Universal Power Group Reports 2008 Results
Revenues up 8.6% to $117.9 Million, Gross Profit Margin Increases to 15.5%
Tuesday March 24, 2009, 8:30 am EDT
Buzz up! Print Related:Universal Power Group Inc.
CARROLLTON, Texas--(BUSINESS WIRE)--Universal Power Group, Inc. (NYSE Amex: UPG) announced its financial results for the fourth quarter and full year ended Dec. 31, 2008.
The Texas-based provider of third-party logistics and supply chain management services and distributor of batteries and power accessories reported sales increased 8.6 percent year-over-year to $117.9 million, compared with $108.5 million for the year ended 2007. UPG posted net earnings of $1.2 million, or $0.25 per diluted share for 2008, compared with net earnings of $2.2 million, or $0.44 per diluted share for 2007.
Gross profit for the year increased $2.3 million, or 14.5 percent year-over-year due primarily to a change in product mix. As a percentage of sales, gross margins improved to 15.5 percent from 14.7 percent a year ago. For the full year, operating expenses increased $3.3 million, due to a number of unusual items, including increased bad debt expense attributable to the more challenging credit environment, additional rent associated with a transition to a larger warehouse facility, higher wages and employee benefit costs due in part to the addition of new sales, customer service and finance professionals, and severance costs. Consequently, operating income fell to $3.2 million from $4.2 million in the prior year.
“Beyond our financial results, we saw the fourth quarter of 2008 as an important and transitional period in the growth of UPG,” said Ian Edmonds, interim president and chief executive officer. “During the quarter, we secured an alliance with Energizer to develop and market a new line of products, secured a new agreement with Brink’s Home Security to continue providing third-party logistics services, and made progress in our expansion and product line diversification initiatives.
“It is also important to note that despite several recent changes within our senior management team, our board remains confident in the capabilities of our current team,” continued Edmonds. “Our executive staff remains intact and we have a sales, marketing and operational team in place that is fully prepared to grow the business. In addition, we are beginning a search for a chief financial officer.”
Net sales for the fourth quarter of 2008 decreased 4.4 percent to $27.5 million due to a softening in its third-party logistics business, while revenues from its core battery and power accessory business were stable compared to the prior year. As a result of this shift in revenue mix, UPG’s core battery business as a percentage of net sales increased to 53.7 percent for the fourth quarter of 2008 from 51.6 percent in the fourth quarter of 2007.
Gross profit for the quarter increased $0.6 million, or 13.7 percent year-over-year due primarily to a change in product mix. As a percentage of sales, gross margins in the quarter improved to 17.1 percent from 14.4 percent a year ago. Operating expenses increased $1.5 million year-over-year in the 2008 fourth quarter, due mainly to higher bad debt expense, additional rent associated with a transition to a larger warehouse facility, higher wage and employee benefit costs and severance costs. Consequently, operating income for the quarter fell to $16 thousand from $920 thousand in the prior year. Overall UPG reported a net loss of $0.2 million, or $0.04 per diluted share in the fourth quarter of 2008, compared with net earnings of $0.4 million, or $0.08 per diluted share in the same quarter of 2007.
Fourth-Quarter and Full-Year Highlights
UPG reported core battery and related power accessory revenues (from sources other than Brink’s Home Security and its authorized dealers) remained nearly unchanged at $14.8 million in the fourth quarter of 2008, compared with $14.9 million for the fourth quarter of 2007. For the full year, core battery and related power accessory revenues increased 21.0 percent to $64.8 million, from $53.6 million in 2007, reflecting growth of new and existing customer accounts and the introduction of new products.
Revenue from Brink’s Home Security and its authorized dealers in the fourth quarter of 2008 decreased 8.6 percent year-over-year to $12.7 million, compared with $13.9 million in the fourth quarter of 2007. UPG believes this decrease is due primarily to the impact of the economic downturn on the residential housing market. Concentration of revenues with Brink’s Home Security and its authorized dealers made up 46.3 percent of total revenues in the fourth quarter of 2008, compared with 48.4 percent in the prior year’s quarter. For the full year, revenues from Brink’s Home Security and its authorized dealers fell 3.4 percent to $53.1 million from $55.0 million in 2007, and concentration of revenues fell to 45.0 percent from 50.6 percent.
Gross margin as a percent of revenues increased to 17.1 percent in the fourth quarter of 2008, compared with 14.4 percent in the comparable 2007 quarter, due primarily to an improved product mix. Full-year gross profit increased to $18.3 million, or 15.5 percent of sales, from $16.0 million, or 14.7 percent of sales in the prior year, due mainly to a shift towards higher-margin business.
Recent Developments
In November 2008, UPG announced a new agreement with Brink’s Home Security to continue providing third-party logistics services. The agreement extends UPG’s services another two years with successive one-year renewal terms.
In addition, UPG announced in December 2008 that it entered into a licensing agreement with Eveready Battery Company, Inc., a division of Energizer Holdings, Inc., to develop a line of consumer products under the Energizer® brand for distribution through mass, specialty and automotive stores. The four-year agreement, with a two-year automatic renewal provides UPG with exclusive rights to develop, market and sell Energizer-branded automotive battery chargers and maintainers, as well as automotive jump starters. In addition, UPG will have non-exclusive rights to develop, market and sell Energizer-branded power inverters used primarily in the automotive market.
In January 2009, UPG also reported that it completed the acquisition of the Monarch line of hunting products, of which the Company purchased all of the tangible and intangible assets. The high-quality Monarch product line is a strategic extension of UPG's existing outdoor product line and customer base. UPG plans to leverage its global network of suppliers and extensive experience in supply chain logistics to reduce manufacturing and other supply chain costs for the acquired product lines.
Outlook
Edmonds continued, “Exiting 2008, we are on financially sound footing with a strong balance sheet and line of credit to provide the resources for UPG’s continued growth. In addition to taking steps to manage the difficult economic conditions, we are also focused on developing higher-margin products, and diversifying our markets to minimize our exposure to the broader economy. Despite the extraordinary conditions affecting the global economy, we are cautiously optimistic about our business in 2009. We know the challenge before us is significant; however, we are convinced we have adequate resources and the right team of people to lead UPG to the inevitable economic recovery.
“Looking ahead to the first quarter of 2009, we are focused on controlling costs and managing our operations during these tough economic conditions,” said Edmonds. “That said, we expect incremental costs in the first quarter due to a separation agreement related to a recent executive departure as well as the negotiated termination of our relationship with an independent sourcing agent.
“For the full year 2009, we are focused on improving our overall operating efficiency and cost structure, and we will be closely monitoring our accounts receivable and will continue monitoring credit risks within our customer base. Longer term, we are excited about our budding relationship with Energizer, which adds another well-known brand to our strong roster of strategic relationships. This relationship demonstrates the scope of capabilities UPG can offer our customers and partners – from product development and marketing, to sourcing, global supply chain management and logistics. We look forward to opportunities for expanding our relationship with Energizer, as well as forging new relationships with other partners,” concluded Edmonds.
Conference Call Information
Universal Power Group will host an investor conference call today, Tuesday, March 24, 2009, at 11:30 am ET (10:30 am CT) to discuss the Company’s financial results for the fourth quarter and full year ended Dec. 31, 2008.
Interested parties may access the conference call by dialing 1.800.561.2601, passcode 30791376. 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 teleconference will be made available through March 31, 2009, by calling 1.888.286.8010, passcode 71663440, 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 provider of third-party logistics and supply chain management services, and a supplier and distributor of batteries and power accessories. UPG's supply chain services include procurement, warehousing, inventory management, distribution, fulfillment and value-added services such as sourcing, battery pack assembly, coordination of battery recycling efforts, and product design and development. UPG's range of product offerings includes proprietary brands of industrial and consumer batteries of all chemistries, chargers, jump-starters, 12-volt accessories, solar and security products. 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.
BALANCE SHEETS
ASSETS
December 31,
2008 2007
CURRENT ASSETS
Cash and cash equivalents $ 326,194 $ 691,288
Restricted cash 900,000 —
Accounts receivable:
Trade, net of allowance for doubtful accounts of $1,143,213 and $129,371 12,423,279 12,593,430
Other 50,303 149,262
Inventories – finished goods, net of allowance for obsolescence of $358,350 and $193,780 37,304,500 32,345,377
Current deferred tax asset 1,555,173 983,114
Income tax receivable 193,386 —
Prepaid expenses and other current assets 880,528 880,907
Total current assets 53,633,363 47,643,378
PROPERTY AND EQUIPMENT
Logistics and distribution systems 1,795,935 1,417,269
Machinery and equipment 651,916 338,220
Furniture and fixtures 436,424 492,267
Leasehold improvements 388,334 272,096
Vehicles 155,630 151,598
3,428,239 2,671,450
Less accumulated depreciation and amortization (1,407,712 ) (985,735 )
Net property and equipment 2,020,527 1,685,715
OTHER ASSETS 86,879 81,459
TOTAL ASSETS $ 55,740,769 $ 49,410,522
UNIVERSAL POWER GROUP, INC.
BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31,
2008 2007
CURRENT LIABILITIES
Line of credit $ 14,351,775 $ 12,833,031
Accounts payable 16,418,768 12,257,350
Accrued liabilities 200,100 537,248
Interest rate swap liability 484,131 —
Current portion of payable to Zunicom, Inc. 1,462,500 731,250
Current portion of capital lease obligations — 6,609
Current portion of deferred rent 57,984 64,446
Total current liabilities 32,975,258 26,429,934
NOTES PAYABLE TO ZUNICOM, INC., less current portion
3,656,250 5,118,750
NON-CURRENT DEFERRED TAX LIABILITY 230,611 25,455
DEFERRED RENT, less current portion 168,317 180,776
TOTAL LIABILITIES 37,030,436 31,754,915
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 15,529,783 15,381,684
Retained earnings 3,450,076 2,223,953
Accumulated other comprehensive loss (319,526 ) —
Total shareholders’ equity 18,710,333 17,655,637
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 55,740,769 $ 49,410,552
UNIVERSAL POWER GROUP, INC.
STATEMENTS OF INCOME
December 31,
2008 2007
Net sales $ 117,897,644 $ 108,517,097
Cost of sales 99,599,576 92,541,735
Gross profit 18,298,068 15,975,362
Operating expenses 15,063,398 11,761,427
Operating income 3,234,670 4,213,935
Other income (expense)
Interest expense (including $346,000 and $351,000 to Zunicom, Inc.) (1,003,195 ) (1,195,079 )
Interest income 569 396,083
Other, net 45,069 —
Total other expense 957,557 (798,996 )
Income before provision for income taxes 2,277,113 3,414,939
Provision for income taxes (1,050,990 ) (1,190,986 )
Net income $ 1,226,123 $ 2,223,953
Net income per share
Basic $ 0.25 $ 0.44
Diluted $ 0.25 $ 0.44
Weighted average shares outstanding
Basic 5,000,000 5,000,000
Diluted 5,000,000 5,001,305
UNIVERSAL POWER GROUP, INC.
STATEMENTS OF CASH FLOWS
December 31,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,226,123 $ 2,223,953
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment 547,256 235,681
Provision for bad debts 1,136,558 93,980
Provision for obsolete inventory 180,000 45,000
Deferred income taxes (395,684 ) 64,841
Loss on disposal of property and equipment 6,064 —
Stock-based compensation 148,099 118,227
Changes in operating assets and liabilities:
Accounts receivable – trade (966,407 ) (2,516,355 )
Accounts receivable – other 98,959 (124,025 )
Inventories (5,139,123 ) (9,818,843 )
Prepaid expenses and other current assets 379 (309,834 )
Other assets (42,920 ) (85,886 )
Accounts payable 4,161,418 728,347
Accrued liabilities (337,148 ) (3,590 )
Due to Zunicom, Inc. — 186,617
Deferred rent (18,921 ) 22,824
Net cash provided by (used in) operating activities 604,653 (9,139,063 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (851,766 ) (1,446,802 )
Proceeds from sale of equipment 1,134 —
Escrow deposit (900,000 ) —
Net cash used in investing activities (1,750,632 ) (1,446,802 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit 1,518,744 (1,740,564 )
Payments on capital lease obligations (6,609 ) (18,730 )
Payment on notes to Zunicom, Inc. (731,250 ) —
Net cash provided by (used in) financing activities 780,885 (1,759,294 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (365,094 ) (12,345,159 )
Cash and cash equivalents at beginning of year 691,288 13,036,447
Cash and cash equivalents at end of year $ 326,194 $ 691,288
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 1,363,563 $ 1,356,108
Interest paid $ 1,003,195 $ 1,205,657
Contact:
Universal Power Group, Inc.
Mimi Tan, SVP, 469-892-1122
tanm@upgi.com
or
Investor Relations:
Lambert, Edwards & Associates
Jeff Tryka, 616-233-0500
or
Ryan McGrath, 616-233-0500
rmcgrath@lambert-edwards.com
AI
