Universal Power Group Reports First Quarter Results
May 12, 2010 08:00 AM Eastern Daylight Time
CARROLLTON, Texas--(BUSINESS WIRE)--Universal Power Group, Inc. (NYSE Amex: UPG), a Texas-based distributor and supplier of batteries and related power accessories and a third-party logistics provider, today announced financial results for the quarter ended March 31, 2010.
For the quarter, UPG reported net income of $0.5 million, or $0.10 per share, on net sales of $26.0 million. These results compare with a net loss of $1.7 million, or $0.35 per share, on net sales of $27.7 million reported in the first quarter of 2009. Results for the first quarter of 2009 included a $2.5 million charge for settlement expenses.
“We made progress on a number of strategic fronts in the first quarter in spite of a continued challenging environment,” stated UPG’s President and Chief Executive Officer, Ian Edmonds. “Continued softness in some of our markets contributed to the lower sales in the quarter, and although it was lower than a year ago, our gross margin for the 2010 quarter was still better than our historical average. From a strategy perspective, we are working to grow our revenues through new products, particularly products resulting from marketing, product development and licensing agreements signed over the last year, and by expanding existing product lines into new markets. As we execute on these strategies, we expect to see a gradual improvement in sales and product mix over time.”
First Quarter Overview
Net sales for the first quarter fell 6.0 percent, to $26.0 million from $27.7 million, in the first quarter of 2009. Net sales of batteries, related power accessories and other products to customers other than Broadview Securities and its authorized dealers fell marginally to $15.0 million in the first quarter of 2010 compared to $15.1 million for the first quarter of 2009. Net sales to Broadview Security and its authorized dealers in the first quarter were $11.0 million, a decrease of 12.0 percent, from $12.5 million in the same quarter of 2009. Net sales to Broadview Security and its authorized dealers accounted for 42.4 percent of total net sales in the first quarter of 2010, compared to 45.2 percent of total net sales in the first quarter of 2009.
Lower net sales, combined with increased inventory reserves and tooling costs for new products resulted in a 17.0 percent gross margins for the quarter, compared to 17.9 percent for the first quarter of 2009. Despite the decrease, gross margins remain higher than gross margins prior to 2009. UPG reported gross profit of $4.4 million in the quarter, compared to gross profit of $5.0 million in the prior-year quarter.
Operating expenses decreased by $2.7 million, or 43.7 percent, to $3.5 million in the first quarter, compared to $6.2 million in the first quarter of 2009. However, the 2009 amount includes settlement expenses of $2.5 million relating to the departure of the Company’s former chief executive officer and the cancellation of the Company’s relationship with its principal purchasing agent, both of which occurred in the first quarter of 2009. Excluding the settlement expenses, operating expenses improved by approximately $0.2 million, primarily as a result of reductions in professional fees and personnel costs, as well as reductions in corporate insurance and legal expenses.
For the first quarter of 2010, UPG reported operating income of $1.0 million and pre-tax income of $0.8 million, compared to an operating loss of $1.2 million and a pre-tax loss of $1.5 million in the first quarter of 2009. Excluding the settlement expenses incurred in the first quarter of 2009, UPG’s non-GAAP operating income for the 2009 period was $1.3 million, and non-GAAP pre-tax income was $1.1 million. The reduction in operating income and pre-tax income in 2010 compared to non-GAAP operating income and non-GAAP pre-tax income in the first quarter of 2009 was due primarily to decreases in net sales and associated gross profit. At the bottom line, UPG reported net income of $0.5 million, or $0.10 per share, compared to a net loss of $1.7 million, or $0.35 per share, in the first quarter of 2009.
Balance Sheet and Financial Position
In the first quarter, inventory was reduced by $2.1 million, to $28.9 million, from $31.0 million at the end of 2009, which was in line with management’s objective of maintaining appropriate inventory levels to meet current levels of net sales. Accounts receivable were reduced by $0.8 million from year end, while accounts payable were reduced by $3.4 million during the quarter. The outstanding balance on UPG’s line of credit increased to $17.2 million, compared to $15.2 million at the end of 2009.
UPG generated operating cash flow of $0.5 million in the three months ended March 31, 2010, compared to negative operating cash flow of $2.3 million in the same period of 2009, reflecting the significant improvement in net income. The Company ended the quarter with $4.5 million in cash and cash equivalents, up from $2.1 million at year-end.
Edmonds concluded: “Although we were disappointed with the decrease in net sales during the first quarter, we remain confident that we will see some improvements this year. With our current infrastructure, we can support significantly higher levels of sales, which means that we are well-positioned to improve our operating results over the balance of 2010. To that end, we continue to focus on new products and markets. We are committed to growing UPG while maintaining financial discipline and the strength of our balance sheet.”
Reconciliation of GAAP Operating Income (Loss) and Income (Loss) Before Provision for Income Taxes to Non-GAAP Operating Income and Income Before Provision for Income Taxes (Unaudited)
The following table reconciles operating income (loss) and income (loss) before provision for income taxes, as reported in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), to non-GAAP operating income and income before provision for income taxes. We believe that non-GAAP operating income, which is generally operating income less costs related to settlement agreements, more accurately reflects the Company’s operating efficiency. Non-GAAP operating income and income before provision for income taxes are non-GAAP financial measures and should not be considered an alternative to, or more meaningful than, net income prepared on a GAAP basis. Additionally, non-GAAP operating income and income before provision for income taxes may not be comparable to similar metrics used by others in our industry.
Financial Summary (Non-GAAP)
(unaudited)
Three Months Ended March 31,
2010
2009
Operating income (loss) and income (loss) before provision for income taxes as reported:
Operating expenses $ 3,473,275 $ 3,634,890
Settlement expenses – 2,529,345
Total operating expenses 3,473,275 6,164,235
Operating income (loss) 959,692 (1,206,471 )
Other expense, net (161,360 ) (247,550 )
Income (loss) before provision for income taxes 798,332 (1,454,021 )
Non-GAAP measures to exclude settlement expenses from operating expenses:
Settlement expenses — 2,529,345
Non-GAAP operating income $ 959,692 $ 1,322,874
Non-GAAP income before provision for income taxes $ 798,332 $ 1,075,324
Conference Call Information
Universal Power Group will host an investor conference call today, Wednesday, May 12, 2010 at 11:30 a.m. EDT (10:30 a.m. CDT) to discuss the Company’s financial results for the first quarter ended March 31, 2010.
Interested parties may access the conference call by dialing 1.866.804.6925, passcode 67530212. The conference call will also be broadcast live on www.upgi.com and through the Thomson StreetEvents Network. Individual investors can listen to the call at www.earnings.com, Thomson’s individual investor portal. Institutional investors can access the call via Thomson StreetEvents (www.streetevents.com), a password-protected event management site.
A replay of the conference call will be made available through May 19, 2010 by calling 1.888.286.8010, passcode 50470872, and an archived webcast will be available at www.upgi.com.
About Universal Power Group, Inc.
Universal Power Group, Inc. (NYSE Amex: UPG) is a leading supplier and distributor of batteries and power accessories, and a provider of supply chain and other value-added services. UPG's product offerings include proprietary brands of industrial and consumer batteries of all chemistries, chargers, jump-starters, 12-volt accessories, and solar and security products. UPG's supply chain services include procurement, warehousing, inventory management, distribution, fulfillment and value-added services such as sourcing, battery pack assembly and coordinating battery recycling efforts, as well as product development. For more information, please visit the UPG website at www.upgi.com.
Forward-Looking Statements
Statements in this press release that are not statements of historical or current fact constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the Company's actual operating results to be materially different from any historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements that explicitly describe these risks and uncertainties, readers are urged to consider statements that contain terms such as "believes," "belief," "expects," "expect," "intends," "intend," "anticipate," "anticipates," "plans," "plan," to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company's filings with Securities and Exchange Commission. Historical financial results are not necessarily indicative of future performance.
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
March 31,
2010 December 31,
2009
CURRENT ASSETS
Cash and cash equivalents $ 4,529,003 $ 2,059,475
Accounts receivable:
Trade, net of allowance for doubtful accounts of $542,200 and $452,200 10,650,458 11,440,179
Other 14,542 13,561
Inventories – finished goods, net of allowance for obsolescence of $964,919 and $756,671 28,850,617 30,977,213
Current deferred tax asset 1,344,841 1,151,635
Prepaid expenses and other current assets 1,108,505 1,064,152
Total current assets 46,497,966 46,706,215
PROPERTY AND EQUIPMENT
Logistics and distribution systems 1,812,379 1,807,069
Machinery and equipment 984,918 984,918
Furniture and fixtures 385,940 385,940
Leasehold improvements 402,849 388,334
Vehicles 199,992 222,549
Total property and equipment 3,786,078 3,788,810
Less accumulated depreciation and amortization (2,081,259 ) (1,940,715 )
Net property and equipment 1,704,819 1,848,095
OTHER ASSETS 299,427 313,754
NON-CURRENT DEFERRED TAX ASSET 459,635 771,490
TOTAL ASSETS $ 48,961,847 $ 49,639,554
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
March 31,
2010 December 31,
2009
CURRENT LIABILITIES
Line of credit $ 17,212,595 $ 15,174,305
Accounts payable 8,548,057 11,971,502
Income taxes payable 729,084 698,654
Accrued liabilities 778,680 384,976
Current portion of settlement expenses 929,191 955,730
Current portion of capital lease and note obligations 25,573 25,535
Current portion of deferred rent 92,409 92,040
Total current liabilities 28,315,589 29,302,742
LONG-TERM LIABILITIES
Settlement expenses, less current portion 777,388 985,027
Capital lease and note obligations, less current portion 44,694 50,606
Deferred rent, less current portion 12,766 36,103
Non-current deferred tax liability 224,445 233,654
Total long-term liabilities 1,059,293 1,305,390
TOTAL LIABILITIES 29,374,882 30,608,132
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Common stock - $0.01 par value, 50,000,000 shares authorized, 5,000,000 shares issued and outstanding 50,000 50,000
Additional paid-in capital 15,967,431 15,951,626
Retained earnings 3,820,596 3,314,887
Accumulated other comprehensive loss (251,062 ) (285,091 )
Total shareholders’ equity 19,586,965 19,031,422
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 48,961,847 $ 49,639,554
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
2010 2009
Net sales $ 26,034,805 $ 27,688,923
Cost of sales 21,601,838 22,731,159
Gross profit 4,432,967 4,957,764
Operating expenses 3,473,275 3,634,890
Settlement expenses — 2,529,345
Total operating expenses 3,473,275 6,164,235
Operating income (loss) 959,692 (1,206,471 )
Interest expense (including $0 and $75,729 to Zunicom, Inc.) (161,360 ) (247,550 )
Income (loss) before provision for income taxes 798,332 (1,454,021 )
Provision for income taxes (292,623 ) (295,930 )
Net income (loss) $ 505,709 $ (1,749,951 )
Net income (loss) per share
Basic $ 0.10 $ (0.35 )
Diluted $ 0.10 $ (0.35 )
Weighted average number of shares outstanding
Basic 5,000,000 5,000,000
Diluted 5,017,740 5,000,000
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 505,709 $ (1,749,951 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 192,193 195,456
Provision for bad debts 83,531 90,000
Provision for obsolete inventory 210,000 60,000
Deferred income taxes 109,440 79,992
Gain on disposal of property (2,000 ) —
Stock-based compensation 15,805 (34,036 )
Changes in operating assets and liabilities:
Accounts receivable – trade 706,190 (345,559 )
Accounts receivable – other (981 ) 1,505
Inventories 1,916,596 2,325,511
Income tax receivable/payable 30,430 193,386
Prepaid expenses and other current assets (44,353 ) (18,984 )
Accounts payable (3,423,445 ) (5,889,800 )
Accrued liabilities 427,733 352,982
Settlement expenses (234,179 ) 2,496,182
Deferred rent (22,967 ) (15,691 )
Net cash provided by (used in) operating activities 469,702 (2,259,007 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (19,826 ) (24,884 )
Proceeds from sales of equipment 2,000 —
Net cash paid in Monarch acquisition — (892,000 )
Change in restricted cash — 900,000
Net cash used in investing activities (17,826 ) (16,884 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit 2,038,290 2,840,058
Payments on capital lease and note obligations (20,638 ) (1,345 )
Payment on notes to Zunicom, Inc. — (365,625 )
Net cash provided by financing activities 2,017,652 2,473,088
Net increase in cash and cash equivalents 2,469,528 197,197
Cash and cash equivalents at beginning of period? 2,059,475 326,194
Cash and cash equivalents at end of period $ 4,529,003 $ 523,391
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 150,110 $ 9,571
Interest paid $ 15,627 $ 246,929
NONCASH FINANCING AND INVESTING ACTIVITIES
Purchase of equipment with a note payable $ — $ 38,556
Contacts
Universal Power Group, Inc.
Company Contact:
Mimi Tan, SVP, 469-892-1122
tanm@upgi.com
or
Lambert, Edwards & Associates
Investor Relations:
Jeff Tryka, CFA or Karen Keller, 616-233-0500
jtryka@lambert-edwards.com
