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

• Net sales decreased $5.6 million, or 7.1%, for Q3 2012 compared to Q3 2011. Our Q3 2012 net sales consisted of online sales, representing 90.8% of the total (compared to 94.0% in Q3 2011), and offline sales, representing 9.2% of the total (compared to 6.0% in Q3 2011). The net sales decrease was primarily due to a decline of $7.6 million, or 10.2%, in online sales, partially offset by a $2.0 million, or 42.0%, increase in offline sales.  Online sales decreased primarily due to a 9.5% reduction in e-commerce unique visitors and a decline in average order value by 5.4%, partially offset by an increase of 2.8% in revenue capture (revenues retained after taking into consideration returns, credit card declines and product fulfillment). Our offline sales, which consist of our Kool-Vue™ and wholesale operations, continued to show solid growth.

• Gross profit decreased $1.5 million, or 6.0%, in Q3 2012 compared to Q3 2011. Gross margin rate increased 0.4% to 31.4% in Q3 2012 compared to 31.0% in Q3 2011. Gross margin increased in Q3 2012 primarily due to improved margin from online sales.

• Marketing expense was $12.9 million, or 17.7%, of net sales in Q3 2012, down from $14.0 million, or 17.8%, of net sales in Q3 2011. Online advertising expense, which includes catalog costs, was $5.0 million, or 7.5%, of online sales for Q3 2012, compared to $7.0 million, or 9.5%, of online sales for Q3 2011. Marketing expense, excluding online advertising, was $7.9 million, or 10.9%, of net sales for Q3 2012, compared to $7.0 million, or 8.9%, of net sales for Q3 2011. Online advertising expense decreased primarily due to reduction of catalog advertising costs of $0.9 million and non-catalog online advertising expenses of $1.1 million. Marketing expenses, excluding online advertising, increased primarily due to higher depreciation and amortization expense related to software deployments. 

• General and administrative expense was $4.9 million, or 6.7%, of net sales for Q3 2012, down from $9.1 million, or 11.6%, of net sales for Q3 2011. The decrease of $4.2 million, or 45.8%, for Q3 2012 compared to Q3 2011, was primarily due to WAG restructuring costs of $3.8 million in Q3 2011 compared to none in Q3 2012 and lower depreciation and amortization expense in Q3 2012.

• Fulfillment expense was $5.7 million, or 7.8%, of net sales in Q3 2012, up from $4.4 million, or 5.7%, of net sales in Q3 2011. The increase of $1.2 million, or 27.8%, for Q3 2012 compared to Q3 2011, was primarily due to higher depreciation and amortization expense from software deployments.

• Technology expense was $1.6 million, or 2.2%, of net sales in Q3 2012, down from $1.7 million, or 2.1%, of net sales in Q3 2011.

• Capital expenditures for Q3 2012 were $2.5 million.

• Cash and cash equivalents and investments were $1.2 million and total debt was $17.3 million as of September 29, 2012 compared to $1.5 million and $13.1 million as of June 30, 2012.

Q3 2012

Q3 2011

Q2 2012

Conversion Rate

1.50%

1.57%

1.62%

Customer Acquisition Cost

$

7.74

$

9.70

$

7.10

Marketing Spend (% Internet Sales)

7.7%

9.7%

7.7 %

Visitors (millions) ¹

38.1

42.1

39.2

Orders (thousands)

573

662

635

Revenue Capture (% Sales) ²

83.9%

81.2%

84.4%

Average Order Value

$

115

$

122

$

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.

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 29

October 1

September 29

October 1

2012

2011

2012

2011

Net loss 

$           (2,711)

$           (5,308)

$           (5,195)

$           (8,118)

Interest expense, net

118

283

500

719

Income tax provision 

41

2

293

215

Amortization of intangible assets

331

338

1,012

3,328

Depreciation and amortization expense

3,785

3,126

11,533

9,202

EBITDA

1,564

(1,559)

8,143

5,346

Share-based compensation expense

450

623

1,408

1,946

Loss on debt extinguishment

-

-

360

-

Legal costs to enforce intellectual property rights

-

211

-

443

Restructuring costs

640

3,816

640

6,591

Adjusted EBITDA

$             2,654

$             3,091

$           10,551

$           14,326

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

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

September 29

December 31

2012

2011

(Unaudited)

ASSETS

Current assets:

    Cash and cash equivalents

$           1,076

$        10,335

    Short-term investments

99

1,125

    Accounts receivable, net of allowances of $231 and $183 

       at September 29, 2012 and December 31, 2011, respectively

8,583

7,922

    Inventory

48,658

52,245

    Deferred income taxes

446

446

    Other current assets

4,370

3,548

       Total current assets

63,232

75,621

Property and equipment, net

32,191

34,627

Intangible assets, net

8,997

9,984

Goodwill

18,854

18,854

Investments

-

2,104

Other non-current assets

1,358

1,026

       Total assets

$       124,632

$      142,216

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

    Accounts payable

$         32,994

$        41,303

    Accrued expenses

8,674

11,565

    Revolving loan payable

17,126

-

    Current portion of long-term debt

-

6,250

    Current portion of capital leases payable

84

135

    Other current liabilities

4,044

7,702

       Total current liabilities

62,922

66,955

Long-term debt, net of current portion

-

11,625

Capital leases payable, net of current portion 

89

37

Deferred income taxes

1,970

1,596

Other non-current liabilities

1,551

1,079

       Total liabilities

66,532

81,292

Commitments and contingencies

Stockholders' equity:

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

       31,125 shares and 30,626 shares issued and outstanding 

       at September 29, 2012 and December 31, 2011, respectively

31

31

    Additional paid-in capital

159,446

157,140

    Accumulated other comprehensive income

392

327

    Accumulated deficit

(101,769)

(96,574)

       Total stockholders' equity

58,100

60,924

       Total liabilities and equity

$       124,632

$      142,216

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share data)

(Unaudited)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 29

October 1

September 29

October 1

2012

2011

2012

2011

Net sales

$           73,014

$           78,593

$         241,169

$         249,839

Cost of sales ⁽¹⁾

50,121

54,248

167,307

166,664

Gross profit

22,893

24,345

73,862

83,175

Operating expenses:

    Marketing

12,909

14,002

39,337

41,953

    General and administrative

4,926

9,096

15,510

25,739

    Fulfillment

5,685

4,449

17,242

14,048

    Technology

1,590

1,676

4,826

5,531

    Amortization of intangible assets

331

338

1,012

3,328

        Total operating expenses

25,441

29,561

77,927

90,599

Loss from operations

(2,548)

(5,216)

(4,065)

(7,424)

Other (expense) income :

    Other (expense) income, net

(1)

201

34

279

    Interest expense

(121)

(291)

(511)

(758)

    Loss on debt extinguishment

-

-

(360)

-

        Total other expense, net

(122)

(90)

(837)

(479)

Loss before income tax provision

(2,670)

(5,306)

(4,902)

(7,903)

Income tax provision 

41

2

293

215

Net loss 

(2,711)

(5,308)

(5,195)

(8,118)

Other comprehensive income (loss), net of tax:

    Foreign currency translation adjustments

11

(18)

35

15

    Unrealized gains on investments 

1

34

30

61

        Total other comprehensive income

12

16

65

76

Comprehensive loss

$           (2,699)

$           (5,292)

$           (5,130)

$           (8,042)

Basic and diluted net loss per share

$             (0.09)

$             (0.17)

$             (0.17)

$             (0.27)

Shares used in computation of basic and 

    diluted net loss per share

30,854

30,571

30,716

30,522

⁽¹⁾Excludes depreciation and amortization expense which is included in marketing, general and administrative and fulfillment expense. 

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Thirty-Nine Weeks Ended

September 29

October 1

2012

2011

Cash flows from operating activities:

     Net loss

$           (5,195)

$           (8,118)

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

             operating activities:

          Depreciation and amortization

11,533

9,202

          Amortization of intangible assets

1,012

3,328

          Deferred income taxes

374

187

          Share-based compensation

1,408

1,946

          Stock awards issued for non-employee director service

43

-

          Amortization of deferred financing costs

69

95

          Loss on debt extinguishment

360

-

          Loss from disposition of assets

4

-

          Changes in operating assets and liabilities

                   Accounts receivable

(661)

(3,466)

                   Inventory

3,588

2,383

                   Other current assets

(881)

(105)

                   Accounts payable and accrued expenses

(12,138)

2,725

                   Other current liabilities

(3,659)

1,940

                   Other non-current liabilities

446

283

                           Net cash (used in) provided by operating activities

(3,697)

10,400

Cash flows from investing activities:

     Additions to property and equipment

(7,853)

(11,140)

     Proceeds from sale of property and equipment

14

-

     Cash paid for intangible assets

(16)

(63)

     Proceeds from sale of marketable securities and investments

3,171

2,100

     Purchases of marketable securities and investments

(8)

(55)

     Change in restricted cash

-

319

     Purchases of company-owned life insurance

(166)

(281)

     Proceeds from purchase price adjustment

-

787

                           Net cash used in investing activities

(4,858)

(8,333)

Cash flows from financing activities:

     Proceeds from revolving loan payable

23,061

-

     Payments made on revolving loan payable

(5,935)

-

     Payment of debt extinguishment costs

(175)

-

     Payments made on long-term debt

(17,875)

(4,562)

     Payments of debt financing costs

(359)

(53)

     Payments on capital leases

(104)

(122)

     Proceeds from exercise of stock options

663

324

     Other

-

(85)

                           Net cash used in financing activities

(724)

(4,498)

Effect of exchange rate changes on cash and cash equivalents

20

(13)

Net change in cash and cash equivalents

(9,259)

(2,444)

Cash and cash equivalents, beginning of period

10,335

17,595

Cash and cash equivalents, end of period

$             1,076

$           15,151

Supplemental disclosures of non-cash investing and financing activities:

     Accrued asset purchases

$             2,164

$             1,191

     Property acquired under capital lease

104

32

     Unrealized gain on investments

30

58

Supplemental disclosures of consolidated cash flow information:

     Cash paid for income taxes

17

9

     Cash paid for interest

293

853