Skullcandy Announces First Quarter 2013 Financial Results

Skullcandy Announces First Quarter 2013 Financial Results

PARK CITY, Utah, May 2, 2013 (GLOBE NEWSWIRE) -- Skullcandy, Inc.
(Nasdaq:SKUL) today announced financial results for the first quarter ended
March 31, 2013.

First Quarter Results

  *Net sales were $37.1 million
    
  *Net loss was ($0.25) per diluted share
    
  *Non-GAAP adjusted net loss was ($0.23) per diluted share

"While our first quarter results were in line with expectations, there is
still much work to be done in order to improve on our recent performance,"
stated Hoby Darling, President and CEO. "Skullcandy rapidly expanded its share
of the headphone category the past few years driven in large part by a
disruptive market position and strong brand equity within action sports. We
now need to broaden our growth pillars in order to evolve as an audio leader
and expand the category. Our go-forward plans will focus on developing more
technology driven, consumer innovative products, creating deeper connections
with consumers through authentic and clear brand messages, and winning at the
point of sale. Through diligent focus on these key areas, combined with
establishing a balanced distribution platform, we believe we can achieve our
near-term operating goals while setting the Company up to deliver consistent
sales and earnings growth over the long-term."

Net sales in the first quarter of 2013 decreased 30.4% to $37.1 million from
$53.3 million in the same quarter of the prior year.North America net sales
decreased 37.9% to $28.7 million from $46.1 million in the same quarter of the
prior year. The prior year's first quarter was aided by lower retail customer
inventory coming out of the holiday season and a packaging change that led to
higher sales, creating a challenging year over year quarterly
comparison.Further, the Company chose to scale back its sales to the highly
discounted off-price channel by approximately 67%. This decrease was partially
offset by an increase in gaming net sales of 43.8%.International net sales
increased 17.5% to $8.4 million from $7.1 million in the same quarter of the
prior year.Included in the North America segment in Q1 2013 and Q1 2012 are
net sales of $2.1 million and $3.4 million, respectively, that were sold from
North America to customers with a "ship to" location outside of North
America.Adjusting these sales into the international segment, international
net sales are flat year over year.

Gross profit in the first quarter of 2013 decreased 35.6% to $16.5 million
from $25.6 million in the same quarter of the prior year.Gross profit as a
percentage of net sales, or gross margin, was 44.5% in the first quarter of
2013 compared to 48.1% in the first quarter of 2012.The decrease in gross
margin is primarily due to a write off of $0.8 million related to end of life
products ("EOL").Certain reclassifications have been made to the 2012
balances to conform to the 2013 presentation so as to better reflect where
these costs should reside in the statement of operations.For this reason,
tooling depreciation and warranty related expenses are being included in cost
of goods sold for all comparable periods.

Selling, general and administrative (SG&A) expenses in the first quarter 2013
increased 9.0% to $26.3 million from $24.1 million in the same quarter of the
prior year.As a percentage of net sales, selling, general and administrative
expenses increased to 71.0% from 45.3% in the same quarter of the prior year.
SG&A expenses in the first quarter 2013 include $1.2 million in certain
severance related expenses.During the three months ended March 31, 2013, the
Company recorded a loss of $2.0 million related to disposals of property and
equipment for certain EOL products.

Income (loss) from operations decreased to ($9.8 million) from $1.5 million in
the same quarter of the prior year.

Net loss attributable to Skullcandy, Inc. in the first quarter of 2013 was
($7.0 million), or ($0.25) per diluted share, based on 27.7 million diluted
weighted average common shares outstanding.Net income attributable to
Skullcandy, Inc. in the same quarter of the prior year was $1.1 million, or
$0.04 per diluted share, based on 27.9 million diluted weighted average common
shares outstanding.Excluding certain severance related expenses, non-GAAP
adjusted net loss in the first quarter of 2013 was ($6.3 million), or ($0.23)
per diluted share based on 27.7 million diluted weighted average common shares
outstanding.For a reconciliation of non-GAAP adjusted net income (loss) to
net income (loss), see the accompanying tables at the end of this release.

Balance Sheet Highlights

As of March 31, 2013, cash and cash equivalents totaled $33.5 million compared
to $10.9 million as of March 31, 2012 and the Company had no long-term
debt.As of March 31, 2013, the Company had $25.6 million of availability
under its credit facility.Accounts receivable decreased 11.0% to $34.8
million as of March 31, 2013 from $39.2 million as of March 31, 2012 and were
down $41.5 million from December 31, 2012.Inventory as of March 31, 2013 was
consistent with levels as of March 31, 2012.

Call Information

A conference call to discuss the first quarter 2013 results is scheduled for
today, May 2, 2013, at 4:30 PM Eastern Time/2:30 PM Mountain Time. A broadcast
of the call will be available on the Company's website, www.skullcandy.com.
Analysts and investors can participate in the live call by dialing (877)
705-6003 or (201) 493-6725. In addition, a replay of the call will be
available shortly after the conclusion of the call and remain available
through May 9, 2013. To access the telephone replay, listeners should dial
(877) 870-5176 or (858) 384-5517 and enter ID #413283.

About Skullcandy, Inc.

Skullcandy is a leading global designer, marketer and distributor of
performance audio and gaming headphones and other accessory related products
under the Skullcandy, Astro Gaming and 2XL by Skullcandy brands. Skullcandy
was launched in 2003 and quickly became one of the world's most distinct audio
brands by bringing unique technology, color, character and performance to an
otherwise monochromatic space; helping to revolutionize the audio arena by
introducing headphones, earbuds and other audio and wireless lifestyle
products that possess unmistakable style and exceptional performance. The
Company's products are sold and distributed through a variety of channels in
the U.S. and approximately 80 countries worldwide. Visit skullcandy.com, or
join us at facebook.com/skullcandy or on Twitter @skullcandy.

Forward-Looking Statements

Certain statements in this press release and oral statements made from time to
time by representatives of the Company are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. In
particular, statements regarding the Company's guidance, outlook, future
financial and operating results and any other statements about the Company's
future expectations, beliefs or prospects expressed by management are
forward-looking statements. These forward-looking statements are based on
management's current expectations and beliefs, but they involve a number of
risks and uncertainties that could cause actual results or events to differ
materially from those indicated by such forward-looking statements.Important
factors that could cause actual results to differ materially from expectations
are disclosed under the "Risk Factors" section of the 2012 10-K filed with the
Securities and Exchange Commission on March 13, 2013.Readers are urged not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company does not undertake any obligation to update or
alter any forward-looking statements, whether as a result of new information,
future events or otherwise

Non-GAAP Measures

Non-GAAP adjusted net income and non-GAAP adjusted fully diluted earnings per
share, for the periods presented, represents diluted net income per share
excluding the impact of severance expenses associated with the departure of
the Company's former Chief Executive Officer and the settlement of litigation.
Management does not believe these expenses correlate to the underlying
performance of the business. As a result, the Company believes that non-GAAP
adjusted net income and non-GAAP adjusted fully diluted earnings per share
provides important additional information for measuring its performance,
provides consistency and comparability with the Company's past financial
performance, facilitates period to period comparisons of the Company's
operations, and facilitates comparisons with other peer companies, many of
which use similar non-GAAP financial measures to supplement their GAAP
results. The Company's management team uses these metrics to evaluate the
Company's business and believes they are a measure used frequently by
securities analysts and investors. Non-GAAP adjusted net income and adjusted
fully diluted earnings per share do not represent, and should not be used as a
substitute for net income and diluted earnings per share, as determined in
accordance with GAAP. The Company's method of calculating non-GAAP adjusted
net income and adjusted fully diluted earnings per share may differ from that
of other companies.

                          -Financial Tables Follow-

                                                              
SKULLCANDY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except share and per share information)
(unaudited)
                                               
                                               ThreeMonthsEndedMarch31,
                                               2013            2012
Net sales                                       $37,050        $53,280
Cost of goods sold                              20,564         27,665
Gross profit                                    16,486         25,615
Selling, general and administrative expenses    26,311         24,131
Income (loss) from operations                   (9,825)        1,484
Other expense (income)                          539            (48)
Interest expense                                103            124
Income (loss) before income taxes and           (10,467)       1,408
noncontrolling interests
Income tax expense (benefit)                    (3,387)        267
Net income (loss)                               (7,080)        1,141
Net loss (income) attributable to               33            (24)
noncontrolling interests
Net income (loss) attributable to Skullcandy,   $(7,047)       $1,117
Inc.
                                                              
Net income (loss) per common share attributable                
to Skullcandy, Inc.
Basic                                           $(0.25)        $0.04
Diluted                                         (0.25)         0.04
Weighted average common shares outstanding                     
Basic                                           27,700,765      27,281,753
Diluted                                         27,700,765      27,942,313

                                                               

SKULLCANDY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(unaudited)
                                                               
                                          As of      As of       Asof
                                           March31,  March31,   December31,
                                          2013       2012        2012
Assets                                                          
Current assets:                                                 
Cash and cash equivalents                  $33,514   $10,913    $19,345
Accounts receivable, net                   34,847    39,162     76,307
Inventories                                51,183    51,075     41,567
Prepaid expenses and other current assets  3,978     4,846      5,604
Deferred taxes                             6,863     3,097      2,943
Total current assets                       130,385   109,093    145,766
Property and equipment, net                12,966    10,636     16,000
Intangibles                                12,112    13,392     12,481
Goodwill                                   13,867    13,867     13,867
Deferred financing fees                    100       341        161
Total assets                               $169,430  $147,329   $188,275
                                                               
Liabilities and stockholders' equity                            
Current liabilities:                                            
Accounts payable                           $17,557   $21,794    $22,887
Accrued liabilities                        13,365    14,054     21,047
Bank line of credit                        —         1          —
Total current liabilities                  30,922    35,849     43,934
Deferred taxes                             2,061    1,878      2,219
Stockholders' equity:                                           
Common stock                               3         3          3
Treasury stock                             (43,294) (43,294) (43,294)
Additional paid-in capital                 129,632   121,041    128,676
Accumulated other comprehensive income     426       (232)      (22)
(loss)
Retained earnings                          49,171    31,456     56,218
Total Skullcandy stockholders' equity      135,938   108,974    141,581
Noncontrolling interests                   509      628        541
Total stockholders' equity                 136,447   109,602    142,122
Total liabilities and stockholders' equity $169,430  $147,329   $188,275
                                                               

                                                                   

SKULLCANDY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
                                                         
                                                         Three Months Ended
                                                          March 31,
                                                         2013       2012
Operating activities                                                
Net income (loss)                                         $ (7,080) $1,141
Adjustments to reconcile net income to net cash provided            
by (used in) operating activities:
Depreciation and amortization                             2,176     1,302
Loss on disposal of property and equipment                1,956     —
Provision for doubtful accounts                           550       143
Deferred income taxes                                     (4,076)    (867)
Noncash interest expense                                  64        60
Stock-based compensation expense                          933       1,601
Changes in operating assets and liabilities, net of                 
effects of acquisitions:
Accounts receivable                                       40,955    11,346
Inventories                                               (9,588)    (7,069)
Prepaid expenses and other current assets                 1,993     3,199
Accounts payable                                          (5,336)    (1,462)
Accrued liabilities                                       (7,699)    (11,037)
Net cash provided by (used in) operating activities       14,848    (1,643)
Investing activities                                                
Purchase of property and equipment                        (712)     (1,350)
Net cash used in investing activities                     (712)     (1,350 )
Financing activities                                                
Net borrowings (repayments) on bank line of credit        —        (9,883)
Proceeds from exercise of stock options                   22        390
Income tax benefit from stock option exercises            3         —
Net cash provided by (used in) financing activities       25        (9,493)
Effect of exchange rate changes on cash and cash          8         97
equivalents
Net increase in cash and cash equivalents                 14,169    (12,389)
Cash and cash equivalents, beginning of period            19,345    23,302
Cash and cash equivalents, end of period                  $ 33,514  $ 10,913
Supplemental cash flow information:                                 
Cash paid for interest                                    —        41
Cash paid for income tax                                  5,405     6,927
                                                                   
                                                                   
                                                                   

                               SKULLCANDY, INC.
                             SEGMENT INFORMATION
                                 (unaudited)

The North America segment primarily consists of Skullcandy and Astro Gaming
product sales to customers in the United States and Mexico (through the
Company's joint venture). The international segment primarily includes
Skullcandy product sales to customers in Europe and Asia that are served by
the Company's European and Asian operations.Included in the North America
segment for the three months ended March 31, 2013 and 2012 are net sales of
$2.1 million and $3.4 million, respectively, that represent products that were
sold from North America to distributors in other countries.

                                            
                                            
                             ThreeMonthsEndedMarch 31,
                             2013            2012
Net sales                                    
North America                 $28,665        $46,146
International                 8,385          7,134
Consolidated                  37,050         53,280
                                            
Gross profit                                 
North America                 12,455         21,736
International                 4,031          3,879
Consolidated                  16,486         25,615
                                            
Income (loss) from operations                
North America                 (9,367)        (103)
International                 (458)         1,587
Consolidated                  $(9,825)       $1,484

                                                               


SKULLCANDY, INC.
RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP ADJUSTED NET INCOME (LOSS)
(in thousands of dollars)
(unaudited)
                                              Threemonths
                                               ended March 31,
                                              2013              2012
                                                               
Net income (loss)                              $ (7,080)        $ 1,141
Net loss (income) attributable to              33              (24)
noncontrolling interests
Severance-related expenses, net of tax benefit 776               —
(1)
Legal and settlement expenses associated with  —                418
litigation, net of tax benefit (2)
Non-GAAP adjusted net income (loss)            $ (6,271)        $ 1,535
                                                               
(1) This item is recorded in selling, general and administrative expenses in
the Condensed Consolidated Statements of Operations.It is reflected in the
schedule above net of tax benefit of $446 thousand for the three months ended
March 31, 2013.
                                                               
(2) This item is recorded in selling, general and administrative expenses in
the Condensed Consolidated Statements of Operations.It is reflected in the
schedule above net of tax benefit of $249 thousand for the three months ended
March 31, 2012.

                                                                 


SKULLCANDY, INC.
RECONCILIATION OF DILUTED EARNINGS (LOSS) PER SHARE – GAAP TO DILUTED EARNINGS
(LOSS) PER SHARE – NON-GAAP
(unaudited)
                                                    
                                                    Threemonths
                                                     ended March 31,
                                                    2013        2012
                                                                 
Diluted earnings (loss) per share - GAAP             $(0.25)     $0.04
Severance-related expenses, net of tax benefit       0.02         —
Legal and settlement expenses associated with        —            0.01
litigation, net of tax benefit
Diluted earnings (loss) per share – non-GAAP         $(0.23)     $0.05

CONTACT: ICR
         Brendon Frey / Joe Teklits
         203-682-8200
         Brendon.Frey@icrinc.com
         Joseph.Teklits@icrinc.com
 
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