After setting an outstanding securities litigation and recording a $4.5 million settlement charge, U.S. Auto Parts Network, Inc. was still able to report an increase in net sales for the full year. The company, an online provider of automotive aftermarket parts and accessories, had net sales of $161.0 million for 2007, an increase of 34 percent from $120.1 million for 2006.

 

According to Michael McClane, the company's chief financial officer, "2007 was a year of many accomplishments and learning opportunities that we believe have set the foundation for future successes to build upon. We recruited new leadership focused on execution and improving the consumer experience, attracted a world-class board, completed the Partsbin integration, reduced shareholder uncertainty by resolving the lawsuit and most importantly, architected a plan to drive the business over the next several years. We believe we have a tremendous growth opportunity and we are highly focused on capturing additional market share," he says.

 

The company's net loss for the year ended Dec. 31, 2007 was $3.6 million, or $0.13 per diluted share on approximately 28.3 million shares outstanding, compared to net income of $3.5 million, or $0.17 per diluted share on approximately 20.0 million shares outstanding in 2006.

 

Net sales for the quarter ended Dec. 31, 2007 were $37.3 million, an increase of 1.4 percent from $36.8 million in the prior year period. Net loss for the fourth quarter of 2007, which is inclusive of the fourth quarter portion of the securities litigation settlement costs of $3.9 million, was $5.5 million, or $0.18 per diluted share, compared to a net loss of $0.02 million, or $0.00 per diluted share for the prior year period. Diluted EPS for the quarters ended Dec. 31, 2007 and 2006 included amortization expense related to intangibles of $2.1 million or $0.07 per diluted share and $2.1 million or $0.9 per diluted share, respectively.

 

The company generated adjusted EBITDA of $7.8 million in 2007 compared to $13.3 million in 2006. Adjusted EBITDA excluded share-based compensation expense of $2.2 million in 2007 and $0.9 million in 2006. Results for the full year 2007 included the $4.5 million securities litigation settlement charge and approximately $1.1 million in costs associated with the hiring of a new CEO and severance expense for recent management changes. Adjusted EBITDA is a non-GAAP financial measure.

 

Financial Highlights for the fourth quarter 2007 include:

 

-- Net sales for the fourth quarter ended Dec. 31, 2007 were $37.3 million, an increase of 1.4 percent from $36.8 million in the prior year period. The sales growth primarily reflected higher website traffic (unique visitors), offset by a lower conversion rate.

-- Gross profit was $12.7 million or 34 percent of net sales for the fourth quarter of 2007 compared to $12.0 million or 33 percent of net sales for the fourth quarter of 2006. The year-over-year increase in gross margin was primarily due to a 1.3 percent increase in online margins which resulted from higher prices on certain products, lower product costs from certain suppliers and lower shipping costs.

-- Marketing expense was $5.8 million or 16 percent of net sales for the fourth quarter of 2007 compared to $5.0 million or 14 percent of net sales for the prior year period. Marketing costs increased primarily due to a $0.3 million increase in paid search in the first half of the 2007 fourth quarter. The company continues to evaluate its investment in paid search in order to balance its return on investment in marketing spend with its ability to drive organic traffic.

-- General and administrative expense was $8.9 million or 24 percent of net sales for the fourth quarter of 2007 compared to $2.6 million or 7 percent of net sales in the prior year period. G&A expense increased over the same period in the previous year primarily due to the inclusion of the $3.9 million litigation settlement charge, an increase of $0.7 million in costs associated with the hiring of a new CEO, an increase of $0.4 million in severance expense related to recent management changes, and an increase of $0.2 million in share-based compensation expense.

-- Capital expenditures for the fourth quarter of 2007 totaled $1.5 million, including $0.7 million of internally developed software and website development costs.

-- Cash, cash equivalents and short term investments were $42.0 million at Dec. 31, 2007.

 

To better manage and measure the business, U.S. Auto Parts plans to use a new method to calculate key operating metrics. The new measurement will be based on placed orders instead of the current method of using net orders. The company is doing this to reduce the impact of returns, out of stock orders and incomplete payment processing on the key operating metrics. In addition, the company is adjusting the measurement of monthly unique visitors, which it believes will improve consistency and

usability.

 

U.S. Auto Parts Network is also updating its preliminary guidance for the quarter ended March 31, 2008 as follows:

 

-- Net sales are expected to be in the range of approximately $38 million to $40 million.

-- Adjusted EBITDA is expected to be in the range of approximately $1.6 million to $2.1 million.

 

For the year ended Dec. 31, 2008, the company expects revenues on a year-over-year basis to decline in the first half of 2008 versus the prior year period and increase in the second half of 2008 versus the prior year period as the company's 2008 operational strategy takes hold.

 

Commenting on the company's guidance policy, a company spokesperson says: "As we are in the early stages of implementing our 2008 operational strategy, we will not be providing full year 2008 guidance. However, we have identified opportunities that upon full execution, could contribute approximately $45 million in incremental sales, which on an annualized basis should approach $200 million in sales in the next few years. We believe that the operating leverage inherent in the model can allow us to achieve a 10 percent adjusted EBITDA margin on that level of revenue. We believe we have identified, and are focused on, the right opportunities for operational improvement and while we cannot commit to a specific time table around completion, we believe that we are moving in the right direction to achieve our strategic and financial goals."

 

U.S. Auto Parts Network believes this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measure reflects 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.

From: search-autoparts/industry news