ZAGG Inc Reports Financial Results for Second Quarter 2013 *Net sales of $51.2 million *Adjusted EBITDA of $10.5 million *GAAP diluted EPS of $0.09 and pro forma diluted EPS of $0.20 *Cash flow from operations year-to-date of over $19.0 million *Paid down $15.1 million on line of credit and term note *Reaffirms 2013 revenue guidance; introduces new Adjusted EBITDA guidance Business Wire SALT LAKE CITY -- August 1, 2013 ZAGG Inc (NASDAQ: ZAGG), a market leader in innovative mobile device accessories and technologies, today announced financial results for the second quarter ended June 30, 2013. “Recent industry data confirms ZAGG as one of the leading brands in the mobile computing accessories market. ZAGG is the number one brand by revenue in tablet accessories, and iFrogz is one of the top five brands in personal audio during the last year in terms of units sold. These results from the latest market data reports validate the success of our brand and product strategies,” said Randy Hales, president and CEO. “In response to our reduced sales this year, we focused aggressively on cost management resulting in improved gross margin and EBITDA during the quarter. My increased involvement in sales and today’s announcement of Jason Schwartz joining the company as COO adds additional management focus on top line growth and profitability.” Second Quarter Highlights (second quarter 2013 versus second quarter 2012) *Net sales of $51.2 million versus $61.6 million *Gross margins of 42.1% versus 46.1% *Adjusted EBITDA of $10.5 million versus $15.1 million *GAAP diluted EPS of $0.09 versus $0.18 *Generated over $5.0 million in operating cash flow or over $19.0 million year-to-date *Paid down $13.1 million on line of credit and $2.0 million on term note *invisibleSHIELD sales represented 38% of net sales versus 41% *Keyboard sales represented 25% of net sales versus 28% *iFrogz Audio represented 21% of net sales versus 15% Second Quarter Results Net sales for the second quarter of 2013 decreased 16.9% to $51.2 million from $61.6 million in the same quarter last year. Last year’s second quarter benefited from the sale of high ASP tablet products for the iPad 3 which launched in Mid-March of 2012. Revenue by channel was 86% through indirect channels, 9% through ZAGG.com and iFrogz.com and 5% through the Company’s mall cart and kiosk programs. Gross profit for the second quarter was $21.5 million or 42.1% of net sales, versus $28.4 million or 46.1% of net sales in the second quarter of the prior year. Gross profit as a percentage of sales was impacted by the shift in product mix as sales of invisibleSHIELD products, our highest margin product category, decreased as a percentage of overall sales compared to the second quarter of 2012; while sales of iFrogz audio products, a lower margin product category, increased as a percentage of overall sales compared to the second quarter of 2012. Operating income for the second quarter of 2013 was $5.4 million compared to operating income of $10.8 million for the second quarter of 2012. Net income for the second quarter of 2013 was $2.8 million or $0.09 per diluted share as compared to net income of $5.8 million or $0.18 per diluted share in the second quarter of 2012. Pro forma net income for the second quarter of 2013 was $6.3 million or $0.20 per diluted share as compared to pro forma net income of $8.6 million or $0.27 per diluted share in the second quarter of 2012. Adjusted EBITDA for the second quarter of 2013 was $10.5 million versus $15.1 million of Adjusted EBITDA in the second quarter of 2012. About Non-GAAP Financial Information ZAGG considers earnings before stock-based compensation expense, depreciation and amortization, other income/expense, impairment of investment, 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, impairment of investment, and other income/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 In a press release dated July 16, 2013, the Company revised full year revenue guidance for 2013 down to a range of $245 million - $252 million from the previous range of $274 million - $280 million. The Company will also revise full year Adjusted EBITDA guidance to $41.0 million - $ 42.2 million from the previous range of $55 million - $57 million. Our new Adjusted EBITDA guidance reflects our anticipated investment against sales and product management for the remainder of the year, possible increase in air freight expenses for product that will ship with new mobile device launches, and marketing spend for new products being launched in the second half of the year. 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 income/expense, impairment of investment, and provision for income taxes) and pro forma net income (earnings before stock-based compensation expense, amortization, impairment of investment, and other income/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) June 30, December 31, 2013 2012 ASSETS Current assets Cash and cash equivalents $ 13,557 $ 20,177 Accounts receivable, net of allowances of 31,285 54,561 $3,154 in 2013 and $2,974 in 2012 Inventories 46,835 39,988 Prepaid expenses and other current assets 5,336 9,547 Deferred income tax assets 7,510 6,912 Total current assets 104,523 131,185 Investment in HzO 789 2,013 Property and equipment, net of accumulated depreciation at $4,751 in 4,291 4,862 2013 and $3,317 in 2012 Goodwill 1,484 1,484 Intangible assets, net of accumulated amortization at $18,511 in 2013 and 53,123 57,905 $13,790 in 2012 Deferred income tax assets 6,596 6,596 Note receivable 720 583 Other assets 767 1,457 Total assets $ 172,293 $ 206,085 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 12,305 $ 19,027 Income taxes payable 2,030 3,062 Accrued liabilities 2,309 3,754 Accrued wages and wage related expenses 921 2,554 Deferred revenue 186 722 Current portion of note payable 8,000 6,000 Sales returns liability 3,862 6,697 Total current liabilities 29,613 41,816 Revolving line of credit 4,648 22,173 Noncurrent portion of note payable 14,000 18,000 Total liabilities 48,261 81,989 Stockholders' equity Common stock, $0.001 par value; 100,000 shares authorized; 31,574 and 31,215 shares issued in 2013 32 31 and 2012, respectively Additional paid-in capital 79,659 77,234 Accumulated other comprehensive income (337 ) (57 ) Note receivable collateralized by stock (428 ) (566 ) Treasury stock, 797 and 0 common shares (5,999 ) - in 2013 and 2012 respectively, at cost Retained earnings 51,105 47,454 Total stockholders' equity 124,032 124,096 Total liabilities and stockholders' $ 172,293 $ 206,085 equity ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2013 2012 2013 2012 Net sales $ 51,198 $ 61,636 $ 102,669 $ 117,115 Cost of sales 29,663 33,231 62,135 61,777 Gross profit 21,535 28,405 40,534 55,338 Operating expenses: Advertising 1,914 2,301 4,253 4,743 and marketing Selling, general and 11,831 12,848 24,110 24,590 administrative Amortization of 2,374 2,469 4,748 4,891 definite-lived intangibles Total operating 16,119 17,618 33,111 34,224 expenses Income from 5,416 10,787 7,423 21,114 operations Other income (expense): Interest (144 ) (986 ) (371 ) (2,507 ) expense Loss from equity method (617 ) (473 ) (1,224 ) (936 ) investment in HzO Other income (27 ) 224 (47 ) (22 ) and (expense) Total other (788 ) (1,235 ) (1,642 ) (3,465 ) expense Income before provision for 4,628 9,552 5,781 17,649 income taxes Income tax (1,854 ) (3,740 ) (2,130 ) (6,726 ) provision Net income 2,774 5,812 3,651 10,923 Earnings per share: Basic earnings $ 0.09 $ 0.19 $ 0.12 $ 0.36 per share Diluted earnings per $ 0.09 $ 0.18 $ 0.12 $ 0.35 share ZAGG INC AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP (in thousands, except per share amounts) (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 one 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 Six Months Ended Reconciliation June 30, June 30, June 30, June 30, 2013 2012 2013 2012 Net income attributable to $ 2,774 $ 5,812 $ 3,651 $ 10,923 stockholders in accordance with GAAP Adjustments: Stock based a. compensation 1,331 1,494 2,368 2,836 expense Depreciation b. and 3,120 2,862 6,214 5,679 amortization Impairment of c. investment 591 - 591 - in private company Provision d. for income 1,854 3,740 2,130 6,726 taxes Other e. (income) 788 1,235 1,642 3,465 expense Adjusted EBITDA $ 10,458 $ 15,143 $ 16,596 $ 29,629 Pro forma Net Income Three Months Ended Six Months Ended Reconciliation June 30, June 30, June 30, June 30, 2013 2012 2013 2012 Net income in $ 2,774 $ 5,812 $ 3,651 $ 10,923 accordance with GAAP Adjustments: Stock based a. compensation 1,331 1,494 2,368 2,836 expense Amortization b. of 2,394 2,488 4,782 4,923 intangibles Other (income) expense excluding cash c. interest 57 (224 ) 107 22 expense and loss on equity method investment Loss on d. equity 617 473 1,224 936 method investment Impairment of e. investment 591 - 591 - in private company f. Income tax (1,447 ) * (1,437 ) (2,776 ) * (2,976 ) effects Pro forma net income $ 6,317 $ 8,606 $ 9,947 $ 16,664 Pro forma EPS $ 0.20 $ 0.27 $ 0.32 $ 0.53 Weighted average number of shares 31,218 31,738 31,471 31,577 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 firstname.lastname@example.org or Media: LANE PR Jane Taber, 503-546-7888 email@example.com or Company: ZAGG Inc Nathan Nelson, 801-263-0699 ext. 107 firstname.lastname@example.org
ZAGG Inc Reports Financial Results for Second Quarter 2013
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