SEC Filing Summary: U.S. Auto Parts Network, Inc. (NASDAQ: PRTS)
Entity and period: The supplied filing is U.S. Auto Parts Network, Inc.’s Form 10-K for the 52 weeks ended December 29, 2012, filed March 25, 2013. This differs from the requested company name, Carparts.Com, Inc., and period, 2011 Q4; the filing covers fiscal 2012, with fiscal 2011 as the main comparison.
Business context
The company sells aftermarket auto parts and accessories primarily online through its websites and third-party marketplaces. It reported one operating segment. Online sales represented 91.8% of 2012 revenue; offline sales represented 8.2%.
Key financial results
Amounts below are in U.S. dollars; figures are rounded.
- Revenue: $304.0 million, down 7.0% from $327.1 million in 2011. Online sales fell 9.3% to $279.1 million; offline sales rose 29.8% to $24.9 million.
- Profitability: Gross profit was $91.6 million, down 14.4%; gross margin contracted to 30.1% from 32.7%. Operating loss was $35.8 million versus $16.0 million. Net loss was $36.0 million, or $1.17 per diluted share, versus $15.1 million, or $0.50 per share.
- Adjusted EBITDA: $9.4 million versus $16.3 million. This is a non-GAAP measure and should not be viewed as a substitute for operating results or cash flow.
- Cash flow: Operating activities used $0.4 million, compared with $10.4 million provided in 2011. Investing activities used $7.2 million and financing activities used $1.7 million. Cash declined $9.3 million to $1.0 million.
- Liquidity and debt: Working capital was negative $4.0 million, versus positive $8.7 million a year earlier. The company had $16.2 million outstanding under a revolving facility with commitments up to $40 million, subject to a borrowing base; reported excess availability was $10.8 million. The facility matures in April 2017, but the balance was classified as current due to subjective acceleration provisions and recurring losses.
- Balance sheet: Total assets were $88.9 million, down from $142.2 million; stockholders’ equity was $27.6 million, down from $60.9 million. Goodwill was fully impaired and reported at zero at year-end.
Material changes versus 2011
- Online traffic and orders weakened: unique visitors declined 7.1% to 153.9 million, orders declined 10.7% to 2.427 million, and average order value fell 6.2% to $114.30. Revenue capture improved to 83.9% from 81.7%.
- Management attributed weaker online sales to search-engine changes, particularly Google’s treatment of the company’s multiple websites, and increased competition, including suppliers selling directly to consumers.
- Gross margin fell 2.6 percentage points, reflecting pricing pressure and a $1.0 million increase in inventory write-downs in the fourth quarter.
- Fourth-quarter impairment charges totaled $26.4 million: $18.9 million for goodwill, $5.6 million for intangible assets, and $2.0 million for property and equipment. These were non-cash charges and contributed substantially to the larger reported loss.
- Cash and cash equivalents fell from $10.3 million to $1.0 million. Inventory declined by $9.5 million, while accounts payable and accrued expenses declined by $14.9 million.
Outlook, risks, and unusual items
- Management expected revenue declines and continued net losses for at least the next 12 months, while stating its operating plan provided for cash needs through that period. It cautioned that liquidity could be materially affected if performance worsened or financing were unavailable.
- Planned 2013 actions included consolidating websites and catalog content, improving site experience and mobile access, lowering prices through increased foreign sourcing, expanding product selection, and growing marketplace sales and AutoMD.
- The company was discussing possible equity offerings expected to raise $6 million to $9 million gross, but gave no assurance they would close. Capital expenditures were expected to decrease.
- In January 2013, the company reduced its workforce by 176 employees, to 1,194, and recorded approximately $493,000 in severance charges. In 2012 it had closed its La Salle, Illinois call center and recorded $640,000 in restructuring costs.
- Key risks include dependence on search engines and third-party fulfillment, intense price competition, supplier concentration, borrowing-base and covenant constraints, and the possibility of further asset impairments. Two drop-ship vendors accounted for 16.0% of product purchases; the top ten suppliers accounted for 43.7%.
- The Parts Geek litigation was settled in December 2012 for an amount described as not material. The company said asbestos litigation was not expected to result in material out-of-pocket costs; it also reported a non-material CARB settlement concerning catalytic-converter sales.
- The company reported compliance with its credit-facility covenants at year-end and effective internal controls; the independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the requested issuer and period are correct: this filing is for U.S. Auto Parts Network and fiscal 2012, not a Carparts.Com 2011 Q4 filing.
- Subsequent liquidity developments, including the status and terms of the contemplated equity offerings and the March 2013 credit-agreement amendment.
- Whether website consolidation, marketplace expansion, and pricing initiatives improved visitor traffic, order volume, average order value, and gross margin.
- The company’s ability to maintain borrowing availability, meet applicable credit-facility conditions, and fund operations if operating cash flow remains weak.
- The assumptions underlying the material goodwill and intangible-asset impairments and the potential for further write-downs.