U.S. Auto Parts Network, Inc. Reports Full Year 2007 Results
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- Net sales increased to $161 million for 2007
- Securities litigation preliminarily settled
CARSON, Calif., March 6 -- U.S. Auto Parts Network, Inc. , a leading online provider of automotive aftermarket parts and accessories, today reported financial results for the fourth quarter and year ended December 31, 2007.
Net sales for 2007 were $161.0 million, an increase of 34% from $120.1 million for 2006. The Company entered into a memorandum of understanding on January 30, 2008 pursuant to which it reached a preliminary settlement of its outstanding securities litigation, which settlement is subject to court approval and confirmatory discovery. As a result of this preliminary settlement, the Company recorded a $4.5 million settlement charge in 2007. Inclusive of the securities litigation settlement charge, net loss for the year ended December 31, 2007 was $3.6 million, or $0.13 per diluted share on approximately 28.3 million shares outstanding, compared to net income of $3.5 million, or $0.17 per diluted share on approximately 20.0 million shares outstanding in 2006.
Net sales for the quarter ended December 31, 2007 were $37.3 million, an increase of 1.4% from $36.8 million in the prior year period. Net loss for the fourth quarter of 2007, which is inclusive of the fourth quarter portion of the securities litigation settlement costs of $3.9 million, was $5.5 million, or $0.18 per diluted share, compared to a net loss of $0.02 million, or $0.00 per diluted share for the prior year period. Diluted EPS for the quarters ended December 31, 2007 and 2006 included amortization expense related to intangibles of $2.1 million or $0.07 per diluted share and $2.1 million or $0.9 per diluted share, respectively.
The Company generated adjusted EBITDA of $7.8 million in 2007 compared to $13.3 million in 2006. Adjusted EBITDA excluded share-based compensation expense of $2.2 million in 2007 and $0.9 million in 2006. Results for the full year 2007 included the $4.5 million securities litigation settlement charge and approximately $1.1 million in costs associated with the hiring of a new CEO and severance expense for recent management changes. Adjusted EBITDA is a non-GAAP financial measure. For further information regarding Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to net income (loss), see Non-GAAP Financial Measures below.
Mr. Evangelist noted, "I believe U.S. Auto Parts has a tremendous opportunity to capture a significant share of the existing online auto parts market and the expected future growth. Over the last four months, we have listened to consumers, assessed the competitive landscape and analyzed the supply chain complexities. From these efforts, we have developed a strategy that addresses our near term operational opportunities, and we believe will position U.S. Auto Parts to take advantage of the long-term shift of auto parts buying from brick and mortar retail to online."
4Q 2007 Financial Highlights
-- Net sales for the fourth quarter ended December 31, 2007 were $37.3
million, an increase of 1.4% from $36.8 million in the prior year
period. The sales growth primarily reflected higher website traffic
(unique visitors), offset by a lower conversion rate.
-- Gross profit was $12.7 million or 34% of net sales for the fourth
quarter of 2007 compared to $12.0 million or 33% of net sales for the
fourth quarter of 2006. The year-over-year increase in gross margin
was primarily due to a 1.3% increase in online margins which resulted
from higher prices on certain products, lower product costs from
certain suppliers and lower shipping costs.
-- Marketing expense was $5.8 million or 16% of net sales for the fourth
quarter of 2007 compared to $5.0 million or 14% of net sales for the
prior year period. Marketing costs increased primarily due to a $0.3
million increase in paid search in the first half of the 2007 fourth
quarter. We continue to evaluate our investment in paid search in
order to balance our return on investment in marketing spend with our
ability to drive organic traffic.
-- General and administrative expense was $8.9 million or 24% of net sales
for the fourth quarter of 2007 compared to $2.6 million or 7% of net
sales in the prior year period. G&A expense increased over the same
period in the previous year primarily due to the inclusion of the $3.9
million litigation settlement charge, an increase of $0.7 million in
costs associated with the hiring of a new CEO, an increase of $0.4
million in severance expense related to recent management changes, and
an increase of $0.2 million in share-based compensation expense.
-- Capital expenditures for the fourth quarter of 2007 totaled $1.5
million, including $0.7 million of internally developed software and
website development costs.
-- Cash, cash equivalents and short term investments were $42.0 million at
December 31, 2007.
Michael McClane, Chief Financial Officer, added, "2007 was a year of many accomplishments and learning opportunities that we believe have set the foundation for future successes to build upon. We recruited new leadership focused on execution and improving the consumer experience, attracted a world-class board, completed the Partsbin integration, reduced shareholder uncertainty by resolving the lawsuit and most importantly, architected a plan to drive the business over the next several years. We believe we have a tremendous growth opportunity and we are highly focused on capturing additional market share."
4Q 2007 Operating Metrics
To better manage and measure the business, the Company plans to use a new method to calculate key operating metrics. The new measurement will be based on placed orders instead of the current method of using net orders. The Company is doing this to reduce the impact of returns, out of stock orders, and incomplete payment processing on the key operating metrics. In addition, the Company is adjusting the measurement of monthly unique visitors, which the Company believes will improve consistency and usability.
-- Conversion rate -- The conversion rate in the fourth quarter of 2007
was 1.0% compared to 1.2% during the corresponding period of 2006.
Conversion based on our new measurement criteria remained stable at
1.2% for the third and fourth quarters of 2007.
-- Customer acquisition cost -- The customer acquisition cost in the
fourth quarter of 2007 was $10 per customer, compared to $9 during the
corresponding period of 2006. The increase in customer acquisition
cost was primarily due to increased paid search costs in the current
quarter. Customer acquisition cost based on our new measurement
criteria was $8 per customer for the fourth quarter of 2007, compared
to $5 for the third quarter of 2007.
-- Unique visitors -- The number of monthly unique visitors in the fourth
quarter of 2007 rose to 24 million, an increase of 20% compared to the
fourth quarter of 2006. The increase primarily reflects increases in
both paid and organic search. Unique visitors based on our new
measurement criteria were 25 million for the fourth quarter of 2007,
compared to 24 million for the third quarter of 2007.
-- Orders -- The number of orders placed through our e-commerce websites
was approximately 238,000 orders in the fourth quarter of 2007 compared
to 241,000 in the corresponding period of 2006. The decrease in orders
was primarily a result of a decrease in conversion rate. E-commerce
orders based on our new measurement criteria were 293,000 for the
fourth quarter of 2007, compared to 297,000 for the third quarter of
2007.
-- Average order value -- The average order value of purchases on our
websites was $118 during the fourth quarter of 2007, down from $119
during the corresponding period of 2006. The reduction in average
order value was primarily the result of lower sales volume of higher
value products, in addition to promotional discounts offered in the
fourth quarter of 2007. Average order value based on our new
measurement criteria was $125 for the fourth quarter of 2007, compared
to $127 for the third quarter of 2007.
Outlook for 2008
The Company is updating its preliminary guidance for full year 2008 as follows:
Guidance for the quarter ended March 31, 2008 is as follows:
-- Net sales are expected to be in the range of approximately $38 million
to $40 million.
-- Adjusted EBITDA is expected to be in the range of approximately $1.6
million to $2.1 million.
For the year ended December 31, 2008, the Company expects revenues on a year-over-year basis to decline in the first half of 2008 versus the prior year period and increase in the second half of 2008 versus the prior year period as the Company's 2008 operational strategy takes hold.
Commenting on the Company's guidance policy, Mr. Evangelist stated, "As we are in the early stages of implementing our 2008 operational strategy, we will not be providing full year 2008 guidance. However, we have identified opportunities that upon full execution, could contribute approximately $45 million in incremental sales, which on an annualized basis should approach $200 million in sales in the next few years. We believe that the operating leverage inherent in the model can allow us to achieve a 10% Adjusted EBITDA margin on that level of revenue. We believe we have identified, and are focused on, the right opportunities for operational improvement and while we cannot commit to a specific time table around completion, we believe that we are moving in the right direction to achieve our strategic and financial goals."
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 expense, net; (b) income tax provision; (c) amortization of intangibles; (d) depreciation and amortization; and (e) share-based compensation expense related to stock option grants and other equity instruments.
The Company believes this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measure reflects 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 measurement of the Company's operating performance because it assists in comparisons of 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.
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 income (loss) to Adjusted EBITDA for the periods presented:
Three Months Ended Years Ended
December 31, December 31,
2006 2007* 2006 2007*
Net income (loss) $(22) $(5,498) $3,496 ($3,597)
Interest (income) expense, net 560 (483) 1,510 (1,137)
Income tax provision (benefit) 23 (771) 550 538
Amortization of intangibles 2,055 2,099 5,092 8,350
Depreciation and amortization 245 599 1,786 1,469
EBITDA 2,861 (4,054) 12,434 5,623
Share-based compensation 349 612 856 2,174
Adjusted EBITDA $3,210 $(3,442) $13,290 $7,797
* Includes $3.9 million and $4.5 million in charges recorded in the fourth
quarter of 2007 and the full year 2007, respectively, resulting from the
Company's preliminary agreement to settle the shareholder litigation.
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 http://www.partstrain.com/ and http://www.autopartswarehouse.com/ and the Company's corporate website is located at http://www.usautoparts.net/.
U.S. Auto Parts is headquartered in Carson, California.
US Auto Parts(R), Auto Parts Train(TM), PartsTrain(TM), Partsbin(TM), Kool-Vue(TM) and Auto-Vend(TM) are among the trademarks of U.S. Auto Parts. All other trademarks and trade names mentioned are the property of their respective owners.
U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
2006 2007
Assets
Current assets:
Cash and cash equivalents $1,183 $19,399
Marketable securities -- 22,650
Accounts receivable, net 2,789 2,907
Inventory, net 8,796 11,191
Deferred income taxes 934 831
Prepaid expenses and other current assets 1,149 1,808
Total current assets 14,851 58,786
Property and equipment, net 2,716 6,945
Intangible assets, net 33,362 26,444
Goodwill 14,179 14,201
Deferred income taxes 1,703 3,562
Other noncurrent assets 1,901 118
Total assets $68,712 $110,056
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $7,893 $8,103
Accrued expenses 2,912 7,822
Line of credit 2,000 --
Notes payable 10,805 1,000
Capital leases payable, current portion 62 73
Other current liabilities 2,392 1,367
Total current liabilities 26,064 18,365
Notes payable less current portion, net 21,922 --
Capital leases payable, less current portion 114 48
Total liabilities 48,100 18,413
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, par
value $0.001; 11,100,000 and 10,000,000
shares authorized as of December 31, 2006
and 2007, respectively; 11,055,425 and no
shares issued and outstanding as of December 31,
2006 and 2007, respectively (liquidation
preference of $45,000 at December 31, 2006); 11 --
Common stock, par value $0.001; 50,000,000
and 100,000,000 shares authorized as of
December 31, 2006 and 2007, respectively;
15,199,672 and 29,846,757 issued and
outstanding as of December 31, 2006 and
December 31, 2007, respectively 15 30
Additional paid-in capital 68,906 143,223
Accumulated other comprehensive income 5 312
Accumulated Deficit (48,325) (51,922)
Total stockholders' equity 20,612 91,643
Total liabilities and stockholders'
equity $68,712 $110,056
U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
Three Months Ended Year Ended
December 31, December 31,
2006 2007 2006 2007
Net sales $36,765 $37,315 $120,060 $160,957
Cost of sales 24,794 24,635 78,573 107,132
Gross profit 11,971 12,680 41,487 53,825
Operating expenses:
General and
administrative 2,581 8,872 9,594 18,587
Marketing 4,968 5,813 15,102 21,551
Fulfillment 1,374 2,058 4,963 7,557
Technology 434 593 1,332 1,987
Amortization of
intangibles 2,055 2,099 5,092 8,350
Total operating
expenses 11,412 19,435 36,083 58,032
Income (loss) from
operations 559 (6,755) 5,404 (4,207)
Other income (expense):
Loss from disposition of
assets -- -- (5) --
Other income 2 3 157 11
Interest income 13 561 95 1,677
Interest expense (573) (78) (1,605) (540)
Total other
income (expense),
net (558) 486 (1,358) 1,148
Income (loss) before
income taxes 1 (6,269) 4,046 (3,059)
Income tax provision
(benefit) 23 (771) 550 538
Net income (loss. $(22) $(5,498) $3,496 $(3,597)
Basic net income (loss)
per share $0.00 $(0.18) $0.24 $(0.13)
Diluted net income
(loss) per share $0.00 $(0.18) $0.17 $(0.13)
Shares used in
computation of
basic net (loss)
income per share 15,199,672 29,846,757 14,437,657 28,274,022
Shares used in
computation of
diluted net income
(loss) per share 21,976,510 29,846,757 19,990,431 28,274,022
The Consolidated Statements of Income above includes share-based compensation expense related to option grants, as follows:
Three Months Ended Year Ended
December 31, December 31,
2006 2007 2006 2007
General and administrative
expense $246 $450 $582 $1,645
Marketing expense 64 111 171 359
Fulfillment expense 9 32 25 103
Technology expense 30 19 78 67
Total share-based
compensation expense $612 $349 $856 $2,174
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