Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

U.S. Auto Parts Network, Inc. (NASDAQ:PRTS)

Q1 2010 Earnings Call Transcript

April 28, 2010 5:00 pm ET

Executives

Ted Sanders – CFO

Shane Evangelist – CEO

Analysts

Jared Schramm – Roth Capital Partners

Richard Fetyko – Merriman & Co.

Christian Buss – Thomas Weisel Partners

Gary Prestopino – Barrington Research

Stephen Ju – RBC Capital Markets

George Kelly – Craig-Hallum Capital Group

Operator

Welcome to the U.S. Auto Parts first quarter 2010 conference call. On the call today from the company are Shane Evangelist, Chief Executive Officer; and Ted Sanders, Chief Financial Officer. By now everyone should have access to the first quarter 2010 earnings release which when out today after market. If you have not received your release it is available on the Investor Relations portion of the U.S. Auto Parts Web site at usautoparts.net by clicking on the U.S. Auto Parts Investor Relations tab. This call is being webcast and a replay will be available on the company's Web site through May 12, 2010.

Before we begin we would like to remind everyone that the prepared remarks contain certain forward-looking statement and management may make additional forward-looking statements in response to your question. These statements do not guarantee future performance and speak only as of the date hereof. We refer all of you to the risk factors contained in U.S. Auto Parts annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission for a more detailed discussion on the factors that can cause actual results to differ materially from those projected in any forward-looking statement.

U.S. Auto Parts assumes no obligation to revise any forward looking projections that may be made in today’s release or call. Please note that on today’s call in addition to discussing the GAAP financial results and the outlook for the company the following non-GAAP financial measures will be discussed, EBITDA and adjusted EBITDA. An explanation of U.S. Auto Parts use of these non-GAAP financial measures in this call and the reconciliation between GAAP and non-GAAP measures required by SEC Regulation G is included in U.S. Auto Parts press release today, which again can be found on the Investor Relations section of the company’s Web site.

The non-GAAP information is not a substitute for any performance measure derived in accordance with GAAP and the use of such non-GAAP measures has limitations which are detailed in the company’s press release.

And with that I would now like to turn the call over to Ted Sanders.

Ted Sanders

Thank you, Shannon, and good afternoon everyone. On today’s call I will provide a summary overview of the first quarter 2010 financial results and operating metrics. I will then turn the call over to Shane, who will provide his thoughts on the quarter and the progress we are making on positioning U.S. Auto Parts for long-term growth. We will then open the call up to take your questions.

Unless otherwise stated this quarter refers to Q1 2010 and last year refers to Q1 2009. And comparisons are Q1 2010 compared with Q1 2009. Also percentage and basis points discussed are calculated using net sales with the exception of advertising which is calculated using net Internet sales.

Adjusted EBITDA for this quarter was $5.4 million. This compares to adjusted EBITDA of $3.0 million last year, an 81% increase. Adjusted EBITDA excludes non-cash share-based compensation of $900,000 this quarter and $1.0 million last year. This quarter’s net sales increased 41.8% from last year. Online sales increased 42.0% and off-line sales increased 40.7%.

This quarter's gross margin was 35.2%, down from last year’s 36.9%; strategic pricing actions taken in the prior year and an unfavorable mix in common carriage freight versus parcel freight contributed to the margin decline.

This quarter's general and administrative expense decreased by 190 basis points to 10.1% primary from fixed cost leverage on higher sales partially offset by increased legal costs to enforce our intellectual property rights and increased amortization from software deployments.

This quarter’s marketing expense excluding advertising was 6.9%, unchanged from last year. This quarter's online advertising was 6.4% of Internet sales, down 70 basis points from last year due to improved efficiencies.

Fulfillment expense was 5.7% this quarter, a decrease of 100 basis points from last year primarily due to fixed cost leverage on higher sales. Technology expense was 1.8% this quarter, a decrease of 50 basis points from last year also due to fixed cost leverage on higher sales.

Amortization of intangibles for this quarter was 22 basis points compared with 92 basis points for last year primarily due to the full amortization of certain intangible assets.

Visitors increased for this quarter by 5.5% from last year to 28.6 million, which we attribute to greater online market penetration. Our conversion rate this quarter was 1.48%, a 31 basis point improvement over last year and a 1 basis point sequentially increase over the fourth quarter of 2009.

Orders placed through our e-commerce channel this quarter increased 34% to 423,000 and average order value declined by 0.8% to $119 from last year, both of which reflect consumer trends to in-source in tough economic times.

This quarter's customer acquisition costs decreased by $0.27 to $6.13 from last year from more efficient advertising spend.

Turning to the balance sheet, quarter-end cash and securities were $45.5 million, an increase of $3.9 million from Q4 2009. We generated $6.8 million of operating cash flow and invested $2.5 million in systems and equipment.

Our cash and securities remain primarily invested in CDs guaranteed by the federal government and federal T-bills. Additionally, we have auction rate preferred securities of $4.2 million, down $100,000 from Q4 2009 from our redemption. Although we continue to classify these investments as long term, they have a cash value.

Our inventory this quarter was $18.0 million, a decrease of $600,000 from Q4 2009, but an increase of $6.6 million from last year reflecting our private-label initiative, bringing more branded products in-house to stock-ship and increasing stocking levels to meet an increase in demand. Accounts payable and accrued expenses were $22.0 million.

And now I would like to turn the call over to Shane Evangelist.

Shane Evangelist

Thank you, Ted, and thanks everyone for joining the call. We certainly have gotten off to a great start with record revenue and adjusted EBITDA, and more importantly we are extremely pleased with the incremental adjusted EBITDA flow through on the sales increase over the fourth quarter of 2009.

We had an incremental revenue of $10.4 million, which produced incremental adjusted EBITDA of $2.1 million. So we experienced roughly 20% adjusted EBITDA flow through on the incremental sales. Our leadership team and their employees have delivered increased growth and profitability for the third quarter, and I am certainly proud to be a part of this very talented team. I want to thank them for the superb leadership.

As Ted mentioned earlier, we experienced 42% of revenue growth in the quarter. There were a number of factors attributing to this growth. First, the macro trends are in our favor. Visitors were up close to 6% year over year, which supports the premise that more and more customers are shopping online for auto parts.

Driving the macro trend are people keeping their car longer. The average age of the car in the road today is over 10 years and is around 100,000 miles. Additionally, people can do more work themselves. In a recently survey we conducted, 42% of the people said they would do more work themselves this year on their cars than last year.

The second main driver of growth was improved conversion, which was up 26% year over year, being driven by also a number of factors. First, we continue to get year-over-year conversion benefits from the catalog improvements we made in the second quarter of 2009. Simply put, our catalog and data product presentation is in a far superior position than it was in year past.

Second, we continue to be more aggressive in pricing. Third, our selection increased during the quarter and we added over 200,000 new SKUs, and finally our service levels continued to improve on the frontend web experience as well as the backend delivery and returns experience.

And while we are benefitting from macro trends affecting the entire auto parts industry and the trend towards shopping online for auto parts, our conversion increases are a result of great execution by our employees. They’ve been following a strategy over the last two years to drive conversion. And this strategy has been to improve the customer experience, to lower prices and to increase selection.

These initiatives have been the foundation of driving growth and we believe will continue to drive growth going forward.

As it relates to gross margin, we did see a reduction from the previous quarter of about 80 basis points, the majority of the impact was from increased sales on lower margin products essentially a mixed shift for more branded engine sales in the quarter as a percent of revenue.

We were comfortable with this reduction in gross margin percentage as it resulted in increased gross profit dollar, and more importantly as mentioned earlier, adjusted EBITDA flow through on incremental revenues was around 20%. Second major impact to gross margin percent was from increased freight expense as fuel surcharges increased during the quarter.

Now while we did experience a decrease in gross margin percentage in the quarter and we may see a trend continuing in the short term, we believe over the next few years we will see gross margins expand as we continue to optimize our supply chain. One area we are optimizing our supply chain is in the direct sourcing of private label engine parts in the Pacific Rim. We continue to make good progress towards this initiative. We now currently have around 3,000 SKUs on the site available for sales and another 3,500 on order.

EBITDA for the quarter was $5.4 million and nearing double-digit flow through percentage of 9.7%, and again I can’t hit this point hard enough. This is a result of nearly 20% EBITDA flow through on incremental revenues driven over the fourth quarter of 2009.

We are also seeing very good progress on our AutoMD initiative to become the consumer advocate for repair and maintenance. If you hadn’t seen the recent CBS Early Show video on the need for a repair advocate, go check it out on the homepage of AutoMD.com. It truly points out the need for transparency in this industry and our unique visitors for the month are nearing 250,000. So it shows that AutoMD is helping to provide this transparency.

We will continue to invest in AutoMD as we this as a great media and lead generation platform going forward as well as helping provide conversion benefits on our e-commerce site. And as always, I would encourage everyone listening to the call to go to AutoMD.com and start saving money today.

Consistent with our standard practice, we will not be providing earnings guidance but in the spirit of transparency, we will tell you that our year-over-year growth for the current quarter is trending around 30%. And we have mentioned earlier that in the back half of the year, end of the quarter, we will start to run into some tougher comp. But we do anticipate continued growth throughout the year.

As it relates to EBITDA, I think the best way for you to think about our business is using our fourth quarter 2009 results of $46 million in revenue and $3.4 million in adjusted EBITDA and use a 20% flow through for adjusted EBITDA on revenues above and below $46 million.

Specific to the second quarter, we will have an estimated $750,000 of negative impact to EBITDA over the first quarter of 2010. This impact will be approximately $500,000 of incremental legal expense over our current run rate in the first quarter to protect our intellectual property. We are very serious about protecting our intellectual property and we will be going to trial on June.

On a positive note, beginning the third quarter of this year, we’d see a $500,000 pickup over the first quarter of this year as the litigation expense comes to an end. So said differently, had we not had the litigation expense in the first quarter, EBITDA would have been around $5.9 million.

Second, we have about $250,000 reduction in margin as a result of reduced revenue from our post-transaction process over the first quarter. We are hoping that by the end of the year, we will make up this $250,000 in incremental media revenue as our media sales continue to grow.

We continue to anticipate CapEx for the year to be around $10 million. We also anticipate a $3 million to $5 million investment in inventory for the year as we continue to add [ph] private label engine parts and bring branded products to stock.

In closing, we were pleased with the progress we made on our strategic initiative and the quarter’s financial results. We have been more excited about the leverage of the business and the incremental adjusted EBITDA produced as revenues grow.

Our team continues to work very hard every day to try to grow this company over the next two to three years to exceed $300 million in revenues with the kind of profitable and margin levels that we are going to experience.

And with that I’d like to thank you all for joining the call. And at this time, we will now open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) First question comes from the line of Jared Schramm with Roth Capital Partners. Please go ahead.

Jared Schramm – Roth Capital Partners

Congratulations on the great quarter, guys.

Shane Evangelist

Thanks, Jerry.

Ted Sanders

Thanks, Jerry.

Jared Schramm – Roth Capital Partners

Could you just give some color on how customer reaction has been to the introduction of the private label parts here?

Ted Sanders

We are pleased with it. I think our customer base segments into consumers who really want branded product and then consumers are looking for any type of the solution that’s low cost with good quality. So, the reason we continue to pursue that aggressively is the initial reaction has been very, very good.

Jared Schramm – Roth Capital Partners

Okay. And jumping over to AutoMD, can you discuss a little what you are doing to promote traffic to the site? Is it through an SEO or through some other kind of marketing effort? I mean, CBS Early Morning show was a great start there I think.

Shane Evangelist

Yes. So we got a really good PR for sure. We actually do leverage our core site today. So if you go to autopartswarehouse, you will see some messaging to direct people over to AutoMD. We got an e-mail list of 2 million people that we can discuss AutoMD with. We are starting the process to get SEO movement and we are pleased with the direction in SEO movement.

There’s a little bit of SCM, not much, probably less than $10 million of total so far – I am sorry, $10,000 so far. Yes, so that’s what we are doing, leveraging existing assets to get good word of mouth and hope it just keeps taking off as the SEO gets better.

Jared Schramm – Roth Capital Partners

Okay. Second question for the offline revenue space; pretty impressive quarter on that regard. Could you kind of discuss some of the basics behind the revenue gains there in the offline segment?

Ted Sanders

It first starts with stock positions. We did a lot better job getting product and stock for our mirror line as well as our body part line coming into the quarter. So we actually captured all demand both online, but also through our wholesale channels. Second to that, these guys are just doing a great job. I mean, they are priced better in the marketplace. They are selling better in the marketplace.

When we got here, wholesale wasn’t a main focus for us. But over the last year or so our guys have really spent some time on it and we are seeing the results and we like it.

Jared Schramm – Roth Capital Partners

Okay. And I guess lastly, pretty anecdotally here. Cash balance and investments are getting up, are you seeing any attractive acquisitions be it small or large in this space right now?

Shane Evangelist

Yes. We’ve done a few acquisitions. We are very pleased with the integration that’s taken place on those. It’s truly been seamless and actually no issues around integration. So our initial thinking was let’s keep it small, $3 million to $5 million companies. As those have progressed well, we will look and certainly inter-fit in doing larger acquisitions. We are hoping to it. And no new news on that front at this point, but certainly we’ll continue to look as acquisition is the way to grow.

Jared Schramm – Roth Capital Partners

Okay. That’s it from me. Congratulations again on a great quarter.

Shane Evangelist

Thanks, Jerry.

Operator

Our next question comes from the line of Richard Fetyko with Merriman & Co. Please go ahead.

Richard Fetyko – Merriman & Co.

Hi, good evening guys. Congrats on the results. As you look across the key metrics, the visitors, commission rates and average order values, what you think will drive growth during the rest of 2010 and in what order?

Shane Evangelist

So I think we will continue to see unique growth. There's no indication that the industry's slowing down. So I think you will see unique visitors grow. And I hope to see conversion increase as well as we continue to get more price point aggressive in the marketplace, we will make our supply chain more efficient.

And average order value, actually you may see a pickup in that in the back half of the year. Our AOV decreased significantly last year. We’ve got a number of initiatives in place to try to address that in the back half of the year as well. So I don’t know Richard which one is going to move fastest. I think that the most consistent one you are going to have clearly is going to be demand for auto parts online, and then we hope the stuff that we're doing now can effectuate certainly more SKUs being added, lower price points. That should help conversion.

Richard Fetyko – Merriman & Co.

Okay. As a follow up, on the eBay sales line, I am just curious what’s your thoughts on – the potential impact of eBay is changing and their listings practices weighing more, lowering the listing SKUs on the frontend and increasing perhaps the sales commissions on the backend.

Shane Evangelist

So, eBay has been – was fantastic for us in the first quarter. They did, as you indicated, made some changes in the second quarter. We continue to see good comps on eBay on a year-over-year basis well over 30, even after those changes. So eBay is doing fine for us. As it relates to the bigger impact on our overall business because, as you indicated, more listings in the marketplace, and we fortunately have a very, very good team on eBay, react very well to eBay. So we will digest what’s going on right now and then we will start the process to react to it. But we are certainly not displeased with our year-over-year comps on eBay.

Richard Fetyko – Merriman & Co.

Okay. Good to know. Thanks.

Shane Evangelist

Thank you.

Operator

Thank you. Our next question comes from the line of Christian Buss with Thomas Weisel Partners. Please go ahead.

Christian Buss – Thomas Weisel Partners

Congratulations on a nice quarter.

Shane Evangelist

Thank you, Christian.

Christian Buss – Thomas Weisel Partners

Wondering if you could provide a little perspective on the mix shift and how you think about that going forward towards the lower margins products?

Shane Evangelist

We saw engine up close to 10% as a percent of revenue on a year-over-year basis in the first quarter. We think long term we are going to catch a lot more of that revenue with private label SKUs as that grows. But short term, you are seeing that the shift come down, the gross profit dollars were up close to $5.4 million for the quarter, $5.2 million for the quarter. So we are pleased with the gross profit dollar increase and we will take that trade off all day long.

I think shorter term, Christian, you are going to see margins around where they’re at. They might suppress a little bit. And then longer term, I think you are going to see us expand margins.

Christian Buss – Thomas Weisel Partners

Okay. And on a dollar basis on the advertising expense, it’s about 7 million run rate. Where you guys are targeting or how do you think about allocating the ad spend?

Ted Sanders

It’s not targeted at a certain freight point or dollar amount. We actually run off of variable contribution margin of the incremental dollars spent being positive return. And it just happened to be that for us falling out right now. If we ended up with more gross profit dollars to spend, I think you’d see that number increase.

So as we get the freight chain more efficient, I wouldn’t be surprised to see the marketing dollar spend actually go up, but more a drop through.

Christian Buss – Thomas Weisel Partners

And if I understand that right, you have the ability to dial that relatively quickly, correct?

Ted Sanders

Yes, outwardly.

Christian Buss – Thomas Weisel Partners

Okay, perfect. All right. Thank you very much and good luck.

Ted Sanders

Thanks, Christian.

Shane Evangelist

Thanks, Christian.

Operator

Our next question comes from the line of Gary Prestopino with Barrington Research. Please go ahead.

Gary Prestopino – Barrington Research

How are you guys.

Shane Evangelist

Hi, Gary.

Gary Prestopino – Barrington Research

Couple of questions here. So you feel pretty strongly that anything above $46 million of revenues, you are going to continue to convert that incremental revenue of 20% EBITDA margin?

Ted Sanders

I mean, that’s what we experience Gary. And I think you are going to continue to see that grow in that manner.

Gary Prestopino – Barrington Research

Okay, but does that include the issue with increased legal expenses in this upcoming quarter?

Ted Sanders

Yes, that’s one thing I was trying to – maybe I didn’t make it clear enough in the call there. You got to back that off that number so it would be up – if you thought the number was going to be X, you would back that off of that 20%.

Gary Prestopino – Barrington Research

And where would those expenses be, just are they G&A expenses?

Shane Evangelist

Yes, that’s in G&A Gary.

Ted Sanders

It could kind of give you – the legal expenses and G&A that 250 that we are going to have in the post-transaction processes and margins.

Gary Prestopino – Barrington Research

Okay, that’s fine. And then are you still on track to have about 7,500 private label engine part SKUs by year end?

Ted Sanders

Yes, that’s still our goal. I mean, 7,000 to 8,000 is what we think we will be doing. We have about 3,000 now, 3,500 on order. And this process takes a little longer than we’d like, but a good part about that is it’s tough to replicate that part as you have to wake up more monthly parts. But progress is good.

Gary Prestopino – Barrington Research

Okay, and then as far as stock versus drop ship, when we did our report you were about 50/50. Has that changed materially at all in terms of a 200 basis points swing to stock versus drop?

Shane Evangelist

You know, Gary, it actually – our stock shipments went up, but at the same rate as our drop shipments as we increase sales. So that number was about the same. It just happened to be they both grew at a similar rate. So we weren’t upset with the fact that we stock ship more product. It just happened to be that we also drop ship more products as the tide rose for all.

Gary Prestopino – Barrington Research

Okay, that’s fine. All right, I think that’s all I have right now.

Shane Evangelist

Okay, thanks.

Operator

Thank you. Our next question comes from the line of Stephen Ju with RBC Capital Markets. Please go ahead.

Stephen Ju – RBC Capital Markets

Good afternoon. Congratulations on a great quarter guys.

Shane Evangelist

Thanks, Steve.

Stephen Ju – RBC Capital Markets

I think most of the questions were answered, but as you rolled into the second quarter, you were talking about around a 30% growth. How did that break down between volume growth and ASP growth? And as you are looking at the linearity of the first quarter, which months have the best growth I guess. And I guess, this is more of a pie in the sky question. As you look at AutoMD – and we talked about the possibility of making that as sort of a lead gen platform for mechanics, but is there a possibility to open it up to other, like auto parts sellers as well want to stock parts for people, especially in such segments where you guys don’t have your product.

Shane Evangelist

Yes, Stephen, let’s go back to the first question, volume versus and when it happened, I think our March month was the strongest month out of all of the months in the quarter. So we definitely felt some acceleration in March. Obviously, in April when our feeling is much of an acceleration as we felt in March. Some of that could be because of seasonality. But clearly that’s kind of how order started out. So we saw a big ramp in March.

Ted Sanders

And March was 50 points up, that was a huge month.

Stephen Ju – RBC Capital Markets

Did you thought it’s actually right because the timing, I guess Easter fell, I guess, around the end of – I guess it wouldn't affect you very much. I guess Easter fell at the end of the first quarter versus last year where Easter I guess was may be –

Shane Evangelist

I don’t think Easter was – because Easter was like actually the last weekend of the quarter for us and the year before was in Q2. So we didn’t – Easter wasn’t really much of an impact to us in Q1. So we saw at this time last year on the call we spoke about get a little bit more competitive in the marketplace with pricing. We did that so we are starting to comp over a little bit of pricing we started in the first half of second quarter, but went out and said was 30, I mean 30 is a good number right and we will see how that trends through the quarter.

As we have indicated before, we do run into tougher comps in the back half of this quarter and of course in the back half of the year. As it relates to AutoMD, yes, we are going to be open to selling all kinds of parts in AutoMD. For instance, we don’t sell batteries. We don’t sell fluids. So certain partner with people to sell those, are things that we will look to do.

Stephen Ju – RBC Capital Markets

Understood. Thank you.

Shane Evangelist

Thanks, Steve.

Operator

Thank you. Our next question comes from the line of George Kelly with Craig-Hallum Capital Group. Please go ahead.

George Kelly – Craig-Hallum Capital Group

Hi, guys. Much couldn’t be on the call. But just a couple of quick ones. Wondering just to go a little bit more on the revenue growth. I was wondering if you could talk a little more about second half 2010. Just any idea of where you guys are thinking it could come in, and just any more commentary on that.

Shane Evangelist

Yes, I think that’s difficult for us to know right now, I think George. I think it’s the back half of Q2, again the month of June and certainly in July. So when we do our Q2 conference call, we will have a much better visibility on what the back half of the year is. Clearly, we had 30% – 28% and then 36% growth in Q3 and Q4. So those are obviously going to be tougher comps. But like we said in the past we did see an acceleration really happen in June of last year. So we will be able to give you better visibility when we have our Q2 call.

Ted Sanders

With that said, we don’t think demand is going to diminish in the back of the year. And I hope that we are in a better competitive position with our private label products as well as some pricing. So hopefully we can catch our growth. I wouldn’t say the expectation is going to be 32, like it was last year. But hopefully we think we will see it grow.

George Kelly – Craig-Hallum Capital Group

Okay. Great. And then one other one. Where would you expect average order value to be in a more sort of normalized economic environment?

Ted Sanders

It’s been pretty consistent for us. I am looking to adjust here since you’ve been here for five years; it’s been around that number down a little bit, up a little bit. So I don’t think it’s – under the current way we merchandize which is not a lot of cross zone up sell today I think that number is going to stay around there. Maybe comes on a little bit as we saw more of our own branded private label products at lower price point. Over time, hopefully we see that moving north as we do a better job of selling a job to a customer as well as kind of matching parts up.

George Kelly – Craig-Hallum Capital Group

Okay. So I could expect somewhere between 115 and 120 for the near term?

Ted Sanders

That’s probably –

Shane Evangelist

Yes, that’d be good. Sure.

George Kelly – Craig-Hallum Capital Group

Okay. Great. That’s it. Thank you very much.

Shane Evangelist

Thank you.

Operator

(Operator instructions) And our next question is a follow up from the line of Gary Prestopino. Please go ahead.

Gary Prestopino – Barrington Research

Just had two housekeeping questions. Even if I get a 38% tax rate this quarter, is that a good number or percentage to use for the year Ted?

Ted Sanders

Typically what happens is in Q1 with the auditors we kind of set the tax rate in that quarter. So that I would say that would be a very good estimate to the year.

Gary Prestopino – Barrington Research

Okay. And then you mentioned there was another $250,000 of expense, I didn’t get that in my note.

Ted Sanders

Yes, I think what Shane was saying is web loyalty. We expect our web loyalty revenues in Q2 to be $250,000 less Q1. So we didn’t really get the full impact of – we did better in web loyalty than we expected. But we expect to feel the full impact of that in Q2. So that’s about $250,000 swing, not an expense that goes up 1st March.

Gary Prestopino – Barrington Research

Okay. And then just in terms of AutoMD, I mean there is something like 400,000 repair shops in the country. Have you got all of them loaded in or certain percentage or can you maybe talk a little bit about that, as well as how often are you contacting these shops to refresh the information? And then whether you are able to measure any kind of customer level of satisfaction from using AutoMD at this point?

Shane Evangelist

So we’ve – there is about 4,000 shops in the data base. We’ve contacted well over 100,000. We got information collected on about 100,000 as it relates to hourly rate, what kind of cars they work on, what are the service they do, if they offer a shuttle service. So there is like 15 different variables we have on them. What you will see us do in AutoMD in the back half of the year is start plenty of lead generation program through them through a subscription deal.

So it’s – I wouldn’t surely factor anything financially into it this year. But we will start the process of lead generation into those shops. And then as it relates to ratings, we have full rating capabilities on the site and so as people start to use those shops as they get pushed over from AutoMD, then it will act a little bit like Yelp.

We actually in the quarter launched a thing called auto answers, and within the first month we’ve already had 5,000 questions asked and answered. So the community there is starting to build. And through behold on those shop sites, we have between 1,000 and 2,000 people a day looking at shops. As we like the progress we are making. We think we are setting up sales up for a good customer experience as well as good customer feedback long term.

Gary Prestopino – Barrington Research

Okay. Thanks.

Operator

(Operator instructions) Our next question is a follow up from the line of Richard Fetyko with Merriman & Co. Please go ahead.

Richard Fetyko – Merriman & Co.

Hi, guys. The back half of the year having tougher comps, I guess maybe we can talk about seasonality in business that’s normal. Last year was a little abnormal I would think in terms of the sequential increases in the third quarter. If maybe you can talk to the seasonality that in a normalized environment we should anticipate in the back half of this year versus the second quarter or just – given the second quarter perhaps.

Shane Evangelist

Typically you will see the first quarter higher than the second quarter and then you will start to see it fall off anywhere between 5% to 10% in the back half of the year. Now we didn’t see that last year because we had a much stronger offering in the engine business Richard. So it is unclear to us exactly what that’s going – how that’s going to play out.

Typically you are going to see first quarter up, second quarter down a little bit. In 2007, it reversed a little bit, it was first quarter and then second quarter. So there is – unfortunately, there isn’t five years of consistent seasonality in the business. And part of the reason is changes have been made every year whether it’s up in marketing spend or whether it’s increasing catalog. So, I think gives you a lot of consistency on that. But if I was going to guess, first half is going to be up by 10% over the second half from a seasonal perspective.

Richard Fetyko – Merriman & Co.

Right. Okay, thanks.

Operator

(Operator instructions) I show no further questions in queue. I’d like to turn the call back over to management for closing remarks.

Shane Evangelist

We certainly are pleased with record revenues and adjusted EBITDA for the quarter. Look forward to getting back to you guys next quarter and give you an update. Take care.

Operator

Thank you, ladies and gentlemen. This concludes our conference for today. Thank you for using ACT Teleconferencing and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: U.S. Auto Parts Network, Inc. Q1 2010 Earnings Call Transcript
This Transcript
All Transcripts