Universal Power Group Reports Improved 2010 Earnings
Net Income of $2.9 Million, EPS of $0.58
On Tuesday March 29, 2011, 8:00 am
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 improved earnings for the fourth quarter and full year ended Dec. 31, 2010.
For the fourth quarter, UPG reported net income of $634,000, or $0.13 per share, on net sales of $24.5 million, compared with net income of $387,000, or $0.08 per share, on net sales of $28.0 million in the fourth quarter of 2009. For the year, UPG reported net income of $2.9 million, or $0.58 per share, on net sales of $107.3 million, versus a net loss of $135,000, or ($0.03) per share, on net sales of $111.2 million in 2009.
“Overall, 2010 was a good year of progress as our continued efforts to grow UPG’s core business over the past two years began to bear fruit,” stated UPG’s President and Chief Executive Officer Ian Edmonds. “Over the past year, UPG has achieved a number of important milestones, from new product introductions and strategic alliances to expansion into new geographic markets. We stayed true to our strategic plan last year, and our combined achievements set the stage for broad-based revenue and earnings growth in the coming years.”
Fourth Quarter
Net sales for the fourth quarter fell 12.5 percent to $24.5 million, from $28.0 million in the fourth quarter of 2009. Net sales of batteries and related power accessories to customers excluding ADT Security Services (formerly Broadview Security) and its authorized dealers grew 20.9 percent to $19.7 million in the fourth quarter of 2010, compared to $16.3 million for the fourth quarter of 2009. Net sales to ADT Security Services and its authorized dealers in the fourth quarter of 2010 were $4.8 million, a decrease of 59.0 percent from $11.7 million in the same quarter of 2009. Net sales to ADT Security Services and its authorized dealers accounted for 19.2 percent of net sales in the fourth quarter of 2010, compared to 41.8 percent of net sales in the fourth quarter of 2009. The shift in sales mix was the result of UPG’s continued focus on growing its battery and related power accessories business, while sales to ADT Security Services and its authorized dealers decreased during the integration of the acquisition of Broadview Security. The Company continues to work closely with ADT Security Services and its authorized dealers to maintain the level of quality and service they have come to expect from UPG.
Gross profit was flat at $4.9 million in the quarter compared with the fourth quarter of 2009. An increase in sales of higher-margin product lines combined with ongoing efforts to reduce cost and increase efficiency resulted in gross margins of 20.1 percent for the fourth quarter of 2010, compared to 17.5 percent for the fourth quarter of 2009. Operating expenses decreased by $0.2 million, or 4.4 percent, to $3.8 million in the fourth quarter of 2010, compared to $4.0 million in the fourth quarter of 2009. This decrease was attributable to a decline in accounting and professional fees, lower insurance costs and reduced bad debt expense, partially offset by increased personnel-related expenses and higher property taxes.
For the quarter, UPG reported a 20.4 percent increase in operating income, to $1.1 million, and a 26.3 percent increase in pre-tax income to $0.9 million. This compares to operating income of $0.9 million and pre-tax income of $0.7 million in the fourth quarter of 2009. The improved results were driven by improved gross margins and reduced operating expenses during the quarter. On the bottom line, UPG reported net income of $0.6 million, or $0.13 per share, compared to net income of $0.4 million, or $0.08 per share in the prior year.
Full Year Overview
For full year 2010, net sales decreased 3.5%, to $107.3 million, from $111.2 million in 2009. Net sales of batteries and related power accessories to customers excluding ADT Security Services and its authorized dealers grew 19.4 percent, to $72.8 million in 2010, compared to $61.0 million in 2009. Offsetting this increase was a decline in net sales to ADT Security Services and its authorized dealers to $34.4 million, a decrease of 31.4 percent from $50.2 million in 2009. Net sales to ADT Security Services and its authorized dealers accounted for 28 percent of total net sales in 2010, compared to 36 percent of total net sales in 2009.
Despite the modest decrease in net sales, gross profit for the year increased modestly to $19.9 million, or 18.5 percent of net sales, compared to $19.4 million, or 17.4 percent of net sales, for 2009. Total operating expenses decreased by $2.5 million, or 14.4 percent, to $14.8 million, from $17.2 million in the prior year. Operating expenses in the prior year included $2.5 million of settlement costs. Excluding the impact of these costs, operating expenses would have increased by approximately $0.1 million due to increases in personnel and related costs, marketing and trade show expenses, and facilities costs, which were partially offset by reductions in insurance costs, bad debt expense, and accounting and other professional fees.
For the full year 2010, UPG reported operating income of $5.1 million and pre-tax income of $4.5 million, compared to operating income of $2.1 million and pre-tax income of $1.2 million in 2009. Provision for income taxes for the year was $1.6 million, reflecting an effective tax rate of 35.1 percent compared to a provision for income taxes of $1.3 million for 2009, which reflected an effective tax rate of 111.5 percent. During 2009, UPG recorded a valuation allowance of $0.8 million on a portion of its deferred tax asset related to stock-based compensation, which resulted in a higher effective tax rate for the period. On the bottom line, UPG reported net income of $2.9 million, or $0.58 per diluted share, for the full year 2010 compared to a net loss of $135,000, or ($0.03) per diluted share, for 2009.
Balance Sheet and Financial Position
At Dec. 31, 2010, inventory increased by $1.9 million, to $32.9 million, from $31.0 million at the end of 2009. The increase was primarily attributable to the stocking of certain products in anticipation of peak seasonal sales in early 2011. Accounts receivable decreased to $10.2 million, from $11.4 million at the end of 2009, while accounts payable decreased by $4.4 million, to $7.6 million during the period. The decrease in accounts receivable was the result of the lower sales levels in the fourth quarter as well as the Company’s efforts to increase the speed of collections. The outstanding balance on UPG’s line of credit rose to $16.3 million, compared to $15.2 million at the end of 2009 reflecting the increased investment in working capital over the period.
UPG had net cash used in operating activities of $2.9 million in 2010, compared to net cash provided by operating activities of $5.9 million in 2009. The decrease in operating cash flow for 2010 reflects an increase in net income, and a decrease in accounts receivable that was more than offset by decreased levels of accounts payable and non-cash expenses, and increases in inventory. Total working capital increased to $20.9 million at the end of 2010, from $17.7 million at the end of 2009. Given the increased investment in working capital during 2010, UPG ended the year with $215,000 in cash and cash equivalents, down from $2.1 million at the end of 2009.
Edmonds concluded, “We made significant progress in improving our operating results and growing our battery and related power accessory business during 2010, and we plan to continue this momentum in 2011. We recently highlighted a number of new products at the 2011 Consumer Electronics Show, and we are working on the launch of more new products later this year. We announced our initial expansion into new markets in Latin America last quarter, and we will pursue additional international growth where it makes the most sense for UPG. Our sales team made significant strides in increasing sales and identifying new potential avenues for future business growth, resulting in core battery revenue growth of nearly 20 percent for the year. Looking ahead to the rest of 2011, we remain focused on growing our entire business and continuing to meet the needs of all of our customers.”
Reconciliation of GAAP Operating Income and Income Before Provision for Income Taxes to Non-GAAP Operating Income and Income Before Provision for Income Taxes (Unaudited)
The following table reconciles operating income and income before provision for income taxes, as reported in accordance with U.S. Generally Accepted Accounting Principals (“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 our 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)
December 31,
2010 2009
(dollars in thousands)
Operating income and income before provision for income taxes as reported:
Operating expenses $ 14,769 $ 14,715
Settlement expenses — 2,529
Total operating expenses 14,769 17,244
Operating income 5,131 2,129
Other expense, net (679 ) (956 )
Income before provision for income taxes 4,452 1,173
Non-GAAP measures to exclude settlement expenses from operating expenses:
Settlement expenses — 2,529
Non-GAAP operating income $ 5,131 $ 4,658
Non-GAAP income before provision for income taxes $ 4,452 $ 3,702
Conference Call Information
Universal Power Group will host an investor conference call today, Tuesday, March 29, 2011, at 11:30 a.m. ET (10:30 a.m. CT) to discuss the Company’s financial results for the quarter and full year ended Dec. 31, 2010.
Interested parties may access the conference call by dialing 1.800.299.6183, passcode 41707071. 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 a webcast of 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 April 5, 2011, by calling 1.888.286.8010, passcode 44168762, 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 the Securities and Exchange Commission. Historical financial results are not necessarily indicative of future performance.
UNIVERSAL POWER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2010
December 31,
2009
CURRENT ASSETS
Cash and cash equivalents $ 215,375 $ 2,059,475
Accounts receivable:
Trade, net of allowance for doubtful accounts of $656,989 and $452,200 10,189,716 11,440,179
Other 25,607 13,561
Inventories – finished goods, net of allowance for obsolescence of $1,155,852 and $756,671 32,893,837 30,977,213
Current deferred tax asset 1,564,433 1,475,157
Prepaid expenses and other current assets 1,237,047 1,064,152
Total current assets 46,126,015 47,029,737
PROPERTY AND EQUIPMENT
Logistics and distribution systems 1,834,124 1,807,069
Machinery and equipment 991,260 984,918
Furniture and fixtures 467,632 385,940
Leasehold improvements 408,128 388,334
Vehicles 199,992 222,549
Total property and equipment 3,901,136 3,788,810
Less accumulated depreciation and amortization (2,561,314 ) (1,940,715 )
Net property and equipment 1,339,822 1,848,095
OTHER ASSETS 127,018 313,754
NON-CURRENT DEFERRED TAX ASSET 17,784 214,314
TOTAL ASSETS $ 47,610,639 $ 49,405,900
UNIVERSAL POWER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31,
2010
December 31,
2009
CURRENT LIABILITIES
Line of credit $ 16,323,528 $ 15,174,305
Accounts payable 7,559,445 11,971,502
Income taxes payable 25,588 698,654
Accrued liabilities 456,418 384,976
Current portion of accrued settlement accrual 733,540 955,730
Current portion of capital lease and note obligations 25,906 25,535
Current portion of deferred rent 52,672 92,040
Total current liabilities 25,177,097 29,302,742
LONG-TERM LIABILITIES
Accrued settlement accrual, less current portion 241,490 985,027
Capital lease and note obligations, less current portion 25,183 50,606
Deferred rent, less current portion — 36,103
Total long term liabilities 266,673 1,071,736
TOTAL LIABILITIES 25,443,770 30,374,478
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Common stock - $0.01 par value, 50,000,000 shares authorized, 5,020,000 and 5,000,000 shares issued and outstanding, respectively 50,200 50,000
Additional paid-in capital 16,075,771 15,951,626
Retained earnings 6,205,127 3,314,887
Accumulated other comprehensive loss (164,229 ) (285,091 )
Total shareholders’ equity 22,166,869 19,031,422
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 47,610,639 $ 49,405,900
UNIVERSAL POWER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, Year Ending December 31,
2010 2009 2010 2009
(unaudited)
Net sales $ 24,523,388 $ 28,038,385
$
107,256,461
$ 111,170,726
Cost of sales 19,587,558 23,115,980 87,355,871 91,797,823
Gross profit 4,935,830 4,922,405 19,900,590 19,372,903
Operating expenses 3,810,476 3,987,824 14,769,442 14,714,680
Settlement expenses — — — 2,529,345
Total operating expenses 3,810,476 3,987,824 14,769,442 17,244,025
Operating income 1,125,354 934,581 5,131,148 2,128,878
Other income (expense)
Interest expense (including $0, $50,907, $0 and $310,000 to Zunicom, Inc.) (244,276 ) (237,083 ) (681,213 ) (953,251 )
Other, net — — 2,187 (2,623 )
Total other expense, net (244,276 ) (237,083 ) (679,026 ) (955,874 )
Income before provision for
income taxes
881,078 637,498 4,452,122 1,173,004
Provision for income taxes (247,555 ) (310,431 ) (1,561,882 ) (1,308,193 )
Net income (loss) $ 633,523 $ 387,067
$
2,890,240
$ (135,189 )
Net income (loss) per share
Basic $ 0.13 $ 0.08
$
0.58
$ (0.03 )
Diluted $ 0.13 $ 0.08
$
0.58
$ (0.03 )
Weighted average shares outstanding
Basic 5,006,957 5,000,000 5,001,753 5,000,000
Diluted 5,021,560 5,009,575 5,016,816 5,000,000
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
$
2,890,240 $ (135,189 )
Items not requiring (providing) cash
Depreciation and amortization 809,317 802,454
Provision for doubtful accounts 228,361 415,808
Provision for obsolete inventory 770,000 599,145
Deferred income taxes 107,254 (196,857 )
Loss (gain) on disposal of property and equipment (2,000 ) 2,623
Stock-based compensation 84,945 36,969
Changes in operating assets and liabilities, net off effect of acquisition:
Accounts receivable – trade 1,022,102 592,626
Accounts receivable – other (12,046 ) 36,742
Inventories (2,686,624 ) 5,945,535
Income taxes receivable/payable (673,066 ) 867,328
Prepaid expenses and other current assets (172,895 ) (183,624 )
Other assets — (60,716 )
Accounts payable (4,412,057 ) (4,448,443 )
Accrued liabilities 192,304 (222,367 )
Settlement accrual (965,728 ) 1,940,758
Deferred rent (75,470 ) (98,159 )
Net cash provided by (used in) operating activities (2,856,362 ) 5,894,633
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (134,884 ) (56,761 )
Proceeds from sale of equipment 2,000 1,000
Escrow deposit — 900,000
Net cash paid in Monarch acquisition — (892,000 )
Net cash used in investing activities (132,884 ) (47,761 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit 1,149,223 822,530
Exercise of stock options 39,400 —
Payments on capital lease and note obligations (4,476 ) (16,454 )
Payment on notes to Zunicom, Inc.
—
(4,919,667 )
Net cash provided by (used in) financing activities 1,184,147 (4,113,591 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,844,100 ) 1,733,281
Cash and cash equivalents at beginning of year
2,059,475 326,194
Cash and cash equivalents at end of year $ 215,375
$
2,059,475
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 2,103,659
$
871,052
Interest paid $ 436,522
$
972,784
NONCASH FINANCING AND INVESTING ACTIVITIES:
Property and equipment acquired through capital leases or notes payable
$
—
$
86,066
Cumulative tax effect of Unicap adjustment treated as a capital contribution from Zunicom, Inc.
$
—
$
185,791
Gain on settlement with Zunicom, Inc.
$
—
$
301,641
Contact:
Universal Power Group, Inc.
Mimi Tan, SVP, 469-892-1122
tanm@upgi.com
or
Investor Relations:
Lambert, Edwards & Associates
Jeff Tryka, CFA, 616-233-0500
jtryka@lambert-edwards.com
or
Karen Keller, 616-233-0500
