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ZAGG Inc Reports Financial Results for Second Quarter 2013



  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
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
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