our business. Following the Supreme Court decision in South Dakota v.
Since the completion of our initial public offering in February 2007 through December 31, 2022, the trading price of our common stock has been volatile, ranging from a high of $23.26 per share to a low per share of $0.88. We have also experienced significant fluctuations in the trading volume of our common stock.
Since the completion of our initial public offering in February 2007 through December 30, 2023, the trading price of our common stock has been volatile. We have also experienced significant fluctuations in the trading volume of our common stock. General economic and political conditions unrelated to our performance may also adversely affect the price of our common stock.
If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership may decrease, and these stockholders may experience substantial dilution. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
In addition, there can be no guarantee that repurchases made under our share repurchase program, if any, will enhance shareholder value. Future capital raises may dilute our existing stockholders’ ownership. If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership may decrease, and these stockholders may experience substantial dilution. ITEM 1B.
We do not intend to pay dividends on our common stock. We currently do not expect to pay any cash dividends on our common stock for the foreseeable future. Future capital raises may dilute our existing stockholders’ ownership.
We do not intend to pay dividends on our common stock. We currently do not expect to pay any cash dividends on our common stock for the foreseeable future. We cannot guarantee that our share repurchase program will enhance shareholder value, and share repurchases could affect the price of our common stock.
General economic and political conditions unrelated to our performance may also adversely affect the price of our common stock. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated.
In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of any such litigation if it were initiated.
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Higher wage costs due to changes in federal and state minimum wage laws, or due to unstable market conditions, could adversely affect our business. ​ Changes in federal and state minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefit costs.
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Purchasers of aftermarket auto parts may not choose to shop online, which would prevent us from acquiring new customers who are necessary to the growth of our business.
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While we did not have any outstanding revolver loan debt under our Credit Agreement as of December 31, 2022, we may have outstanding revolver loan debt in the future.
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Increased demand 14 Table of Contents and other considerations may require us to expand our distribution centers or transfer our fulfillment operations to larger or other facilities in the future. If we do not successfully expand our fulfillment capabilities in response to increases in demand, our sales could decline.
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In addition, alternative arrangements may not be available, or if they are available, may increase the cost of fulfillment.
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In response to Wayfair, or otherwise, state or local governments and taxing authorities may adopt, or begin to enforce, laws requiring us to calculate, collect and remit taxes on sales in their jurisdictions, which could harm our business and results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES As of December 31, 2022, the total square footage of our leased office and distribution centers was 1,296,000 square feet. This includes approximately 1,280,000 square feet for our corporate headquarters located in Torrance, California and distribution centers in Illinois, Virginia, Nevada, Texas and Florida; and approximately 16,000 square feet of office space in the Philippines.
Biggest changeITEM 2. PROPERTIES As of December 30, 2023, the total square footage of our leased office and distribution centers was 1,203,000 square feet. This includes approximately 1,187,000 square feet for our corporate headquarters located in Torrance, California and distribution centers in Illinois, Virginia, Nevada, Texas and Florida; and approximately 16,000 square feet of office space in the Philippines.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor an additional discussion of certain risks associated with legal proceedings, see the section entitled “ Risk Factors ” in Item 1A of this report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 27 Table of Contents PART II
Biggest changeFor an additional discussion of certain risks associated with legal proceedings, see the section entitled “ Risk Factors ” in Item 1A of this report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 29 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. ​ Mine Safety Disclosures ​ 27 ​ ​ ​ ​ ​ ​ ​ PART II ​ 28 ​ ​ ​ ​ ​ Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 28
Biggest changeItem 4. ​ Mine Safety Disclosures ​ 29 ​ ​ ​ ​ ​ ​ ​ PART II ​ 30 ​ ​ ​ ​ ​ Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 30

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe do not anticipate that we will declare or pay any cash dividends on our common stock in the foreseeable future, and we no longer pay dividends to our Series A Preferred stockholders since all outstanding preferred stock was converted to common stock in June 2020.
Biggest changeDividend Policy No dividends on common stock were paid during the fiscal year ended December 30, 2023. We do not anticipate that we will declare or pay any cash dividends on our common stock in the foreseeable future.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on NASDAQ under the symbol “PRTS.” Holders As of February 28, 2023, there were approximately 6 registered stockholders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on NASDAQ under the symbol “PRTS.” Holders As of February 29, 2024, there were approximately 5 registered stockholders of record of our common stock.
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Dividend Policy No dividends on common stock were paid during the fiscal year ended December 31, 2022.
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A summary of our common stock repurchases during the thirteen weeks ended December 30, 2023 is set forth in the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of ​ ​ ​ ​ ​ ​ ​ ​ Shares Purchased ​ ​ ​ ​ ​ ​ ​ ​ As Part of ​ Approximate Dollar Value ​ ​ Total Number of ​ ​ ​ Publicly Announced ​ of Shares That May Yet ​ ​ Shares Purchased ​ Average Price ​ Plans or Programs ​ Be Purchased Under the ​ ​ (in thousands) ​ Paid per Share ​ (in thousands) ​ Plans or Programs (in thousands) October 1, 2023 - October 28, 2023 ​ — $ — ​ N/A $ 27,379 October 29, 2023 - November 25, 2023 ​ 712 $ 2.95 ​ 712 $ 25,279 November 26, 2023 - December 30, 2023 ​ 14 $ 3.05 ​ 14 $ 25,234 Total ​ 726 ​ ​ ​ 726 ​ ​ ​ Stock Performance Graph The following graph compares the performance of our common stock with that of the Russell 2000 Index and the NASDAQ Composite Index for the five-year period beginning on December 28, 2018 and ending on December 29, 2023, the last business day prior to each fiscal year-end date. 30 Table of Contents We caution that historic performance of our common stock is not necessarily indicative of future stock price performance. ​ ITEM 6. [RESERVED] ​ ​
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The actual timing, number, and value of common shares repurchased under our board-approved plan will be determined at our discretion and will depend on a number of factors, including, among others, general market and business conditions, the trading price of common shares, and applicable legal requirements.
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We have no obligation to repurchase any common shares under the authorization, and the repurchase plan may be suspended, discontinued, or modified at any time for any reason. Since inception of the program, we have repurchased $479 of our common stock at an average price of $11.99 per share. This was a one-time repurchase in December 2021.
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During the thirteen weeks ended December 31, 2022, we did not repurchase any shares of common stock. As of December 31, 2022, approximately $29.5 million in aggregate dollar value of shares remained available for purchase under the stock repurchase program.
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Stock Performance Graph The following graph compares the performance of our common stock with that of the Russell 2000 Index and the NASDAQ Index for the five-year period beginning on December 29, 2017 and ending on December 30, 2022, the last business days prior to fiscal year-end.
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We previously have included the Standard & Poor’s 500 Index (“S&P 500”) and the S&P Retail Index; however, we believe the comparison to the Russell 2000 Index and the NASDAQ Index are both a more applicable comparison because our common stock is currently included in the Russell 2000 Index and our common stock is listed on the NASDAQ stock exchange.
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As a result, the stock performance graph below does not include the previously disclosed S&P indexes. 28 Table of Contents We caution that historic performance of our common stock is not necessarily indicative of future stock price performance. ​ ITEM 6. [RESERVED] ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table sets forth our results of operations for the fiscal years presented, expressed as a percentage of net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ December 31, 2022 January 1, 2022 January 2, 2021 ​ 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 ​ Other income (expense): ​ Other income, net ​ 0.1 ​ 0.0 ​ 0.0 ​ Interest expense (0.2) (0.2) (0.3) ​ 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) % ​ Fifty-Two Weeks Ended December 31, 2022 Compared to the Fifty-Two Weeks Ended January 1, 2022 Net Sales and Gross Margin ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, 2022 January 1, 2022 $ Change % Change ​ ​ (in thousands) ​ ​ ​ ​ Net sales ​ $ 661,604 $ 582,440 $ 79,164 13.6 % Cost of sales ​ 430,714 385,157 45,557 11.8 % Gross profit ​ $ 230,890 $ 197,283 $ 33,607 17.0 % Gross margin ​ 34.9 % 33.9 % ​ ​ ​ 1.0 % ​ Net sales increased $79,164 for fiscal year 2022 compared to fiscal year 2021 primarily driven by continued strong demand.
Biggest changeA similar discussion and analysis which compares fiscal year 2022 to fiscal year 2021 may be found in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report filed with the SEC pursuant to Section 13 or 15(d) under the Exchange Act on March 8, 2023. 34 Table of Contents Results of Operations The following table sets forth our results of operations for the fiscal years presented, expressed as a percentage of net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ December 30, 2023 December 31, 2022 January 1, 2022 ​ Net sales 100.0 % 100.0 % 100.0 % Cost of sales 66.1 65.1 66.1 ​ Gross profit 33.9 34.9 33.9 ​ Operating expense 35.4 34.8 35.4 ​ (Loss) income from operations (1.5) 0.1 (1.5) ​ Other income (expense): ​ Other income, net ​ 0.5 ​ 0.1 ​ 0.0 ​ Interest expense (0.2) (0.2) (0.2) ​ Total other income (expense), net 0.3 (0.1) (0.2) ​ Loss before income taxes (1.2) (0.0) (1.7) ​ Income tax provision 0.0 0.1 0.1 ​ Net loss (1.2) % (0.1) % (1.8) % ​ Fifty-Two Weeks Ended December 30, 2023 Compared to the Fifty-Two Weeks Ended December 31, 2022 Net Sales and Gross Margin ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 30, 2023 December 31, 2022 $ Change % Change ​ ​ (in thousands) ​ ​ ​ ​ Net sales ​ $ 675,729 $ 661,604 $ 14,125 2.1 % Cost of sales ​ 446,323 430,714 15,609 3.6 % Gross profit ​ $ 229,406 $ 230,890 $ (1,484) (0.6) % Gross margin ​ 33.9 % 34.9 % ​ ​ ​ (1.0) % ​ Net sales increased $14,125, or 2.1%, for fiscal year 2023 compared to fiscal year 2022 primarily driven by continued demand.
We provide EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA consists of net loss before (a) interest expense, net; (b) income tax provision; (c) depreciation and amortization expense; and (d) amortization of intangible assets; while Adjusted EBITDA consists of EBITDA before share-based compensation expense.
We provide EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA consists of net loss before (a) interest (income) expense, net; (b) income tax provision; (c) depreciation and amortization expense; and (d) amortization of intangible assets; while Adjusted EBITDA consists of EBITDA before share-based compensation expense.
We principally sell our products to individual consumers through our flagship website at www.carparts.com and online marketplaces. Our corporate website is located at www.carparts.com /investor . The inclusion of our website addresses in this report does not include or incorporate by reference into this report any information on our websites.
We principally sell our products to individual consumers through our flagship website at www.carparts.com , our app, and online marketplaces. Our corporate website is located at www.carparts.com /investor . The inclusion of our website addresses in this report does not include or incorporate by reference into this report any information on our websites.
Finally, our historic results should not be viewed as indicative of future performance. 29 Table of Contents Overview We are a leading online provider of aftermarket auto parts, including replacement parts, hard parts, and performance parts and accessories. Our proprietary product database maps our SKUs to product applications based on vehicle makes, models and years.
Finally, our historic results should not be viewed as indicative of future performance. 31 Table of Contents Overview We are a leading online provider of aftermarket auto parts, including replacement parts, hard parts, and performance parts and accessories. Our proprietary product database maps our SKUs to product applications based on vehicle makes, models and years.
We believe that of our significant accounting policies, which are described in Note 1 – Summary of Significant Accounting Policies and Nature of Operations” of the Notes to Consolidated Financial Statements, the following accounting policies and estimates set forth below involve a greater degree of judgment or complexity. Valuation of Inventory – Inventory Reserves. Inventory primarily consists of finished goods.
We believe that of our significant accounting policies, which are described in Note 1 – Summary of Significant Accounting Policies and Nature of Operations” of the Notes to Consolidated Financial Statements, the following accounting policies and estimates set forth below involve a greater degree of judgment or complexity. Valuation of Inventory – Inventory Reserve. Inventory primarily consists of finished goods.
Auto Care Association estimated that overall revenue from online sales of auto parts and accessories would reach over $21 billion by 2025. Improved product availability, lower prices and consumers’ growing comfort with digital platforms are driving the shift to online sales.
Auto Care Association estimated that overall revenue from online sales of auto parts and accessories would reach approximately $21 billion by 2025. Improved product availability, lower prices and consumers’ growing comfort with digital platforms are driving the shift to online sales.
The components of cost of sales and operating costs are described in further detail under “Components of Results of Operations ” below. Non-GAAP measures Regulation G, “Conditions for Use of Non-GAAP Financial Measures ,” and other provisions of the Exchange Act, as amended, define and prescribe the conditions for use of certain non-GAAP financial information.
The components of cost of sales and operating costs are described in further detail under “Components of Results of Operations ” below. 32 Table of Contents Non-GAAP measures Regulation G, “Conditions for Use of Non-GAAP Financial Measures ,” and other provisions of the Exchange Act, as amended, define and prescribe the conditions for use of certain non-GAAP financial information.
This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management strongly 31 Table of Contents encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.
This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.
Our offline sales channel also includes both stock ship distribution as well as drop ship programs for automotive warehouse distributors and other online resellers. The product mix includes the majority of our house brands stock ship parts, which include the replacement collision parts and our Kool-Vue ® mirror line. Cost of Sales.
Our offline sales channel 33 Table of Contents also includes both stock ship distribution as well as drop ship programs for automotive warehouse distributors and other online resellers. The product mix includes the majority of our house brands stock ship parts, which include the replacement collision parts and our Kool-Vue ® mirror line. Cost of Sales.
We believe our user-friendly flagship website provides customers with a favorable alternative to the brick-and-mortar shopping experience by offering a comprehensive selection of approximately 913,000 SKUs with detailed product descriptions, attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods. 2. U.S. vehicle fleet expanding and aging.
We believe our user-friendly flagship website, and app, provides customers with a favorable alternative to the brick-and-mortar shopping experience by offering a comprehensive selection of approximately 1,047,000 SKUs with detailed product descriptions, attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods. 2. U.S. vehicle fleet expanding and aging.
The average age of U.S. light vehicles, an indicator of auto parts demand, reached a new record-high of 12.2 years in 2022, according to the U.S. Auto Care Association. We believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs.
The average age of U.S. light vehicles, an indicator of auto parts demand, reached a new record-high of 12.5 years in 2023, according to the U.S. Auto Care Association. We believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs.
Under the terms of the Credit Agreement, cash receipts are deposited into a lock-box, which are at the Company’s discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing under the Credit Agreement.
Under the terms of the 37 Table of Contents Credit Agreement, cash receipts are deposited into a lock-box, which are at the Company’s discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing under the Credit Agreement.
Changes in our operating plans, lower than anticipated net sales or gross margin, increased expenses, continued or worsened economic conditions, worsening operating performance by us, or other events, including those 36 Table of Contents described in “ Risk Factors ” included in Part II, Item 1A may force us to sell assets or seek additional debt or equity financings in the future, including the issuance of additional common stock under a registration statement.
Changes in our operating plans, lower than anticipated net sales or gross margin, increased expenses, continued or worsened economic conditions, worsening operating performance by us, or other events, including those described in “ Risk Factors ” included in Part I, Item 1A may force us to sell assets or seek additional debt or equity financings in the future, including the issuance of additional common stock under a registration statement.
Based on our current operating plan, we believe that our existing cash and cash equivalents, 34 Table of Contents investments, cash flows from operations and available funds under our Credit Facility will be sufficient to finance our operations through at least the next twelve months (see “ Debt and Available Borrowing Resources ” and “ Funding Requirements ” below).
Based on our current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available funds under our Credit Facility will be sufficient to finance our operations through at least the next twelve months (see “ Debt and Available Borrowing Resources ” and “ Funding Requirements ” below).
Presentation of Results of Operations and Liquidity and Capital Resources The following discussion and analysis of our Results of Operations and Liquidity and Capital Resources includes a comparison of fiscal year 2022 to fiscal year 2021.
Presentation of Results of Operations and Liquidity and Capital Resources The following discussion and analysis of our Results of Operations and Liquidity and Capital Resources includes a comparison of fiscal year 2023 to fiscal year 2022.
Other income, net primarily consists of miscellaneous income or expense and interest income comprised primarily of interest income on investments. 32 Table of Contents Interest Expense. Interest expense consists primarily of interest expense on our outstanding revolving loan and letters of credit balances, deferred financing cost amortization and finance lease interest.
Other income, net primarily consists of miscellaneous income or expense and interest income comprised primarily of interest income on investments. Interest Expense. Interest expense consists primarily of interest expense on our outstanding revolving loan and letters of credit balances, deferred financing cost amortization and finance lease interest.
As of December 31, 2022, the Company was in compliance with all covenants under the Credit Agreement. See additional information in “Note 4 – Borrowings” in the Notes to the Consolidated Financial Statements included in Part II, Item 8, of this report.
As of December 30, 2023, the Company was in compliance with all covenants under the Credit Agreement. See additional information in “Note 4 – Borrowings” in the Notes to the Consolidated Financial Statements included in Part II, Item 8, of this report.
Federal NOL carryforwards of $1,026 were acquired in the acquisition of WAG which are subject to Section 382 of the Code and limited to an annual usage limitation of $135. The Company’s federal NOL carryforwards begin to expire in 2029, while state NOL carryforwards begin to expire in 2023.
Federal NOL carryforwards of $891 were acquired in the acquisition of WAG which are subject to Section 382 of the Code and limited to an annual usage limitation of $135. The Company’s federal NOL carryforwards begin to expire in 2029, while state NOL carryforwards also begin to expire in 2029.
Investing Activities For the fiscal years ended December 31, 2022 and January 1, 2022, net cash used in investing activities was primarily the result of additions to property and equipment ($12,585 and $11,578, respectively), which are mainly related to capitalized website and software development costs.
Investing Activities For the fiscal years ended December 30, 2023 and December 31, 2022, net cash used in investing activities was primarily the result of additions to property and equipment ($11,879 and $12,585, respectively), which are mainly related to capitalized website and software development costs.
The Company’s net loss before interest expense, net, income tax provision, depreciation and amortization expense, amortization of intangible assets, share-based compensation expense ("Adjusted EBITDA"), was $26,113 in fiscal year 2022 compared to $16,791 in fiscal year 2021.
The Company’s net loss before interest (income) expense, net, income tax provision, depreciation and amortization expense, amortization of intangible assets, share-based compensation expense ("Adjusted EBITDA"), was $19,687 in fiscal year 2023 compared to $26,113 in fiscal year 2022.
As of December 31, 2022, our outstanding revolving loan balance was $0. The outstanding standby letters of credit balance as of December 31, 2022 was $620, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheet.
As of December 30, 2023 and December 31, 2022, our outstanding revolving loan balance was $0, respectively. The outstanding standby letters of credit balance as of December 30, 2023 and December 31, 2022 was $680 and $620, respectively, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheets.
Online and offline sales represent two different sales channels for our products. Online is our primary sales channel as we generate net sales primarily from e-commerce sales of auto parts to individual consumers through our flagship website www.carparts.com , and online marketplaces.
Online and offline sales represent two different sales channels for our products. Online is our primary sales channel as we generate net sales primarily from eCommerce sales of auto parts to individual consumers through our mobile-friendly website at www.carparts.com , our app, and online marketplaces.
Refer to the section below titled “ Non-GAAP measures ” for information regarding our use of Adjusted EBITDA and a reconciliation from net loss. Net sales increased in fiscal year 2022 compared to fiscal year 2021 primarily driven by continued strong demand. Gross profit increased by 17.0% to $230,890.
Refer to the section below titled “ Non-GAAP measures ” for information regarding our use of Adjusted EBITDA and a reconciliation from net loss. Net sales increased in fiscal year 2023 compared to fiscal year 2022 primarily driven by continued demand. Gross profit decreased by 0.6% to $229,406.
As of December 31, 2022, due to cumulative losses in recent years, the Company maintained a valuation allowance in the amount of $37,565 against deferred tax assets that were not more likely than not to be realized.
As of December 30, 2023, due to cumulative losses in recent years, the Company maintained a valuation allowance in the amount of $38,458 against deferred tax assets that were not more likely than not to be realized.
As of December 31, 2022, the Company’s SOFR based interest rate was 5.96% and the Company’s prime based rate was 7.50%. A commitment fee, based upon undrawn availability under the Credit Facility bearing interest at a rate of either 0.20% or 0.25% per annum based on the amount of undrawn availability, is payable monthly.
As of December 30, 2023, the Company’s SOFR based interest rate was 7.45% and the Company’s prime based rate was 9.00%. A commitment fee, based upon undrawn availability under the Credit Facility bearing interest at a rate of either 0.20% or 0.25% per annum based on the amount of undrawn availability, is payable monthly.
Income Tax Provision ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, 2022 January 1, 2022 $ Change % Change ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ Income tax provision ​ $ 632 ​ $ 351 ​ $ 281 80.1 % Percent of net sales ​ 0.1 % 0.1 % — % ​ The Company accounts for income taxes in accordance with ASC 740 - Income Taxes (“ASC 740”).
Income Tax Provision ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 30, 2023 December 31, 2022 $ Change % Change ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ Income tax provision ​ $ 145 ​ $ 632 ​ $ (487) (77.1) % Percent of net sales ​ 0.0 % 0.1 % (0.1) % ​ The Company accounts for income taxes in accordance with ASC 740 - Income Taxes (“ASC 740”).
We used the trade letters of credit in the ordinary course of business to satisfy certain vendor obligations. 35 Table of Contents Loans drawn under the Credit Facility bear interest at a per annum rate equal to either (a) SOFR plus an applicable margin of 1.50% to 2.00% per annum based on the Company’s fixed charge coverage ratio, or (b) an “alternate prime base rate” subject to an increase from 0.00% to 0.50% per annum based on the Company’s fixed charge coverage ratio.
Loans drawn under the Credit Facility bear interest at a per annum rate equal to either (a) SOFR plus an applicable margin of 1.50% to 2.00% per annum based on the Company’s fixed charge coverage ratio, or (b) an “alternate prime base rate” subject to an increase from 0.00% to 0.50% per annum based on the Company’s fixed charge coverage ratio.
Debt and Available Borrowing Resources Total debt was $20,669 as of December 31, 2022 compared to $15,821 as of January 1, 2022 and primarily consists of right-of-use obligations-finance.
Debt and Available Borrowing Resources Total debt was $16,635 as of December 30, 2023 compared to $20,669 as of December 31, 2022 and primarily consists of right-of-use obligations-finance.
The number of automotive SKUs has grown dramatically over the last several years. In today’s market, unless the consumer is driving a high volume produced vehicle and needs a simple maintenance item, the part they need is not typically on the shelf at a brick-and-mortar store.
In today’s market, unless the consumer is driving a high volume produced vehicle and needs a simple maintenance item, the part they need is not typically on the shelf at a brick-and-mortar store.
The table below reconciles net loss to Adjusted EBITDA for the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ December 31, 2022 ​ January 1, 2022 ​ January 2, 2021 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 Net Sales.
The table below reconciles net loss to Adjusted EBITDA for the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ December 30, 2023 ​ December 31, 2022 ​ January 1, 2022 Net loss ​ $ (8,223) ​ $ (951) ​ $ (10,339) Depreciation & amortization ​ 16,690 ​ 13,607 ​ 9,895 Amortization of intangible assets ​ 36 ​ 108 ​ 110 Interest (income) expense, net ​ (636) ​ 1,421 ​ 1,089 Income tax provision ​ 145 ​ 632 ​ 351 EBITDA ​ $ 8,012 ​ $ 14,817 ​ $ 1,106 Stock compensation expense ​ $ 11,675 ​ $ 11,296 ​ $ 15,685 Adjusted EBITDA ​ $ 19,687 ​ $ 26,113 ​ $ 16,791 ​ Components of Results of Operations Net Sales.
As of December 31, 2022, the Company had no material unrecognized tax benefits, interest or penalties related to federal and state income tax matters. As of December 31, 2022, the Company’s federal and state NOL carryforwards were $103,323 and $80,280, respectively.
As of December 30, 2023, the Company had no material unrecognized tax benefits, interest or penalties related to federal and state income tax matters. As of December 30, 2023, the Company’s federal and state NOL carryforwards were $105,224 and $84,780, respectively.
Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ December 31, 2022 January 1, 2022 January 2, 2021 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 Effect of exchange rate changes on cash ​ (75) ​ (21) (6) Net change in cash and cash equivalents ​ $ 623 ​ $ (17,658) $ 33,529 ​ Operating Activities Net cash provided by (used in) operating activities for the fiscal year ended December 31, 2022 and January 1, 2022 was $15,368 and ($6,988), respectively.
As of December 30, 2023 and December 31, 2022, our working capital was $80,352 and $79,843, respectively. 36 Table of Contents Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ December 30, 2023 December 31, 2022 January 1, 2022 Net cash provided by (used in) operating activities ​ $ 50,001 ​ $ 15,368 $ (6,988) Net cash used in investing activities ​ (11,901) ​ (12,517) (11,551) Net cash (used in) provided by financing activities ​ (5,916) ​ (2,153) 902 Effect of exchange rate changes on cash ​ — ​ (75) (21) Net change in cash and cash equivalents ​ $ 32,184 ​ $ 623 $ (17,658) ​ Operating Activities Net cash provided by operating activities for the fiscal years ended December 30, 2023 and December 31, 2022 was $50,001 and $15,368, respectively.
Liquidity and Capital Resources Sources of Liquidity During the fifty-two weeks ended December 31, 2022, we primarily funded our operations with cash and cash equivalents generated from operations and borrowings under our Credit Facility.
Liquidity and Capital Resources Sources of Liquidity During the fifty-two weeks ended December 30, 2023, we primarily funded our operations with cash and cash equivalents generated from operations. We had cash and cash equivalents of $50,951 as of December 30, 2023, representing a $32,184 increase from $18,767 of cash and cash equivalents as of December 31, 2022.
The increase in net cash provided by (used in) operating activities was primarily due to the decrease in net loss and a lower net cash outflow from the change in working capital.
The increase in net cash provided by operating activities was primarily driven by a higher net cash inflow from the change in working capital.
Financing Activities Net cash (used in) provided by financing activities was ($2,153) and $902 for the fiscal years ended December 31, 2022 and January 1, 2022, respectively. The decrease was primarily attributable to the decrease in proceeds from exercises of stock options and the increase in payments on finance leases in the fiscal year ended December 31, 2022.
Financing Activities Net cash used in financing activities was $5,916 and $2,153 for the fiscal years ended December 30, 2023 and December 31, 2022, respectively. The increase was primarily attributable to the repurchase of treasury stock in the fiscal year ended December 30, 2023.
There can be no assurance that we would be able to raise such additional financing or engage in asset sales on acceptable terms, or at all. If we are not able to raise adequate additional financing or proceeds from asset sales, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations.
There can be no assurance that we would be able to raise such additional financing or engage in asset sales on acceptable terms, or at all.
Gross margin increased 100 basis points to 34.9% in fiscal year 2022 compared to 33.9% in fiscal year 2021. The increase in gross margin was primarily driven by favorable freight costs in 2022. Total expenses, which primarily consisted of cost of sales and operating expense, increased in fiscal year 2022 compared to the same period in 2021.
Total expenses, which primarily consisted of cost of sales and operating expense, increased in fiscal year 2023 compared to the same period in 2022.
We believe that we are well positioned for the shift to online sales due to being a leading source for aftermarket automotive parts through our flagship website and online marketplaces.
We believe that we are well positioned for the shift to online sales due to being a leading source for aftermarket automotive parts through our flagship website, app, and online marketplaces. Executive Summary For fiscal year 2023, the Company’s operations generated net sales of $675,729, compared to $661,604 for fiscal year 2022, representing an increase of 2.1%.
Seasonality We believe our business is somewhat seasonal in nature. It includes many categories, geographies, and channels which may experience seasonality from time to time based on various external factors. Additionally, seasonality may affect our product mix.
It includes many categories, geographies, and channels which may experience seasonality from time to time based on various external factors. Additionally, seasonality may affect our product mix. These historical seasonality trends could continue, and such trends may have a material impact on our financial condition and results of operations in subsequent periods.
These historical seasonality trends could continue, and such trends may have a material impact on our financial condition and results of operations in subsequent periods. Recent Accounting Pronouncements See “ Note 1 – Summary of Significant Accounting Policies and Nature of Operations” of the Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report.
Recent Accounting Pronouncements See “ Note 1 – Summary of Significant Accounting Policies and Nature of Operations” of the Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report. Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
The increase in gross margin was primarily driven by favorable freight costs in 2022. 33 Table of Contents Operating Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, 2022 January 1, 2022 $ Change % Change ​ (in thousands) ​ ​ Operating expense ​ $ 230,239 ​ $ 206,394 ​ $ 23,845 11.6 % Percent of net sales ​ 34.8 % 35.4 % (0.6) % ​ Operating expense increased $23,845, or 11.6%, for fiscal year 2022 compared to fiscal year 2021 primarily due to an increase in fulfillment expense.
Operating Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 30, 2023 December 31, 2022 $ Change % Change ​ (in thousands) ​ ​ Operating expense ​ $ 239,287 ​ $ 230,239 ​ $ 9,048 3.9 % Percent of net sales ​ 35.4 % 34.8 % 0.6 % ​ Operating expense increased $9,048, or 3.9%, for fiscal year 2023 compared to fiscal year 2022.
Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses, and related disclosures.
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ from those estimates under different assumptions and conditions.
We believe by disintermediating the traditional auto parts supply chain and selling products directly to customers online allows us to efficiently deliver products to our customers.
We believe disintermediating the traditional auto parts supply chain and selling products directly to customers online allows us to efficiently deliver products to our customers. Industry-wide trends that support our strategy and future growth include: 1. Number of SKUs required to serve the market. The number of automotive SKUs has grown dramatically over the last several years.
Gross profit increased $33,607, or 17.0%, in fiscal year 2022 compared to fiscal year 2021. Gross margin increased 100 basis points to 34.9% in fiscal year 2022 compared to 33.9% in fiscal year 2021.
Gross profit decreased $1,484, or 0.6%, in fiscal year 2023 compared to fiscal year 2022. Gross margin decreased 100 basis points to 33.9% in fiscal year 2023 compared to 34.9% in fiscal year 2022. The decrease in gross margin was primarily driven by unfavorable freight costs and a shift in product mix.
Total Other Expense, Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, 2022 January 1, 2022 $ Change % Change ​ (in thousands) ​ ​ ​ ​ ​ ​ Other expense, net ​ $ (970) ​ $ (877) ​ $ (93) 10.6 % Percent of net sales ​ (0.1) % (0.2) % ​ ​ 0.1 % ​ Total other expense, net increased $93, or 10.6%, for fiscal year 2022 compared to fiscal year 2021 primarily due to an increase in interest expense attributable to an increase in our finance leases.
The increase in operating expense was primarily driven by investments in our business, combined with higher advertising expense, partially offset by a decrease in fulfillment expense primarily due to an improvement in distribution center fulfillment costs. 35 Table of Contents Total Other Income (Expense), Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended ​ ​ ​ ​ ​ ​ ​ December 30, 2023 December 31, 2022 $ Change % Change ​ (in thousands) ​ ​ ​ ​ ​ ​ Other income (expense), net ​ $ 1,803 ​ $ (970) ​ $ 2,773 (285.9) % Percent of net sales ​ 0.3 % (0.1) % ​ ​ 0.4 % ​ Total other income (expense), net, increased $2,773, or 285.9%, for fiscal year 2023 compared to fiscal year 2022 primarily driven by an increase in interest income due to higher interest rates and a higher cash balance during 2023.
Executive Summary For fiscal year 2022, the Company’s operations generated net sales of $661,604, compared to $582,440 for fiscal year 2021, representing an increase of 13.6%. The Company incurred a net loss of $951 for fiscal year 2022 compared to a net loss of $10,339 for fiscal year 2021.
The Company incurred a net loss of $8,223 for fiscal year 2023 compared to a net loss of $951 for fiscal year 2022.
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Our mission is changing the way people repair their cars and getting them back on the road, and our strategy consists of four areas of focus: outstanding customer service, operational excellence, financial discipline, and innovation. Industry-wide trends that support our strategy and future growth include: 1. Number of SKUs required to serve the market.
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Gross margin decreased 100 basis points to 33.9% in fiscal year 2023 compared to 34.9% in fiscal year 2022. The decrease in gross margin was primarily driven by unfavorable freight costs and a shift in product mix.
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Factors Affecting Our Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the “ Risk Factors ” section set forth in Part I, Item 1A .
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We use the trade letters of credit in the ordinary course of business to satisfy certain vendor obligations.
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Acquiring New Customers We believe there is substantial opportunity to continue acquiring new customers. The automotive aftermarket parts industry is still very underpenetrated online compared to other verticals and industries. We believe consumers are becoming more comfortable buying auto parts online and we anticipate continued growth acceleration.
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If we are not able to raise adequate additional financing or proceeds from asset sales, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations. 38 Table of Contents Seasonality We believe our business is somewhat seasonal in nature.
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Our ability to attract and acquire new customers will depend on a number of factors, including the effectiveness and pricing of our products, increasing and optimizing our product catalog, technological improvements to our website, and the effectiveness of our marketing efforts.
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However, with the right tools and solutions, we continue to see this as a great opportunity to disrupt the automotive aftermarket parts industry. 30 Table of Contents Supply Chain and Shipping Optimization Over the last three years, we have added new distribution centers in order to shorten the customer order delivery time to meet our customers’ evolving delivery expectations and in turn optimizing our outbound freight costs.
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Our ability to optimize our supply chain sourcing will continue to be key in managing costs of importing parts from overseas. While we seek to continue to strengthen and optimize our supply chain for both inbound and outbound shipping, we may incur increased freight expenses from the global supply chain volatility due to seasonal economic conditions and potentially heightened inflation.
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Although we do not believe that inflation had a material direct effect on our business, results of operations or financial condition to date, a significant increase in the rate of inflation may have a significant adverse effect on in the future our business, results of operations or financial condition.
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A similar discussion and analysis which compares fiscal year 2021 to fiscal year 2020 may be found in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report filed with the SEC pursuant to Section 13 or 15(d) under the Exchange Act on March 2, 2022.
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The increase in fulfillment expense was primarily due to a higher number of inventory receipts and fulfilled orders processed as well as additional expenses related to investments in our business.
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We had cash and cash equivalents of $18,767 as of December 31, 2022, representing a $623 increase from $18,144 of cash and cash equivalents as of January 1, 2022.
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As of December 31, 2022 and January 1, 2022, our working capital was $79,843 and $71,808, respectively.
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We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ from those estimates under different assumptions and conditions.
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Income Taxes – Realization of Deferred Tax Assets. We account for income taxes in accordance with ASC 740. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases.
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Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
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When appropriate, a valuation allowance is established to reduce deferred tax assets, which include tax credits and loss carryforwards, to the amount that is more likely than not to be realized.
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The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each applicable tax jurisdiction.
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We primarily consider the following possible sources of taxable income when assessing the realization of our deferred tax assets: ● Future reversals of existing taxable temporary differences; ● Future taxable income exclusive of reversing temporary differences and carryforwards; ● Tax-planning strategies. 37 Table of Contents The assessment regarding whether a valuation allowance is required or should be adjusted/released also considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with tax attributes expiring unused and tax planning alternatives.
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In making such judgments, significant weight is given to evidence that can be objectively verified. Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years.
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We utilized a three-year analysis of actual results as the primary measure of cumulative losses in recent years. In addition, the near- and medium-term financial outlook is considered when assessing the need for a release of our valuation allowance.
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The valuation of deferred tax assets requires judgment and assessment of the future tax consequences of events that have been recorded in the financial statements or in the tax returns, and our future profitability represents our best estimate of those future events.
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Changes in our current estimates, due to unanticipated events or otherwise, could have a material effect on our financial condition and results of operations. We utilize a two-step approach to recognizing and measuring uncertain tax positions.
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The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes.
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The second step is to measure the tax benefit as the largest amount which is more than 50% likely to be realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.
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The Company’s policy is to record interest and penalties as income tax expense.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do not use derivative financial instruments to manage foreign currency risk but could choose to do so in the future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this Item 8 are set forth in Part IV, Item 15 of this report and are hereby incorporated into this Item 8 by reference. ITEM 9.
Biggest changeFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this Item 8 are set forth in Part IV, Item 15 of this report and are hereby incorporated into this Item 8 by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
Interest Rate Risk We are subject to interest rate risk in connection with our revolving loan under our Credit Facility, which bears an interest rate based on a SOFR, plus an applicable margin, and a prime based rate. As of December 31, 2022, we had a balance of $0 outstanding under our revolving loan.
Interest Rate Risk We are subject to interest rate risk in connection with our revolving loan under our Credit Facility, which bears an interest rate based on a SOFR, plus an applicable margin, and a prime based rate. As of December 30, 2023, we had a balance of $0 outstanding under our revolving loan.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 38 Table of Contents
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We do not use derivative financial instruments to manage foreign currency risk but could choose to do so in the future. 39 Table of Contents ITEM 8.

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