Universal Power Group Reports Record Second Quarter Net Income
On Wednesday August 11, 2010, 8:00 am EDT
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 second quarter and six months ended June 30, 2010.
For the second quarter, UPG reported record net income of $0.8 million, or $0.17 per share, on net sales of $28.4 million. These results compare with net income of $0.6 million, or $0.12 per share, on net sales of $27.9 million reported in the second quarter of 2009.
“We are very pleased with the 38 percent growth in our bottom line results in the second quarter,” stated UPG’s President and Chief Executive Officer, Ian Edmonds. “While our revenues continued to be affected by weakness in consumer confidence and employment in the broader economy, the actions we’ve taken over the past few quarters, such as the changes to our sales force made at the end of 2009, have yielded positive results. In the second quarter, our sales of batteries, related power accessories and other products posted solid and broad-based gains across new and existing customers. We continued to carefully manage our operating expenses in order to lower our costs, and improve operating efficiency while remaining responsive to the demands of our customers.”
Second Quarter and Six Month Overview
Net sales for the second quarter rose 1.6 percent, to $28.4 million, from $27.9 million in the second quarter of 2009. Net sales of batteries, related power accessories and other products to customers other than Broadview Security and its authorized dealers grew 18.1 percent, to $17.7 million in the second quarter of 2010, compared to $15.0 million for the second quarter of 2009. Net sales to Broadview Security and its authorized dealers in the second quarter were $10.7 million, a decrease of 17.5 percent from $12.9 million in the same quarter of 2009. Net sales to Broadview Security and its authorized dealers accounted for 37.6 percent of total net sales in the second quarter of 2010, compared to 46.3 percent of total net sales in the second quarter of 2009.
Higher net sales, continued cost control and better sourcing efficiency – partially offset by UPG’s decision to employ more aggressive pricing in the current competitive environment – resulted in 17.8 percent gross margins for the quarter, compared to 17.7 percent for the second quarter of 2009. UPG reported gross profit of $5.1 million in the quarter, compared to gross profit of $5.0 million in the second quarter of 2009. Operating expenses decreased by $0.1 million, or 3.4 percent, to $3.7 million in the second quarter, compared to $3.8 million in the second quarter of 2009, due mainly to the Company’s continued efforts to control operating costs and improved operating efficiency.
For the second quarter of 2010, UPG reported operating income of $1.4 million and pre-tax income of $1.2 million, compared to operating income of $1.2 million and pre-tax income of $0.9 million in the second quarter of 2009. At the bottom line, UPG reported net income of $0.8 million, or $0.17 per share, compared to net income of $0.6 million, or $0.12 per share, in the second quarter of 2009.
For the first six months of 2010, net sales fell 2.2 percent, to $54.4 million, from $55.6 million in the comparable period of 2009. Net sales of batteries, related power accessories and other products to customers other than Broadview Securities and its authorized dealers grew 8.4 percent, to $32.7 million in the first six months of 2010, compared to $30.2 million for the comparable period of 2009. Net sales to Broadview Security and its authorized dealers in the first six months of 2010 were $21.7 million, a decrease of 14.7 percent from $25.4 million in the same period of 2009. Net sales to Broadview Security and its authorized dealers accounted for 39.9 percent of total net sales in the first six months of 2010, compared to 45.8 percent of total net sales in the first six months of 2009.
Lower net sales combined with increased inventory reserves and tooling costs contributed to lower gross profit of $9.5 million, or 17.4 percent of sales, compared to $9.9 million, or 17.8 percent of sales for the first six months of 2009. Total operating expenses decreased $2.8 million, or 28.3 percent to $7.1 million, from $10.0 million in the prior year. 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. Excluding the settlement costs, operating expenses improved by approximately $0.3 million.
For the first six months of 2010, UPG reported operating income of $2.4 million and pre-tax income of $2.0 million, compared to an operating loss of $39,000 and a pre-tax loss of $0.5 million in the comparable period of 2009. Excluding the settlement expenses incurred in the first quarter of 2009, UPG’s non-GAAP operating income for the 2009 period was $2.5 million, and non-GAAP pre-tax income was $2.0 million. The reduction in operating income in 2010 compared to non-GAAP operating income in 2009 was due primarily to decreases in net sales and associated gross profit, partially offset by reductions in operating expenses. UPG reported net income for the first six months of 2010 of $1.3 million, or $0.27 per share, compared to a net loss of $1.1 million, or $0.23 per share, in the first six months of 2009.
Balance Sheet and Financial Position
In the second quarter, inventory was reduced by $1.7 million, to $27.2 million, from $28.9 million at the end of the first quarter, continuing management’s objective of maintaining inventory levels to meet current levels of demand. Accounts receivable increased by $1.6 million from last quarter, while accounts payable increased by $1.8 million during the quarter. The outstanding balance on UPG’s line of credit was reduced to $11.7 million, compared to $17.2 million last quarter and $15.2 million at the end of 2009.
UPG generated operating cash flow of $2.1 million in the six months ended June 30, 2010, compared to operating cash flow of $0.6 million in the same period of 2009, reflecting the significant improvement in net income and continued efforts to control working capital. Given the considerable repayment of debt in the period, the Company ended the quarter with $0.7 million in cash and cash equivalents, down from $2.1 million at year-end.
Logistics Center Realignment
UPG also announced a number of changes to its network of logistics centers as part of its effort to reduce costs and enhance productivity without sacrificing customer service. UPG will consolidate its Oklahoma City logistics center with its main facility in Carrollton, Texas. UPG expects this move will result in improved capacity utilization and lower cost of operations.
In addition to this consolidation, UPG announced that it will move its current logistics center in Columbus, Ga. to Atlanta. The Company believes this relocation will result in better service to its customers on the East Coast who will benefit from closer proximity to air and ground transportation hubs in Atlanta. The move is expected to be completed by the expiration of the current lease at the end of the third quarter.
Edmonds concluded: “The positive results posted for the second quarter illustrate the impact of our effort to grow revenue and control costs. Despite lingering softness in the broad economy, we have taken appropriate steps to further enhance the efficiency of our operations and continue serving the needs of our customers. Over the long term, we see significant growth opportunities within the United States and internationally, but we will maintain a disciplined approach to ensure that our growth is sustainable and supported by the strength of UPG’s balance sheet and operating results.”
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 GAAP operating income (loss) and GAAP income (loss) before provision for income taxes, as reported, to non-GAAP operating income and non-GAAP income before provision for income taxes. We believe that non-GAAP operating income, which is generally operating income less costs related to settlement agreements, represents our operating efficiency. Non-GAAP operating income and non-GAAP income before provision for income taxes, which are non-GAAP financial measures, should not be considered alternatives to, or more meaningful than, net income prepared on a GAAP basis. Additionally, non-GAAP operating income and non-GAAP income before provision for income taxes may not be comparable to similar metrics used by others in the industry.
Financial Summary (Non-GAAP)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009
Operating income (loss) and income (loss) before provision for income taxes as reported:
Operating expenses $ 3,657,219 $ 3,786,800 $ 7,130,494 $ 7,421,691
Settlement expenses — — — 2,529,345
Total operating expenses 3,657,219 3,786,800 7,130,494 9,951,036
Operating income (loss) 1,403,503 1,167,653 2,363,201 (38,819)
Interest expense (236,936) (233,246) (398,296) (480,796)
Income (loss) before provision for income taxes 1,166,573 934,407 1,964,905 (519,615)
Non-GAAP measures to exclude settlement expenses from operating expenses:
Settlement expenses — — — 2,529,345
Non-GAAP operating income $ 1,403,503 $ 1,167,653 $ 2,363,201 $ 2,490,526
Non-GAAP income before provision for income taxes $ 1,166,573 $ 934,407 $ 1,964,905 $ 2,009,730
Conference Call Information
Universal Power Group will host an investor conference call today, Wednesday, Aug. 11, 2010 at 11:30 a.m. EDT (10:30 a.m. CDT) to discuss the Company’s financial results for the quarter and six months ended June 30, 2010.
Interested parties may access the conference call by dialing 1.866.730.5768, passcode 40860835. 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 Aug. 18, 2010 by calling 1.888.286.8010, passcode 54898566, 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
June 30,
2010
December 31,
2009
CURRENT ASSETS
Cash and cash equivalents $ 662,277 $ 2,059,475
Accounts receivable:
Trade, net of allowance for doubtful accounts of $628,518 (unaudited) and $452,200 12,255,142 11,440,179
Other 292,102 13,561
Inventories – finished goods, net of allowance for obsolescence of $1,150,137 (unaudited) and $756,671 27,169,530 30,977,213
Current deferred tax asset 1,383,520 1,151,635
Prepaid expenses and other current assets 1,084,970 1,064,152
Total current assets 42,847,541 46,706,215
PROPERTY AND EQUIPMENT
Logistics and distribution systems 1,812,379 1,807,069
Machinery and equipment 991,261 984,918
Furniture and fixtures 394,660 385,940
Leasehold improvements 402,849 388,334
Vehicles 199,992 222,549
Total property and equipment 3,801,141 3,788,810
Less accumulated depreciation and amortization (2,241,940) (1,940,715)
Net property and equipment 1,559,201 1,848,095
OTHER ASSETS 270,335 313,754
NON-CURRENT DEFERRED TAX ASSET 470,242 771,490
TOTAL ASSETS $ 45,147,319 $ 49,639,554
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
June 30,
2010
December 31,
2009
CURRENT LIABILITIES
Line of credit $ 11,689,710 $ 15,174,305
Accounts payable 10,341,952 11,971,502
Income taxes payable — 698,654
Accrued liabilities 819,432 384,976
Current portion of settlement expenses 861,155 955,730
Current portion of capital lease and note obligations 25,952 25,535
Current portion of deferred rent 82,210 92,040
Total current liabilities 23,820,409 29,302,742
LONG-TERM LIABILITIES
Settlement expenses, less current portion 599,894 985,027
Capital lease and note obligations, less current portion 37,764 50,606
Deferred rent, less current portion — 36,103
Non-current deferred tax liability 214,009 233,654
Total long term liabilities 851,667 1,305,390
TOTAL LIABILITIES 24,672,076 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 15,983,236 15,951,626
Retained earnings 4,664,125 3,314,887
Accumulated other comprehensive loss (222,118) (285,091)
Total shareholders’ equity 20,475,243 19,031,422
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 45,147,319 $ 49,639,554
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009
Net sales $ 28,393,923 $ 27,947,335 $ 54,428,718 $ 55,636,258
Cost of sales 23,333,195 22,992,882 44,935,023 45,724,041
Gross profit 5,060,728 4,954,453 9,493,695 9,912,217
Operating expenses 3,657,219 3,786,800 7,130,494 7,421,691
Settlement expenses — — — 2,529,345
Total operating expenses 3,657,219 3,786,800 7,130,494 9,951,036
Operating income (loss) 1,403,509 1,167,653 2,363,201 (38,819)
Interest expense (including $0, $71,102, $0 and $146,831 to Zunicom, Inc.) (236,936) (233,246) (398,296) (480,796)
Income (loss) before provision for income taxes 1,166,573 934,407 1,964,905 (519,615)
Provision for income taxes (323,044) (322,066) (615,667) (617,997)
Net income (loss) $ 843,529 $ 612,341 $ 1,349,238 $ (1,137,612)
Net income (loss) per share
Basic $ 0.17 $ 0.12 $ 0.27 $ (0.23)
Diluted $ 0.17 $ 0.12 $ 0.27 $ (0.23)
Weighted average shares outstanding
Basic 5,000,000 5,000,000 5,000,000 5,000,000
Diluted 5,008,976 5,000,000 5,008,976 5,000,000
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,349,238 $ (1,137,612)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 381,965 392,036
Provision for bad debts 168,341 230,000
Provision for obsolete inventory 420,000 170,000
Deferred income taxes 49,718 (53,994)
Gain on disposal of property (2,000) —
Stock-based compensation 31,610 (18,230)
Changes in operating assets and liabilities:
Accounts receivable – trade (983,304) (1,604,746)
Accounts receivable – other (278,541) 5,764
Inventories 3,387,683 7,110,306
Prepaid expenses and other current assets (20,818) (184,886)
Income tax receivable/payable (698,654) 193,386
Accounts payable (1,629,551) (7,602,920)
Accrued liabilities 497,429 772,439
Settlement expenses (479,709) 2,390,776
Deferred rent (45,933) (31,382)
Net cash provided by operating activities 2,147,474 630,937
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (34,889) (31,105)
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 (32,889) (23,105)
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit (3,484,595) 146,163
Payments on capital lease and note obligations (27,188) (3,400)
Payment on notes payable to Zunicom, Inc. — (731,250)
Net cash used in financing activities (3,511,783) (588,487)
Net increase (decrease) in cash and cash equivalents (1,397,198) 19,345
Cash and cash equivalents at beginning of period? 2,059,475 326,194
Cash and cash equivalents at end of period $ 662,277 $ 345,539
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 1,579,341 $ 276,080
Interest paid $ 197,061 $ 480,796
NONCASH FINANCING AND INVESTING ACTIVITIES
Purchase of equipment with a note payable $ — $ 38,556
Contact:
Universal Power Group, Inc.
Company Contact:
Mimi Tan, SVP, 469-892-1122
tanm@upgi.com
or
Investor Relations:
Lambert, Edwards & Associates
Jeff Tryka, CFA or Karen Keller, 616-233-0500
jtryka@lambert-edwards.com
