Press Release

UPDATE: ZAGG Reports 2017 Third Quarter and Nine Months Results; Company Raises 2017 Outlook

Company Release - 11/1/2017 5:51 PM ET

SALT LAKE CITY, Nov. 01, 2017 (GLOBE NEWSWIRE) -- A release issued earlier today by ZAGG Inc. (Nasdaq:ZAGG) has been updated to include financial statements. The updated release follows:

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, 2017September 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, 2017September 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.

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.

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

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)   
              

 

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   
             
             

 

Source: ZAGG Inc