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

/EIN News/ -- 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, 2017 September 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, 2017 September 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      
                         
                         

 

Distribution channels: Retail


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