Toggle SGML Header (+)


Section 1: 8-K (CURRENT REPORT)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): November 1, 2017

 

ZAGG INC

(Exact name of registrant as specified in charter)

 

Delaware   001-34528   20-2559624
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (I.R.S. Employer
Identification No.)

 

910 West Legacy Center Drive, Suite 500

Midvale, Utah 84047

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (801) 263-0699

 

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

        Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

        Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

        Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

        Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

 

 

Item 2.02Results of Operations and Financial Condition.

 

On November 1, 2017, ZAGG Inc (the “Registrant”) issued a press release announcing the results of operations for the three and nine months ended September 30, 2017, and made publicly available certain supplemental financial information, including commentary on results of operations from Brad Holiday, Chief Financial Officer (“CFO”). The supplemental financial information – financial tables is furnished with this report as Exhibit 99.1, the press release is furnished with this report as Exhibit 99.2, and the supplemental financial information – CFO commentary is furnished with this report as Exhibit 99.3.

 

The Registrant also will hold its earnings conference call on November 1, 2017. The conference call will be available to interested parties through a live audio Internet broadcast accessible at investors.ZAGG.com under the events tab. A podcast of the conference call will be archived at investors.ZAGG.com for one year.

 

The information contained in Item 2.02 and 9.01 of this Current Report on Form 8-K, including Exhibits 99.1, 99.2, and 99.3 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any registration statement or other filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in any such filing.

 

Item 9.01Financial Statements and Exhibits.

 

Exhibit No.  Description
    
99.1  Supplemental Financial Information – Financial Tables for the Three and Nine Months Ended September 30, 2017
99.2  Results of Operations Press Release dated November 1, 2017
99.3  Supplemental Financial Information – CFO Commentary on Third Quarter 2017 Financial Results

 

 2 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

ZAGG Inc  
     
By: /s/ BRADLEY J. HOLIDAY  
  Bradley J. Holiday    
  Chief Financial Officer  

 

Date: November 1, 2017

 

3

 

 

(Back To Top)

Section 2: EX-99.1 (SUPPLEMENTAL FINANCIAL INFORMATION - FINANCIAL TABLES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017)

Exhibit 99.1

 

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(Unaudited)

 

   September 30,   December 31, 
   2017   2016 
         
ASSETS        
         
Current assets:        
Cash and cash equivalents  $11,394   $11,604 
Accounts receivable, net of allowances of $1,221 in 2017 and $824 in 2016   96,830    83,835 
Inventories   72,005    72,769 
Prepaid expenses and other current assets   3,531    3,414 
Income tax receivable   138    2,814 
Total current assets   183,898    174,436 
           
Property and equipment, net of accumulated depreciation of $20,950 in 2017 and $18,371 in 2016   15,066    17,755 
Goodwill   12,272    12,272 
Intangible assets, net of accumulated amortization of $63,596 in 2017 and $55,298 in 2016   42,286    53,362 
Deferred income tax assets   44,652    50,363 
Other assets   1,635    2,541 
Total assets  $299,809   $310,729 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current liabilities:          
Accounts payable  $82,742   $85,022 
Accrued liabilities   23,825    22,216 
Sales returns liability   29,342    28,373 
Accrued wages and wage related expenses   5,649    6,169 
Deferred revenue   214    273 
Line of credit   16,264    31,307 
Current portion of long-term debt, net of deferred loan costs of $65 in 2017 and 2016   6,185    10,484 
Total current liabilities   164,221    183,844 
           
Noncurrent portion of long-term debt, net of deferred loan costs of $92 in 2017 and $141 in 2016   9,283    9,623 
           
Total liabilities   173,504    193,467 
           
Stockholders' equity:          
Common stock, $0.001 par value; 100,000 shares authorized; 34,057 and 33,840 shares issued in 2017 and 2016, respectively  $34   $34 
Additional paid-in capital   95,106    92,782 
Accumulated other comprehensive loss   (944)   (2,114)
Treasury stock, 6,065 and 5,831 common shares in 2017 and 2016 respectively, at cost   (37,636)   (36,145)
Retained earnings   69,745    62,705 
           
Total stockholders' equity   126,305    117,262 
Total liabilities and stockholders' equity  $299,809   $310,729 

 

 

 

 

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30,   September 30,   September 30, 
   2017   2016   2017   2016 
                 
Net sales  $134,398   $124,662   $342,571   $286,928 
Cost of sales   86,006    81,516    229,749    189,180 
Gross profit   48,392    43,146    112,822    97,748 
                     
Operating expenses:                    
Advertising and marketing   2,627    3,389    7,703    8,578 
Selling, general and administrative   26,720    25,607    78,727    70,243 
Loss on disputed mophie purchase price   -    24,317    -    24,317 
Transaction costs   96    145    611    2,467 
Impairment of intangible asset   -    -    1,959    - 
Amortization of long-lived intangibles   3,014    2,398    9,040    9,909 
Total operating expenses   32,457    55,856    98,040    115,514 
                     
Income (loss) from operations   15,935    (12,710)   14,782    (17,766)
                     
Other income (expense):                    
Interest expense   (417)   (575)   (1,527)   (1,367)
Other income (expense)   18    (81)   67    (272)
Total other expense   (399)   (656)   (1,460)   (1,639)
                     
Income (loss) before provision for income taxes   15,536    (13,366)   13,322    (19,405)
                     
Income tax (provision) benefit   (5,760)   6,261    (6,281)   7,963 
                     
Net income (loss)  $9,776   $(7,105)  $7,041   $(11,442)
                     
Earnings (Loss) per share:                    
Basic earnings (loss) per share  $0.35   $(0.25)  $0.25   $(0.41)
Diluted earnings (loss) per share  $0.34   $(0.25)  $0.25   $(0.41)

 

 2 

 

 

ZAGG INC AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP

(Unaudited)

 

Unaudited Supplemental Data

 

The following is not a financial measure under generally accepted accounting principals (GAAP). In addition, this 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 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 Reconciliation  Three months ended   Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
      2017   2016   2017   2016 
                    
Net income (loss) in accordance with GAAP $9,776   $(7,105)  $7,041   $(11,442)
                        
Adjustments:                   
                        
a.  Stock based compensation expense   899    1,386    2,535    3,679 
b.  Depreciation and amortization   5,486    4,989    16,505    16,484 
c.  Other (income) expense   399    656    1,460    1,639 
d.  Impairment of intangible asset   -    -    1,959    - 
e.  mophie transaction costs   96    145    611    2,467 
f.  mophie fair value inventory write-up related to acquisition   -    (739)   -    2,586 
g.  mophie restructuring charges   -    138    437    1,201 
h.  mophie employee retention bonus   -    300    346    500 
i.  Loss on disputed mophie purchase price   -    24,317    -    24,317 
j.  Income tax benefit   5,760    (6,261)   6,281    (7,963)
Adjusted EBITDA $22,416   $17,826   $37,175   $33,468 

 

 

3

 

(Back To Top)

Section 3: EX-99.2 (RESULTS OF OPERATIONS PRESS RELEASE DATED NOVEMBER 1, 2017)

Exhibit 99.2

 

November 1, 2017

 

ZAGG Reports 2017 Third Quarter and Nine Months Results;

Company Raises 2017 Outlook

 

SALT LAKE CITY, November 1, 2017 (GLOBE NEWSWIRE) – ZAGG Inc (Nasdaq: ZAGG), a leading global mobile lifestyle company, today announced financial results for the third quarter and nine months ending September 30, 2017.

 

Third Quarter Highlights (Comparisons versus third quarter 2016)

Net sales of $134.4 million, an 8% increase compared to $124.7 million
Gross margin of 36% compared to 35%
Net income of $9.8 million compared to a net loss of ($7.1) million
Adjusted EBITDA of $22.4 million compared to $17.8 million

 

Year-to-Date Highlights (Comparisons versus nine months 2016)

Net sales of $342.6 million, a 19% increase compared to $286.9 million
Gross margin of 33% compared to 34%
Net income of $7.0 million compared to a net loss of ($11.4) million
Adjusted EBITDA of $37.2 million compared to $33.5 million

 

Increases 2017 Full Year Outlook

Net sales in the range of $500.0 million to $520.0 million, an increase from the previous guidance range of $470.0 million to $500.0 million
Adjusted EBITDA in the range of $75.0 million to $78.0 million, an increase from the previous guidance range of $71.0 million to $75.0 million.

 

“Our business performed extremely well across the board during the third quarter,” commented Randy Hales, President and Chief Executive Officer. “With two of the strongest brands in the mobile lifestyle category – InvisibleShield and mophie – combined with an enhanced operating structure, we’ve created a powerful platform that is generating record revenue and Adjusted EBITDA. In addition to our strong year-to-date results, we believe the Company has a long runway for growth evidenced by our increased guidance for 2017. Our optimism extends from our core product lines to our recently introduced wireless charging pad that supports Apple’s new iPhones. I am confident that the Company is well positioned to capitalize on the many opportunities that lie ahead and will deliver increased value to our shareholders for years to come.”

 

 

 

 

Third Quarter Results

 

(in millions, except per share amounts)  September 30, 2017   September 30, 2016 
Net Sales  $134.4   $124.7 
Gross Profit (Gross Profit %)  $48.4 (36)%  $43.1 (35)%
Net Income (Loss)  $9.8   $(7.1)
Earnings (Loss) per Diluted Share  $0.34   $(0.25)
Adjusted EBITDA (Margin %)  $22.4 (17)%  $17.8 (14)%

 

Third Quarter Results

Net sales for the third quarter increased by 8% to $134.4 million, compared to $124.7 million in 2016. The increase in sales was due primarily to (1) increased sales of screen protection products in key wireless and retail accounts, particularly in international markets, and (2) the launch of the mophie wireless charging pad.

 

Gross profit was $48.4 million, or 36% of net sales, compared to $43.1 million, or 35% of net sales in 2016. The 140 basis point improvement in gross margin was driven primarily by the mix of screen protection products, our highest margin product category, which increased during the three months ended September 30, 2017, to approximately 57% of net sales compared to approximately 52% of net sales during the three months ended September 30, 2016.

 

Net income was $9.8 million, compared to a net loss of ($7.1) million in 2016. Earnings per share was $0.34, on 28.4 million shares, compared to a loss per share of ($0.25), on 28.1 million shares.

 

Adjusted EBITDA was $22.4 million compared to $17.8 million.

 

Year-to-Date Results

 

(in millions, except per share amounts)  September 30, 2017   September 30, 2016 
Net Sales  $342.6   $286.9 
Gross Profit (Gross Profit %)  $112.8 (33)%  $97.7 (34)%
Net Income (Loss)  $7.0   $(11.4)
Earnings (Loss) per Share  $0.25   $(0.41)
Adjusted EBITDA (Margin %)  $37.2 (11)%  $33.5 (12)%

 

2017 Year-to-Date Results

Net sales for 2017 increased 19% to $342.6 million, compared $286.9 million in 2016. The increase in sales was due primarily to (1) increased sales of screen protection for new device releases during the current year, (2) higher sales of power management and power case products, and (3) a full nine months of mophie sales in 2017, compared to only seven months of mophie sales in 2016 (acquisition occurred on March 2, 2016).

 

Gross profit increased to $112.8 million, or 33% of net sales, compared to $97.7 million, or 34% of net sales. The decrease in gross profit margin was primarily attributable to (1) a full nine months of mophie operations in 2017, compared to only seven months of mophie operations in 2016, which are at lower gross profit margins than the corporate average, and (2) lower gross profit margin on curved glass for the Samsung Galaxy S8, compared to historical gross margins on non-curved glass products. These items were partially offset by amortization expense from the acquisition-related fair value inventory write-up in 2016, which did not recur in 2017.

 

 2 

 

 

Net income was $7.0 million, compared to a net loss of ($11.4) million in 2016. Earnings per share was $0.25, on 28.3 million shares, compared to a loss per share of ($0.41), on 28.0 million shares.

 

Adjusted EBITDA was $37.2 million compared to $33.5 million for the consolidated business in 2016.

 

2017 Business Outlook

The Company increased the annual guidance for 2017 as follows:

 

Net sales of $500.0 to $520.0 million
Gross margin in the low to mid 30 percent range
Adjusted EBITDA of $75.0 to $78.0 million
Annual effective tax rate of approximately 35%

 

The Company is unable to provide guidance for net income (loss), and reconciliation of Adjusted EBITDA to net income (loss), as the closest corresponding U.S. GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the variability and complexity with respect to charges excluded from this non-GAAP measure. In particular, these complexities include the measures and effects of stock based compensation expense that are directly impacted by unpredictable fluctuations in our share price, and our tax expense that is directly impacted by our taxable income. We expect the variability of these charges could have a significant, and potentially unpredictable, impact on our future U.S. GAAP results.

 

Conference Call

A conference call will be held today, November 1, 2017 at 5:00 p.m. EST to review these results. Interested parties may access via the Internet on the Company's website at: investors.zagg.com.

 

About Non-GAAP Financial Information

Readers are cautioned that Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, other income (expense), mophie transaction costs, mophie fair value inventory write-up related to acquisition, mophie restructuring charges, mophie employee retention bonus, and impairment of intangible asset) is not a financial measure under US generally accepted accounting principles (GAAP). In addition, this financial information should not be construed as an alternative to any other measure of performance determined in accordance with GAAP, or as an indicator of 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 Adjusted EBITDA because we believe that it is helpful to some investors as a measure of performance. We caution readers 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 financial results of other companies.

 

 3 

 

 

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. Readers 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 Apple, Samsung, and Google; (d) changes or delays in announced launch schedules for (or recalls or withdrawals of) new mobile devices by major manufacturers like Apple, Samsung, and Google; (e) the ability to successfully integrate new operations or acquisitions, specifically including mophie inc., (f) the impact of inconsistent quality or reliability of new product offerings; (g) the impact of lower profit margins in certain new and existing product categories, including certain mophie products; (h) the impacts of changes in economic conditions, including on customer demand; (i) managing inventory in light of constantly shifting consumer demand; (j) 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 (k) 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.

 

About ZAGG Inc

ZAGG Inc (NASDAQ:ZAGG) is a global leader in accessories and technologies that empower mobile lifestyles. The Company has an award-winning product portfolio that includes screen protection, mobile keyboards, power management solutions, social tech, and personal audio sold under the ZAGG®, mophie®, InvisibleShield®, and IFROGZ® brands. ZAGG has operations in the United States, Ireland, and China. ZAGG products are available worldwide, and can be found at leading retailers including Best Buy, Verizon, AT&T, Sprint, Walmart, Target, Walgreens and Amazon.com. For more information, please visit the company’s websites at www.zagg.com and www.mophie.com and follow us on Facebook, Twitter and Instagram.

 

# # #

 

CONTACT:

 

Investor Relations:

ICR Inc.

Brendon Frey

203-682-8216

brendon.frey@icrinc.com

 

Company:

ZAGG Inc

Jeff DuBois

801-506-7336

jeff.dubois@ZAGG.com

 

Media:

The Brand Amp

Katie Kotarak

949-438-1078

katie@thebrandamp.com

 

 

4

 

(Back To Top)

Section 4: EX-99.3 (SUPPLEMENTAL FINANCIAL INFORMATION - CFO COMMENTARY ON THIRD QUARTER 2017 FINANCIAL RESULTS)

Exhibit 99.3

 

 

Supplemental Financial Information – CFO Commentary

 

November 1, 2017

 

Document reference information

The commentary in this document can be referenced in the financial information found in the earnings release issued earlier today. The release can be found at investors.ZAGG.com, or in the Form 8-K furnished to the Securities and Exchange Commission website at sec.gov.

 

Third Quarter Summary Results

(Third quarter 2017 versus same period in the prior year. In millions, except per share amounts.)

 

Summary Financial Results

   Three Months Ended 
   Q3 2017   Q3 2016 
Net Sales  $134.4   $124.7 
Gross Margin  $48.4   $43.1 
Gross Margin %   36%   35%
Net Income (Loss)  $9.8   $(7.1)
Diluted Earnings (Loss) per Share  $0.34   $(0.25)
Adjusted EBITDA  $22.4   $17.8 

 

Sales by Category

   Three Months Ended 
   Q3 2017   % Total   Q3 2016   % Total 
Screen Protection  $76.3    57%  $64.6    52%
Power Cases  $16.3    12%  $15.5    12%
Power Management  $25.1    19%  $27.2    22%
Audio  $7.9    6%  $7.8    6%
Keyboards  $7.5    5%  $8.0    6%
Other  $1.3    1%  $1.6    2%

 

Sales by Region/Channel

   Three Months Ended 
   Q3 2017   Q3 2016   % Growth 
Domestic  $114.0   $108.8    5%
International  $20.4   $15.9   28%

 

Sales by Channel

   Three Months Ended 
   Q3 2017   Q3 2016   % Growth 
Retail  $121.2   $111.7    9%
Online  $9.1   $8.3    10%
Franchise & Kiosks  $4.1   $4.7    (13%)

 

 

 

 

 

2017 Third Quarter Results Discussion

(All comparisons are 2017 consolidated versus 2016 consolidated, unless otherwise noted)

 

Net sales

 

 

Net sales increased 8% to $134.4 million, compared to $124.7 million due primarily to (1) increased sales of screen protection products in key wireless and retail accounts, particularly in international markets, and (2) the launch of the mophie wireless charging pad. During the third quarter of 2016, the Company launched a new line of power station products and loaded-in a significant amount of product to retail, however, there was no similar power station launch in the third quarter of 2017, resulting in a decline in overall power management sales.

 

Gross profit/margin

Gross profit increased to $48.4 million or 36%, compared to $43.1 million or 35%. Typically, the Company experiences higher gross profit margin in periods when the mix of screen protection products increases. The mix of screen protection products increased during the three months ended September 30, 2017 to approximately 57% of net sales compared to approximately 52% of net sales during the three months ended September 30, 2016, benefiting overall gross profit margin.

 

Operating expense/margin

Operating expense decreased 42% to $32.5 million compared to $55.9 million and with the increase in sales and reduction in operating expense, overall leverage improved to 24% of sales compared to 45% last year. The decrease in operating expense was primarily attributable to (1) a $24.3 million impairment charge in 2016 that did not recur in 2017 and (2) an overall reduction in amortization expense related to intangible assets.

 

Net income (loss)

Net income was $9.8 million compared to net loss of $(7.1) million. Earnings per share was $0.34 (on 28.4 million shares) compared to loss per share of $(0.25) (on 28.1 million shares)

 

Adjusted EBITDA

Consolidated Adjusted EBITDA was $22.4 million compared to $17.8 million.

 

2017 Year-to-Date Summary Results

(First nine months 2017 versus same period in the prior year. In millions, except per share amounts.)

 

 2 

 

 

 

Summary Financial Results

   Nine Months Ended 
   Q3 2017   Q3 2016 
Net Sales  $342.6   $286.9 
Gross Margin  $112.8   $97.7 
Gross Margin %   33%   34%
Net Income (Loss)  $7.0   $(11.4)
Diluted Earnings (Loss) per Share  $0.25   $(0.41)
Adjusted EBITDA  $37.2   $33.5 

 

Sales by Category

   Nine Months Ended 
   Q3 2017   % Total   Q3 2016   % Total 
Screen Protection  $178.0    52%  $153.0    53%
Power Cases  $60.2    18%  $43.3    15%
Power Management  $60.7    18%  $42.5    15%
Audio  $21.5    6%  $19.0    7%
Keyboards  $19.4    6%  $25.5    9%
Other  $2.8    0%  $3.6    1%

 

Sales by Region/Channel

   Nine Months Ended 
   Q3 2017   Q3 2016   % Growth 
Domestic  $292.6   $253.9    15%
International  $50.0   $33.0    51%

 

Sales by Channel

   Nine Months Ended 
   Q3 2017   Q3 2016   % Growth 
Retail  $303.9   $252.0    21%
Online  $27.6   $22.7    21%
Franchise & Kiosks  $11.1   $12.2    (9%)

 

 3 

 

 

 

2017 Year-to-Date Results Discussion

(All comparisons are 2017 consolidated versus 2016 consolidated, unless otherwise noted)

 

Net sales

 

 

Net sales increased 19% to $342.6 million, compared to $286.9 million due primarily to (1) increased sales of screen protection for new device releases during the current year, (2) higher sales of power management and power case products, and (3) the launch of the mophie wireless charging pad.

 

It should be noted that the first nine months 2016 sales include only seven months of mophie sales as the acquisition occurred on March 3, 2016. Prior to the acquisition in 2016, mophie recorded sales of $17.3 million, which if added to the first half 2016 sales total of $286.9 million, the Company would still have realized an increase in sales over 2016 of $38.4 million or 13%.

 

Gross profit/margin

Gross profit increased to $112.8 million or 33%, compared to $97.7 million or 34%. The decrease in the gross profit margin percentage was primarily attributable to (1) a full nine months of mophie operations in 2017, compared to only seven months of mophie operations in 2016, which are at lower gross profit margins than the corporate average, and (2) lower gross profit margin on curved glass for the Samsung Galaxy S8, compared to historical gross margins on non-curved glass products. These items were partially offset by amortization expense from the acquisition-related fair value inventory write-up in 2016, which did not recur in 2017.

 

Operating expense/margin

Operating expense decreased to $98.0 million compared to $115.5 million. The decline in operating expense coupled with the increase in sales resulted in an improvement in overall leverage to 29% of sales compared to 40% last year. The decrease in operating expenses was primarily attributable to (1) a $24.3 million impairment charge in 2016 that did not recur in 2017, (2) synergies realized from cost reduction initiatives, (3) a reduction in transaction-related costs, (4) a reduction in advertising and marketing spend, and (5) an overall reduction in amortization expense. These decreases were partially offset by the following increases in operating expense: (1) the inclusion of nine months of mophie-related expenses for 2017 compared with seven months in 2016 and (2) the impairment of an intangible asset in 2017 related to an invalidated patent totaling $2.0 million.

 

 4 

 

 

 

Net income (loss)

Net income was $7.0 million compared to net loss of $(11.4) million. Earnings per share was $0.25 (on 28.3 million shares) compared to loss per share of $(0.41) (on 28.0 million shares)

 

Adjusted EBITDA

Consolidated Adjusted EBITDA was $37.2 million compared to $33.5 million.

 

Balance Sheet Highlights (as of September 30, 2017)

 

(In millions, excluding DSOs and Inventory turns.)  September 30, 2017   December 31, 2016   September 30, 2016 
Cash and Cash Equivalents  $11.4   $11.6   $9.0 
Account Receivables  $96.8   $83.8   $83.1 
Inventory  $72.0   $72.8   $66.2 
Total Debt  $31.7   $51.4   $51.8 
Line of Credit  $16.2   $31.3   $30.2 
Term Loan  $15.5   $20.1   $21.6 
DSOs   66    67    61 
Inventory Turns*   6.8x   5.8x   6.5x

 

*Inventory turns defined as trailing 12-month sales divided by period-end inventory. The September 30, 2017 calculation of inventory turns excludes $5.1 million of Apple optimized charge pad inventory that was briefly in inventory at quarter-end. If the $5.1 million were included in the calculation, the inventory turns would be 6.4.

 

Total Debt

The Company has effectively managed its outstanding debt balance, which was reduced from $75.3 million in March 2016 to the quarter-end balance of $31.7 million.

 

 

Market Share Information

Screen Protection

The Company continues to see strong and consistent growth in cellphone screen protection market share. From the first quarter of 2014 to the third quarter of 2017, InvisibleShield cellphone screen protection quarterly dollar market share has increased from 29% to 55%1.

 

 

1 Source: The NPD Group, U.S. Retail Tracking Service, Cell Phone Device Protection, January 2014 through September 2017.

 

 5 

 

 

 

 

Battery Cases & Power Management

Since November 2016, mophie branded battery cases and portable power packs have experienced significant growth in dollar market share due to a combination of (1) new and innovative product launches and (2) an unconstrained mophie supply chain. Monthly battery case dollar market share increased from 40% to 62%2 from November 2016 to September 2017.

 

 

 

Monthly portable power dollar market share increased from 20% to 31%3 from November 2016 to September 2017.

 

 

2 Source: The NPD Group, U.S. Retail Tracking Service, Charging Case, November 2016 through September 2017.

3 Source: The NPD Group, U.S. Retail Tracking Service, Mobile Power, Charger Type: Portable Power Packs, November 2016 through September 2017.

 

 6 

 

 

 

 

2017 Business Outlook

The Company increased annual guidance for 2017 as follows:

·Net sales of $500 - $520 million
·Gross profit margin as a percentage of net sales in a range of low to mid 30’s
·Adjusted EBITDA of $75 - $78 million
·Annual effective tax rate of approximately 35%

 

 

* Represents the midpoint of guidance of $500 to $520 million

 

Non-GAAP Financial Disclosure

ZAGG regularly discloses Adjusted EBITDA, a non-GAAP metric, in its financial releases. Readers should refer to the non-GAAP financial disclosures at the end of this document for information on the limitations of non-GAAP financial measures. An explanation of ZAGG's use of this non-GAAP financial measure and the reconciliation between GAAP and non-GAAP measures required by SEC Regulation G is included in ZAGG's press release today, which can be found at investors.ZAGG.com.

 

 7 

 

 

 

Readers are cautioned that Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, other income (expense), mophie transaction costs, mophie fair value inventory write-up related to acquisition, mophie restructuring charges, mophie employee retention bonus, and impairment of intangible asset) is not a financial measure under US generally accepted accounting principles (GAAP). In addition, this financial information should not be construed as an alternative to any other measure of performance determined in accordance with GAAP, or as an indicator of 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 Adjusted EBITDA because we believe that it is helpful to some investors as a measure of performance. We caution readers 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 financial 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. Readers 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 Apple, Samsung, and Google; (d) changes or delays in announced launch schedules for (or recalls or withdrawals of) new mobile devices by major manufacturers like Apple, Samsung, and Google; (e) the ability to successfully integrate new operations or acquisitions, specifically including mophie inc., (f) the impact of inconsistent quality or reliability of new product offerings; (g) the impact of lower profit margins in certain new and existing product categories, including certain mophie products; (h) the impacts of changes in economic conditions, including on customer demand; (i) managing inventory in light of constantly shifting consumer demand; (j) 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 (k) 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.

 

 

8

 

 

(Back To Top)