Universal Power Group Reports Growth in 3Q Net Income

In a release on November 10, the Company noted that 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," said 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, 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."

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