Form 8-K ZAGG Inc For: Nov 03

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): November 3, 2015

 

ZAGG Inc

(Exact name of registrant as specified in its charter)

 

Nevada		001-34528		20-2559624
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

3855 South 500 West, Suite J Salt Lake City, Utah		84115
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code:  (801) 263-0699

 

___________________________________________________

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 2.02

Results of Operations and Financial Condition.

 

On November 3, 2015, ZAGG Inc (the “Registrant”) issued a press release announcing the results of operations for the three and nine months ended September 30, 2015, and made publicly available certain supplemental financial information, including commentary on results of operations from Bradley J. Holiday, Chief Financial Officer (“CFO”). The supplemental financial information is furnished with this report as Exhibit 99.1, the press release is furnished with this report as Exhibit 99.2, and the CFO commentary is furnished with this report as Exhibit 99.3.

 

The information contained in Item 2.02 and 9.01 of this Current Report on Form 8-K, including Exhibits 99.1, 99.2, and 99.3 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any registration statement or other filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in any such filing.

 

Item 8.01

Other Events

 

Stock Repurchase Plan

 

On November 3, 2015, in the same press release in which results of operations for the three and nine months ended September 30, 2015 were announced, the Registrant announced that its board of directors has approved an additional share repurchase authorization of up to $20.0 million of the Registrant’s outstanding common stock with no stated expiration date. The share repurchases may be made from time to time at the Registrant’s discretion, but cannot commence until January 1, 2016.  The Registrant’s board of directors also authorized the Registrant to enter into a Rule 10b5-1 plan when appropriate.

 

Item 9.01

Financial Statements and Exhibits.

 

Exhibit No.		Description
99.1		Supplemental Financial Information for the Three and Nine Months Ended September 30, 2015
99.2		Results of Operations Press Release dated November 3, 2015
99.3		CFO Commentary on Results of Operations for the Three and Nine Months Ended September, 2015

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

ZAGG Inc

 

By:	/s/ BRADLEY J. HOLIDAY
	Bradley J. Holiday
	Chief Financial Officer

 

Date: November 3, 2015

 

 

3

 

 

Exhibit 99.1

 

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(Unaudited)

 

		September 30,				December 31,
		2015				2014
ASSETS
Current assets
Cash and cash equivalents		$	14,957			$	9,461
Accounts receivable, net of allowances of $888 in 2015 and $1,910 in 2014			53,071				75,729
Inventories			45,352				48,378
Prepaid expenses and other current assets			3,162				2,681
Deferred income tax assets			10,774				10,774
Total current assets			127,316				147,023
Property and equipment, net of accumulated depreciation at $9,737 in 2015 and $7,659 in 2014			6,987				7,300
Intangible assets, net of accumulated amortization at $39,720 in 2015 and $33,242 in 2014			24,930				31,408
Deferred income tax assets			15,203				14,290
Note receivable			-				801
Other assets			1,502				457
Total assets		$	175,938			$	201,279
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	37,681			$	49,379
Income taxes payable			76				6,464
Accrued liabilities			5,280				6,910
Accrued wages and wage related expenses			2,176				2,600
Deferred revenue			21				179
Sales returns liability			5,176				8,674
Total current liabilities			50,410				74,206
Total liabilities			50,410				74,206
Stockholders' equity
Common stock, $0.001 par value; 100,000 shares authorized; 33,117 and 32,686 shares issued in 2015 and 2014, respectively			33				33
Additional paid-in capital			87,549				85,154
Accumulated other comprehensive loss			(1,232	)			(895	)
Note receivable collateralized by stock			-				(348	)
Treasury stock, 5,535 and 3,569 common shares in 2015 and 2014 respectively, at cost			(34,158	)			(19,576	)
Retained earnings			73,336				62,705
Total stockholders' equity			125,528				127,073
Total liabilities and stockholders' equity		$	175,938			$	201,279

 

 

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
Net sales		$	66,774			$	60,013			$	190,679			$	159,170
Cost of sales			41,903				50,849				117,894				115,441
Gross profit			24,871				9,164				72,785				43,729
Operating expenses:
Advertising and marketing			2,759				1,377				7,450				4,763
Selling, general and administrative			13,750				11,971				41,014				34,776
Amortization of definite-lived intangibles			2,134				2,427				6,403				7,282
Total operating expenses			18,643				15,775				54,867				46,821
Income (loss) from operations			6,228				(6,611	)			17,918				(3,092	)
Other income (expense):
Interest expense			(26	)			(40	)			(79	)			(124	)
Other income and (expense)			(76	)			90				(53	)			204
Total other income (expense)			(102	)			50				(132	)			80
Income (loss) before provision for income taxes			6,126				(6,561	)			17,786				(3,012	)
Income tax (provision) benefit			(2,387	)			2,242				(7,155	)			473
Net income (loss)		$	3,739			$	(4,319	)		$	10,631			$	(2,539	)
Earnings (loss) per share:
Basic earnings (loss) per share		$	0.13			$	(0.14	)		$	0.36			$	(0.08	)
Diluted earnings (loss) per share		$	0.13			$	(0.14	)		$	0.36			$	(0.08	)

 

 

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								Nine Months Ended
		September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
Net income (loss) in accordance with GAAP		$	3,739			$	(4,319	)		$	10,631			$	(2,539	)
Adjustments:
a. Stock based compensation expense			898				506				2,708				1,677
b. Depreciation and amortization			3,455				3,123				9,551				9,195
c. Recovery of reserves on note receivable			(639	)			-				(639	)			-
d. Other (income) expense			102				(50	)			132				(80	)
e. Provision for income taxes			2,387				(2,242	)			7,155				(473	)
Adjusted EBITDA		$	9,942			$	(2,982	)		$	29,538			$	7,780

 

 

3

Exhibit 99.2

 

November 3, 2015

 

ZAGG Inc Reports Record Net Sales for Third Quarter 2015, Repurchases 1.8 Million
Shares, and Updates Full Year Guidance

 

	●	Net sales increased 11% percent to a Q3 record of $66.8 million
	●	Gross margins improved to 37% compared to 15% last year
	●	GAAP earnings per diluted share of $0.13 versus a net loss per share of $(0.14) in 2014
	●	Adjusted EBITDA improved to $9.9 million, compared to $(3.0) million last year

  

SALT LAKE CITY, November 3, 2015 (GLOBE NEWSWIRE) -- ZAGG Inc (Nasdaq: ZAGG), a leading global mobile device accessories company, today announced financial results for the third quarter ending September 30, 2015.

 

“We are pleased with our third quarter performance as well as our results for the first nine months of 2015,” commented Randy Hales, President and Chief Executive Officer of ZAGG Inc. “We are encouraged with the increase in sales and improved profitability year-to-date, driven by continued strong screen protection sales. We have achieved meaningful progress in improving our operational efficiencies, which, along with the benefit of product mix, have been significant contributors to our increase in profitability. Our team’s focus and commitment to improved performance will continue to contribute to long-term growth and increased shareholder value.”

 

Third Quarter Results

Net sales for the quarter increased 11% to a third quarter record of $66.8 million compared to $60.0 million in 2014. This increase was due to continued strong sales of screen protection products, improved audio sales, and expanded domestic and international distribution. The increase in screen protection sales was partially offset by lower sales of tablet keyboards due to overall softness in the tablet market and lower sales of portable power due to the timing of customer launch initiatives in the third quarter last year that will not occur until the fourth quarter this year.

 

Gross profit improved to $24.9 million, or 37% of net sales, versus $9.2 million, or 15% of net sales in 2014. The increase in gross profit percentage was due to favorable product sales mix, and improved operational efficiencies. Also contributing to the improvement was the fact that during the same period in 2014 the company incurred a $9.6 million inventory write down.

 

Net income improved to $3.7 million, compared to net loss of $(4.3) million in the third quarter of 2014, with fully diluted earnings per share improving significantly to $0.13 (on 28.9 million fully diluted shares) compared to a loss of ($0.14) (on 30.3 million diluted shares), respectively.

 

 

Third Quarter 2015 Income Statement Highlights

 

(in millions, except per share amounts)		September 30, 2015				September 30, 2014
Revenue		$	66.8			$	60.0
Gross Profit (Gross Margin %)		$	24.9 (37	%)		$	9.2 (15	%)
Net Income (loss)		$	3.7			$	(4.3	)
Earnings (loss) per share		$	0.13			$	(0.14	)
Adjusted EBITDA		$	9.9 million			$	(3.0) million

 

Cumulative Results through Nine Months

Net sales for the first nine months increased 20% to $190.7 million compared to $159.2 million in 2014. This increase was due to new distribution during the nine months period, particularly in wireless retail in the U.S. and Europe, which drove incremental sales in screen protection. Partially offsetting these gains were lower sales in tablet keyboards due to overall softness in the tablet market, audio due to reduced product placement at a key customer compared to 2014, and portable power due to the timing of customer launch initiatives in the third quarter last year that will not occur until the fourth quarter this year.

 

Gross profit improved in the first nine months to $72.8 million, or 38% of net sales compared to $43.7 million, or 27% of net sales in the same period 2014. The increase in gross profit percentage was primarily due to favorable sales mix and improved operational efficiencies. Also contributing to the improvement was the fact that during the same period in 2014 the company incurred a $9.6 million inventory write down.

 

Net income improved to $10.6 million, compared to a loss of $(2.5) million in the first nine months of 2014. Fully diluted earnings per share improved significantly to $0.36 (on 29.5 million fully diluted shares) from a loss per share of $(0.08) (on 30.3 million diluted shares).

 

Year-to-Date 2015 Income Statement Highlights

 

(in millions, except per share amounts)		September 30, 2015				September 30, 2014
Revenue		$	190.7			$	159.2
Gross Profit (Gross Margin %)		$	72.8 (38	%)		$	43.7 (27	%)
Net Income (loss)		$	10.6			$	(2.5	)
Earnings (loss) per share		$	0.36			$	(0.08	)
Adjusted EBITDA		$	29.5 million			$	7.8 million

 

Share Repurchase Summary

The Company repurchased 1.844 million shares ($13.6 million) during the quarter for an average price of $7.32 per share and completed the Board authorization of $15.0 million (2.030 million total shares purchased; $14.9 million) during the first half of October, 2015. Subsequently, the Board of Directors approved on October 30, 2015 an additional share repurchase authorization of $20.0 million with no stated expiration date.

 

 

Updated 2015 Business Outlook

“We are encouraged by the solid results we have seen through the first three quarters of 2015 and by the significant progress the Company has made in growing our distribution and improving profitability,” continued Mr. Hales. “We have the right team in place at ZAGG to continue building on our momentum and drive future growth. For the remainder of 2015, we are revising our annual guidance to reflect the strength we have seen in the year-to-date results.”

 

The Company provided the following updated annual guidance for 2015:

 

	●	Moves net sales forecast to the high end of the previous guidance range of $260 - $270 million due to continued strong screen protection sales;
	●	Adjusts gross margin as a percent of net sales to 38%, plus or minus 50 basis points

●

Increases adjusted EBITDA to $42 - $44 million from the previous range of $40 - $43 million reflecting continued favorable product sales mix and improved operational efficiencies;

●

Expects the annual effective tax rate to be approximately 40%, consistent with the first half of 2015.

 

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 impact of inconsistent quality or reliability of new product offerings; (f) the impact of lower profit margins in certain new and existing product categories; (g) the impacts of changes in economic conditions, including on customer demand; (h) managing inventory in light of constantly shifting consumer demand; (i) 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 (j) 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), and recovery of reserves on note receivable) 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 Inc (NASDAQ: ZAGG) creates best-in-class accessories that protect and enhance mobile devices for consumers around the globe. The company offers a broad range of products, from the No. 1 selling industry-standard InvisibleShield® screen protectors and mobile keyboards, to power management solutions, mobile audio, and cases. Zagg is the trusted brand that makes products consumers can rely on to make the most of their mobile lives. More information about the company and its brands, including iFrogz®, is available at www.zagg.com or on Facebook and Twitter.

 

CONTACT:

 

Investor Relations:

 

ZAGG Inc

Kim Rogers

801-506-7008

[email protected]

 

Company:

 

ZAGG Inc

Nathan Nelson

801-506-7341

[email protected]

 

 

4

Exhibit 99.3

 

CFO Commentary on Third Quarter 2015 Financial Results

 

3855 South 500 West

Salt Lake City, UT 84115

November 3, 2015

 

Related Information

The commentary in this document can be referenced in the financial information found in the earnings release issued earlier today. The release can be found at investors.ZAGG.com, or in the Form 8-K furnished to the Securities and Exchange Commission website at sec.gov.

 

Conference Call

The Company will hold a conference call at 5:00 p.m. Eastern Daylight Time on November 3, 2015, to review third quarter results. Randy Hales, Chief Executive Officer, and Brad Holiday, Chief Financial Officer, will participate in the call. The conference call will be available to interested parties through a live audio Internet broadcast accessible at investors.ZAGG.com. A podcast of the conference call will also be archived at investors.ZAGG.com for one year.

 

 

Summary

The Company reported record third quarter net sales of $66.8 million, an 11% increase compared to net sales of $60.0 million in the third quarter of 2014. Gross profit margin improved to 37% in the quarter compared to 15% in the prior year quarter due to favorable product sales mix, improved operational efficiencies, and a $9.6 million inventory write down incurred during the third quarter of 2014. Operating expenses increased to 28% of net sales, or $18.6 million, compared to 26% or 15.8 million in the third quarter of 2014. Third quarter net income improved to $3.7 million, or $0.13 per diluted share (on 28.9 million shares), compared to a net loss of $(4.3) million, or $(0.14) per diluted share (on 30.3 million shares) last year.

 

Adjusted EBITDA increased to $9.9 million from $(3.0) million in the third quarter of 2014.

 

The Company updated 2015 annual guidance to the following:

 

·

Net sales to be at the high end of the previous guidance range of $260 - $270 million

·

Gross profit margin improving from the previous guidance of mid to high 30’s% to 38%, plus or minus 50 basis points

·

Adjusted EBITDA guidance from the previous range of $40 - $43 million to $42 - $44 million.

 

Consistent with today's release, the Company will be disclosing consolidated financial results which includes its primary operations in the United States, as well as operations from ZAGG International, its wholly owned subsidiary operating in Shannon, Ireland. This commentary addresses only consolidated results unless otherwise stated. The financial statements provided in today's release reflect consolidated Q3 2015 and should be referred to for further clarifications.

 

 

Third Quarter 2015 Financial Results

(All comparisons are versus third quarter 2014, unless noted.)

 

Net Sales

Net sales increased to a third quarter record of $66.8 million, an 11% increase compared to $60.0 million.

  

Product Categories

Screen protection net sales totaled $47.9 million, an increase of 69% compared to $28.3 million. The increase was primarily due to increased domestic and international distribution, particularly with wireless retailers, and an increase in dollar market share as measured by retail sell through.

 

Tablet keyboard sales decreased to $9.8 million compared to $18.2 million due to overall softness in the tablet market.

 

Power management sales decreased to $1.6 million compared to $4.8 million due the timing of customer launch initiatives in the third quarter last year that that will not occur until the fourth quarter this year.

 

Audio sales increased 3% to $6.1 million compared to $5.9 million, due to increased domestic distribution.

 

International

International sales increased to $7.1 million, an increase of 27% compared to $5.6 million in the same quarter last year. Changes in foreign currency rates negatively impacted our international sales by $1.1 million during the third quarter of 2015 compared to 2014. On a constant currency basis, sales increased 46% compared to 2014.

 

Gross Margin

Gross profit margin improved to 37% ($24.9 million) compared to 15% ($9.2 million). The increase was due to favorable product sales mix, improved operational efficiencies, and a $9.6 million inventory write down incurred during the third quarter of 2014.

 

Operating Expense

Operating expense rose to 28% of net sales or $18.6 million, compared to 26% or $15.8 million. The increase in operating expense was due primarily to increased customer service expense associated with higher screen protection sales, salaries and benefits, and additional investment in advertising and marketing.

 

 

Income Tax Expense

The effective tax rate for the quarter came in at 39.0% compared to 34.2%. The increase in the effective tax rate was primarily due to the overall effect on the tax rate of losses from foreign jurisdictions in 2015. The effective tax rate will generally differ from the U.S. Federal Statutory rate of 35%, due to foreign and state taxes, permanent items, and the impact of our global tax strategy.

 

Net Income

Net income improved to $3.7 million compared to a net loss of $(4.3) million. Fully diluted earnings per share improved to $0.13 (on 28.9 million shares) compared to a loss per share of $(0.14) (on 30.3 million shares). In the third quarter of 2015, the Company repurchased 1.8 million shares of its common stock at an average price of $7.33 as part of a Board approved $15.0 million share repurchase authorization. The Company has repurchased 5.5 million shares ($33.5 million) since the beginning of 2013.

 

Unaudited Supplemental Data: Adjusted EBITDA

Adjusted EBITDA for the quarter improved to $9.9 million (15% of net sales) compared to $(3.0) million (-5% of net sales).

  

 

FY15 Year-to-Date Financial Results

(All comparisons are the first nine months of 2014, unless otherwise noted.)

 

Net Sales

Net sales increased to $190.7 million, a 20% increase compared to $159.2 million.

 

Product Categories

 

Screen protection net sales totaled $128.3 million, an increase of 103% compared to $63.2 million. The increase was primarily due to increased domestic and international distribution, particularly at wireless retailers, and an increase in U.S. dollar market share as measured by retail sell through.

 

Tablet keyboard sales decreased to $35.5 million compared to $54.2 million, due to overall softness in the tablet market. U.S. market share, however, increased 500 basis points compared to last year.

 

Power management sales decreased to $4.1 million, compared to $9.2 million due to the timing of customer launch initiatives in the third quarter that will not occur until the fourth quarter this year.

 

Audio sales decreased to $17.1 million compared to $22.5 million, due to reduced product placement at a key customer at the end of 2014, which has impacted 2015.

 

International

International sales were $17.7, a 2% decline compared to $18.1 in the same period last year. Changes in foreign currency rates adversely impacted international sales by $3.3 million compared to 2014. On a constant currency basis, sales increased 16% compared to 2014.

 

 

Gross Margin

Gross profit margin improved to 38% ($72.8 million) compared to 27% ($43.7 million) due to favorable sales mix, improved operational efficiencies, and a $9.6 million inventory write down incurred during the third quarter of 2014, which exceeded normal write down levels.

 

Operating Expense

Operating expense was 29% of net sales ($54.9 million), compared to 29% of net sales ($46.8 million). The dollar increase was due primarily to increased customer service expense associated with higher screen protection sales, salaries and benefits, and additional investment in advertising and marketing.

 

Income Tax Expense

The effective tax rate increased to 40.2% compared to 15.7% in the prior year. The increase in the effective tax rate is attributable to true-ups in the prior year, and increased impact of a loss in a foreign tax jurisdiction due to lower net income/(loss) during the quarter ended September 30, 2014. The effective tax rate will generally differ from the U.S. Federal Statutory rate of 35% due to state taxes, permanent items, and the impact of our global tax strategy.

 

Net Income

Net income improved to $10.6 million versus a net loss of $(2.5) million. Fully diluted earnings per share for the first nine months improved to $0.36 (29.5 million shares) compared to a net loss per fully diluted share of $(0.08) (30.3 million shares).

 

Supplemental Data: Adjusted EBITDA

Adjusted EBITDA for the first nine months increased to $29.5 million (15% of net sales) compared to $7.8 million (5% of net sales).

  

 

Balance Sheet (as of September 30, 2015)

 

Cash Balance

The cash balance at September 30, 2015 was $15.0 million versus $7.1 million at September 30, 2014. Year-to-date cash from operations increased to $22.3 million compared to $14.7 million. The increase in cash from operations is primarily due to the increase in net income which totaled $10.6 million versus a loss of $(2.5) million in the same period last year.

 

Debt Balances/Liquidity

The Company had no outstanding debt and $25.0 million available on the credit facility.

 

Account Receivables

Accounts receivable decreased slightly to $53.1 million, compared to $55.1 million at September 30, 2014. Days sales outstanding (DSO) improved to 73 compared to 84 due to improvements in collections and the overall quality of outstanding receivables remains good.

 

Inventory

Inventories as of September 30, 2015 increased to $45.4 million, compared to $35.3 million at September 30, 2014. This increase was primarily due to a higher mix of InvisibleShield Glass inventory, which is sourced in Asia, compared to film products which are manufactured in the U.S on a just-in-time basis and require minimal inventory balances.

 

 

Updated 2015 Business Outlook

The Company updated annual net sales guidance to be at the high end of the previous guidance range of $260 - $270 million, due to continued strong growth year-to-date in screen protection sales and growth in domestic and international distribution, partially offset by lower sales of keyboards associated with soft category sales experienced this year. Sales of screen protection products are estimated to decline in the fourth quarter, as compared to last year, due to the absence of a new OEM device launch with a form factor change during the second half of 2015 and the adverse impact of changes in foreign currency rates on international sales.

 

Gross margin as a percentage of sales is now estimated to be 38%, plus or minus 50 basis points, compared to the previous guidance of mid to high 30’s. This increase is due to a favorable shift in product mix and higher than estimated operational efficiencies the Company has been experiencing year-to-date.

 

As a result of these factors, Adjusted EBITDA is estimated to increase to a range $42.0 - $44.0 million, compared to the previous guidance of $40.0 million - $43.0 million.

 

Non-GAAP Financial Disclosure

ZAGG regularly discloses Adjusted EBITDA, a non-GAAP metric, in its financial releases. Readers should refer to the non-GAAP financial disclosures at the end of this document for information on the limitations of non-GAAP disclosures. An explanation of ZAGG's use of this non-GAAP financial measure and the reconciliation between GAAP and non-GAAP measures required by SEC Regulation G is included in ZAGG's press release today, which can be found at investors.ZAGG.com.

 

Readers are cautioned that the Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, other income (expense), and recovery of reserves on note receivable) 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.

 

 

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 timely 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 impact of inconsistent quality or reliability of new product offerings; (f) the impact of lower profit margins in certain new and existing product categories; (g) a shift in product mix to lower margin 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.

 

 

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