Universal Power Group Reports Third Quarter 2012 Results

Universal Power Group Reports Third Quarter 2012 Results

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, 2012. For the third quarter, UPG reported net income of $43,000, or $0.01 per diluted share, on net sales of $22.1 million, compared with net income of $183,000, or $0.04 per diluted share, on net sales of $24.7 million in the third quarter of 2011.

"Our results for the third quarter reflect the continued impact of a number of factors that have affected our results over the past year, including the supply disruptions with a number of our Chinese suppliers," stated Ian Edmonds, UPG's President and Chief Executive Officer. "During the third quarter, we saw growth in sales at PTI as well as sales to wholesale customers, but this growth was not sufficient to offset decreased sales to ADT and its authorized dealers as well as customers in the retail channel. With lower net sales, we saw reduced profitability in the quarter."


Third Quarter and Nine Month Results

Net sales for the third quarter fell 10.4 percent, to $22.1 million, from $24.7 million in the third quarter of 2011. The decrease in net sales in the quarter was primarily the result of a decrease in net sales to retail channels and ADT and its authorized dealers which was offset by an increase of PTI sales.

Gross profit decreased to $3.6 million in the quarter, compared with $4.8 million in the third quarter of 2011, due to the lower sales levels and increase in material and labor costs. Operating expenses decreased to $3.3 million in the third quarter of 2012, from $4.2 million in the third quarter of 2011. The decrease in operating expenses included decreased facilities costs, personnel expenses and legal expenses.

As a result of softer sales, UPG reported operating income of $263,000 and pre-tax income of $121,000, down from operating income of $515,000 and pre-tax income of $354,000 in the prior year. With lower income levels, income tax expense decreased to $78,000 from $197,000 in the third quarter of 2011. Net income from continuing operations was $43,000, or $0.01 per diluted share, compared to net income from continuing operations of $157,000, or $0.03 per diluted share in the prior year's quarter.

For the first nine months of 2012, net sales increased 6.3 percent to $72.0 million, from $67.8 million in the comparable period of 2011. The increase was attributable to an increase in sales to new and existing customers and sales by PTI which was offset by a decrease in sales to retail channels for the 2012 period compared to the 2011 period.

Gross profit decreased to $12.4 million, or 17.2 percent of net sales, compared to $13.4 million, or 19.8 percent of sales for the first nine months of 2011. Total operating expenses decreased $0.6 million, or 5.6 percent, to $10.9 million from $11.5 million in the prior year. Operating expenses for the first nine months of 2012 decreased as a result of personnel, facilities, marketing and insurance expenses.

For the first nine months of 2012, UPG reported operating income of $1.5 million and pre-tax income of $1.2 million, compared to operating income of $1.9 million and pre-tax income of $1.5 million in the comparable period of 2011. The decrease in operating income in 2012 was due primarily to decreases in net sales and associated gross profit compared to the prior year. Interest and other expense for the first nine months of 2012 fell to $0.3 million from $0.5 million in the first nine months of 2011. UPG reported net income from continuing operations for the first nine months of 2012 of $0.8 million, or $0.15 per diluted share, compared to net income from continuing operations of $0.8 million, or $0.17 per diluted share, in the first nine months of 2011.

In the second quarter of 2012, UPG sold its Monarch Outdoor Adventures, LLC (Monarch) subsidiary, and results from Monarch have been reported as discontinued operations. For the first nine months of 2012, UPG reported a loss on discontinued operations of $0.5 million, including a pre-tax loss on the sale of Monarch of $0.6 million. For the first nine months of 2011, the loss on discontinued operations was $126,000. As a result, UPG reported net income of $238,000, or $0.05 per diluted share in the first nine months of 2012 compared to net income of $0.7 million, or 0.14 per diluted share in the first nine months of 2011.

Balance Sheet and Financial Position

At Sept. 30, 2012 inventory increased by $10.0 million to $34.2 million, from $24.2 million at Dec. 31, 2011, as UPG rebuilt inventory with increased battery shipments from China. The inventory balance at the end of 2011 was much lower than historical levels as a result of the supply chain issues in China. As manufacturing delays and delivery lead times associated with the Chinese supply chain issues improved during the year, UPG was able to rebuild inventories to meet current business demand, including adequate safety stock. Compared to the second quarter of 2012, inventory levels were reduced by $4.6 million.

Accounts receivable decreased to $11.0 million, from $13.0 million at the end of 2011. Accounts payable decreased by $1.3 million, to $5.6 million during the period. Total working capital increased to $20.5 million, compared to $19.9 million at the end of the prior year. For the first nine months of 2012, UPG used net cash from operating activities of $7.9 million, compared to net cash provided from operating activities of $9.6 million during the same period in 2011. This change in working capital is attributable to the increase in inventory purchases to rebuild inventory levels to more historical levels following the factory closures in China that occurred in 2011, as well as, non-cash charges from loss on disposal of Monarch, and a decrease of accounts payable.

Edmonds concluded: "As we look forward, we will manage the growth of UPG's business based on the channels that we believe provide the greatest opportunities for improvement in net sales and overall profitability. We see considerable opportunities with wholesale distributors and retailers, as well as our OEM customers, but we also see exciting opportunities in new channels including custom battery packs at PTI. As we focus on these opportunities, we will be vigilant in controlling costs and maintaining operating efficiencies to improve our bottom line results over the long term."

Conference Call Information

Universal Power Group will host an investor conference call today, Thursday, Nov. 8, 2012 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, 2012.

Interested parties may access the conference call by dialing 1.877.317.6789; passcode 10020800. The conference call will also be broadcast live at 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 available through Nov. 15, 2012 by calling 1.877.344.7529, passcode 10020800, 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 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


(Amounts in thousands except share data)

September 30,
2012

December 31,
2011

(unaudited)

CURRENT ASSETS

Cash and cash equivalents

$

987

$

283

Accounts receivable:

Trade, net of allowance for doubtful accounts of $343 (unaudited) and $384

10,951

12,972

Other

454

442

Inventories - finished goods, net of allowance for obsolescence of $785 (unaudited) and $830

34,161

24,174

Current deferred tax assets

1,174

972

Income tax receivable

167

721

Prepaid expenses and other current assets

873

1,426

Total current assets

48,767

40,990

PROPERTY AND EQUIPMENT

Logistics and distribution systems

1,908

1,871

Machinery and equipment

707

1,044

Furniture and fixtures

519

511

Leasehold improvements

395

389

Vehicles

155

171

Total property and equipment

3,684

3,986

Less accumulated depreciation and amortization

(3,158)

(3,128)

Net property and equipment

526

858

GOODWILL

1,387

1,387

INTANGIBLES, net

390

527

OTHER ASSETS

98

100

NON-CURRENT DEFERRED TAX ASSET

351

213

2,226

2,227

TOTAL ASSETS

$

51,519

$

44,075

UNIVERSAL POWER GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND SHAREHOLDERS' EQUITY


(Amounts in thousands except share data)

September 30,
2012

December 31,
2011

(unaudited)

CURRENT LIABILITIES

Line of credit

$

21,346

$

12,654

Accounts payable

5,583

6,845

Accrued liabilities

1,280

1,213

Current portion of settlement accrual

241

Current portion of capital lease and note obligations

100

119

Current portion of deferred rent

14

Total current liabilities

28,309

21,086

LONG-TERM LIABILITIES

Capital lease and note obligations, less current portion

156

229

TOTAL LIABILITIES

28,465

21,315

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY

Common stock - $0.01 par value, 50,000,000 shares authorized, 5,020,000 shares issued and outstanding

50

50

Additional paid-in capital

16,347

16,339

Retained earnings

6,657

6,419

Accumulated other comprehensive loss

(48)

Total shareholders' equity

23,054

22,760

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

51,519

$

44,075

UNIVERSAL POWER GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Net sales

$

22,114

$

24,676

$

72,035

$

67,785

Cost of sales

18,539

19,920

59,617

54,349

Gross profit

3,575

4,756

12,418

13,436

Operating expenses

3,312

4,241

10,883

11,524

Operating income

263

515

1,535

1,912

Interest expense

(145)

(161)

(441)

(452)

Other, net

3

129

Total other expense, net

(142)

(161)

(312)

(452)

Income from continuing operations before provision for income taxes

121

354

1,223

1,460

Provision for income taxes

(78)

(197)

(439)

(623)

Income from continuing operations

43

157

784

837

Discontinued operations:

Gain (loss) from operations of discontinued Monarch Outdoor Adventures, LLC (including loss on disposal of $616 in Q2 2012)

40

(707)

(187)

Provision for income taxes

(14)

161

61

Gain (loss) on discontinued operations

26

(546)

(126)

Net income

$

43

$

183

$

238

$

711

Net income (loss) per share

Basic:

Income from continuing operations

$

0.01

$

0.03

$

0.16

$

0.17

Gain (loss) on discontinued operations

$

0.00

$

0.01

$

(0.11)

$

(0.03)

Net income

$

0.01

$

0.04

$

0.05

$

0.14

Diluted:

Income from continuing operations

$

0.01

$

0.03

$

0.15

$

0.17

Gain (loss) on discontinued operations

$

0.00

$

0.01

$

(0.10)

$

(0.03)

Net income

$

0.01

$

0.04

$

0.05

$

0.14

Weighted average shares outstanding

Basic

5,020

5,020

5,020

5,020

Diluted

5,244

5,025

5,215

5,029

UNIVERSAL POWER GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


(amounts in thousands)

Nine Months Ended September 30,

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

238

$

711

Items not requiring (providing) cash

Depreciation and amortization

338

616

Provision for bad debts

53

139

Provision for obsolete inventory

500

540

Deferred income taxes

(340)

(63)

Loss on disposal of Monarch

616

Gain on disposal of property

7

Stock-based compensation

8

22

Changes in operating assets and liabilities, net of effect of disposition and acquisition:

Accounts receivable - trade

1,961

(1,366)

Accounts receivable - other

68

(4)

Inventories

(10,652)

12,685

Income taxes receivable/payable

554

(284)

Prepaid expenses and other assets

551

(863)

Accounts payable

(1,262)

(2,479)

Accrued liabilities

(207)

521

Settlement accrual

(241)

(554)

Deferred rent

(64)

(53)

Net cash provided by (used in) operating activities

(7,879)

9,575

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash paid in ProTechnologies, Inc.

acquisition

(2,268)

Net cash received on Monarch Outdoor Adventures, LLC sale

40

Purchases of property and equipment

(59)