ZAGG Inc Reports Financial Results for First Quarter 2013

  ZAGG Inc Reports Financial Results for First Quarter 2013

  *Net sales of $51.5 million
  *Adjusted EBITDA of $6.1 million
  *GAAP diluted EPS of $0.03 and pro forma diluted EPS of $0.11
  *Cash balance of $23.4 million
  *Paid down $4.4 million on Line of Credit
  *Repurchased $6.0 million in common stock during the quarter
  *Company revises revenue and Adjusted EBITDA guidance

Business Wire

SALT LAKE CITY -- May 02, 2013

ZAGG Inc (NASDAQ: ZAGG), a market leader in innovative mobile device
accessories and technologies, today announced financial results for the first
quarter ended March 31, 2013.

“This was a uniquely challenging quarter in which our results were impacted by
a number of circumstances, some that were macro in nature and others that were
company specific. Though the company experienced reduced sales, ZAGG also
realized benefits to its financial activities through the pay down of our line
of credit and the repurchase of company stock,” said Randy Hales, president
and CEO. “We are working internally to make necessary changes to build a
superior company and increase shareholder value over the long-term. While the
consequences of these changes in the near-term are challenging, I remain
confident that we are building a stronger foundation for growth. Our creative
product solutions, go-to-market strategies and diversification of our overall
portfolio are what set ZAGG apart from the competition and our retailers have
recognized that. In fact, next week a large retail customer will highlight us
as one of its top suppliers in 2012 and the first ever in the mobile
accessories industry.”

First Quarter Highlights (first quarter 2013 versus first quarter 2012)

  *Net sales of $51.5 million versus $55.5 million
  *Gross margins of 37% versus 49%
  *Adjusted EBITDA of $6.1 million versus $14.4 million
  *Generated over $14.0 million in operating cash flow
  *invisibleSHIELD sales represented 44% of net sales versus 48%
  *Keyboard sales represented 32% of net sales versus 21%
  *Repurchased 796,764 shares of ZAGG Inc common stock
  *Paid down $4.4 million on line of credit

First Quarter Results

Net sales for the first quarter of 2013 decreased 7% to $51.5 million from
$55.5 million in the same quarter last year. Last year’s first quarter
benefited from product sales in anticipation of the launch of the Apple iPad 3
in early April of 2012, however, there was no significant device launch that
impacted the first quarter of 2013. In addition, the Company implemented a
strategy to align ourselves with a limited number of key distributors in an
effort to better manage channel pricing. As a result, this caused us to end
our relationship with some of our distributors who we did not believe were
aligned with our pricing strategy. While we signed on new strategic
distributors during the quarter, the revenue generated by these new
distributors combined with revenue from our previous distributors was below
our internal forecast. The Company also experienced lost revenue opportunities
related to the invisibleSHIELD EXTREME and ZAGGkeys MINI 9, which ultimately
were not well received by customers. Last, as we consolidated our operations
and sales force during the first quarter, we missed some first quarter sales
opportunities, particularly in the iFrogz audio line, as the sales force
transitioned from a brand to customer focus.

Revenue by channel was 83% through indirect channels, 12% through ZAGG.com and
iFrogz.com, and 5% through the company’s mall cart and kiosk programs.

Gross profit for the first quarter was $19.0 million or 37% of net sales,
versus $26.9 million or 49% of net sales in the first quarter of the prior
year. Gross profit as a percentage of sales was impacted by our continued
shift in product mix as sales of invisibleSHIELD products, our highest margin
product category, decreased as a percentage of overall sales compared to the
first quarter of 2012. In addition, gross profit was impacted by an increase
in our inventory reserve related to excess inventory and higher than expected
airfreight charges incurred during the period.

Operating income for the first quarter of 2013 was $2.0 million compared to
operating income of $10.2 million for the first quarter of 2012.

Net income for the first quarter of 2013 was $0.9 million or $0.03 per diluted
share as compared to net income of $5.1 million or $0.16 per diluted share in
the first quarter of 2012.

Pro forma net income for the first quarter of 2013 was $3.6 million or $0.11
per diluted share as compared to pro forma net income of $8.1 million or $0.26
per diluted share in the first quarter of 2012.

Adjusted EBITDA for the first quarter of 2013 was $6.1 million versus $14.4
million of Adjusted EBITDA in the first quarter of 2012.

About Non-GAAP Financial Information

ZAGG considers earnings before stock-based compensation expense, depreciation
and amortization, other expense, and provision for income taxes ("Adjusted
EBITDA") to be an important financial indicator of the Company's operational
strength and the performance of its business.

In addition, ZAGG considers earnings before stock-based compensation expense,
amortization, and other expense (excluding cash interest expense), net of tax
effects where applicable (“pro forma net income”), to be a valuable metric in
respect of the operational performance of the Company.

These results should be considered in addition to results prepared in
accordance with generally accepted accounting principles ("GAAP"), but should
not be considered as a substitute for, or superior to, GAAP results.

A reconciliation of the differences between Adjusted EBITDA and pro forma net
income, and the most comparable financial measure calculated and presented in
accordance with GAAP, is presented under the heading "Reconciliation of
Non-GAAP Financial Information to GAAP" immediately following the Condensed
Consolidated Statements of Operations included below.

Outlook

Guidance for 2013 had been revised down to a range for net sales of $274
million - $280 million from the previous range of $313 million - $318 million,
and for Adjusted EBITDA of $55 million - $57 million from the previous range
of $69 million - $71 million.

Conference Call

A conference call will be held today at 5:00 p.m. EDT to review these results.
Interested parties may access via the Internet on the Company’s website at:
http://investors.zagg.com.

Non-GAAP Financial Disclosure

Investors are cautioned that the Adjusted EBITDA (earnings before stock-based
compensation expense, depreciation and amortization, other expense, and
provision for income taxes) and pro forma net income (earnings before
stock-based compensation expense, amortization, and other expense [excluding
cash interest expense], net of tax effects where applicable) contained in this
press release are not financial measures under generally accepted accounting
principles. In addition, they should not be construed as alternatives to any
other measures of performance determined in accordance with generally accepted
accounting principles, or as indicators of our operating performance,
liquidity or cash flows generated by operating, investing and financing
activities, as there may be significant factors or trends that they fail to
address. For comparative purposes, we applied an annualized statutory tax rate
of 38.25% to derive the pro forma net income and pro forma EPS. We present
this financial information because we believe that it is helpful to some
investors as a measure of our performance. We caution investors that non-GAAP
financial information, by its nature, departs from traditional accounting
conventions; accordingly, its use can make it difficult to compare our current
results with our results from other reporting periods and with the results of
other companies.

Safe Harbor Statement

This release contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and such forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. "Forward-looking statements"
describe future expectations, plans, results, or strategies and are generally
preceded by words such as "may," "future," "plan" or "planned," "will" or
"should," "expected," "anticipates," "draft," "eventually" or "projected." You
are cautioned that such statements are subject to a multitude of risks and
uncertainties that could cause future circumstances, events, or results to
differ materially from those projected in the forward-looking statements,
including the risks that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors,
and other risks identified in filings made by the company with the Securities
and Exchange Commission.

About ZAGG Inc:

ZAGG Inc and its subsidiaries (collectively, the “Company”, or “ZAGG”) design,
produce, and distribute creative product solutions such as protective
coverings, keyboards, keyboard cases, earbuds, portable batteries, and device
cleaning accessories for mobile devices under the family of ZAGG brands.
Within the family of the ZAGG brands are products sold under the following
names: invisibleSHIELD®, ZAGGskins™, ZAGGbuds™, ZAGGsparq™, ZAGGfolio™,
ZAGGmate™, ZAGGkeys™, ZAGGkeys PRO™, ZAGGkeys PRO Plus™, ZAGGkeys PROfolio,
ZAGGkeys PROfolio+, ZAGGkeys MINI 7, and ZAGGkeys MINI 9.

In addition, the Company designs, produces, and distributes cases, Near-Field
Audio™ amplifying speakers, earbuds, traditional headphones, and gaming
headphones for mobile devices under the family of iFrogz brands in the
value-priced lifestyle sector. Within the iFrogz brand portfolio are products
sold under the following names: iFrogz™, Earpollution™, Caliber™, and
Animatone™.

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
                                                           
                                                                  
                                                  March 31,       December 31,
                                                  2013           2012
                                                                  
ASSETS
                                                                  
Current assets
      Cash and cash equivalents                   $ 23,404        $  20,177
      Accounts receivable, net of allowances        35,461           54,561
      of $3,060 in 2013 and $2,974 in 2012
      Inventories                                   41,253           39,988
      Prepaid expenses and other current            8,266            9,547
      assets
     Deferred income tax assets                 6,977        6,912   
                                                                  
Total current assets                                115,361          131,185
                                                                  
Investment in HzO                                   1,406            2,013
                                                                  
Property and equipment,  net of accumulated
depreciation at $4,024 in 2013 and $3,317 in        4,592            4,862
2012
                                                                  
Goodwill                                            1,484            1,484
                                                                  
Intangible assets, net of accumulated
amortization at $16,117 in 2013 and $13,790         55,517           57,905
in 2012
                                                                  
Deferred income tax assets                          6,596            6,596
                                                                  
Note receivable                                     583              583
                                                                  
Other assets                                     1,352        1,457   
                                                                  
Total assets                                    $ 186,891    $  206,085 
                                                                  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                  
Current liabilities
      Accounts payable                            $ 15,392        $  19,027
      Income taxes payable                          287              3,062
      Accrued liabilities                           3,457            3,754
      Accrued wages and wage related expenses       1,545            2,554
      Deferred revenue                              212              722
      Current portion of note payable               8,000            6,000
     Sales returns liability                    4,496        6,697   
                                                                  
Total current liabilities                        33,389       41,816  
                                                                  
Revolving line of credit                            17,749           22,173
                                                                  
Noncurrent portion of note payable               16,000       18,000  
                                                                  
Total liabilities                                67,138       81,989  
                                                                  
Stockholders' equity
      Common stock, $0.001 par value; 100,000
      shares authorized;                            31               31
      31,478 and 31,215 shares issued in 2013
      and 2012, respectively
      Additional paid-in capital                    78,439           77,234
      Accumulated other comprehensive income        (482    )        (57     )
      Note receivable collateralized by stock       (566    )        (566    )
      Treasury stock, 797 and 0 common shares       (5,999  )        -
      in 2013 and 2012 respectively, at cost
     Retained earnings                          48,330       47,454  
                                                                  
Total stockholders' equity                       119,753      124,096 
                                                                  
Total liabilities and stockholders' equity      $ 186,891    $  206,085 
                                                                             
                                                                             

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
                                                         
                                                                
                                                                
                                             Three Months Ended
                                             March 31, 2013    March 31, 2012
                                                                
                                                                
Net sales                                    $   51,471         $   55,480
Cost of sales                                 32,472         28,547  
                                                                
Gross profit                                  18,999         26,933  
                                                                
Operating expenses:
   Advertising and marketing                     2,338              2,441
   Selling, general and administrative           12,280             11,842
  Amortization of definite-lived             2,374          2,422   
   intangibles
                                                                
Total operating expenses                      16,992         16,705  
                                                                
Income from operations                           2,007              10,228
                                                                
Other income (expense):
   Interest expense                              (227    )          (1,521  )
   Loss from equity method investment in         (607    )          (463    )
   HzO
  Other income and (expense)                 (20     )       (147    )
                                                                
Total other expense                           (854    )       (2,131  )
                                                                
Income before provision for income taxes      1,153          8,097   
                                                                
Income tax provision                          (277    )       (2,985  )
                                                                
Net income                                 $   876         $   5,112   
                                                                
Earnings per share:
                                                                
   Basic earnings per share                  $   0.03          $   0.17    
                                                                
   Diluted earnings per share                $   0.03          $   0.16    
                                                                            
                                                                            

ZAGG INC AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(Unaudited)
                                                         
                                                                            
Unaudited Supplemental Data
                                                                            
The following information is not a financial measure under generally accepted
accounting principals (GAAP). In addition, it should not be construed as an
alternative to any other measures of performance determined in accordance with
GAAP, or as an indicator of our operating performance, liquidity or cash flows
generated by operating, investing and financing activities as there may be
significant factors or trends that it fails to address. We present this
financial information because we believe that it is helpful to some investors
as a measure of our operations. We caution investors that non-GAAP financial
information, by its nature, departs from traditional accounting conventions;
accordingly, its use can make it difficult to compare our results with our
results from other reporting periods and with the results of other companies.
                                                                            
                                                                            
Adjusted EBITDA                       Three Months Ended
Reconciliation
                                 March 31, 2013        March 31, 2012
                                                                            
                                                                            
Net income in accordance with         $    876                $  5,112
GAAP
                                                                            
      Adjustments:
                                                                            
            Stock based
      a.    compensation                   1,038                 1,342
            expense
      b.    Depreciation and               3,094                 2,804
            amortization
      c.    Other expense                  854                   2,131
     d.    Provision for               277               2,985     
            income taxes
                                                                            
Adjusted EBITDA                     $    6,139           $  14,374    
                                                                            
                                                                            
Pro forma Net Income
Reconciliation - Three Months         Three Months Ended
Ended March 31, 2013
                                 March 31, 2013        March 31, 2012
                                                                            
                                                                            
Net income in accordance with         $    876                $  5,112
GAAP
                                                                            
      Adjustments:
                                                                            
            Stock based
      a.    compensation                   1,038                 1,342
            expense
      b.    Amortization of                2,388                 2,435
            intangibles
            Other expense
            excluding cash
      c.    interest expense               50                    246
            and loss on
            equity method
            investment
            Loss on equity
      d.    method                         607                   463
            investement
     e.    Income tax                  (1,330    )  *      (1,539  )  *
            effects
                                                                            
Pro forma net income                  $    3,629              $  8,059
                                                                            
Pro forma EPS                       $    0.11            $  0.26      
                                                                            
Weighted average number of              31,726            31,417    
shares outstanding - diluted
                                                                            
*     For comparative purposes, we applied an annualized statutory tax rate of
      38.25%
      
      

Contact:

Investor Relations:
Genesis Select Corp.
Kim Rogers-Carrete, 303-415-0200
krogersc@genesisselect.com
or
Media:
LANE PR
Jane Taber, 503-546-7888
jane@lanepr.com
or
Company:
ZAGG Inc
Nathan Nelson, 801-263-0699 ext. 107
nnelson@zagg.com