U.S. Auto Parts Network, Inc. Reports Third Quarter Results

• Net sales $72.3 million
• Adjusted EBITDA $2.2 million
• Gross margin 33.2%.

CARSON, CA - November 9, 2010: U.S. Auto Parts Network, Inc., an online providers of automotive aftermarket parts and accessories, today reported net sales for the third quarter ended October 2, 2010 of $72.3 million compared with Q3 2009 net sales of $47.0 million. Excluding $13.6 million of revenues from the acquisition of J.C. Whitney, net sales were $58.7 million, an increase of 25% over Q3 2009 net sales. Q3 2010 net loss was $13.0 million or $0.43 per share, compared with Q3 2009 net income of $0.8 million or $0.03 per diluted share.

Q3 2010's net loss includes a valuation allowance for deferred tax assets of $11.4 million or $0.38 per share and a net loss of $2.9 million or $0.10 per diluted share related to J.C. Whitney of which $1.6 million of the loss net of tax was attributable to restructuring and acquisition expenses. Q3 2010 net loss also includes $0.3 million net of tax for legal fees associated with intellectual property litigation compared with $0.2 million net of tax for Q3 2009. The Company generated Adjusted EBITDA of $2.2 million for the quarter compared to $3.6 million for Q3 2009. Excluding J.C. Whitney's Adjusted EBITDA loss of $0.1 million and related $1.6 million of restructuring and acquisition expenses as well as $0.3 million of legal fees to protect intellectual property, Adjusted EBITDA was $4.2 million, an increase of 14% over Q3 2009. For further information regarding Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to net income (loss), see non-GAAP Financial Measures below.

"Q3 2010 marks the fifth consecutive quarter where we delivered 25% or greater sales growth and double-digit Adjusted EBITDA growth" stated Shane Evangelist, Chief Executive Officer. "We continue to be very excited about our acquisition of JC Whitney including their strong brands, their customer reach in the accessories market and their product-lines that can be extended across our sites. We have been maniacally focused on accelerating Whitney's integration onto our platform so that our skills at driving traffic, increasing selection and maximizing supply chain efficiency can be deployed. The first Whitney URL, Carparts.com (www.carparts.com), was ported over to our IT backbone at the end of October and we plan to methodically transition the remaining Whitney sites by the end of Q2 2011."

Q3 2010 Financial Highlights

• Net sales for Q3 2010 increased by 53.8% from Q3 2009. Excluding the acquisition of JC Whitney, Q3 2010 net sales increased 24.9% due to a 23.9% increase in online sales and a 38.1% increase in offline sales. The increase in online sales resulted from a 12.6% improvement in conversion, 8.5% growth in unique visitors and a 2.7% increase in revenue capture, partially offset by a 1.7% decline in average order value.


• Gross profit for Q3 2010 increased 42.0% from Q3 2009. Excluding the acquisition of JC Whitney, gross profit was $19.2 million, an increase of 13.6%. Gross margin declined 2.7% to 33.2% of net sales compared with Q3. Excluding the acquisition of JC Whitney, gross margin was 32.7%. Gross margin was unfavorably impacted by increased freight expense of 1.2%, a discontinuation of high margin loyalty programs of 0.8% and 1.0% from a mix shift from body to engine parts.


• Online advertising expense, which includes catalog costs was $5.5 million or 8.2% of Internet and catalog net sales for the third quarter of 2010. Excluding JC Whitney, online advertising expense was 7.3% of Internet net sales, down 0.1% from the prior year due to more efficient marketing spend. Marketing expense, excluding advertising expense, was $5.6 million or 7.7% of net sales for the third quarter of 2010 compared to 6.6% in the prior year period. Excluding JC Whitney, marketing expense without advertising was $4.1 million or 7.0% of Q3 2010 net sales, up 0.4% from the prior year. The increase is primarily due to higher amortization from software deployments this year and additional marketing services.


• General and administrative expense was $8.2 million or 11.3% of net sales for the third quarter of 2010 which includes $1.6 million of integration expenses for Whitney. Excluding the acquisition of JC Whitney, Q3 2010 G&A expense was $5.6 million or 9.5% of net sales, down 1.4% from Q3 2009. This decrease reflects fixed cost leverage from higher sales.


• Fulfillment expense was $4.1 million or 5.7% of net sales in the third quarter of 2010. Excluding the acquisition of JC Whitney, Q3 2010 fulfillment expense was 5.8% of net sales, down from 6.2% last year. The decrease is primarily due to fixed cost leverage from higher sales.


• Technology expense was $1.7 million or 2.3% of net sales in the third quarter of 2010. Excluding the acquisition of JC Whitney, technology expense for Q3 2010 was 1.9% of net sales, down 0.4% reflecting fixed cost leverage from increased sales.


• Capital expenditures, inclusive of non-cash accrued asset purchases and property acquired under capital leases for the third quarter of 2010 were $3.8 million, of which $0.6 million consisted of JC Whitney expenditures. Included in capital expenditures were $1.8 million of internally developed software and website development costs.

Cash, cash equivalents and investments were $30.1 million and debt was $25.0 million at October 2, 2010. The Company includes $4.1 million of auction rate preferred securities in long-term assets, in investments. Cash, cash equivalents and investments decreased by $14.2 million over the previous quarter from $12.6 million of JC Whitney related expenditures including $4.8 million net cash paid for the acquisition, $5.8 million pay down of stale accounts payable, $0.9 million for integration expenses, investments in capital expenditures of $0.6 million and $0.5 million in inventory. The remaining $1.6 million resulted primarily from an inventory build of high margin private label body and engine parts to reduce out-of-stocks.