Welcome to U.S. Auto Parts First Quarter 2016 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 first quarter 2016 earnings release, which went out today at approximately 4:00 PM Eastern Time. 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 23, 2016. 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…

Thank you, operator. Good afternoon everyone, and thank you for joining us today to discuss our first quarter 2016 results. Let me provide you with some additional color on the financials reported in our press release today, and then I'll touch on some of the key business metrics and initiatives that are driving our improved profitability. I'd also like to remind listeners that all metric discussed exclude AutoMD unless specifically noted. Net sales for the first quarter decreased 6% to 80.7 million, compared to $76.3 million in the year ago quarter. On sales were up 6% year-over-year, driven by 11% increase in our online marketplace revenue, which continues to reform well, given the strength of our private label business. In fact, private label revenues was up over 12%, while our branded business was down mid single-digits, as expected. First quarter gross margins increased 230 basis points to 30.4% compared to 28.1% in the year ago quarter. This improvement was primarily driven by a higher mix of private label sales which were 67% of net sales, compared to 64% in the year ago quarter, and by strategic pricing initiatives and freight efficiencies. Total operating expenses were 22.6 million, compared to 20.7 million in the year ago quarter. As a percentage of net sales, operating expenses were 28%, compared to 27.1% in the year ago quarter. The increase was primarily the result of increased fulfillment costs and market spend, as well as certain costs as part of the implementation of a new warehouse management system, which we believe will help reduce fulfillment and freight costs. Adjusted EBITDA for the quarter increased 52% to 4.3 million, compared to 2.9 million in the year ago quarter. As a percentage of net sales, adjusted EBITDA increased 170 basis points to 5.4%, compared to 3.7%. The…

Thank you, Neil. We were pleased with this quarter's performance, and I want to thank the team at U.S. Auto Parts for their commitment and hard work to improve the business. With our first quarter adjusted EBITDA results, we now have a trailing 12-month adjusted EBITDA of 11.5 million, up from 10 million last quarter, and up 45% from the 7.9 million this time last year. We anticipate that our trailing 12-month adjusted EBITDA will continue to grow in the second quarter as we comp over a weak second quarter last year that only produced $1.8 million in adjusted EBITDA. Our trailing 12-month CapEx was approximately $6 million. We anticipated the spread between adjusted EBITDA and CapEx to increase as we anticipated adjusted EBITDA to increase further, or CapEx remains flat. Our strengthening financial position has helped to improve our debt position in a couple of significant ways. The most obvious is the retirement of debt with proceeds from operations. In addition, our strength in financial position builds confidence with our suppliers, which has resulted in favorable extended terms on our payable. The combination of these two benefits along with a reduced inventory position has already enabled us a significantly reduced debt. As Neil mentioned earlier, we reduced our net debt position down 83% to 1.7 million during the quarter. The business looks much different than it did 24 months ago, as we've reduced our dependency on organic search, increased our private label offerings, improved our financial performance, and significantly reduced debt. We also find ourselves well-positioned to take advantage of several industry tailwinds. Online Auto Parts purchases are anticipated to grow over 15% annually, according to Bruce and Company. In addition, we continue to see miles driven increase, average age of the vehicle increase, and GAAP prices decreased. Neil…

Thank you. [Operator Instructions] Our first question comes from Mitch Bartlett from Craig-Hallum.

Good afternoon, guys.

Hey, Mitch.

So, the pay down and the debt is quite dramatic; congratulations on that. Is that likely to [indiscernible] through the year, or are you at a new level, or will that fluctuate with the orders this year?

Yes. So, typically, Mitch, we will see a scale down in the debt during this period. I will say there is a couple of -- some large changes from years past. One is the amount of cash kicked off in the operations. It certainly can get rid of some of that debt, and also we've gotten better terms with our suppliers as our financial performances improved. And so, we anticipate that continued significant reduction in debt throughout the year.

Perfect. And gross margins, do you anticipate paying around the 30% level for the remainder of the year?

Yes. So, the first quarter is typically our best quarter from margin percent perspective, and with private label up there, it's 67% of sales, certainly -- probably the strongest we will have from a gross margin percent, or typically that's been the way it's trended in the first quarter. So it may come down a little bit off of that point, but certainly we'll be strong. If you look at the back half of last year, we were about 29.5, so I think that's sort of a benchmark for it [ph] as we're guiding to one way or the other, but margin trended where we would have anticipated it trending in the first quarter.

Got it. Okay, great. Thank you.

Thanks, Mitch.

[Operator Instructions] Our next question comes from Darren Aftahi from ROTH Capital Partners.

Hey, guys. Thanks for taking my questions -- I want to offer my congratulations. A couple if I may, on the paying marketing side, you know, we -- looking at a lot of other Internet companies and people are focusing on such acquired data, I'm wondering, maybe it's not relevant to your business, but are you spending any of our paid marketing dollars in social, and if you are, you see any benefit from that?

Yes. Darren, we do spend into the social category. It doesn't scale quite as well as other categories, but we certainly spend time in that category, spending into that category. And as our gross profit dollars has increased, we've been able to spend into that category more than we have in the past. So, hope we can see some more growth there, but most of our dollars spend come through paid search, or product listing services, or the shopping engines on the search engines.

Got it. And then secondly, so it seems like you guys have a pretty good formula kind of shifting to private label, you know, where do you see that as a percentage of sales longer term, and as it starts to kind of yield, greater, greater amounts of free cash flow, beyond de-leveraging your balance sheet, are you just going to continue to reinvest that into paid marketing, or are there other avenues kind of accelerate growth in your business? Thanks.

Yes. So, on the growth side, certainly we're excited about the growth in the private label business, and foresee that continuing going forward, because of the consumer proposition it provides, which is really low-cost product of high-quality. And that seems to be working really well with people who have vehicles that are over 11 years of age. And so, I think we will continue to see more of the same here. The cash from operations will go to eliminate the debt, and hopefully over time build on a balance sheet, and then if we see something opportunistic, use of that cash, we would certainly look at that, but as it relates to the marketing spend, we're very disciplined around how we spend that capital, specifically around return on variable contribution margin. And so, as that goes negative, we stop spending. And so, we certainly wouldn't increase that spend level unless we saw what there was a return on it.

And Darren, we gave a projection this year of about 65% that private label would represent. For the first quarter, we came at 67%, but as Shane mentioned, the first quarter is a strong quarter for private label for us. And so, we think that clearly as we continue to add new SKUs, that percent will go up, but the 65% was what we've been speaking about for this year.

Good-bye. Thank you.

Thank you. At this time, we have no further questions. I will turn the call back over to Neil for closing comments.

Thank you for joining the call today. Please note we will be presenting at the Needham Conference and Craig-Hallum Conference over the next few weeks, and hope to see some of you there. If not, we look forward to speaking with you next, when we report our second quarter results in August.

Thank you. This does concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.