Filing summary
Entity and period: The supplied filing is U.S. Auto Parts Network, Inc.’s Form 10-K (ticker PRTS), not a filing under the name CarParts.com, Inc. It covers the 52-week fiscal year ended January 2, 2016; fiscal 2014 was a 53-week year ended January 3, 2015. The filing also presents unaudited fourth-quarter results.
Business context
The company sells aftermarket collision, engine, performance parts and accessories primarily through its websites and online marketplaces. It also operates AutoMD, an online vehicle-repair information business, in which it retained a 64.1% interest after selling a minority stake in 2014. Online sales provided 90.9% of fiscal 2015 revenue. The filing describes a broad catalog of more than 1 million SKUs, a mix of stock-and-ship and supplier drop-ship fulfillment, and substantial operations in the Philippines.
Financial performance
| Metric | Fiscal 2015 | Fiscal 2014 |
|---|---|---|
| Net sales | $291.1 million | $283.5 million |
| Gross profit / margin | $83.4 million / 28.7% | $78.5 million / 27.7% |
| Operating loss | $2.1 million | $5.9 million |
| Consolidated net loss | $2.4 million | $7.1 million |
| Net loss attributable to U.S. Auto Parts | $1.3 million | $6.9 million |
| Net cash from operating activities | $5.7 million | $1.2 million |
| Capital expenditures | $7.8 million | $5.6 million |
Sales increased 2.7%; gross margin improved by 1.0 percentage point, mainly from a higher private-label mix, pricing actions and freight efficiencies. The company continued to report losses. Fiscal 2015 fourth-quarter sales were $67.6 million, versus $70.6 million in fiscal 2014’s fourth quarter; the parent-attributable loss was $0.5 million, versus $2.4 million.
Management reported Base USAP operating income of $1.1 million and AutoMD operating loss of $3.2 million. The segment table reports Adjusted EBITDA of $10.0 million for Base USAP and negative $1.7 million for AutoMD, or $8.4 million consolidated, versus $7.9 million consolidated in fiscal 2014. Adjusted EBITDA is a non-GAAP measure and is not a substitute for operating results or cash flow.
At year-end, cash and cash equivalents were $5.5 million, including $4.1 million restricted to AutoMD’s general operating purposes; working capital was $13.6 million. Inventory was $51.2 million. Total debt, primarily revolving borrowings and capital leases, was $22.4 million; the revolving balance was $11.8 million and capital lease liabilities were $10.7 million. The revolving facility’s commitment was $25 million at year-end, with reported excess availability of $8.8 million. A February 2016 amendment increased the commitment to $30 million, subject to a borrowing base.
Changes, outlook and risks
- Online orders increased 1.5%, while average order value remained $96. Unique visitors declined 2.6% to 116.7 million, primarily reflecting the prior year’s extra week; management said traffic was essentially flat after adjusting for that week. Conversion improved to 1.8% from 1.7%.
- Marketing expense rose 3.0% to $43.3 million, including increased paid-search spending. AutoMD’s network grew by about 1,120 shops to approximately 3,220.
- Management expected fiscal 2016 revenue to grow and net losses to decline, with visitor and order levels expected to improve marginally. Planned priorities included website and mobile improvements, paid search, private-label expansion, marketplace sales and cost controls. These are expectations, not guarantees.
- Liquidity risks include continuing losses, dependence on a borrowing-base facility and restrictive debt covenants. Management believed available cash, operating cash flow and facility availability could fund operations for at least 12 months, but warned that weaker results could require additional borrowing, asset sales or new financing.
- AutoMD sale proceeds are restricted to AutoMD’s purposes. The company could be required to buy 2 million AutoMD shares for $1 per share if specified cash or repair-shop thresholds are not met. The February 2016 credit amendment also revised availability and covenant terms.
- Other material exposures include search-engine ranking changes, intense competition (including suppliers selling directly), supplier and carrier concentration, international sourcing and currency risk, cybersecurity and system interruptions, product liability, intellectual-property claims, seasonality and possible sales-tax obligations. The filing identifies asbestos-related lawsuits against a subsidiary; it states insurance applies and significant company out-of-pocket costs are not expected.
- No common-stock cash dividends were anticipated. Preferred-stock dividends were paid in common shares in fiscal 2015, valued at approximately $241,000. Management reported effective disclosure controls and internal controls over financial reporting; the financial statements received an unqualified audit opinion.
Investor verification priorities
- Confirm the issuer and reporting period: this filing is for U.S. Auto Parts Network, Inc., fiscal 2015, with the year ended January 2, 2016—not fiscal 2014 Q4.
- Reconcile Adjusted EBITDA figures across the narrative and segment reconciliation; the segment table gives $8.4 million consolidated for fiscal 2015, while some narrative wording describes Base USAP’s $10.0 million figure.
- Review unrestricted liquidity separately from AutoMD’s restricted $4.1 million, and check current borrowing-base availability, covenants and the April 2017 facility maturity.
- Track whether management’s fiscal 2016 growth and loss-reduction expectations were achieved, alongside gross margin, paid-search costs, conversion and traffic trends.
- Assess AutoMD’s cash use, shop-network milestones and any potential share-purchase obligation, as well as the effect of preferred dividends and potential dilution.