10-Q 1 prts-20221001x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2022

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission file number: 001-33264

Graphic

CARPARTS.COM, INC.

(Exact name of registrant as specified in its charter)

Delaware

68-0623433

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer

Identification No.)

2050 W. 190th Street, Suite 400, Torrance, CA 90504

(Address of Principal Executive Office) (Zip Code)

(424) 702-1455

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

PRTS

The NASDAQ Stock Market LLC

(NASDAQ Global Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  

As of November 3, 2022, the registrant had 54,559,500 shares of common stock outstanding, $0.001 par value.

CARPARTS.COM, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 1, 2022

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

4

Consolidated Balance Sheets (Unaudited) at October 1, 2022 and January 1, 2022

4

Consolidated Statements of Operations and Comprehensive Operations (Unaudited) for the Thirteen and Thirty-nine Weeks Ended October 1, 2022 and October 2, 2021

5

Consolidated Statements of Stockholders’ Equity (Unaudited) for the Thirteen and Thirty-nine Weeks Ended October 1, 2022 and October 2, 2021

6

Consolidated Statements of Cash Flows (Unaudited) for the Thirty-nine Weeks Ended October 1, 2022 and October 2, 2021

7

Notes to Consolidated Financial Statements (Unaudited)

8

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

20

ITEM 4.

Controls and Procedures

21

PART II. OTHER INFORMATION

ITEM 1.

Legal Proceedings

21

ITEM 1A.

Risk Factors

21

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

ITEM 3.

Defaults Upon Senior Securities

43

ITEM 4.

Mine Safety Disclosures

43

ITEM 5.

Other Information

43

ITEM 6.

Exhibits

44

Unless the context requires otherwise, as used in this report, the terms “CarParts.com,” the “Company,” “we,” “us” and “our” refer to CarParts.com, Inc. and its subsidiaries. Unless otherwise stated, all amounts are presented in thousands.

Carparts.com®, Kool-Vue®, JC Whitney®, Evan Fischer®, SureStop®, TrueDrive®, DriveWire, and DriveMotive, amongst others, are our current and pending trademarks in the United States. All other trademarks and trade names appearing in this report are the property of their respective owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements included in this report, other than statements or characterizations of historical or current fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. Any forward-looking statements included herein are based on management’s beliefs and assumptions and on information currently available to management. We have attempted to identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” “will likely continue,” “will likely result” and variations of these words or similar expressions. These forward-looking statements include, but are not limited to, statements regarding future events, our future operating and financial results, financial expectations, expected growth and strategies, our ability to acquire additional market share, current business indicators, capital needs, financing plans, capital deployment, liquidity, contracts, litigation, product offerings, customers, acquisitions, competition and the status of our facilities. Forward-looking statements, no matter where they occur in this document or in other statements attributable to the Company involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” in Part II, Item 1A of this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

3

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, In Thousands, Except Par Value Data)

October 1,

January 1,

    

2022

    

2022

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

16,654

$

18,144

Accounts receivable, net

 

9,501

 

5,015

Inventory, net

 

154,751

 

138,851

Other current assets

 

6,703

 

6,592

Total current assets

 

187,609

 

168,602

Property and equipment, net

 

25,021

 

20,736

Right-of-use - assets - operating leases, net

25,042

28,680

Right-of-use - assets - finance leases, net

19,705

15,130

Other non-current assets

 

2,612

 

2,188

Total assets

$

259,989

$

235,336

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities:

 

Accounts payable

$

68,208

$

67,372

Accrued expenses

 

19,997

 

17,517

Customer deposits

 

250

 

826

Right-of-use - obligation - operating, current

4,429

4,201

Right-of-use - obligation - finance, current

4,614

2,953

Other current liabilities

 

4,186

 

3,925

Total current liabilities

 

101,684

 

96,794

Revolving loan payable

5,000

Right-of-use - obligation - operating, non-current

22,402

26,367

Right-of-use - obligation - finance, non-current

15,997

12,868

Other non-current liabilities

 

3,323

 

3,739

Total liabilities

 

148,406

 

139,768

Commitments and contingencies

 

Stockholders’ equity:

 

Common stock, $0.001 par value; 100,000 shares authorized; 54,558 and 52,960 shares issued and outstanding as of October 1, 2022 and January 1, 2022 (of which 2,565 are treasury stock)

 

57

 

56

Treasury stock

 

(7,625)

 

(7,625)

Additional paid-in capital

 

293,450

 

282,663

Accumulated other comprehensive gain

 

228

 

274

Accumulated deficit

 

(174,527)

 

(179,800)

Total stockholders’ equity

 

111,583

 

95,568

Total liabilities and stockholders' equity

$

259,989

$

235,336

See accompanying notes to consolidated financial statements (unaudited).

4

CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS

(Unaudited, in Thousands, Except Per Share Data)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 1,

October 2,

October 1,

October 2,

    

2022

    

2021

    

2022

    

2021

Net sales

$

164,807

$

141,846

$

507,080

$

444,184

Cost of sales (1)

 

108,659

 

94,513

 

327,835

 

294,328

Gross profit

 

56,148

 

47,333

 

179,245

 

149,856

Operating expense

 

56,729

 

51,668

 

173,144

 

154,353

(Loss) income from operations

 

(581)

 

(4,335)

 

6,101

 

(4,497)

Other income (expense):

 

Other, net

 

117

 

24

 

363

 

221

Interest expense

 

(435)

 

(309)

 

(1,073)

 

(826)

Total other expense, net

 

(318)

 

(285)

 

(710)

 

(605)

(Loss) income before income taxes

 

(899)

 

(4,620)

 

5,391

 

(5,102)

Income tax provision

 

49

 

39

 

118

 

207

Net (loss) income

 

(948)

 

(4,659)

 

5,273

 

(5,309)

Other comprehensive (loss) gain:

 

 

 

 

  

Foreign currency translation adjustments

 

 

60

 

124

 

90

Unrealized (loss) gain on deferred compensation trust assets

 

(36)

 

(5)

 

(170)

 

68

Total other comprehensive (loss) gain

 

(36)

 

55

 

(46)

 

158

Comprehensive (loss) income

$

(984)

$

(4,604)

$

5,227

$

(5,151)

Net (loss) income per share:

Basic net (loss) income per share

$

(0.02)

$

(0.09)

$

0.10

$

(0.10)

Diluted net (loss) income per share

$

(0.02)

$

(0.09)

$

0.09

$

(0.10)

Weighted-average common shares outstanding:

 

  

 

  

 

  

 

  

Shares used in computation of basic net (loss) income per share

 

54,481

 

52,264

 

54,009

 

50,903

Shares used in computation of diluted net (loss) income per share

 

54,481

 

52,264

 

57,283

 

50,903

(1)Excludes depreciation and amortization expense which is included in operating expense.

See accompanying notes to consolidated financial statements (unaudited).

5

CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, In Thousands)

Accumulated

Additional

Other

Total

Common Stock

Paid-in-

Treasury

Comprehensive

Accumulated

Stockholders’

   

Shares

   

Amount

   

Capital

   

Stock

   

(Loss) Income

   

Deficit

   

Equity

Balance, January 2, 2021

48,091

$

51

$

260,260

$

(7,146)

$

(215)

$

(169,461)

$

83,489

Net loss

(2,722)

(2,722)

Issuance of shares in connection with stock option exercise

130

163

163

Issuance of shares in connection with restricted stock units vesting

2,382

2

(6)

(4)

Issuance of shares in connection with BOD fees

6

6

Share-based compensation

4,080

4,080

Unrealized gain on deferred compensation trust assets

35

35

Effect of changes in foreign currencies

14

14

Balance, April 3, 2021

50,603

53

264,503

(7,146)

(166)

(172,183)

85,061

Net income

2,072

2,072

Issuance of shares in connection with stock option exercise

1,463

2

2,615

2,617

Issuance of stock awards

118

389

389

Issuance of shares in connection with BOD fees

6

6

Share-based compensation

3,821

3,821

Unrealized gain on deferred compensation trust assets

38

38

Effect of changes in foreign currencies

16

16

Balance, July 3, 2021

52,184

$

55

$

271,334

$

(7,146)

$

(112)

$

(170,111)

$

94,020

Net loss

(4,659)

(4,659)

Issuance of shares in connection with stock option exercise

108

451

451

Issuance of shares in connection with restricted stock units vesting

109

Issuance of stock awards

14

233

233

Issuance of shares in connection with BOD fees

6

6

Share-based compensation

4,364

4,364

Unrealized loss on deferred compensation trust assets

(5)

(5)

Effect of changes in foreign currencies

60

60

Balance, October 2, 2021

52,415

$

55

$

276,388

$

(7,146)

$

(57)

$

(174,770)

$

94,470

Balance, January 1, 2022

52,960

56

282,663

(7,625)

274

(179,800)

95,568

Net income

2,103

2,103

Issuance of shares in connection with stock option exercise

533

792

792

Issuance of shares in connection with restricted stock units vesting

519

1

(1)

Issuance of stock awards to consultants

10

81

81

Issuance of shares in connection with BOD fees

6

6

Issuance of shares in connection with ESPP

45

431

431

Officers and directors stock purchase plan

3

23

23

Share-based compensation

4,225

4,225

Unrealized loss on deferred compensation trust assets

(34)

(34)

Effect of changes in foreign currencies

20

20

Balance, April 2, 2022

54,070

$

57

$

288,220

$

(7,625)

$

260

$

(177,697)

$

103,215

Net income

4,118

4,118

Issuance of shares in connection with stock option exercise

70

136

136

Issuance of shares in connection with restricted stock units vesting

220

Issuance of shares in connection with BOD fees

6

6

Officers and directors stock purchase plan

4

4

Share-based compensation

771

771

Unrealized loss on deferred compensation trust assets

(100)

(100)

Effect of changes in foreign currencies

104

104

Balance, July 2, 2022

54,360

$

57

$

289,137

$

(7,625)

$

264

$

(173,579)

$

108,254

Net loss

(948)

(948)

Issuance of shares in connection with stock option exercise

63

184

184

Issuance of shares in connection with restricted stock units vesting

72

Issuance of shares in connection with BOD fees

1

6

6

Issuance of shares in connection with ESPP

62

363

363

Share-based compensation

3,760

3,760

Unrealized loss on deferred compensation trust assets

(36)

(36)

Balance, October 1, 2022

54,558

$

57

$

293,450

$

(7,625)

$

228

$

(174,527)

$

111,583

See accompanying notes to consolidated financial statements (unaudited).

6

CARPARTS.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, In Thousands)

Thirty-Nine Weeks Ended

October 1,

October 2,

    

2022

    

2021

Operating activities

Net income (loss)

$

5,273

$

(5,309)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization expense

 

9,671

 

7,123

Amortization of intangible assets

 

81

 

83

Share-based compensation expense

 

7,786

 

11,277

Stock awards issued for non-employee director service

 

17

 

17

Stock awards related to officers and directors stock purchase plan from payroll deferral

27

(Gain) loss from disposition of assets

 

(41)

 

15

Amortization of deferred financing costs

 

37

 

13

Changes in operating assets and liabilities:

Accounts receivable

 

(4,624)

 

(1,737)

Inventory

 

(15,900)

 

(42,453)

Other current assets

 

(124)

 

1,580

Other non-current assets

 

(745)

 

556

Accounts payable and accrued expenses

 

4,524

 

19,477

Other current liabilities

 

(315)

 

266

Right-of-use obligation - operating leases - current

279

960

Right-of-use obligation - operating leases - long-term

(108)

(331)

Other non-current liabilities

 

(136)

 

114

Net cash provided by (used in) operating activities

 

5,702

 

(8,349)

Investing activities

Additions to property and equipment

 

(10,546)

 

(8,434)

Proceeds from sale of property and equipment

 

44

 

27

Net cash used in investing activities

 

(10,502)

 

(8,407)

Financing activities

Borrowings from revolving loan payable

 

10,351

 

105

Payments made on revolving loan payable

 

(5,351)

 

(105)

Payments on finance leases

 

(3,099)

 

(1,566)

Net proceeds from issuance of common stock for ESPP

794

Statutory tax withholding payment for share-based compensation

 

 

(3)

Proceeds from exercise of stock options

 

1,113

 

3,230

Net cash provided by financing activities

 

3,808

 

1,661

Effect of exchange rate changes on cash

 

(498)

 

(27)

Net change in cash and cash equivalents

 

(1,490)

 

(15,122)

Cash and cash equivalents, beginning of period

 

18,144

 

35,802

Cash and cash equivalents, end of period

$

16,654

$

20,680

Supplemental disclosure of non-cash investing and financing activities:

Right-of-use operating asset acquired

$

$

4,075

Right-of-use finance asset acquired

$

7,889

$

4,257

Accrued asset purchases

$

859

$

1,727

Share-based compensation expense capitalized in property and equipment

$

1,051

$

1,610

Stock issued for services

$

81

$

622

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes

$

175

$

77

Cash paid during the period for interest

$

1,011

$

811

See accompanying notes to consolidated financial statements (unaudited).

7

CARPARTS.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In Thousands, Except Per Share Data)

Note 1 – Basis of Presentation and Description of Company

CarParts.com, Inc. (including its subsidiaries) is a leading online provider of aftermarket auto parts and accessories. The Company sells its products primarily to individual consumers through its flagship website located at www.carparts.com and online marketplaces. Our corporate website is also located at www.carparts.com/investor. References to the “Company,” “we,” “us,” or “our” refer to CarParts.com, Inc. and its consolidated subsidiaries.

The Company’s products consist of replacement parts serving the wear and tear and body repair market, hard parts to serve the maintenance and repair market, and performance parts and accessories. The replacement parts category is primarily comprised of body parts for the exterior of an automobile as well as certain other mechanical or electrical parts that are not related to the functioning of the engine or drivetrain. Our parts in this category typically replace original body parts that have been damaged as a result of general wear and tear or a collision. In addition, we sell an extensive line of mirror products, including parts from our own house brand called Kool-Vue®, which are marketed and sold as aftermarket replacement parts and as upgrades to existing parts. The hard parts category is primarily comprised of engine components and other mechanical and electrical parts including our house brand of catalytic converters called Evan Fischer®. These hard parts serve as replacement parts that are generally used by professionals and do-it-yourselfers for engine and mechanical maintenance and repair. We also offer performance versions of many parts sold in each of the above categories, including parts from our own house brand, JC Whitney®. Performance parts and accessories generally consist of parts that enhance the performance of the automobile, upgrade existing functionality of a specific part or improve the physical appearance or comfort of the automobile.

The Company is a Delaware C corporation and is headquartered in Torrance, California. The Company has employees located in both the United States and the Philippines.

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to U.S. Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company as of October 1, 2022 and the consolidated results of operations and cash flows for the thirteen and thirty-nine weeks ended October 1, 2022 and October 2, 2021. The Company’s results for the interim periods are not necessarily indicative of the results that may be expected for any other interim period, or for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended January 1, 2022, which was filed with the SEC on March 2, 2022 and all our other periodic filings, including Current Reports on Form 8-K, filed with the SEC after the end of our 2021 fiscal year, and throughout the date of this report.

Effective July 3, 2022, management reassessed our functional currency determination for our Philippines subsidiary in accordance with ASC 830, Foreign Currency Matters, and concluded a change in the functional currency was appropriate from the local currency to the U.S. dollar, our reporting currency. As a result, the change in the Philippines subsidiary’s functional currency has been applied on a prospective basis in accordance with ASC 830. Effective as of July 3, 2022, foreign currency gains and losses are now included in net (loss) income. Any translation gains and losses that were previously recorded in accumulated other comprehensive gain remain unchanged through July 2, 2022.

8

Based on our current operating plan, we believe that our existing cash, cash equivalents, investments, cash flows from operations and available debt financing will be sufficient to finance our operational cash needs through at least the next twelve months.

Note 2 – Borrowings

The Company maintains an asset-based revolving credit facility ("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. On June 17, 2022, the Company and JPMorgan Chase Bank entered into an Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) amending and restating in its entirety that certain Credit Agreement dated April 26, 2012, as amended through the Fourteenth Amendment (the “Amendment”). The Amendment provides for the revolving commitment in an aggregated principal amount of $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.

As of October 1, 2022, our outstanding revolving loan balance was $5,000. The outstanding standby letters of credit balance as of October 1, 2022 was $620, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheet.

Loans drawn under the Credit Facility bear interest, at the Company’s option, at a per annum rate equal to either (a) Adjusted Secured Overnight Financing Rate (“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. As of October 1, 2022, the Company’s SOFR based interest rate was 4.70% and the Company’s prime based rate was 6.25%. 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. Under the terms of the Credit Agreement, cash receipts are deposited into a lock-box, which are at the Company’s discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing under the Credit Agreement. The cash dominion period is triggered in an event of default or if excess availability is less than $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 such trigger subject to adjustment based on the Company’s revolving commitment). In addition, in the event that “excess availability,” as defined under the Credit Agreement, is less than $7,500 (10% of the aggregate revolving commitment), the Company shall be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 (with the trigger subject to adjustment based on the Company’s revolving commitment). The Credit Agreement requires us to obtain a prior written consent from JPMorgan Chase Bank when we determine to pay any dividends on or make any distribution with respect to our common stock. The Credit Facility matures on June 17, 2027.

Note 3 – Stockholders’ Equity and Share-Based Compensation

Options and Restricted Stock Units

The Company had the following common stock option activity during the thirty-nine weeks ended October 1, 2022:

Granted options to purchase 0 common shares.
Exercise of 665 options to purchase common shares.
Forfeiture of 538 options to purchase common shares.
Expiration of 15 options to purchase common shares.

9

The following table summarizes the Company’s restricted stock unit ("RSU") activity for the thirty-nine weeks ended October 1, 2022, and details regarding the awards outstanding and exercisable as of October 1, 2022 (in thousands):

Weighted

Weighted Average

Average

Grant Date

Aggregate

    

Shares

    

Exercise Price

    

Fair Value

    

Intrinsic Value

Vested and expected to vest as of January 1, 2022

3,023

 

$

Awarded

2,209

 

$

Vested

(808)

 

$

Forfeited

(1,255)

 

$

Awards outstanding, October 1, 2022

3,169

 

$

$

10.66

 

$

16,382

Vested and expected to vest as of October 1, 2022

3,169

 

$

$

10.66

 

$

16,382

During the thirty-nine weeks ended October 1, 2022, 273 RSUs that vested were time-based and 535 were performance-based.

For the thirteen and thirty-nine weeks ended October 1, 2022, we recorded compensation costs related to stock options and RSUs of $3,760 and $8,837, respectively, of which $0 and $81 related to common shares issued to consultants as part of their compensation for services provided during those respective periods. For the thirteen and thirty-nine weeks ended October 2, 2021, we recorded compensation costs related to stock options and RSUs of $4,597 and $12,887, respectively, of which $233 and $622, respectively, related to common shares issued to consultants as part of their compensation for services provided during the periods. As of October 1, 2022, there was unrecognized compensation expense related to stock options and RSUs of $24,422 that will be expensed through September 2026.

Note 4 – Net (Loss) Income Per Share

The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except per share data):

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

    

October 1, 2022

    

October 2, 2021

    

October 1, 2022

    

October 2, 2021

Net (loss) income per share:

 

  

 

 

  

 

Numerator:

 

  

 

  

 

  

 

  

Net (loss) income allocable to common shares

$

(948)

$

(4,659)

5,273

(5,309)

Denominator:

 

  

 

  

 

  

 

  

Weighted-average common shares outstanding (basic)

 

54,481

 

52,264

 

54,009

 

50,903

Common equivalent shares from common stock options and restricted stock

 

 

 

3,274

 

Weighted-average common shares outstanding (diluted)

 

54,481

 

52,264

 

57,283

 

50,903

Basic net (loss) income per share

$

(0.02)

$

(0.09)

$

0.10

$

(0.10)

Diluted net (loss) income per share

$

(0.02)

$

(0.09)

$

0.09

$

(0.10)

Options and RSUs that were antidilutive and not included in the dilutive earnings per share calculation for the thirty-nine weeks ended October 1, 2022 amounted to 1,590. For the thirteen weeks ended October 1, 2022 and October 2, 2021, and the thirty-nine weeks ended October 2, 2021, all outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per share as the effect of including such securities would have been anti-dilutive.

Note 5 – Income Taxes

The Company is subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2017-2021 remain open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the tax years 2018-2021 remain open.

10

For the thirteen and thirty-nine weeks ended October 1, 2022, the effective tax rate for the Company was (5.5)% and 2.2%, respectively. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, income of our Philippines subsidiary that is subject to different tax rates, share-based compensation that is either not deductible for tax purposes or for which the tax deductible amount is different than the financial reporting amount, and a change in the valuation allowance that offset the tax on the current period pre-tax (loss) income.

For the thirteen and thirty-nine weeks ended October 2, 2021, the effective tax rate for the Company was (0.8)% and (4.1)%, respectively. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, income of our Philippines subsidiary that is subject to different tax rates, share-based compensation that is either not deductible for tax purposes or for which the tax deductible amount is different than the financial reporting amount, and a change in the valuation allowance that offset the tax of the current period pre-tax loss.

The Company accounts for income taxes in accordance with ASC Topic 740 - Income Taxes (“ASC 740”). Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets. We currently have a full valuation allowance against our deferred tax assets. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. For the thirty-nine weeks ended October 1, 2022, there was no material change from fiscal year ended January 1, 2022 in the amount of the Company's deferred tax assets that are not considered to be more likely than not to be realized in future years.

Note 6 – Commitments and Contingencies

Legal Matters

Asbestos. A wholly-owned subsidiary of the Company, Automotive Specialty Accessories and Parts, Inc. and its wholly-owned subsidiary Whitney Automotive Group, Inc. ("WAG"), are named defendants in several lawsuits involving claims for damages caused by installation of brakes during the late 1960’s and early 1970’s that contained asbestos. WAG marketed certain brakes, but did not manufacture any brakes. WAG maintains liability insurance coverage to protect its and the Company’s assets from losses arising from the litigation and coverage is provided on an occurrence rather than a claims made basis, and the Company is not expected to incur significant out-of-pocket costs in connection with this matter that would be material to its consolidated financial statements.

Ordinary course litigation. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. As of the date hereof, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cash flow of the Company. The Company maintains liability insurance coverage to protect the Company’s assets from losses arising out of or involving activities associated with ongoing and normal business operations.

11

Note 7 – Product Information

As described in Note 1 above, the Company’s products consist of replacement parts serving the wear and tear and body repair market, hard parts to serve the maintenance and repair market, and performance parts and accessories. The following table summarizes the approximate distribution of the Company’s revenue by product type.

    

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 1, 2022

    

October 2, 2021

    

October 1, 2022

    

October 2, 2021

    

House Brands

 

  

 

  

 

  

 

  

 

Replacement Parts

 

68

%  

67

%  

67

%  

68

%  

Hard Parts

 

18

%  

18

%  

20

%  

18

%  

Performance

 

1

%  

%  

1

%  

%  

Branded

 

  

 

  

 

  

 

  

 

Replacement Parts

 

1

%  

1

%  

1

%  

1

%  

Hard Parts

 

7

%  

8

%  

7

%  

8

%  

Performance

 

5

%  

6

%  

4

%  

5

%  

Total

 

100

%  

100

%  

100

%  

100

%  

12

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In Thousands, Except Per Share Data, Or As Otherwise Noted)

Cautionary Statement

You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this report. Certain statements in this report, including statements regarding our business strategies, operations, financial condition, and prospects are forward-looking statements. Use of the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would”, “will likely continue,” “will likely result” and similar expressions that contemplate future events may identify forward-looking statements.

The information contained in this section is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the U.S. Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at http://www.sec.gov. The section entitled “Risk Factors” set forth in Part II, Item 1A of this report, and similar discussions in our other SEC filings, describe some of the important factors, risks and uncertainties that may affect our business, results of operations and financial condition and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf. 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.

Overview

We are a leading online provider of aftermarket auto parts, including replacement parts, hard parts, and performance parts and accessories. We principally sell our products to individual consumers through our flagship website at www.carparts.com and online marketplaces. Our proprietary product database maps our SKUs to product applications based on vehicle makes, models and years. 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. Our mission is to change the way people repair their cars and get them back on the road, and our strategy consists of the Right Part, Right Time, Right Place, as outlined below:

Right Part means ensuring our customers can find a solution to fix their vehicle on our website. 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. 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. We expanded our existing facilities and added new distribution centers over the past three 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. 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. 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. Whether we send a

13

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.

Industry-wide trends that support our strategy and future growth include:

1.Number of SKUs required to serve the market. The number of automotive SKUs has grown dramatically over the last several years. In today’s market, unless the consumer is driving a high volume produced vehicle and needs a simple maintenance item, the part they need is not typically on the shelf at a brick-and-mortar store. We believe our user-friendly f