U.S. Auto Parts Reports Second Quarter 2017 Results
CARSON, Calif., Aug. 10, 2017 /PRNewswire/ -- U.S. Auto Parts Network, Inc. (NASDAQ: PRTS), one of the largest online providers of aftermarket automotive parts and accessories, reported results for the second quarter ended July 1, 2017. All information and data are from continuing operations, which exclude the AutoMD operating segment unless specifically noted.
Second Quarter 2017 Financial Summary vs. Year-Ago Quarter
-- Net sales increased 3% to $80.2 million compared to $78.0 million.
-- Gross margin was 29.0% compared to 30.4%.
-- Net income was $26.9 million, or $0.67 per diluted share, compared to
$1.2 million or $0.03 per diluted share.
-- Adjusted EBITDA (a non-GAAP measure defined below) was $3.8 million
compared to $4.0 million.
-- Ended the quarter with no revolver debt.
Second Quarter 2017 Operational Highlights vs. Year-Ago Quarter
-- Total online orders increased by 11% to 954,000 orders.
-- Conversion rate increased 20 basis points to 2.0%.
-- Customer acquisition cost reduced by 7% to $6.99.
Management Commentary
"Our second quarter was highlighted by the return to double-digit growth in our private label business, largely driven by a 37% increase in online marketplace sales," said Aaron Coleman, CEO of U.S. Auto Parts. "Despite lower sales in our e-commerce channel, we still increased overall sales and grew total online orders by 11%, while improving conversion and reducing customer acquisition cost.
"We are continuing to experience a shift in channel mix this year, with our lower-margin online marketplace channel gaining momentum and our e-commerce channel experiencing lower traffic. We are addressing these channel dynamics with various initiatives, including a new e-commerce traffic optimization strategy and prudent cost management across the entire organization, which is further reflected by the 130 basis point reduction of operating expenses.
"Looking ahead to the remainder of 2017, we expect the deployment of these initiatives to help drive improved results as we exit the year. But regardless of the sales channel, we plan to continue capitalizing on industry tailwinds as more and more consumers shop online for auto parts, be it through third-party sites like Amazon and eBay, or our e-commerce sites."
Second Quarter 2017 Financial Results
Net sales in the second quarter of 2017 increased 3% to $80.2 million compared to $78.0 million in the year-ago quarter. The increase was largely driven by a 37% increase in online marketplace sales to $28.3 million, partially offset by a 13% decrease in e-commerce sales.
Gross profit in the second quarter of 2017 was $23.2 million compared to $23.7 million in the year-ago quarter. As a percentage of net sales, gross profit was 29.0% compared to 30.4% in the year ago quarter. The decrease in gross margin was primarily driven by lower-margin channel mix and higher freight costs. The company continues to expect gross margin to range between 29-30% going forward.
Total operating expenses in the second quarter were reduced to $21.7 million compared to $22.1 million in the second quarter of last year. As a percentage of net sales, operating expenses decreased 130 basis points to 27.1% compared to 28.4% in the year ago quarter as a result of lower call center and marketing expenses.
Net income in the second quarter was $26.9 million, or $0.67 per diluted share, compared to $1.2 million or $0.03 per diluted share in the year-ago period. The significant increase was driven by the release of a valuation allowance from the company's cumulative net operating losses, which resulted in a $25.9 million tax credit.
Adjusted EBITDA in the second quarter of 2017 was $3.8 million compared to $4.0 million in the year-ago quarter.
At July 1, 2017, cash and cash equivalents totaled $9.9 million compared to $2.7 million at December 31, 2016. The company also continued to have no revolver debt at July 1, 2017.
Key Operating Metrics
Q2 2017 Q2 2016 Q1 2017
------- ------- -------
Conversion
Rate
(1) 2.0% 1.8% 1.8%
Customer
Acquisition
Cost
(1) $6.99 $7.54 $7.43
Unique
Visitors
(millions)
1 24.7 30.2 28.9
---- ---- ----
Number
of
Orders
-
E-
commerce
only
(thousands) 494 544 518
Number
of
Orders
-
Online
Marketplace
(thousands) 460 315 431
Total
Number
of
Internet
Orders
(thousands) 954 859 949
=== === ===
Revenue
Capture
(%
Sales)
2 85.3% 84.0% 85.2%
Average
Order
Value
-
E-
commerce
only $103 $109 $104
Average
Order
Value
-
Online
Marketplace $67 $71 $67
Average
Order
Value
-
Total
Internet
Orders $85 $95 $87
1. Excludes online marketplaces and
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 and
excludes online marketplaces and
media properties (e.g. AutoMD).
2017 Outlook
U.S. Auto Parts continues to expect net sales to be up low to mid-single digits on a percentage basis compared to 2016. However, due to the aforementioned tax credit and channel mix issues, the company now expects net income to range between $27.0 million and $29.0 million, which compares to the company's previously issued guidance of $4.8 million to $7.8 million. U.S. Auto Parts also now expects adjusted EBITDA to range between $13.0 million and $15.0 million, which compares to its previously issued guidance of $15.0 million to $18.0 million. The reduced outlook for adjusted EBIDTA reflects the company's year-to-date performance, recent channel mix trends and additional projected freight-related expenses, as well as an increase in compliance costs related to its upcoming accelerated filer status.
Conference Call
U.S. Auto Parts will conduct a conference call today at 8:30 a.m. Eastern time (5:30 a.m. Pacific time) to discuss its financial results for the second quarter ended July 1, 2017.
The Company's CEO Aaron Coleman and CFO Neil Watanabe will host the conference call, followed by a question and answer period.
Date: Thursday, August 10, 2017
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Toll-free dial-in number: 877-407-9039
International dial-in number: 201-689-8470
Conference ID: 13664701
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios at 1-949-574-3860.
The conference call will be broadcast live and available for replay via the investor relations section of the Company's website at www.usautoparts.net.
A telephone replay of the conference call will also be available on the same day through August 24, 2017.
Toll-free replay number: 844-512-2921
International replay number: 412-317-6671
Replay ID: 13664701
About U.S. Auto Parts Network, Inc.
Established in 1995, U.S. Auto Parts is a leading online provider of automotive aftermarket parts, including collision, engine, and performance parts and accessories. Through the Company's network of websites, U.S. Auto Parts provides consumers with a broad selection of competitively priced products, all mapped by a proprietary database with applications based on vehicle makes, models and years. U.S. Auto Parts' flagship websites include www.autopartswarehouse.com, www.carparts.com, www.jcwhitney.com, and www.AutoMD.com, as well as the Company's corporate website at www.usautoparts.net.
U.S. Auto Parts is headquartered in Carson, California.
Non-GAAP Financial Measures
Regulation G, 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) depreciation and amortization expense; (d) amortization of intangible assets; and (e) share-based compensation expense.
The Company believes that this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measures 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 one 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 stock compensation expense, as well as items that are not expected to be recurring. 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; and for evaluating the effectiveness of operational strategies. The Company also believes that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the ongoing operations 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.
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 and our liquidity requirements. 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, competitive pressures, our dependence on search engines to attract customers, demand for the Company's products, the online market and channel mix for aftermarket auto parts, the economy in general, increases in commodity and component pricing that would increase the Company's product costs, the operating restrictions in our credit agreement, the weather, and any 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.
Company Contact:
Neil T. Watanabe, Chief Financial Officer
U.S. Auto Parts Network, Inc.
(424) 702-1455 x421
nwatanabe@usautoparts.com
Investor Relations:
Cody Slach or Sean Mansouri
Liolios
949-574-3860
PRTS@liolios.com
Summarized information for our continuing operations for the periods presented is as follows (in millions):
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------
July 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
------------ ------------ ------------ ------------
Net sales $80.21 $78.00 $161.04 $158.75
Gross profit $23.24 $23.70 $47.03 $48.23
------ ------ ------
29.0% 30.4% 29.2% 30.4%
---- ---- ---- ----
Operating expenses $21.74 $22.13 $44.32 $44.75
------ ------ ------
27.1% 28.4% 27.5% 28.2%
---- ---- ---- ----
Income from operations $1.51 $1.57 $2.71 $3.48
----- ----- -----
1.9% 2.0% 1.7% 2.2%
--- --- --- ---
Income from continuing
operations $26.92 $1.22 $27.73 $2.75
------ ------ -----
33.6% 1.6% 17.2% 1.7%
---- --- ---- ---
Adjusted EBITDA $3.82 $4.03 $7.85 $8.37
----- ----- -----
4.8% 5.2% 4.9% 5.3%
--- --- --- ---
The table below reconciles income from continuing operations to Adjusted EBITDA for the periods presented (in thousands):
Thirteen Weeks Ended Fifty-Two Weeks Ended
---------------------
July 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
------------ ------------ ------------ ------------
Income from continuing
operations $26,918 $1,216 $27,734 $2,753
Depreciation &
amortization 1,637 1,556 3,270 3,100
Amortization of
intangible assets 112 113 224 225
Interest expense, net 466 242 842 588
Taxes (25,859) 113 (25,832) 146
------- -------
EBITDA $3,274 $3,240 $6,238 $6,812
====== ====== ====== ======
Stock comp expense $544 $785 $1,608 $1,557
---- ----
Adjusted EBITDA $3,818 $4,025 $7,846 $8,369
====== ====== ====== ======
The table below reconciles the high and low ends of our projected range of net income to projected Adjusted EBITDA
for the period presented (in thousands):
Low End High End
52 Weeks Ending 52 Weeks Ending
December 30, December 30,
2017 2017
------------- -------------
Income from
continuing
operations $27,000 $29,000
Depreciation &
amortization 6,500 6,500
Amortization of
intangible
assets 400 400
Interest
expense, net 1,900 1,900
Taxes (25,700) (25,700)
-------
EBITDA $10,100 $12,100
======= =======
Stock comp
expense $2,900 $2,900
Adjusted EBITDA $13,000 $15,000
======= =======
U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited, in Thousands, Except Per Share Data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 1, July 2, July 1, July 2,
2017 2016 2017 2016
---- ---- ---- ----
Net sales $80,208 $77,999 $161,041 $158,745
Cost of sales (1) 56,964 54,298 114,010 110,512
------ ------ ------- -------
Gross profit 23,244 23,701 47,031 48,233
------ ------ ------ ------
Operating expenses:
Marketing 10,248 10,424 20,562 21,218
General and administrative 4,310 4,540 9,111 8,973
Fulfillment 5,929 5,658 12,011 11,696
Technology 1,136 1,397 2,409 2,641
Amortization of intangible assets 112 113 224 225
Total operating expenses 21,735 22,132 44,317 44,753
------ ------ ------ ------
Income from operations 1,509 1,569 2,714 3,480
----- ----- ----- -----
Other income (expense):
Other income, net 19 11 35 17
Interest expense (469) (251) (847) (598)
---- ---- ---- ----
Total other expense, net (450) (240) (812) (581)
---- ---- ---- ----
Income from continuing operations before
income taxes 1,059 1,329 1,902 2,899
Income tax (benefit) provision (25,859) 113 (25,832) 146
------- --- ------- ---
Income from continuing operations 26,918 1,216 27,734 2,753
------ ----- ------ -----
Discontinued operations (2)
Loss from operations and disposal of
discontinued AutoMD operations - (704) (558) (1,433)
Income tax (benefit) provision - (169) 1 (351)
Loss on discontinued operations - (535) (559) (1,082)
--- ---- ---- ------
Net income 26,918 681 27,175 1,671
====== === ====== =====
Other comprehensive income (loss):
Foreign currency translation adjustments (1) (8) (3) (13)
Total other comprehensive loss (1) (8) (3) (13)
--- --- --- ---
Comprehensive income $26,917 $673 $27,172 $1,658
======= ==== ======= ======
Income from continuing operations per share:
Basic income from continuing operations
per share $0.76 $0.03 $0.79 $0.08
Diluted income from continuing
operations per share $0.67 $0.03 $0.69 $0.07
Weighted average common shares outstanding:
Shares used in computation of basic
income from continuing operations per
share 35,332 34,753 34,921 34,625
Shares used in computation of diluted
income from continuing operations per
share 39,933 40,007 40,079 39,655
(1) Excludes depreciation and amortization expense which is included in marketing, general and administrative and fulfillment expense.
(2) During March, 2017 our AutoMD operations filed for dissolution and have been classified as discontinued operations.
U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands, Except Par and Liquidation Value)
July 1, 2017 December 31, 2016
------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $9,928 $6,643
Short-term investments 8 30
Accounts receivable, net of allowances of $46 and $36 at
July 1, 2017 and December 31, 2016, respectively 2,698 3,266
Inventory 52,195 50,904
Other current assets 2,743 2,815
----- -----
Total current assets 67,572 63,658
Deferred income taxes 25,881 -
Property and equipment, net 15,667 16,478
Intangible assets, net 745 969
Other non-current assets 853 1,029
--- -----
Total assets $110,718 $82,134
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $39,771 $33,697
Accrued expenses 7,999 6,860
Current portion of capital leases payable 557 542
Customer deposits 2,765 3,718
Other current liabilities 2,100 1,972
----- -----
Total current liabilities 53,192 46,789
Capital leases payable, net of current portion 9,477 9,770
Deferred income taxes - 156
Other non-current liabilities 2,154 2,097
----- -----
Total liabilities 64,823 58,812
------ ------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value;
$1.45 per share liquidation value or aggregate of $6,017;
4,150 shares authorized; 2,771 and 4,150 shares issued and
outstanding at July 1, 2017 and December 31, 2016,
respectively 3 4
Common stock, $0.001 par value; 100,000 shares authorized;
36,056 and 34,623 shares issued and outstanding at July 1,
2017 and December 31, 2016 37 35
Treasury stock (3,630) (1,376)
Additional paid-in capital 178,651 180,153
Accumulated other comprehensive income 554 557
Accumulated deficit (129,720) (156,520)
-------- --------
Total stockholders' equity 45,895 22,853
Noncontrolling interest - 469
--- ---
Total equity 45,895 23,322
------ ------
Total liabilities and stockholders' equity $110,718 $82,134
======== =======
U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In Thousands)
Twenty-Six Weeks Ended
July 1, July 2,
2017 2016
---- ----
Operating activities
Net income $27,175 $1,671
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation
and
amortization
expense 3,270 3,704
Amortization
of intangible
assets 224 241
Deferred
income taxes (25,881) (257)
Share-based
compensation
expense 1,633 1,668
Stock awards
issued for
non-employee
director
service 5 4
Amortization
of deferred
financing
costs 30 41
Gain from
disposition
of assets (8) -
Changes in operating assets and
liabilities:
Accounts
receivable 568 265
Inventory (1,291) 6,795
Other current
assets (86) (1,038)
Other non-
current
assets 166 81
Accounts
payable and
accrued
expenses 7,261 1,308
Other current
liabilities (764) 319
Other non-
current
liabilities 168 204
--- ---
Net cash
provided by
operating
activities 12,470 15,006
------ ------
Investing activities
Additions to
property and
equipment (2,494) (2,887)
Proceeds from
sale of
property and
equipment 39 -
Cash paid for
intangible
assets - (125)
Net cash used
in investing
activities (2,455) (3,012)
------ ------
Financing activities
Borrowings
from
revolving
loan payable 3,645 9,297
Payments made
on revolving
loan payable (3,645) (21,056)
Proceeds from
stock options 238 536
Minority
shareholder
redemption (2,485) -
Payments on
capital
leases (278) (313)
Treasury stock
repurchase (2,272) -
Statutory tax
withholding
payment for
share-based
compensation (1,644) (969)
Payment of
liabilities
related to
financing
activities (100) (100)
Preferred
stock
dividends
paid (169) -
---- ---
Net cash used
in financing
activities (6,710) (12,605)
------ -------
Effect of
exchange rate
changes on
cash (20) (13)
--- ---
Net change in
cash and cash
equivalents 3,285 (624)
Cash and cash
equivalents,
beginning of
period 6,643 5,537
----- -----
Cash and cash
equivalents,
end of period $9,928 $4,913
====== ======
Supplemental disclosure of non-
cash investing and financing
activities:
Accrued asset
purchases $712 $735
Property
acquired
under capital
lease $ - $211
Supplemental disclosure of cash
flow information:
Cash paid
during the
period for
income taxes $42 $49
Cash paid
during the
period for
interest 711 564
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SOURCE U.S. Auto Parts Network, Inc.
