U.S. Auto Parts Network, Inc. Reports Second Quarter Results
- Net sales $53.2 million. - Adjusted EBITDA $3.3 million. - Gross margin 34.6%.
CARSON, Calif., Aug. 2 -- U.S. Auto Parts Network, Inc. , one of the largest online providers of automotive aftermarket parts and accessories, today reported net sales for the second quarter ended July 3, 2010 of $53.2 million compared with Q2 2009 net sales of $43.8 million. Excluding the impact of a $2.0 million non-cash reduction of reported sales related to a change in the Company's revenue recognition resulting from a change in freight contract terms, net sales were $55.2 million, an increase of 26.0% over Q2 2009 net sales. Q2 2010 net income was $0.5 million or $0.01 per diluted share, a decrease of $0.1 million over Q2 2009. Q2 2010 net income includes $0.8 million net of tax or $0.03 per diluted share of legal fees associated with intellectual property litigation and $0.3 million net of tax or $0.01 per diluted share related to a change in the Company's revenue recognition resulting from a change in freight contract terms. The Company generated adjusted EBITDA of $3.3 million for the quarter compared to $3.2 million for Q2 2009. Excluding $1.2 million of legal fees to protect intellectual property and $0.4 million related to a change in revenue recognition resulting from a change in freight contract terms, adjusted EBITDA was $5.0 million, an increase of 58%. For further information regarding adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income (loss), see non-GAAP Financial Measures below.
"Q2 completes a full year of double digit growth in both sales and EBITDA," stated Shane Evangelist, Chief Executive Officer. "As I mentioned in our first quarter call, sales began accelerating in June of 2009 and we would face tough year over year comparisons starting in June 2010. Despite these tougher comps, I am happy to report that year over year Internet sales for June 2010 rose 18% on top of June 2009's 19% growth and July 2010 sales grew 23% on top of July 2009's 24% growth." Evangelist continued, "Our AutoMD.com (www.AutoMD.com) initiative continues to gain acceptance and recognition. AutoMD recently won a Stevie Award as the best auto repair site on the Web. Traffic is about 300,000 unique monthly visitors.
"Looking forward, we expect both the DIY market and Internet penetration of the auto parts market to continue to grow. Historically, the first half of the year outpaced the second half of the year by about 10% driven by seasonal demand for crash parts; however, based on our focus on engine part sales, which typically over-index in the second half, we now believe, based on sales data from June and July that our revenues for the second half of the year will not experience the pronounced decline from the first half of the year as in years past."
Q2 2010 Financial Highlights
-- Net sales for Q2 2010, excluding the change in the Company's revenue
recognition, increased by 26.0% from Q2 2009. Online sales for Q2 2010
increased 25.6% and offline sales increased by 37.2% compared to Q2
2009. The increase in online sales resulted from a 17.0% improvement
in conversion, 3.3% growth in unique visitors and a 4.2% increase in
revenue capture.
-- Gross profit for Q2 2010, excluding the change in the Company's
revenue recognition, was $18.9 million, up 18.9% from Q2 2009's gross
profit of $15.9 million. Gross margin, excluding the change in the
Company's revenue recognition, declined 1.9% to 34.3% compared with Q2
2009 at 36.2% of net sales. Gross margin was unfavorably impacted by
increased freight expense related to fuel surcharges and a
discontinuation of high margin loyalty programs.
-- Online advertising expense was $3.2 million or 6.3% of internet net
sales for the second quarter of 2010, down 0.7% from the prior year
due to more efficient advertising spend. Marketing expense, excluding
advertising expense, was $4.0 million or 7.2% of net sales for the
second quarter of 2010 excluding the change in the Company's revenue
recognition compared to 6.6% in the prior year period. The increase
is primarily due to higher amortization from software deployments this
year and additional marketing services.
-- General and administrative expense was $6.4 million or 11.6% of net
sales for the second quarter of 2010 excluding the change in the
Company's revenue recognition compared to 11.0% of net sales in the
prior year period. This increase was primarily due to higher legal
costs to enforce our intellectual property rights.
-- Fulfillment expense was $2.9 million or 5.3% of net sales in the
second quarter of 2010 excluding the change in the Company's revenue
recognition compared to 6.4% in the prior year period. The decrease
is primarily due to fixed cost leverage from higher sales.
-- Technology expense was $1.2 million or 2.2% of net sales in the second
quarter of 2010 excluding the change in the Company's revenue
recognition compared to 3.0% of net sales in the prior year period.
The decrease reflects fixed cost leverage from increased sales.
-- Capital expenditures, inclusive of non-cash accrued asset purchases
for the second quarter of 2010 were $3.0 million which included $1.8
million of internally developed software and website development
costs.
-- Cash, cash equivalents and investments were $44.3 million at July 3,
2010. The Company includes $25.0 million of investments in liquid
short term assets and $4.2 million in auction rate preferred
securities in long-term assets, which are not included in cash. Cash,
cash equivalents and investments decreased by $1.2 million over the
previous quarter from $2.0 million in operating cash flow, partially
offset by $3.3 million of cash spent on capital expenditures.
Q2 2010 Operating Metrics
Q2 Q2 Q1
2010 2009 2010
Conversion Rate 1.58% 1.35% 1.48%
--------------- ---- ---- ----
Customer Acquisition Cost $5.93 $6.65 $6.13
------------------------- ----- ----- -----
Marketing Spend (% Internet
Sales) 6.3% 7.0% 6.4%
--------------------------- --- --- ---
Visitors (millions)1 27.8 26.9 28.6
-------------------- ---- ---- ----
Orders (thousands) 440 363 423
------------------ --- --- ---
Revenue Capture (% Sales)2 83.9% 80.5% 84.1%
-------------------------- ---- ---- ----
Average Order Value $120 $121 $119
------------------- ---- ---- ----
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; and (e) share-based compensation expense related to stock options.
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 income (loss) to adjusted EBITDA for the periods presented (in thousands):
Twenty- Twenty-
Thirteen Thirteen Six Six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
----- ----- ----- -----
July 3, July 4, July 3, July 4,
------- ------- ------- -------
2010 2009 2010 2009
Net income (loss) $462 $629 $2,009 $(50)
Interest income,
net (34) (49) (55) (140)
Income tax
provision 225 469 1,175 1,832
Amortization of
intangibles 124 153 245 520
Depreciation and
amortization 1,950 1,134 3,934 2,153
----- ----- ----- -----
EBITDA 2,727 2,336 7,308 4,315
Share-based
compensation 612 820 1,472 1,847
--- --- ----- -----
Adjusted EBITDA $3,339 $3,156 $8,780 $6,162
====== ====== ====== ======
Conference Call
As previously announced, the Company will conduct a conference call with analysts and investors to discuss the results today, Monday, at 2:00 pm Pacific Time (5:00 pm Eastern Time). The conference call will be conducted by Shane Evangelist, Chief Executive Officer and Ted Sanders, Chief Financial Officer. Participants may access the call by dialing 1-877-941-8418 (domestic) or 1-480-629-9809 (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 16, 2010. To access the replay, please dial 1-877-870-5176 (domestic) or 1-858-384-5517 (international), passcode 4340251.To view the press release or the financial or other statistical information required by SEC Regulation G, please visit the Investor Relations section of the U.S. Auto Parts website at investor.usautoparts.net.
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.partstrain.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, 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; any changes in the search algorithms by leading Internet search companies; the Company's need to assess impairment of intangible assets and goodwill; and the Company's ability to comply with Section 404 of the Sarbanes-Oxley Act and maintain an adequate system of internal controls; 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
July 3, January 2,
2010 2010
-------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $15,197 $26,251
Short-term investments 24,983 11,071
Accounts receivable, net 2,581 3,383
Inventory 26,536 18,610
Deferred income taxes 1,513 1,513
Other current assets 4,013 3,148
----- -----
Total current assets 74,823 63,976
Property and equipment, net 14,920 12,405
Intangible assets, net 3,870 3,114
Goodwill 9,772 9,772
Deferred income taxes 10,065 10,985
Investments 4,165 4,264
Other non-current assets 435 98
Total assets $118,050 $104,614
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $17,173 $11,371
Accrued expenses 9,623 8,038
Other current liabilities 3,736 2,518
----- -----
Total current liabilities 30,532 21,927
Non-current liabilities 317 -
Total liabilities, commitments and
contingencies 30,849 21,927
Stockholders' equity:
Common stock, $0.001 par value;
100,000,000 shares 30 30
authorized at July 3, 2010 and January
02, 2010;
30,336,020 and 29,893,631 shares issued
and
outstanding as of July 3, 2010 and
January 2, 2010
respectively
Additional paid-in capital 152,510 150,084
Accumulated other comprehensive income 163 84
Accumulated deficit (65,502) (67,511)
Total stockholders' equity 87,201 82,687
Total liabilities and stockholders'
equity $118,050 $104,614
======== ========
U.S. AUTO PARTS NETWORK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Thirteen Thirteen Twenty- Twenty-
Weeks Weeks Six Six
Weeks Weeks
Ended Ended Ended Ended
July 3, July 4, July 3, July 4,
------- ------- ------- -------
2010 2009 2010 2009
---- ---- ---- ----
Net sales $53,188 $43,805 $109,479 $83,469
Cost of sales 34,791 27,937 71,275 52,961
---- ---- ---- ----
Gross profit 18,397 15,868 38,204 30,508
Operating
expenses:
Marketing (1) 7,138 5,680 14,351 11,015
General and
administrative
(1) 6,395 4,811 12,132 9,576
Fulfillment
(1) 2,924 2,809 6,167 5,461
Technology (1) 1,158 1,343 2,176 2,271
Amortization
of
intangibles
and
impairment
loss 124 153 245 520
--- --- --- ---
Total
operating
expenses 17,739 14,796 35,071 28,843
Income from
operations 658 1,072 3,133 1,665
Other income:
Other income
(loss) (5) (23) (4) (23)
Interest
income, net 34 49 55 140
--- --- --- ---
Other income,
net 29 26 51 117
Income before
income taxes 687 1,098 3,184 1,782
Income tax
provision 225 469 1,175 1,832
Net income
(loss) $462 $629 $2,009 $(50)
==== ==== ====== ====
Basic net
income (loss)
per share $0.02 $0.02 $0.07 $(0.00)
Diluted net
income (loss)
per share $0.01 $0.02 $0.06 $(0.00)
Shares used in
computation
of basic net
income (loss)
per share 30,314,478 29,846,757 30,158,797 29,846,757
Shares used in
computation
of diluted
net income
(loss) per
share 31,994,447 30,395,189 31,723,316 29,846,757
--------------------------
Thirteen Thirteen
Weeks Weeks Twenty-Six Twenty-Six
Weeks Weeks
Ended Ended Ended Ended
July 3, July 4, July 3, July 4,
------- ------- ------- -------
(1) Includes share-
based compensation
expense as follows: 2010 2009 2010 2009
---- ---- ---- ----
Marketing $72 $110 $192 $216
General and
administrative 452 495 1,000 1,317
Fulfillment 64 57 189 104
Technology 24 158 91 210
--- --- --- ---
Total share-based
compensation
expense $612 $820 $1,472 $1,847
==== ==== ====== ======
U.S. AUTO PARTS NETWORK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Twenty-
Six Weeks Twenty-Six
Ended Weeks Ended
July 3,
2010 July 4, 2009
-------- ------------
Operating activities
Net income/(loss) $2,009 $(50)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,934 2,153
Amortization of intangibles 245 520
Share-based compensation expense 1,472 1,847
Excess tax benefits from share-based
payment arrangements (237) -
Deferred taxes 790 1,731
Changes in cash surrender value of
company-owned life insurance 25 -
Loss from disposition of assets 6 -
Changes in operating assets and
liabilities:
Accounts receivable, net 800 (511)
Inventory (7,926) (1,274)
Other current assets (869) (1,044)
Other non current assets (115) -
Accounts payable and accrued expenses 7,646 3,267
Other current liabilities 1,219 925
Other non current liabilities 318 -
- -
Net cash provided by operating
activities 9,317 7,564
Investing activities
Additions to property and equipment (6,298) (3,862)
Proceeds from the sale of investments 4,237 475
Purchases of investments (17,984) (4,096)
Purchases of company-owned life
insurance (250) -
Purchases of intangible assets (1,001) -
Net cash used in investing activities (21,296) (7,483)
Financing activities
Payments on short-term financing - (39)
Proceeds from exercise of stock
options 658 -
Excess tax benefits from share-based
payment arrangements 237 -
--- ---
Net cash provided by (used in)
financing activities 895 (39)
--- ---
Effect of changes in foreign
currencies 30 82
Net (decrease) increase in cash and
cash equivalents (11,054) 124
Cash and cash equivalents at
beginning of period 26,251 32,473
------ ------
Cash and cash equivalents at end of
period $15,197 $32,597
======= =======
Supplemental disclosure of non-cash
investing activities:
Accrued asset purchases 571 75
Cash paid during the period for
income taxes 87 -
Investor Contacts:
Ted Sanders, Chief Financial Officer
U.S. Auto Parts Network, Inc.
tsanders@usautoparts.com
(310) 735-0085
Budd Zuckerman, President
Genesis Select Corporation
bzuckerman@genesisselect.com
(303) 415-0200