Universal Power Group Reports Fourth Quarter and Annual Results
On Monday March 29, 2010, 10:45 pm
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 operating results for the fourth quarter and year ended December 31, 2009.
The Company highlighted a number of achievements for the year, including the following:
* Completing a management transition and naming a new president and CEO;
* Cancelling its agreement with its primary sourcing agent, resulting in enhanced efficiency, better responsiveness to customer demand and reduced operating costs over the long term;
* Launching a line of Energizer® branded automotive power accessories under a licensing agreement with Energizer Battery, Inc.;
* Launching Adventure Power®, a complete line of recreational batteries for motorcycles and powersports;
* Launching a revamped website to better showcase and market its product and service offerings;
* Improving overall efficiencies by reducing inventory levels and better managing the supply chain;
* Refinancing its working capital credit facility with a new one that increases borrowing capacity and lowers the cost of funds;
* Settling at a discount of $300,000, the outstanding 6% notes payable to Zunicom, having an aggregate outstanding principal and interest balance of $4.0 million;
* Improved operating results in the fourth quarter compared to the fourth quarter of 2008; and,
* Achieving improved year-to-year operating results on a Non-GAAP basis after excluding settlement charges incurred in the first quarter.
“Overall, I am pleased with our accomplishments for 2009,” stated UPG’s President and Chief Executive Officer, Ian Edmonds. “I believe we have set the course for growth and better bottom-line results in the years to come. We made considerable strides in terms of our operating efficiency despite the challenging economic environment. And we’ve done that while continuing to deliver top-notch quality, value and service to our customers. We also took a number of steps which, in the short term, had an adverse impact on our net income. However, we believe these changes will result in long-term benefits. In addition, we achieved milestones in expanding our business into new markets and entering new strategic partnerships. Each has set the stage for future growth and will enhance our ability to meet the evolving needs of our customers.”
Fourth Quarter and Full-Year Overview
Net sales for the fourth quarter rose 1.8 percent, to $28.0 million, from $27.5 million in the fourth quarter of 2008. Revenues from battery, related power accessories and other products increased 10.3 percent to $16.3 million in the fourth quarter of 2009, compared with $14.8 million for the fourth quarter of 2008. UPG attributed the improved sales to more targeted sales efforts, a modest improvement in consumer demand, and the impact of various operational efficiencies the Company put in place during the year. For the full year, net sales fell 5.7 percent, to $111.2 million, from $117.9 million last year. For the full year, net sales of batteries, related power accessories and other products decreased 5.8 percent, to $61.0 million, from $64.8 million in 2008. The decrease in year-to-year net sales was a function of general economic conditions during the first nine months of 2009.
UPG reported fourth quarter 2009 net sales from Broadview Security and its authorized dealers of $11.7 million, a decrease of 7.9 percent year-over-year from $12.7 million in the same quarter of 2008. For the full year, net sales from Broadview Security and its authorized dealers declined 5.6 percent year-over-year to $50.2 million, compared to $53.1 million in 2008. Net sales from Broadview Security and its authorized dealers accounted for 45.0 percent of total revenues in 2009 and in 2008.
Despite a 5.7 percent decline in net sales, UPG posted higher gross margins for the year of 17.4 percent of net sales, compared to 15.5 percent for 2008. UPG also reported gross profit of $19.4 million in 2009, compared to gross profit of $18.3 million for the prior year, attributing the growth to more focused sales efforts, reduced volatility in raw material costs and improved efficiencies across the Company’s supply chain. Operating expenses increased by $2.2 million, or 14.5 percent, to $17.2 million in 2009, compared to $15.1 million in 2008. The Company attributed the increase to the $2.5 million in settlement charges incurred in the first quarter related to the departure of the Company’s former CEO, and to the cancellation of the agreement with the Company’s former primary independent sourcing agent.
For the full year, UPG reported operating income of $2.1 million, compared to operating income of $3.2 million for 2008. For the year, UPG reported a net loss of $0.1 million, or ($0.03) per share, compared to net income of $1.2 million, or $0.25 per share in the prior year.
Excluding the settlement charges incurred in the first quarter, UPG’s non-GAAP operating income would have been $4.7 million, an increase of 44.0 percent over the prior year, and non-GAAP net income before provision for income taxes would have been $3.7 million, an increase of approximately 62.6 percent over 2008.
Balance Sheet and Financial Position
In 2009, inventory was reduced by $6.3 million, to $31.0 million, in line with management’s commitment to reduce inventory levels from the high levels at the end of 2008. Management remains focused on controlling inventory levels, improving overall operating efficiencies and increasing inventory turnover, while effectively supporting customer demand. UPG also reduced total outstanding indebtedness to $15.2 million, compared to $19.5 million at the end of 2008, reflecting the settlement of 6% notes payable to Zunicom, due in 2012 having an aggregate outstanding principal balance of approximately $4.0 million.
UPG generated operating cash flow of $5.9 million in the twelve months ended Dec. 31, 2009, compared to operating cash flow of $0.6 million in the same period of 2008. The improved cash generated by operations in 2009 was used primarily to reduce outstanding borrowings. The Company ended the year with $2.1 million in cash and cash equivalents.
Edmonds concluded: “We believe the steps we have taken over the past year to reduce our costs and expenses, combined with a more strategic approach to sales, have created growth opportunities for UPG that we hope to exploit in a strategic manner.”
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 Principles (“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,
2009
2008
Operating income and income before provision for
income taxes as reported:
Operating expenses $ 14,714,680 $ 15,063,398
Settlement expenses 2,529,345 —
Total operating expenses 17,244,025 15,063,398
Operating income 2,128,878 3,234,670
Other expense, net (955,874) (957,557)
Income before provision for income taxes 1,173,004 2,277,112
Non-GAAP measures to exclude settlement expenses
from operating expenses:
Settlement expenses 2,529,345 —
Non-GAAP operating income $ 4,658,223 $ 3,234,670
Non-GAAP income before provision for income taxes $ 3,702,349 $ 2,277,113
Conference Call Information
Universal Power Group will host an investor conference call tomorrow, Tuesday, March 30, 2010 at 11:30 a.m. EDT (10:30 a.m. CDT) to discuss financial results for the fourth quarter and full year ended Dec. 31, 2009.
Interested parties may access the conference call by dialing 1.866.788.0538, passcode 59207467. 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 April 6, 2010 by calling 1.888.286.8010, passcode 25023912, 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
ASSETS
December 31,
2009
2008
CURRENT ASSETS
Cash and cash equivalents $ 2,059,475 $ 326,194
Restricted cash — 900,000
Accounts receivable:
Trade, net of allowance for doubtful accounts of $452,200 and $1,143,213 11,440,179 12,423,279
Other 13,561 50,303
Inventories – finished goods, net of allowance for obsolescence of $756,671 and $358,350 30,977,213 37,304,500
Current deferred tax asset 1,151,635 1,555,173
Income tax receivable — 193,386
Prepaid expenses and other current assets 1,064,152 880,528
Total current assets 46,706,215 53,633,363
PROPERTY AND EQUIPMENT
Logistics and distribution systems 1,807,069 1,795,935
Machinery and equipment 984,918 651,916
Furniture and fixtures 385,940 436,424
Leasehold improvements 388,334 388,334
Vehicles 222,549 155,630
Total property and equipment 3,788,810 3,428,239
Less accumulated depreciation and amortization (1,940,715) (1,407,712)
Net property and equipment 1,848,095 2,020,527
OTHER ASSETS 313,754 86,879
NON-CURRENT DEFERRED TAX ASSET 771,490 —
TOTAL ASSETS $ 49,639,554 $ 55,740,769
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31,
2009
2008
CURRENT LIABILITIES
Line of credit $ 15,174,305 $ 14,351,775
Accounts payable 11,971,502 16,418,768
Income taxes payable 698,654 24,712
Accrued liabilities 384,976 175,388
Interest rate swap liability — 484,131
Current portion of payable to Zunicom, Inc. — 1,462,500
Current portion of settlement expenses 955,730 —
Current portion of capital lease obligations 25,535 —
Current portion of deferred rent 92,040 57,984
Total current liabilities 29,302,742 32,975,258
LONG-TERM LIABILITIES
Notes payable to Zunicom, Inc. , less current portion — 3,656,250
Settlement expenses, less current portion 985,027 —
Capital lease obligations, less current portion 50,606 —
Deferred rent, less current portion 36,103 168,317
Non-current deferred tax liability 233,654 230,611
Total long-term liabilities 1,305,390 4,055,178
TOTAL LIABILITIES 30,608, 132 37,030,436
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 15,951,626 15,529,783
Retained earnings 3,314,887 3,450,076
Accumulated other comprehensive loss (285,091) (319,526)
Total shareholders’ equity 19,031,422 18,710,333
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 49,639,554 $ 55,740,769
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31,
2009
2008
Net sales $ 111,170,726 $ 117,897,644
Cost of sales 91,797,823 99,599,576
Gross profit 19,372,903 18,298,068
Operating expenses 17,244,025 15,063,398
Operating income 2,128,878 3,234,670
Other income (expense)
Interest expense (including $310,000 and $346,000 to Zunicom, Inc.) (953,251) (1,003,195)
Other, net (2,623) 45,638
Total other expense, net (955,874) (957,557)
Income before provision for income taxes 1,173,004 2,277,113
Provision for income taxes (1,308,193) (1,050,990)
Net income $ (135,189) $ 1,226,123
Net income per share
Basic and Diluted $ (0.03) $ 0.25
Weighted average shares outstanding
Basic and diluted 5,000,000 5,000,000
UNIVERSAL POWER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31,
2009
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (135,189) $ 1,226,123
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 802,454 547,256
Provision for bad debts 415,808 1,143,213
Provision for obsolete inventory 599,145 180,000
Deferred income taxes (196,857) (202,298)
Loss on disposal of property and equipment 2,623 6,064
Stock-based compensation 36,969 148,099
Changes in operating assets and liabilities:
Accounts receivable – trade 592,626 (973,062)
Accounts receivable – other 36,742 98,959
Inventories 5,945,535 (5,139,123)
Income tax receivable/payable 867,328 (193,386)
Prepaid expenses and other current assets (183,624) 379
Other assets (60,716) (42,920)
Accounts payable (4,448,443) 4,161,418
Accrued liabilities (222,367) (337,148)
Settlement expenses 1,940,758 —
Deferred rent (98,159) (18,921)
Net cash provided by operating activities 5,894,633 604,653
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (56,761) (851,766)
Proceeds from sale of equipment 1,000 1,134
Escrow deposit 900,000 (900,000)
Net cash paid in Monarch acquisition (892,000) —
Net cash used in investing activities (47,761) (1,750,632)
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit 822,530 1,518,744
Payments on capital lease and note obligations (16,454) (6,609)
Payment on notes to Zunicom, Inc. (4,919,667) (731,250)
Net cash provided by (used in) financing activities (4,113,591) 780,885
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,733,281 (365,094)
Cash and cash equivalents at beginning of year? 326,194 691,288
Cash and cash equivalents at end of year $ 2,059,475 $ 326,194
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 871,052 $ 1,387,650
Interest paid $ 972,784 $ 1,003,195
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.
Company Contact:
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
