CarParts.com, Inc.PRTS财报
Nasdaq · 可选消费 · 零售 - 汽车及家居用品店
Genuine Parts Company (GPC) is an American automotive and industrial parts distributor based in Atlanta, Georgia. Established by brothers Carlyle and Malcolm Fraser in 1928, the company has approximately 60,000 employees. In addition to the United States, GPC has operated in Australasia, Belgium, Canada, France, Germany, Mexico, the Netherlands, Poland, and the United Kingdom. GPC's subsidiaries include industrial parts distributor Motion as well as NAPA Auto Parts, which primarily sells part...
What changed in CarParts.com, Inc.'s 10-K — 2021 vs 2022
Top changes in CarParts.com, Inc.'s 2022 10-K
181 paragraphs added · 205 removed · 145 edited across 8 sections
- Item 1A. Risk Factors+83 / −84 · 67 edited
- Item 7. Management's Discussion & Analysis+64 / −80 · 54 edited
- Item 1. Business+20 / −25 · 13 edited
- Item 5. Market for Registrant's Common Equity+9 / −11 · 6 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+2 / −2 · 2 edited
Item 1. Business
Business — how the company describes what it does
13 edited+7 added−12 removed36 unchanged
Item 1. Business
Business — how the company describes what it does
13 edited+7 added−12 removed36 unchanged
2021 filing
2022 filing
Our user-friendly website, and mobile-friendly platform, provide customers with a comprehensive selection of over 731,000 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.
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.
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 68,000 house brands SKUs in our product selection.
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.
These taxes or restrictions could have an adverse effect on our cash flows, results of operations and overall financial condition. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements. Seasonality We believe our business is subject to seasonal fluctuations.
These taxes or restrictions could have an adverse effect on our cash flows, results of operations and overall financial condition. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements. Seasonality We believe our business is somewhat seasonal in nature.
References to 2021, 2020 and 2019 relate to the 52-week fiscal year ended January 1, 2022, the 53-week fiscal year ended January 2, 2021, and the 52-week fiscal year ended December 28, 2019, respectively. 1 Table of Contents Our Products We offer a broad selection of aftermarket auto parts.
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.
Our stock-and-ship products are sourced primarily from manufacturers and other suppliers located in Asia and in the United States and are stored in one of our distribution centers located in Virginia, Illinois, Nevada, Texas or Florida. We also use temporary outside storage and third-party logistics partners from time to time.
Our stock-and-ship products are sourced primarily from manufacturers and other suppliers located in Asia, Europe, Mexico, the United States, as well as various other countries, and are stored in one of our distribution centers located in Virginia, Illinois, Nevada, Texas or Florida. We also use temporary outside storage and third-party logistics partners from time to time.
Our Fulfillment Operations We fulfill customer orders using two primary methods: (1) stock-and-ship, where we take physical delivery of merchandise and store it in one of our distribution centers until it is shipped to a customer, and (2) drop-ship, where merchandise is shipped directly to customers from our suppliers.
We market our products nationwide to auto parts wholesale distributors. Our Fulfillment Operations We fulfill customer orders using two primary methods: (1) stock-and-ship, where we take physical delivery of merchandise and store it in one of our distribution centers until it is shipped to a customer, and (2) drop-ship, where merchandise is shipped directly to customers from our suppliers.
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 January 1, 2022, three of our drop-ship vendors accounted for approximately 8% of our total product purchases. We currently have over 663,000 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 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.
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 January 1, 2022, the makeup of our employees consisted of 40% women and approximately 81% 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 31, 2022, the makeup of our employees consisted of 39% women and approximately 82% non-white.
Human Capital Our ability to recruit, retain, and develop our employees is key to our long-term growth and success. As of January 1, 2022, we had 907 employees in the United States and 622 employees in the Philippines for a total of 1,529 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 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.
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. 5 Table of Contents 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”).
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”).
We compete with both online and offline retailers who offer original equipment manufacturer (“OEM”), aftermarket and private label parts to either the DIY or DIFM customer segments.
We compete with both online and offline retailers who offer original equipment manufacturer (“OEM”), aftermarket and private label parts to either the Do-It-Yourself (“DIY”) or Do-It-For-Me (“DIFM”) customer segments.
Throughout the COVID-19 4 Table of Contents pandemic, we offered mental health tools and resources to our employees and provided the option for employees to take additional vacation days. Intellectual Property Our intellectual property, including trademarks, service marks, domain names, patents, copyrights and trade secrets, is an important part of our business.
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.
In addition, we believe that offering training and career growth opportunities is valuable for employee engagement and we often have promoted current employees to higher level positions. Human Capital Response to COVID-19 Pandemic In response to the COVID-19 pandemic, we implemented policies that provide for the health, safety and welfare of our employees.
Employee Engagement We value employee feedback and are committed to collecting regular feedback primarily through employee surveys. In addition, we believe that offering training and career growth opportunities is valuable for employee engagement and we often have promoted current employees to higher level positions.
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Our strategy is Right Part, Right Time, and Right Place, as outlined below: Right Part means ensuring our customers can find a solution to fix their vehicle on our website.
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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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Our efforts to accomplish this include curating our proprietary catalogue, creating a fast, mobile-friendly user experience, building world class data science and inventory forecasting teams and investing more heavily in our logistics and merchandising capabilities.
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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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We continue to take steps to improve our product offerings and offer customers premium products at value prices to assist customers on finding the right part. Right Time means getting the customers back on the road quickly.
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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 expanded our existing facilities and added new distribution centers over the past two years, and plan to add more in the future, to continue improving the customer click to delivery time so that we can keep meeting our customers’ evolving expectations.
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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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Our goal is to continue to make investments to improve delivery times by getting closer to our customers to provide them the parts they need in adequate time to get back on the road quickly. Right Place means empowering our customers to choose how they want to repair and maintain their vehicle.
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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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Whether the customer is a Do-It-Yourself (“DIY”) or a Do-It-For-Me (“DIFM”) customer, we intend to continue offering them the resources, tools, and turn-key solutions to get back on the road. Our vision is to provide customers an experience where they can order their repairs or maintain their vehicle and never leave their house.
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We also provide competitive compensation and benefits programs that we believe meet the needs of our employees. Health and Safety We have implemented, and continue to implement, policies that provide for the health, safety and wellness of our employees. We are committed to operating in a safe workplace, and have established safety procedures and safety programs at our distribution centers.
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Whether we send a mobile mechanic or refer the customer to a trusted auto repair shop, we intend to be there to solve the customer’s needs and make investments in our technology, or other platforms, to bring this vision to reality. Our corporate website is located at www.caparts.com/investor .
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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.
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We market our Kool-Vue ® products nationwide to auto parts wholesale distributors.
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Employee Engagement We value employee feedback and are committed to collecting regular feedback primarily through employee surveys. As discussed in the following section, we provided additional surveys and tools in fiscal year 2021 in response to the challenges of remote work and the COVID-19 pandemic.
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In early 2020, we successfully transitioned many of our employees to a remote work environment and gave those employees additional tools and hardware, as needed, to replicate a comfortable work setting. We also provided enhanced safety measures to safeguard our employees at our distribution centers.
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We have historically experienced higher sales of body parts in winter months when inclement weather and hazardous road conditions typically result in more automobile collisions.
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Hard parts and performance parts and accessories have historically experienced higher sales in the summer months when consumers have more time to undertake elective projects to maintain and enhance the performance of their automobiles and the warmer weather during that time is conducive for such projects.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
67 edited+16 added−17 removed183 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
67 edited+16 added−17 removed183 unchanged
2021 filing
2022 filing
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; ● 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; 26 Table of Contents ● 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; ● 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.
For more information on our ongoing litigation, see the information set forth under the caption “ Legal Matters ” in “ Note 6 Commitments and Contingencies ” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report. Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance.
For more information on our ongoing litigation, see the information set forth under the caption “ Legal Matters ” in “ Note 8 Commitments and Contingencies ” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report. Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance.
These risks and challenges include: ● difficulties and costs of staffing and managing foreign operations, including any impairment to our relationship with employees caused by a reduction in force; 14 Table of Contents ● restrictions imposed by local labor practices and laws on our business and operations; ● exposure to different business practices and legal standards; ● unexpected changes in regulatory requirements; ● the imposition of government controls and restrictions; ● political, social and economic instability and the risk of war, terrorist activities or other international incidents; ● the failure of telecommunications and connectivity infrastructure; ● natural disasters and public health emergencies; ● potentially adverse tax consequences; and ● fluctuations in foreign currency exchange rates and relative weakness in the U.S. dollar.
These risks and challenges include: ● difficulties and costs of staffing and managing foreign operations, including any impairment to our relationship with employees caused by a reduction in force; ● restrictions imposed by local labor practices and laws on our business and operations; ● exposure to different business practices and legal standards; ● unexpected changes in regulatory requirements; ● the imposition of government controls and restrictions; ● political, social and economic instability and the risk of war, terrorist activities or other international incidents; ● the failure of telecommunications and connectivity infrastructure; ● natural disasters and public health emergencies; ● potentially adverse tax consequences; and ● fluctuations in foreign currency exchange rates and relative weakness in the U.S. dollar.
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. ● 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. 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.
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.
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.
If our estimates of the size of our addressable market are not accurate, our potential for future growth may be less than we currently anticipate, which could have a material adverse effect on our business, financial condition, and results of operations. 18 Table of Contents Regulatory and Litigation Risks Possible new tariffs that might be imposed by the United States government could have a material adverse effect on our results of operations. Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S., among other restrictions.
If our estimates of the size of our addressable market are not accurate, our potential for future growth may be less than we currently anticipate, which could have a material adverse effect on our business, financial condition, and results of operations. Regulatory and Litigation Risks Possible new tariffs that might be imposed by the United States government could have a material adverse effect on our results of operations. Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S., among other restrictions.
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.
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.
The trading price of our common stock is likely to be volatile and could fluctuate widely in response to, among other things, the risk factors described in this report and other factors beyond our control such as fluctuations in the operations or valuations of companies perceived by investors 25 Table of Contents to be comparable to us, our ability to meet analysts’ expectations, our trading volume, activities of activist investors, the impact of any stock repurchase program or conditions or trends in the Internet or auto parts industries.
The trading price of our common stock is likely to be volatile and could fluctuate widely in response to, among other things, the risk factors described in this report and other factors beyond our control such as fluctuations in the operations or valuations of companies perceived by investors to be comparable to us, our ability to meet analysts’ expectations, our trading volume, activities of activist investors, the impact of any stock repurchase program or conditions or trends in the Internet or auto parts industries.
We maintain a Credit Facility that provides for, among other things, a revolving commitment in an aggregate principal amount of up to $30,000 subject to a borrowing base derived from certain of our receivables, inventory and property and equipment.
We maintain a Credit Facility that provides for, among other things, a revolving commitment in an aggregate principal amount of up to $75,000 subject to a borrowing base derived from certain of our receivables, inventory and property and equipment.
We do not have any long-term contracts or exclusive agreements with our foreign suppliers that would ensure our ability to acquire 8 Table of Contents the types and quantities of products we desire at acceptable prices and in a timely manner or that would allow us to rely on customary indemnification protection with respect to any third-party claims similar to some of our U.S. suppliers.
We do not have any long-term contracts or exclusive agreements with our foreign suppliers that would ensure our ability to acquire the types and quantities of products we desire at acceptable prices and in a timely manner or that would allow us to rely on customary indemnification protection with respect to any third-party claims similar to some of our U.S. suppliers.
Investors should not interpret the disclosure of a risk to imply that such risk has not already materialized. Risk Factors Summary Our business and industry are subject to a number of risks that could adversely affect our business, financial condition and operating results.
You should not interpret the disclosure of a risk to imply that such risk has not already materialized. Risk Factors Summary Our business and industry are subject to a number of risks that could adversely affect our business, financial condition and operating results.
Current or potential competitors include the following: ● national auto parts retailers such as Advance Auto Parts, AutoZone, Napa Auto Parts, CarQuest, O’Reilly Automotive and Pep Boys; ● large online marketplaces such as Amazon and eBay; 15 Table of Contents ● other online retailers of automotive products websites; ● local independent retailers or niche auto parts online retailers; ● wholesale aftermarket auto parts distributors such as LKQ Corporation; and ● manufacturers, brand suppliers and other distributors selling online directly to customers.
Current or potential competitors include the following: ● national auto parts retailers such as Advance Auto Parts, AutoZone, Napa Auto Parts, CarQuest, O’Reilly Automotive and Pep Boys; ● large online marketplaces such as Amazon and eBay; ● other online retailers of automotive products websites; ● local independent retailers or niche auto parts online retailers; ● wholesale aftermarket auto parts distributors such as LKQ Corporation; and ● manufacturers, brand suppliers and other distributors selling online directly to customers.
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 ● Our financial condition and results of operations may be adversely affected by a prolonged coronavirus outbreak. ● 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. ● During fiscal year 2021 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. 6 Table of Contents ● 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. ● 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. ● 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.
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.
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.
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.
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.
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 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 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 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 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.
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.
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.
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.
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.
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.
(the “Credit Facility”), which under certain circumstances may not be available, sell additional assets or seek additional equity or additional debt financing in the future. In such case, 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.
(“JPMorgan”), which under certain circumstances may not be available, sell additional assets or seek additional equity or additional debt financing in the future. In such case, 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.
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.
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.
Any disruption in the network access or co-location services, which are the services that house and provide Internet access to our servers, provided by 22 Table of Contents these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business.
Any disruption in the network access or co-location services, which are the services that house and provide Internet access to our servers, provided by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business.
We are required to comply with the CCPA. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential 19 Table of Contents liability.
We are required to comply with the CCPA. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability.
Risks Relating To Our Use Of Technology ● We depend on search engines and other online sources to attract visitors to our websites and marketplace channels, and the ability to attract and convert them into customers in a cost-effective manner. ● We rely on bandwidth and data center providers, and any failure or interruption in the services provided could disrupt our business and cause us to lose customers. ● Security threats, such as ransomware attacks, to our IT infrastructure could expose us to liability, business interruption and significant damages, and may damage our reputation and business. ● Dependence on open-source software could expose us to uncertainty and potential liability. ● System failures could prevent access to our websites which could reduce our net sales and harm our reputation. ● Problems with the design, updating, integration or implementation of our new enterprise resource planning system or other IT systems could interfere with our business and operations. ● Inability to respond to technological change causing our websites to become obsolete. 7 Table of Contents ● Use of social media may adversely impact our reputation or subject us to fines or other penalties.
Risks Related To Our Use Of Technology ● We depend on search engines and other online sources to attract visitors to our websites and marketplace channels, and the ability to attract and convert them into customers in a cost-effective manner. ● We rely on bandwidth and data center providers, and any failure or interruption in the services provided could disrupt our business and cause us to lose customers. ● Security threats, such as ransomware attacks, to our IT infrastructure could expose us to liability, business interruption and significant damages, and may damage our reputation and business. ● Dependence on open-source software could expose us to uncertainty and potential liability. ● System failures could prevent access to our websites which could reduce our net sales and harm our reputation. ● Problems with the design, updating, integration or implementation of our IT systems could interfere with our business and operations. ● Inability to respond to technological change causing our websites to become obsolete. ● Use of social media may adversely impact our reputation or subject us to fines or other penalties.
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.
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.
While management has concluded that our internal controls over financial reporting were effective as of January 1, 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 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.
Since the completion of our initial public offering in February 2007 through January 1, 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 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.
In the future, there could be additional new standards and there is no guarantee that we will be able to conform to these new standards, and if we fail to meet these 23 Table of Contents standards, we could become subject to fines and other penalties and experience a significant increase in payment card transaction costs.
In the future, there could be additional new standards and there is no guarantee that we will be able to conform to these new standards, and if we fail to meet these standards, we could become subject to fines and other penalties and experience a significant increase in payment card transaction costs.
These warmer weather conditions could result in a decrease in demand for auto parts in general. Moreover, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy 21 Table of Contents makers in the United States.
These warmer weather conditions could result in a decrease in demand for auto parts in general. Moreover, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in the United States.
Increased labor costs brought about by changes in minimum wage laws, 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.
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.
For the fiscal year ended January 1, 2022, our product purchases from three drop-ship suppliers represented approximately 8% 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 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.
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 56% of our total product purchases during the fiscal year ended January 1, 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 51% of our total product purchases during the fiscal year ended December 31, 2022.
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 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 recent outbreak of a novel strain of coronavirus identified first in Wuhan, Hubei Province, China and having turned into a global pandemic that has impacted a number of 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; ● 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; ● 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.
Our success 10 Table of Contents will depend in part on our ability to attract new customers and to convert customers who have historically purchased auto parts through traditional retail and wholesale operations.
Our success will depend in part on our ability to attract new customers and to convert customers who have historically purchased auto parts through traditional retail and wholesale operations.
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; ● 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. 27 Table of Contents We do not intend to pay dividends on our common stock.
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.
We maintain a comprehensive system of preventive and forensic controls through our security programs; 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.
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 our net losses continue in fiscal year 2022, or beyond, they could severely impact our liquidity, as we may not be able to provide positive cash flows from operations in order to meet our working capital requirements. We may need to borrow additional funds from our asset-based revolving credit facility with JPMorgan Chase Bank, N.A.
If our net losses continue in the future, they could severely impact our liquidity, as we may not be able to provide positive cash flows from operations in order to meet our working capital requirements. We may need to borrow additional funds from our asset-based revolving credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A.
Third-party marketplaces account for a significant portion of our revenues. Our sales on eBay and Amazon represented a combined 35.4% of total sales in the fiscal year ended January 1, 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 35.2% 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.
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. 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.
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. We sell aftermarket auto parts consisting of replacement parts, hard parts, and performance parts.
The ERP is designed to accurately maintain the company's books and records and provide information to the company's management team important to the operation of the business. The Company's ERP has required, and will continue to require, 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 has required the investment of significant human and financial resources.
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.
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.
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, excluding payments of preferred stock dividends which are specifically permitted under our Credit Facility; ● 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 joint ventures or subsidiary investments.
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.
The 13 Table of Contents Company’s outstanding letters of credit balance as of January 1, 2022 was $1,435, 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 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.
If we are unable to successfully design and implement the new ERP system as planned, or successfully update or integrate our systems 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 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.
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.
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. Our management team reports quarterly to our Audit Committee regarding our cyber-security programs.
Our Credit Facility also provides for an option to increase the aggregate principal amount from $30,000 to $40,000, subject to lender approval. Our Credit Agreement with JPMorgan Chase Bank, N.A. (“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 $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.
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.
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.
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. 24 Table of Contents We are in the process of implementing a new enterprise resource planning system, and we may occasionally update or integrate our other IT systems, problems with the design, integration or implementation of these systems could interfere with our business and operations. We are engaged in a multi-year implementation of a new global enterprise resource planning system (ERP).
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.
In addition, third-party marketplace providers could prohibit our access to these marketplaces if we are not able to meet the applicable required terms of use.
In addition, third-party marketplace providers could prohibit our access to these marketplaces if we are not able to meet the applicable required terms of use. Loss of access to a marketplace channel could result in lower sales, and as a result, our business and financial results may suffer.
If we are not able to protect our trademarks, domain names or other intellectual property, we may experience difficulties in achieving and maintaining brand recognition and customer loyalty. 20 Table of Contents Because we are involved in litigation from time to time and are subject to numerous laws and governmental regulations, we could incur substantial judgments, fines, legal fees and other costs as well as reputational harm. We are sometimes the subject of complaints or litigation from customers, employees or other third parties for various reasons.
Because we are involved in litigation from time to time and are subject to numerous laws and governmental regulations, we could incur substantial judgments, fines, legal fees and other costs as well as reputational harm. We are sometimes the subject of complaints or litigation from customers, employees or other third parties for various reasons.
If we were unable to import products from China and Taiwan or were unable to import products from China and Taiwan in a cost-effective manner, we could suffer irreparable harm to our business and be required to significantly curtail our operations, file for bankruptcy or cease operations. 9 Table of Contents From time to time, we may also have to resort to administrative and court proceedings to enforce our legal rights with foreign suppliers.
If we were unable to import products from China and Taiwan or were unable to import products from China and Taiwan in a cost-effective manner, we could suffer irreparable harm to our business and be required to significantly curtail our operations, file for bankruptcy or cease operations.
The loss of any key employee or our inability to attract or retain other qualified employees could harm our business and results of operations. 16 Table of Contents As a result of our international operations, we have foreign exchange risk.
Competition for such personnel is intense, and we cannot assure that we will be successful in attracting and retaining such personnel. The loss of any key employee or our inability to attract or retain other qualified employees could harm our business and results of operations. As a result of our international operations, we have foreign exchange risk.
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.
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.
For example, we were recently required to transition from PCI DSS 2.0 to PCI DSS 3.2. In January 2021, we were deemed to be PCI compliant with the new security standards issued by the PCI Council.
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.
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. 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.
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.
Our ability to comply with the covenants and other terms of our debt obligations will depend on our future operating performance. If we fail to comply with such covenants and terms, we would be required to obtain waivers from our lenders to maintain compliance with our debt obligations.
Our ability to comply with the covenants and other terms of our debt obligations will depend on our future operating performance.
We may not be able to generate sufficient cash from operations to meet our debt service obligations as well as fund necessary capital expenditures and general operating expenses.
In addition, borrowings under our revolver use a Secured Overnight Financing Rate (“SOFR”) as one benchmark for establishing the interest rate. We may not be able to generate sufficient cash from operations to meet our debt service obligations as well as fund necessary capital expenditures and general operating expenses.
Likewise, if we overstock products in anticipation of increased demand, we may be required to take significant inventory markdowns or write-offs and incur commitment costs, which could reduce profitability. 17 Table of Contents Vehicle miles driven, vehicle accident rates and insurance companies’ willingness to accept a variety of types of replacement parts in the repair process have fluctuated and may decrease, which could result in a decline of our revenues and negatively affect our results of operations.
Vehicle miles driven, vehicle accident rates and insurance companies’ willingness to accept a variety of types of replacement parts in the repair process have fluctuated and may decrease, which could result in a decline of our revenues and negatively affect our results of operations.
We may be unable to protect these domain names or acquire or maintain relevant domain names in the United States and in other countries.
We may be unable to protect these domain names or acquire or maintain relevant domain names in the United States and in other countries. If we are not able to protect our trademarks, domain names or other intellectual property, we may experience difficulties in achieving and maintaining brand recognition and customer loyalty.
For outbound logistics, we rely on ‘‘Less-than-Truckload’’ (‘‘LTL’’) and parcel freight based upon the product and quantities being shipped and customer delivery requirements. These outbound freight costs have increased on a year-over-year basis and may continue to increase in the future. We also ship a number of oversized auto parts which may trigger additional shipping costs by third-party delivery services.
These outbound freight costs have increased on a year-over-year basis and may continue to increase in the future. We also ship a number of oversized auto parts which may trigger additional shipping costs by third-party delivery services. Any increases in fees or any increased use of LTL would increase our shipping costs which could negatively affect our operating results.
We also have experienced increased demand following the issuance of tax rebates by the government. If we do not stock or restock popular products in sufficient amounts such that we fail to meet increased customer demand, it could significantly affect our revenue and our future growth.
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. If we do not stock or restock popular products in sufficient amounts such that we fail to meet increased customer demand, it could significantly affect our revenue and our future growth.
Risks Related To Our Operations While our financial condition and results of operations for fiscal year 2021 were not significantly adversely affected by the recent coronavirus outbreak, a prolonged outbreak potentially could affect fiscal year 2022 or beyond. COVID-19 was declared a pandemic by the World Health Organization in March 2020.
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.
In addition, we utilize a variety of shipping methods for both inbound and outbound logistics. For inbound logistics, we rely on trucking and ocean carriers and any increases in fees that they charge could adversely affect our business and financial condition.
For inbound logistics, we rely on trucking and ocean carriers and any increases in fees that they charge could adversely affect our business and financial condition. For outbound logistics, we rely on ‘‘Less-than-Truckload’’ (‘‘LTL’’) and parcel freight based upon the product and quantities being shipped and customer delivery requirements.
Shipping costs have increased from time to time, and may continue to increase, and we may not be able to pass these costs directly to our customers. Any increased shipping costs could harm our business, prospects, financial condition and results of operations by increasing our costs of doing business and reducing gross margins which could negatively affect our operating results.
Any increased shipping costs could harm our business, prospects, financial condition and results of operations by increasing our costs of doing business and reducing gross margins which could negatively affect our operating results. In addition, we utilize a variety of shipping methods for both inbound and outbound logistics.
We acquire a majority of our products from manufacturers and distributors located in Taiwan and China.
Risks Related To Our Operations We are dependent upon relationships with suppliers in Taiwan and China for the majority of our products, which exposes us to complex regulatory regimes and logistical challenges. We acquire a majority of our products from manufacturers and distributors located in Taiwan and China.
In the future, if we are unable to obtain any necessary waivers and our debt is accelerated, a material adverse effect on our financial condition and future operating performance would result. While we did not have any outstanding revolver debt under our Credit Facility as of January 1, 2022, we may have outstanding revolver debt in the future.
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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To date, this pandemic has affected nearly all regions around the world. In the United States, businesses as well as federal, state and local governments implemented significant actions to mitigate this public health crisis. Our operations could be disrupted as a result of these actions.
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From time to time, we may also have to resort to administrative and court proceedings to enforce our legal rights with foreign suppliers.
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While we still cannot predict the duration or scope of the COVID-19 pandemic, it may negatively impact our business and such impact could be material to our financial results, condition and outlook.
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Shipping costs have increased from time to time, and may continue to increase due to inflation or other reasons, and we may not be able to pass these costs directly to our customers.
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The COVID-19 pandemic may also have the effect of worsening other areas such as, but not limited to, those related to: ● reduction or volatility in demand for our products, which may be caused by, among other things: reduced online traffic and changes in consumer spending behaviors (e.g. consumer confidence in general macroeconomic conditions and a decrease in consumer spending); ● disruption to our operations or the operations of our suppliers, through the effects of business and facilities closures, a continued global supply chain disruption, inflation and other cost increases, shipping container shortages, vaccine mandates, worker sickness and COVID-19 related inability to work, social, economic, political or labor instability in affected areas, labor cost increases, transportation delays, travel restrictions and changes in operating procedures, including for additional cleaning and safety protocols; ● impacts to our business partners' ability to operate or manage increases in their operating costs and other supply chain effects if the global supply chain disruption continues may have an adverse effect on our ability to meet consumer demand and achieve cost targets; ● increased volatility or significant disruption of global financial markets due in part to the COVID-19 pandemic, which could have a negative impact on our ability to access capital markets and other funding sources, on acceptable terms or at all and impede our ability to comply with debt covenants; and ● the further spread of COVID-19, and the requirements to take action to mitigate the spread of the pandemic, will impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business, results of operations, cash flows and financial condition. We are dependent upon relationships with suppliers in Taiwan and China for the majority of our products, which exposes us to complex regulatory regimes and logistical challenges.
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A public health pandemic, such as the COVID-19 pandemic, may negatively impact our business, distribution centers, customers, suppliers, employees and third party shipping providers.
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Any increases in fees or any increased use of LTL would increase our shipping costs which could negatively affect our operating results.
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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.
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Loss of access to a marketplace channel could result in lower sales, and as a result, our business and financial results may suffer. 11 Table of Contents During fiscal year 2021, we recorded a net loss, and our net losses may continue in the future.
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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.
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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 Facility.
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If we are unable to satisfy the financial covenants and tests at any time and unable to obtain waivers from our lenders with respect to such requirements, we may not be able to borrow under the Credit Facility or may be required to immediately repay loans under the Credit Facility, and our liquidity and capital resources and ability to operate our business could be severely impacted, which would have a material adverse effect on our financial condition and results of operations.
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The cash dominion period is 12 Table of Contents triggered in an event of default or if excess availability is less than the $3,600 for three consecutive business days, and will continue until, during the preceding 45 consecutive days, no event of default existed and excess availability has been greater than $3,600 at all times (with the trigger subject to adjustment based on the Company’s revolving commitment).
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Item 2. Properties
Properties — owned and leased real estate
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Item 2. Properties
Properties — owned and leased real estate
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2021 filing
2022 filing
ITEM 2. PROPERTIES As of January 1, 2022, the total square footage of our leased office and distribution centers was 1,302,000 square feet. This includes approximately 1,286,000 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 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.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
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Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
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2021 filing
2022 filing
For 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. 28 Table of Contents PART II
For 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
Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
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Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
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2021 filing
2022 filing
Item 4. Mine Safety Disclosures 28 PART II 29 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29
Item 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
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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2021 filing
2022 filing
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 18, 2022, there were approximately 7 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 28, 2023, there were approximately 6 registered stockholders of record of our common stock.
Recent Sales of Unregistered Securities None. Recent Purchases of Equity Securities On July 27, 2021, the Company’s Board of Directors authorized a stock repurchase program under which the Company may purchase up to $30 million of the Company’s common stock from time to time.
Recent Purchases of Equity Securities On July 27, 2021, our Board of Directors authorized a stock repurchase program under which the Company may purchase up to $30 million of our common stock from time to time.
Any future determination to pay cash dividends on our common stock will be subject to the above restriction, as well as restrictions under any other existing indebtedness, at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and other factors the Board of Directors deems relevant.
Any future determination to pay cash dividends on our common stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, any Credit Agreement restrictions, and other factors the Board of Directors deems relevant. Recent Sales of Unregistered Securities None.
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. During the fiscal year ended January 1, 2022, the Company repurchased $479 of its common stock through the stock repurchase program at an average price of $11.99 per share.
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.
We caution that the stock performance shown in the graph below should not be considered indicative of potential future stock price performance. ITEM 6. [RESERVED] 30 Table of Contents
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]
Dividend Policy No dividends on common stock were paid during the fiscal year ended January 1, 2022. We issued approximately $0 and $71 in dividends to our Series A Preferred stockholders during the fiscal years ended January 1, 2022 and January 2, 2021, respectively.
Dividend Policy No dividends on common stock were paid during the fiscal year ended December 31, 2022.
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Our Credit Agreement with JPMorgan provides for, among other things, a revolving commitment in an aggregate principal amount of up to $30,000 subject to a borrowing base derived from certain of our receivables, inventory and property and equipment.
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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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The Credit Agreement requires us to obtain a prior written consent from JPMorgan when we determine to pay any dividends on or make any distribution with respect to our common stock. Under the Second Amendment to Credit Agreement dated March 25, 2013, we obtained written consent from JPMorgan to pay dividends on our Series A Preferred Shares.
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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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See “Liquidity and Capital Resources” in Item 7 of Part II included in this report for further information on the covenants under the secured Credit Agreement.
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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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This repurchase was a one-time repurchase of 40,000 shares of common stock in December 2021.
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During the fiscal year ended January 2, 2021, the Company did not repurchase any shares of common stock. 29 Table of Contents The following table presents information related to our repurchase of common stock for the periods indicated: Total Number of Shares Purchased Approximate Dollar Value As Part of of Shares That May Yet Total Number of Average Price Publicly Announced Be Purchased Under the Shares Purchased Paid per Share Plans or Programs Plans or Programs (in thousands) October 2, 2021 to October 29, 2021 — $ — — $ — October 30, 2021 to November 26, 2021 — $ — — $ — November 27, 2021 to January 2, 2022 40,000 $ 11.99 40,000 $ 29,521 Total 40,000 $ 11.99 40,000 $ 29,521 Stock Performance Graph The following graph compares the performance of the Company’s common stock with that of the Standard & Poor’s 500 Index (“S&P 500”), the S&P Retail Index and the NASDAQ Index for the five-year period beginning on December 30, 2016 and ending on December 31, 2021, the last business day prior to year-end.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
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Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
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2021 filing
2022 filing
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 731,000 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 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.
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 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 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.
Other income, net primarily consists of miscellaneous income or expense and interest income comprised primarily of interest income on investments. 34 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. 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.
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.
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.
In many cases we believe these older vehicles are driven by DIY car owners who are more likely to handle any necessary repairs themselves rather than taking their car to the professional repair shop. 31 Table of Contents 3. Growth of online sales. The U.S.
In many cases we believe these older vehicles are driven by DIY car owners who are more likely to handle any necessary repairs themselves rather than taking their car to the professional repair shop. 3. Growth of online sales. The U.S.
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).
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).
A similar discussion and analysis which compares fiscal year 2020 to fiscal year 2019 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 16, 2021.
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.
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 2021 to fiscal year 2020.
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.
Income Taxes – Realization of Deferred Tax Assets. The Company accounts 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.
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.
See the “ Risk Factors ” section set forth in Part I, Item 1A for further discussion of risks related to COVID-19. 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 .
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 .
Auto Care Association estimated that overall revenue from online sales of auto parts and accessories would reach almost $23 billion by 2024. 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 over $21 billion by 2025. Improved product availability, lower prices and consumers’ growing comfort with digital platforms are driving the shift to online sales.
Management uses Adjusted EBITDA as one measure of the Company’s operating performance because it assists in comparing the Company’s operating performance on a consistent basis by removing the impact of stock compensation expense and in 2019, the costs associated with the customs issue, as well as other items that we do not believe are representative of our ongoing operating performance.
Management uses Adjusted EBITDA as one measure of the Company’s operating performance because it assists in comparing the Company’s operating performance on a consistent basis by removing the impact of stock compensation expense, as well as other items that we do not believe are representative of our ongoing operating performance.
As of January 1, 2022, due to cumulative losses in recent years, the Company maintained a valuation allowance in the amount of $37,637 against deferred tax assets that were not more likely than not to be realized.
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.
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 e-commerce sales of auto parts to individual consumers through our flagship website www.carparts.com , and online marketplaces.
The cash dominion period is triggered in an event of default or if excess availability is less than the $3,600 for three consecutive business days, and will continue until, during the preceding 45 consecutive days, no event of default existed and excess availability has been greater than $3,600 at all times (with the trigger subject to adjustment based on the Company’s revolving commitment).
The cash dominion period is triggered in an event of default or if “excess availability,” as defined under the Credit Agreement, is less than the $9,000 (12% of the aggregate revolving commitment) for three consecutive business days, and will continue until, during the preceding 45 consecutive days, no event of default existed and excess availability has been greater than $9,000 at all times (with the trigger subject to adjustment based on the Company’s revolving commitment).
You are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management’s opinions only as of the date thereof. We do not assume any obligation to revise or update forward-looking statements. Finally, our historic results should not be viewed as indicative of future performance.
You are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management’s opinions only as of the date thereof. We do not assume any obligation to revise or update forward-looking statements.
Cash Flows Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Net cash (used in) provided by operating activities $ (6,988) $ (19,068) $ 6,877 Net cash used in investing activities (11,551) (9,758) (6,160) Net cash provided by (used in) financing activities 902 62,361 (465) Effect of exchange rate changes on cash (21) (6) (10) Net change in cash and cash equivalents $ (17,658) $ 33,529 $ 242 Operating Activities Net cash used in operating activities for the fiscal year ended January 1, 2022 and January 2, 2021 was ($6,988) and ($19,068), 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.
The average age of U.S. light vehicles, an indicator of auto parts demand, remained at near record-highs at 12.1 years during 2021, 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 12.2 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.
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 2021 compared to fiscal year 2020 primarily driven by continued strong demand and the expanded capacity from our Grand Prairie distribution center. Gross profit increased by 27.0% to $197,283.
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.
Federal NOL carryforwards of $1,295 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.
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.
Income Tax Provision Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change (in thousands) Income tax provision $ 351 $ 307 $ 44 14.3 % 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 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”).
As we navigate the current global supply chain landscape, our ability to optimize our supply chain sourcing will be key in managing the rising costs of importing parts from overseas. While we seek to continue to optimize our supply chain for both inbound and outbound shipping, we may incur increased freight expenses due to the current global supply chain disruption.
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.
Our mission is changing the way people repair their cars and getting them back on the road, and our strategy consists of the Right Part, Right Time, Right Place. Industry-wide trends that support our strategy and future growth include: 1. Number of SKUs required to serve the market.
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.
As of January 1, 2022, the Company had no material unrecognized tax benefits, interest or penalties related to federal and state income tax matters. As of January 1, 2022, the Company’s federal and state NOL carryforwards were $116,705 and $85,964, respectively.
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.
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 January 1, 2022 January 2, 2021 December 28, 2019 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 66.1 65.0 70.0 Gross profit 33.9 35.0 30.0 Operating expense 35.4 34.9 32.9 (Loss) income from operations (1.5) 0.1 (2.9) Other income (expense): Other income, net 0.0 0.0 0.0 Interest expense (0.2) (0.3) (0.7) Total other expense, net (0.2) (0.3) (0.7) Loss before income taxes (1.7) (0.2) (3.6) Income tax provision 0.1 0.1 7.6 Net loss (1.8) % (0.3) % (11.2) % Fifty-Two Weeks Ended January 1, 2022 Compared to the Fifty-Three Weeks Ended January 2, 2021 Net Sales and Gross Margin Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change (in thousands) Net sales $ 582,440 $ 443,884 $ 138,556 31.2 % Cost of sales 385,157 288,518 96,639 33.5 % Gross profit $ 197,283 $ 155,366 $ 41,917 27.0 % Gross margin 33.9 % 35.0 % (1.1) % Net sales increased $138,556, or 31.2%, for fiscal year 2021 compared to fiscal year 2020 primarily driven by continued strong demand and the expanded capacity from our Grand Prairie distribution center.
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 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.
Executive Summary For fiscal year 2021, the Company’s operations generated net sales of $582,440, compared to $443,884 for fiscal year 2020, representing an increase of 31.2%. The Company incurred a net loss of $10,339 for fiscal year 2021 compared to a net loss of $1,513 for fiscal year 2020.
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 decrease in net cash used in operating activities was primarily due to lower working capital usage in 2021 Investing Activities For the fiscal years ended January 1, 2022 and January 2, 2021, net cash used in investing activities was primarily the result of additions to property and equipment ($11,551 and $9,758, respectively), which are mainly related to capitalized website and software development costs.
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.
As of January 1, 2022, the Company’s LIBOR based interest rate was 1.88% (on $0 principal) and the Company’s prime based rate was 3.50% (on $0 principal). A commitment fee, based upon undrawn availability under the Credit Facility bearing interest at a rate of 0.25% per annum, is payable monthly.
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.
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 40 Table of Contents statutory carryforward periods, our experience with tax attributes expiring unused and tax planning alternatives.
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.
The Company’s required excess availability related to the “Covenant Testing Trigger Period” (as defined under the Credit Agreement) under the revolving commitment under the Credit Agreement is less than $3,000 for the period commencing on any day that excess availability is less than $3,000 for three consecutive business days, and continuing until excess availability has been greater than or equal to $3,000 at all times for 45 consecutive days (with the trigger subject to adjustment based on the Company’s revolving commitment).
The Company’s required excess availability related to the “Covenant Testing Trigger Period” (as defined under the Credit Agreement) is less than $7,500 (10% of the aggregate revolving commitment) for three consecutive business days, the Company shall be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0, and continuing until excess availability has been greater than or equal to $7,500 at all times for 45 consecutive days (with the trigger subject to adjustment based on the Company’s revolving commitment),.
The increase in fulfillment expense was primarily due to a higher number of inventory receipts and fulfilled orders processed as well as additional expenses incurred from our Grand Prairie distribution center that opened in the fourth quarter of 2020.
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.
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 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 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.
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 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.
The credit facility matures on December 16, 2022. 38 Table of Contents Certain of the Company’s domestic subsidiaries are co-borrowers (together with the Company, the “Borrowers”) under the Credit Agreement, and certain other domestic subsidiaries are guarantors (the “Guarantors” and, together with the Borrowers, the “Loan Parties”) under the Credit Agreement.
Certain of the Company’s domestic subsidiaries are co-borrowers (together with the Company, the “Borrowers”) under the Credit Agreement, and certain other domestic subsidiaries are guarantors (the “Guarantors” and, together with the Borrowers, the “Loan Parties”) under the Credit Agreement. The Borrowers and the Guarantors are jointly and severally liable for the Borrowers’ obligations under the Credit Agreement.
The Company’s federal NOL carryforwards begin to expire in 2029, while state NOL carryforwards began to expire in 2022. 36 Table of Contents Liquidity and Capital Resources Sources of Liquidity During the fifty-two weeks ended January 1, 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 31, 2022, we primarily funded our operations with cash and cash equivalents generated from operations and borrowings under our Credit Facility.
Supply Chain And Shipping Optimization Over the last two 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.
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.
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, and in 2019, costs related to our customs issues and employee transition costs.
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.
The Company incurred a net loss before interest expense, net, income tax provision, depreciation and amortization expense, amortization of intangible assets, share-based compensation expense, and in 2019, costs related to our customs issues and employee transition costs ("Adjusted 32 Table of Contents EBITDA"), of $16,791 in fiscal year 2021 compared to $16,025 in fiscal year 2020.
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.
Gross profit increased $41,917, or 27.0%, in fiscal year 2021 compared to fiscal year 2020. Gross margin decreased 110 basis points to 33.9% in fiscal year 2021 compared to 35.0% in fiscal year 2020.
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.
Loans drawn under the credit facility bear interest at a per annum rate equal to either (a) LIBOR plus an applicable margin of 1.25% to 1.75% per annum based on the Company’s fixed charge coverage ratio, or (b) a “alternate base rate” subject to a reduction by 0.25% to 0.75% per annum based on the Company’s fixed charge coverage ratio.
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.
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. We provide EBITDA and Adjusted EBITDA, which are non-GAAP financial measures.
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.
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. Impact of COVID-19 The COVID-19 pandemic created uncertainty and challenges on the United States, the Philippines, and global economies and some challenges continued through the end of fiscal year 2021.
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.
The decrease in gross margin was primarily driven by unfavorable inbound and outbound freight costs in 2021 as well as a lack of certain favorable one-time items in the prior year. 35 Table of Contents Operating Expense Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change (in thousands) Operating expense $ 206,394 $ 155,071 $ 51,323 33.1 % Percent of net sales 35.4 % 34.9 % 0.5 % Operating expense increased $51,323, or 33.1%, for fiscal year 2021 compared to fiscal year 2020 primarily due to an increase in fulfillment expense as well as an increase in payroll related expenses.
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.
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.
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.
We had cash and cash equivalents of $18,144 as of January 1, 2022, representing a $17,658 decrease from $35,802 of cash and cash equivalents as of January 2, 2021.
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.
The outstanding standby letters of credit balance as of January 1, 2022 was $1,435, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheet. We used the trade letters of credit in the ordinary course of business to satisfy certain vendor obligations.
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.
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 principally sell our products to individual consumers through our flagship website at www.carparts.com and online marketplaces.
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.
Total Other Expense, Net Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change (in thousands) Other expense, net $ (877) $ (1,501) $ 624 (41.6) % Percent of net sales (0.2) % (0.3) % 0.1 % Total other expense, net decreased $624, or 41.6%, for fiscal year 2021 compared to fiscal year 2020.
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.
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”).
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.
Debt and Available Borrowing Resources Total debt was $15,821 as of January 1, 2022 compared to $13,011 as of January 2, 2021 and primarily consists of right-of-use obligations-finance. 37 Table of Contents The Company maintains an asset-based revolving credit facility ("Credit Facility") that provides for, among other things a revolving commitment in an aggregate principal amount of up to $30,000, which is subject to a borrowing base derived from certain receivables, inventory and property and equipment.
The Company maintains an asset-based revolving Credit Facility that provides for, among other things, a revolving commitment, which is subject to a borrowing base derived from certain receivables, inventory and property and equipment.
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.
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.
Total expenses, which primarily consisted of cost of sales and operating expense, increased in fiscal year 2021 compared to the same period in 2020. The components of cost of sales and operating costs are described in further detail under “Components of Results of Operations ” below.
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.
Financing Activities Net cash provided by financing activities was $902 and $62,361 for the fiscal years ended January 1, 2022 and January 2, 2021, respectively.
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.
In addition, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from the Company’s non-GAAP measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring. 33 Table of Contents The table below reconciles net loss to Adjusted EBITDA for the periods presented (in thousands): Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Net loss $ (10,339) (1,513) (31,548) Depreciation & amortization 9,895 7,657 6,252 Amortization of intangible assets 110 102 100 Interest expense, net 1,089 1,694 1,897 Taxes 351 307 21,437 EBITDA $ 1,106 $ 8,247 $ (1,862) Stock compensation expense $ 15,685 $ 7,778 $ 3,656 Employee transition costs (1) — — 2,274 Customs costs (2) — — 464 Adjusted EBITDA $ 16,791 $ 16,025 $ 4,532 (1) We incurred employee transition costs related to the transition of our executive management team including severance, recruiting, hiring bonus and relocation costs.
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.
Removed
Since the onset of the pandemic, our top priority remains the health and safety of our employees as most have continued to work from home, in addition to ensuring our customers continue receiving our high-quality, personalized service.
Added
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.
Removed
Our distribution centers continue to remain operational while our safety protocols direct employees onsite to continue to adhere to, and follow, the COVID-19 safety guidelines recommended from the Centers for Disease Control and Prevention (CDC). We continue to monitor and proactively mitigate risks in our supply chain because of the global supply chain disruption and port congestion.
Added
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.
Removed
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 centers due to the continued effects of the COVID-19 pandemic.
Added
In addition, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from the Company’s non-GAAP measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring.
Removed
However, the ultimate extent of the effects from the COVID-19 pandemic on the Company, our financial condition, results of operations, liquidity, and cash flows will be dependent on evolving developments which are uncertain and cannot be predicted at this time.
Added
As of December 31, 2022 and January 1, 2022, our working capital was $79,843 and $71,808, respectively.
Removed
However, with the right tools and solutions, and by leveraging our core competencies, we see this as a great opportunity to disrupt the automotive aftermarket parts industry.
Added
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.
Removed
Gross margin decreased 110 basis points to 33.9% in fiscal year 2021 compared to 35.0% in fiscal year 2020. The decrease in gross margin was primarily driven by unfavorable inbound and outbound freight costs in 2021 as well as a lack of certain favorable one-time items in the prior year.
Added
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.
Removed
(2) We incurred port and carrier fees and legal costs associated with our customs related issues. Components of Results of Operations Net Sales. Online and offline sales represent two different sales channels for our products.
Added
On June 17, 2022, the Company and JPMorgan entered into an Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) amending and restating in its entirety the original Credit Agreement dated April 26, 2012.
Removed
The increase in payroll related expenses was primarily due to an increase in foundational investments in our business to support our current and future growth.
Added
As amended, the Credit Agreement provides for the revolving commitment in an aggregate principal amount of up to $75,000 (formerly $30,000) and allows for an uncommitted ability to increase the aggregate principal amount by an additional $75,000 to $150,000 (formerly $40,000 maximum), subject to certain terms and conditions. The Credit Facility matures on June 17, 2027.
Removed
Total other expense decreased during fiscal year 2021 compared to fiscal year 2020 primarily due to a decrease in interest expense attributable to the lower utilization of our revolving loan and trade letters of credit.
Added
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.
Removed
As of January 1, 2022, our Credit Facility provided for a revolving commitment of up to $30,000 subject to a borrowing base derived from certain of our receivables, inventory and property and equipment (see “ Debt and Available Borrowing Resources ” below). As of January 1, 2022 and January 2, 2021, our working capital was $71,808 and $67,396, respectively.
Added
We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ from those estimates under different assumptions and conditions.
Removed
The main reason attributable for the decrease was primarily due to the common stock issuances from the August 2020 public equity offering and the absence of an equity offering during the fiscal year ended January 1, 2022.
Removed
Our Credit Facility also provides for an option to increase the aggregate principal amount from $30,000 to $40,000 subject to lender approval. As of January 1, 2022, our outstanding revolving loan balance was $0.
Removed
On December 18, 2019, the Company and JPMorgan entered into the Eleventh Amendment (the “Amendment”) which amended the Credit Agreement previously entered into by the Company, certain of its domestic subsidiaries and JPMorgan on April 26, 2012 and the Pledge and Security Agreement previously entered into by the Company, certain of its domestic subsidiaries and JPMorgan on April 26, 2012.
Removed
Pursuant to the Amendment, among other changes, the maturity date of the Credit Agreement was extended from April 26, 2020 to December 16, 2022, the net orderly liquidation value inventory advance rate was increased from 90% to 95% for a six-month period following the effective date of the Amendment, and the Company’s $5,000 basket for sales and dispositions of property in connection with Permitted Acquisitions (as defined in the Credit Agreement) was made available in full following the effective date of the Amendment.
Removed
On January 17, 2020, the Company and JPMorgan entered into the Twelfth Amendment to Credit Agreement and Fifth Amendment to Pledge and Security Agreement (the “Twelfth Amendment”), which amended the Credit Agreement previously entered into by the Company, certain of its domestic subsidiaries and JPMorgan on April 26, 2012 and the Pledge and Security Agreement previously entered into by the Company, certain of its domestic subsidiaries and JPMorgan on April 26, 2012.
Removed
Pursuant to the Twelfth Amendment, letters of credit will be made available to the Company, subject to certain customary restrictions and conditions, in an aggregate amount not to exceed $25,000, an increase from $20,000. The other amendments to the Credit Agreement made under the Twelfth Amendment were as follows: ● Solely until March 31, 2020 and for purposes of the covenant testing and cash dominion triggers in the Credit Agreement, the facility will incorporate elements of the borrowing base above the $30,000 available to borrow. ● Until March 31, 2020, the Company will be subject to reporting on a weekly basis with respect to the borrowing base and other metrics. ● Customary LIBOR successor provisions were added to the Credit Agreement.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
2 edited+0 added−0 removed4 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
2 edited+0 added−0 removed4 unchanged
2021 filing
2022 filing
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 41 Table of Contents
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 38 Table of Contents
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 LIBOR, plus an applicable margin, and a prime based rate. As of January 1, 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 31, 2022, we had a balance of $0 outstanding under our revolving loan.