ZAGG Inc Reports Second Quarter 2014 Revenue of $50.2 Million, GAAP EPS $0.03

ZAGG Inc Reports Second Quarter 2014 Revenue of $50.2 Million, GAAP EPS $0.03    *Tablet keyboard sales up 30% versus the second quarter of 2013   *Net sales of $50.2 million   *Adjusted EBITDA of $5.3 million   *Pro forma net income of $2.7 million   *Cash flow from operations of $6.7 million   *Reiterates 2014 net sales and Adjusted EBITDA guidance  SALT LAKE CITY, August 5, 2014 (GLOBE NEWSWIRE) -- ZAGG Inc (Nasdaq:ZAGG), a leading mobile device accessories company, announced today financial results for the second quarter ended June 30, 2014.  "This quarter's results were driven by better execution with our existing tier one customers. We sold a record number of new SKUs and also saw higher product sell-through due to improved shelf presence and new point-of-sale fixtures. InvisibleShield™ Glass has experienced very strong sales even without a major new device launch," said Randy Hales, president and CEO. "Typically, the second quarter is our weakest quarter of the year, so our performance this quarter is very encouraging. A focused effort by all members of the ZAGG team and great execution against our strategic objectives in product, brand, and distribution have helped ZAGG stabilize revenues and set the path to renewed growth in the second half of the year."  Second Quarter Highlights (second quarter 2014 versus second quarter 2013)    *Net sales of $50.2 million versus $51.2 million   *Gross margins of 33.5% versus 42.1%   *GAAP diluted EPS of $0.03 versus $0.09   *Adjusted EBITDA of $5.3 million versus $10.5 million   *Generated $6.7 million in operating cash flow   *Screen protection sales represented 36% of net sales versus 38%   *Keyboard sales represented 34% of net sales versus 25%  Second Quarter Results  Net sales for the second quarter of 2014 were $50.2 million, a slight decrease of 2% versus $51.2 million in the same quarter last year.  Revenue by channel was as follows: indirect channels 90%; ZAGG.com and iFrogz.com 5%; Kiosks and standalone stores 5%.  Gross profit for the second quarter was $16.8 million or 33.5% of net sales, versus $21.5 million or 42.1% of net sales in the prior year quarter.  Operating income for the second quarter of 2014 was $1.6 million compared to operating income of $5.4 million for the second quarter of 2013.  Net income for the second quarter of 2014 was $0.8 million or $0.03 per diluted share, as compared to net income of $2.8 million or $0.09 per diluted share in the second quarter of 2013.  Pro forma net income for the second quarter of 2014 was $2.7 million or $0.09 per diluted share, as compared to pro forma net income of $6.3 million or $0.20 per diluted share in the second quarter of 2013.  Adjusted EBITDA for the second quarter of 2014 was $5.3 million versus $10.5 million of Adjusted EBITDA in the second quarter of 2013.  About Non-GAAP Financial Information  ZAGG considers earnings before stock-based compensation expense, depreciation and amortization, impairment of investment in private company, other income/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, impairment of investment in private company, 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  The Company reiterates its full year 2014 guidance of net sales of $218.0 million - $228.0 million and full year Adjusted EBITDA of $32.0 million - $34.0 million. Gross margins are anticipated to be in the mid-to-high 30's.  Conference Call  A conference call will be held today at 5:00 p.m. ET 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, impairment of a private investment in a private company, other income/expense, and provision for income taxes) and pro forma net income (earnings before stock-based compensation expense, amortization, and other income/expense [excluding cash interest expense], impairment of a private investment in a private company, net of tax effects where applicable) contained in this press release are not financial measures under GAAP. In addition, they should not be construed as alternatives to any other measures of performance determined in accordance with GAAP, or as indicators of 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 earnings per share. We present this financial information because we believe that it is helpful to some investors as a measure of 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 current results with results from other reporting periods and with the results of other companies.  Safe Harbor Statement  In addition to the historical information contained in this press release, this release contains (and oral communications made by ZAGG may contain) statements that relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, outlook, assumptions or future events or performance, often, but not always, through the use of words or phrases such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "targets" or similar expressions, are not statements of historical facts and may be forward-looking. 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. In addition to any assumptions and other factors and matters referred to specifically in connection with such forward-looking statements, factors that could cause actual results or outcomes to differ materially from those contained in forward-looking statements include the following: (a) the ability to design, produce, and distribute the creative product solutions required to retain existing customers and to attract new customers; (b) building and maintaining marketing and distribution functions sufficient to gain meaningful international market share for ZAGG's products; (c) the ability to respond quickly with appropriate products after the adoption and introduction of new mobile devices by major manufacturers like Samsung and Apple; (d) changes or delays in announced launch schedules for new mobile devices by major manufacturers like Samsung and Apple; (e) the impact of inconsistent quality or reliability of new product offerings; (f) the impact of lower profit margins in certain new product categories; (g) a shift in customer demand from high gross margin products to products with lower gross margins; (h) the impacts of changes in economic conditions, including on customer demand; (i) the failure of information systems or technology solutions or the failure to secure information system data, failure to comply with privacy laws, security breaches, or the effect on the company from cyber attacks, terrorist incidents, or the threat of terrorist incidents; and (j) adoption of or changes in accounting policies, principles, or estimates. Any forward-looking statement speaks only as of the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Readers should also review the risks and uncertainties listed in ZAGG's most recent Annual Report on Form 10-K and other reports the company files with the U.S. Securities and Exchange Commission, including (but not limited to) Item 1A - "Risk Factors" in the Form 10-K and Management's Discussion and Analysis of Financial Condition and Results of Operations and the risks described therein from time to time. ZAGG disclaims any obligation to update publicly any forward-looking information, whether in response to new information, future events, or otherwise, except as required by applicable law.  ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (Unaudited)                                                                                                                                                                                         June 30,   December 31,                                                       2014       2013                                                                  ASSETS                                                                                                                             Current assets                                                    Cash and cash equivalents                              $12,226  $15,031 Accounts receivable, net of allowances of $2,570 in    42,043    46,591 2014 and $2,540 in 2013 Inventories                                            39,367    44,539 Prepaid expenses and other current assets              1,322     2,403 Deferred income tax assets                             8,009     7,917                                                                  Total current assets                                   102,967   116,481                                                                  Property and equipment, net of accumulated             5,341     5,004 depreciation at $6,928 in 2014 and $5,778 in 2013                                                                  Intangible assets, net of accumulated amortization at  36,318    41,219 $28,332 in 2014 and $23,431 in 2013                                                                  Deferred income tax assets                             11,981    11,377                                                                  Note receivable                                        801       801                                                                  Other assets                                           549       588                                                                  Total assets                                           $157,957 $175,470                                                                  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                              Current liabilities                                               Accounts payable                                       $21,066  $15,207 Income taxes payable                                   688       6,359 Accrued liabilities                                    2,382     2,608 Accrued wages and wage related expenses                1,401     891 Deferred revenue                                       57        159 Sales returns liability                                7,089     7,872                                                                  Total current liabilities                              32,683    33,096                                                                  Revolving line of credit                               --       17,543                                                                  Total liabilities                                      32,683    50,639                                                                  Stockholders' equity                                             Common stock, $0.001 par value; 100,000 shares                    authorized; 32,608 and 32,331 shares issued in 2014 and 2013,      33        32 respectively Additional paid-in capital                             84,078    82,807 Accumulated other comprehensive income (loss)          (28)      93 Note receivable collateralized by stock                (348)     (348) Treasury stock, 2,312 and 1,756 common shares in 2014  (12,485)  (9,997) and 2013 respectively, at cost Retained earnings                                      54,024    52,244                                                                  Total stockholders' equity                             125,274   124,831                                                                  Total liabilities and stockholders' equity             $157,957 $175,470   ZAGG INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited)                                                                                                                                                                                                                 Three Months Ended         Six Months Ended                       June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013                                                                                                                             Net sales              $50,154     $51,198     $99,157     $102,669 Cost of sales          33,367       29,663       64,592       62,135                                                               Gross profit           16,787       21,535       34,565       40,534                                                               Operating expenses:                                            Advertising and        1,378        1,914        3,386        4,253 marketing Selling, general and   11,402       11,831       22,805       24,110 administrative Amortization of definite-lived         2,427        2,374        4,855        4,748 intangibles                                                               Total operating        15,207       16,119       31,046       33,111 expenses                                                               Income from operations 1,580        5,416        3,519        7,423                                                               Other income                                                   (expense): Interest expense       (40)         (144)        (83)         (371) Loss from equity method investment in   --          (617)        --          (1,224) HzO Other income and       24           (27)         113          (47) (expense)                                                               Total other income     (16)         (788)        30           (1,642) (expense)                                                               Income before provision for income   1,564        4,628        3,549        5,781 taxes                                                               Income tax provision   (771)        (1,854)      (1,769)      (2,130)                                                               Net income            $793        $2,774      $1,780      $3,651                                                               Earnings per share:                                                                                                          Basic earnings per     $0.03       $0.09       $0.06       $0.12 share                                                               Diluted earnings per   $0.03       $0.09       $0.06       $0.12 share   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 analternative to any other measures of performance determined in accordance with GAAP, or as an indicator of our operating performance, liquidity or cashflows 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        Six months ended Reconciliation                       June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013                                                                                                                             Net income in          $793        $2,774      $1,780      $3,651 accordance with GAAP                                                               Adjustments:                                                                                                                 a. Stock based         650          1,331        1,171        2,368 compensation expense b. Depreciation and    3,052        3,120        6,072        6,214 amortization c. Impairment of investment in private  --          591          --          591 company d. Other (income)      16           788          (30)         1,642 expense e. Provision for       771          1,854        1,769        2,130 income taxes                                                               Adjusted EBITDA        $5,282      $10,458     $10,762     $16,596                                                                                                                             Pro forma Net Income Reconciliation - Three Three months ended        Six months ended and Six Months Ended June 30, 2014 and 2013                       June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013                                                                                                                             Net income in          $793        $2,774      $1,780      $3,651 accordance with GAAP                                                               Adjustments:                                                                                                                 a. Stock based         650          1,331        1,171        2,368 compensation expense b. Amortization of     2,453        2,394        4,900        4,782 intangibles c. Other (income) expense excluding cash interest expense and   (8)          57           (81)         107 loss on equity method investment d. Loss on equity      --          617          --          1,224 method investment e. Impairment of investment in private  --          591          --          591 company f. Income tax effects  (1,184)*     (1,447)      (2,291)*     (2,776)*                                                               Pro forma net income  $2,704      $6,317      $5,479      $9,947                                                               Pro forma diluted EPS $0.09       $0.20       $0.18       $0.32                                                               Weighted average number of shares       30,575       31,218       30,718       31,471 outstanding - diluted                                                               * For comparative purposes, we applied an annualized statutory tax rate of 38.25%  CONTACT: Investor Relations:          ZAGG Inc          Kim Rogers          801-506-7008          kim.rogers@zagg.com                   Media:          Method Communications          Matt Reichman          801-461-9778          matt@methodcommunications.com                   Zachary Allen          801-461-9751          zachary@methodcommunications.com                   Company:          ZAGG Inc          Nathan Nelson          801-506-7341          nnelson@zagg.com  ZAGG Inc. logo  
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