Welcome to U.S. Auto Parts Fourth Quarter 2011 Conference Call. On the call today from the company are: Shane Evangelist, Chief Executive Officer; and David Robson, Chief Financial Officer. By now, everyone should have access to the fourth quarter 2011 earnings release, which went out today at approximately 4:00 p.m., Eastern Time. If you have not received your 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 through March (sic) [May] 15, 2012. Before we begin, we would like to remind everyone that the prepared remarks contain certain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and speak only as of the date hereof. And we refer you to the risk factors contained in the 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 statements. 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 the call today, 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 as required by the SEC Regulation G is included in the 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 measured, delivered in accordance with non-GAAP and the use of such non-GAAP measures have limitations which is detailed in the company's press release. With that, I'd now like to turn the call over to Shane Evangelist. Please go ahead.

Thank you, Michaela. Before David and I begin the comments on the quarter, I would like to reflect on the business that we've built and the steps we've taken to take advantage of the favorable macro trends in the aftermarket industry. Over the last 4 years, we have expanded our product offerings to not only to include collision but also engine and accessory parts, a strategy we plan to continue over the next 5 years. This has allowed us to grow our business from $150 million in revenue to over -- in 2008, to over $325 million of revenue last year. We have built a revenue base that creates great leverage going forward, and allows us to be disciplined as market dynamics change and competitors chase unsustainably low margin to no margin businesses. More importantly, we have built a supply chain second to none in the online space. We now have around 40% of our revenues sold through our over 50,000 private label SKUs. We do this by strategic sourcing our products, a sourcing strategy that cannot be easily replicated. This private label business has become critical, as supply chains become flatter and manufacturers look to sell directly through online marketplaces. And our operating plan going forward will continue to focus on increasing our strategic sourcing advantage by continuing to add thousands of private label SKUs annually. In addition to direct sourcing, we now have around 60% of our products directly shipping from one of our 3 warehouses, which allows us more control over the customer experience, as well as reduces product costs in the supply chain. We believe competitors who do not have the appropriate private label mix or who are overly dependent on third-party drop shippers will not be successful over the next 5 years. In addition to…

Thanks, Shane. Good afternoon to everybody on the call. Unless otherwise stated, this quarter refers to consolidated Q1 2012 and last year refers to Q1 2011. And comparisons are Q1 2012 compared with Q1 2011. Also percentage and basis points discussed are calculated using net sales. However, for advertising, we'll discuss comparing net internet sales. On our last call, we did state to you that we would no longer break out financial results between our core business and J.C. Whitney. As a rule, as it all now runs on one platform and as one business, we will speak to our results on a consolidated basis. Adjusted EBITDA for this quarter was $4.2 million compared to adjusted EBITDA of $6.7 million last year. Adjusted EBITDA excludes noncash share-based compensation expense of $584,000 this quarter and $681,000 last year. This quarter's net sales were $87.4 million compared to $87 million last year, an increase of 0.5%. Our online business, as Shane mentioned, was flat to last year. However, our traditional business was positive, offset by a decline in our comps at J.C. Whitney. Our decision to reduce marketing spend over the last year impacted e-commerce sales for the quarter but was a positive to our business from an EBITDA perspective. Traffic on our site increased 4.9% over last year. However, conversion was down 4.4%. Average order value declined 7.3% from last year but was slightly up from the fourth quarter of 2011. Revenue capture was 83.7%, down from 85.9% last year. However, revenue capture was up from the fourth quarter of 2011 of 81.4%. Turning to margins, this quarter's gross margins was 30.5%, down from last year's 35.0%. Gross margin was unfavorably impacted by lower average selling price in the marketplace and higher freight expenses, partially offset by higher mix of our…

[Operator Instructions] Our first question comes from the line of Shawn Milne with Janney Capital Markets.

Shane, maybe you can talk a little bit about the dynamic of – and it does seem like you traded off marketing a bit in the quarter for growth. Where were you really reducing the ad spend? If I heard you right, it would seem like it was primarily around the Whitney business. Maybe you can add a little bit more color on the decision-making there. It would seem that to really leverage the business going forward, we need to see some growth, albeit the margins look better this quarter. And I've got a follow-up.

Yes. So we certainly plan to grow the business. We just didn't think it was prudent to grow the business at the expense of profitability. And so when we took a look at some of the spending we were doing, both some of the online SEM spending, affiliate spending, as well as some of our catalog spending, it was prudent to pull it down. And it did cost us some sales, but we think that's the right decision.

Is there some dynamic within that decision? Did you see exorbitant search pricing in the market or is this something you're going to revisit in the second half? I'm just trying to understand that dynamic moving forward. Or do you just believe you're going to get more efficient with the existing ad budget?

I think a couple of things. One is we continue to make improvements to Whitney's website and the product offering and merchandising of it. It will allow us to spend more dollars because it will convert at a better rate. And second, I think that managing that business more in line with we managed our core business from a marketing spend perspective was where we saw the best variable comp [Audio Gap] turn. And so I think there's 2 things. One is we essentially look at where the VCM, or where the variable contribution margin goes negative and we stop spending there. And then as we improve the Whitney experience and [Audio Gap] conversion, then obviously, it'll allow us to increase the marketing spend.

Okay. And I may not have seen it in the release, with several companies reporting, but did you talk about the specific growth in the eBay marketplace and what you're seeing there?

We didn't specifically address our online marketplace business. As I indicated in the last call though, Shawn, it's very strong, it's good. We're very pleased with that business.

Okay. And then lastly, the revenue capture rate was up nicely quarter-over-quarter. You mentioned some of the reasons there. Is this something that we should expect flattish from here or continued improvement in terms of improving out-of-stock and returns, et cetera?

Yes. So I think we will -- to set expectations right, I'm not sure if it's a bad number where it's at right now. And the team always grinds to improve it. And so hopefully, we continue to see improvements on that number over time. Hopefully, we see that trend move. We're not back to the trend line we were at prior to Whitney. Obviously, Whitney actually ran at a lower number than our previous -- the traditional business. So I don't think it will ever get back to where it was previously but there's probably still some room to grow there. When we grow that, Shawn, I don't know if it's going to be this quarter or the next quarter but I think, over time, we'll move that in the right direction.

[Operator Instructions] Our next question comes from the line of Mitch Bartlett with Craig-Hallum Capital Group.

This is George Kelly on for Mitch. A couple of questions. Wondering if you could talk just about the private label business a little more. What percent of revenue in the first quarter was from private label and where do you think you can take that in the next couple of years?

So private label is clearly a focus for us. And it's at about 40% right now and we hope to move that north. It's progressed quite nicely over the last 2 years and I expect it to continue to move north. In the private label business, it actually moves up and down. So it doesn't necessarily move in an exact trend line. In many cases, we'll bring in SKUs and get a bunch at a time. So it may stay at 40% for a little bit of time, then it may jump up to 44%, 45% over time. But we certainly hope to move that north.

Okay. And remind me of the gross margin difference on private label versus branded?

George, it's going to run anywhere between 20% to 50%. On average, you're probably talking 25% to 30%.

Difference between the 2?

That's correct.

Okay. All right, that's helpful. And then secondly, can you talk a little bit more about competition? Have you seen in the second quarter, is pricing with WHI, is that getting any worse or changing? And then are the bricks and mortar guys doing anything new recently?

So we haven't seen a change in brick-and-mortar and I think we've got the same competitive dynamic in the marketplace as we had last quarter. So that hasn't changed significantly. So same scenario, just one more quarter in and, fortunately for us, another quarter to start to prepare for that level of competition going forward.

[Operator Instructions] And your next question comes from the line of Jared Schramm from Roth Capital Partners.

The G&A level we saw in the quarter, is that a pretty sustainable run rate going forward? I know you mentioned that there was a reduction in payroll as a contributing factor there. Just some comment on that?

Yes, I think that trend is going to continue. We pulled those costs back last year, so we'll see that continue.

Okay. And then quickly turning to the off-line business, had a nice year-over-year comp there. Could you provide a little more color into what you're seeing in that business and trends going forward?

So we opened up that distribution center on the East Coast a couple of years ago and as that distribution center got up and running and ramping, we extended a very similar offering that we do here on the West Coast to the East Coast. In the last year or so, that's starting to take off a little bit. So that's really the distribution of body parts to local body shops in the area, as well as some wholesale business that we do. One of the great things about bringing in the private label business is not only do we get to sell it via the website but we also can move it through some wholesale channels. And that's what you're seeing from that perspective.

Is there any motivation there to market a little heavier to the off-line clients?

We certainly like the growth we're seeing right now. We will certainly continue to market to that. But I think, Jared, the way to think about this is really leveraging a set of fixed assets we have on the ground out there to be able to take advantage of buying power and take advantage of the infrastructure. So I wouldn't, by any means, think that U.S. Auto Parts' main focus in life is the off-line business but we're quite pleased with it and we'll continue to invest in it where it makes sense.

And we have a follow-up question from the line of Mitch Bartlett with Craig-Hallum Capital Group.

Just a quick follow-up. If you're marketing J.C. Whitney less, at least in the first quarter you did, do you expect the back half of the year-over-year comps to be pretty similar to the first quarter? I know you didn't break that out but...

Yes. So George, we will probably continue the marketing spend reduction throughout the course of the year. As it relates to the year-over-year comp, we actually saw Whitney deteriorate in the back half of the year. So we actually get an easier comp in the back half of the year for Whitney. Second, we've actually got a number of initiatives in place that we should have hitting in the back half of the year that we hope to see more historical [Audio Gap] revenue. So marketing spend will stay relatively consistent unless we see some upside. The comps should get easier, both on the Whitney business, as well as our core business.

Okay. So it should start to flatten out a little bit? Maybe still be negative by the third and fourth quarters but flatten out from the first quarter?

Yes, based on current trends. That's correct.

At this time, I'm showing no further questions in the queue. I would like to turn the conference back over to Mr. Evangelist for closing comments.

Well, we appreciate everyone joining us for the call and we look forward to getting back to you with progress through this quarter. Take care.

Ladies and gentlemen, if you would like to listen to a replay of today's conference, you may do so by dialing the toll-free number of 1 (877) 870-5176, or for international participants, that's 1 (858) 384-5517. We thank you for your participation on today's call and you may now disconnect.