ZAGG Inc Reports Financial Results For Fourth Quarter And Full Year 2012

  • Net sales of $87.5 million for the fourth quarter and net sales of $264.4 million for the full year 2012
  • Adjusted EBITDA of $20.9 million for the fourth quarter and Adjusted EBITDA of $62.6 million for the full year 2012
  • GAAP diluted EPS of $0.01 for the fourth quarter and pro forma diluted EPS of $0.37 and GAAP diluted EPS of $0.46 for the full year 2012 and pro forma diluted EPS of $1.14
  • Net sales guidance of $313.0 million - $318.0 million and adjusted EBITDA of $69.0 million - $71.0 million for the full year 2013

SALT LAKE CITY, Feb. 26, 2013 (GLOBE NEWSWIRE) -- ZAGG Inc (Nasdaq:ZAGG) ( www.ZAGG.com), a market leader in innovative mobile device accessories and technologies, today announced financial results for the fourth quarter and full year ended December 31, 2012.

Fourth Quarter Highlights (fourth quarter 2012 versus fourth quarter 2011)
  • Net sales increased 30% to $87.5 million
  • Gross margins of 44.1%
  • Operating income of $5.3 million; excluding a non-cash impairment charge of $11.5 million, operating income was up 17% to $16.8 million
  • Adjusted EBITDA increase of 12% to $20.9 million
  • Generated over $2.0 million in operating cash flow
  • Ending cash and cash equivalents balance of $20.2 million
  • Keyboard sales increased 164% representing 28% of net sales
  • invisibleSHIELD sales represented 43% of net sales

"We are very pleased with our record fourth quarter revenue and Adjusted EBITDA, as we experienced strong sales volume in all product categories during the 2012 holiday season. This quarter we successfully refinanced our debt, substantially lowering our interest expense for 2013 and beyond. We will be using some of our cash from operations to pay down debt as well as to purchase our stock opportunistically in the open market," said Brandon O'Brien, ZAGG CFO. "Gross margins in the quarter were impacted by airfreight charges linked to the iPhone 5 and iPad mini launches, as well as airfreight charges to meet certain urgent needs of some retail partners. Another impact on gross margins was the product mix. Though sales in all product categories increased year-over-year, sales of keyboards increased significantly faster than invisibleSHIELDs, our highest margin product," continued Mr. O'Brien. "We made an important brand strategy change during the fourth quarter by placing greater emphasis on the promotion of our core brands, ZAGG and iFrogz. As a result of this adjustment in brand focus and our lower stock price during the fourth quarter, we incurred a non-cash charge of $11.5 million against one of the secondary brands and goodwill associated with the iFrogz acquisition. With the launch of mobile gaming products later this year and growth from the existing iFrogz branded products, we look for continued expansion from iFrogz in 2013."

Fourth Quarter Results

Net sales for the fourth quarter of 2012 increased 30% to $87.5 million from $67.5 million in the same quarter last year. Revenue by channel was 82% through indirect channels, 13% through ZAGG.com and iFrogz.com and 5% through the company's mall cart and kiosk programs.

Gross profit for the fourth quarter was $38.6 million or 44.1% of net sales, representing a 23% increase, versus $31.4 million or 46.5% of net sales in the fourth quarter of the prior year. Gross profit as a percentage of sales declined primarily due to airfreight costs and change in product mix.

In the quarter, as a result of an adjustment in brand focus and lower stock price, the Company conducted an impairment analysis which resulted in a non-cash impairment charge of $11.5 million related to a trademark and goodwill from its iFrogz acquisition.

Operating income for the fourth quarter was $5.3 million. Operating income for the fourth quarter, excluding the non-cash impairment charge of $11.5 million, was $16.8 million compared to operating income of $14.4 million for the fourth quarter of 2011 and $7.1 million for the previous quarter.

Net income attributable to stockholders for the fourth quarter of 2012 was $0.2 million or $0.01 per diluted share as compared to net income attributable to stockholders of $9.9 million or $0.32 per diluted share in the fourth quarter of 2011.

Pro forma net income attributable to stockholders for the fourth quarter of 2012 was $11.9 million or $0.37 per diluted share as compared to pro forma net income attributable to stockholders of $11.1 million or $0.35 per diluted share in the fourth quarter of 2011 and $7.4 million or $0.23 per diluted share in the prior quarter.

Adjusted EBITDA for the fourth quarter of 2012 was $20.9 million versus $18.7 million of Adjusted EBITDA in the fourth quarter of 2011, representing an increase of 12% over the prior year's fourth quarter results.

Full Year 2012 Highlights (Full year 2012 versus full year 2011)

  • Net sales increased 48% to $264.4 million
  • Gross margins of 46%
  • Operating income of $33.5 million; excluding a non-cash impairment charge of $11.5 million, operating income was up 60% to $45.0 million
  • Adjusted EBITDA increase of 38% to $62.6 million
  • Keyboard sales increased 111% representing 24% of net sales
  • invisibleSHIELD sales represented 46% of net sales

"2012 has been a year of growth and maturing for ZAGG. In addition to appointing a new CEO, ZAGG added three new independent board members this year. Early in 2012, the Company established corporate objectives and a product management discipline and, as a result, ZAGG has significantly increased the breadth and depth of our product offering," said Randy Hales, President and CEO of ZAGG. "We expanded our invisibleSHIELD line, increased the number of tablet offerings, including the keyboard cases and folios, and expanded our power offering throughout 2012. At CES earlier this year, we introduced over 70 SKUs and two new product categories, gaming handsets and desktop audio. Overall, our record 2012 revenue was driven by brisk sales of keyboards, invisibleSHIELDs, and continued expansion of our distribution channels."

Full Year 2012 Results

Net sales for the full year 2012 increased 48% to $264.4 million from $179.1 million in the previous year. Revenue by channel was 82% through indirect channels, 13% through ZAGG.com and iFrogz.com and 5% through the company's mall cart and kiosk programs.

Gross profit for the full year 2012 was $120.5 million, or 46% of net sales, representing a 47% increase over the prior year in which gross profit was $81.9 million, or 46% of net sales.

In the fourth quarter, as a result of an adjustment in brand focus and lower stock price, the Company conducted an impairment analysis, which resulted in a non-cash impairment charge of $11.5 million related to a trademark and goodwill from its iFrogz acquisition.

Operating income for the full year 2012 was $33.5 million. Operating income for the full year 2012, excluding the non-cash impairment charge of $11.5 million, was $45.0 million compared to operating income of $28.1 million for the full year 2011.

Net income attributable to stockholders for the full year 2012 was $14.5 million or $0.46 per diluted share as compared to net income attributable to stockholders of $18.2 million or $0.63 per diluted share in the full year 2011.

Pro forma net income attributable to stockholders for the full year 2012 was $36.0 million or $1.14 per diluted share as compared to pro forma net income attributable to stockholders of $26.6 million or $0.92 per diluted share in the full year 2011.

Adjusted EBITDA for the full year 2012 was $62.6 million versus $45.3 million of Adjusted EBITDA in the full year 2011, an increase of 38%.

About Non-GAAP Financial Information

ZAGG considers earnings before stock-based compensation expense, impairment of goodwill and intangibles, depreciation and amortization, iFrogz acquisition expenses, iFrogz inventory fair value write-up, impairment of note receivable, other expense, provision for income taxes, 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 earnings before stock-based compensation expense, impairment of goodwill and intangibles, amortization, iFrogz acquisition expenses, iFrogz inventory fair value write-up, impairment of note receivable, other expense (excluding cash interest expense), non-cash deferred loan costs charge, noncontrolling interest, and expense related to the former CEO's departure, net of tax effects where applicable, ("pro forma net income attributable to stockholders") to be a valuable metric in respect 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 pro forma net 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

Guidance for 2013 net sales is $313.0 million - $318.0 million and Adjusted EBITDA of $69.0 million - $71.0 million.

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:

http://investors.zagg.com.

The ZAGG Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=17092

Non-GAAP Financial Disclosure

Investors are cautioned that the Adjusted EBITDA (earnings before stock-based compensation expense, impairment of goodwill and intangibles, depreciation and amortization, iFrogz acquisition expenses, iFrogz inventory fair value write-up, impairment of note receivable, other expense, provision for income taxes, and noncontrolling interest) and pro forma net income attributable to stockholders (earnings before stock-based compensation expense, impairment of goodwill and intangibles, amortization, iFrogz acquisition expenses, iFrogz inventory fair value write-up, impairment of note receivable, other expense, non-cash deferred loan costs charge, noncontrolling interest, and expense related to the former CEO's departure, net of tax effects where applicable) 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. For comparative purposes, we applied an annualized statutory tax rate of 38.5% to derive the pro forma net income attributable to stockholders and pro forma EPS attributable to stockholders. 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.
     
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
     
     
  December 31, December 31,
  2012 2011
     
ASSETS    
     
Current assets    
Cash and cash equivalents  $ 20,177  $ 26,433
Accounts receivable, net of allowances of $2,974 in 2012 and $2,070 in 2011  54,561  45,450
Inventories  39,988  29,622
Prepaid expenses and other current assets  9,547  1,593
Deferred income tax assets  7,846  5,132
     
Total current assets  132,119  108,230
     
Investment in HzO  2,013  4,879
     
Property and equipment, net of accumulated depreciation at $3,317 in 2012 and $1,857 in 2011  4,862  4,162
     
Goodwill  1,484  6,925
     
Intangible assets, net of accumulated amortization at $13,790 in 2012 and $3,989 in 2011  57,905  73,691
     
Deferred income tax assets  5,662  82
     
Note receivable  583  1,349
     
Other assets  1,457  3,010
     
Total assets  $ 206,085  $ 202,328
     
LIABILITIES AND STOCKHOLDERS' EQUITY     
     
Current liabilities    
Accounts payable  $ 19,027  $ 16,013
Income taxes payable  3,062  4,294
Accrued liabilities  3,754  3,886
Accrued wages and wage related expenses  2,554  1,468
Deferred revenue  722  320
Current portion of note payable  6,000  2,372
Sales returns liability  6,697  5,387
Total current liabilities  41,816  33,740
Revolving line of credit  22,173  23,332
Noncurrent portion of note payable  18,000  42,628
Total liabilities  81,989  99,700
Stockholders' equity     
Common stock, $0.001 par value; 100,000 shares authorized; 31,215 and 29,782 shares issued and outstanding, respectively  31  30
Additional paid-in capital  77,234  70,248
Accumulated other comprehensive income  (57)  (33)
Note receivable collateralized by stock  (566)  (566)
Retained earnings  47,454  32,949
Total stockholders' equity  124,096  102,628
Total liabilities and stockholders' equity  $ 206,085  $ 202,328
     
         
ZAGG INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
         
         
         
  Three Months Ended  Twelve Months Ended 
  December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011
         
         
Net sales  $ 87,482  $ 67,492  $ 264,425  $ 179,125
Cost of sales  48,900  36,122  143,880  97,201
         
Gross profit  38,582  31,370  120,545  81,924
         
Operating expenses:        
Advertising and marketing  4,312  2,367  12,495  10,246
Selling, general and administrative  15,095  12,539  53,330  39,592
Impairment of goodwill and intangibles  11,497  --   11,497  -- 
Amortization of definite-lived intangibles  2,418  2,085  9,732  3,949
         
Total operating expenses  33,322  16,991  87,054  53,787
         
Income from operations  5,260  14,379  33,491  28,137
         
Other income (expense):        
Interest expense  (2,802)  (1,452)  (6,321)  (3,022)
Loss from equity method investment in HzO  (1,385)  --   (2,866)  -- 
Gain on deconsolidation of HzO  --   1,906  --   1,906
Other income and (expense)  (170)  (123)  (407)  (19)
         
Total other expense  (4,357)  331  (9,594)  (1,135)
         
Income before provision for income taxes  903  14,710  23,897  27,002
         
Income tax provision  (710)  (5,083)  (9,393)  (9,418)
         
Net income   193  9,627  14,504  17,584
         
Net loss attributable to noncontrolling interest  --   319  --   664
         
Net income attributable to stockholders  $ 193  $ 9,946  $ 14,504  $ 18,248
         
Earnings per share attributable to stockholders:        
Basic earnings per share  $ 0.01  $ 0.34  $ 0.48  $ 0.67
Diluted earnings per share  $ 0.01  $ 0.32  $ 0.46  $ 0.63
         
         
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   Twelve months ended 
  December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011
         
Net income attributable to stockholders in accordance with GAAP  $ 193  $ 9,946  $ 14,504  $ 18,248
         
Adjustments:        
         
a. Stock based compensation expense  1,096  584  6,018  3,258
b. Impairment of goodwill and intangibles  11,497  --   11,497  -- 
c. Depreciation and amortization  3,059  2,463  11,561  5,926
d. iFrogz acquisition expenses  --   --   --   1,947
e. iFrogz inventory fair value write up  --   864  --   4,506
f. Impairment of note receivable  --   418  --   1,489
g. Other expense  4,357  (331)  9,594  1,135
h. Provision for income taxes  710  5,083  9,393  9,418
i. Noncontrolling interest  --   (319)  --   (664)
         
Adjusted EBITDA  $ 20,912  $ 18,708  $ 62,567  $ 45,263
         
Pro forma Net Income Reconciliation - Three and Twelve Months Ended December 31, 2012  Three months ended  Twelve months ended
  December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011
         
Net income attributable to stockholders in accordance with GAAP  $ 193  $ 9,946  $ 14,504  $ 18,248
         
Adjustments:        
         
a. Stock based compensation expense  1,096  584  6,018  3,258
b. Impairment of goodwill and intangibles  11,497  --   11,497  -- 
c. Amortization of intangibles  2,439  2,085  9,801  4,931
d. iFrogz acquisition expenses  --   --   --   1,947
e. iFrogz inventory fair value write up  --   864  --   4,506
f. Impairment of note receivable  --   418  --   1,489
g. Other expense excluding cash interest expense and loss on equity method investment  170  (1,750)  407  (1,887)
h. Non-cash deferred loan costs charge  1,509  --   1,509  -- 
i. Noncontrolling interest  --   (319)  --   (664)
j. CEO departure expense  --   --   910  -- 
k. Loss on equity method investment  1,385  --   2,866  -- 
l. Income tax effects  (6,392)*  (720)*  (11,529)*  (5,194)*
         
Pro forma net income attributable to stockholders  $ 11,897  $ 11,108  $ 35,983  $ 26,634
         
Pro forma EPS attributable to stockholders  $ 0.37  $ 0.35  $ 1.14  $ 0.92
         
Weighted average number of shares outstanding - diluted  31,735  31,378  31,656  29,082
         
* For comparative purposes, we applied an annualized statutory tax rate of 38.5% 
         
Pro forma Net Income Reconciliation - Three and Nine Months Ended September 30, 2012 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  2,086  406  4,922  2,674
b. Impairment of goodwill and intangibles  --   --   --   -- 
c. Amortization of intangibles  2,439  2,086  7,362  2,846
d. iFrogz acquisition expenses  --   122  --   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 excluding cash interest expense and loss on equity method investment  215  (129)  237  (137)
h. Non-cash deferred loan costs charge  --   --   --   -- 
i. Noncontrolling interest  --   (149)  --   (345)
j. CEO departure expense  910  --   910  -- 
k. Loss on equity method investment  545  --   1,481  
l. Income tax effects  (2,161)*  (2,475)*  (5,137)*  (4,474)*
         
Pro forma net income attributable to stockholders  $ 7,422  $ 6,243  $ 24,086  $ 15,526
         
Pro forma EPS attributable to stockholders  $ 0.23  $ 0.20  $ 0.76  $ 0.55
         
Weighted average number of shares outstanding - diluted  31,734  31,375  31,647  28,308
         
* For comparative purposes, we applied an annualized statutory tax rate of 38.5% 
         
Pro forma Net Income Reconciliation - Three and Six Months Ended June 30, 2012  Three months ended   Six months ended 
  June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
         
Net income attributable to stockholders in accordance with GAAP  $ 5,812  $ 2,743  $ 10,923  $ 6,053
         
Adjustments:        
         
a. Stock based compensation expense  1,494  1,962  2,836  2,268
b. Impairment of goodwill and intangibles  --   --   --   -- 
c. Amortization of intangibles  2,488  710  4,923  760
d. iFrogz acquisition expenses  --   1,816  --   1,825
e. iFrogz inventory fair value write up  --   579  --   579
f. Impairment of note receivable  --   --   --   -- 
g. Other expense excluding cash interest expense and loss on equity method investment  (224)  (8)  22  (8)
h. Non-cash deferred loan costs charge  --   --   --   -- 
i. Noncontrolling interest  --   (145)  --   (196)
j. CEO departure expense  --   --   --   -- 
k. Loss on equity method investment  473  --   936  -- 
l. Income tax effects  (1,437)*  (1,880)*  (2,976)*  (2,000)*
         
Pro forma net income attributable to stockholders  $ 8,606  $ 5,777  $ 16,664  $ 9,281
         
Pro forma EPS attributable to stockholders  $ 0.27  $ 0.21  $ 0.53  $ 0.35
         
Weighted average number of shares outstanding - diluted  31,738  27,279  31,577  26,749
         
* For comparative purposes, we applied an annualized statutory tax rate of 38.5% 
         
Pro forma Net Income Reconciliation - Three Months Ended March 31, 2012  Three months ended   
  March 30, 2012 March 30, 2011    
         
Net income attributable to stockholders in accordance with GAAP  $ 5,112  $ 3,310    
         
Adjustments:        
         
a. Stock based compensation expense  1,342  306    
b. Impairment of goodwill and intangibles  --   --     
c. Amortization of intangibles  2,435  50    
d. iFrogz acquisition expenses  --   9    
e. iFrogz inventory fair value write up  --   --     
f. Impairment of note receivable  --   --     
g. Other expense excluding cash interest expense and loss on equity method investment  246  --     
h. Non-cash deferred loan costs charge  --   --     
i. Noncontrolling interest  --   (51)    
j. CEO departure expense  --   --     
k. Loss on equity method investment  463  --     
l. Income tax effects  (1,539)*  (120)*    
         
Pro forma net income attributable to stockholders  $ 8,059  $ 3,504    
         
Pro forma EPS attributable to stockholders  $ 0.26  $ 0.13    
         
Weighted average number of shares outstanding - diluted  31,417  26,216    
         
* For comparative purposes, we applied an annualized statutory tax rate of 38.5% 
         
CONTACT: Investor Relations:         Genesis Select Corp.         Kim Rogers-Carrete         303-415-0200         krogersc@genesisselect.com                  Media:         LANE PR         Jane Taber         503-546-7888         jane@lanepr.com                  Company:         ZAGG Inc         Nathan Nelson         801-263-0699 ext. 107         nnelson@zagg.com

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