U.S. Auto Parts Network, Inc. Reports Fourth Quarter Results

-- Net sales $80.5 million.

-- Adjusted EBITDA $4.3 million.

-- Gross margin 34.1%.

CARSON, Calif., Feb. 28, 2011 /PRNewswire/ -- 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 fourth quarter ended January 1, 2011 of $80.5 million compared with Q4 2009 net sales of $45.8 million.  Excluding $25.5 million of revenues from the acquisition of J.C. Whitney, net sales were $55.0 million, an increase of 20% over Q4 2009 net sales. Q4 2010 net loss was $2.9 million or $0.10 per share, compared with Q4 2009 net income of $0.6 million or $0.02 per diluted share. Q4 2010's net loss includes net loss of $3.1 million or $0.10 per share related to J.C. Whitney of which $1.5 million of the loss, net of tax was attributable to restructuring and acquisition expenses. Excluding J.C. Whitney's EBITDA loss of $1.0 million and related $1.5 million of restructuring and acquisition expenses, as well as $0.1 million of legal fees to protect intellectual property and $0.6 million of share-based compensation, adjusted EBITDA was $3.7 million, an increase of 3% over Q4 2009. For further information regarding adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income (loss), see non-GAAP Financial Measures below.

For the year, net sales for 2010 were $262.3 million, compared with $176.3 million for 2009. Excluding $39.1 of sales from J.C. Whitney, net sales for 2010 were $223.2 million, an increase of 27% over 2009 net sales. Net loss for the year 2010 was $13.9 million, or $0.46 per share which includes a non-cash deferred income tax asset valuation reserve of $11.4 million or $0.38 per share, $3.1 million or $0.10 per share of restructuring charges related to J.C. Whitney and $2.3 million or $0.08 per share of legal expenses to protect intellectual property. This compares to net income of $1.3 million, or $0.04 per diluted share for 2009 which includes $0.4 million or $0.01 per share of legal expenses to protect intellectual property. Earnings per share ("EPS") for the years ended January 1, 2011 and January 2, 2010 included amortization expense related to intangibles of $2.8 million or $0.09 per share and $0.7 million or $0.2 per diluted share, respectively.  The Company generated adjusted EBITDA of $19.5 million in 2010 compared to $13.5 million in 2009.  Adjusted EBITDA excludes share-based compensation expense of $2.7 million in 2010 and $3.3 million in 2009.

"We are pleased to report our sixth consecutive quarter of 20% plus organic sales growth.  Additionally, we continue to be on track with the integration of our recent acquisition, Whitney Automotive Group.  We have successfully converted the catalog, cut over StylinTruck and CarParts to our platform and are on track to cut over JC Whitney by the end of the 2Q 2011," stated Shane Evangelist, Chief Executive Officer.

Q4 2010 Financial Highlights

    --  Net sales for Q4 2010 increased by 75.7% from Q4 2009. Excluding the
        acquisition of JC Whitney, Q4 2010 net sales increased 20.2% due to a
        19.5% increase in online sales and a 28.9% increase in offline sales.
        The increase in online sales resulted from an 8.5% improvement in
        conversion, 12.9% growth in unique visitors and a 2.7% increase in
        revenue capture, partially offset by a 2.7% decline in average order
        value.
    --  Gross profit for Q4 2010, increased 66.4% from Q4 2009. Excluding the
        acquisition of JC Whitney, gross profit was $18.4 million an increase of
        11.5%. Gross margin declined 1.9% to 34.1% of net sales compared with Q4
        2009. Excluding the acquisition of JC Whitney, gross margin was 33.4%.
        Gross margin was unfavorably impacted by increased freight expense of
        1.1%, and a discontinuation of high margin loyalty programs of 0.6%.
    --  Online advertising expense, which includes catalog costs, was $7.1
        million or 9.5% of Internet and catalog net sales for the Fourth quarter
        of 2010. Excluding JC Whitney, online advertising expense was 7.2% of
        Internet sales, up 0.5% from the prior year. Marketing expense,
        excluding advertising expense, was $6.1 million or 7.6% of net sales for
        the fourth quarter of 2010 compared to 7.1% in the prior year period.
        Excluding JC Whitney, marketing expense without advertising was $4.2
        million or 7.6% of Q4 2010 net sales, up 0.5% from the prior year. The
        increase is primarily due to higher amortization from software
        deployments this year.
    --  General and administrative expense was $8.3 million or 10.4% of net
        sales for the fourth quarter of 2010 which includes $1.5 million of
        integration expenses for Whitney. Excluding the acquisition of JC
        Whitney, Q4 2010 G&A expense was $5.0 million or 9.0% of net sales, down
        1.8% from Q4 2009. This decrease reflects fixed cost leverage from
        higher sales.
    --  Fulfillment expense was $4.7 million or 5.8% of net sales in the fourth
        quarter of 2010. Excluding the acquisition of JC Whitney, Q4 2010
        fulfillment expense was 6.6% of net sales down from 6.7% last year. The
        decrease is primarily due to fixed cost leverage from higher sales.
    --  Technology expense was $2.1 million or 2.6% of net sales in the fourth
        quarter of 2010. Excluding the acquisition of JC Whitney, technology
        expense for Q4 2010 was 2.4% of net sales, unchanged from last year.
    --  Capital expenditures, inclusive of non-cash accrued asset purchases for
        the fourth quarter of 2010 were $3.5 million which included $1.8 million
        of internally developed software and website development costs.


Cash, cash equivalents and investments were $22.8 million and debt was $24.0 million at January 1, 2011. The Company includes $4.1 million of auction rate preferred securities in long-term assets as investments. Cash, cash equivalents and investments decreased by $6.9 million over the previous quarter primarily from JC Whitney related spending of $6.3 million including $3.4 million to pay-down stale accounts payable, $2.2 million of integration related capital expenditures and $0.7 million for inventory. U.S. Auto Parts also added $0.7 million of inventory during the quarter, all of which was private label. Also in connection with the Company’s  credit facility, the Company’s Consolidated Fixed Charge Coverage ratio was lower than the ratio required by the covenants in the Loan and Security Agreement between the Company and Silicon Valley Bank.  The bank has granted an amendment and limited waiver, which will not impact operating flexibility going forward.


Q4 2010 Operating Metrics



U.S. Auto Parts, Excluding JC Whitney Q4 2010 Q4 2009 Q3 2010

Conversion Rate                       1.59%   1.47%   1.61%

Customer Acquisition Cost             $6.56   $6.48   $6.44

Marketing Spend (% Internet Sales)    7.2%    6.7%    7.3%

Visitors (millions)(1)                28.3    25.1    29.4

Orders (thousands)                    451     368     474

Revenue Capture (% Sales)(2)          86.1%   83.9%   84.4%

Average Order Value                   $112    $115    $116



Consolidated                          Q4 2010 Q4 2009 Q3 2010

Conversion Rate                       1.73%   1.47%   1.67%

Customer Acquisition Cost             $10.73  $6.48   $8.29

Marketing Spend (% Internet Sales)    9.5%    6.7%    8.2%

Visitors (millions)(1)                37.4    25.1    34.8

Orders (thousands)                    650     368     582

Revenue Capture (% Sales)(2)          85.0%   83.9%   83.1%

Average Order Value                   $122    $115    $121



(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; (e) share-based compensation expense related to stock options; (f) legal costs to enforce intellectual property rights; (g) charge for change in revenue recognition; and (h) restructuring costs.

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  Fifty-Two Weeks  Fifty-Two Weeks

Consolidated   Ended           Ended           Ended            Ended

               January 1,      January 2,      January 1,       January 2,

               2011            2010            2011             2010



Net income
(loss)         $ (2,896)       $ 586           $ (13,926)       $ 1,317

Interest
income, net      240             (17)            371              (189)

Income tax
provision        64              687             12,218           3,123

Amortization
of intangibles   1,640           81              2,804            661

Depreciation
and
amortization     2,982           1,455           9,466            4,910

EBITDA           2,030           2,792           10,933           9,822

Share-based
compensation     630             569             2,742            3,270

Legal costs to
enforce
intellectual
property
rights           87              229             2,284            433

Charge for
change in
revenue
recognition      -               -               411              -

Add back Legal
Restructuring    38              -               393              -

Add back Other
Restructuring    1,496           -               2,731            -

Adjusted
EBITDA         $ 4,281         $ 3,590         $ 19,494         $ 13,525










US Auto Parts  Thirteen Weeks  Thirteen Weeks  Fifty-Two Weeks  Fifty-Two Weeks
Excluding JC
Whitney        Ended           Ended           Ended            Ended

               January 1,      January 2,      January 1,       January 2,

               2011            2010            2011             2010



Net income
(loss)         $ 218           $ 586           $ (7,909)        $ 1,317

Interest
income, net      295             (17)            378              (189)

Income tax
provision        29              687             12,182           3,123

Amortization
of intangibles   125             81              494              661

Depreciation
and
amortization     2,325           1,455           8,458            4,910

EBITDA           2,992           2,792           13,603           9,822

Share-based
compensation     630             569             2,742            3,270

Legal costs to
enforce
intellectual
property
rights           87              229             2,284            433

Charge for
change in
revenue
recognition      -               -               411              -

Adjusted
EBITDA         $ 3,709         $ 3,590         $ 19,040         $ 13,525







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 1-877-941-4776 (domestic) or 1-480-629-9762 (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 March 14, 2011. To access the replay, please dial 1-877-870-5176 (domestic) or 1-858-384-5517 (international), passcode 4415933. 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, speed of integration and/or profitability and performance of acquisitions, 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, economic downturn that could adversely impact retail sales; performance of the Company's acquistion; 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; 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)



                                               January 1, 2011  January 2, 2010



ASSETS

Current assets:

Cash and cash equivalents                      $ 17,595         $ 26,251

Short-term investments                         1,062            11,071

Accounts receivable, net                       6,849            3,383

Inventory                                      48,100           18,610

Deferred income taxes                          359              1,513

Other current assets                           5,646            3,148

Total current assets                           79,611           63,976

Property and equipment, net                    33,140           12,405

Intangible assets, net                         18,718           3,114

Goodwill                                       17,137           9,772

Deferred income taxes                          -                10,985

Investments                                    4,141            4,264

Other non-current assets                       787              98

Total assets                                   $ 153,534        $ 104,614



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable                               $ 31,660         $ 11,371

Accrued expenses                               15,487           8,038

Notes payable                                  6,122            —

Capital leases payable, current portion        132              —

Other current liabilities                      5,522            2,518

Total current liabilities                      58,923           21,927

Non-current liabilities:

Notes payable, net of current portion          17,875           —

Capital leases payable, net of current portion 185              —

Deferred tax liabilities                       3,046            —

Other non current liabilities                  701              —

Total liabilities, commitments and
contingencies                                  80,730           21,927



Stockholders' equity:

Common stock, $0.001 par value; 100,000,000
shares authorized at January 1, 2011 and
January 02, 2010; 30,429,376 and 29,893,631
shares issued and outstanding as of January 1,
2011 and January 2, 2010, respectively         30               30

Additional paid-in capital                     153,962          150,084

Accumulated other comprehensive income         249              84

Accumulated deficit                            (81,437)         (67,511)

Total stockholders' equity                     72,804           82,687

Total liabilities and stockholders' equity     $ 153,534        $ 104,614








U.S. AUTO PARTS NETWORK, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)



                  Thirteen Weeks Thirteen Weeks Fifty-Two Weeks Fifty-Two Weeks

                  Ended          Ended          Ended           Ended

                  January 1,     January 2,     January 1,      January 2,

                  2011           2010           2011            2010





Net sales         $ 80,450       $ 45,776       $ 262,277       $ 176,288

Cost of sales     53,051         29,309         172,668         112,415



Gross profit      27,399         16,467         89,609          63,873

Operating
expenses:

Marketing (1)     13,261         6,053          38,757          23,419

General and
administrative
(1)               8,339          4,933          28,628          19,640

Fulfillment (1)   4,677          3,051          14,946          11,437

Technology (1)    2,062          1,093          5,902           4,467

Amortization of
intangibles and
impairment loss   1,640          81             2,804           661

Total operating
expenses          29,979         15,211         91,037          59,624

Income (loss)
from operations   (2,580)        1,256          (1,428)         4,249

Other income:

Other income
(expense)         (12)           -              91              2

Interest income,
net               (240)          17             (371)           189

Other income, net (252)          17             (280)           191

Income before
income taxes      (2,832)        1,273          (1,708)         4,440

Income tax
provision         64             687            12,218          3,123

Net income (loss) $ (2,896)      $ 586          $ (13,926)      $ 1,317



Basic net income
(loss) per share  $ (0.10)       $ 0.02         $ (0.46)        $ 0.04

Diluted net
income (loss) per
share             $ (0.10)       $ 0.02         $ (0.46)        $ 0.04



Shares used in
computation of
basic net income
(loss) per share  30,402,264     29,865,452     30,357,988      29,851,873



Shares used in
computation of
diluted net
income (loss) per
share             30,402,264     31,245,893     30,357,988      30,809,111





                  Thirteen Weeks Thirteen Weeks Fifty-Two Weeks Fifty-Two Weeks

                  Ended          Ended          Ended           Ended

                  January 1,     January 2,     January 1,      January 2,

(1) Includes
share-based
compensation
expense as
follows:          2011           2010           2011            2010

Marketing         $ 56           $ 114          $ 321           $ 436

General and
administrative    422            384            1,869           2,276

Fulfillment       115            60             376             213

Technology        37             11             176             345

Total share-based
compensation
expense           $ 630          $ 569          $ 2,742         $ 3,270








U.S. AUTO PARTS NETWORK, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



                                   Fifty-Two Weeks Ended  Fifty-Two Weeks Ended

                                   January 1,             January 2,

                                   2011                   2010



Operating activities

Net (loss) income                  $ (13,926)             $ 1,317

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

Depreciation and amortization      9,466                  4,910

Amortization of intangibles        2,804                  661

Share-based compensation expense   2,742                  3,270

Deferred taxes                     12,336                 3,634

Gain from disposition of assets    (5)                    -

Amortization of deferred financing
costs                              50                     -

Changes in operating assets and
liabilities:

Accounts receivable                919                    (2,030)

Inventory                          (17,124)               (7,700)

Other current assets               (1,229)                (1,055)

Other non current assets           (123)                  (3)

Accounts payable and accrued
expenses                           (979)                  7,560

Other current liabilities          1,812                  1,023

Other non current liabilities      700                    -



Net cash (used in) provided by
operating activities               (2,557)                11,587



Investing activities

Additions to property and
equipment                          (12,068)               (8,400)

Proceeds from the sale of
investments                        29,641                 2,150

Purchases of investments           (19,540)               (11,090)

Purchases of company-owned life
insurance                          (250)                  -

Acquisition                        (27,500)               -

Purchases of intangible assets     (1,012)                (739)



Net cash used in investing
activities                         (30,729)               (18,079)



Financing activities

Payments on short-term financing   (77)                   (47)

Proceeds from notes payable        25,000                 -

Payments on notes payable          (1,000)                -

Payments of debt financing costs   (467)                  -

Proceeds from exercise of stock
options                            956                    162



Net cash provided by financing
activities                         24,412                 115



Effect of changes in foreign
currencies                         218                    155



Net decrease in cash and cash
equivalents                        (8,656)                (6,222)

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



Cash and cash equivalents at end
of period                          $ 17,595               $ 26,251





Supplemental disclosure of
non-cash investing activities:

Accrued asset purchases            1,691                  451

Property acquired under capital
lease                              370                    -

Unrealized gain on investments     15                     19

Supplemental disclosure of cash
flow information:

Cash paid during the period for
income taxes                       131                    589

Cash paid during the period for
interest                           127                    2






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.