Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - CarParts.com, Inc. | ex-32210xqq32015.htm |
| EX-32.1 - EXHIBIT 32.1 - CarParts.com, Inc. | ex-32110xqq32015.htm |
| EX-31.2 - EXHIBIT 31.2 - CarParts.com, Inc. | ex-31210xqq32015.htm |
| EX-31.1 - EXHIBIT 31.1 - CarParts.com, Inc. | ex-31110xqq32015.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 3, 2015
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-33264
U.S. AUTO PARTS NETWORK, INC.
(Exact name of registrant as specified in its charter)
Delaware | 68-0623433 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of Principal Executive Office) (Zip Code)
(310) 735-0085
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | o | Accelerated Filer | o |
Non-Accelerated Filer | ý (Do not check if a smaller reporting company) | Smaller reporting company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of October 30, 2015, the registrant had 34,080,828 shares of common stock outstanding, $0.001 par value.
U.S. AUTO PARTS NETWORK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED OCTOBER 3, 2015
TABLE OF CONTENTS
Page | ||
ITEM 1. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
ITEM 1. | ||
ITEM 1A. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
ITEM 5. | ||
ITEM 6. | ||
Unless the context requires otherwise, as used in this report, the terms “U.S. Auto Parts,” the “Company,” “we,” “us” and “our” refer to U.S. Auto Parts Network, Inc. and its wholly-owned and majority-owned subsidiaries. Unless otherwise stated, all amounts are presented in thousands. In addition, unless the context requires otherwise, references to AutoMD refer to AutoMD, Inc., our majority-owned subsidiary.
U.S. Auto Parts®, U.S. Auto Parts Network™, AutoMD®, AutoMD Insta-Quotes! ®, Kool-Vue™, JC Whitney®, and Stylintrucks™, amongst others, are our United States trademarks. All other trademarks and trade names appearing in this report are the property of their respective owners.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements included in this report, other than statements or characterizations of historical or current fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbors created thereby. Any forward-looking statements included herein are based on management’s beliefs and assumptions and on information currently available to management. We have attempted to identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would”, “will likely continue,” “will likely result” and variations of these words or similar expressions. These forward-looking statements include, but are not limited to, statements regarding future events, our future operating and financial results, financial expectations, expected growth and strategies, current business indicators, capital needs, financing plans, capital deployment, liquidity, contracts, litigation, product offerings, customers and suppliers, acquisitions, competition and the status of our facilities. Forward-looking statements, no matter where they occur in this document or in other statements attributable to the Company involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” in Part II, Item 1A of this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands, Except Par Value and Per Share Liquidation Value)
October 3, 2015 | January 3, 2015 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 5,676 | $ | 7,653 | |||
Short-term investments | 63 | 62 | |||||
Accounts receivable, net of allowances of $7 and $41 at October 3, 2015 and January 3, 2015, respectively | 3,543 | 3,804 | |||||
Inventory | 46,185 | 48,362 | |||||
Other current assets | 3,338 | 2,669 | |||||
Total current assets | 58,805 | 62,550 | |||||
Property and equipment, net | 18,514 | 16,966 | |||||
Intangible assets, net | 1,387 | 1,707 | |||||
Other non-current assets | 1,555 | 1,684 | |||||
Total assets | $ | 80,261 | $ | 82,907 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 24,802 | $ | 25,362 | |||
Accrued expenses | 7,471 | 7,747 | |||||
Revolving loan payable | 8,291 | 11,022 | |||||
Current portion of capital leases payable | 551 | 269 | |||||
Other current liabilities | 4,161 | 3,505 | |||||
Total current liabilities | 45,276 | 47,905 | |||||
Capital leases payable, net of current portion | 10,278 | 9,270 | |||||
Deferred income taxes | 939 | 1,618 | |||||
Other non-current liabilities | 1,659 | 1,891 | |||||
Total liabilities | 58,152 | 60,684 | |||||
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; 4,150 shares issued and outstanding at October 3, 2015 and January 3, 2015 | 4 | 4 | |||||
Common stock, $0.001 par value; 100,000 shares authorized; 34,067 and 33,624 shares issued and outstanding at October 3, 2015 and January 3, 2015 | 34 | 33 | |||||
Additional paid-in capital | 176,060 | 174,369 | |||||
Accumulated other comprehensive income | 360 | 360 | |||||
Accumulated deficit | (156,496 | ) | (155,489 | ) | |||
Total stockholders’ equity | 19,962 | 19,277 | |||||
Noncontrolling interest | 2,147 | 2,946 | |||||
Total equity | 22,109 | 22,223 | |||||
Total liabilities and stockholders’ equity | $ | 80,261 | $ | 82,907 | |||
See accompanying notes to consolidated financial statements (unaudited).
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U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(Unaudited, in Thousands, Except Per Share Data)
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||
October 3, 2015 | September 27, 2014 | October 3, 2015 | September 27, 2014 | ||||||||||||
Net sales | $ | 70,648 | $ | 67,965 | $ | 223,498 | $ | 212,940 | |||||||
Cost of sales (1) | 49,606 | 49,551 | 160,110 | 153,405 | |||||||||||
Gross profit | 21,042 | 18,414 | 63,388 | 59,535 | |||||||||||
Operating expenses: | |||||||||||||||
Marketing | 10,684 | 10,278 | 32,684 | 31,356 | |||||||||||
General and administrative | 4,292 | 3,762 | 12,957 | 12,532 | |||||||||||
Fulfillment | 4,881 | 5,256 | 14,919 | 15,351 | |||||||||||
Technology | 1,292 | 1,228 | 3,830 | 3,640 | |||||||||||
Amortization of intangible assets | 115 | 106 | 345 | 316 | |||||||||||
Total operating expenses | 21,264 | 20,630 | 64,735 | 63,195 | |||||||||||
Loss from operations | (222 | ) | (2,216 | ) | (1,347 | ) | (3,660 | ) | |||||||
Other income (expense): | |||||||||||||||
Other income, net | 8 | 24 | 41 | 39 | |||||||||||
Interest expense | (277 | ) | (287 | ) | (922 | ) | (784 | ) | |||||||
Total other expense, net | (269 | ) | (263 | ) | (881 | ) | (745 | ) | |||||||
Loss before income taxes | (491 | ) | (2,479 | ) | (2,228 | ) | (4,405 | ) | |||||||
Income tax (benefit) provision | (203 | ) | 15 | (602 | ) | 68 | |||||||||
Net loss including noncontrolling interests | (288 | ) | (2,494 | ) | (1,626 | ) | (4,473 | ) | |||||||
Net loss attributable to noncontrolling interests | (296 | ) | — | (799 | ) | — | |||||||||
Net income (loss) attributable to U.S. Auto Parts | 8 | (2,494 | ) | (827 | ) | (4,473 | ) | ||||||||
Other comprehensive loss attributable to U.S. Auto Parts, net of tax: | |||||||||||||||
Foreign currency translation adjustments | (28 | ) | 23 | (50 | ) | 19 | |||||||||
Net unrecognized losses on derivative instruments | — | (48 | ) | — | (70 | ) | |||||||||
Total other comprehensive loss attributable to U.S. Auto Parts | (28 | ) | (25 | ) | (50 | ) | (51 | ) | |||||||
Comprehensive loss attributable to U.S. Auto Parts | $ | (20 | ) | $ | (2,519 | ) | $ | (877 | ) | $ | (4,524 | ) | |||
Basic and diluted net loss per share | $ | 0.00 | $ | (0.08 | ) | $ | (0.03 | ) | $ | (0.14 | ) | ||||
Shares used in computation of basic and diluted net loss per share | 34,018 | 33,532 | 33,900 | 33,459 | |||||||||||
(1) | Excludes depreciation and amortization expense which is included in marketing, general and administrative and fulfillment expense. |
See accompanying notes to consolidated financial statements (unaudited).
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U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In Thousands)
Thirty-Nine Weeks Ended | |||||||
October 3, 2015 | September 27, 2014 | ||||||
Operating activities | |||||||
Net loss including noncontrolling interests | $ | (1,626 | ) | $ | (4,473 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | 5,618 | 6,833 | |||||
Amortization of intangible assets | 345 | 316 | |||||
Deferred income taxes | (674 | ) | 60 | ||||
Share-based compensation expense | 1,726 | 1,691 | |||||
Stock awards issued for non-employee director service | 2 | — | |||||
Amortization of deferred financing costs | 61 | 61 | |||||
Gain from disposition of assets | (13 | ) | (21 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 261 | 1,071 | |||||
Inventory | 2,177 | (7,830 | ) | ||||
Other current assets | (706 | ) | 106 | ||||
Other non-current assets | 93 | (9 | ) | ||||
Accounts payable and accrued expenses | (460 | ) | 2,869 | ||||
Other current liabilities | 649 | 227 | |||||
Other non-current liabilities | (105 | ) | (191 | ) | |||
Net cash provided by operating activities | 7,348 | 710 | |||||
Investing activities | |||||||
Additions to property and equipment | (5,800 | ) | (4,292 | ) | |||
Proceeds from sale of property and equipment | 13 | 27 | |||||
Cash paid for intangible assets | (25 | ) | (100 | ) | |||
Purchases of marketable securities and investments | — | (746 | ) | ||||
Proceeds from the sale of marketable securities and investments | — | 745 | |||||
Net cash used in investing activities | (5,812 | ) | (4,366 | ) | |||
Financing activities | |||||||
Borrowings from revolving loan payable | 8,970 | 14,233 | |||||
Payments made on revolving loan payable | (11,700 | ) | (10,138 | ) | |||
Proceeds from stock options | 102 | 265 | |||||
Payments on capital leases | (297 | ) | (170 | ) | |||
Statutory tax withholding payment for share-based compensation | (438 | ) | — | ||||
Payment of liabilities related to financing activities | (100 | ) | (100 | ) | |||
Net cash (used in) provided by financing activities | (3,463 | ) | 4,090 | ||||
Effect of exchange rate changes on cash | (50 | ) | 3 | ||||
Net change in cash and cash equivalents | (1,977 | ) | 437 | ||||
Cash and cash equivalents, beginning of period | 7,653 | 818 | |||||
Cash and cash equivalents, end of period | $ | 5,676 | $ | 1,255 | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Accrued asset purchases | $ | 902 | $ | 801 | |||
Property acquired under capital lease | 1,588 | — | |||||
Unrealized (loss) gain on investments | (2 | ) | 70 | ||||
Supplemental disclosure of cash flow information: | |||||||
Cash (paid) received during the period for income taxes | $ | (84 | ) | $ | 34 | ||
Cash paid during the period for interest | 886 | 744 | |||||
6
U.S. AUTO PARTS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In Thousands, Except Per Share Data)
Note 1 – Basis of Presentation and Description of Company
U.S. Auto Parts Network, Inc. (including its subsidiaries) is a leading online provider of aftermarket auto parts and accessories and was established in 1995. The Company entered the e-commerce sector by launching its first website in 2000 and currently derives the majority of its revenues from online sales channels. The Company sells its products to individual consumers through a network of websites and online marketplaces. Through AutoMD.com, a majority-owned subsidiary, the Company also educates consumers on maintenance and service of their vehicles. The site provides auto information, with tools for diagnosing car troubles, locating repair shops and do-it-yourself (“DIY”) repair guides. Our flagship consumer websites are located at www.autopartswarehouse.com, www.carparts.com, www.jcwhitney.com and www.AutoMD.com and our corporate website is located at www.usautoparts.net. References to the “Company,” “we,” “us,” or “our” refer to U.S. Auto Parts Network, Inc. and its consolidated subsidiaries.
The Company’s products consist of body parts, hard parts, performance parts and accessories. The body parts category is primarily comprised of replacement parts for the exterior of an automobile. Our parts in this category are typically replacement parts for original body parts that have been damaged as a result of a collision or through general wear and tear. The majority of these products are sold through our websites and wholesale operations. In addition, we sell an extensive line of mirror products, including our own private label brand called Kool-Vue™, which are marketed and sold as aftermarket replacement parts and as upgrades to existing parts. The hard parts category is comprised of engine components and other mechanical and electrical parts. These parts serve as replacement parts for existing engine parts and are generally used by professionals and do-it-yourselfers for engine and mechanical maintenance and repair. We offer performance and accessory versions of many parts sold in each of the above categories. Performance parts and accessories generally consist of parts that enhance the performance of the automobile, upgrade existing functionality of a specific part or improve the physical appearance or comfort of the automobile.
The Company is a Delaware C corporation and is headquartered in Carson, California. The Company has employees located in both the United States and the Philippines.
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to U.S. Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company as of October 3, 2015 and the consolidated results of operations for the thirteen and thirty-nine weeks ended October 3, 2015 and September 27, 2014, and cash flows for the thirty-nine weeks ended October 3, 2015 and September 27, 2014. The Company’s results for the interim periods are not necessarily indicative of the results that may be expected for any other interim period, or for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended January 3, 2015, which was filed with the SEC on March 20, 2015 and all our other periodic filings, including Current Reports on Form 8-K, filed with the SEC after the end of our 2014 fiscal year, and throughout the date of this report.
During the thirteen and thirty-nine weeks ended October 3, 2015, the Company had a net income of $8, and a net loss of $827, respectively, compared to a net loss of $2,494, and $4,473, respectively, during the thirteen and thirty-nine weeks ended September 27, 2014. Based on our current operating plan, we believe that our existing cash, cash equivalents, investments, cash flows from operations and available debt financing will be sufficient to finance our operational cash needs through at least the next twelve months. When compared to fiscal year 2014, we expect our net loss to be significantly lower in fiscal year 2015. Should the Company’s operating results not meet expectations in 2015, it could negatively impact our liquidity as we may not be able to provide positive cash flows from operations in order to meet our working capital requirements. We may need to borrow additional funds from our credit facility, which under certain circumstances may not be available, sell assets or seek additional equity or additional debt financing in the future. There can be no assurance that we would be able to raise such additional financing or engage in such additional asset sales on acceptable terms, or at all. If revenues were to decline and losses are larger or continue for longer than we expect because our strategies to return to profitability are not successful or otherwise, and if we are not able to raise adequate additional financing or proceeds from asset sales to continue to fund our
7
ongoing operations, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations.
Segment Data
The Company operates in two reportable operating segments. The criteria the Company uses to identify operating segments are primarily the nature of the products we sell or services we provide and the consolidated operating results that are regularly reviewed by our chief operating decision maker to assess performance and make operating decisions. We identified two reportable operating segments, the core auto parts business ("Base USAP"), and AutoMD, Inc. ("AutoMD") an online automotive repair source.
Recent Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11, “Simplifying the Measurement of Inventory,” (“ASU 2015-11”) which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The new standard is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is evaluating the effect that ASU 2015-11 will have on the consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has the effect of the standard on ongoing financial reporting been determined.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-9, “Revenue from Contracts with Customers,” (“ASU 2014-9”) which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years beginning after December 15, 2016. In August, 2015 the FASB amended the standard to take effect for reporting periods beginning after December 15, 2017 and early adoption is permitted for public companies for reporting periods beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-9 will have on the consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has the effect of the standard on ongoing financial reporting been determined.
Note 2 –Intangible Assets, Net
Intangible assets consisted of the following at October 3, 2015 and January 3, 2015 (in thousands):
October 3, 2015 | January 3, 2015 | ||||||||||||||||||||||||
Useful Life | Gross Carrying Amount | Accumulated Amort. and Impairment | Net Carrying Amount | Gross Carrying Amount | Accumulated Amort. and Impairment | Net Carrying Amount | |||||||||||||||||||
Intangible assets subject to amortization: | |||||||||||||||||||||||||
Product design intellectual property | 4 years | $ | 2,750 | $ | (2,296 | ) | $ | 454 | $ | 2,750 | $ | (2,102 | ) | $ | 648 | ||||||||||
Patent license agreements | 3 - 5 years | 562 | (187 | ) | $ | 375 | 537 | (94 | ) | $ | 443 | ||||||||||||||
Domain and trade names | 10 years | 1,199 | (641 | ) | $ | 558 | 1,199 | (583 | ) | $ | 616 | ||||||||||||||
Total | $ | 4,511 | $ | (3,124 | ) | $ | 1,387 | $ | 4,486 | $ | (2,779 | ) | $ | 1,707 | |||||||||||
Intangible assets subject to amortization are amortized on a straight-line basis. Amortization expense relating to intangible assets for the thirteen weeks ended October 3, 2015 and September 27, 2014 was $115 and $106, respectively.
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Amortization expense relating to intangible assets for the thirty-nine weeks ended October 3, 2015 and September 27, 2014 was $345 and $316, respectively.
The following table summarizes the future estimated annual amortization expense for these assets over the next five years:
2015 (fourth quarter) | $ | 115 | |
2016 | 460 | ||
2017 | 323 | ||
2018 | 165 | ||
2019 | 80 | ||
Thereafter | 244 | ||
Total | $ | 1,387 | |
Note 3 – Borrowings
The Company maintains an asset-based revolving credit facility ("Credit Facility") that provides for, among other things, a revolving commitment in an aggregate principal amount of up to $25,000, which is subject to a borrowing base derived from certain receivables, inventory, and property and equipment. Upon satisfaction of certain conditions, the Company has the right to increase the revolving commitment to up to $40,000. The Company, to date, has not requested such an increase. The Credit Facility matures on April 26, 2017. At October 3, 2015, our outstanding revolving loan balance was $8,291. The customary events of default under the Credit Facility (discussed below) include certain subjective acceleration clauses. Management has determined the likelihood of an acceleration is more than remote, considering the recurring losses experienced by the Company. As a result, outstanding borrowings under the Credit Facility have been classified as a current liability.
On March 24, 2015, the Company and JPMorgan Chase Bank, N.A. (“JPMorgan”) entered into a Seventh Amendment to Credit Agreement and Second Amendment to Pledge and Security Agreement (the “Amendment”), which amended the Credit Agreement previously entered into by the Company, certain of its domestic subsidiaries and JPMorgan on April 26, 2012 (as amended, the “Credit Agreement”) and the Pledge and Security Agreement previously entered into by the Company, certain of its domestic subsidiaries and JPMorgan on April 26, 2012. Pursuant to the Amendment, the aggregate principal amount of indebtedness that is permitted related to capital leases was increased from $1,000 to $1,500.
Loans drawn under the Credit Facility bear interest, at the Company’s option, at a per annum rate equal to either (a) one month LIBOR plus an applicable margin of 2.25%, or (b) an “alternate prime base rate” plus an applicable margin of 0.25%. Subsequent to June 30, 2016, each applicable margin as set forth in the prior sentence is subject to reduction by up to 0.50% per annum based upon the Company’s fixed charge coverage ratio. At October 3, 2015, the Company’s LIBOR based interest rate was 2.50% (on $8,250 principal) and the Company’s prime based rate was 3.50% (on $41 principal). A commitment fee, based upon undrawn availability under the Credit Facility bearing interest at a rate of 0.25% per annum, is payable monthly. Under the terms of the Credit Agreement, cash receipts are deposited into a lock-box, which are at the Company’s discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing under the Credit Agreement. The cash dominion period is triggered in an event of default or if excess availability is less than the $4,000 as defined, and will continue until, during the preceding 60 consecutive days, no event of default existed and excess availability has been greater than $5,000 at all times. Beginning on July 1, 2016, in the event that “excess availability,” as defined under the Credit Agreement, is less than $2,000 the Company shall be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0.
The Company's excess availability, net of the "Availability Block" (as defined under the Credit Agreement) of $2,000 was $11,955 at October 3, 2015. As of the date hereof, the cash dominion period has not been in effect; accordingly, no principal payments are due.
As of October 3, 2015, the Company had total capital leases payable of $10,829. The present value of the net minimum payments on capital leases as of October 3, 2015 was as follows (in thousands):
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Total minimum lease payments | 19,429 | ||
Less amount representing interest | (8,600 | ) | |
Present value of net minimum lease payments | 10,829 | ||
Current portion of capital leases payable | (551 | ) | |
Capital leases payable, net of current portion | $ | 10,278 | |
Note 4 – Stockholders’ Equity and Share-Based Compensation
Non-Controlling Interest
Non-controlling interests represent equity interests in consolidated subsidiaries that are not attributable, either directly or indirectly, to the Company (i.e., minority interests). Non-controlling interests include the minority equity holders' proportionate share of the equity of AutoMD. Ownership interests in subsidiaries held by parties other than the Company are presented as non-controlling interests within stockholders' equity, separately from the equity held by the Company. Revenues, expenses, net income (loss) and other comprehensive loss are reported in the consolidated financial statements at the consolidated amounts, which includes amounts allocated to both the Company's interest and the non-controlling interests in AutoMD. Net loss and other comprehensive loss is then attributed to the Company's interest and the non-controlling interests. Net income (loss) to non-controlling interests is deducted from net income (loss) in the consolidated statements of comprehensive operations to determine net loss attributable to the Company's common stockholders.
The following table summarizes the Company’s stock option activity under the AutoMD 2014 Equity Incentive Plan (the "AMD Plan") for the thirty-nine weeks ended October 3, 2015, and details regarding the options outstanding and exercisable at October 3, 2015:
Shares (in thousands) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||
Options outstanding, January 3, 2015 | 180 | $1.00 | |||||||||
Granted | 1,060 | $1.00 | |||||||||
Exercised | — | — | |||||||||
Expired | — | — | |||||||||
Forfeited | — | — | |||||||||
Options outstanding, October 3, 2015 | 1,240 | $1.00 | 9.33 | $ | — | ||||||
Vested and expected to vest at October 3, 2015 | 916 | $1.00 | 9.33 | $ | — | ||||||
Options exercisable, October 3, 2015 | — | — | 0.00 | $ | — | ||||||
At October 3, 2015, 710 shares were available for future grants under the AMD Plan.
The weighted-average fair value of options granted during the thirty-nine weeks ended October 3, 2015 and September 27, 2014 was $0.54 and $0, respectively. The intrinsic value of stock options at the date of exercise is the difference between the fair value of the stock at the date of the balance sheet and the exercise price. During the thirty-nine weeks ended October 3, 2015 and September 27, 2014, the options had $0 intrinsic value as none were exercisable. The Company had $414 of unrecognized share-based compensation expense related to stock options outstanding as of October 3, 2015, which expense is expected to be recognized over a weighted-average period of 3.33 years.
Options exercised under all share-based compensation plans are granted net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. For those employees who elect not to receive shares net of the minimum statutory withholding requirements, the appropriate taxes are paid directly by the employee. During the thirty-nine weeks ended October 3, 2015, we withheld 27 shares to satisfy $80 of employees' tax obligations and 64 shares related to the net settlement of the stock options.
USAP Options and Restricted Stock Units
The Company had the following common stock option activity during the thirty-nine weeks ended October 3, 2015:
•Granted options to purchase 1,230 common shares.
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•Forfeitures of 250 options to purchase common shares.
The following table summarizes the Company’s restricted stock unit ("RSU") activity for the thirty-nine weeks ended October 3, 2015, and details regarding the awards outstanding and exercisable at October 3, 2015 (in thousands):
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||
Awards outstanding, January 3, 2015 | 880 | $ | — | |||||||||
Awarded | 435 | $ | — | |||||||||
Vested | (398 | ) | $ | — | ||||||||
Forfeited | (113 | ) | $ | — | ||||||||
Awards outstanding, October 3, 2015 | 804 | $ | — | 0.34 | $ | 1,617 | ||||||
Vested and expected to vest at October 3, 2015 | 772 | $ | — | 0.34 | $ | 1,552 | ||||||
During the thirty-nine weeks ended October 3, 2015, 398 RSUs vested, of which 221 were time-based and 177 were performance-based. For the majority of RSUs awarded, the number of shares issued on the date the RSUs vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. For those employees who elect not to receive shares net of the minimum statutory withholding requirements, the appropriate taxes are paid directly by the employee. During the thirty-nine weeks ended October 3, 2015, we withheld 151 shares to satisfy $358 of employees' tax obligations. Although shares withheld are not issued, they are treated as a common stock repurchase in our consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting.
For the thirteen and thirty-nine weeks ended October 3, 2015, we recorded compensation expense of $357 and $915, respectively. As of October 3, 2015, there was unrecognized compensation expense of $485 related to unvested RSUs based on awards that are expected to vest. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 0.34 years.
Note 5 – Net Income (Loss) Per Share
Net income (loss) per share has been computed in accordance with ASC 260 Earnings per Share. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||
October 3, 2015 | September 27, 2014 | October 3, 2015 | September 27, 2014 | ||||||||||||
Net income (loss) per share: | |||||||||||||||
Numerator: | |||||||||||||||
Net income (loss) attributable to U.S. Auto Parts | $ | 8 | $ | (2,494 | ) | (827 | ) | (4,473 | ) | ||||||
Dividends on Series A Convertible Preferred Stock | 61 | 61 | 180 | 180 | |||||||||||
Net loss available to common shares | $ | (53 | ) | $ | (2,555 | ) | $ | (1,007 | ) | $ | (4,653 | ) | |||
Denominator: | |||||||||||||||
Weighted-average common shares outstanding (basic) | 34,018 | 33,532 | 33,900 | 33,459 | |||||||||||
Common equivalent shares from common stock options and warrants | — | — | — | — | |||||||||||
Weighted-average common shares outstanding (diluted) | 34,018 | 33,532 | 33,900 | 33,459 | |||||||||||
Basic and diluted net loss per share | $ | 0.00 | $ | (0.08 | ) | $ | (0.03 | ) | $ | (0.14 | ) | ||||
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The weighted-average anti-dilutive securities, which are excluded from the calculation of diluted earnings per share due to the Company's net loss available to common shares position for the periods then ended (including securities that would otherwise be excluded from the calculation of diluted earnings per share due to the Company's stock price), are as follows (in thousands):
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||
October 3, 2015 | September 27, 2014 | October 3, 2015 | September 27, 2014 | ||||||||
Common stock warrants | 50 | 50 | 50 | 50 | |||||||
Series A Convertible Preferred Stock | 4,150 | 4,150 | 4,150 | 4,150 | |||||||
Restricted stock units | 861 | 815 | 853 | 760 | |||||||
Options to purchase common stock | 6,125 | 5,694 | 5,960 | 5,681 | |||||||
Total | 11,186 | 10,709 | 11,013 | 10,641 | |||||||
Note 6 – Income Taxes
The Company is subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2011-2014 remain open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the tax years 2012-2014 remain open.
For the thirteen and thirty-nine weeks ended October 3, 2015 the effective tax rate for the Company was 41.3% and 27.0%, respectively. The Company's effective tax rate for the thirteen and thirty-nine weeks ended October 3, 2015 differed from the U.S. federal statutory rate primarily as a result of the recording of valuation allowance against the pre-tax losses that was offset by the tax benefit resulting from the reduction of excess book basis in the Company's investment in AutoMD over its tax basis due to AutoMD's pre-tax losses. For the thirteen and thirty-nine weeks ended September 27, 2014, the effective tax rate for the Company was 0.6% and 1.5%, respectively. The Company’s effective tax rate for the thirteen and thirty-nine weeks ended September 27, 2014 differed from the U.S. federal statutory rate primarily as a result of the recording of valuation allowance against the pre-tax losses.
Note 7 – Commitments and Contingencies
Facilities Leases
The Company’s corporate headquarters is located in Carson, California. The Company’s corporate headquarters has an initial lease term of five years through October 2016, and an option to renew through January 2020. The Company leases warehouse space in Chesapeake, Virginia under an agreement scheduled to expire in June 2016. The Company’s Philippines subsidiary leases office space under an agreement through April 2020.
Facility rent expense for the thirteen and thirty-nine weeks ended October 3, 2015 was $395 and $1,159, respectively, compared to $457 and $1,532, for the thirteen and thirty-nine weeks ended September 27, 2014, respectively. The year over year decline is primarily due to the closure of the Carson warehouse facility last year. The Company’s facility rent expense was inclusive of amounts charged from a related party during the thirteen and thirty-nine weeks ended September 27, 2014 of $97 and $428, respectively.
Minimum lease commitments under non-cancellable operating leases as of October 3, 2015 were as follows (in thousands):
2015 | $ | 384 | |
2016 | 1,084 | ||
2017 | 388 | ||
2018 | 408 | ||
2019 | 428 | ||
2020 onwards | $ | 182 | |
Total | $ | 2,874 | |
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On April 17, 2013, the Company entered into a sale lease-back transaction with STORE Master Funding III, LLC whereby we leased back our facility located in LaSalle, Illinois for our continued use as an office, retail and warehouse facility for storage, sale and distribution of automotive parts, accessories and related items for 20 years commencing upon the execution of the lease and terminating on April 30, 2033. The lease was accounted for as a capital lease and the $376 excess of the net proceeds over the net carrying amount of the property is amortized in interest expense on a straight-line basis over the lease term of 20 years.
Capital lease commitments as of October 3, 2015 were as follows (in thousands):
2015 | $ | 321 | |
2016 | 1,309 | ||
2017 | 1,255 | ||
2018 | 1,261 | ||
2019 | 1,275 | ||
2020 onwards | 14,008 | ||
Total minimum payments required | 19,429 | ||
Less amount representing interest | (8,600 | ) | |
Present value of minimum capital lease payments | $ | 10,829 | |
Legal Matters
Asbestos. A wholly-owned subsidiary of the Company, Automotive Specialty Accessories and Parts, Inc. and its wholly-owned subsidiary Whitney Automotive Group ("WAG"), are named defendants in several lawsuits involving claims for damages caused by installation of brakes during the late 1960’s and early 1970’s that contained asbestos. WAG marketed certain brakes, but did not manufacture any brakes. WAG maintains liability insurance coverage to protect its and the Company’s assets from losses arising from the litigation and coverage is provided on an occurrence rather than a claims made basis, and the Company is not expected to incur significant out-of-pocket costs in connection with this matter that would be material to its consolidated financial statements.
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. As of the date hereof, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cash flow of the Company. The Company maintains liability insurance coverage to protect the Company’s assets from losses arising out of or involving activities associated with ongoing and normal business operations.
Note 8 – Segment information
As described in Note 1 above, the Company operates in two reportable segments identified as Base USAP, which is the core auto parts business, and AutoMD, an online automotive repair source of which the Company is a majority stockholder. Segment information is prepared on the same basis that our chief executive officer, who is our chief operating decision maker, manages the segments, evaluates financial results, and makes key operating decisions. Management evaluates the performance of its operating segments based on net sales, gross profit and income (loss) from operations. Operating income (loss) represents earnings (loss) before other income, interest expense and income taxes. The identifiable assets by segment disclosed in this note are those assets specifically identifiable within each segment.
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Summarized segment information for our continuing operations from the two reportable segments for the periods presented is as follows (in thousands):
Base USAP | AutoMD | Consolidated | |||||||||
Thirteen weeks ended October 3, 2015 | |||||||||||
Net sales | $ | 70,573 | $ | 75 | $ | 70,648 | |||||
Gross profit | $ | 20,967 | $ | 75 | $ | 21,042 | |||||
Operating costs (1) | $ | 20,367 | $ | 897 | $ | 21,264 | |||||
Income (loss) from operations | $ | 600 | $ | (822 | ) | $ | (222 | ) | |||
Capital expenditures | $ | 1,636 | $ | 332 | $ | 1,968 | |||||
Depreciation and amortization | $ | 1,539 | $ | 323 | $ | 1,862 | |||||
Total assets, net | $ | 73,946 | $ | 6,315 | $ | 80,261 | |||||
Thirteen weeks ended September 27, 2014 | |||||||||||
Net sales | $ | 67,885 | $ | 80 | $ | 67,965 | |||||
Gross profit | $ | 18,334 | $ | 80 | $ | 18,414 | |||||
Operating costs (1) | $ | 20,016 | $ | 614 | $ | 20,630 | |||||
Loss from operations | $ | (1,682 | ) | $ | (534 | ) | $ | (2,216 | ) | ||
Capital expenditures | $ | 887 | $ | 369 | $ | 1,256 | |||||
Depreciation and amortization | $ | 1,803 | $ | 410 | $ | 2,213 | |||||
Total assets, net | $ | 71,856 | $ | 1,828 | $ | 73,684 | |||||
Thirty-nine weeks ended October 3, 2015 | |||||||||||
Net sales | $ | 223,309 | $ | 189 | $ | 223,498 | |||||
Gross profit | $ | 63,199 | $ | 189 | $ | 63,388 | |||||
Operating costs (1) | $ | 62,322 | $ | 2,413 | $ | 64,735 | |||||
Income (loss) from operations | $ | 877 | $ | (2,224 | ) | $ | (1,347 | ) | |||
Capital expenditures | $ | 4,974 | $ | 826 | $ | 5,800 | |||||
Depreciation and amortization | $ | 4,571 | $ | 1,047 | $ | 5,618 | |||||
Total assets, net | $ | 73,946 | $ | 6,315 | $ | 80,261 | |||||
Thirty-nine weeks ended September 27, 2014 | |||||||||||
Net sales | $ | 212,717 | $ | 223 | $ | 212,940 | |||||
Gross profit | $ | 59,312 | $ | 223 | $ | 59,535 | |||||
Operating costs (1) | $ | 61,396 | $ | 1,799 | $ | 63,195 | |||||
Loss from operations | $ | (2,084 | ) | $ | (1,576 | ) | $ | (3,660 | ) | ||
Capital expenditures | $ | 3,231 | $ | 1,061 | $ | 4,292 | |||||
Depreciation and amortization | $ | 5,554 | $ | 1,279 | $ | 6,833 | |||||
Total assets, net | $ | 71,856 | $ | 1,828 | $ | 73,684 | |||||
(1) | Operating costs for AutoMD primarily consist of depreciation and amortization on fixed assets and personnel costs. Indirect costs are not allocated to AutoMD. |
Note 9 – AutoMD
On October 8, 2014, AutoMD entered into a Common Stock Purchase Agreement ("Purchase Agreement") to sell an aggregate of 7,000 shares of AutoMD common stock at a purchase price of $1.00 per share to third-party investors and investors that are affiliated with two of our board members. The Company retained 64.1% of AutoMD's outstanding common stock, and continues to consolidate AutoMD.
In connection with the sale of the shares of AutoMD, the Company recorded an increase to additional paid-in-capital of $2,534. This amount is equal to the increase in the Company’s interest in the net assets of AutoMD, resulting from this sale of common shares valued at $3,847, less the related deferred tax liability of $1,313.
Additionally, pursuant to the terms of the Purchase Agreement, the Company may be required to purchase 2,000 shares of AutoMD common stock at a purchase price of $1.00 per share, with such purchase to be triggered only if as of October 8, 2016, AutoMD does not meet a required minimum number of approved auto repair shops permitted to submit a quotation on AutoMD’s website ("Registered Repair Shops"), or separately if at any time during the two years following the closing date AutoMD fails to meet specified minimum cash balances and minimum numbers of Registered Repair Shops. The Purchase Agreement also limits the use of the $7,000 in proceeds from the sale of AutoMD common stock to only general operating purposes of AutoMD. The Company cannot use or borrow any of the proceeds without the approval of AutoMD's Board of Directors.
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In addition to the Purchase Agreement, AutoMD entered into an Investor Rights Agreement. The Investor Rights Agreement includes certain demand and piggyback registration rights, and restrictions on transfers or dilutive transactions involving AutoMD common stock. Prior to October 8, 2017, the Company is prohibited from transferring shares of AutoMD owned by U.S. Auto Parts or enter into any transaction or arrangement (including, without limitation, any sale, gift, merger or consolidation) that would result in U.S. Auto Parts owning, at any time, less than 50% of the shares of capital stock of the Company without the prior written consent of AutoMD shareholders. In the event of a proposed transfer or dilutive transaction for which any shareholder does not provide its written consent, in the alternative, upon not less than 30 days prior written notice to such non-consenting party, the Company may elect, at its sole option, to purchase all shares of the AutoMD common stock then owned by any non-consenting shareholder at a purchase price equal to $1.00 per share (as adjusted for any stock combinations, splits, recapitalizations, etc.) plus an annual rate of 10% thereon, compounded annually, and effect such transfer following the purchase from the non-consenting shareholders.
The table below presents the effect of changes in the Company's ownership interest in AutoMD on the Company's equity during the thirty-nine weeks ended October 3, 2015:
Noncontrolling Interest | ||||
Balance, January 3, 2015 | $ | 2,946 | ||
Net loss allocable to noncontrolling interest | (799 | ) | ||
Balance, October 3, 2015 | $ | 2,147 | ||
Note 10 – Restructuring Costs
Fiscal 2014
On June 25, 2014, the Company committed to a plan to permanently close its distribution facility located in Carson,
California (the “Carson Distribution Facility”) on July 25, 2014. The Company consolidated the Carson Distribution Facility’s
distribution and warehousing operations into the Company’s existing distribution facilities located in LaSalle, Illinois and
Chesapeake, Virginia. This consolidation was part of the Company’s continued efforts for simplification and improved
efficiencies. The closure of the Carson Distribution Facility resulted in a head count reduction of approximately 77 employees.
The following table summarizes the charges related to the restructure recognized during the thirteen and thirty-nine weeks ended September 27, 2014 (in thousands):
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||
September 27, 2014 | September 27, 2014 | |||||||
Employee severance | $ | — | $ | 552 | ||||
Accounts receivable allowance | — | 73 | ||||||
Relocations costs (employee and equipment) | 127 | 127 | ||||||
Inventory transfers | 283 | 283 | ||||||
Total restructuring costs | $ | 410 | $ | 1,035 | ||||
The severance costs were included in fulfillment and marketing expense in the second quarter of fiscal 2014 and were paid during the third quarter of fiscal 2014.
Substantially all of the unsold inventory in the Carson warehouse on the date of closure was moved to the remaining two warehouses. A charge for $130 was taken during the second quarter of 2014 for inventory that was not deemed economical to transfer. Additionally, due to expected future capacity constraints, the Company reduced the sales price of certain inventory resulting in a charge of $348 during the second quarter of 2014. The aggregate charge of $478, was recorded to cost of sales. The severance charges and relocation costs were included in fulfillment expense. All restructuring costs incurred in connection with the closure of the Carson Distribution Facility are included in the Base USAP reportable segment.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In Thousands, Except Per Share Data, Or As Otherwise Noted)
Cautionary Statement
You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this report. Certain statements in this report, including statements regarding our business strategies, operations, financial condition, and prospects are forward-looking statements. Use of the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would”, “will likely continue,” “will likely result” and similar expressions that contemplate future events may identify forward-looking statements.
The information contained in this section is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC, which are available on the SEC’s website at http://www.sec.gov. The section entitled “Risk Factors” set forth in Part II, Item 1A of this report, and similar discussions in our other SEC filings, describe some of the important factors, risks and uncertainties that may affect our business, results of operations and financial condition and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf. You are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management’s opinions only as of the date thereof. We do not assume any obligation to revise or update forward-looking statements. Finally, our historic results should not be viewed as indicative of future performance.
Overview
We are a leading online provider of aftermarket auto parts, including body parts, hard parts, and performance parts and accessories. Our user-friendly websites provide customers with a broad selection of stock keeping units (“SKUs”), with detailed product descriptions and photographs. Our proprietary product database maps our SKUs to product applications based on vehicle makes, models and years. We principally sell our products to individual consumers through our network of websites and online marketplaces. Through AutoMD.com, our majority-owned subsidiary, the Company also educates consumers on the maintenance and service of their vehicles. Our flagship consumer websites are located at www.autopartswarehouse.com, www.carparts.com, www.jcwhitney.com and www.AutoMD.com and our corporate website is located at www.usautoparts.net.
We believe our strategy of disintermediating the traditional auto parts supply chain and selling products directly to customers over the Internet allows us to more efficiently deliver products to our customers. Industry-wide trends that support our strategy include:
1. Number of SKUs required to serve the market. The number of automotive SKUs has grown dramatically over the last several years. In today's market, unless the consumer is driving a high volume produced vehicle and needs a simple maintenance item, the part they need is not typically on the shelf at a brick-and-mortar store. We believe our user-friendly websites provide customers with a favorable alternative to the brick-and-mortar shopping experience by offering a comprehensive selection of over 1.0 million SKUs with detailed product descriptions, attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods.
2.U.S. vehicle fleet expanding and aging. The average age of U.S. vehicles, an indicator of auto parts demand, remained at a record-high 11.4 years as of January 2014, according to IHS Automotive, a market analytics firm that expects the average age to remain at 11.4 years through 2015, and then rise to 11.5 years by 2017 and 11.7 years by 2019. IHS expects the number of vehicles that are 12 years or older to increase by 15% by 2019. IHS found that the total number of light vehicles in operation in the U.S. has increased to record levels, with new vehicle registrations outpacing scrappage rates by more than 24%. We believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs. In addition, we believe these older vehicles are generally driven by do-it-yourself (“DIY”) car owners more likely to handle any necessary repairs themselves rather than taking their car to the professional repair shop.
3.Growth of online sales. The overall revenue from online sales of auto parts and accessories is expected to increase from $5.1 billion in 2013 to $16.6 billion in 2020, according to a forecast from Frost and Sullivan. Improved product availability, lower prices and consumers' growing comfort with digital platforms are driving the shift to online
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sales. We believe that we are well positioned for the shift to online sales due to our history of being a leading source for aftermarket automotive parts through online marketplaces and our network of websites.
Our History. We were formed in Delaware in 1995 as a distributor of aftermarket auto parts and launched our first website in 2000. We rapidly expanded our online operations, increasing the number of SKUs sold through our e-commerce network, adding additional websites, improving our Internet marketing proficiency and commencing sales in online marketplaces. Additionally, in August 2010, through our acquisition of Whitney Automotive Group, Inc. (referred to herein as "WAG"), we expanded our product-lines and increased our customer reach in the DIY automobile and off-road accessories market.
International Operations. In April 2007, we established offshore operations in the Philippines. Our offshore operations allow us to access a workforce with the necessary technical skills at a significantly lower cost than comparably experienced U.S.-based professionals. Our offshore operations are responsible for a majority of our website development, catalog management, and back office support. Our offshore operations also house our main call center. We believe that the cost advantages of our offshore operations provide us with the ability to grow our business in a cost-effective manner.
AutoMD. In October 2014, AutoMD entered into a common stock purchase agreement to sell 7,000 shares of AutoMD common stock at a purchase price of $1.00 per share to third-party investors, reducing the Company’s ownership interest in AutoMD to 64.1%.
AutoMD's mission is to be the repair shop advocate for all vehicle owners, increase their confidence in the repair process and provide the most affordable and high quality options for automobile repair. AutoMD's current focus is on marketing and technology. AutoMD's current marketing strategy involves driving growth in their repair shop network. During the first nine months of 2015, marketing efforts resulted in approximately 800 repair shops joining AutoMD's network, rising from about 2,100 repair shops in December 2014 to approximately 2,900 at the end of the third quarter of 2015. AutoMD now has repair shops participating in 42 states. In addition to marketing, AutoMD continues to refine the online experience, including its mobile presence.
Key Metrics: To understand revenue generation through our network of e-commerce websites and online marketplaces, we monitor several key business metrics, including the following:
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||
October 3, 2015 | September 27, 2014 | October 3, 2015 | September 27, 2014 | ||||||||||||
Unique Visitors (millions) (1) | 29.3 | 29.4 | 89.1 | 90.5 | |||||||||||
E-commerce Orders (thousands) | 511 | 491 | 1,550 | 1,520 | |||||||||||
Online Marketplace Orders (thousands) | 244 | 243 | 815 | 799 | |||||||||||
Total Online Orders (thousands) | 755 | 734 | 2,365 | 2,319 | |||||||||||
E-commerce Average Order Value | $ | 109 | $ | 113 | $ | 110 | $ | 111 | |||||||
Online Marketplace Average Order Value | $ | 70 | $ | 65 | $ | 71 | $ | 65 | |||||||
Total Online Average Order Value | $ | 96 | $ | 97 | $ | 97 | $ | 95 | |||||||
Revenue Capture (1) | 85.3 | % | 83.9 | % | 85.5 | % | 84.9 | % | |||||||
Conversion (1) | 1.75 | % | 1.67 | % | 1.74 | % | 1.68 | % | |||||||
(1) Excludes online marketplaces and media properties (e.g. AutoMD).
Unique Visitors: A unique visitor to a particular website represents a user with a distinct IP address that visits that particular website. We define the total number of unique visitors in a given month as the sum of unique visitors to each of our websites during that month. We measure unique visitors to understand the volume of traffic to our websites and to track the effectiveness of our online marketing efforts. The number of unique visitors has historically varied based on a number of factors, including our marketing activities and seasonality. Included in the unique visitors are mobile device based customers, who are becoming an increasing part of our business. Shifting consumer behavior and technology enhancements indicate that customers are becoming more inclined to purchase auto parts through their mobile devices. User sophistication and technological advances have increased consumer expectations around the user experience on mobile devices, including speed of response, functionality, product availability, security, and ease of use. We believe enhancements to online solutions specifically catering to mobile based shopping can result in an increase in the number of orders and revenues. We believe an increase in unique visitors to our websites will result in an increase in the number of orders. We seek to increase the number of
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unique visitors to our websites by attracting repeat customers and improving search engine marketing and other internet marketing activities. During the thirteen and thirty-nine weeks ended October 3, 2015 ("YTD Q3 2015"), our unique visitors decreased by 0.3% and 1.5%, respectively, compared to the same periods of 2014. The decline in unique visitors was primarily due to lower organic traffic, partially offset by an increase in paid traffic.
Total Number of Orders: We monitor the total number of orders as an indicator of future revenue trends. Total orders were up by 2.9% in the third quarter of 2015 compared to the third quarter of 2014, with e-commerce and online marketplace orders increasing by 4.1% and 0.4%, respectively, primarily due to strategic pricing strategies. Total orders were up by 2.0% for the YTD Q3 2015 compared to the same period in 2014, with e-commerce and online marketplace orders both increasing by 2.0%. We believe that e-commerce orders improved for the YTD Q3 2015 through an improved customer experience and pricing strategies. We believe that the increase in online marketplace orders for the YTD Q3 2015 was primarily due to competitive pricing strategies. We recognize revenue associated with an order when the products have been delivered, consistent with our revenue recognition policy.
Average Order Value: Average order value represents our net sales on a placed orders basis for a given period of time divided by the total number of orders recorded during the same period of time. Average order value decreased by 1.0% and increased by 2.1% in the third quarter and YTD Q3 2015, respectively, compared to the same periods of 2014. We seek to increase the average order value as a means of increasing net sales. Average order values vary depending upon a number of factors, including the components of our product offering, the order volume in certain online sales channels, macro-economic conditions, and online competition.
Revenue Capture: Revenue capture is the amount of actual dollars retained after taking into consideration returns, credit card declines and product fulfillment. During the third quarter of 2015, our revenue capture increased to 85.3% compared to 83.9% in the third quarter of 2014. We expect our revenue capture level to marginally improve in fiscal year 2015, compared to fiscal year 2014, as we continue to improve our customers’ purchase experience.
Conversion: Conversion is the number of orders as a rate of the total number of unique visitors. This rate indicates how well we convert a visitor to a customer sales order. During the third quarter of 2015, our conversion improved by 0.8% to 1.75% compared to 1.67% in the third quarter of 2014.
Executive Summary
For the third quarter of 2015, Base USAP generated net sales of $70,573, compared with $67,885 for the third quarter of 2014, representing an increase of 4.0%. Base USAP net income for the third quarter of 2015 was $353, compared to net loss of $1,960 for the third quarter of 2014. We generated income before interest expense, net, income tax provision, depreciation and amortization expense, amortization of intangible assets, plus share-based compensation expense and restructuring costs (“Adjusted EBITDA”) of $2,837 in the third quarter of 2015 compared to $1,339 in the third quarter of 2014. Adjusted EBITDA during the third quarter of 2014 included addbacks of $410 representing costs associated with the closure of the Carson Warehouse. Refer to “Note 10 - Restructuring Costs” of our Notes to Consolidated Financial Statements for additional details. Adjusted EBITDA, which is not a Generally Accepted Accounting Principle measure, is presented because such measure is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. It should not be considered, however, as an alternative to operating income, as an indicator of the Company’s operating performance, or as an alternative to cash flows, as measures of the Company’s overall liquidity, as presented in the Company’s consolidated financial statements. Further, the Adjusted EBITDA measure shown may not be comparable to similarly titled measures used by other companies. Refer to the table presented below under "Non-GAAP measures" for additional information and a reconciliation of net loss to Adjusted EBITDA.
For the third quarter of 2015, AutoMD generated net sales of $75 compared to $80 in the same period last year. AutoMD's net loss was $641 for the third quarter of 2015 compared to a net loss of $534 for the third quarter of 2014. AutoMD's Adjusted EBITDA was negative $458 compared to negative $120 in the same period last year.
Our third quarter 2015 net sales consisted of online sales, representing 91.2% of the total (compared to 91.4% in the third quarter of 2014), and offline sales, representing 8.8% of the total (compared to 8.6% in the third quarter of 2014). The net sales increase was due to a increase of $2,291, or 3.7%, in online sales as well as an increase in offline sales by $391, or 6.7%. The online sales channels increase is primarily the result of a $1,475, or 10.3%, increase in our online marketplaces as well as a $913, or 2.0%, increase in our e-commerce sales channels. The $1,475 increase in our online marketplaces was driven primarily by a 7.7% increase in average order value. The $913 increase in our e-commerce sales channels was driven primarily by an increase in the number of orders by 4.1%, and a 1.7% increase in revenue capture, partially offset by a decrease in average order value of 3.5%.
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Revenues increased during the third quarter of 2015, when compared to the third quarter of 2014. In four of the five quarters prior to this quarter, the Company has shown positive year over year revenue growth. The table below presents quarterly revenues (in thousands) and the change in quarterly year-over-year revenues for the last six quarters. All quarters presented below represent thirteen week periods with the exception of the quarter ended January 3, 2015, which was a fourteen week period.
Thirteen weeks ended | Net sales | Year over year quarterly sales Thirteen weeks ended | Net sales | % increase (decline) | ||||||||
Jun 28, 2014 | $ | 76,947 | Jun 29, 2013 | $ | 67,889 | 13.3 | % | |||||
Sep 27, 2014 | $ | 67,965 | Sep 28, 2013 | $ | 61,724 | 10.1 | % | |||||
Jan 3, 2015 | $ | 70,568 | Dec 28, 2013 | $ | 59,735 | 18.1 | % | |||||
Apr 4, 2015 | $ | 76,388 | Mar 29, 2014 | $ | 68,028 | 12.3 | % | |||||
Jul 4, 2015 | $ | 76,462 | Jun 28, 2014 | $ | 76,947 | (0.6 | )% | |||||
Oct 3, 2015 | $ | 70,648 | Sep 27, 2014 | $ | 67,965 | 3.9 | % | |||||
Like most e-commerce retailers, our success depends on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner. Historically, marketing through search engines provided the most efficient opportunity to reach millions of on-line auto parts buyers. We are included in search results through paid search listings, where we purchase specific search terms that will result in the inclusion of our listing, and algorithmic searches that depend upon the searchable content on our websites. Algorithmic listings cannot be purchased and instead are determined and displayed solely by a set of formulas utilized by the search engine. We have had a history of success with our search engine marketing techniques, which gave our different websites preferred positions in search results. Search engines, like Google, revise their algorithms from time to time in an attempt to optimize their search results. During the last few years, Google has released changes to its search results ranking algorithm aimed to lower the rank of certain sites and return other sites near the top of the search results based upon the quality of the particular site as determined by Google. In some cases our unique visitor count, and therefore our financial results, were negatively impacted by the changes in methodology for how Google displayed or selected our different websites for customer search results. While we continue to address the ongoing changes to the Google methodology, during the third quarter of 2015, our unique visitor count decreased by 0.1 million, or 0.3%, to 29.3 million unique visitors compared to 29.4 million unique visitors in the third quarter of 2014 primarily due to lower organic traffic nearly offset by an increase in paid traffic. As in the past we expect Google will continue to make changes in their search engine algorithms to improve their user experience. As we are significantly dependent upon search engines for our website traffic, if we are unable to attract unique visitors, our business and results of operations will be harmed.
Barriers to entry in the automotive aftermarket industry are low, and current and new competitors can launch websites at a relatively low cost. Due to a number of factors, including the rise of online marketplaces, it is easier for a traditional offline supplier to begin selling online and compete with us. These larger suppliers have access to merchandise at lower costs, enabling them to sell products at lower prices while maintaining adequate gross margins. Our current and potential customers may also decide to purchase directly from our suppliers. Continuing increased competition from our suppliers that have access to products at lower prices than us could result in reduced sales, lower operating margins, reduced profitability, loss of market share and diminished brand recognition. In addition, some of our competitors have used and may continue to use aggressive pricing tactics. We expect that competition will further intensify in the future as Internet use and online commerce continue to grow worldwide.
Total orders for the third quarter of 2015 were higher by 2.9% compared to the third quarter of 2014 while our average order value decreased by $1, or 1.0%, for the third quarter of 2015 to $96 compared to $97 in the third quarter of 2014. Total expenses, which primarily consisted of cost of sales and operating costs, increased during the third quarter of 2015 compared to the same period in 2014. Components of our cost of sales and operating costs are described in further detail under — “Results of Operations” below.
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We made positive strides towards achieving our strategic goals during fiscal year 2014 and throughout the first three quarters in fiscal year 2015 we continue to pursue strategies to support our positive sales growth and improve gross profit while reducing operating costs as percent of sales:
• | We expect to continue positive e-commerce growth by providing unique catalog content and providing better content on our websites with the goal of improving our ranking on the search results. In addition, we intend to improve mobile enabled websites to take advantage of shifting consumer behaviors. We expect revenue trends to remain positive in fiscal year 2015. |
• | We continue to work to improve the website purchase experience for our customers by (1) helping our customers find the parts they want to buy by reducing failed searches and increasing user purchase confidence; (2) implementing guided navigation and custom buying experiences specific to strategic part names; and (3) increasing order size across our sites through improved recommendation engines. In addition, we intend to build mobile enabled websites to take advantage of shifting consumer behaviors. These efforts may increase the conversion rate of our visitors to customers, the total number of orders and average order value, and the number of repeat purchases, as well as contribute to our revenue growth. |
• | We continue to work towards becoming one of the best low price options in the market for aftermarket auto parts and accessories. We also continue to offer lower prices by increasing foreign sourced private label products as they are generally less expensive and we believe provide better value for the consumer. We believe our product offering will improve the conversion rate of visitors to our website, grow our revenues and improve our margins. |
• | We continue to increase product selection by being the first to market with many new SKUs. We currently have over 45,000 private label SKUs and over 1.0 million branded SKUs in our product selection. We will seek to add new categories and expand our existing specialty categories. We believe continued product expansion will increase the total number of orders and contribute to our revenue growth. Additionally, we plan to continue to maintain a certain quantity of inventory in stock throughout the year to ensure consistent service levels and improve customer experience. |
• | We are the consumer advocate for auto repair through AutoMD.com. We will continue to devote resources to AutoMD.com, its system development and the expansion of its repair shop network, drawing upon the proceeds from the recent sale of AutoMD common stock. We believe this resource allocation will help improve our brand recognition and contribute to our revenue growth. |
• | We continue to implement cost saving measures. |
Overall, we expect revenue growth and significantly reduced net loss in fiscal year 2015 compared to fiscal year 2014, due to the initiatives we have implemented and will implement through the remainder of our fiscal year. However, if the revenue growth and reduced net losses we experienced in fiscal year 2014 do not continue in fiscal year 2015 and are more negative than we expect, it could severely impact our liquidity as we may not be able to provide positive cash flows from operations in order to meet our working capital requirements. We may need to borrow additional funds from our credit facility, which under certain circumstances may not be available, sell additional assets or seek additional equity or additional debt financing in the future. Refer to the “Liquidity and Capital Resources” section below for additional details. There can be no assurance that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all. If our net losses continue for longer than we expect because our strategies to return to profitability are not successful or otherwise, and if we are not able to raise adequate additional financing or proceeds from asset sales to continue to fund our ongoing operations, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations.
As we redesign our approach to attracting customers through search engines, we hope to offset much of the decline in organic visitors to our e-commerce sites by continuing to pursue revenue opportunities in third-party online marketplaces, a number of which continue to grow each year. Auto parts buyers are finding third-party online marketplaces to be a very attractive environment, for many reasons, the top five being: (1) the security of their personal information; (2) the ability to easily compare product offerings from multiple sellers; (3) transparency (consumers can leave positive or negative feedback about their experience); (4) favorable pricing; and (5) the availability of products not found in stock at brick-and-mortar stores. Successful selling in these third-party online marketplaces depends on product innovation, and strong relationships with suppliers, both of which we believe to be our core competencies.
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Non-GAAP 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 EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA consists of net income before (a) interest expense, net; (b) income tax provision; (c) depreciation and amortization expense; and (d) amortization of intangible assets; while Adjusted EBITDA consists of EBITDA before (a) share-based compensation expense; and (b) restructuring costs.
The Company believes that these non-GAAP financial measures provide important supplemental information to management and investors. These 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, provide 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 Company operates in two reportable segments identified as the core auto parts business ("Base USAP"), and AutoMD, an online automotive repair source of which the Company is a majority stockholder. Segment information is prepared on the same basis that our chief executive officer, who is our chief operating decision maker, manages the segments, evaluates financial results, and makes key operating decisions. Management evaluates the performance of its two operating segments based on net sales, gross profit and loss from operations. The accounting policies of the operating segments are the same as those described in “Note 1 - Summary of Significant Accounting Policies and Nature of Operations” of our Notes to Consolidated Financial Statements. Operating income represents earnings before other income, interest expense and income taxes. The identifiable assets by segment disclosed are those assets specifically identifiable within each segment.
Summarized segment information for our continuing operations from the two reportable segments for the periods presented is as follows (in thousands):
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Thirteen Weeks Ended | |||||||||||||||||||||||
October 3, 2015 | September 27, 2014 | ||||||||||||||||||||||
Base USAP | AMD | Consolidated | Base USAP | AMD | Consolidated | ||||||||||||||||||
Net sales | $ | 70,573 | $ | 75 | $ | 70,648 | $ | 67,885 | $ | 80 | $ | 67,965 | |||||||||||
Cost of sales | 49,606 | — | 49,606 | 49,551 | — | 49,551 | |||||||||||||||||
Gross profit | 20,967 | 75 | 21,042 | 18,334 | 80 | 18,414 | |||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Marketing | 9,896 | 788 | 10,684 | 9,648 | 630 | 10,278 | |||||||||||||||||
General and administrative | 4,236 | 56 | 4,292 | 3,761 | 1 | 3,762 | |||||||||||||||||
Fulfillment | 4,881 | — | 4,881 | 5,256 | — | 5,256 | |||||||||||||||||
Technology | 1,247 | 45 | 1,292 | 1,245 | (17 | ) | 1,228 | ||||||||||||||||
Amortization of intangible assets | 107 | 8 | 115 | 106 | — | 106 | |||||||||||||||||
Total operating expenses | 20,367 | 897 | 21,264 | 20,016 | 614 | 20,630 | |||||||||||||||||
Income (loss) from operations | 600 | (822 | ) | (222 | ) | (1,682 | ) | (534 | ) | (2,216 | ) | ||||||||||||
Other income (expense): | |||||||||||||||||||||||
Other income, net | 8 | — | 8 | 24 | — | 24 | |||||||||||||||||
Interest expense | (277 | ) | — | (277 | ) | (287 | ) | — | (287 | ) | |||||||||||||
Total other expense | (269 | ) | — | (269 | ) | (263 | ) | — | (263 | ) | |||||||||||||
Income (loss) before income taxes | 331 | (822 | ) | (491 | ) | (1,945 | ) | (534 | ) | (2,479 | ) | ||||||||||||
Income tax (benefit) provision | (22 | ) | (181 | ) | (203 | ) | 15 | — | 15 | ||||||||||||||
Net income (loss) | $ | 353 | $ | (641 | ) | $ | (288 | ) | $ | (1,960 | ) | $ | (534 | ) | $ | (2,494 | ) | ||||||
Net income (loss) | $ | 353 | $ | (641 | ) | $ | (288 | ) | $ | (1,960 | ) | $ | (534 | ) | $ | (2,494 | ) | ||||||
Depreciation & amortization | 1,539 | 323 | 1,862 | 1,803 | 410 | 2,213 | |||||||||||||||||
Amortization of intangible assets | 107 | 8 | 115 | 106 | — | 106 | |||||||||||||||||
Interest expense, net | 273 | — | 273 | 283 | — | 283 | |||||||||||||||||
Taxes | (22 | ) | (181 | ) | (203 | ) | 15 | — | 15 | ||||||||||||||
EBITDA | $ | 2,250 | $ | (491 | ) | $ | 1,759 | $ | 247 | $ | (124 | ) | $ | 123 | |||||||||
Stock comp expense | $ | 587 | $ | 33 | $ | 620 | $ | 682 | $ | 4 | $ | 686 | |||||||||||
Restructuring costs (2) | — | — | — | 410 | — | 410 | |||||||||||||||||
Adjusted EBITDA | $ | 2,837 | $ | (458 | ) | $ | 2,379 | $ | 1,339 | $ | (120 | ) | $ | 1,219 | |||||||||
Capital expenditures | 1,636 | 332 | 1,968 | 887 | 369 | 1,256 | |||||||||||||||||
Total assets, net of accumulated depreciation | 73,946 | 6,315 | 80,261 | 71,856 | 1,828 | 73,684 | |||||||||||||||||
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Thirty-Nine Weeks Ended | |||||||||||||||||||||||
October 3, 2015 | September 27, 2014 | ||||||||||||||||||||||
Base USAP | AMD | Consolidated | Base USAP | AMD | Consolidated | ||||||||||||||||||
Net sales | $ | 223,309 | $ | 189 | $ | 223,498 | $ | 212,717 | $ | 223 | $ | 212,940 | |||||||||||
Cost of sales | 160,110 | — | 160,110 | 153,405 | — | 153,405 | |||||||||||||||||
Gross profit | 63,199 | 189 | 63,388 | 59,312 | 223 | 59,535 | |||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Marketing | 30,558 | 2,126 | 32,684 | 29,612 | 1,744 | 31,356 | |||||||||||||||||
General and administrative | 12,800 | 157 | 12,957 | 12,529 | 3 | 12,532 | |||||||||||||||||
Fulfillment | 14,919 | — | 14,919 | 15,351 | — | 15,351 | |||||||||||||||||
Technology | 3,724 | 106 | 3,830 | 3,588 | 52 | 3,640 | |||||||||||||||||
Amortization of intangible assets | 321 | 24 | 345 | 316 | — | 316 | |||||||||||||||||
Total operating expenses | 62,322 | 2,413 | 64,735 | 61,396 | 1,799 | 63,195 | |||||||||||||||||
Income (loss) from operations | 877 | (2,224 | ) | (1,347 | ) | (2,084 | ) | (1,576 | ) | (3,660 | ) | ||||||||||||
Other income (expense): | |||||||||||||||||||||||
Other income (expense), net | 41 | — | 41 | 39 | — | 39 | |||||||||||||||||
Interest expense | (922 | ) | — | (922 | ) | (784 | ) | — | (784 | ) | |||||||||||||
Total other expense | (881 | ) | — | (881 | ) | (745 | ) | — | (745 | ) | |||||||||||||
Loss before income taxes | (4 | ) | (2,224 | ) | (2,228 | ) | (2,829 | ) | (1,576 | ) | (4,405 | ) | |||||||||||
Income tax provision (benefit) | 67 | (669 | ) | (602 | ) | 68 | — | 68 | |||||||||||||||
Net loss | $ | (71 | ) | $ | (1,555 | ) | $ | (1,626 | ) | $ | (2,897 | ) | $ | (1,576 | ) | $ | (4,473 | ) | |||||
Net loss | $ | (71 | ) | $ | (1,555 | ) | $ | (1,626 | ) | $ | (2,897 | ) | $ | (1,576 | ) | $ | (4,473 | ) | |||||
Depreciation & amortization | 4,571 | 1,047 | 5,618 | 5,554 | 1,279 | 6,833 | |||||||||||||||||
Amortization of intangible assets | 321 | 24 | 345 | 316 | — | 316 | |||||||||||||||||
Interest expense, net | 908 | — | 908 | 774 | — | 774 | |||||||||||||||||
Taxes | 67 | (669 | ) | (602 | ) | 68 | — | 68 | |||||||||||||||
EBITDA | $ | 5,796 | $ | (1,153 | ) | $ | 4,643 | $ | 3,815 | $ | (297 | ) | $ | 3,518 | |||||||||
Stock comp expense | $ | 1,638 | $ | 88 | $ | 1,726 | $ | 1,682 | $ | 9 | $ | 1,691 | |||||||||||
Inventory write-down related to Carson closure (1) | — | — | — | 478 | — | 478 | |||||||||||||||||
Restructuring costs (2) | — | — | — | 1,035 | — | 1,035 | |||||||||||||||||
Adjusted EBITDA | $ | 7,434 | $ | (1,065 | ) | $ | 6,369 | $ | 7,010 | $ | (288 | ) | $ | 6,722 | |||||||||
Capital expenditures | 4,974 | 826 | 5,800 | 3,231 | 1,061 | 4,292 | |||||||||||||||||
Total assets, net of accumulated depreciation | 73,946 | 6,315 | 80,261 | 71,856 | 1,828 | 73,684 | |||||||||||||||||
______
(1) As a result of the closure of the Carson warehouse, the Company reduced the sales price of certain inventory in an effort to reduce inventory levels. Additional charges were incurred related to inventory that was not deemed economical to transfer to the remaining warehouses. Refer to “Note 10 – Restructuring Costs” of our Notes to Consolidated Financial Statements for additional details.
(2) We incurred restructuring costs in 2014, related to the Company’s initiatives to reduce labor costs and improve operating efficiencies in response to the challenges in the marketplace and general market conditions. Refer to “Note 10 – Restructuring Costs” of our Notes to Consolidated Financial Statements for additional details.
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Results of Operations
The following table sets forth selected statement of operations data for the periods indicated, expressed as a percentage of net sales:
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||
October 3, 2015 | September 27, 2014 | October 3, 2015 | September 27, 2014 | ||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of sales | 70.2 | 72.9 | 71.6 | 72.0 | |||||||
Gross profit | 29.8 | 27.1 | 28.4 | 28.0 | |||||||
Operating expenses: | |||||||||||
Marketing | 15.1 | 15.1 | 14.6 | 14.7 | |||||||
General and administrative | 6.1 | 5.5 | 5.8 | 5.9 | |||||||
Fulfillment | 6.9 | 7.7 | 6.7 | 7.2 | |||||||
Technology | 1.8 | 1.8 | 1.7 | 1.7 | |||||||
Amortization of intangible assets | 0.2 | 0.2 | 0.2 | 0.1 | |||||||
Total operating expenses | 30.1 | 30.3 | 29.0 | 29.6 | |||||||
Loss from operations | (0.3 | ) | (3.2 | ) | (0.6 | ) | (1.6 | ) | |||
Other income (expense): | |||||||||||
Other income, net | — | — | — | — | |||||||
Interest expense | (0.4 | ) | (0.4 | ) | (0.4 | ) | (0.4 | ) | |||
Total other expense, net | (0.4 | ) | (0.4 | ) | (0.4 | ) | (0.4 | ) | |||
Loss before income taxes | (0.7 | ) | (3.6 | ) | (1.0 | ) | (2.0 | ) | |||
Income tax (benefit) provision | (0.3 | ) | — | (0.3 | ) | — | |||||
Net loss including noncontrolling interests | (0.4 | )% | (3.6 | )% | (0.7 | )% | (2.0 | )% | |||
Thirteen and Thirty-Nine weeks Ended October 3, 2015 Compared to the Thirteen and Thirty-Nine weeks Ended September 27, 2014
Net Sales and Gross Margin
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||
October 3, 2015 | September 27, 2014 | October 3, 2015 | |||||||||||||