ZAGG Inc. Reports Third Quarter Financial Results

  • Consolidated revenue of $59.8 million
  • Operating income of $7.1 million
  • Diluted EPS of $0.11, non-GAAP diluted EPS $0.26
  • Adjusted EBITDA of $12.0 million
  • Company raises 2012 revenue and adjusted EBITDA guidance

SALT LAKE CITY--()--ZAGG Inc. (NASDAQ: ZAGG) (www.ZAGG.com), a market leader in innovative mobile device accessories and technologies, today announced financial results for the third quarter ended September 30, 2012.

Third Quarter Highlights (third quarter 2012 versus third quarter 2011)

  • Consolidated revenue increased 30% to $59.8 million
  • Operating income up 54% to $7.1 million
  • Gross margin of 44.5%
  • Diluted EPS increased 57% to $0.11
  • Non-GAAP net income increased 12% to $8.2 million, or $0.26 per diluted share

"We were pleased to see the business continue to advance, with year-over-year growth of 30%. During the quarter the company introduced several new products while continuing to focus and build upon our three strategic objectives: Creative Product Solutions; The Preferred Brand; and Targeted Global Distribution," said Randy Hales, President and interim CEO of ZAGG.

Third Quarter Results

Consolidated revenue for the third quarter of 2012 increased 30% to $59.8 million from $45.9 million in the same quarter last year. Revenue by channel was 84% through indirect channels, 10% through ZAGG.com and iFrogz.com and 6% through the company’s mall cart and kiosk programs.

Gross profit for the third quarter of 2012 was $26.6 million or 44.5% of net sales, representing a 37% increase, versus $19.5 million or 42.4% of net sales in the third quarter of the prior year.

Operating income for the third quarter of 2012 was $7.1 million compared to $4.6 million for the third quarter of 2011, an increase of 54%.

Net income attributable to stockholders for the third quarter of 2012 was $3.4 million or $0.11 per diluted share as compared to net income attributable to stockholders of $2.2 million or $0.07 per diluted share in the third quarter of 2011.

Non-GAAP net income attributable to stockholders for the third quarter of 2012 was $8.2 million or $0.26 per diluted share as compared to non-GAAP net income attributable to stockholders of $7.3 million or $0.23 per diluted share in the third quarter of 2011 and $9.2 million or $0.29 per diluted share in the prior quarter.

Adjusted EBITDA for the third quarter of 2012 was $12.0 million versus $11.7 million of adjusted EBITDA in the third quarter of 2011, representing an increase of 3% over the prior year’s third quarter results.

About Non-GAAP Financial Information

ZAGG considers earnings before stock-based compensation expense, depreciation and amortization, iFrogz acquisition expenses, iFrogz inventory fair value write-up, provision for income taxes, impairment of note receivable, other expense, and noncontrolling interest ("Adjusted EBITDA") to be an important financial indicator of the Company's operational strength and the performance of its business.

In addition, ZAGG considers net income attributable to stockholders before stock-based compensation expense, depreciation and amortization, iFrogz acquisition expenses, iFrogz inventory fair value write-up, impairment of note receivable, other expense, expense related to the former CEO’s departure, and noncontrolling interest (“non-GAAP net income attributable to stockholders”) to be a valuable metric 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 non-GAAP income attributable to stockholders, 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

ZAGG is increasing full year guidance for 2012 revenue to $259.0 million —$262.0 million, from the previous forecast of $256 million, and Adjusted EBITDA of $59.0 million — $62.0 million, from the previous range of $56 – $61 million. This compares to reported revenue for 2011 of $179.1 million and Adjusted EBITDA of $45.3 million.

Conference Call

A conference call will be held today at 5:30 p.m. EDT to review these results. Participants may access via the Internet at the event website and on the Company website at: investors.ZAGG.com. A podcast of the event will also be available online.

Non-GAAP Financial Disclosure

Investors are cautioned that the Adjusted EBITDA and non-GAAP net income attributable to stockholders (both defined above) contained in this press release are not financial measures under generally accepted accounting principles. In addition, they should not be construed as alternatives to any other measures of performance determined in accordance with generally accepted accounting principles, or as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We present this financial information because we believe that it is helpful to some investors as a measure of our performance. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.

Safe Harbor Statement

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" describe future expectations, plans, results, or strategies and are generally preceded by words such as "may," "future," "plan" or "planned," "will" or "should," "expected," "anticipates," "draft," "eventually" or "projected." You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements as a result of various factors, and other risks identified in filings made by the company with the Securities and Exchange Commission. We disclaim any obligation to update any forward looking statement contained in this release.

For more information about ZAGG or any of their products, please visit ZAGG.com.

About ZAGG Inc.

Headquartered in Salt Lake City, Utah, ZAGG Inc. (NASDAQ: ZAGG) is a global mobile device accessories and technology company that provides creative, quality product solutions to protect, personalize and enhance a consumer’s mobile experience. With a brand portfolio that includes ZAGG® and iFrogz, ZAGG manufactures and markets a complete line of mobile device accessories, including keyboards, cases, audio and protective films, through direct, retail, specialty and international channels. ZAGG was formed in 2005 and had gross sales of $179 million in 2011. More information about the company and its brands is at www.ZAGG.com.

 

ZAGG INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
           
 
September 30, December 31,
2012       2011
 
ASSETS
 
Current assets
Cash and cash equivalents $ 16,344 $ 26,433
Accounts receivable, net of allowances of $3,074 in 2012 and $2,070 in 2011 44,995 45,450
Inventories 34,445 29,622
Prepaid expenses and other current assets 4,264 1,593
Income tax receivable 1,888 -
Deferred income tax assets         6,728           5,132  
 
Total current assets 108,664 108,230
 
Investment in HzO 3,398 4,879
 
Property and equipment, net of accumulated depreciation at $2,708 in 2012 and $1,857 in 2011 4,955 4,162
 
Goodwill 6,925 6,925
 
Intangible assets, net of accumulated amortization at $11,351 in 2012 and $3,989 in 2011 66,400 73,691
 
Deferred income tax assets 82 82
 
Note receivable 583 1,349
 
Other assets         3,014           3,010  
 
Total assets       $ 194,021         $ 202,328  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities
Accounts payable $ 16,019 $ 16,013
Income taxes payable - 4,294
Accrued liabilities 3,908 3,886
Accrued wages and wage related expenses 1,500 1,468
Deferred revenue 287 320
Current portion of note payable - 2,372
Sales returns liability         4,995           5,387  
 
Total current liabilities         26,709           33,740  
 
Revolving line of credit 3,534 23,332
 
Noncurrent portion of note payable         41,000           42,628  
 
Total liabilities         71,243           99,700  
 
Stockholders' equity

Common stock, $0.001 par value; 100,000 shares authorized; 30,401 and 29,782 shares issued and outstanding, respectively

30 30
Additional paid-in capital 76,247 70,248
Accumulated other comprehensive income (193 ) (33 )
Note receivable collateralized by stock (566 ) (566 )
Retained earnings         47,260           32,949  
 
Total stockholders' equity         122,778           102,628  
 
Total liabilities and stockholders' equity       $ 194,021         $ 202,328  
 
 
                   

ZAGG INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended Nine Months Ended
September 30, 2012     September 30, 2011 September 30, 2012     September 30, 2011
 
 
Net sales $ 59,828 $ 45,887 $ 176,943 $ 111,565
Cost of sales         33,203         26,414           94,980         61,043  
 
Gross profit         26,625         19,473           81,963         50,522  
 
Operating expenses:
Advertising and marketing 3,378 2,763 8,181 7,880
Selling, general and administrative 13,707 10,305 38,237 26,719
Amortization of definite-lived intangibles         2,422         1,791           7,313         2,198  
 
Total operating expenses         19,507         14,859           53,731         36,797  
 
Income from operations 7,118 4,614 28,232 13,725
 
Other income (expense):
Interest expense (1,012 ) (1,399 ) (3,519 ) (1,570 )
Loss from equity method investment in HzO (545 ) - (1,481 ) -
Other income and (expense)         (215 )       126           (237 )       137  
 
Total other expense         (1,772 )       (1,273 )         (5,237 )       (1,433 )
 
Income before provision for income taxes         5,346         3,341           22,995         12,292  
 
Income tax provision         (1,958 )       (1,241 )         (8,684 )       (4,335 )
 
Net income         3,388         2,100           14,311         7,957  
 
Net loss attributable to noncontrolling interest - 148 - 345
 
Net income attributable to stockholders       $ 3,388       $ 2,248         $ 14,311       $ 8,302  
 
Earnings per share attributable to stockholders:
 
Basic earnings per share $ 0.11   $ 0.07   $ 0.47   $ 0.31  
 
Diluted earnings per share $ 0.11   $ 0.07   $ 0.45   $ 0.29  
 
 
                   

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 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, 2012     September 30, 2011       September 30, 2012     September 30, 2011
 
 
Net income attributable to stockholders in accordance with GAAP $ 3,388 $ 2,248 $ 14,311 $ 8,302
 
Adjustments:
 
a. Stock based compensation expense 2,087 406 4,922 2,674
b. Depreciation and amortization 2,823 2,400 8,506 3,463
c. iFrogz acquisition expenses - 119 - 1,947
d. iFrogz inventory fair value write up - 3,063 - 3,642
e. Provision for income taxes 1,958 1,241 8,684 4,335
f. Impairment of note receivable - 1,071 - 1,071
g. Other expense 1,772 1,273 5,237 1,433
    h.   Noncontrolling interest         -         (148 )         -         (345 )
 
Adjusted EBITDA       $ 12,028       $ 11,673         $ 41,660       $ 26,522  
 
 
Non-GAAP Reconciliation Three months ended Nine months ended
                September 30, 2012     September 30, 2011       September 30, 2012     September 30, 2011
 
 
Net income attributable to stockholders in accordance with GAAP $ 3,388 $ 2,248 $ 14,311 $ 8,302
 
Adjustments:
 
a. Stock based compensation expense 2,087 406 4,922 2,674
c. Depreciation and amortization 2,823 2,400 8,506 3,463
d. iFrogz acquisition expenses - 119 - 1,947
e. iFrogz inventory fair value write up - 3,063 - 3,642
f. Impairment of note receivable - 1,071 - 1,071
g. Other expense 1,772 1,273 5,237 1,433
h. Noncontrolling interest - (148 ) - (345 )
i. CEO departure expense 910 - 910 -
    j.   Income tax effects         (2,781 )       (3,122 )         (7,392 )       (5,332 )
 
Non-GAAP net income attributable to stockholders $ 8,199 $ 7,310 $ 26,494 $ 16,855
 
Non-GAAP EPS attributable to stockholders       $ 0.26       $ 0.23         $ 0.84       $ 0.60  
 
Weighted average number of shares outstanding - diluted         31,734         31,375           31,647         28,308  
 
 
Non-GAAP Reconciliation Three months ended
                June 30, 2012
 
 
Net income attributable to stockholders in accordance with GAAP $ 5,812
 
Adjustments:
 
a. Stock based compensation expense 1,494
b. Depreciation and amortization 2,862
c. Other expense 1,235
    d.   Income tax effects         (2,189 )
 
Non-GAAP net income attributable to stockholders $ 9,214
 
Non-GAAP EPS attributable to stockholders       $ 0.29  
 
Weighted average number of shares outstanding - diluted         31,738  

Contacts

Investor Relations:
Genesis Select Corp.
Kim Rogers-Carrete, 303-415-0200
krogersc@genesisselect.com
or
Media:
Lane PR
Jane Taber, 503-546-7888
jane@lanepr.com
or
Company:
ZAGG Inc.
Nathan Nelson, 801-263-0699 ext. 107
nnelson@zagg.com

Release Summary

ZAGG Inc. Reports Third Quarter Financial Results

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Contacts

Investor Relations:
Genesis Select Corp.
Kim Rogers-Carrete, 303-415-0200
krogersc@genesisselect.com
or
Media:
Lane PR
Jane Taber, 503-546-7888
jane@lanepr.com
or
Company:
ZAGG Inc.
Nathan Nelson, 801-263-0699 ext. 107
nnelson@zagg.com