U.S. Auto Parts Network, Inc. Reports Second Quarter 2012 Results

- Net sales $80.7 million.

- Adjusted EBITDA $3.7 million.

- Gross margin 30.2%.

Aug 07, 2012, 16:00 ET from U.S. Auto Parts Network, Inc.

CARSON, Calif., Aug. 7, 2012 /PRNewswire/ -- U.S. Auto Parts Network, Inc. (NASDAQ: PRTS), one of the largest online providers of automotive aftermarket parts and accessories, today reported net sales for the second quarter ended June 30, 2012 ("Q2 2012") of $80.7 million compared with the second quarter ended July 2, 2011 ("Q2 2011") net sales of $84.3 million, a decrease of 4.2% from Q2 2011 net sales. Q2 2012 net loss was $1.7 million or $0.06 per share, compared with Q2 2011 net loss of $2.6 million or $0.08 per share. The Company generated Adjusted EBITDA of $3.7 million for Q2 2012 compared to $4.6 million for Q2 2011, a decrease of 19.5% from Q2 2011. For further information regarding Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to net loss, see non-GAAP Financial Measures below.

"We continue to address the changing market dynamics and continue to take steps to position the Company for long-term profitable growth," stated Shane Evangelist.

Q2 2012 Financial Highlights

  • Net sales decreased $3.5 million, or 4.2%, for Q2 2012 compared to Q2 2011. Our Q2 2012 net sales consisted of online sales, representing 92.5% of the total (compared to 94.4% in Q2 2011) and offline sales, representing 7.5% of the total (compared to 5.6% in Q2 2011). The net sales decrease was primarily due to a decline of $4.9 million, or 6.1%, in online sales offset by a $1.3 million, or 28.1% increase in offline sales. Online sales decreased primarily due to a 6% reduction in e-commerce unique visitors and a decline in average order value by 7%, partially offset by a 1% improvement in conversion and an increase of 1% in revenue capture. Our offline sales, which consist of our Kool-Vue™ and wholesale operations, continued to show solid growth.
  • Gross margin declined 350 basis points to 30.2% of net sales during Q2 2012 compared to 33.7% in Q2 2011. Gross margin was unfavorably impacted by increased competition in the marketplace and higher freight expenses.
  • Marketing expense was $13.0 million, or 16.1%, of net sales in Q2 2012, down from $14.4 million, or 17.0%, of net sales in Q2 2011. Online advertising expense, which includes catalog costs, was $5.2 million, or 7.0%, of online sales for Q2 2012, compared to $7.6 million, or 9.6%, of online sales for Q2 2011. Marketing expense, excluding online advertising, was $7.7 million, or 9.6%, of net sales for Q2 2012, compared to $6.8 million, or 8.0%, of net sales for Q2 2011. Online advertising expense decreased primarily due to reduced catalog advertising costs of $1.3 million, and our non-catalog online advertising expenses also decreased by $1.1 million due to lower sales volume. Marketing expenses, excluding online advertising, increased primarily due to higher amortization costs related to software deployments.
  • General and administrative expense was $4.7 million, or 5.8%, of net sales for Q2 2012, down from $8.4 million, or 10.0%, of net sales for Q2 2011. The decrease of $3.7 million, or 43.9%, for Q2 2012 compared to Q2 2011, was primarily due to $1.5 million in restructuring costs from Q2 2011 compared to none in Q2 2012, and lower depreciation and amortization expense, payroll expenses and share-based compensation in Q2 2012.
  • Fulfillment expense was $5.6 million, or 7.0%, of net sales in Q2 2012, up from $4.6 million, or 5.4%, of net sales in Q2 2011. The increase of $1.0 million, or 22.8%, for Q2 2012 compared to Q2 2011, was primarily due to higher depreciation and amortization expense from software deployments.
  • Technology expense was $1.7 million, or 2.1%, of net sales in Q2 2012, down from $1.9 million, or 2.3%, of net sales in Q2 2011. The decrease of $0.2 million, or 11.3%, for Q2 2012 compared to Q2 2011, was primarily due to lower telephone, consulting and computer support expenses.
  • Capital expenditures for Q2 2012 were $3.0 million.

Cash and cash equivalents and investments were $1.5 million and total debt was $13.1 million at June 30, 2012. The Company's investments are comprised of high-grade mutual funds that primarily hold debt securities. Cash and cash equivalents and investments decreased by $9.5 million from the previous quarter ended March 31, 2012, primarily due to net payment of debt of $5.0 million, capital expenditures of $3.0 million and negative cash flows from other working capital sources partially offset by the net proceeds from sales of our investments.

On April 26, 2012, the Company entered into a new credit agreement with JPMorgan Chase, N.A., which provides for a revolving commitment in an aggregate principal amount of up to $40 million with an option to increase the line up to $60 million. The credit agreement is subject to a borrowing base derived from certain receivables, inventory, property and pledged cash. The credit agreement obligations will mature on April 26, 2017. The Company used the proceeds of the loans borrowed to repay in full its existing credit facility with Silicon Valley Bank. The new arrangement has increased our available liquidity, currently requires no principal payments until maturity, may be prepaid at any time without penalty and includes a less restrictive fixed charge coverage ratio through the term. We previously reported the new credit agreement in our Current Report on Form 8-K filing with the Securities and Exchange Commission on April 30, 2012.

Q2 2012 Operating Metrics

Q2 2012

Q2 2011

Q1 2012

Conversion Rate

1.62

%

1.60

%

1.64

%

Customer Acquisition Cost

$

7.10

$

10.11

$

7.50

Marketing Spend (% Internet Sales)

7.7

%

9.8

%

7.6

%

Visitors (millions) 1

39.2

41.8

43.1

Orders (thousands)

635

670

705

Revenue Capture (% Sales) 2

84.4

%

83.6

%

83.7

%

Average Order Value

$

116

$

125

$

116

1

Visitors do not include traffic from media properties (e.g. AutoMD).

2

Revenue capture is the amount of actual dollars retained after taking into consideration returns, credit card declines and product fulfillment.

Non-GAAP Financial Measures

Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other provisions of the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. We provide "Adjusted EBITDA," which is a non-GAAP financial measure. Adjusted EBITDA consists of net income before (a) interest income (expense), net; (b) income tax provision (benefit); (c) amortization of intangibles and impairment loss; (d) depreciation and amortization; (e) share-based compensation expense; (f) debt extinguishment loss; (g) legal cost to enforce intellectual property rights and (h) restructuring costs related to acquisitions.

The Company believes that this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measure reflect an additional way of viewing aspects of the Company's operations that, when viewed with the GAAP results and the accompanying reconciliation to corresponding GAAP financial measures, provides a more complete understanding of factors and trends affecting the Company's business and results of operations.

Management uses Adjusted EBITDA as a 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 items not directly resulting from core operations. Internally, this non-GAAP measure is also used by management for planning purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating the Company's capacity to fund capital expenditures and expand its business. The Company also believes that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Additionally, lenders or potential lenders use Adjusted EBITDA to evaluate the Company's ability to repay loans.

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. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. 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.

The table below reconciles net loss to Adjusted EBITDA for the periods presented (in thousands):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2012

July 2, 2011

June 30, 2012

July 2, 2011

Net loss

$

(1,696)

$

(2,564)

$

(2,484)

$

(2,810)

Interest expense, net

183

172

382

437

Income tax provision

128

195

252

213

Amortization of intangibles

341

1,363

681

2,990

Depreciation and amortization

4,001

3,072

7,748

6,075

EBITDA

2,957

2,238

6,579

6,905

Share-based compensation

374

643

958

1,324

Loss on debt extinguishment

360

360

Legal costs to enforce intellectual property rights

161

232

Restructuring costs

1,542

2,775

Adjusted EBITDA

$

3,691

$

4,584

$

7,897

$

11,236

Conference Call

The conference call is scheduled to begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, August 7, 2012. Participants may access the call by dialing 877-941-1427 (domestic) or 480-629-9664 (international). In addition, the call will be broadcast live over the Internet and accessible through the Investor Relations section of the Company's website at www.usautoparts.net where the call will be archived for two weeks. A telephone replay will be available through August 21, 2012. To access the replay, please dial 877-870-5176 (domestic) or 858-384-5517 (international), passcode 4551426.

About U.S. Auto Parts Network, Inc.

Established in 1995, U.S. Auto Parts is a leading online provider of automotive aftermarket parts, including body parts, engine parts, performance parts and accessories. Through the Company's network of websites, U.S. Auto Parts provides individual consumers with a broad selection of competitively priced products that are mapped by a proprietary product database to product applications based on vehicle makes, models and years. U.S. Auto Parts' flagship websites are located at www.autopartswarehouse.com, www.jcwhitney.com, www.partstrain.com, www.stylintrucks.com and www.AutoMD.com and the Company's corporate website is located at www.usautoparts.net.

U.S. Auto Parts is headquartered in Carson, California.

Safe Harbor Statement

This press release contains statements which are based on management's current expectations, estimates and projections about the Company's business and its industry, as well as certain assumptions made by the Company. These statements are forward looking statements for the purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended and Section 27A of the Securities Act of 1933, as amended. Words such as "anticipates," "could," "expects," "intends," "plans," "potential," "believes," "predicts," "projects," "seeks," "estimates," "may," "will," "would," "will likely continue" and variations of these words or similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to, the Company's expectations regarding its future operating results and financial condition, impact of changes in our key operating metrics, our potential growth, our liquidity requirements, and the status of our auction rate preferred securities. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors.

Important factors that may cause such a difference include, but are not limited to, the Company's ability to integrate and achieve efficiencies of acquisitions, economic downturn that could adversely impact retail sales; marketplace illiquidity; demand for the Company's products; increases in commodity and component pricing that would increase the Company's per unit cost and reduce margins; the competitive and volatile environment in the Company's industry; the Company's ability to expand and price its product offerings, control costs and expenses, and provide superior customer service; the mix of products sold by the Company; the effect and timing of technological changes and the Company's ability to integrate such changes and maintain, update and expand its infrastructure and improve its unified product catalog; the Company's ability to improve customer satisfaction and retain, recruit and hire key executives, technical personnel and other employees in the positions and numbers, with the experience and capabilities, and at the compensation levels needed to implement the Company's business plans both domestically and internationally; the Company's cash needs, including requirements to amortize debt; regulatory restrictions that could limit the products sold in a particular market or the cost to produce, store or ship the Company's products; any changes in the search algorithms by leading Internet search companies; the Company's need to assess impairment of intangible assets and goodwill; the Company's ability to comply with Section 404 of the Sarbanes-Oxley Act and maintain an adequate system of internal controls; and any remediation costs or other factors discussed in the Company's filings with the Securities and Exchange Commission (the "SEC"), including the Risk Factors contained in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are available at www.usautoparts.net and the SEC's website at www.sec.gov You are urged to consider these factors carefully in evaluating the forward-looking statements in this release and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. Unless otherwise required by law, the Company expressly disclaims any obligation to update publicly any forward-looking statements, whether as result of new information, future events or otherwise.

 

U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data and per share data)

 

June 30, 2012

December 31, 2011

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

1,405

$

10,335

Short-term investments

96

1,125

Accounts receivable, net of allowances of $186 and

$183, respectively

9,488

7,922

Inventory

49,229

52,245

Deferred income taxes

446

446

Other current assets

4,093

3,548

Total current assets

64,757

75,621

Property and equipment, net

32,872

34,627

Intangible assets, net

9,325

9,984

Goodwill

18,854

18,854

Investments

2,104

Other non-current assets

1,334

1,026

Total assets

$

127,142

$

142,216

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

37,182

$

41,303

Accrued expenses

8,669

11,565

Revolving loan payable

12,908

Current portion of long-term debt

6,250

Current portion of capital leases payable

117

135

Other current liabilities

5,273

7,702

Total current liabilities

64,149

66,955

Long-term debt, net of current portion

11,625

Capital leases payable, net of current portion

91

37

Deferred income taxes

1,849

1,596

Other non-current liabilities

1,391

1,079

Total liabilities

67,480

81,292

Commitments and contingencies

Stockholders' equity:

Common stock, $0.001 par value, 100,000,000 shares

authorized; 30,653,356 shares issued and outstanding at

June 30, 2012, and 30,625,764 shares issued and

outstanding at December 31, 2011

31

31

Additional paid-in-capital

158,309

157,140

Accumulated other comprehensive income

380

327

Accumulated deficit

(99,058)

(96,574)

Total stockholders' equity

59,662

60,924

Total liabilities and stockholders' equity

$

127,142

$

142,216

 

 

U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands, except share and per share data)

 

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2012

July 2, 2011

June 30, 2012

July 2, 2011

Net sales

$

80,719

$

84,268

$

168,155

$

171,246

Cost of sales (1)

56,378

55,854

117,186

112,416

Gross profit

24,341

28,414

50,969

58,830

Operating expenses:

Marketing

12,978

14,366

26,428

27,951

General and

administrative

4,714

8,407

10,584

16,643

Fulfillment

5,639

4,592

11,557

9,599

Technology

1,700

1,917

3,236

3,855

Amortization of

intangibles

341

1,363

681

2,990

Total operating

expenses

25,372

30,645

52,486

61,038

Loss from operations

(1,031)

(2,231)

(1,517)

(2,208)

Other income (expense):

Other income, net

4

47

35

78

Interest expense

(181)

(185)

(390)

(467)

Loss on debt

extinguishment

(360)

(360)

Total other

expense

(537

(138)

(715)

(389)

Loss before income taxes

(1,568)

(2,369)

(2,232)

(2,597)

Income tax provision

128

195

252

213

Net loss

(1,696)

(2,564)

(2,484)

(2,810)

Other comprehensive (loss) income, net of tax:

Foreign currency

translation adjustments

(3)

14

24

33

Unrealized gains on

investments

4

16

29

27

Total other

comprehensive

income

1

30

53

60

Comprehensive loss

$

(1,695)

$

(2,534)

$

(2,431)

$

(2,750)

Basic and diluted net loss per share

$

(0.06)

$

(0.08)

$

(0.08)

$

(0.09)

Shares used in computation of basic and diluted net loss per share

30,650,519

30,543,037

30,644,453

30,496,558

(1)

Excludes depreciation and amortization expense which is included in marketing, general and administrative and fulfillment costs.

 

 

U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

Twenty-Six Weeks Ended

June 30, 2012

July 2, 2011

Operating activities

Net loss

$

(2,484)

$

(2,810)

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

Depreciation and amortization

7,748

6,075

Amortization of intangibles

681

2,990

Deferred income taxes

253

219

Share-based compensation

958

1,324

Stock awards issued for non-employee director service

32

Amortization of deferred financing costs

51

61

Loss on debt extinguishment

360

Loss from disposition of assets

4

Changes in operating assets and liabilities:

Accounts receivable

(1,566)

(1,990)

Inventory

3,018

2,296

Other current assets

(587)

(187)

Accounts payable and accrued expenses

(7,997)

(477)

Other current liabilities

(2,430)

(338)

Other non-current liabilities

294

258

Net cash (used in) provided by operating activities

(1,665)

7,421

Investing activities

Additions to property and equipment

(5,374)

(7,221)

Proceeds from sale of property and equipment

14

Cash paid for intangibles

(16)

(48)

Proceeds from sale of marketable securities and investments

3,171

400

Purchases of marketable securities and investments

(7)

(13)

Changes in restricted cash

319

Purchases of company-owned life insurance

(166)

(281)

Proceeds from purchase price adjustment

787

Net cash used in investing activities

(2,378)

(6,057)

Financing activities

Proceeds from revolving loan payable

16,561

Payments made on revolving loan payable

(3,653)

Payment of debt extinguishment costs

(175)

Payments made on long-term debt

(17,875)

(3,000)

Changes in book overdraft

611

152

Payments of debt financing costs

(345)

(53)

Payments on capital leases

(68)

(74)

Proceeds from exercise of stock options

43

255

Net cash used in financing activities

(4,901)

(2,720)

Effect of exchange rate changes on cash

14

10

Net change in cash and cash equivalents

(8,930)

(1,346)

Cash and cash equivalents, beginning of period

10,335

17,595

Cash and cash equivalents, end of period

$

1,405

$

16,249

Supplemental disclosure of non-cash investing and financing activities:

Accrued asset purchases

$

1,616

$

1,572

Property acquired under capital lease

104

32

Unrealized gain on investments

29

27

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes

$

$

9

Cash paid during the period for interest

293

611

 

Investor Contacts:

David Robson, Chief Financial Officer U.S. Auto Parts Network, Inc. drobson@usautoparts.com (310) 735-0085

Budd Zuckerman, President Genesis Select Corporation bzuckerman@genesisselect.com (303) 415-0200

SOURCE U.S. Auto Parts Network, Inc.



RELATED LINKS

http://www.usautoparts.net