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Section 1: 8-K (8-K)

Document


 
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): May 8, 2018

ZAGG INC
(Exact name of registrant as specified in its 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 Way, Suite 500
Midvale, Utah 84047
(Address of principal executive offices; zip code)
(801) 263-0699
(Registrant's telephone number, including area code)
Not applicable
(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:

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

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

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

o            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 o

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. o
Item 2.02
 
Results of Operations and Financial Condition.
On May 8, 2018, ZAGG Inc (the “Company”) issued a press release announcing the results of operations for the three months ended March 31, 2018, and made publicly available certain supplemental financial information, including commentary on results of operations from Bradley J. 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 Company will also hold its earnings conference call on May 8, 2018. 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 URLs are included here as inactive textual references. Information contained on, or accessible through, our websites is not a part of, and is not incorporated by reference into this report.
Item 9.01
 
Financial Statements and Exhibits.
 
 
 
(d) Exhibits.
 
 
     The following are filed as Exhibits to this Current Report on Form 8-K:
 
 
 
Exhibit No.
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
The information contained in Item 2.02 and Item 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.
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
 
 
Dated: May 8, 2018
/s/ BRADLEY J. HOLIDAY
 
Bradley J. Holiday
 
Chief Financial Officer
 
(Principal financial officer)


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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)


 
 
March 31, 2018
 
December 31, 2017
 
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
17,745

 
$
24,989

 
Accounts receivable, net of allowances of $474 and $734
73,894

 
123,220

 
Inventories
78,891

 
75,046

 
Prepaid expenses and other current assets
4,529

 
4,547

Total current assets
175,059

 
227,802

 
 
 
 
 
Property and equipment, net of accumulated depreciation of $12,979 and $12,540
12,794

 
13,444

Goodwill
12,272

 
12,272

Intangible assets, net of accumulated amortization of $69,440 and $66,639
36,443

 
39,244

Deferred income tax assets
24,084

 
24,403

Other assets
3,803

 
3,426

Total assets
$
264,455

 
$
320,591

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
54,798

 
$
96,472

 
Income tax payable
2,291

 
2,052

 
Accrued liabilities
9,214

 
10,515

 
Sales returns liability
30,913

 
32,189

 
Accrued wages and wage related expenses
7,775

 
5,652

 
Deferred revenue

 
315

 
Line of credit

 
23,475

 
Current portion of long-term debt, net of deferred loan costs of $141

 
13,922

Total current liabilities
104,991

 
184,592

 
 
 
 
 
Line of credit
22,038

 

Total liabilities
127,029

 
184,592

 
 
 
 
 
Stockholders' equity:
 
 
 
 
Common stock, $0.001 par value; 100,000 shares authorized; 34,416 and 34,104 shares issued
34

 
34

 
Additional paid-in capital
94,134

 
96,145

 
Accumulated other comprehensive loss
(59
)
 
(348
)
 
Treasury stock, 6,065 and 6,065 common shares at cost
(37,637
)
 
(37,637
)
 
Retained earnings
80,954

 
77,805

 
 
 
 
 
Total stockholders' equity
137,426

 
135,999

Total liabilities and stockholders' equity
$
264,455

 
$
320,591






ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)


 
 
Three Months Ended
 
 
March 31, 2018
 
March 31, 2017
 
 
 
 
 
Net sales
$
112,066

 
$
92,946

Cost of sales
74,474

 
64,340

Gross profit
37,592

 
28,606

 
 
 
 
 
Operating expenses:
 
 
 
 
Advertising and marketing
2,594

 
3,006

 
Selling, general and administrative
24,307

 
27,054

 
Transaction costs

 
215

 
Impairment of intangible asset

 
1,959

 
Amortization of intangible assets
2,772

 
3,021

Total operating expenses
29,673

 
35,255

 
 
 
 
 
Income (loss) from operations
7,919

 
(6,649
)
 
 
 
 
 
Other income (expense):
 
 
 
 
Interest expense
(500
)
 
(490
)
 
Other income (expense)
495

 
(20
)
Total other expense
(5
)
 
(510
)
 
 
 
 
 
Income (loss) before provision for income taxes
7,914

 
(7,159
)
 
 
 
 
 
Income tax (provision) benefit
(885
)
 
1,021

 
 
 
 
 
Net income (loss)
$
7,029

 
$
(6,138
)
 
 
 
 
 
Earnings (loss) per share attributable to stockholders:
 
 
 
 
Basic earnings (loss) per share
$
0.25

 
$
(0.22
)
 
Diluted earnings (loss) per share
$
0.24

 
$
(0.22
)




ZAGG INC AND SUBSIDIARIES
RECONCILIATION OF NON- U.S. GAAP FINANCIAL INFORMATION TO U.S. GAAP
(in thousands)
(Unaudited)

 
Unaudited Supplemental Data
 
 
 
 
 
 
 
 
The following information is not a financial measure under generally accepted accounting principles (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 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Adjusted EBITDA Reconciliation
March 31, 2018
 
March 31, 2017
 
 
 
 
 
 
 
 
Net income (loss) in accordance with U.S. GAAP
$
7,029

 
$
(6,138
)
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
a.
Stock-based compensation expense
601

 
670

 
 
b.
Depreciation and amortization
5,030

 
5,781

 
 
c.
Impairment of intangible assets

 
1,959

 
 
d.
Other income (expense)
5

 
510

 
 
e.
mophie transaction expenses

 
215

 
 
f.
mophie restructuring charges

 
414

 
 
g.
mophie employee retention bonus

 
300

 
 
h.
Income tax provision (benefit)
885

 
(1,021
)
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
13,550

 
$
2,690

 
 
 
Years Ended
 
 
 
Actual
 
Guidance*
Adjusted EBITDA Reconciliation
December 31, 2017
 
December 31, 2018
 
 
 
 
 
 
Net income (loss) in accordance with U.S. GAAP
$
15,100

 
$
40,200

 
 
 
 
 
 
 
Adjustments:
 
 
 
 
a.
Stock-based compensation expense
3,602

 
3,667

 
b.
Depreciation and amortization
21,888

 
18,358

 
c.
Impairment of intangible assets
1,959

 

 
d.
Other expense
1,383

 
1,375

 
e.
mophie restructuring charges
437

 

 
f.
mophie employee retention bonus
346

 

 
g.
Income tax provision
28,252

 
14,900

 
 
 
 
 
 
Adjusted EBITDA
$
72,967

 
$
78,500

*Midpoint of 2018 guidance

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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit
May 8, 2018
ZAGG Reports Record First Quarter 2018 Results
Net Sales Increased 21% to $112 Million
Earnings Per Share Improved to $0.24
Company Reiterates 2018 Outlook

SALT LAKE CITY, May 8, 2018 (GLOBE NEWSWIRE) – ZAGG Inc (Nasdaq: ZAGG), a leading global mobile lifestyle company, today announced financial results for the first quarter ended March 31, 2018.
First Quarter Highlights (Comparisons versus First Quarter 2017)
Net sales of $112.1 million, an increase of 21% compared to $92.9 million
Gross profit of 34% compared to 31%
Net income of $7.0 million compared to a net loss of $6.1 million
Diluted earnings per share of $0.24 compared to diluted loss per share of $0.22
Adjusted EBITDA of $13.6 million compared to $2.7 million
“We are pleased with the strength exhibited by our business early in 2018,” commented Chris Ahern, Chief Executive Officer. “Our record first quarter sales performance was driven by continued growth of screen protection combined with robust demand for our expanded portfolio of wireless charging products. Both our domestic and international markets posted double digit top-line gains which fueled significant operating expense leverage and a dramatic improvement in profitability compared with a year ago. Looking ahead, I am confident that by staying true to ZAGG’s four key corporate objectives of Product, Brand, Distribution and Operational Excellence, we can further leverage our strong leadership position in the mobile lifestyle category to drive sustained growth over the long-term.”
First Quarter Results (in millions, except per share amounts)
 
 
 
Three Months Ended
 
 
 
March 31, 2018
 
March 31, 2017
 
 
 
 
 
 
Net sales
$
112.1

 
$
92.9

Gross profit
$
37.6

 
$
28.6

Gross profit margin
34
%
 
31
%
Net income (loss)
$
7.0

 
$
(6.1
)
Diluted earnings (loss) per share
$
0.24

 
$
(0.22
)
Adjusted EBITDA
$
13.6

 
$
2.7

Net sales increased 21% to $112.1 million compared to $92.9 million due primarily to (1) the increase in sales of our power management products, particularly accessories supporting the wireless charging ecosystem, and (2) increased sales of screen protection products in key wireless and retail accounts, particularly in international markets.
Gross profit increased to $37.6 million (34% of net sales) compared to $28.6 million (31% of net sales). The increase in gross profit margin was driven primarily by (1) the mix of screen protection products, our highest margin product category, which increased to approximately 50% of net sales compared to approximately 46% of net sales during the three months ended March 31, 2017, and (2) improved margins on mophie-branded products.
Operating expenses decreased 16% to $29.7 million (26% of net sales) compared to $35.3 million (38% of net sales). The decrease was primarily attributable to (1) a $2.0 million charge in 2017 related to the impairment of a patent that did not recur in 2018, (2) operating expense synergies related to the mophie integration, and (3) a reduction in marketing spend that ultimately shifted into later periods in 2018.
Net income increased to $7.0 million compared to a net loss of $6.1 million. Diluted earnings per share was $0.24 (on 28.7 million shares) compared to diluted loss per share of $0.22 (on 28.1 million shares).
Adjusted EBITDA was $13.6 million compared to $2.7 million.
2018 Business Outlook
The Company reiterated the following annual guidance for 2018:
Net sales of $550 million to $570 million
Gross profit margin as a percentage of net sales in the low to mid 30's range
Adjusted EBITDA of $77 million to $80 million
Diluted earnings per share of $1.30 to $1.50
Annual effective tax rate of approximately 27%
Conference Call
A conference call will be held today, May 8, 2018, 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. The URL is included here as an inactive textual reference.
About Non-GAAP Financial Information
This press release includes Adjusted EBITDA as a non-GAAP financial measure. Readers are cautioned that Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, other income (expense), mophie transaction expenses and 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, is as there may be significant factors or trends that it fails to address. As such, it should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. 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. We have provided a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures in the supplemental financial information attached to this press release.
Cautionary Note Regarding Forward-Looking Statements
This press release contains (and oral communications made by us may contain) ““forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “target,” “future,” “seek,” “likely,” “strategy,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our outlook for the Company and statements that estimate or project future results of operations or the performance of the Company.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, 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 our 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,
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;
k.
adoption of or changes in accounting policies, principles, or estimates; and
l.
changes in tax laws and regulations.

Any forward-looking statement made by us in this press release 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 our most recent Annual Report on Form 10-K and other reports we file 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. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. The forward-looking statements contained in this press release are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
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

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Section 4: EX-99.3 (EXHIBIT 99.3)

Exhibit
393396788_zagg4q2017cfocommenta.gif

Supplemental Financial Information - CFO Commentary
May 8, 2018
Document reference information
The commentary in this document can be referenced in the financial information found in the press release announcing the results of operations for the three months ended March 31, 2018, including certain supplemental financial information, 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. The URLs included here are inactive textual references.
Three months ended March 31, 2018, and 2017 Summary Results
(In millions, except per share amounts)
First quarter results
 
 
 
Three Months Ended
 
 
 
March 31, 2018
 
March 31, 2017
 
 
 
 
 
 
Net sales
$
112.1

 
$
92.9

Gross profit
$
37.6

 
$
28.6

Gross profit margin
34
%
 
31
%
Net income (loss)
$
7.0

 
$
(6.1
)
Diluted earnings (loss) per share
$
0.24

 
$
(0.22
)
Adjusted EBITDA
$
13.6

 
$
2.7

Net sales by category
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(%)
 
($)
 
(%)
 
($)
 
 
 
 
 
 
 
 
Screen Protection
50
%
 
$
55.6

 
46
%
 
$
42.8

Power Management
33
%
 
$
36.6

 
17
%
 
$
15.6

Power Cases
6
%
 
$
7.3

 
24
%
 
$
22.4

Audio
5
%
 
$
6.3

 
6
%
 
$
5.9

Keyboards
5
%
 
$
5.2

 
6
%
 
$
6.0

Other
1
%
 
$
1.1

 
1
%
 
$
0.2

Net sales by region
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(%)
 
($)
 
(%)
 
($)
 
 
 
 
 
 
 
 
United States
82
%
 
$
91.4

 
84
%
 
$
78.4

Europe
9
%
 
$
9.8

 
10
%
 
$
9.2

Other
9
%
 
$
10.9

 
6
%
 
$
5.3

Net sales by channel
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(%)
 
($)
 
(%)
 
($)
 
 
 
 
 
 
 
 
Indirect channel
88
%
 
$
98.7

 
85
%
 
$
79.7

Website
8
%
 
$
9.3

 
11
%
 
$
9.9

Franchisees
4
%
 
$
4.1

 
4
%
 
$
3.3

2018 First Quarter Results Discussion
(All comparisons are 2018 consolidated versus 2017 consolidated, unless otherwise noted)
Net sales
393396788_chart-d26f2dbd8bcc423617a.jpg
Net sales for the three months ended March 31, 2018, were $112.1 million compared to net sales of $92.9 million for the three months ended March 31, 2017, an increase of $19.1 million, or approximately 21%. The $19.1 million increase in net sales was primarily attributable to (1) the increase in sales of our power management products, particularly accessories supporting the wireless charging ecosystem, and (2) increased sales of screen protection products in key wireless and retail accounts, particularly in international markets.
Gross profit
Gross profit for the three months ended March 31, 2018, was $37.6 million, or approximately 34% of net sales, compared to $28.6 million, or approximately 31% of net sales for the three months ended March 31, 2017. The increase in gross profit margin was driven primarily by (1) the mix of screen protection products, our highest margin product category, which increased to approximately 50% of net sales compared to approximately 46% of net sales during the three months ended March 31, 2017, and (2) improved margins on mophie-branded products.
Operating expenses
Operating expenses for the three months ended March 31, 2018, were $29.7 million, compared to operating expenses of $35.3 million for the three months ended March 31, 2017, a decrease of $5.6 million, or approximately 16%. The $5.6 million decrease was primarily attributable to (1) a $2.0 million charge in 2017 related to the impairment of a patent that did not recur in 2018, (2) operating expense synergies related to the mophie integration, and (3) a reduction in marketing spend that ultimately shifted into later periods in 2018.
Net income (loss)
As a result of the factors noted above, we reported net income of $7.0 million, or diluted earnings per share of $0.24, for the three months ended March 31, 2018, compared to a net loss of $6.1 million, or diluted loss per share of $0.22, for the three months ended March 31, 2017.
Adjusted EBITDA
Adjusted EBITDA was $13.6 million compared to $2.7 million.
Balance Sheet Highlights (as of March 31, 2018, December 31, 2017, and March 31, 2017)
 
 
 
March 31, 2018
 
December 31, 2017
 
March 31, 2017
 
 
 
 
 
 
 
 
Cash and cash equivalents
$17.7
 
$25.0
 
$4.3
Accounts receivable, net of allowances
$73.9
 
$123.2
 
$60.2
Inventories
$78.9
 
$75.0
 
$75.7
Total debt outstanding
$22.0
 
$37.4
 
$59.2
Line of credit
$22.0
 
$23.5
 
$40.6
Long-term debt
$0.0
 
$13.9
 
$18.6
Net debt (Total debt less cash)
$4.3
 
$12.4
 
$54.9
DSOs
59
 
64
 
58
Inventory Turns*
6.8x
 
6.9x
 
5.7x
* Inventory turns defined as trailing 12-month sales divided by period-end inventory.
Debt
The Company has effectively managed its outstanding debt balance. At March 31, 2018, the net debt balance (total debt less cash) decreased to $4.3 million from $12.4 million at December 31, 2017.
393396788_chart-3bb5b056981e99289dc.jpg
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 first quarter of 2018, InvisibleShield cellphone screen protection quarterly dollar market share has increased from 29% to a record 53%.
393396788_chart-eb76a1f429cde062a5b.jpg
Battery Cases & Power Management
Since the fourth quarter of 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. Quarterly battery case dollar market share increased from 44% to a record 66% from fourth quarter 2016 to first quarter 2018.
393396788_chart-4691bd11022eec2010e.jpg
Portable power dollar market share increased from 19% to 36% from fourth quarter 2016 to first quarter 2018.
393396788_chart-ebf831df84a03920624.jpg
2018 Business Outlook
The Company reiterated the following annual guidance for 2018:
Net sales of $550 million to $570 million
Gross profit margin as a percentage of net sales in the low to mid 30's range
Adjusted EBITDA of $77 million to $80 million
Diluted earnings per share of $1.30 to $1.50
Annual effective tax rate of approximately 27%
393396788_chart-3845e99b1fde9dee317.jpg
*
Represents the midpoint of guidance of $550 million to $570 million
About Non-GAAP Financial Information
This Supplemental Financial Information - CFO Commentary (“CFO Commentary”) includes Adjusted EBITDA as a non-GAAP financial measure. Readers are cautioned that Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, other income (expense), mophie transaction expenses and 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, is as there may be significant factors or trends that it fails to address. As such, it should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. 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. We have provided a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures in the supplemental financial information attached to the press release to which this CFO Commentary is also attached.
Cautionary Note Regarding Forward-Looking Statements
This CFO Commentary contains (and oral communications made by us may contain) ““forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “target,” “future,” “seek,” “likely,” “strategy,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our outlook for the Company and statements that estimate or project future results of operations or the performance of the Company.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, 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 our 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,
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;
k.
adoption of or changes in accounting policies, principles, or estimates; and
l.
changes in tax laws and regulations.

Any forward-looking statement made by us in this CFO Commentary 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 our most recent Annual Report on Form 10-K and other reports we file 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. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. The forward-looking statements contained in this CFO Commentary are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

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