U.S. Auto Parts Reports Third Quarter 2019 Results

CARSON, Calif., Nov. 1, 2019 /PRNewswire/ -- U.S. Auto Parts Network, Inc. (NASDAQ: PRTS), one of the largest online providers of aftermarket automotive parts and accessories, is reporting results for the third quarter ended September 28, 2019.

Third Quarter 2019 Summary vs. Year-Ago Quarter

    --  Gross profit increased 15% to $21.1 million compared to $18.4 million.
        As a percentage of net sales, gross profit increased 400 basis points to
        30.5% compared to 26.5%.
    --  Net sales were $69.3 million compared to $69.5 million.
    --  Online sales increased 2% while offline sales declined 17%.
    --  Net loss was $1.4 million or $(0.04) per share, compared to net loss of
        $0.2 million or $(0.01) per share.
    --  Adjusted EBITDA (a non-GAAP measure defined below) was $1.3 million
        compared to $2.6 million.
    --  Ended the quarter with no revolver debt.
    --  Conversion rate increased 50 basis points to 3.2%.

Management Commentary

"Last quarter, we introduced a new operating plan that is centered on three key pillars: the right part, the right time, and the right place. Each of these pillars represents an important aspect of the customer experience as we need to ensure that our customers order the right part for their vehicle, deliver it quickly, and be agnostic to how the customer wants to install their auto parts.

"We have also renewed our focus on improving gross margins and profitability, which will be accomplished in-part by increasing the revenue mix of our highest margin products--private label--and better utilizing our resources to grow and optimize our three core websites.

"During the third quarter, we began to realize the early benefits of executing this new operating plan, highlighted by our second consecutive quarter of gross margin expansion, as well as our second consecutive quarter of positive adjusted EBITDA. This was also our strongest quarter of private label sales growth in nearly two years, which tells us that our strategy is working. Further, our new 125,000 square foot distribution center went live in Las Vegas in early August, and we have already shipped more than 80,000 auto parts in less than 3 months.

"The momentum in our business is evident. Key metrics are trending in the right direction, our cash flow cycle is healthy and we remain debt-free. There is still plenty of work ahead to further improve our inventory optimization, cost structure and core websites. But everywhere we look, we see opportunity, and our team remains committed to delivering positive adjusted EBITDA this year and carrying this strong momentum into 2020," said Lev Peker, CEO of U.S. Auto Parts.

Third Quarter 2019 Financial Results

Net sales in the third quarter of 2019 were $69.3 million compared to $69.5 million in the year-ago quarter. The decline was largely driven by a reduction in branded sales and offline sales mostly offset by a 15% increase in higher margin private label sales. Our online sales were up 2% and our offline sales declined 17% due to a change in pricing strategy and exiting unprofitable businesses.

Gross profit in the third quarter of 2019 increased 15% to $21.1 million compared to $18.4 million in the year-ago quarter. As a percentage of net sales, gross profit increased 400 basis points to 30.5% compared to 26.5%. Excluding detention and demurrage related costs from both quarters, gross margin for the quarter would be 31.3% compared to 28.9% last year. The increase was primarily driven by a greater proportion of higher margin private label sales and improved pricing strategies.

Total operating expenses in the third quarter were $22.6 million compared to $19.6 million in the third quarter of last year. As a percentage of net sales, operating expenses increased to 32.6% compared to 28.3% in the year ago quarter with the increase primarily driven by increased marketing spend and investments in marketing platforms and new employees.

Net loss in the third quarter was $1.4 million, or $(0.04) per share, compared to a net loss of $0.2 million or $(0.01) per share in the year-ago period.

Adjusted EBITDA in the third quarter of 2019 was $1.3 million compared to $2.6 million in the year-ago quarter.

At September 28, 2019, cash and cash equivalents totaled $1.1 million compared to $2.0 million at December 29, 2018. The decrease in cash is primarily a result of employee transition costs, technology capital expenditures, marketing, and setup costs for the company's new distribution center in Las Vegas, Nevada. U.S. Auto Parts also had no revolver debt at each of September 28, 2019 and December 29, 2018.


                                                        
           
        Key Operating Metrics




                                                        Q3 2019                            Q3 2018    Q2 2019




     Conversion Rate 1                                                3.2                                 2.7     3.0
                                                                         %                                  %      %



     Unique Visitors (millions) 1                                    13.8                                16.4    14.2




     Number of Orders - E-commerce only (thousands)                   441                                 443     423



     Number of Orders - Online Marketplace (thousands)                412                                 372     463




     Total Number of Internet Orders (thousands)                      853                                 815     886




     Revenue Capture (% Sales) 2                                     89.3                                87.5    87.8
                                                                         %                                  %      %



     Average Order Value - Total Internet Orders                 $
        78                         $
           85 $
       80


     _________________________



     1.    
              Excludes online marketplaces.



     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.

Conference Call

U.S. Auto Parts CEO Lev Peker and CFO/COO David Meniane will host the conference call, followed by a question and answer period.

Date: Friday, November 1, 2019
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number: 877?407?9039
International dial-in number: 201?689?8470
Conference ID: 13694403

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 Gateway Investor Relations 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.com.

A telephone replay of the conference call will also be available on the same day through November 15, 2019.

Toll-free replay number: 844?512?2921
International replay number: 412?317?6671
Replay ID: 13694403

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, and www.jcwhitney.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; (e) share-based compensation expense; (f) costs associated with our customs issue; and (g) costs associated with the executive transitions.

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 and the costs associated with the customs issue, 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 all 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, its future operating results and financial condition, the impact of changes in our key operating metrics, and 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 its credit agreement, the weather, the impact of the customs issues 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.

Investor Relations:

Sean Mansouri, CFA or Cody Slach
Gateway Investor Relations
949?574?3860
PRTS@gatewayir.com

Summarized information for our continuing operations for the periods presented is as follows (in millions):




                
     
     Thirteen Weeks Ended                              Thirty-nine Weeks Ended



                     September 28, 2019              September 29, 2018                                     September 28, 2019  September 29, 2018



                                                                                              (As Restated)                                                           
     
     (As Restated)


     Net sales                            $
       69.27                                                          $
              69.46                      $
            217.70                      $
            224.82


     Gross
      profit                              $
       21.14                                                                      18.41                       $
            63.04                       $
            62.16



                                                30.5                                                                       26.5                                  29.0
                                                   %                                                                         %                                    %                         27.6
          %



     Operating
      expenses                            $
       22.60                                                          $
              19.62                       $
            69.14                       $
            62.47



                                                32.6                                                                       28.3                                  31.8
                                                   %                                                                         %                                    %                         27.8
          %



     Net (loss)
      income                             $
       (1.42)                                                        $
              (0.18)                     $
            (6.46)                     $
            (0.41)



                                               (2.1)                                                                     (0.3)                                (3.0)
                                                   %                                                                         %                                    %                        (0.2)
          %



     Adjusted
      EBITDA                               $
       1.32                                                           $
              2.59                                  2.65                        $
            9.66



                                                 1.9                                                                        3.7
                                                   %                                                                         %                          1.2
          %                          4.3
          %

The table below reconciles income from continuing operations to Adjusted EBITDA for the periods presented (in thousands):




                            Thirteen Weeks Ended                                Thirty-nine Weeks Ended



                             September 28, 2019                September 29, 2018                                     September 28, 2019  September 29, 2018



                                                                                                        (As Restated)                                                       
     
     (As Restated)


      (Loss) income from
       continuing
       operations                                      (1,424)                                                                     (180)                          (6,461)                           (409)


      Depreciation &
       amortization                                      1,531                                                                      1,419                             4,572                            4,412


      Amortization of
       intangible assets                                    25                                                                         46                                75                              140


      Interest expense, net                                516                                                                        363                             1,410                            1,215



     Taxes                                              (552)                                                                         8                           (1,018)                             270




     EBITDA                                        $
          96                                                          $
              1,656                    $
         (1,422)                   $
          5,628



      Stock comp expense                                   792                                                                        567                      $
         1,955                            1,704


      Employee transition
       costs(1)                                            425                                                                                                       1,695


      Customs costs(2)                                       3                                                                      1,764                               418                            3,730


      Proceeds from AutoMD
       sale                                                                                                                      (1,400)                                                          (1,400)



      Adjusted EBITDA                            $
          1,316                                                          $
              2,587                      $
         2,646                    $
          9,662


     __________________________



     (1)              We incurred costs related to the transition of executive
                         management related to severance, recruiting, hiring
                         bonuses, and relocation costs.



     (2)              We incurred port and carrier fees and legal costs associated
                         with our customs related issues.


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




                                                                                       
              
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS


                                                                                        
              
                (Unaudited, in Thousands, Except Per Share Data)






                                                      Thirteen Weeks Ended                              Thirty-Nine Weeks Ended



                                                          September 28,                   September 29,                                                                September 28,   September 29,


                                                                      2019                          2018                                                                          2019             2018



                                                                                                                                  (As Restated)                                                                        (As Restated)



     Net sales                                                             $
      69,273                                                                              $
             69,463                     $
       217,698                 $
        224,821



     Cost of sales (1)                                                         48,130                                                                                         51,049                          154,663                       162,666




     Gross profit                                                              21,143                                                                                         18,414                           63,035                        62,155




     Operating expenses:



     Marketing                                                                 11,034                                                                                          9,212                           34,023                        29,012



     General and administrative                                                 4,068                                                                                          4,297                           13,658                        13,923



     Fulfillment                                                                6,268                                                                                          5,034                           17,664                        16,276



     Technology                                                                 1,206                                                                                          1,035                            3,724                         3,121



     Amortization of intangible assets                                             25                                                                                             46                               75                           140




     Total operating expenses                                                  22,601                                                                                         19,624                           69,144                        62,472




     (Loss) income from operations                                            (1,458)                                                                                       (1,210)                         (6,109)                        (317)




     Other income (expense):



     Other, net                                                                   (1)                                                                                         1,402                               41                         1,396



     Interest expense                                                           (517)                                                                                         (364)                         (1,411)                      (1,218)




     Total other expense, net                                                   (518)                                                                                         1,038                          (1,370)                          178




     (Loss) income before income taxes                                        (1,976)                                                                                         (172)                         (7,479)                        (139)



     Income tax (benefit) provision                                             (552)                                                                                             8                          (1,018)                          270




     Net loss                                                                 (1,424)                                                                                         (180)                         (6,461)                        (409)



     Other comprehensive income:


      Foreign currency translation adjustments                                      19                                                                                              9                             (19)                           51




     Total other comprehensive income                                              19                                                                                              9                             (19)                           51




     Comprehensive loss                                                   $
      (1,405)                                                                              $
             (171)                    $
       (6,480)                  $
        (358)



      Loss from continuing operations per share:



     Basic and diluted net loss per share                                  $
      (0.04)                                                                             $
             (0.01)                     $
       (0.18)                 $
        (0.02)


      Weighted average common shares outstanding:


      Shares used in computation of basic and diluted
       net loss per share                                                       35,856                                                                                         34,983                           35,623                        34,925


     __________________________



     (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 BALANCE SHEETS


                                                        
       
         (Unaudited, In Thousands, Except Par and Liquidation Value)






                                                                         September 28,                                        December 29,


                                                                                  2019                                                 2018




     
                ASSETS



     Current assets:



     Cash and cash equivalents                                                                    $
              1,108                         $
          2,031



     Short-term investments                                                                                       3                                     1



     Accounts receivable, net                                                                                 4,349                                 3,727



     Inventory                                                                                               47,699                                49,626



     Other current assets                                                                                     4,224                                 3,400




     Total current assets                                                                                    57,383                                58,785



     Deferred income taxes                                                                                   22,463                                21,833



     Property and equipment, net                                                                              9,806                                15,184


      Right-of-use - assets - operating leases, net                                                            5,047


      Right-of-use - assets - financing leases, net                                                            9,089



     Other non-current assets                                                                                 1,782                                 2,163




     Total assets                                                                               $
              105,570                        $
          97,965



                   LIABILITIES AND STOCKHOLDERS' EQUITY



     Current liabilities:



     Accounts payable                                                                            $
              35,777                        $
          34,039



     Accrued expenses                                                                                        12,566                                10,247


      Current portion of capital leases payable                                                                                                       594



     Customer deposits                                                                                                                               521



     Notes payable, current portion                                                                             606


      Right-of-use - obligation - operating, current                                                           1,573


      Right-of-use - obligation - finance, current                                                               686



     Other current liabilities                                                                                3,078                                 2,918




     Total current liabilities                                                                               54,286                                48,319


      Capital leases payable, net of current portion                                                                                                8,559



     Notes payable, non-current portion                                                                       1,078


      Right-of-use - obligation - operating, non-
       current                                                                                                 3,714


      Right-of-use - obligation - finance, non-
       current                                                                                                 8,599



     Other non-current liabilities                                                                            2,155                                 2,265




     Total liabilities                                                                                       69,832                                59,143




     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 shares issued and outstanding at both
       September 28, 2019 and December 29, 2018                                                                    3                                     3


      Common stock, $0.001 par value; 100,000 shares
       authorized; 35,924 and 34,992 shares issued and
       outstanding at September 28, 2019 and December
       29, 2018 (of which 2,525 are treasury stock)                                                               38                                    38



     Common stock dividend                                                                                       41



     Treasury stock                                                                                         (7,146)                              (7,146)



     Additional paid-in capital                                                                             184,992                               183,139



     Accumulated other comprehensive income                                                                     560                                   579



     Accumulated deficit                                                                                  (142,750)                            (137,791)




     Total stockholders' equity                                                                              35,738                                38,822



      Total liabilities and stockholders' equity                                                 $
              105,570                        $
          97,965


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




                                                    
              
           CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                          
          
               (Unaudited, In Thousands)




                                        Thirty-Nine Weeks Ended



                                             September 28,                                                        September 29,


                                                           2019                                                             2018



                                                                                                                                 (As Restated)


                   Operating activities



     Net loss                                                      $
              (6,461)                                                         $
           (409)


      Adjustments to reconcile net
       income to net cash provided by
       operating activities:


      Depreciation and amortization
       expense                                                                    4,572                                                                   4,412


      Amortization of intangible
       assets                                                                        75                                                                     140



     Deferred income taxes                                                     (1,176)                                                                    189


      Share-based compensation
       expense                                                                    1,955                                                                   1,704


      Stock awards issued for non-
       employee director service                                                     13                                                                      11


      Amortization of deferred
       financing costs                                                                2                                                                       3


      Changes in operating assets and
       liabilities:



     Accounts receivable                                                         (622)                                                                  (562)



     Inventory                                                                   1,927                                                                   2,702



     Other current assets                                                        (731)                                                                (1,833)


      Other non-current assets                                                      775                                                                    (24)


      Accounts payable and accrued
       expenses                                                                   3,874                                                                   5,492


      Other current liabilities                                                   (280)                                                                (1,197)


      Right-of-Use Obligation -
       Operating Leases - Current                                                 1,573


      Right-of-Use Obligation -
       Operating Leases - Long-term                                             (1,332)


      Other non-current liabilities                                                 163                                                                     275



      Net cash provided by operating
       activities                                                                 4,327                                                                  10,903



                   Investing activities


      Additions to property and
       equipment                                                                (4,686)                                                                (4,328)


      Proceeds from sale of property
       and equipment                                                                                                                                         1


      Net cash used in investing
       activities                                                               (4,686)                                                                (4,327)



                   Financing activities


      Borrowings from revolving loan
       payable                                                                   11,514                                                                   3,246


      Payments made on revolving loan
       payable                                                                 (11,514)                                                                (3,246)


      Proceeds from notes payable                                                   162


      Payments on capital leases                                                  (453)                                                                  (445)


      Statutory tax withholding
       payment for share-based
       compensation                                                               (290)                                                                  (430)


      Proceeds from exercise of stock
       options                                                                       99


      Payment of liabilities related
       to financing activities                                                                                                                           (100)


      Preferred stock dividends paid                                               (80)                                                                  (120)



      Net cash used in financing
       activities                                                                 (562)                                                                (1,095)



      Effect of exchange rate changes
       on cash                                                                      (2)                                                                   (31)



      Net change in cash and cash
       equivalents                                                                (923)                                                                  5,450


      Cash and cash equivalents,
       beginning of period                                                        2,031                                                                   2,850



      Cash and cash equivalents, end
       of period                                                      $
              1,108                                                          $
           8,300



      Supplemental disclosure of non-
       cash investing and financing
       activities:


      Right-of-use financed asset
       acquired                                                         $
              749                                            
              $


      Accrued asset purchases                                         $
              1,200                                                            $
           744


      Fixed asset purchased through
       note payable                                                               1,684


      Supplemental disclosure of cash
       flow information:


      Cash paid during the period for
       income taxes                                                      $
              85                                                             $
           63


      Cash paid during the period for
       interest                                                       $
              1,385                                                          $
           1,229

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SOURCE U.S. Auto Parts Network, Inc.