Good afternoon. At this time, all participants will be in a listen-only mode. After the presentation, there will be a question-and-answer session. Please note this call is being recorded. I would now like to pass the conference over to our host, Tina Mirfarsi, Senior Vice President of Global Communications and Culture. Please go ahead.

Hello, everyone and thank you for joining us for the CarParts.com Fourth Quarter and Fiscal Year-End 2024 [ph] Conference Call. I'd like to start by welcoming the investors and others who are attending this meeting remotely. Joining me today are David Meniane, Chief Executive Officer; Ryan Lockwood, Chief Financial Officer; and Michael Huffaker, Chief Operating Officer. Before I turn it over to David to start the meeting, I have some important disclosures. The prepared remarks and responses to your questions could contain certain forward-looking statements related to the business under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to the risks and uncertainties associated with the business. For a discussion of the material risks and other important factors that could affect results, please refer to the CarParts.com annual report on Form 10-K and 10-Q as filed with the SEC, both of which can be found on our Investor Relations website. On the call, both GAAP and non-GAAP financial measures will be discussed. A reconciliation of GAAP to non-GAAP financial measures is provided in the CarParts.com press release issued today. And with that, I would now like to turn the call over to David.

Thank you, Tina and thank you all for joining us. I will begin some highlights for the quarter and full year and then turn it over to Ryan to review our financial performance in more detail. I will then give a more detailed update on the economic environment and discuss our 2024 outlook before opening up the call for Q&A. In the fourth quarter of 2023, sales were $156 million, bringing our full year 2023 sales to a record-breaking $676 million, up 2% from the prior year and 16% on a 2-year stack. Adjusted EBITDA was $1 million for the quarter and $19.7 million for the full year 2023 and we repurchased another 726,000 shares during the quarter, bringing our total repurchases in the year to 1.2 million shares. We had $51 million in cash on our balance sheet and an untapped revolver of up to $75 million at the end of the year. Across the industry, due to the difficult macroeconomic environment, we saw sustained price deflation as some price-sensitive consumers are choosing to defer nonessential purchases. Despite the challenging operating environment, we continue to see strong unit growth of approximately 8% in the fourth quarter. We believe we are taking share from other online players and as consumer confidence rebounds, we're well positioned to support the $389 billion automotive aftermarket and deliver long-term growth, both in volume and dollars. Over fiscal year 2023, our team surpassed several company records and reached significant achievements, including, number one, generating the highest sales volume and revenues in the company's history; number two, launching our mobile app which now generates over 7% of our total e-commerce revenue; number three, achieving 38% of total e-commerce revenue from repeat customers; number four, recording our highest historical website traffic with over 100 million visits to…

Thank you, David. In Q4, we reported our 16th consecutive quarter of year-over-year growth with revenues of $156.4 million, up 1.2% from $154.5 million last year. For the full year, CarParts generated $675.7 million in revenues, up 2.1% from 2022 and marking the highest sales ever in company history. Gross profit for the quarter was $51.6 million, flat compared to the prior year. For the full year, gross profit was $229.4 million, down slightly from the $230.9 million in 2022. Gross margin in the quarter was 33% of sales versus 33.4% in the prior year. For the full year, gross margin was 33.9% of sales versus 34.9% in the prior year as we experienced price compression, higher outbound transportation costs and a shift in product mix. GAAP net loss for the quarter was $6.1 million compared to $6.2 million in the prior year period. For the full year 2023, GAAP net loss was $8.2 million versus $1 million in the prior year. We reported adjusted EBITDA of $1 million in the quarter, down from $2.1 million in the prior year period. For the full year, we reported adjusted EBITDA of $19.7 million, down from $26.1 million. This was mostly driven by price compression and higher outbound freight costs. However, this was partially offset by improvements in warehouse fulfillment costs. Turning to the balance sheet; we ended the quarter with $51 million of cash and no revolver debt. We generated $700,000 of interest income in the fourth quarter and $2 million for the full year. Our significant cash position and untapped revolver continues to highlight the strength of our balance sheet. We believe we have ample liquidity and have no intention or need to raise capital at current valuations. The inventory balance at quarter end was $129 million versus $136 million…

Thank you, Ryan. Before we conclude, let me briefly touch on the current economic environment, the impact to our business and how we are approaching and tackling these challenges. 2024 started off slow due to a difficult macro and continued softness in consumer demand, price compression exacerbated by inclement weather in January. For the first quarter, our gross margin has been under significant pressure and we currently expect our year-over-year unit growth to be masked by deflation for a net revenue impact of down low to mid-single digits. We have seen some improvements in February with better volume and more efficient customer acquisition costs primarily driven by the commerce experience investments and marketing strategy initiatives I discussed earlier. We remain focused on growing volume, sales and capturing market share and we are always mindful of profitability and free cash flow. In light of these challenges, we have made the difficult but prudent decision to significantly reduce our cost structure, including the elimination of 150 global roles. We expect the impact of these changes as well as other cost reduction initiatives to partially offset the gross margin compression. On an annualized basis, we expect these reductions to add up to $10 million. And for fiscal 2024, the flow-through should be approximately $8 million with $700,000 in onetime charges. These decisions are not made likely but we want to stay agile, we want to protect shareholder value and realign to the reality of the environment. Our main focus for 2024 will be, number one, executing our e-commerce road map with new features to drive immediate sales growth, such as upsell, cross-sell as well as pushing adoption of our mobile app; number two, expanding product assortment to capture new markets and customers we have not serviced before; and number three, increasing marketing efforts to generate more brand awareness for CarParts.com and capture a wider customer base, including those who may be new to our brand. We believe these areas of focus will compound over time. In conclusion, we continue to believe the strategic priorities and areas of the business we're focusing on will lead to accelerated revenue growth while maximizing long-term shareholder value. We have proven in the past that we can grow and execute change management through difficult environments and now is no different. In addition, we're supported by the strength of our balance sheet with ample cash and inventory as well as an undrawn facility with no long-term debt. These factors give us the confidence that we can overcome the current market pressures and that we will come out stronger on the other side. Thank you, everyone, for joining today's call. We'll now turn it over to the operator and open it up for questions.

[Operator Instructions] Our first question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group.

I wanted to start with gross margin. I guess, the price deflation has been ongoing all year. You guys have been holding steady in that 34-ish gross margin range for the past year, really, the last couple of years. I guess, what's substantially changing, I guess, or weakening for the guidance of the 30 to 32 because a lot of the onetime stuff feels like it's OpEx that you were calling out?

Sure. Thanks for that question. This is Ryan. So for gross margin, if you kind of look sequentially, fourth quarter last year, we -- you started to see a little bit of a decline. And what happened was we had pretty strong gross margins in the beginning of the year. And what we're looking at and what I was trying to articulate is we're lapping some pretty tough average selling price comps here in the first, call it, 3 quarters and we expect to have better year-over-year gross margin comps going into the back half. So overall, what has happened is when you look at the deflation, inbound cost of goods are down about 10% which overall on a market basis, including our competitors, has lowered average selling prices but our outbound freight costs with our carriers hasn't gone down a commensurate amount. And that's where you're seeing the compression.

Any benefit from -- on the freight side, it seemed like FedEx and UPS were fighting a little bit offering some discounts, et cetera, to fight for volume. I guess, do you guys see any of that benefit in Q4 and I guess the presumption is freight continues to get worse in 2024?

Thanks for the question. This is Michael. There is competition out there but we're very happy with our FedEx relationship and the cost profile it gets us. The way that we're going to reduce transportation costs over time is to get more units per shipment. And so that's why you'll hear us talk about upsell, cross-sell. The large contracts that were signed by most of the transportation carriers did increase their costs and those costs are getting passed along to us. And so, we're going to have to get more things in fewer boxes to be able to meaningfully change the outbound transportation curve which is what we're working on right now.

Then just last one for me. I guess, what initiatives are the focus areas for 2024? I guess, it feels like you have to deemphasize some of the things you're working on, whether it's technology, the do-it-for-me, JC Whitney relaunch, branding, et cetera. But can you walk through and kind of remind us the key focus and maybe what's going to get pushed out here with some of these cost reduction efforts?

Ryan, it's David. I think if I take a step back, this is definitely not the results that we're accustomed to delivering. From a volume standpoint, we did about the same growth in 2023 that we did in 2022. The only difference is that in 2022, we had about 8% of inflation. And in 2023, we had 3% of deflation. So we're definitely not satisfied with 2% sales growth and obviously, that's 100% on me. I'm responsible for the execution of the road map, regardless of the environment. So I can also say that this is a difficult environment. It's something that we've -- we were 100% ready for. Four years ago, if you remember, we did a capital raise and we've been focused on financial discipline and cash preservation because we were quite aware that one day, things would get tougher. And so outside of working capital changes, we basically preserved all that cash. And so we have cash, we have inventory. We have no long-term debt. So on the balance sheet side; we have everything we need to push through the cycle. On the income statement side, we definitely need to do significantly better. So we have some headwinds but we're focused on growth. And so if I were to specifically call out the 3 things, it's really, number one, the e-commerce experience and pushing the app engagement. That's going to grow the top line and that's also going to make marketing spend more efficient. Number two, it's expanding our product offering. It's selling more to our current customers and also adding new categories, new brands, to capture some new customers. And number three, it's marketing and branding and really building a brand for CarParts.com and JC Whitney. And right now, in this environment, we're really trying to stay lean and agile, especially after all the changes that we just announced. And so unless it's in 1 of those 3 categories that's focused specifically on growth, we're not going to be tackling it this year.

Our next question comes from the line of Dillon Heslin from ROTH Capital Partners.

First, I wanted to just clarify what you mentioned, David, about the cost reductions on the head force reduction. So 150 roles, how -- what percentage of that is sort of spread? Like where is that spread? Is it in your distribution centers? Is it sort of back office and corporate? And then when you talked about the offset of $10 million, is that your annual expected cost savings?

So I'll let Ryan take the second part. I'll take the first part. I think we're definitely seeing some headwinds on the gross margin due to the deflation. And we had to make the very difficult decision to realign our cost structure. So the reductions were substantial and across the board. So it impacted both corporate roles, frontline workers in the warehouse, also back office in Manila. Ballpark, you're looking at about 15% of corporate roles and about 10% of the front line. And then, I'll let Ryan take the second part.

Sure. Just to reiterate, so it's going to be $10 million on an annualized basis. A lot of the cuts happened just recently, so you're looking at more of an $8 million flow-through for this 2024 fiscal year.

And then as a follow-up, can you talk a little bit about what worked with the mobile app in helping that grow as a part of e-commerce? What were some of the channels that helped you with that customer acquisition? And then, is there -- how flexible is your spend on that? Are you able to add to it or pull back based on sort of what you see with both your sales and also just the marketplace?

Yes. Great question. So obviously, we're very happy with the app. It's probably one of our biggest accomplishments for 2023. So right now, it's about 7% of e-com revenues and growing. What we're seeing is that so all of the downloads and we have over 250,000 downloads were nonpaid organic, so it's people that come through our website. They get a pop up and they talk about the benefits of the app and they download it. So -- and it's still growing. So what we're seeing right now is on the app, we have a higher average selling price and we have a higher purchase -- repeat purchase rate. So over time, what I think you're going to see is our nonpaid traffic is going to continue to grow and we should start seeing some efficiencies in marketing. So if I look at it like taking a step back over the next couple of years, our objective is to get our marketing spend lower by about 100 to 200 basis points and this should flow through to the bottom line. So in the Q -- in the K that you're going to see released later today, I think we called out that our marketing spend was about 12.3% for the year. The goal is to get closer to 10% and all of that to flow through the bottom line. So we're going to keep pushing the app. And over time, we want to get this to double digits. And so I think we're going to make it a point to announce the numbers at every earnings call moving forward; how many users we have, what percentage of e-comm revenue and any other metrics that we think are relevant to financial modeling.

Our next question comes from the line of Ryan Meyers from Lake Street.

First one for me. I'm just curious as we think about the revenue guidance range; what would you need to see or what do you expect to see to, one, come in at the low end of that range? Or what would you expect to see to come in at the high end of that range? Is most of that just due to the price deflation or is there anything else there that we should be aware of?

I mean, I can take the first part, I guess. I'm not worried about volume growth and unit growth. The business is growing in units. We're shipping out more units than ever before. I think the difference would be the price compression, the deflation based on the competitive landscape. I don't know if you want to add anything?

Sure, this is Ryan. I think when we look at the business, what we've always tried to do was manage it from a dollars contribution ratio basis. So as we push price to try and maintain margin, there's a possibility you could see sales start to hit the lower end of the range or on the other side, as we -- some of our great investments that we're working on, such as upsell and cross-sell, improved search, increased assortment at various price points. As these things all hit, I think you see us go towards the higher end of the range. And then, of course, there's the macro portion which is outside of our control. In some ways, that makes it an uncertainty.

I think for me, like if I take a step back and obviously, this year is challenging from a macro standpoint but the backdrop is still 300 million cars on the road. It's an aging car fleet, there's more cars on the road, more miles being driven. The online penetration is still low and we're one of the strongest -- one of the biggest players in a huge TAM. So over the next couple of years, we're going to take market share. Sales are going to grow. We're going to do it profitably and we're just going to push through and execute.

And then if we think about the do-it-for-me offering, do you expect to see any sort of contribution from that initiative here in 2024?

Yes, I'm glad you asked. I think do-it-for-me to get it installed is it's a big opportunity and it aligns with our vision to remove the friction from auto repair and that was always a long-term bet. And so right now, we have some headwinds in the economy. We're much leaner. We're much more agile. But over the next few quarters, what we're going to do is solely focus on the few things that we think will generate incremental revenue this year. So we have 3 big priorities right now. It's the e-comm experience in the app. It's the product offering expansion and it's the marketing and branding. And so we're going to try to push the top line first right now and we'll revisit, do it from me later this year. But we want to be laser focused on immediate growth and anything that's going to generate incremental top line revenue now.

Got it. Thank you for taking my questions.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.