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, Calif., Nov. 8, 2010 /PRNewswire-FirstCall/ -- U.S. Auto Parts Network, Inc. (Nasdaq: PRTS), one of the largest 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.


Q3 2010 Operating Metrics

U.S. Auto Parts Excluding JC Whitney               Q3 2010 Q3 2009 Q2 2010

Conversion Rate                                    1.61%   1.43%   1.58%

Customer Acquisition Cost                          $6.44   $7.28   $5.93

Marketing Spend (% Internet Sales)                 7.3%    7.4%    6.3%

Visitors (millions)(1)                             29.4    27.1    27.8

Orders (thousands)                                 474     386     440

Revenue Capture (% Sales)(2)                       84.4%   82.2%   83.9%

Average Order Value                                $116    $118    $120



Consolidated                                       Q3 2010 Q3 2009 Q2 2010

Conversion Rate                                    1.67%   1.43%   1.58%

Customer Acquisition Cost (includes Catalog costs) $8.29   $7.28   $5.93

Marketing Spend (% Internet & Catalog Sales)       8.2%    7.4%    6.3%

Visitors (millions)(1)                             34.8    27.1    27.8

Orders (thousands)                                 582     386     440

Revenue Capture (% Sales)(2)                       83.1%   82.2%   83.9%

Average Order Value                                $121    $118    $120



(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.





Non-GAAP Financial Measures

Regulation G, "Conditions for Use of Non-GAAP Financial Measures," 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 income (expense), net; (b) income tax provision (benefit); (c) amortization of intangibles and impairment loss; (d) depreciation and amortization; and (e) share-based compensation expense related to stock options.

The Company believes that this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measure 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 a 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 items not directly resulting from core operations. 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; for evaluating the effectiveness of operational strategies; and for evaluating the Company's capacity to fund capital expenditures and expand its business. The Company also believes that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry.  Additionally, lenders or potential lenders use Adjusted EBITDA to evaluate the Company's ability to repay loans.

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.


The tables below reconcile net income (loss) to consolidated Adjusted EBITDA
and US Auto Parts excluding the JC Whitney acquisition for the periods
presented (in thousands):

               Thirteen Weeks  Thirteen Weeks  Thirty-Nine  Thirty-Nine Weeks
Consolidated   Ended           Ended           Weeks Ended  Ended

               October 2,      October 3,      October 2,   October 3,

               2010            2009            2010         2009



Net income
(loss)         $ (13,039)      $ 781           $ (11,030)   $ 731

Interest
income, net      187             (32)            132          (172)

Income tax
provision        10,979          604             12,154       2,436

Amortization
of intangibles   919             60              1,164        580

Depreciation
and
amortization     2,547           1,302           6,483        3,454

EBITDA           1,593           2,715           8,903        7,029

Share-based
compensation     640             854             2,112        2,701

Adjusted
EBITDA         $ 2,233         $ 3,569         $ 11,015     $ 9,730



Legal costs to
enforce
intellectual
property
rights           306             175             2,199        175

Charge for
change in
revenue
recognition      -               -               411          -

Addback Legal
Restructuring    355             -               355          -

Addback Other
Restructuring    1,235           -               1,235        -

Pro Forma
Adjusted
EBITDA         $ 4,129         $ 3,744         $ 15,215     $ 9,905










US Auto Parts
Excluding JC   Thirteen Weeks  Thirteen Weeks  Thirty-Nine  Thirty-Nine Weeks
Whitney        Ended           Ended           Weeks Ended  Ended

               October 2,      October 3,      October 2,   October 3,

               2010            2009            2010         2009



Net income
(loss)         $ (10,136)      $ 781           $ (8,127)    $ 731

Interest
income, net      139             (32)            83           (172)

Income tax
provision        10,979          604             12,154       2,436

Amortization
of intangibles   124             60              369          580

Depreciation
and
amortization     2,197           1,302           6,132        3,454

EBITDA           3,303           2,715           10,611       7,029

Share-based
compensation     640             854             2,112        2,701

Adjusted
EBITDA         $ 3,943         $ 3,569         $ 12,723     $ 9,730



Legal costs to
enforce
intellectual
property
rights           306             175             2,199        175

Charge for
change in
revenue
recognition      -               -               411          -

Pro Forma
Adjusted
EBITDA         $ 4,249         $ 3,744         $ 15,333     $ 9,905





Conference Call

As previously announced, the Company will conduct a conference call with analysts and investors to discuss the results today, Monday, at 2:00 pm Pacific Time (5:00 pm Eastern Time).  The conference call will be conducted by Shane Evangelist, Chief Executive Officer and Ted Sanders, Chief Financial Officer.  Participants may access the call by dialing 1-877-941-1429 (domestic) or 1-480-629-9666 (international).  In addition, the call will be broadcast live over the Internet and accessible through the Investor Relations section of the Company's website at www.usautoparts.net where the call will be archived for two weeks.  A telephone replay will be available through November 22, 2010. To access the replay, please dial 1-877-870-5176 (domestic) or 1-858-384-5517 (international), passcode 4381535. To view the press release or the financial or other statistical information required by SEC Regulation G, please visit the Investor Relations section of the U.S. Auto Parts website at investor.usautoparts.net.

About U.S. Auto Parts Network, Inc.

Established in 1995, U.S. Auto Parts is a leading online provider of automotive aftermarket parts, including body parts, engine parts, performance parts and accessories. Through the Company's network of websites, U.S. Auto Parts provides individual consumers with a broad selection of competitively priced products that are mapped by a proprietary product database to product applications based on vehicle makes, models and years. U.S. Auto Parts' flagship websites are located at www.autopartswarehouse.com, www.jcwhitney.com, www.partstrain.com  and www.AutoMD.com and the Company's corporate website is located at www.usautoparts.net.

U.S. Auto Parts is headquartered in Carson, California.

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, our liquidity requirements, and the status of our auction rate preferred securities. 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, the Company's ability to integrate and achieve efficiencies of acquisitions, economic downturn that could adversely impact retail sales;  marketplace illiquidity; demand for the Company's products; increases in commodity and component pricing that would increase the Company's per unit cost and reduce margins; the competitive and volatile environment in the Company's industry; the Company's ability to expand and price its product offerings, control costs and expenses, and provide superior customer service; the mix of products sold by the Company; the effect and timing of technological changes and the Company's ability to integrate such changes and maintain, update and expand its infrastructure and improve its unified product catalog;  the Company's ability to improve customer satisfaction and retain, recruit and hire key executives, technical personnel and other employees in the positions and numbers, with the experience and capabilities, and at the compensation levels needed to implement the Company's business plans both domestically and internationally; the Company's cash needs, including requirements to amortize debt; regulatory restrictions that could limit the products sold in a particular market or the cost to produce, store or ship the Company's products; any changes in the search algorithms by leading Internet search companies; the Company's need to assess impairment of intangible assets and goodwill; and the Company's ability to comply with Section 404 of the Sarbanes-Oxley Act and maintain an adequate system of internal controls; any remediation costs or 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.


U.S. AUTO PARTS NETWORK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

                                               October 2, 2010  January 2, 2010

                                               (Unaudited)

ASSETS

Current assets:

Cash and cash equivalents                      $ 24,861         $ 26,251

Short-term investments                         1,066            11,071

Accounts receivable, net                       4,549            3,383

Inventory                                      46,429           18,610

Deferred income taxes                          253              1,513

Other current assets                           12,117           3,148



Total current assets                           89,275           63,976



Property and equipment, net                    35,853           12,405

Intangible assets, net                         16,022           3,114

Goodwill                                       15,303           9,772

Deferred income taxes                          -                10,985

Investments                                    4,129            4,264

Other non-current assets                       936              98



Total assets                                   $ 161,518        $ 104,614



LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable                               $ 37,863         $ 11,371

Accrued expenses                               16,742           8,038

Notes payable                                  5,563            —

Capital leases payable, current portion        134              —

Other current liabilities                      4,524            2,518



Total current liabilities                      64,826           21,927



Non-current liabilities

                                                                —

Notes payable, net of current portion          19,437           —

Capital leases payable, net of current portion 154              —

Deferred tax liabilities                       1,611            —

Other non current liabilities                  671              —

Total liabilities, commitments and
contingencies                                  86,699           21,927





Stockholders’ equity:

Common stock, $0.001 par value; 100,000,000
shares authorized at October 2, 2010 and
January 02, 2010; 30,378,710 and 29,893,631
shares issued and outstanding as of October 2,
2010 and January 2, 2010 respectively          30               30

Additional paid-in capital                     153,086          150,084

Accumulated other comprehensive income         244              84

Accumulated deficit                            (78,541)         (67,511)



Total stockholders’ equity                   74,819           82,687



Total liabilities and stockholders’ equity   $ 161,518        $ 104,614






                 Thirteen Weeks  Thirteen Weeks  Thirty-Nine  Thirty-Nine Weeks
                 Ended           Ended           Weeks Ended  Ended

                 October 2,      October 3,      October 2,   October 3,

                 2010            2009            2010         2009



Net sales        $ 72,349        $ 47,043        $ 181,828    $ 130,512

Cost of sales    48,342          30,144          119,617      83,105



Gross profit     24,007          16,899          62,211       47,407

Operating
expenses:

Marketing (1)    11,145          6,351           25,496       17,367

General and
administrative
(1)              8,156           5,131           20,288       14,707

Fulfillment (1)  4,102           2,926           10,269       8,386

Technology (1)   1,665           1,103           3,841        3,374

Amortization of
intangibles and
impairment loss  919             60              1,164        580



Total operating
expenses         25,987          15,571          61,058       44,414

Income (loss)
from operations  (1,980)         1,328           1,153        2,993

Other income
(loss):

Other income
(loss)           107             25              103          2

Interest income,
net              (187)           32              (132)        172



Other income
(loss), net      (80)            57              (29)         174

Income (loss)
before income
taxes            (2,060)         1,385           1,124        3,167

Income tax
provision        10,979          604             12,154       2,436



Net income
(loss)           $ (13,039)      $ 781           $ (11,030)   $ 731



Basic net income
(loss) per share $ (0.43)        $ 0.03          $ (0.36)     $ 0.02

Diluted net
income (loss)
per share        $ (0.43)        $ 0.03          $ (0.36)     $ 0.02

Shares used in
computation of
basic net income
(loss) per share 30,357,988      29,848,694      30,225,194   29,847,398

Shares used in
computation of
diluted net
income (loss)
per share        30,357,988      31,004,035      30,225,194   30,385,534










               Thirteen Weeks  Thirteen Weeks  Thirty-Nine  Thirty-Nine Weeks
               Ended           Ended           Weeks Ended  Ended

               October 2,      October 3,      October 2,   October 3,

(1) Includes
share-based
compensation
expense as
follows:       2010            2009            2010         2009

Marketing      $ 73            $ 106           $ 265        $ 322

General and
administrative 447             575             1,447        1,892

Fulfillment    72              49              261          153

Technology     48              124             139          334

Total
share-based
compensation
expense        $ 640           $ 854           $ 2,112      $ 2,701






U.S. AUTO PARTS NETWORK, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

                               Thirty-Nine Weeks Ended  Thirty-Nine Weeks Ended

                               October 2,               October 3,

                               2010                     2009



Operating activities

Net income/(loss)              $ (11,030)               $ 731

Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:

Depreciation and amortization  6,483                    3,454

Amortization of intangibles    1,164                    580

Share-based compensation
expense                        2,112                    2,701

Non cash interest expense      9                        -

Deferred taxes                 12,232                   2,660

Loss from disposition of
assets                         (15)                     -

Changes in operating assets
and liabilities:

Accounts receivable, net       1,433                    (1,463)

Inventory                      (15,871)                 (4,454)

Other current assets           (5,969)                  (2,128)

Other non current assets       (584)                    (3)

Accounts payable and accrued
expenses                       6,973                    7,401

Other current liabilities      1,328                    660

Other non current liabilities  663                      -



Net cash provided by (used in)
operating activities           (1,072)                  10,139



Investing activities

Additions to property and
equipment                      (9,798)                  (6,419)

Proceeds from the sale of
investments                    29,409                   2,150

Purchases of investments       (19,225)                 (4,100)

Purchases of company-owned
life insurance                 (250)                    -

Acquisition                    (25,285)                 -

Purchases of intangible assets (1,003)                  (736)



Net cash used in investing
activities                     (26,152)                 (9,105)



Financing activities

Payments on short-term
financing                      (5)                      (46)

Proceeds from notes payable    25,000                   -

Proceeds from exercise of
stock options                  788                      12



Net cash provided by (used in)
financing activities           25,783                   (34)



Effect of changes in foreign
currencies                     51                       136



Net (decrease) increase in
cash and cash equivalents      (1,390)                  1,136

Cash and cash equivalents at
beginning of period            26,251                   32,473



Cash and cash equivalents at
end of period                  $ 24,861                 $ 33,609





Supplemental disclosure of
non-cash investing activities:

Accrued asset purchases        589                      749

Supplemental disclosure of
non-cash financing activities:

Property acquired under
capital leases                 285                      -

Supplemental disclosure of
cash flow information:

Cash paid during the period
for income taxes               97                       645

Cash paid during the period
for interest                   103                      6






Investor Contacts:



Ted Sanders, Chief Financial Officer

U.S. Auto Parts Network, Inc.

tsanders@usautoparts.com

(424) 702-1455



Budd Zuckerman, President

Genesis Select Corporation

bzuckerman@genesisselect.com

(303) 415-0200





SOURCE U.S. Auto Parts Network, Inc.