Universal Power Group Reports Record Third Quarter Results
Net income of $0.9 million and EPS of $0.18 on 2.9 percent net sales growth
On Thursday November 11, 2010, 8:00 am EST
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 third quarter and nine months ended Sept. 30, 2010. The third quarter was the Company’s second consecutive quarter of record earnings.
For the third quarter, UPG reported net income of $0.9 million, or $0.18 per share, on net sales of $28.3 million. These results compare with net income of $0.6 million, or $0.12 per share, on net sales of $27.5 million in the third quarter of 2009. For the first nine months of 2010, UPG reported net income of $2.3 million, or $0.45 per share, on net sales of $82.7 million, compared with a net loss of $0.5 million, or $0.10 per share, on net sales of $83.1 million in the comparable period of 2009.
“We are pleased with our quarterly results and the continued growth in our bottom line to record levels,” stated UPG’s President and Chief Executive Officer, Ian Edmonds. “The earnings momentum we have achieved serves as a foundation for UPG as we explore additional initiatives to drive long-term growth and enhance shareholder value. These efforts include expanding of our core business into new geographic markets and continuing to pursue of opportunities with new products and customers.”
Third Quarter and Nine Month Overview
Net sales for the third quarter rose 2.9 percent, to $28.3 million, from $27.5 million in the third quarter of 2009. Net sales of batteries and related power accessories to customers other than ADT Security Services (formerly Broadview Security) and its authorized dealers grew 40.5 percent, to $20.4 million in the third quarter of 2010, compared to $14.5 million for the third quarter of 2009. Net sales to ADT Security Services and its authorized dealers in the third quarter of 2010 were $7.9 million, a decrease of 39.2 percent from $13.0 million in the same quarter of 2009. Net sales to ADT Security Services and its authorized dealers accounted for 27.9 percent of total net sales in the third quarter of 2010, compared to 47.2 percent of total net sales in the second quarter of 2009.
Higher net sales and an increased focus on UPG’s higher-margin core product lines resulted in the record gross margins of 19.3 percent for the 2010 quarter, compared to 16.5 percent for the third quarter of 2009. UPG reported gross profit of $5.5 million in the quarter, compared to gross profit of $4.5 million in the third quarter of 2009. Operating expenses increased by $0.5 million, or 15.8 percent, to $3.8 million in the third quarter, compared to $3.3 million in the third quarter of 2009. The increase in operating expenses was attributable to increased personnel and related costs, as well as increased marketing and trade show expenses.
For the third quarter of 2010, UPG reported a 33.3 percent increase in operating income, to $1.6 million, and pre-tax income of $1.6 million, compared to operating income of $1.2 million and pre-tax income of $1.0 million in the third quarter of 2009. The improved results were driven by higher gross margins, given the shift in product mix toward higher-margin product lines and lower borrowing costs during the quarter. At the bottom line, UPG reported net income of $0.9 million, or $0.18 per share, compared to net income of $0.6 million, or $0.12 per share, in the third quarter of 2009.
For the first nine months of 2010, net sales decreased slightly, to $82.7 million, from $83.1 million in the comparable period of 2009. Net sales of batteries and related power accessories to customers other than ADT Security Services and its authorized dealers grew 18.9 percent, to $53.1 million in the first nine months of 2010, compared to $44.7 million for the comparable period of 2009. Offsetting the increase in the first nine months of 2010 was a decline in net sales to ADT Security Services and its authorized dealers to $29.6 million, a decrease of 22.9 percent from $38.4 million in the same period of 2009. Net sales to ADT Security Services and its authorized dealers accounted for 35.8 percent of total net sales in the first nine months of 2010, compared to 46.2 percent of total net sales in the first nine months of 2009.
Despite the slight decrease in net sales, gross profit for the first nine months increased to $14.9 million, or 18.1 percent of net sales, compared to $14.5 million, or 17.4 percent of net sales for the first nine months of 2009. Total operating expenses decreased by $2.2 million, or 16.7 percent, to $11.0 million, from $13.2 million in the prior year. Operating expenses for the 2009 period included $2.5 million of settlement costs. Excluding the impact of these costs, operating expenses would have increased by approximately $0.3 million due to increases in personnel and related costs, marketing and trade show expenses, professional fees and various other costs.
For the first nine months of 2010, UPG reported operating income of $4.0 million and pre-tax income of $3.6 million, compared to operating income of $1.2 million and pre-tax income of $0.5 million in the comparable period of 2009. On a non-GAAP basis – which excludes the settlement expenses – UPG reported operating income of $3.7 million and pre-tax income of $3.0 million for the 2009 period. The improvements in operating and pre-tax income were due mainly to a shift in sales mix toward higher-margin core products. Provision for income taxes for the first nine months of 2010 was $1.3 million, reflecting an effective tax rate of 36.8 percent compared to provision for income taxes of $1.0 million for the first nine months of 2009, which reflected an effective tax rate of 209.6 percent. In the 2009 period, 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 $2.3 million, or $0.45 per diluted share, for the first nine months of 2010 compared to a net loss of $0.5 million, or $0.10 per diluted share, for the first nine months of 2009.
Balance Sheet and Financial Position
In the third quarter, inventory increased by $2.9 million, to $33.9 million, from $31.0 million at the end of 2009. The increase is attributable to the stocking of products in anticipation of peak seasonal demand in specific markets, as well as recent increases in lead times for certain suppliers in China. Accounts receivable increased by $1.3 million from year-end, while accounts payable increased by $2.7 million during the period. The increase in accounts receivable is consistent with the Company’s success in increasing the percentage of our net sales attributable to our core products. In addition, it also reflects the extension by UPG of more customer credit terms in an effort to maintain its customer base in a challenging economic environment. The outstanding balance on UPG’s line of credit was reduced to $12.8 million, compared to $15.2 million at the end of 2009.
UPG generated operating cash flow of $0.7 million in the nine months ended Sept. 30, 2010, compared to operating cash flow of $6.5 million in the same period of 2009. The decrease in operating cash flow for the first nine months of 2010 reflects an increase in net income, accounts payable and non-cash expenses that was more than offset by increased levels of accounts receivable and inventory. Given the considerable repayment of debt during the first nine months of 2010, UPG ended the quarter with $0.3 million in cash and cash equivalents, down from $2.1 million at the end of 2009.
Edmonds concluded: “While we are always delighted to report record earnings, we are even more pleased by the opportunities that lie ahead for UPG. Last month we announced the expansion of our core batteries and related power products into the Latin American market, which we believe will contribute future growth for our core business. We are also planning to introduce a number of new products at the Consumer Electronics Show in January 2011, and at other key industry trade shows during the remainder of this year and into 2011. As we continue to report solid financial results, we are convinced that the actions we are taking to grow our business will ultimately drive improvements in shareholder value.”
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 GAAP operating income and GAAP income 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 the Company’s 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 September 30, Nine Months Ended September 30,
2010 2009 2010 2009
Operating income and income before provision for income taxes as reported:
Operating expenses $ 3,828,472 $ 3,305,166 $ 10,958,966 $ 10,726,856
Settlement expenses — — — 2,529,345
Total operating expenses 3,828,472 3,305,166 10,958,966 13,256,201
Operating income 1,642,593 1,231,943 4,005,794 1,194,297
Interest expense (36,454 ) (240,110 ) (434,750 ) (718,791 )
Income before provision for income taxes 1,606,139 991,833 3,571,044 475,506
Non-GAAP measures to exclude settlement expenses from operating expenses:
Settlement expenses — — — 2,529,345
Non-GAAP operating income $ 1,642,593 $ 1,231,943 $ 4,005,794 $ 3,723,642
Non-GAAP income before provision for income taxes $ 1,606,139 $ 991,833 $ 3,571,044 $ 3,004,851
Conference Call Information
Universal Power Group will host an investor conference call today, Thursday, Nov. 11, 2010 at 11:30 a.m. ET (10:30 a.m. CT) to discuss the Company’s financial results for the quarter and nine months ended Sept. 30, 2010.
Interested parties may access the conference call by dialing 1.800.573.4842, passcode 67449529. 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 Nov. 18, 2010 by calling 1.888.286.8010, passcode 78955487, 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
2010
December 31,
2009
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 280,064 $ 2,059,475
Accounts receivable:
Trade, net of allowance for doubtful accounts of $652,011 (unaudited) and $452,200 12,759,565 11,440,179
Other 133,113 13,561
Inventories – finished goods, net of allowance for obsolescence of $1,192,050 (unaudited) and $756,671 33,916,169 30,977,213
Current deferred tax asset 1,326,310 1,151,635
Prepaid expenses and other current assets 936,323 1,064,152
Total current assets 49,351,544 46,706,215
PROPERTY AND EQUIPMENT
Logistics and distribution systems 1,819,944 1,807,069
Machinery and equipment 991,261 984,918
Furniture and fixtures 394,660 385,940
Leasehold improvements 408,128 388,334
Vehicles 199,992 222,549
Total property and equipment 3,813,985 3,788,810
Less accumulated depreciation and amortization (2,401,927 ) (1,940,715 )
Net property and equipment 1,412,058 1,848,095
OTHER ASSETS 241,246 313,754
NON-CURRENT DEFERRED TAX ASSET 489,758 771,490
TOTAL ASSETS $ 51,494,606 $ 49,639,554
UNIVERSAL POWER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
September 30,
2010
December 31,
2009
(unaudited)
CURRENT LIABILITIES
Line of credit $ 12,802,337 $ 15,174,305
Accounts payable 14,645,115 11,971,502
Income taxes payable — 698,654
Accrued liabilities 1,074,205 384,976
Current portion of accrued settlement expenses 802,534 955,730
Current portion of capital lease and note obligations 26,029 25,535
Current portion of deferred rent 59,903 92,040
Total current liabilities 29,410,123 29,302,742
LONG-TERM LIABILITIES
Accrued settlement expenses, less current portion 421,264 985,027
Capital lease and note obligations, less current portion 31,743 50,606
Deferred rent, less current portion — 36,103
Non-current deferred tax liability 204,003 233,654
Total long term liabilities 657,010 1,305,390
TOTAL LIABILITIES 30,067,133 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 15,999,042 15,951,626
Retained earnings 5,571,604 3,314,887
Accumulated other comprehensive loss (193,173 ) (285,091 )
Total shareholders’ equity 21,427,473 19,031,422
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 51,494,606 $ 49,639,554
UNIVERSAL POWER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 2010 2009
Net sales $ 28,304,355 $ 27,494,909 $ 82,733,073 $ 83,132,341
Cost of sales 22,833,290 22,957,800 67,768,313 68,681,843
Gross profit 5,471,065 4,537,109 14,964,760 14,450,498
Operating expenses 3,828,472 3,305,166 10,958,966 10,726,856
Settlement expenses — — — 2,529,345
Total operating expenses 3,828,472 3,305,166 10,958,966 13,256,201
Operating income 1,642,593 1,231,943 4,005,794 1,194,297
Interest expense (including $0,
$66,353, $0 and $213,184 to
Zunicom, Inc.)
(36,454
)
(240,110
)
(434,750
)
(718,791
)
Income before provision for
income taxes
1,606,139 991,833 3,571,044 475,506
Provision for income taxes (698,660 ) (379,765 ) (1,314,327 ) (997,762 )
Net income (loss) $ 907,479 $ 612,068 $ 2,256,717 $ (522,256 )
Net income (loss) per share
Basic $ 0.18 $ 0.12 $ 0.45 $ (0.10 )
Diluted $ 0.18 $ 0.12 $ 0.45 $ (0.10 )
Weighted average shares outstanding
Basic 5,000,000 5,000,000 5,000,000 5,000,000
Diluted 5,012,734 5,004,794 5,015,063 5,000,000
UNIVERSAL POWER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,256,717 $ (522,256 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 571,042 588,616
Provision for bad debts 183,361 320,000
Provision for obsolete inventory 630,000 230,000
Deferred income taxes 77,406 (182,016 )
Loss (gain) on sale of equipment (2,000 ) 2,174
Stock-based compensation 47,416 21,164
Changes in operating assets and liabilities:
Accounts receivable – trade (1,502,747 ) 159,087
Accounts receivable – other (119,552 ) 31,649
Inventories (3,568,957 ) 7,989,448
Prepaid expenses and other current assets 127,829 (275,753 )
Income tax receivable/payable (698,654 ) 193,386
Accounts payable 2,673,613 (5,025,190 )
Accrued liabilities 781,148 890,903
Settlement expenses (716,960 ) 2,183,100
Deferred rent (68,239 ) (74,921 )
Net cash provided by operating activities 671,423 6,529,391
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (47,732 ) (57,949 )
Proceeds from sale of equipment 2,000 1,000
Net cash paid in Monarch acquisition — (892,000 )
Change in restricted cash — 900,000
Net cash used in investing activities (45,732 ) (48,949 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit (2,371,968 ) (5,259,305 )
Payments on capital lease and note obligations (33,134 ) (7,671 )
Payment on notes payable to Zunicom, Inc. — (1,096,875 )
Net cash used in financing activities (2,405,102 ) (6,363,851 )
Net increase (decrease) in cash and cash equivalents (1,779,411 ) 116,591
Cash and cash equivalents at beginning of period
2,059,475 326,194
Cash and cash equivalents at end of period $ 280,064 $ 442,785
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 2,014,516 $ 854,837
Interest paid $ 334,076 $ 719,732
NONCASH FINANCING AND INVESTING ACTIVITIES
Purchase of equipment with a note payable $ — $ 75,961
Contact:
Universal Power Group, Inc.
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
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