Universal Power Group Reports 52% Increase in Third Quarter Net Income
On 8:30 am EST, Tuesday November 10, 2009
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 provider of supply chain and other value-added services, reported a 52.4 percent increase in net income despite softer sales for the third quarter ended Sept. 30, 2009. In addition, as a result of supply chain efficiencies, UPG reported improved operating leverage which drove margins and an $8.0 million decrease in inventory levels year-to-date.
Due largely to economic conditions, UPG reported a 10.3 percent decline in net sales to $27.5 million, compared to $30.6 million for the third quarter of 2008. Increased sales volume on certain higher-margin products, reduced volatility for raw material costs and improved efficiencies across the company’s supply chain helped boost gross margin in the quarter to 16.5 percent of net sales, compared to 15.0 percent for the same quarter of 2008. UPG reported gross profit of $4.5 million in the 2009 third quarter, compared to gross profit of $4.6 million in the 2008 third quarter.
The Company reported operating income of $1.2 million, an increase of 23.1 percent compared to operating income of $1.0 million in the third quarter of 2008. At the bottom line, UPG posted net income of $0.6 million, or $0.12 per diluted share, for the third quarter of 2009 compared to net earnings of $0.4 million, or $0.08 per diluted share, in the comparable quarter of 2008.
”This was another quarter in the right direction, highlighted by margin improvements, continued control over operating costs and strengthening our balance sheet,” stated UPG’s president and chief executive officer, Ian Edmonds. “We are taking every step to add efficiencies into our business and to position ourselves for the eventual economic recovery. Improved relationships with our suppliers, increased efficiencies within our supply chain and reduced volatility in certain raw material costs all contributed to the gross margin improvements. Several of these factors are also helping us increase inventory turnover, improving our balance sheet and providing better service to our customers. We also made strides in reducing our operating expenses in the third quarter, an indication of our leaner structure.”
Third Quarter and Year-to-Date Overview
Net sales for the third quarter fell to $27.5 million from $30.6 million in the third quarter of 2008. For the first nine months, net sales fell 8.0 percent to $83.1 million, from $90.4 million in the first nine months last year. Core battery and related power accessory revenues (from sources other than Broadview Security and its authorized dealers) decreased 15.9 percent to $14.5 million in the third quarter of 2009, compared with core revenues of $17.3 million for the third quarter of 2008. UPG attributed the lower sales volume in its core business to the general slowdown in global demand. For the nine-month period, core battery and related power accessory revenues decreased 10.6 percent to $44.7 million, from $50.0 million in 2008.
UPG reported net sales from Broadview Security and its authorized dealers in the third quarter of 2009 of $13.0 million, a decrease of 3.0 percent year-over-year from $13.4 million in the third quarter of 2008. For the nine-month period, net sales from Broadview Security and its authorized dealers declined 4.8 percent year-over-year to $38.4 million, compared to $40.4 million in the same quarter of 2008. Net sales from Broadview Security and its authorized dealers accounted for 47.2 percent of total revenues in the third quarter of 2009, compared with 43.6 percent in the prior year’s quarter, and 46.2 percent of total revenues in the 2009 nine-month period, compared to 44.7 percent in 2008.
Gross profit was $4.5 million, or 16.5 percent of sales in the 2009 third quarter, compared to gross profit of $4.6 million, or 15.0 percent of sales in the 2008 third quarter. For the first nine month of 2009, gross profit rose to $14.5 million, or 17.4 percent of sales, from $13.6 million, or 15.0 percent of sales in the first nine months of 2008.
Operating expenses decreased by $0.3 million, or 8.1 percent, in the third quarter of 2009 compared to the third quarter of 2008. The company attributed the improvement in operating expenses to a leaner operational structure and general efficiency improvements across the organization. Year-to-date operating expenses increased $2.9 million to $13.3 million, compared with $10.4 million in the comparable period of 2008. The majority of this increase was due to $2.5 million in settlement charges incurred in the first quarter, relating to the departure of the Company’s former CEO and the cancellation of the agreement with the Company’s former primary independent sourcing agent.
For the nine-month period, UPG reported operating income of $1.2 million, compared to operating income of $3.2 million for the first nine months of 2008. Excluding the settlement charges incurred in the first quarter, UPG’s operating income would have been $3.7 million, an increase of 15.7 percent over the comparable period in the prior year, and net income before provision for income taxes would have been $3.0 million, an increase of approximately 21.1 percent over the 2008 period. For the first nine months, UPG reported a net loss of $0.5 million, or $0.10 per share, compared with net income of $1.4 million, or $0.29 per share in the first nine months of 2008.
Balance Sheet & Financial Position
On the balance sheet, inventory was reduced by $8.0 million year-to-date, to $29.3 million, in line with management’s commitment to reduce inventory levels from the high levels at the end of 2008. UPG’s management team is committed to better controlling inventory levels in an effort to improve efficiencies, increase inventory turnover and maintain adequate inventory to support current levels of customer demand. UPG also reduced outstanding borrowings to $9.1 million, compared with $14.4 million at the end of 2008.
UPG generated operating cash flow of $6.5 million in the nine months ended Sept. 30, 2009, compared to operating cash flow of $2.2 million in the same period of 2008. The improved cash generated by operations in 2009 was used primarily to reduce outstanding borrowings on its short-term line of credit. The company ended the third quarter with $0.4 million in cash and cash equivalents.
Outlook
Edmonds continued: “Though we continue to face soft conditions in the broad economy, we are seeing more reasons for optimism in 2010, especially when considering our expanded relationships with existing customers, as well as our ongoing efforts to establish new relationships. Our strong balance sheet, along with our proven ability to manage costs and improve efficiencies, will allow us to capitalize on new opportunities to increase our product offerings and provide our retail and strategic partners a more complete line of batteries and power accessories. It will also help us secure opportunities to broaden our base of suppliers, including opportunities for potential joint-ventures with new and existing partners. The vision behind all of these initiatives is improved bottom line results, supported by diversification into new markets and a global reach for UPG’s products.”
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)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Operating income and income before provision for income taxes as reported:
Operating expenses $ 3,305,166 $ 3,595,313 $ 10,726,856 $ 10,366,426
Settlement expenses — — 2,529,345 —
Total operating expenses 3,305,166 3,595,313 13,256,201 10,366,426
Operating income 1,231,943 1,000,619 1,194,297 3,218,784
Other expense, net (240,110) (235,645) (718,791) (736,714)
Income before provision for income taxes 991,833 764,974 475,506 2,482,070
Non-GAAP measures to exclude settlement expenses from operating expenses:
Settlement expenses — — 2,529,345 —
Non-GAAP operating income $ 1,231,943 $ 1,000,619 $ 3,723,642 $ 3,218,784
Non-GAAP income before provision for income taxes $ 991,833 $ 764,974 $ 3,004,851 $ 2,482,070
Conference Call Information
Universal Power Group will host an investor conference call today, Tuesday, November 10, 2009 at 11:30 a.m. EST (10:30 a.m. CST) to discuss financial results for the third quarter and nine months ended September 30, 2009.
Interested parties may access the conference call by dialing 1.866.730.5762; passcode 10540969. 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 November 16, 2009 by calling 1.888.286.8010, passcode 15592079, 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, 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, coordination of battery recycling efforts, and product design and 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
September 30,
2009
December 31,
2008
CURRENT ASSETS
Cash and cash equivalents $ 442,785 $ 326,194
Restricted cash — 900,000
Accounts receivable:
Trade, net of allowance for doubtful accounts of $1,210,692 and $1,143,213 11,969,526 12,423,279
Other 18,654 50,303
Inventories – finished goods, net of allowance for obsolescence of $522,908 and $358,350 29,349,295 37,304,500
Current deferred tax asset (net of valuation allowance of $768,324 and $0) 1,697,163 1,555,173
Income tax receivable — 193,386
Prepaid expenses and other current assets 1,156,281 880,528
Total current assets 44,633,704 53,633,363
PROPERTY AND EQUIPMENT
Logistics and distribution systems 1,821,590 1,795,935
Machinery and equipment 994,137 651,916
Furniture and fixtures 436,424 436,424
Leasehold improvements 388,334 388,334
Vehicles 223,633 155,630
3,864,118 3,428,239
Less accumulated depreciation and amortization (1,851,550) (1,407,712)
Net property and equipment 2,012,568 2,020,527
OTHER ASSETS 246,896 86,879
TOTAL ASSETS $ 46,893,168 $ 55,740,769
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
September 30,
2009
December 31,
2008
CURRENT LIABILITIES
Line of credit $ 9,092,470 $ 14,351,775
Accounts payable 11,394,754 16,418,768
Accrued liabilities 1,113,627 200,100
Interest rate swap liability 417,586 484,131
Current portion of notes payable to Zunicom, Inc. 1,462,500 1,462,500
Current portion of settlement expenses 949,388 —
Current portion of capital lease
obligations 20,549 —
Current portion of deferred rent 81,035 57,984
Total current liabilities 24,531,910 32,975,258
LONG TERM LIABILITIES
Notes payable to Zunicom, Inc., less current portion 2,559,375 3,656,250
Capital lease obligations, less current portion 54,081 —
Settlement expenses, less current portion 1,233,712 —
Non-current deferred tax liability 190,585 230,611
Deferred rent, less current portion 70,345 168,317
Total long term liabilities 4,108,098 4,055,178
TOTAL LIABILITIES 28,640,008 37,030,436
COMMITMENTS
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 15,550,947 15,529,783
Retained earnings 2,927,820 3,450,076
Accumulated other comprehensive loss (275,607) (319,526)
Total shareholders’ equity 18,253,161 18,710,333
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 46,893,168 $ 55,740,769
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Net sales $ 27,494,909 $ 30,648,315 $ 83,132,341 $ 90,372,517
Cost of sales 22,957,800 26,052,383 68,681,843 76,787,307
Gross profit 4,537,109 4,595,932 14,450,498 13,585,210
Operating expenses 3,305,166 3,595,313 10,726,856 10,366,426
Settlement expenses — — 2,529,345 —
Total operating expenses 3,305,166 3,595,313 13,256,201 10,366,426
Operating income 1,231,943 1,000,619 1,194,297 3,218,784
Other income (expense)
Interest expense (including $66,353, $88,471, $213,184 and $263,490 to Zunicom, Inc.) (238,936) (235,701) (719,732) (737,283)
Other expense, net (1,174) — (1,174) —
Interest income — 56 2,115 569
Total other expense, net (240,110) (235,645) (718,791) (736,714)
Income before provision for income taxes 991,833
764,974
475,506
2,482,070
Provision for income taxes (379,765) (363,369) (997,762) (1,053,249)
Net income (loss) $ 612,068 $ 401,605 $ (522,256) $ 1,428,821
Net income (loss) per share
Basic $ 0.12 $ 0.08 $ (0.10) $ 0.29
Diluted $ 0.12 $ 0.08 $ (0.10) $ 0.29
Weighted average number of shares outstanding
Basic 5,000,000 5,000,000 5,000,000 5,000,000
Diluted 5,004,794 5,000,000 5,000,000 5,000,000
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (522,256) $ 1,428,821
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment 588,616 403,917
Provision for bad debts 320,000 91,406
Provision for obsolete inventory 230,000 140,000
Deferred income taxes (182,016) (137,216)
Loss on disposal of property 2,174 —
Stock-based compensation 21,164 124,009
Changes in operating assets and liabilities:
Accounts receivable – trade 159,087 (3,668,143)
Accounts receivable – other 31,649 11,378
Inventories 7,989,448 3,317,619
Prepaid expenses and other current assets (275,753) (341,040)
Income tax receivable 193,386 —
Other assets — (18,295)
Accounts payable (5,025,190) 259,956
Accrued liabilities 890,903 597,280
Settlement expenses 2,183,100 —
Deferred rent (74,921) (36,512)
Net cash provided by operating activities 6,529,391 2,173,180
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (57,950) (443,112)
Net cash paid in Monarch acquisition (892,000) —
Deposit in escrow account — (900,000)
Change in restricted cash 900,000 —
Proceeds from sale of equipment 1,000 —
Net cash used in investing activities (48,950) (1,343,112)
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit (5,259,305) (129,590)
Payment on notes payable to Zunicom, Inc. (1,096,875) (365,625)
Payments on note and capital lease obligations (7,671) (6,609)
Net cash used in financing activities (6,363,851) (501,824)
Net increase in cash and cash equivalents 116,591 328,244
Cash and cash equivalents at beginning of period
326,194 691,288
Cash and cash equivalents at end of period $ 442,785 $ 1,019,532
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 854,837 $ 1,182,162
Interest paid $ 719,732 $ 737,283
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Purchase of equipment with a note payable $ 75,961 $ —
Contact:
Company Contact:
Universal Power Group, Inc.
Mimi Tan, SVP
469-892-1122
tanm@upgi.com
or
Investor Relations:
Lambert, Edwards & Associates
Jeff Tryka, Ryan McGrath
616-233-0500
rmcgrath@lambert-edwards.com
