Welcome to U.S. Auto Parts Third quarter 2015 Conference Call. On the call from the Company are Shane Evangelist, Chief Executive Officer; and Neil Watanabe, Chief Financial Officer. By now, everyone should have access to the third quarter 2015 earnings release, which went out today at approximately 06 am 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 webcasted, and a replay will be available on the Company’s website through November 17, 2015. Before we begin, we would like to remind everyone that the prepared remarks contain certain forward-looking statements within the meaning of the federal securities laws and management may make additional forward-looking statements in response to your questions. The forward-looking statements include but are not limited to statements regarding future events, our future operating and financial results, financial expectations, expected growth and strategies, key operating metrics and current business indicators, capital needs and deployment, liquidity, product offerings, customers and suppliers and competition. The forward-looking statements are based on current information and expectations are subject to uncertainties and changes in circumstances and do not constitute guaranties of future performance. The forward-looking statements involve a number of factors that could cause actual results to differ materially from those statements. 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 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, nor does it intend to update or revise any forward-looking…

Thank you, Operator. Good morning everyone and thank you for joining us to discuss our third quarter 2015 results. Let me provide some additional color on our financials reported in the press release this morning and then I’ll touch on some of the key business metrics and initiatives that we’re focused on, to drive improved profitability. Net sales for the third quarter 2015 were $70.6 million compared to $67.9 million last year. This reflects a total increase in net sales of 4% and a comparable sales increase of 5%, after adjusting for the closure of our West Coast wholesale operations last year. The improvement was driven by double-digit revenue increase in our private label business partially offset by decline in our branded sales. To break down Q3 net sales further, online sales were up 3.7% year-over-year, primarily due to strong revenue increases to online marketplace of 10% and the offline business was up 6.7%, all driven by the continued strength in our private label business. Third quarter gross margins was 29.7% compared to 27% for the same period last year. This 270 basis-point improvement was primarily due to a higher mix of private label sales which were 61% of total net sales compared to 53% in the year ago quarter. Additionally, measures taken to reduce shipping and supply cost, continued to have a favorable impact on the gross margin. In addition to improvements in our cost of sales, our freight as a percentage of sales was 14% versus 14.5% last year, a 50 basis-point reduction. Our operating expenses came in flat year-over-year at 28.9%, excluding the 60 basis-point restructuring charge related to Carson warehouse closure last year. Adjusted EBITDA for the quarter increased 112% to $2.8 million compared to $1.3 million last year. Adjusted EBITDA excludes non-cash share compensation expense…

Thank you, Neil. I want to start by thanking the team at U.S. Auto Parts for their commitment and hard work which we’re seeing pay off with increases in profitability and what we believe are sustainable competitive advantages. Your hard work has not gone unnoticed. Thank you. With gross margin nearly 30% and adjusted EBITDA margins at 4%, I believe we’ve hit a turning point in the business. This profitability improvement had been led by strong private label growth with comp up 21% for the quarter. This our seventh consecutive quarter of double-digit private label comp growth, demonstrating our ability to sustain growth in the private label business. It accounted for 61% of our total revenue for the quarter compared to 53% last year and represented 65% of total units sold this quarter compared to 60% last quarter. For those new to the U.S. Auto Parts story, we estimate our private label business produces around a 20% variable contribution margin. We are able to achieve these margins and produce double-digit revenue growth to three main reasons. First approximately 50% of total sales and over 80% of our private label sales are in the collision segment, which a special retail market and much different than the hard part segment that is commoditized. To further this point; if I ask you where you would you go to buy wiper blades or brake pads, you would likely answer AutoZone or Pep Boys. Now, if I ask you, where you would go buy a hood or fender, you likely wouldn’t answer AutoZone or Pep Boys, instead you would likely either go to a pick and pull salvage yard or you’d go online. These dynamics make the collision market, a nice specialty online retail business. And when DIY customers do go online, they discover U.S.…

[Operator Instructions] Thank you. Our first question is from the line of Mitch Bartlett with Craig-Hallum. Please go ahead with your question.

This is George on for Mitch. First, Shane, I think towards the end, you said something comped up 20%. Can you say what that was?

Yes, our private label business in the quarter which is close to -- little to 60% of our revenues, comped up 20% for the quarter.

And then when you think of private versus branded, what -- is there kind of an ideal mix that you’re moving towards; and when -- how long does it take to get you there do you think?

George, last year, it was 53%. So, we saw close to 8% acceleration in that mix this year and as such are seeing some margin change and margin expansion as a result. If our branded business and our private label business continue to grow at their same growth rates that we’re seeing and experience today, we think that number will we be close to 65% probably this time next year.

And then I guess just continuing that -- can you talk about what the gross margin trends you’re seeing on each side? Is the growth -- the big growth year-over-year, is that just purely the private label mix or is it actually improving in both segments?

George, in fact some of it is mix but there is also some expansion in the margins specific to the private label business. We put some minimum margin targets in place as well as had some pricing increases associated with some freight that we decided to get little bit more conservative on, from a freight pricing perspective. The combination of the mix shift as well as those two actions is why we’re seeing the increase. And we think it’s probably sustainable at this level.

And then just the last one for me, the guidance you gave for next year adjusted EBITA, that excludes AutoMD, is that right?

That’s accurate.

And what are your expectations around AutoMD for next year?

So, we anticipate somewhere between $2.5 million to $3 million of spend on AutoMD broken up between EBITDA of about $1.5 million to $2 million loss and CapEx around $1 million.

Our next question is from the line of Jeff Martin with ROTH Capital Markets.

Could you go into some of the gross margin gain; is there anything to break down further out of private label from that; is there particular products or group of class of products that are selling or is that just a broader mix element to it that is secondarily question to that is sustainability of the gross margin or potential further expansion of it?

We saw some increase in gross margin across the board for PL but specifically there are some larger items that require larger freight that we saw sort of an accelerated expansion, as well as the mix shift. Obviously the delta between the two-year private label business is somewhere between 34% to 36% and the branded businesses is 18% to 20%. So just a combination of the mix shift is going to see some expansion, as well in fact, we saw expansion specifically driven by some of these larger items that we ship. And as I indicated earlier, Jeff, we anticipate it to be sustainable. We saw an increase in gross margin as well as acceleration of the private label business at the same time. So, it’s not as if we had significant impact to our private label business when we had the pricing increases, although we certainly had some impact, it didn’t have an enough impact for us to not take those changes.

I didn’t catch -- I know that the question is already asked, but on the private label mix going forward, where do you think that trends to? I didn’t catch the answer.

Last year we were 53% and it trended to 61% this year. Current course of speed, we anticipate the private label business probably getting up to 65% by this time next year.

And then, question for Neil on some of the initiatives he initially set out for when he came on, on managing inventories and looking at the number of SKUs; if you could give an update there, if there is progress on that front?

There is, Jeff. We continue to add new SKUs, number one. As Shane had mentioned, we have approximately 6,000 to 7,000 new SKUs that we’re adding this year which is fueling some of our sales growth but at the same time we’ve been operating to work toward reducing our risk to supply and becoming more efficient our productivity over our inventory. And we have made great strides in doing that. We plan to end the year about $48 million in inventory. And as we enter next year with the increases that we’re protecting, we’re planning to keep inventory relatively flat so that we’re going to be able to improve our inventory turns and improve our gross margin return on investment and still maintain a very good in-stock percent.

And then as the mix shift continues toward private label, and I know branded has been an important data source for you, do you see that at some point becoming less of a data driver for you; and what point does branded make it difficult if it gets to a certain level but below where it is today?

So, the branded business is still very strategic business for us. It drives a lot of traffic to our websites. It’s a profitable business for us. It’s simply declining because we made some decisions not to chase lower margin products that would deliver negative variable contribution margin. It’s probably just that simple. At some point, I anticipate that branded business stabilizing. But at this point, we’re more than comfortable operating to where we’re operating it. I don’t anticipate it going away because of the strategic value it has.

And then last question, looking at your ad spend and your customer acquisition cost going out in the late 2015 and into 2017, is there any foreseeable shift in the strategy there?

I think you’ll see spend probably increase a bit on customer acquisition. As margin expands for us, we’re able to actually invest more margin dollars in marketing. And frankly as LTV expands for us, we’re able to invest more on those dollars in marketing. And so as margins expanded this quarter, you saw about a 7% increase in customer acquisition costs on our e-commerce channels. And I’m excited about that frankly because it allows us to spend more dollars in the channel, get more share of voice. And that’s a testament to our supply chain, the testament to the ability for us to sell with the risk we have online. And so I expect to see customer acquisition cost creep up a little bit. I don’t say that is bad thing. I think everyone should see that as a good thing because of the discipline we have around how we spend our marketing dollars in making sure that we have positive return on it.

I will now turn the call back to over to Neil Watanabe for closing remarks.

I want to thank everyone for joining the call today. Please note that we’ll be presenting next at the Wedbush California Dreamin’ Conference in Los Angeles, on December 10th, and hope to see some of you there. If not, we’ll look forward to speaking with you next when we report our fourth quarter results in March. Thank you very much.