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

- Net sales $53.2 million.

- Adjusted EBITDA $3.3 million.

- Gross margin 34.6%.

CARSON, Calif., Aug. 2 /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 second quarter ended July 3, 2010 of  $53.2 million compared with Q2 2009 net sales of $43.8 million.  Excluding the impact of a $2.0 million non-cash reduction of reported sales related to a change in the Company's revenue recognition resulting from a change in freight contract terms, net sales were $55.2 million, an increase of 26.0% over Q2 2009 net sales. Q2 2010 net income was $0.5 million or $0.01 per diluted share, a decrease of $0.1 million over Q2 2009. Q2 2010 net income includes $0.8 million net of tax or $0.03 per diluted share of legal fees associated with intellectual property litigation and $0.3 million net of tax or $0.01 per diluted share related to a change in the Company's revenue recognition resulting from a change in freight contract terms. The Company generated adjusted EBITDA of $3.3 million for the quarter compared to $3.2 million for Q2 2009. Excluding $1.2 million of legal fees to protect intellectual property and $0.4 million related to a change in revenue recognition resulting from a change in freight contract terms, adjusted EBITDA was $5.0 million, an increase of 58%. For further information regarding adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income (loss), see non-GAAP Financial Measures below.

"Q2 completes a full year of double digit growth in both sales and EBITDA," stated Shane Evangelist, Chief Executive Officer. "As I mentioned in our first quarter call, sales began accelerating in June of 2009 and we would face tough year over year comparisons starting in June 2010. Despite these tougher comps, I am happy to report that year over year Internet sales for June 2010 rose 18% on top of June 2009's 19% growth and July 2010 sales grew 23% on top of July 2009's 24% growth." Evangelist continued, "Our AutoMD.com (www.AutoMD.com) initiative continues to gain acceptance and recognition. AutoMD recently won a Stevie Award as the best auto repair site on the Web. Traffic is about 300,000 unique monthly visitors.    

"Looking forward, we expect both the DIY market and Internet penetration of the auto parts market to continue to grow.  Historically, the first half of the year outpaced the second half of the year by about 10% driven by seasonal demand for crash parts; however, based on our focus on engine part sales, which typically over-index in the second half, we now believe, based on sales data from June and July that our revenues for the second half of the year will not experience the pronounced decline from the first half of the year as in years past."

Q2 2010 Financial Highlights

    --  Net sales for Q2 2010, excluding the change in the Company's revenue
        recognition, increased by 26.0% from Q2 2009. Online sales for Q2 2010
        increased 25.6% and offline sales increased by 37.2% compared to Q2
        2009. The increase in online sales resulted from a 17.0% improvement in
        conversion, 3.3% growth in unique visitors and a 4.2% increase in
        revenue capture.
    --  Gross profit for Q2 2010, excluding the change in the Company's revenue
        recognition, was $18.9 million, up 18.9% from Q2 2009's gross profit of
        $15.9 million. Gross margin, excluding the change in the Company's
        revenue recognition, declined 1.9% to 34.3% compared with Q2 2009 at
        36.2% of net sales. Gross margin was unfavorably impacted by increased
        freight expense related to fuel surcharges and a discontinuation of high
        margin loyalty programs.
    --  Online advertising expense was $3.2 million or 6.3% of internet net
        sales for the second quarter of 2010, down 0.7% from the prior year due
        to more efficient advertising spend. Marketing expense, excluding
        advertising expense, was $4.0 million or 7.2% of net sales for the
        second quarter of 2010 excluding the change in the Company's revenue
        recognition compared to 6.6% in the prior year period. The increase is
        primarily due to higher amortization from software deployments this year
        and additional marketing services.
    --  General and administrative expense was $6.4 million or 11.6% of net
        sales for the second quarter of 2010 excluding the change in the
        Company's revenue recognition compared to 11.0% of net sales in the
        prior year period. This increase was primarily due to higher legal costs
        to enforce our intellectual property rights.
    --  Fulfillment expense was $2.9 million or 5.3% of net sales in the second
        quarter of 2010 excluding the change in the Company's revenue
        recognition compared to 6.4% in the prior year period. The decrease is
        primarily due to fixed cost leverage from higher sales.
    --  Technology expense was $1.2 million or 2.2% of net sales in the second
        quarter of 2010 excluding the change in the Company's revenue
        recognition compared to 3.0% of net sales in the prior year period. The
        decrease reflects fixed cost leverage from increased sales.
    --  Capital expenditures, inclusive of non-cash accrued asset purchases for
        the second quarter of 2010 were $3.0 million which included $1.8 million
        of internally developed software and website development costs.
    --  Cash, cash equivalents and investments were $44.3 million at July 3,
        2010. The Company includes $25.0 million of investments in liquid short
        term assets and $4.2 million in auction rate preferred securities in
        long-term assets, which are not included in cash. Cash, cash equivalents
        and investments decreased by $1.2 million over the previous quarter from
        $2.0 million in operating cash flow, partially offset by $3.3 million of
        cash spent on capital expenditures.


Q2 2010 Operating Metrics


                                   Q2 2010 Q2 2009 Q1 2010

Conversion Rate                    1.58%   1.35%   1.48%

Customer Acquisition Cost          $5.93   $6.65   $6.13

Marketing Spend (% Internet Sales) 6.3%    7.0%    6.4%

Visitors (millions)1               27.8    26.9    28.6

Orders (thousands)                 440     363     423

Revenue Capture (% Sales)2         83.9%   80.5%   84.1%

Average Order Value                $120    $121    $119



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 table below reconciles net income (loss) to adjusted EBITDA for the periods presented (in thousands):


                            Thirteen     Thirteen     Twenty-Six   Twenty-Six
                            Weeks Ended  Weeks Ended  Weeks Ended  Weeks Ended

                            July 3,      July 4,      July 3,      July 4,

                            2010         2009         2010         2009



Net income (loss)           $ 462        $ 629        $ 2,009      $ (50)

Interest income, net          (34)         (49)         (55)         (140)

Income tax provision          225          469          1,175        1,832

Amortization of intangibles   124          153          245          520

Depreciation and
amortization                  1,950        1,134        3,934        2,153

EBITDA                        2,727        2,336        7,308        4,315

Share-based compensation      612          820          1,472        1,847

Adjusted EBITDA             $ 3,339      $ 3,156      $ 8,780      $ 6,162





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 1-877-941-8418 (domestic) or 1-480-629-9809 (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 August 16, 2010. To access the replay, please dial 1-877-870-5176 (domestic) or 1-858-384-5517 (international), passcode 4340251.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.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, 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; 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)

                                                 July 3, 2010  January 2, 2010

                                                 (unaudited)

ASSETS

Current assets:

Cash and cash equivalents                        $ 15,197      $ 26,251

Short-term investments                           24,983        11,071

Accounts receivable, net                         2,581         3,383

Inventory                                        26,536        18,610

Deferred income taxes                            1,513         1,513

Other current assets                             4,013         3,148



Total current assets                             74,823        63,976



Property and equipment, net                      14,920        12,405

Intangible assets, net                           3,870         3,114

Goodwill                                         9,772         9,772

Deferred income taxes                            10,065        10,985

Investments                                      4,165         4,264

Other non-current assets                         435           98



Total assets                                     $ 118,050     $ 104,614



LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable                                 $ 17,173      $ 11,371

Accrued expenses                                 9,623         8,038

Other current liabilities                        3,736         2,518



Total current liabilities                        30,532        21,927



Non-current liabilities                          317           —



Total liabilities, commitments and contingencies 30,849        21,927





Stockholders’ equity:

Common stock, $0.001 par value; 100,000,000
shares
authorized at July 3, 2010 and January 02, 2010;
30,336,020 and 29,893,631 shares issued and
outstanding as of July 3, 2010 and January 2,
2010
respectively                                     30            30

Additional paid-in capital                       152,510       150,084

Accumulated other comprehensive income           163           84

Accumulated deficit                              (65,502)      (67,511)



Total stockholders’ equity                     87,201        82,687



Total liabilities and stockholders’ equity     $ 118,050     $ 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  Twenty-Six   Twenty-Six
                       Ended           Ended           Weeks Ended  Weeks Ended

                       July 3,         July 4,         July 3,      July 4,

                       2010            2009            2010         2009





Net sales              $ 53,188        $ 43,805        $ 109,479    $ 83,469

Cost of sales          34,791          27,937          71,275       52,961



Gross profit           18,397          15,868          38,204       30,508

Operating expenses:

Marketing (1)          7,138           5,680           14,351       11,015

General and
administrative (1)     6,395           4,811           12,132       9,576

Fulfillment (1)        2,924           2,809           6,167        5,461

Technology (1)         1,158           1,343           2,176        2,271

Amortization of
intangibles and
impairment loss        124             153             245          520



Total operating
expenses               17,739          14,796          35,071       28,843

Income from operations 658             1,072           3,133        1,665

Other income:

Other income (loss)    (5)             (23)            (4)          (23)

Interest income, net   34              49              55           140



Other income, net      29              26              51           117

Income before income
taxes                  687             1,098           3,184        1,782

Income tax provision   225             469             1,175        1,832



Net income (loss)      $ 462           $ 629           $ 2,009      $ (50)



Basic net income
(loss) per share       $ 0.02          $ 0.02          $ 0.07       $ (0.00)

Diluted net income
(loss) per share       $ 0.01          $ 0.02          $ 0.06       $ (0.00)

Shares used in
computation of basic
net income (loss) per
share                  30,314,478      29,846,757      30,158,797   29,846,757

Shares used in
computation of diluted
net income (loss) per
share                  31,994,447      30,395,189      31,723,316   29,846,757






___________________________________

                                     Thirteen  Thirteen  Twenty-Six  Twenty-Six
                                     Weeks     Weeks     Weeks       Weeks
                                     Ended     Ended     Ended       Ended

                                     July 3,   July 4,   July 3,     July 4,

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

Marketing                            $ 72      $ 110     $ 192       $ 216

General and administrative           452       495       1,000       1,317

Fulfillment                          64        57        189         104

Technology                           24        158       91          210

Total share-based compensation
expense                              $ 612     $ 820     $ 1,472     $ 1,847






U.S. AUTO PARTS NETWORK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)



                                 Twenty-Six Weeks Ended Twenty-Six Weeks Ended

                                 July 3, 2010           July 4, 2009



Operating activities

Net income/(loss)                $ 2,009                $ (50)

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

Depreciation and amortization    3,934                  2,153

Amortization of intangibles      245                    520

Share-based compensation expense 1,472                  1,847

Excess tax benefits from
share-based payment arrangements (237)                  -

Deferred taxes                   790                    1,731

Changes in cash surrender value
of company-owned life insurance  25                     -

Loss from disposition of assets  6                      -

Changes in operating assets and
liabilities:

Accounts receivable, net         800                    (511)

Inventory                        (7,926)                (1,274)

Other current assets             (869)                  (1,044)

Other non current assets         (115)                  -

Accounts payable and accrued
expenses                         7,646                  3,267

Other current liabilities        1,219                  925

Other non current liabilities    318                    -



Net cash provided by operating
activities                       9,317                  7,564



Investing activities

Additions to property and
equipment                        (6,298)                (3,862)

Proceeds from the sale of
investments                      4,237                  475

Purchases of investments         (17,984)               (4,096)

Purchases of company-owned life
insurance                        (250)                  -

Purchases of intangible assets   (1,001)                -

Net cash used in investing
activities                       (21,296)               (7,483)



Financing activities

Payments on short-term financing -                      (39)

Proceeds from exercise of stock
options                          658                    -

Excess tax benefits from
share-based payment arrangements 237                    -

Net cash provided by (used in)
financing activities             895                    (39)

Effect of changes in foreign
currencies                       30                     82



Net (decrease) increase in cash
and cash equivalents             (11,054)               124

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

Cash and cash equivalents at end
of period                        $ 15,197               $ 32,597



Supplemental disclosure of
non-cash investing activities:

Accrued asset purchases          571                    75

Cash paid during the period for
income taxes                     87                     -






Investor Contacts:



Ted Sanders, Chief Financial Officer

U.S. Auto Parts Network, Inc.

tsanders@usautoparts.com

(310) 735-0085



Budd Zuckerman, President

Genesis Select Corporation

bzuckerman@genesisselect.com

(303) 415-0200





SOURCE U.S. Auto Parts Network, Inc.