OREANDA-NEWS. May 11, 2016. ZAGG Inc (NASDAQ:ZAGG), a leading global mobile lifestyle company, today announced financial results for the first quarter ending March 31, 2016. First quarter results include the financials of mophie from the transaction date of March 3, 2016 through March 31, 2016.

Highlights (Comparisons versus first quarter of 2015)

  • Net sales grew 9% to \\$62.4 million as compared to \\$57.2 million
    • Screen protection sales +14%; audio +20%; power management +383%
    • International sales +67%; internet sales +95%
  • Gross margin of \\$23.7 million (38% of net sales) compared to \\$23.0 million (40% of net sales); ZAGG (ex-mophie margins) increased to 42% compared to 40%
  • mophie integration moving forward ahead of original plan
  • Maintains 2016 overall annual guidance; net sales and Adjusted EBITDA potentially at the low end of the range

“We are very pleased with our overall results for the first quarter,” commented Randy Hales, President and Chief Executive Officer of ZAGG Inc. “It has been an extremely busy and productive quarter as we continued to focus on building a strong company while finalizing the mophie acquisition and initiating integration activities.”

“These integration efforts with mophie are ahead of plan. We are working to improve inventory management, optimize our teams, and align processes within the company with a focus on quickly ramping up their supply chain capacity,” continued Mr. Hales.  “We are maintaining our 2016 annual guidance of \\$460 million to \\$500 million for net sales and \\$60 million to \\$65 million for Adjusted EBITDA, with the potential that results could be at the lower end of the range due to the delays with the supply chain ramp-up.”

Company Completes Merger with mophie
On March 3, 2016 the Company completed its previously announced acquisition of mophie inc. Results stated in this release reflect contribution from mophie as of the closing date through the end of the first quarter. After the acquisition date, several key integration initiatives commenced, including the following:  optimization of the sales organizations to leverage cross selling opportunities and maximize sales potential; initiating collaborative product development efforts; implementing sales forecasting and supply chain management processes; and aligning resources across finance/accounting, HR and IT.

2016 First Quarter Results
 
(in millions, except per share amounts)March 31,
2016		March 31,
2015
Net Sales\\$62.4 \\$57.2 
Gross Profit (Gross Profit %)\\$23.7 (38%)\\$23.0 (40%)
Net Income (Loss) \\$(3.3)\\$3.2 
Diluted Earnings (Loss) per Share\\$(0.12)\\$0.11 
Adjusted EBITDA (EBITDA %)\\$
5.1 (8%)\\$9.3 (16%)
Adjusted Net Income (Loss)*\\$(0.8) - 
Adjusted Earnings (Loss) per Share*\\$(0.03) - 
*Reflects add back of costs incurred directly related to the mophie acquisition, net of tax, including:  (1) \\$2.0 million of transaction costs, (2) \\$1.2 million in cost of goods sold impact related to the fair value write-up of mophie inventory at acquisition, and (3) \\$0.8 million in amortization from mophie acquired intangibles. There is no impact on 2015 as all charges occurred during 2016.
 

First Quarter Results (Comparisons versus first quarter of 2015)

Net sales for the first quarter grew 9% to \\$62.4 million compared to \\$57.2 million, primarily due to sales from mophie of \\$7.6 million from the March 3, 2016 acquisition date to the end of the quarter, as well as higher sales of screen protection, audio, power management, and power cases. These increases were partially offset by a decline in tablet keyboards sales due to overall softness in the tablet market and significant tablet keyboard sell-in at key retailers during the first quarter of 2015 that did not recur in 2016.

Gross profit was \\$23.7 million, or 38% of net sales, compared to \\$23.0 million, or 40% of net sales. This decline was due to \\$1.2 million in expense recorded through cost of sales related to the sale of acquired mophie inventory that was recorded at fair value through purchase accounting, and the impact of mophie gross profit margins, which were lower than the Company’s historical gross profit margins. ZAGG (excluding mophie) gross margin increased to 42% compared to 40% in 2015.

The Company recorded a net loss for the quarter of (\\$3.3) million, compared to net income of \\$3.2 million, with fully diluted loss per share of (\\$0.12) (on 27.7 million shares) compared to \\$0.11 (on 29.7 million shares). The decline in earnings was due to the gross margin pressure described above, as well as acquisition expenses of \\$2.0 million, the inclusion of mophie operating expenses from the date of the acquisition to the end of the quarter, increases in salaries and benefits, and increased stock-based compensation expenses.

Additional Non-GAAP Financial Information – Adjusted EBITDA and Adjusted Net Loss

Adjusted EBITDA was \\$5.1 million or 8% of net sales, compared to \\$9.3 million or 16% of net sales.

This is the first reported quarter since the closing of the mophie acquisition. The Company incurred expenses and charges related to the acquisition, and has added an additional non-GAAP metric, Adjusted Net Loss, which adjusts for the effect of transaction related expenses and the fair value write-up of mophie inventory related to the acquisition.

Adjusted Net Loss was (\\$0.8) million or (\\$0.03) per diluted share.

2016 Business Outlook (reflecting 10 months of mophie contribution)
The Company maintains overall guidance at this time, while updating the forecast for net sales and Adjusted EBITDA to be at the low end of the range due to a slower start to mophie sales related to supply chain constraints.

The Company’s annual guidance for 2016 is as follows:

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

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), mophie transaction costs, and mophie fair value inventory write-up)  and Adjusted Net Loss (earnings before mophie transaction costs, mophie fair value inventory write-up, and amortization from acquired intangibles – all net of tax) contained in this commentary are not financial measures 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 and Adjusted Net Loss because we believe that they are 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.

Conference Call
A conference call will be held today at 5:00 p.m. EDT 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 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
       
    March 31, December 31,
     2016   2015 
       
ASSETS    
       
Current assets   
 Cash and cash equivalents\\$  6,162  \\$  13,002 
 Accounts receivable, net of allowances of \\$679 in 2016 and \\$568 in 2015   53,170     57,647 
 Inventories   83,755     45,912 
 Prepaid expenses and other current assets   2,258     3,142 
 Income tax receivable   11,879     1,158 
 Deferred income tax assets   36,725     10,840 
       
Total current assets   193,949     131,701 
       
Property and equipment, net of accumulated depreciation of \\$12,053 in 2016 and \\$10,539 in 2015   21,640     8,309 
       
Goodwill    14,092     -  
       
Intangible assets, net of accumulated amortization of \\$44,571 in 2016 and \\$41,803 in 2015   65,739     23,045 
       
Deferred income tax assets   -      15,386 
       
Other assets   2,346     1,100 
       
Total assets\\$  297,766  \\$  179,541 
       
LIABILITIES AND STOCKHOLDERS' EQUITY    
       
Current liabilities   
 Accounts payable\\$  54,495  \\$  33,846 
 Accrued liabilities   12,297     5,068 
 Accrued wages and wage related expenses   2,890     2,244 
 Deferred revenue   25     17 
 Sales returns liability   20,773     7,849 
 Current portion of long-term debt, net of deferred loan costs of \\$64 in 2016   6,186     -  
 Revolving line of credit   50,545     -  
       
Total current liabilities   147,211     49,024 
       
Noncurrent portion of long-term debt, net of deferred loan costs of \\$187 in 2016   18,563     -  
       
Deferred income tax liabilities   2,593     -  
       
Other noncurrent liabilities   513     -  
       
Total liabilities   168,880     49,024 
       
Stockholders' equity    
 Common stock, \\$0.001 par value; 100,000 shares authorized;   
  33,812 and 33,219 shares issued in 2016 and 2015, respectively   34     33 
 Additional paid-in capital   90,322     88,983 
 Accumulated other comprehensive loss   (1,278)    (1,597)
 Treasury stock, 5,679 and 5,679 common shares in 2016 and 2015 respectively, at cost   (35,194)    (35,194)
 Retained earnings   75,002     78,292 
       
Total stockholders' equity   128,886     130,517 
       
Total liabilities and stockholders' equity\\$  297,766  \\$  179,541 
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
       
    Three Months Ended
  March 31, 2016 March 31, 2015
       
       
Net sales \\$  62,432  \\$  57,216 
Cost of sales    38,703     34,258 
       
Gross profit    23,729     22,958 
       
Operating expenses:    
 Advertising and marketing    2,914     2,631 
 Selling, general and administrative    19,755     12,754 
 Transaction costs    2,017     -  
 Amortization of definite-lived intangibles    2,746     2,134 
       
Total operating expenses    27,432     17,519 
       
Income (loss) from operations    (3,703)    5,439 
       
Other (expense) income:    
 Interest expense    (188)    (27)
 Other (expense) income    (200)    80 
       
Total other (expense) income    (388)    53 
       
Income (loss) before provision for income taxes    (4,091)    5,492 
       
Income tax benefit (provision)    801     (2,292)
       
Net (loss) income \\$  (3,290) \\$  3,200 
       
Earnings (loss) per share:    
       
 Basic earnings (loss) per share \\$  (0.12) \\$  0.11 
       
 Diluted earnings (loss) per share \\$  (0.12) \\$  0.11 
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 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   
  March 31, 2016 March 31, 2015 
        
Net income (loss) in accordance with GAAP \\$  (3,290) \\$  3,200  
        
 Adjustments:     
        
 a.Stock based compensation expense    1,336     876  
 b.Depreciation and amortization    4,263     2,940  
 c.Other (income) expense    388     (53) 
 d. mophie transaction costs    2,017     -   
 e. mophie fair value inventory write-up related to acquisition    1,156     -   
 f.Provision for income taxes    (801)    2,292  
        
Adjusted EBITDA \\$  5,069  \\$  9,255  
        
        
Adjusted Net Income (Loss) Reconciliation - Three Months Ended March 31, 2016 and 2015  Three months ended   
  March 31, 2016 March 31, 2015 
        
Net income (loss) in accordance with GAAP \\$  (3,290) \\$  3,200  
        
 Adjustments:     
        
 a.Amortization of mophie acquired intangibles    819     -   
 b.mophie transaction costs    2,017     -   
 c.mophie fair value inventory write-up related to acquisition    1,156     -   
 d.Income tax effects    (1,527) *    -   
        
Adjusted net income (loss) \\$  (825) \\$  3,200  
        
Adjusted diluted earnings (loss) per share \\$  (0.03) \\$  0.11  
        
Weighted average number of shares outstanding - diluted    27,710     29,678  
        
 * For comparative purposes, we applied an annualized statutory tax rate of 38.25% in 2016.