Steven Becker - Greenway Capital Katie Benjamin - Thomas Weisel Partners Jim Markins - Vastech

Welcome to the U.S. Auto Parts second quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Laura Foster.

Welcome to U.S. Auto Parts second quarter 2008 conference call. On the call today from the company are Shane Evangelist, Chief Executive Officer; and Michael McClane, Chief Financial Officer. By now everyone should have access to the second quarter 2008 earnings release which when out today at approximately 4:00 pm Eastern Time. If you have not received the release it is available on the Investor Relations portion of the U.S. Auto Parts website 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 website until August 19. 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 more detailed discussion on the factors that could 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 maybe 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 website. 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 have limitations which are detailed in the company’s press release. With that I would now like to turn the call over to Michel McClane.

On today’s call I will discuss our second quarter financial results and operating metrics. I will then turn the call over to Shane, who will provide an overview of our second quarter business highlights followed by a more detailed discussion of the key drivers of our business and an update on our 2008 guidance before turning the call over to the operator for your questions. We are pleased to deliver second quarter results inline with our expectations. Net sales for the second quarter of 2008 were $43.1 million at the high-end of our previously stated guidance range of $40 million to $43 million. Adjusted EBITDA for the quarter was $1.9 million, within our previously stated guidance range of $1.8 million to $2.5 million. Our net sales of $43.1 million for the second quarter of 2008 represented an increase of 2.4% from $42.1 million in the second quarter of 2007. The year-over-year increase in net sales is primarily the result of an 18.9% increase in our online marketplaces channel and 1.9% increase in our e-commerce channel. Partially offset by a 14.3% decline in our offline sales channels. Sequentially net sales for the current quarter increased by 7.7% from the first quarter of 2008, the sequential increase in net sales was comprised of a 34.7% increase in our online market place sales channel and a 7% increase in our e-commerce sales channel. Partially offset by a 14.9% decline in our offline sales. As anticipated we continue to experience softness in the second quarter in our wholesale division as we transition the way from a significant customer. We are very encouraged that our core online business was driving our sales growth in the quarter, particularly exciting was the 34.7% increase in our online marketplaces channel. Without going into too much detail for competitive…

Michael just discussed the quarter in detail and I’ll now provide my take on it. We continue to be encouraged about the position of U.S. Auto Parts in the over $120 billion market in which we compete and we think there is no other Auto Parts online retailer better positioned to take advantage of the inevitable movement from all time buying to the current low penetrated online market. We believe the combination of our low cost operating structure and efficient customer acquisitions will allow us to scale and capture share going forward supporting my assessment of recently released numbers by internet retailer. In those U.S. Auto Parts is the highest ranked company that sells Auto Parts online and the only one in the top one hundred for the second straight year. To put this in perspective we are more than double the size of auto zone estimated online sales. As related to specific sites autopartswarehouse.com is ranked number one in both paid and organic search. We believe this clearly demonstrates our leadership position and provides us with a great opportunity to capture share going forward. Specific to the quarter we had positive revenue comps quarter-over-quarter and year-over-year. The last time the company did that was the first quarter of 2007. We believe this demonstrates the progress we have made and affirms our plans are working. We were actually on track to better the $43 million we posted, but sales began to soften in June and we speculate that this was driven by a combination of macro factors as well as some pricing actions particularly in June to compensate for increased freight expense, which resulted in flat year-over-year comps for June. We’ve learned a lot from the pricing increases and we are excited about the opportunity that lies ahead with that…

(Operator Instructions) Our first question comes from the line of Matt Nemer from Thomas Weisel Partners.

This is actually [Katie Benjamin] for Matt Nemer. I just have a few questions. The first is, there has actually been a lot of discussion about sort of the deceleration in miles driven. I think it’s down about 2.5% year-to-date. Maybe you could talk about how you guys think about that in terms of maybe any kind of leading indicator for demand?

Yes Katie this is Shane. Obviously, when people drive less, they have less maintenance, they have less accidents and I think that is not good for us overall as it relates to that macro trend. I think what’s helping us though is of course people are more price conscious, people are buying less new cars which would indicate that they are going to have to maintain their vehicle overtime. I’m not sure, if we can speculate one way or the other, but we do suspect that there is some delayed maintenance taking place for both engine and body parts. So how it all plays out overtime, I’m not exactly sure; I do though think that in reduced consumer spending our price point will be having taking just a long-term when people decide that they really needed to maintain their vehicles.

Great that’s helpful. Also if you could touch on maybe the impact of product cost and inflation particularly direct import parts from Asia?

We saw some increase in sheet metal; probably not as much as you’ve heard from other folks, but some increase, but the real direct cost that’s probably impacted us more than that is freight expense as it relates to oil prices and of course for an online retailer dealing with shipping expenses is a big deal. So, we are actively working through that and managing it closely.

Great and then next, you guys continue to see some pretty nice increases in your website conversion rate, maybe any updates on some of the initiatives that are going on there and then I know you mentioned about 1.6 short-term, I don’t know if you can give a little bit longer-terms guidance that will be great?

Okay, and then lastly I know you guy haven’t provided full year guidance before, but if you could provide any directional comments on CapEx guidance for the remainder of the year?

For full year it’s somewhere between $5 million to $6 million from a CapEx perspectives; as we build out distribution centers in the back half of the year, whether we get it up or not, it may have an incremental working capital change in it while we ramp that distribution center from a cash flow need.

(Operator Instructions) Our next question comes from the line of Steven Becker from Greenway Capital; please go ahead.

A quick question for you; I just wanted to make sure I’m reading this correctly. Just the adjusted EBITDA of 19 include the 600,000 of severance recruiting and relocation or do I add that back to get a true cash flow number?

The 19 includes those costs.

Okay, so the 19 is net of those costs?

Correct, so if you were to in fact add those costs back then the number would be higher, the EBITDA number would be higher.

Our next question comes from the line of [Jim Markins from Vastech]; please go ahead.

A couple of question; can you talk about your call center; you said you have laid off some people in the Philippines; how was that affected your customer service levels there?

Yes, I mean the major transition Jim was when we shut the U.S. call center down. We staffed up in the Philippines, we migrated functions over there, we remained more than adequately staffed and took appropriate action once we were comfortable that the service levels were there for our customers.

Okay great and well I may quickly get over my head here on this question, but can you talk about the changes in the search algorithms that happened this past quarter that hurt your visitors sequentially?

Yes Jim, without going into too much detail we had some search engine -- don’t know the exact change, that ended up impacting where some of the sites were positioned on. The search results which ended up was less quick-to-resource sites, at the same time we actually saw conversion increase on the sites that continued to stay present.

And this is the same issue that we described in the last quarter; just we’re kind of updating you on the actual impact on the monthly unique visitor account.

We appreciate you attending the call and look forward to catching up with you next quarter and taking to you in between.