CARROLLTON, Texas--(BUSINESS WIRE)--Universal Power Group, Inc. (NYSE MKT: 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 second quarter and six months ended June 30, 2012.
For the second quarter, UPG reported income from continuing operations of $406,000, or $0.08 per diluted share, on net sales of $23.6 million, compared with income from continuing operations of $189,000, or $0.04 per diluted share, on net sales of $21.6 million for the second quarter of 2011. UPG’s Monarch Outdoor Adventures, LLC (Monarch) subsidiary was sold on May 4, 2012, and results from Monarch have been reported as discontinued operations. Including the results from Monarch, UPG reported a net loss of $97,000, or ($0.02) per diluted share compared with net income of $125,000, or $0.03 per diluted share, in the second quarter of 2011.
“Our results for the second quarter were affected by the loss incurred on the sale of our Monarch subsidiary, but we generated solid operating improvement in our results from continuing operations when compared to the prior year,” stated Ian Edmonds, UPG’s President and Chief Executive Officer. “Our results were also enhanced by improved performance of our supply chain, as increased deliveries from our Chinese suppliers enabled us to satisfy customer demand and rebuild inventories that had been depleted since the second quarter of 2011.”
Second Quarter and Six Month Results
Net sales for the second quarter increased 9.3%, to $23.6 million from $21.6 million in the second quarter of 2011. The increase in net sales in the 2012 second quarter was primarily driven by an increase in sales of batteries and related power accessories, as well as growth from ProTechnologies, Inc. (PTI), which UPG acquired on April 20, 2011.
Gross profit decreased to $4.2 million in the quarter, compared with $4.4 million in the second quarter of 2011, due mainly to supply chain disruptions in China over the past year. As a percent of sales, gross margin decreased to 17.8% in the second quarter of 2012, from 20.2% in the prior year. Operating expenses decreased 10.1% to $3.5 million in the second quarter of 2012, from $3.9 million in the second quarter of 2011. The decrease in operating expenses included lower personnel costs, reduced professional fees, and decreased marketing, travel and facility expenses.
Primarily as a result of the lower operating expenses, operating income increased to $704,000 for the current quarter, compared with operating income of $485,000 in the second quarter of 2011. Interest expense was $153,000 in the second quarter, or flat when compared with the prior year. UPG generated pre-tax income from continuing operations of $551,000 compared to a pre-tax income from continuing operations of $335,000 in the prior year. UPG reported income from continuing operations of $406,000, or $0.08 per diluted share in the second quarter of 2012, compared to income from continuing operations of $189,000, or $0.04 per diluted share in the second quarter of 2011. Including discontinued operations, the Company reported a net loss of $97,000, or ($0.02) per diluted share, compared to net income of $125,000, or $0.03 per diluted share in the second quarter of 2011.
For the first six months of 2012, net sales grew 15.8%, to $49.9 million, from $43.1 million in the comparable period of 2011. The increase in net sales contributed to higher gross profit of $8.8 million compared to $8.7 million for the first six months of 2011. As a percent of sales, gross margin for the first six months of 2012 decreased to 17.7% of sales from 20.1% of sales for the comparable period of 2011. The increased cost of sales was the result of a number of factors, including the supply chain disruptions coming from China as well as higher material and labor costs from manufacturers. Total operating expenses increased $289,000, or 4.0%, to $7.6 million from $7.3 million in the prior year. Operating expenses for the first six months of 2012 included the expenses of PTI, which were not present for the entire period in 2011.
For the first six months of 2012, operating income decreased slightly to approximately $1.3 million compared to $1.4 million for the same period in 2011. Pre-tax income from continuing operations remained consistent at approximately $1.1 million compared to the same period in 2011. Interest expense for the first six months of 2012 was flat at approximately $300,000 compared to the same period in 2011. Income from continuing operations was $742,000, or $0.14 per diluted share, compared to income from continuing operations of $682,000, or $0.14 per diluted share, for the comparable period in 2011. Including discontinued operations, net income was $195,000, or $0.04 per diluted share, compared to net income of $528,000, or $0.11 per diluted share, for the comparable period in 2011.
Balance Sheet and Financial Position
At June 30, 2012, inventory was $38.8 million, up $14.6 million from $24.2 million at Dec. 31, 2011. The inventory balance at the end of 2011 was much lower than historical levels as a result of the supply chain issues in China. Compared to a year ago, inventory levels are up $9.4 million from $29.4 million at June 30, 2011. As manufacturing delays and delivery lead times associated with the Chinese supply chain issues improved during the second quarter, UPG was able to rebuild inventories to meet current business demand, including adequate safety stock.
Accounts receivable increased to $13.1 million, from $13.0 million at the end of 2011. Accounts payable increased by $6.3 million, to $13.2 million during the period. Total working capital increased to $20.4 million, from $19.9 million at the end of 2011. For the first six months of 2012, net cash used in operations was $7.8 million compared to $2.8 million provided by operating activities in the first six months of 2011. Operating cash flow for the first six months of 2012 reflects the increase in inventory, which was partially offset by a $6.3 million increase in accounts payable.
Edmonds concluded: “We endured some short-term pain with the sale of Monarch in the second quarter, but it is important to note that over the long term, the loss will be offset by improved results as we focus the resources formerly devoted to that subsidiary to our core businesses of batteries, related power accessories and third-party logistics. We also made considerable progress in rebuilding our inventories and meeting the demands of our customers as we worked to recover from the supply chain issues in China by utilizing our diversified supply base in Asia. However, the closure of so many factories in China continued to adversely affect our margins in the quarter as we saw higher product costs combined with the need to honor our pricing commitments to our customers. As we work through these issues, we expect to see improving trends in revenues and margins, as well as more historical levels of inventory and receivables in the future.”
Conference Call Information
Universal Power Group will host an investor conference call today, Thursday, Aug. 9, 2012, at 11:30 a.m. ET (10:30 a.m. CT) to discuss the Company’s financial results for the second quarter and six months ended June 30, 2012.
Interested parties may access the conference call by dialing 1.888.396.2356; passcode 59545398. 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 made available through Aug. 16, 2012, by calling 1.888.286.8010, passcode 93340506, and an archived webcast will be available at www.upgi.com.
About Universal Power Group, Inc.
Universal Power Group, Inc. (NYSE MKT: 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, low voltage wire and cable products, 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 | ||||||||
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ASSETS |
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(Amounts in thousands) |
||||||||
| June 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| (unaudited) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 302 | $ | 283 | ||||
| Accounts receivable: | ||||||||
| Trade, net of allowance for doubtful accounts of $339 (unaudited) and $384 | 13,119 | 12,972 | ||||||
| Other | 478 | 442 | ||||||
| Inventories – finished goods, net of allowance for obsolescence of $620 (unaudited) and $830 | 38,809 | 24,174 | ||||||
| Current deferred tax assets | 1,143 | 972 | ||||||
| Income tax receivable | 307 | 721 | ||||||
| Prepaid expenses and other current assets | 1,634 | 1,426 | ||||||
| Total current assets | 55,792 | 40,990 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Logistics and distribution systems | 1,901 | 1,871 | ||||||
| Machinery and equipment | 707 | 1,044 | ||||||
| Furniture and fixtures | 519 | 511 | ||||||
| Leasehold improvements | 394 | 389 | ||||||
| Vehicles | 155 | 171 | ||||||
| Total property and equipment | 3,676 | 3,986 | ||||||
| Less accumulated depreciation and amortization | (3,097 | ) | (3,128 | ) | ||||
| Net property and equipment | 579 | 858 | ||||||
| GOODWILL | 1,387 | 1,387 | ||||||
| INTANGIBLES, net | 428 | 527 | ||||||
| OTHER ASSETS | 94 | 100 | ||||||
| NON-CURRENT DEFERRED TAX ASSET | 291 | 213 | ||||||
| 2,200 | 2,227 | |||||||
| TOTAL ASSETS | $ | 58,571 | $ | 44,075 | ||||
| UNIVERSAL POWER GROUP, INC. | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| (Amounts in thousands) | |||||||
| June 30, | December 31, | ||||||
| 2012 | 2011 | ||||||
| (unaudited) | |||||||
| CURRENT LIABILITIES | |||||||
| Line of credit | $ | 20,582 | $ | 12,654 | |||
| Accounts payable | 13,162 | 6,845 | |||||
| Accrued liabilities | 1,532 | 1,213 | |||||
| Current portion of settlement accrual | — | 241 | |||||
| Current portion of capital lease and note obligations | 106 | 119 | |||||
| Current portion of deferred rent | — | 14 | |||||
| Total current liabilities | 35,382 | 21,086 | |||||
| LONG-TERM LIABILITIES | |||||||
| Capital lease and note obligations, less current portion | 180 | 229 | |||||
| TOTAL LIABILITIES | 35,562 | 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 | 16,345 | 16,339 | |||||
| Retained earnings | 6,614 | 6,419 | |||||
| Accumulated other comprehensive loss | — | (48 | ) | ||||
|
Total shareholders’ equity |
23,009 | 22,760 | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 58,571 | $ | 44,075 | |||
| UNIVERSAL POWER GROUP, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||||||||||
| (Amounts in thousands except per share data) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net sales | $ | 23,583 | $ | 21,580 | $ | 49,921 | $ | 43,109 | ||||||||
| Cost of sales | 19,392 | 17,218 | 41,077 | 34,429 | ||||||||||||
| Gross profit | 4,191 | 4,362 | 8,844 | 8,680 | ||||||||||||
| Operating expenses | 3,487 | 3,877 | 7,572 | 7,283 | ||||||||||||
| Operating income | 704 | 485 | 1,272 | 1,397 | ||||||||||||
| Interest expense | (153 | ) | (150 | ) | (296 | ) | (290 | ) | ||||||||
| Other, net | — | — | 127 | — | ||||||||||||
| Total other expense, net | (153 | ) | (150 | ) | (169 | ) | (290 | ) | ||||||||
| Income from continuing operations before provision for income taxes | 551 | 335 | 1,103 | 1,107 | ||||||||||||
| Provision for income taxes | (145 | ) | (146 | ) | (361 | ) | (425 | ) | ||||||||
| Income from continuing operations | 406 | 189 | 742 | 682 | ||||||||||||
| Discontinued operations: | ||||||||||||||||
| Loss from operations of discontinued Monarch Outdoor Adventures, LLC (including loss on disposal of $616 in Q2 2012) | (646 | ) | (88 | ) | (707 | ) | (228 | ) | ||||||||
| Provision for income taxes | 143 | 24 | 160 | 74 | ||||||||||||
| Loss on discontinued operations | (503 | ) | (64 | ) | (547 | ) | (154 | ) | ||||||||
| Net income (loss) | $ | (97 | ) | $ | 125 | $ | 195 | $ | 528 | |||||||
| Net income (loss) per share | ||||||||||||||||
| Basic: | ||||||||||||||||
| Income from continuing operations | $ | 0.08 | $ | 0.04 | $ | 0.15 | $ | 0.14 | ||||||||
| Loss on discontinued operations | $ | (0.10 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.03 | ) | ||||
| Net income (loss) | $ | (0.02 | ) | $ | 0.03 | $ | 0.04 | $ | 0.11 | |||||||
| Diluted: | ||||||||||||||||
| Income from continuing operations | $ | 0.08 | $ | 0.04 | $ | 0.14 | $ | 0.14 | ||||||||
| Loss on discontinued operations | $ | (0.10 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | (0.03 | ) | ||||
| Net income (loss) | $ | (0.02 | ) | $ | 0.03 | $ | 0.04 | $ | 0.11 | |||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 5,020 | 5,020 | 5,020 | 5,020 | ||||||||||||
| Diluted | 5,194 | 5,029 | 5,198 | 5,037 | ||||||||||||
| UNIVERSAL POWER GROUP, INC. | |||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | |||||||||||||
| (Amounts in thousands) | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||
| Net income (loss) | $ | (97 | ) | $ | 125 | $ | 195 | $ | 528 | ||||
| Amortization of hedging instrument | 20 | 29 | 48 | 58 | |||||||||
| Comprehensive income (loss) | $ | (77 | ) | $ | 154 | $ | 243 | $ | 586 | ||||
| UNIVERSAL POWER GROUP, INC. | |||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||||||
| (Amounts in thousands) | |||||||||
| Six Months Ended June 30, | |||||||||
| 2012 | 2011 | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
| Net income |
|
$ |
195 | $ | 528 | ||||
| Items not requiring (providing) cash, net of effect of disposition and acquisition: | |||||||||
| Depreciation and amortization | 239 | 374 | |||||||
| Provision for bad debts | 38 | 94 | |||||||
| Provision for obsolete inventory | 320 | 360 | |||||||
| Deferred income taxes | (249 | ) | 68 | ||||||
| Loss on disposal of Monarch | 616 | — | |||||||
| Gain on disposal of property | — | (1 | ) | ||||||
| Stock-based compensation | 6 | 14 | |||||||
| Changes in operating assets and liabilities | |||||||||
| Accounts receivable – trade | (192 | ) | (1,554 | ) | |||||
| Accounts receivable – other | 44 | (1 | ) | ||||||
| Inventories | (15,120 | ) | 3,746 | ||||||
| Income taxes receivable/payable | 413 | (643 | ) | ||||||
| Prepaid expenses and other assets | (210 | ) | (32 | ) | |||||
| Accounts payable | 6,317 | (40 | ) | ||||||
| Accrued liabilities | (4 | ) | 335 | ||||||
| Settlement accrual | (241 | ) | (375 | ) | |||||
| Deferred rent | (14 | ) | (44 | ) | |||||
| Net cash provided by (used in) operating activities | (7,842 | ) | 2,829 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
|
Net cash paid in Progressive Technologies, Inc. acquisition |
— | (2,267 | ) | ||||||
| Net cash received on Monarch sale | 40 | — | |||||||
| Purchases of property and equipment | (51 | ) | — | ||||||
| Proceeds from sales of equipment | — | 1 | |||||||
| Net cash (used in) investing activities | (11 | ) | (2,266 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
| Net activity on line of credit | 7,928 | (255 | ) | ||||||
| Payments on capital lease and note obligations | (56 | ) | (211 | ) | |||||
| Net cash provided by (used in) financing activities | 7,872 | (466 | ) | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 19 | 97 | |||||||
| Cash and cash equivalents at beginning of period | 283 | 215 | |||||||
| Cash and cash equivalents at end of period |
|
$ |
302 | $ | 312 | ||||
| SUPPLEMENTAL DISCLOSURES | |||||||||
| Income taxes paid |
|
$ |
65 | $ | 954 | ||||
| Interest paid |
|
$ |
297 | $ | 225 | ||||