Press Release

ZAGG Reports Record Net Sales for 2015, Announces Closing of Merger With mophie

Company Release - 3/8/2016 4:01 PM ET
  • Record net sales of $269.3 million compared to $261.6 million in 2014
  • Gross margins improved to 38% compared to 32% in 2014
  • GAAP earnings per diluted share of $0.54, a 59% increase compared to $0.34 in 2014
  • Adjusted EBITDA of $42.2 million, a 31% increase compared to $32.1 million in 2014
  • Merger with mophie creates diversified leader in multiple mobile accessories categories
  • 2016 net sales guidance of $460 - $500 million

SALT LAKE CITY, March 08, 2016 (GLOBE NEWSWIRE) --  ZAGG Inc (Nasdaq: ZAGG), a leading global mobile device accessories company, today announced financial results for the fourth quarter and full year ending December 31, 2015.

“We are pleased with our 2015 results, including our record sales for the InvisibleShield screen protection line as a result of improved distribution and increased consumer interest in protecting their mobile devices,” commented Randy Hales, President and Chief Executive Officer of ZAGG Inc. “The ZAGG team’s focus on our corporate objectives led to significant improvements in gross margins, earnings per share, Adjusted EBITDA, and overall enterprise value.”

2015 Full Year Results
 
(in millions, except per share amounts)December 31, 2015December 31, 2014
Net Sales$269.3 $261.6 
Gross Profit (Gross Profit %)$101.7 (38%) $83.3 (32%) 
Net Income $15.6 $10.5 
Diluted Earnings per Share$0.54 $0.34 
Adjusted EBITDA (Margin %)$42.2 (16%) $32.1 (12%) 


Cumulative Results for 2015

Net sales for 2015 increased 3% to a record $269.3 million compared to $261.6 million in 2014.  This increase was due to the expansion of screen protection sales to existing customers along with expanded distribution to new customers in the U.S. and Europe. Partially offsetting these gains were lower sales in tablet keyboards associated with overall softness in the tablet market, lower audio sales due to reduced product placement at a key customer compared to 2014, and lower sales in portable power.

Gross profit improved to $101.7 million, (38% of net sales) compared to $83.3 million (32% of net sales) in 2014. The increase in gross profit percentage was primarily due to a favorable sales mix shift to higher screen protection sales, a write-down in inventory in 2014 that did not recur in 2015, as well as improved operational efficiencies throughout the year.

Net income improved to $15.6 million, compared to $10.5 million in 2014, with diluted earnings per share improving significantly to $0.54 (on 29.1 million diluted shares) compared to $0.34 (on 30.6 million diluted shares).

Adjusted EBITDA increased 31% to $42.2 million (16% of net sales) versus $32.1 million (12% of net sales) in 2014.

2015 Fourth Quarter Results
 
(in millions, except per share amounts)December 31, 2015December 31, 2014
Revenue$78.6 $102.4 
Gross Profit (Gross Profit %)$28.9 (37%) $39.6 (39%) 
Net Income $5.0 $13.0 
Diluted Earnings per Share$0.18 $0.43 
Adjusted EBITDA$12.7 (16%) $24.3 (24%) 


Fourth Quarter Results
Net sales for the fourth quarter were $78.6 million compared to $102.4 million in 2014 when the Company experienced record net sales of InvisibleShield brand screen protection related to the launch of the new iPhone 6 and 6 Plus. In the fourth quarter of 2015, screen protection products experienced relatively strong sales despite the absence of a new form factor for the 2016 iPhone launches.  The strength in screen protection sales in the quarter was offset by a decline in tablet keyboards sales due to overall softness in the tablet market, as well as declines in sales of audio and portable power products.

Gross profit was $28.9 million, or 37% of net sales, compared to $39.6 million, or 39% of net sales, in 2014. The decrease in gross profit percentage was due to a lower mix of screen protection sales, partially offset by improved operational efficiencies.

Net income was $5.0 million, compared to net income of $13.0 million in the fourth quarter of 2014, with fully diluted earnings per share of $0.18 (on 28.0 million fully diluted shares) compared to $0.43 (on 30.3 million diluted shares), respectively.

Share Repurchase Summary
In 2015, the Company repurchased 2.0 million shares ($14.9 million) at an average price of $7.32 per share. On October 30, 2015, the Board of Directors approved an additional share repurchase authorization of $20.0 million with no stated expiration date. Since March 2013, the Company has repurchased $34.5 million of ZAGG stock, or 5.6 million shares, at an average price of $6.13.

Company Completes Merger with mophie
On March 3, 2016 the Company completed its previously announced acquisition of mophie inc. for $100 million. The merger was funded with a combination of cash, $25.0 million term loan and a portion of an $85.0 million asset backed credit facility led by KeyBank, with an interest rate of LIBOR plus approximately 200 basis points. The agreement allows for an additional earn-out potential of 5x Adjusted EBITDA in excess of $20 million earned during the period beginning April 1, 2016 and ending March 31, 2017. 

“We are very excited to announce the closing of our strategic merger with mophie, the market leader in battery cases and external power for mobile devices,” continued Mr. Hales. “The acquisition further positions ZAGG as a leading accessories innovation company with a more diverse product offering and broader distribution footprint that can be leveraged to increase enterprise value for ZAGG stockholders.”

2016 Combined Company Business Outlook (reflecting 10 months of mophie contribution)
The Company provided the following consolidated annual guidance for 2016, which only includes approximately ten months of operations from mophie (from the acquisition date of March 3, 2016 through December 31, 2016):

  • Net sales of $460 - $500 million
  • Gross profit margin in a range of low to mid 30’s
  • Adjusted EBITDA of $60 - $65 million
  • Annual effective tax rate to be approximately 40%

To assist in understanding the 12-month combined operations and expected contribution from ZAGG and mophie’s operations during 2016, the following table details (1) net sales and Adjusted EBITDA for ZAGG, mophie and on a consolidated, full year basis (including the expected mophie 2016 operations prior to and post-acquisition) and (2) the consolidated full-year guidance covering the period post-acquisition.

     Net Sales   Adjusted EBITDA
(in millions)201520162016  2016 2016
Annual Guidance (includes 12 months mophie results, as if acquired 1/1/16)
   ActualLowHigh  Low High
ZAGG  $ 269 $285 $305   $44  $47 
  Growth %  6% 13% Margin % 15%  15%
mophie  $203* $210 $230   $20  $22 
  Growth %  3% 13% Margin % 10%  10%
 
Consolidated
  

$
 

 472
 

$
 

495
 

$
 

535
   

$
 

64
  

$
 

69
 
  Growth %  5% 13% Margin % 13%  13%
          
Annual Guidance (includes mophie results post 3/3/16 closing)**  
 

Consolidated
    $442*** $460 $500   $  60 $65 
  Growth %  4% 13% Margin %   13% 13%
                  
* Estimated 2015 net sales (unaudited) for mophie
** Reflects full year ZAGG results and mophie 10 month results adjusted for March 3, 2016 closing
*** Reflects full year ZAGG results and estimated 2015 ten month mophie results (unaudited) for comparative purposes only
 

Conference Call

A conference call will be held today 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.

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 Samsung and Apple; (d) changes or delays in announced launch schedules for new mobile devices by major manufacturers like Samsung and Apple; (e) the ability to successfully integrate new operations or acquisitions, 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; (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 Non-GAAP Financial Information
Readers are cautioned that the Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, other income (expense), recovery of reserves on note receivable, and mophie transaction expenses) contained in this commentary 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 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. 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.

About ZAGG Inc

ZAGG is a global leader in accessories and technologies that empower mobile lifestyles. Widely acclaimed for product innovation, the Company has a diverse, award-winning portfolio sold under the ZAGG®, mophie®, InvisibleShield®, and iFrogz® brands. The Company’s brands can be found at leading retailers worldwide. ZAGG has operations in the United States, Ireland, Netherlands, and China.  For more information, please visit the company’s websites at www.zagg.com and www.mophie.com .

 
ZAGG INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
       
    2015 2014
       
ASSETS    
       
Current assets   
 Cash and cash equivalents$13,002  $9,461 
 Accounts receivable, net of allowances of $568 in 2015 and $1,910 in 2014 57,647   75,729 
 Inventories 45,912   48,378 
 Prepaid expenses and other current assets 3,142   2,681 
 Income tax receivable 1,158   - 
 Deferred income tax assets 10,840   10,774 
       
Total current assets 131,701   147,023 
       
Property and equipment, net of accumulated depreciation at $10,539 in 2015 and $7,659 in 2014 8,309   7,300 
       
Intangible assets, net of accumulated amortization at $41,803 in 2015 and $33,242 in 2014 23,045   31,408 
       
Deferred income tax assets 15,386   14,290 
       
Note receivable, net -   801 
       
Other assets 1,100   457 
       
Total assets$179,541  $201,279 
       
LIABILITIES AND STOCKHOLDERS' EQUITY    
       
Current liabilities   
 Accounts payable$33,846  $49,379 
 Income taxes payable -   6,464 
 Accrued liabilities 5,068   6,910 
 Accrued wages and wage related expenses 2,244   2,600 
 Deferred revenue 17   179 
 Sales returns liability 7,849   8,674 
       
Total current liabilities 49,024   74,206 
       
Stockholders' equity    
 Common stock, $0.001 par value; 100,000 shares authorized;   
  33,219 and 32,686 shares issued in 2015 and 2014, respectively 33   33 
 Additional paid-in capital 88,983   85,154 
 Accumulated other comprehensive income (loss) (1,597)  (895)
 Note receivable collateralized by stock, net -   (348)
 Treasury stock, 5,679 and 3,569 common shares in 2015 and 2014 respectively, at cost (35,194)  (19,576)
 Retained earnings 78,292   62,705 
       
Total stockholders' equity 130,517   127,073 
       
Total liabilities and stockholders' equity$179,541  $201,279 

 

ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
         
         
  Three Months Ended  Twelve Months Ended 
  December 31, 2015 December 31, 2014 December 31, 2015 December 31, 2014
         
         
Net sales $78,632  $102,415  $269,311  $261,585 
Cost of sales  49,733   62,800   167,627   178,241 
         
Gross profit  28,899   39,615   101,684   83,344 
         
Operating expenses:        
Advertising and marketing  2,986   2,779   10,436   7,542 
Selling, general and administrative  15,918   14,335   56,931   49,110 
Amortization of definite-lived intangibles  2,051   2,427   8,453   9,709 
         
Total operating expenses  20,955   19,541   75,820   66,361 
         
Income from operations  7,944   20,074   25,864   16,983 
         
Other income (expense):        
Interest expense  (16)  (47)  (97)  (170)
Other income and (expense)  (15)  (82)  (69)  121 
         
Total other income (expense)  (31)  (129)  (166)  (49)
         
Income before provision for income taxes  7,913   19,945   25,698   16,934 
         
Income tax provision  (2,956)  (6,946)  (10,111)  (6,473)
         
Net income $4,957  $12,999  15,587  10,461 
         
Earnings per share attributable to stockholders:        
         
Basic earnings per share
 $0.18  $0.44  $0.54  $0.35 
         
Diluted earnings per share
 $0.18  $0.43  $0.54  $0.34 

 

ZAGG INC AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(Unaudited)
           
Unaudited Supplemental Data        
           
The following are not financial measures under generally accepted accounting principals (GAAP).  In addition, they 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  Twelve Months Ended 
  December 31, 2015 December 31, 2014 December 31, 2015 December 31, 2014
           
           
Net income in accordance with GAAP $4,957  $12,999  $15,587  $10,461 
           
Adjustments:
        
           
a.Stock based compensation expense  1,185   572   3,893   2,249 
b.Depreciation and amortization  3,372   3,684   12,923   12,879 
c.Recovery of reserves on note receivable  -   -   (639)  - 
d.mophie transaction expenses  179   -   179   - 
e.Other (income) expense  31   129   166   49 
 f.Provision for income taxes  2,956   6,946   10,111   6,473 
           
Adjusted EBITDA $12,680  $24,330  $42,220  $32,111 
           
CONTACT:

Investor Relations:

ZAGG Inc
Kim Rogers
801-506-7008
kim.rogers@zagg.com

Press Inquiries:

Lorraine Woodcheke
Edelman
415-486-3284
Lorraine.Woodcheke@Edelman.com

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Source: ZAGG Inc