Skullcandy Announces First Quarter 2014 Financial Results

Skullcandy Announces First Quarter 2014 Financial Results

PARK CITY, Utah, May 1, 2014 (GLOBE NEWSWIRE) -- Skullcandy, Inc.
(Nasdaq:SKUL) today announced financial results for the first quarter ended
March 31, 2014.

First Quarter Results

  *Net sales: $39.1 million vs. $37.1 million
  *Gross margin: 46.5% vs. 44.5%
  *Selling, general and administrative expense: $22.1 million vs. $26.3
    million
  *Net loss per diluted share: $(0.12) vs. $(0.25)

"The focused execution of our five pillar growth strategy led to a solid start
to 2014," said Hoby Darling, President and Chief Executive Officer of
Skullcandy. "The first quarter marked our return to revenue growth as both our
domestic and international markets posted positive gains. Equally important,
gross margins stabilized and we were able to leverage operating expenses while
continuing to invest in key long-term growth drivers such as demand creation,
innovation and talent. As a result, our bottom line performance improved
dramatically from a year ago, putting us on course to exceed our original
profit targets for the full year. We are encouraged by our current momentum
and believe our commitment to culture and operational excellence is providing
our teams the foundation to continue building remarkable products and
developing deep, authentic connections with our consumer."

Net sales in the first quarter of 2014 increased 5.5% to $39.1 million from
$37.1 million in the same quarter of the prior year. North America net sales
increased 1.3% to $29.0 million from $28.7 million in the same quarter of the
prior year. International net sales increased 19.7% to $10.0 million from $8.4
million in the same quarter of the prior year. Included in the North America
segment in first quarter 2014 and first quarter 2013 are net sales of $0.6
million and $2.1 million, respectively, of products that were sold from the
United States to customers with a "ship to" location outside of North America.
These sales represented an increase of approximately 1.2% to the International
Segment, and an increase of approximately 7.2% to the North American segment
compared to the same quarter in the prior year.

Gross profit in the first quarter of 2014 increased 10.2% to $18.2 million
from $16.5 million in the same quarter of the prior year. Gross margin was
46.5% in the first quarter of 2014 compared to 44.5% in the same quarter of
the prior year. The increase in gross margin was primarily attributable to a
shift in product sales mix into higher margin products, decreases in shipping
related costs, and reductions in warranty related costs.

Selling, general and administrative (SG&A) expenses in the first quarter of
2014 decreased 16.1% to $22.1 million from $26.3 million in the same quarter
of the prior year. The decrease in SG&A expenses is primarily attributable to
reduction in write-downs of tooling, fixtures and furniture, severance,
performance-based compensation due to a change in accounting methodology which
shifts the majority of the expense to later in the calendar year, and bad debt
expense. As a percentage of net sales, SG&A expenses were 56.5% compared to
71.0% in the same quarter of the prior year. The Company continues to invest
in marketing and demand creation efforts at the same level compared to the
same quarter of the prior year with an increased focus on in-store displays
and presence.

Net loss attributable to the Company in the first quarter of 2014 was $(3.5)
million, or $(0.12) per diluted share, based on 27.8 million diluted weighted
average common shares outstanding. Net income attributable to the Company in
the same quarter of the prior year was $(7.0) million, or $(0.25) per diluted
share, based on 27.7 million diluted weighted average common shares
outstanding.

Balance Sheet Highlights

As of March 31, 2014, cash and cash equivalents totaled $48.2 million compared
to $38.8 million as of December 31, 2013. The Company continued to have no
outstanding debt. Accounts receivable decreased 37% to $36.4 million as of
March 31, 2014 from $57.5 million as of December 31, 2013, which is consistent
with the seasonality of our business. Inventory increased 5.9% to $42.7
million as of March 31, 2014 from $40.3 million as of December 31, 2013.

2014 Second Quarter and Full Year Financial Outlook

For the second quarter of 2014, the Company currently forecasts net sales to
increase between 5% to 7% over 2013 levels and net income on a GAAP
fully-diluted basis to be approximately breakeven.

For the full year 2014, the Company still forecasts net sales to increase in
the mid to high single digit percentage range over 2013 levels. The company
now expects net income on a GAAP fully-diluted basis to be between $0.16 and
$0.20 per share, up from its previous expectation of $0.10 to $0.14 per share.

Call Information

A conference call to discuss the first quarter of 2014 results is scheduled
for today, May 1, 2014, 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) 407-0784 or (201) 689-8560. In addition, a replay of the call
will be available shortly after the conclusion of the call and remain
available through May 8, 2014. To access the telephone replay, listeners
should dial(877) 870-5176 or (858) 384-5517 and entering conference ID number
13581157.

About Skullcandy, Inc.

Skullcandy is the original lifestyle and performance audio brand inspired by
the creativity and irreverence of youth culture. Skullcandy designs, markets
and distributes 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 anticipated 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 2013 10-K filed with the Securities
and Exchange Commission ("SEC") on March 14, 2014 and in any subsequent
reports the Company files with the SEC. 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.

                          -Financial Tables Follow-

SKULLCANDY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except share and per share information)
(unaudited)
                                                               
                                                 Three Months Ended March 31,
                                                 2014           2013
Net sales                                         $39,080      $37,050
Cost of goods sold                                20,917         20,564
Gross profit                                      18,163         16,486
Selling, general and administrative expenses      22,080         26,311
Income (loss) from operations                     (3,917)        (9,825)
Other expense                                     170            539
Interest expense                                  11             103
Income (loss) before income taxes and             (4,098)        (10,467)
noncontrolling interests
Income tax expense (benefit)                      (706)          (3,387)
Net income (loss)                                 (3,392)        (7,080)
Net income (loss) attributable to noncontrolling  (71)           33
interests
Net income (loss) attributable to Skullcandy,     $ (3,463)      $ (7,047)
Inc.
Net income (loss) per common share attributable                 
to Skullcandy, Inc.
Basic                                             $ (0.12)       $ (0.25)
Diluted                                           (0.12)         (0.25)
Weighted average common shares outstanding                      
Basic                                             27,835,483     27,700,765
Diluted                                           27,835,483     27,700,765


SKULLCANDY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(unaudited)
                                                          
                                           March 31,2014 December 31,2013
Assets                                                     
Current assets:                                            
Cash and cash equivalents                   $48,165       $38,835
Accounts receivable, net                    36,421          57,549
Inventories                                 42,680          40,284
Prepaid expenses and other current assets   4,642           4,663
Deferred taxes                              3,118           4,097
Total current assets                        135,026         145,428
Property and equipment, net                 9,745           10,021
Intangibles                                 9,910           10,979
Goodwill                                    13,867          13,867
Deferred financing fees                     212             224
Deferred taxes                              2,563           2,395
Total assets                                $171,323      $182,914
Liabilities and Stockholders' Equity                       
Current liabilities:                                       
Accounts payable                            $14,627       $16,565
Accrued liabilities                         14,234          22,838
Deferred taxes                              331             55
Total current liabilities                   29,192          39,458
Deferred taxes                              1,659           1,742
Stockholders' equity:                                      
Common stock                                3               3
Treasury stock                              (43,294)        (43,294)
Additional paid-in capital                  133,552         131,428
Accumulated other comprehensive income      (145)           (171)
(loss)
Retained earnings                           49,719          53,182
Total Skullcandy stockholders' equity       139,835         141,148
Noncontrolling interests                    637             566
Total stockholders' equity                  140,472         141,714
Total liabilities and stockholders' equity  $171,323      $182,914


SKULLCANDY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
                                                                   
                                                          Three Months Ended
                                                          March 31,
                                                          2014      2013
Cash flows from operating activities:                               
Net income (loss)                                          $ (3,392) $ (7,080)
Adjustments to reconcile net income (loss) to net cash              
provided by operating activities:
Depreciation and amortization                              2,260     2,176
Loss on disposal of property and equipment                 689       1,956
Provision for doubtful accounts                            175       550
Deferred income taxes                                      1,003     (4,076)
Noncash interest expense                                   12        64
Stock-based compensation expense                           668       933
Changes in operating assets and liabilities:                        
Accounts receivable                                        20,821    40,955
Inventories                                                (2,518)   (9,588)
Prepaid expenses and other current assets                  (637)     1,993
Accounts payable                                           (1,690)   (5,336)
Accrued liabilities                                        (7,804)   (7,699)
Net cash provided by operating activities                  9,587     14,848
Cash flows from investing activities:                               
Purchase of property and equipment                         (1,608)   (712)
Net cash used in investing activities                      (1,608)   (712)
Cash flows from financing activities:                               
Proceeds from exercise of stock options                    1,728     22
Income tax benefit from stock option exercises             (274)     3
Net cash provided by financing activities                  1,454     25
Effect of exchange rate changes on cash and cash           (103)     8
equivalents
Net increase (decrease) in cash and cash equivalents       9,330     14,169
Cash and cash equivalents, beginning of period             38,835    19,345
Cash and cash equivalents, end of period                   $48,165 $33,514
Supplemental cash flow information:                                 
Cash paid for interest                                     $ —       $ —
Cash paid for income tax                                   1,294     5,405

                               SKULLCANDY, INC.
                             SEGMENT INFORMATION
                                 (unaudited)

The North America segment primarily consists of Skullcandy and Astro Gaming
product sales to customers in the United States, Canada 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 March31, 2014 and 2013, are net sales of
$0.6 million and $2.1 million, respectively, that represent products that were
sold from North America to distributors in other countries.

                             Three Months Ended
                             March 31,
                             2014      2013
Net sales                              
North America                 $29,039 $28,665
International                 10,041    8,385
Consolidated                  39,080    37,050
Gross profit                           
North America                 13,652    12,455
International                 4,511     4,031
Consolidated                  18,163    16,486
Income (loss) from operations          
North America                 (3,887)   (9,367)
International                 (30)      (458)
Consolidated                  $ (3,917) $ (9,825)

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