May 21, 2021 – On today’s show, we welcome special guests Nino Ciappina, CEO, and Ajay Roy, COO, of PARTS iD. PARTS iD is a technology-driven, digital commerce company focused on creating custom infrastructure and unique user experiences within niche markets such as auto parts. It trades on the NYSE under the symbol ID. 

On the podcast, Nino and Ajay discuss:

  • How they compete in e-commerce against giants such as Amazon and eBay
  • Why their platform stands out for selling auto parts online
  • What is driving double-digit growth in US automotive aftermarket e-commerce sales
  • Lessons learned to pass on to other private companies considering going public via SPAC
  • And more

Transcript: 

Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com

 

Julian Klymochko: Well welcome, Nino and Ajayy. PARTS iD onto The Absolute Return Podcast. Happy to have you on the show today, talking cars, car parts. I was cruising the CARiD website, and man, does it make me want to buy some parts for my vehicle. Pretty cool layout and just, I don’t know how many parts do you have on there must be, I don’t know, tens of thousands of perhaps hundreds of thousands, I don’t even know, but why don’t we start things off with you walking us through PARTS iD history, how the business developed? I know you started out with the initial focus on automobiles and now you’re expanding into different verticals and also what your platform exactly provides to customers in terms of value add?

 

Nino Ciappina: Hey, Julian, Michael, thank you for having us, you know, I’m the CEO at PARTS iD, so, really happy to be here and I’ll, kind of kick with some answers. We specialize in really helping customers find the right part as quickly as possible, and then getting that part to them as quickly as possible. Both recently at the end of 2020 we completed our business combination with a SPAC which made us a public company. So today we’re traded on the New York American exchange under the symbol iD. 

 

Julian Klymochko: Right. 

 

Nino Ciappina: That’s kind of a little bit about us and our background. We’re based here in New Jersey. We’ve got members of management and others here, and then we’ve got offices and other operations across the globe, including the parts of Europe, Costa Rica and other regions as well. So, does that help? Is that enough or a little more?

 

Julian Klymochko: Could you explain the website and the service that you guys offer exactly. You know, why customers should use it?

 

Nino Ciappina: Yeah, absolutely. So, we have been striving to become a one-stop shop for car parts and accessories. What really makes us different is the combination of a few things. First, we’ve got a very proprietary purpose, built digital commerce platform specifically made from the ground up for this complex category, which is hard parts and accessories to really overcome the fitment challenge in our industry. And for your listeners who don’t know what fitment is. It’s basically the compatibility of millions of parts in the marketplace to each specific year, make, model vehicle. So, it’s much more complex than the shopping for say sneakers, which are just, you know, size and color. 

 

Julian Klymochko: Right. 

 

Nino Ciappina: The second thing that really is different about our platform is, you know, the rich amount of data that really powers the platform. So, you know, 14 billion plus data points, 17 billion plus skews across the platform over 5,500 brands. So, lots of product attributes, lots of other components that are all really synthesize together to enrich the customer shopping experience. We marry all that rich product data with a custom build content, images, high quality images, videos, guides, articles, and really so much more to deliver what we believe is the most superior shopping experience for car parts and accessories on the web. And then the last thing I’ll point out, I’m sure Ajayy will want to add some is, you know, what’s unique about us and what enables us to offer the consumer 17 million plus views. 5,500 brands is, our just in time capital efficient inventory model. So, in 2020, for example, we did about 400 million in net revenue with less than $5 million dollars of actual inventory on hand. And that’s really the beauty of the model, which helps us really strive to become this one-stop shop for all your car parts and accessories needs.

 

Ajayy Roy: Yeah, I think the only thing that I would add guys is, if I compare our platform with our competition or let’s say an Amazon. The way we look at ourselves is, we consider ourselves as a discovery platform. Other than having such an exhaustive list of skews. What we also invest heavily in is the customer experience. 

 

Julian Klymochko: Right. 

 

Ajayy Roy: So, we invest a lot in installation videos. We invest in 3d images, et cetera, which really helps build confidence for the customer, that they can actually buy that part buy or an accessory from our platform, walk away and it would absolutely fit their vehicle, right. None of that comes through our investment into the technology, which Nino was talking about earlier, which is around fitment which makes sure that whatever you’re buying from our platform is really is going to work for you.

 

And then I think the testament of that is, that we don’t rate is less than 5%, whereas in the industry, the return rate is around 20% on an average. So, I think that’s the clear Differentiator. For us, our customers are really coming to our platform sometimes to just buy a pod, but also, they learn so much more about the vehicle just by browsing to our website rather than being a transactional website where you just add a pod, checkout and you’re just out, right. Those are the few things that I would like to add from my side.

 

Julian Klymochko: And it seems that PARTS iD is largely a digital marketing and operations exercise, which isn’t surprising given, you know, your career is specialized in digital marketing at companies such as Footlocker and Kenneth Cole and Ajay yours is an operation, you’re previously at Wayfair. So, I was just wondering, you know, how has your career experience specifically assisted you in your CEO and COO roles at PARTS iD and as the company grows?

 

Nino Ciappina: Great question, Julian. You know, your observations about my background are spot on. I mean, I came up through marketing, digital marketing specifically and I think it’s been a valuable career path, especially in to prepare someone for the present-day CEO, I would say. And the real reason there is, you know, almost everything a company does is marketing I feel. 

 

Julian Klymochko: Right.

 

Nino Ciappina: Trust is a function of brand messaging lining up with the consumer’s actual interaction with the product and service. Almost everything that company does has an interaction with the customer and marketers are inherently trained from the very beginning to put the customer first, right. Through surveys, research, customer segmentation, solving customer problems, aligning the customer experiences across the website, social media, email, contact, etc. All these things to some degree, always touch marketing for the marketing department. I think marketing is a great role, preparing someone for a leadership role, like the CEO job.

 

Ajayy Roy: Yeah, I think from my perspective, working at Mayfair and other e-commerce players. I think one of the things that I would say, which is my key learning, which I have been able to extend here is, really the ability to scale the business and take a very scrappy approach towards problem solving. I think you will only be able to scale the business if you are scrappy. If you’re going to actually look for the ultimate solution, then you’re going to probably going to miss the boat, right. I was at Wayfair; I was running the small and large [Inaudible 00:07:48] business and really focused on end to end. From sourcing products from the suppliers, all the way to delivering it to the end customers, right. And one of my key learnings was to really make sure how, from a people process and technology perspective to set up the right organization which can be set up for success.

 

Michael Kesslering: And when you talk about setting the organization up for success, I mean, the U.S. auto aftermarket is massive. At over $400 billion dollars, but as well, e-commerce is, I mean, ultra-competitive. And so how do you compete with some of the e-commerce giants such as Amazon, or even some of the other specialty auto parts firms online? 

 

Ajayy Roy: Yeah, great question. I kind of tried to try to address that question earlier when I was talking about our platform as more of a discovery platform. So, when I look at our competition like Amazon or any of our other competitors. I think other than investing in [Inaudible 00:08:53] content. I think, while we are an e-commerce player, but we have also invested heavily into an army of subject matter experts who are actually with you throughout out the customer buying journey. So, let’s say you were buying a seat cover online, right?

And you have a question on our platform and you want to understand whether it’s going to fit the front seat or the back seat, or is there anything else that I need along with it, you can pick up the phone and you will be able to actually talk to a human being. Who’s a subject matter expert in that category, and it’s going to help you throughout your buying journey, right. We don’t want to just attract the customer to have them buy a product and forget about it. We want to make sure that we nurture the customer buying journey, and this is something that differentiates us from a lot of the other players in the same space, right? Most of the time you typically talk to a chat bot on other platforms. This is an enhanced experience that we actually offer to our customers.

 

And also, I think, which Nino spoke about earlier. Having an extensive catalog. So, if you look at just the automotive space, we have close to 95% product coverage. When I say 95% product coverage, the parts and accessories available out there, you will find 95% of them on our platform. And our capital efficient model is something that actually helps us provide a wide offering to our customer. And I think that is one of the key reasons why we also want to be the one-stop shop and we are investing into various other areas, like DIFM. One of the things that we recently invested in was a tire installation network, which will actually streamline your whole tire buying journey. We just have to select a tire on our platform, a [Inaudible 00:10:34] on our platform. You can select an installer location, which is in the close proximity. Drop off your car there in the morning and pick it up in the evening. And you will have your new tires and wheels installed on your car.

Julian Klymochko: Yeah, it sounds like the specialization just on auto parts would really resonate with customers. Like one thing that I noticed going on eBay or Amazon for auto parts is that there just seems to be so much junk on there. And it’s more of like an SEO type practice where you’re not even sure if that specific part will fit your make and model. So, your kind of digging through the details. Is this going to work? Or is it a big risk buying this and then it won’t fit. So certainly, that makes sense. Now from an investor perspective, I was wondering if we could touch on sort of the macro thesis parts ideas, really the confluence of two major themes. One is the growth in U.S. automotive, aftermarket sales, and also e-commerce. In the investor presentation that you guys posted within the last month, I believe. You’ve forecast double digit market growth in U.S. automotive aftermarket e-commerce sales. Can you explain, what’s driving this growth? Like, did the pandemic accelerate this and is this a kind of long-term growth assumption? You figure that, you know, auto parts are a pretty mature space and you don’t tend to see double digit growth rates in the mature spaces. Is this more of offline going online or is this the entire industry growing?

 

Nino Ciappina: Hey, Julian, I’ll take that one. I really liked when this question comes up. So, you hit on one, I mean, overall, not just within the car parts and accessories industry, but across the board. So, there’s accelerated, e-commerce adoption. Part of that is from the pandemic people being home, part of that is the whole adoption occurring, which has now just been accelerated by people at home. So that is certainly one kind of lifting things. The other that has really prohibited, at least the car parts and accessories industry from prior growth online was, you know, two things, first fitment. So again, going back to kind of, one of the overall emissions of the company was solving the complexity of shopping this category. We’ve we follow that; we believe better than anyone by marrying rich product data with purpose-built technology for this complex category.

 

So, you know, mitigate or reducing the friction in this category as much as possible, we’ve done that. So, I think there’s still a lot of work to do, and we’re making a lot of progress continuing to enhance that customer experience, but fitment certainly as what prohibited the online adoption, at least in our space. And I saw some data from e-marketer, which recently published something, showing that for example. The percentage of furniture being purchased online is something about like 30 or 31%. And then the percentage of overall car parts and accessories, which are being purchased online are about 5%. So, a lot of slow adoption in the past, which just means more opportunity to grow in the coming years, especially as we continue to solve this bigger fitment challenge. The second thing that I think has slowed the adoption of car parts and accessories is the, do it for me, consumer segment, or rather in the industry referred to as DIFM. 

 

Julian Klymochko: Right.

 

Nino Ciappina: So, if you think about it, whether you’re purchasing tires or you’ve got something else, a lot of car parts and accessories requires service, and that has historically slowed the adoption of online, but we’ve got a number of initiatives that we’re looking to kind of reconnect this broken digital, offline experience in the industry. One of which I believe Ajayy touched on briefly in his earlier remarks is, higher installation program. We recently, we launched about a year ago. Where a consumer can now visit carid.com, shop the thousands of different tires, purchase tires. And in the same shopping experience, find a Local installer near them, schedule an appointment with that local installer. And then we ship the tire directly to that local installer. Those sorts of things will continue to kind of help accelerate e-commerce adoption in our business. And we see tires as really just the first product category conducive to that, to connecting that broken online, offline experience that exists in our industry today. So those things will drive growth from a macro level, from a PARTS iD per specific.

 

With performance products, and then even our new verticals, which include motorcycle ID, boat ID, camper ID. These are new verticals, we launched in mid-2018, and we’re seeing very strong growth as I reported on Monday. Your motorcycle, boating, camper, all of these groups, 80% versus the same period last year. So, there’s really good, strong momentum in our core business. And then these new verticals are also accelerating as well. 

 

Michael Kesslering: Yeah, that’s very interesting. I mean, taking your current core cloud planning, moving it to different verticals is something that makes a ton of sense. In terms of something else that you mentioned as well earlier was the capital efficiencies is a pretty big part of your business model. Can you explain a little bit more into how your negative working capital cycle and inventory efficiency, how that results in some of your growth as well?

 

Nino Ciappina: Yes, absolutely. So, because we sell direct to consumers, we collect payment essentially instantaneous when you order is taken. So that gives us plenty of cash that we’re taking in. And then based on the arrangements we have with our vendor community, which today is over 1000 different vendors, we’ve got terms. Some terms are as short as 15 days, other terms that are as high as 30 or 45 days, that’s the negative working capital there. And because we’re not holding significant inventory, that capital that we’re holding allow us to really invest in initiatives and new resources to really continue fueling business.

 

Julian Klymochko: And with respect to the PARTS iD platform, you mentioned expanding into new verticals, boat iD, motorcycle iD, camper iD. It appears like the infrastructure that you’ve built is very conducive to expanding it. Now, I was wondering, are we going to see a spaceship iD soon? Is that in the future plans?

 

Nino Ciappina: Maybe, we’ll take that away. I really believe that the technology platform we’ve developed over the last 10 plus years is superior in so many ways. Somebody who wants to compete in digital commerce or rather in the car parts and accessories business. They’re just not going to be able to go out and license something like Shopify or BigCommerce or WooCommerce and build the same sort of experience that we’ve purpose built in-house over the last 10 plus years. And, you know, your comment about the fact that we’ve been able to take this platform, which we built for CARiD and then utilize, you know, 90 plus percent of it for these other new verticals. I mean, that’s a great observation by you. And it’s something that we’ve discussed a lot internally, how exciting that makes us is, when we launched these new verticals back in 2018.

 

One of the things we validated that by doing that is really, you know, how fungible the technology platform really is. And the reason that gets us excited is, we can take this platform now, and, you know, as we start thinking about among other initiatives, international expansion is, can we take this platform now, make some smaller modifications to it, such as payment and maybe translation services and then deploy a platform and say Canada or any other market. And our ability to do that is very high just given the fact that we’ve already demonstrated we can do that with motorcycle iD, boat iD and all the other.

 

Julian Klymochko: Yeah, it seems to be some interesting new verticals that you guys are branching out into and having this service, as you indicated to fix the online to offline activity, because obviously with auto parts, and you’re hearing this from what I consider the world’s worst handyman myself. I can barely install a headlight. And if I can, that’s a huge win for me. But if you guys can solve that, then I’m sure that would be fairly conducive to sales. Now, one other aspect of PARTS iD I did want to touch on is, you guys are now up in trading as a public company, symbol iD. You went public in late 2020. Through a merger with SPAC Legacy Acquisition Corp. I was wondering, how was that experience? What were some positives and negatives from going private to public? And through the SPAC process?

 

Nino Ciappina: It was an intense process. It was a very intense process. We were the target, so the SPAC essentially acquired us. So, there’s a lot of work on both ends, as I’m sure you guys know, members of your audience know, but these SPAC in general is intense. I mean, on our side, you know, we had to quickly prepare, to be a public company, right? There’s a lot of things that go into that. Well, while preparing for all of that, we have to do our diligence on this SPAC. There was a number of sec filings and requirements that have to get done in a short period of time, all the while we have to continue to kind of successfully run the day-to-day business, a lot. Ajayy, am I forgetting anything, but I just remember? 

 

Ajayy Roy: No, absolutely. I think definitely this has been a quite intense process. But I think there are a lot of positives that came out of it, right. So, we are very excited about Legacy Acquisition Corp. We have the executives there who actually specialized in branding, marketing and various other areas, right, finance, et cetera. So, I think we’re very excited about that partnership and really using them as our associates to actually scale the business even more, right. So, I think that’s, I would say from other than the fact that the members of the leadership team sleepless nights, I think there’ve been only positives from this. And we really look forward to actually growing the business multiple folds in the coming year through this process.

 

Julian Klymochko: Yeah. It’s certainly a very intense process and basically like a whole another full-time job for you guys with respect to, you know, the virtual road shows, the media appearances, the podcasts and all that stuff to really just educate the market on what you guys are all about. So, you guys do the going public transaction. I was wondering what exactly were you looking to accomplish when going public? Why did you pursue a public listing?

 

Nino Ciappina: Yeah, great question. So typically, one core reason, right, is you want to be in a position, especially in an organization like ours, which is growing as fast as we are. We want to be in a position to raise capital as quickly as possible if and when opportunities arrive or just to have some cash on our balance sheet. So, you know, to be a little opportunistic, if opportunities come around that we can take advantage of. So as a public company, the ability to raise money significantly more available to you then as a private company. So that to me is probably the biggest goal that we achieve or you achieve or have available to you as a public company now. The profile also goes up and it doesn’t hurt when it comes to recruiting as a public company. You’ll canvas, you know, there’s another degree of trust that exists. The candidates themselves to research the company better understand it, certainly facilitates recruiting more than a product, more than operating as a private company.

 

Julian Klymochko: And you guys bear the scars and the blood, sweat, and tears of going through that Public SPAC merger. And I’m sure there are a lot of lessons learned. And if you were to do it all over again, save yourselves some time. So, I was wondering any of these lessons learned that you want to pass on to other potential private companies, entrepreneurs, thinking about taking their public or their company public via a blank check company?

 

Nino Ciappina: A few things come to mind, do your diligence, you know, the SPAC or the buyer. They’re going to do their diligence, but I would argue is just as important for the operating company to do their diligence on the SPAC and the members of the SPAC. Make sure everyone’s goals are aligned in advance of getting too far down the path. You certainly don’t want to, you know, find out posts business combination that somebody’s vision is very different than kind of where management believes we should be going. Second that comes to mind is, don’t lose sight of the day-to-day operations during the during the business combination process. Even though that eats up the majority of the week. Through all the requirements and meetings and road shows and all the conversations, the truth of the matter is there’s still a company to operate and run and don’t lose sight of that. And then, you know, one of the things that we did and prior to the combining with this SPAC is we were evaluating a number of other opportunities Julian and Michael. As far back as mid-2019, the company was examining additional private equity, or do we consider a traditional IPO in the future.

 

So, I would encourage your audience or anyone that’s listening to, you know, don’t rule out the traditional IPO, don’t allow raising other private equity, but certainly consider a SPAC. You know, SPACs have a lot of great benefits I would argue. One of which is, there’s strong demand right now, right. There are a lot of SPACs, the SPAC vehicle became very popular in 2020, there’s still a lot of popularity. So, there’s opportunities because of that popularity. 

 

Julian Klymochko: Right. 

 

Nino Ciappina: I think the other thing that is attractive with a SPAC is the timeline to complete a deal is condensed. So, if there is a desire or a mandate to get something like this accomplished by your team or by your listeners, a SPAC certainly offers you some flexibility to kind of move a little more quickly than a traditional IPO. And it also allows you to negotiate valuation privately, right. So that’s an important feature depending on what your overall objectives are, but it’s certainly a nice added benefit compared to a traditional IPO. 

 

Ajayy Roy: I think the only thing I would actually add is, I think the benefit of SPAC is also because as Nino said, you discuss things privately in terms of overall valuation, but also, you’re choosing the partner that you’re going to actually work with, right. So, from a skillset perspective, you can actually find complimentary conceptual areas where you actually need help, right. So, I think that’s also one of the great things about SPAC which I think all the audience who is listening to, should definitely consider in terms of who we are going to actually go public with. Who are you going merging with, to actually go public?

 

Julian Klymochko: And you guys closed the merger with Legacy Acquisition back in November. So, get a good six to seven months of public company experience under your belt just released Q1 results. So, from an investor perspective, what value proposition do you bring? And why should investors consider taking a look at iD stock?

 

Nino Ciappina: Let me tackle that one first Julian and Ajayy if you’ve got anything to add by all means. First as you referenced our first quarter results, I mean, we’re growing rapidly. I mean, net revenue increased 54% for the first quarter of last year. So, there’s definitely growth there and investors, hopefully all love growth, maybe some don’t, but we’re also profitable. You know, many of the companies we get compared to are non-profitable. So, there is certainly a value, I would say from a growth and just overall profitability perspective, but beyond the financials, I would argue probably a handful of things. We have a complete, very credible, very clear business model and it’s working, right. We’re not a new company, we’ve been around for 10 plus years. Our business model works and we’ve validated that and prove that. We’ve got a strong leadership team in my opinion. 

 

We talked a little bit about my background and Ajayy background at the beginning of the pod. Our CFOs got, you know, 35 plus years of experience. He’s been with the organization five years and our head of vendor relations. He’s been with the organization for over 10 years, but he’s a 40-year industry veteran of the car parts and accessories business. So, we’ve got a strong management team with a good mix. We’ve got good chemistry and a decent level of experience in this sector. Third I should say from a value proposition perspective is, it’s a big market. As you quoted earlier, Julian, you know, the car parts and accessories industry on a whole, it’s about 400 hundred billion domestically. So, the potential for our growth, I mean, we only did 400 million in net revenue last year. So, there was a lot of growth, and given the rate at which we’re growing, there is a lot, there’s a lot for us to still capture. Those are the first ones that come to mind Ajayy, if you’ve got anything else. 

 

Ajayy Roy: Yeah. I think one of the things that is a value proposition for the shareholders or anybody who wants to invest in the company is, I would actually say the opportunity lies in front of us, right. So, we spoken at length today in terms of the fungibility of our technology platform. So, while the total addressable market on the automotive side is huge, the fact that we can actually utilize that underlying technology and get into newer areas, which we have already demonstrated in the newer verticals where we have invested in, we have seen stellar growth, like Nino said, 80% above. That really shows the opportunity that lies ahead for PARTS iD. And I think that is one thing which is key, right. We’re not limited to one specific focus areas, right. From a strategy perspective, we have multiple levels that we can actually pull in multiple areas from where we can actually lift the revenue in the coming years, right. So that also is very promising for me, even if I was not an executive. And I was looking at a company from outside, I think I would actually always look at the company and say, what is the ability to growth? And are they going to be just focused on one specific area or they have the ability to actually expand. And I add technology footprint and add investment in technology really gives us the ability to scale beyond where we are today.

 

Julian Klymochko: To the extent that customers want to check out your offering, carid.com and for investors, you have partsidinc.com and check out the Q1 results and the latest investor presentation. Nino, Ajayy want to thank you for coming on The Absolute Return Podcast today, sharing your insights regarding the industry, and also the micro case for PARTS iD stock. So, thank you very much, which you guys the best of luck and take care.

 

Ajayy Roy: Thank you so much.

 

Nino Ciappina: Thank you so much guys. 

 

Julian Klymochko: Alright, bye everybody. 

 

Nino Ciappina: Bye.

 

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.  

 

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