Exhibit 99.1
| | |
| Investor Contact: | | Media Contact: |
| Eileen VanEss | | Cherie Stewart |
| (510) 420-5361 | | (510) 596-3343 |
| evaness@leapfrog.com | | cstewart@leapfrog.com |
LeapFrog Reports First Quarter 2005 Financial Results
Highlights
| | • | | Net sales for the quarter were $71.9 million, flat with 2004; excluding the benefit of foreign currency, sales were down 0.4% |
| | • | | U.S. Consumer net sales were $44.3 million, down 5% |
| | • | | International net sales were $17.5 million, up 9% |
| | • | | SchoolHouse Division net sales were $10.1 million, up 10% |
| | • | | Lower gross margins and higher operating expenses resulted in net operating loss of $29.1 million for the first quarter of 2005, compared to net operating loss of $19.2 million for the first quarter of 2004 |
| | • | | Loss per share for the first quarter of 2005 year was $0.32 compared to loss of $0.20 per share in the first quarter of 2004 |
Emeryville, Calif. – April 28, 2005 – LeapFrog Enterprises, Inc. (NYSE:LF), a leading developer of innovative technology-based educational products, today reported financial results for the quarter ended March 31, 2005. For the quarter, the company recorded a net loss of $19.9 million, or ($0.32) per share compared to a net loss of $11.8 million, or ($0.20) per share for the first quarter of 2004.
“First quarter financial results are in line with our expectations”, commented Tom Kalinske, Chief Executive Officer. “More importantly, we are making progress in revitalizing the health of the business. Over the course of the first quarter, we have strengthened our management team and improved our planning processes and supply chain. We are pleased with the continuing growth of our International and SchoolHouse businesses, and our new product introductions for later this year, notably our FLY pentop computer and Leapster L-Max handheld, remain on schedule.”
Financial Overview
“Our financial condition remains strong,” added Bill Chiasson, Chief Financial Officer of LeapFrog. “Cash flow from operations was $91 million in the quarter, and we have $186 million of cash and short term investments on hand as of March 31, 2005.”
Net Sales
Net sales for the first quarter of 2005 were $71.9 million, compared to $71.6 million for the first quarter of 2004, or essentially unchanged. Excluding the impact of foreign exchange, sales would have been down 0.4% for the first quarter of 2005.
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Segment Results
Net sales from the U.S. Consumer segment were $44.3 million in the first quarter, down 4.8% over the same period in 2004. Net sales from the International segment were $17.5 million in the first quarter, up 9.4% on a reported basis over the same period in 2004 and 6.2% on a constant currency basis. Net sales from the SchoolHouse Division were $10.1 million in the first quarter, up 10.5% over the same period in 2004.
Gross Margin
Gross margin for the first quarter of 2005 was 38.6%, down 6 percentage points from the first quarter of 2004. The gross margin decrease was primarily attributable to product mix and higher freight and warehousing costs in the U.S. Consumer segment partially offset by higher SchoolHouse Division gross margins.
Operating Expenses
Operating expenses increased 11% to $56.9 million for the first quarter of 2005 compared to $51.2 million for the first quarter of 2004. Increases are attributable to higher legal expenses, higher audit and Sarbanes-Oxley related costs, increases to support the growth of the SchoolHouse Division and higher employee costs resulting from the restructuring announced during the first quarter of 2005.
Net Loss
The company recorded a net loss of $19.9 million for the first quarter of 2005, or a loss of $0.32 per share compared to a loss of $11.8 million for the first quarter of 2004, or a loss of $0.20 per share.
Conference Call
A conference call will be held tomorrow, Friday, April 29, at 9:00 am Eastern time (6:00 am Pacific time) to discuss these announcements and to provide further discussion of results for the first quarter of 2005. A live web cast of the conference call will be offered on LeapFrog’s investor relations website atwww.leapfroginvestor.com and onwww.ccbn.com. A replay of the web cast will be available on these websites through September 30, 2005. To participate in the call, please dial (706) 634-0183.
About LeapFrog
LeapFrog Enterprises, Inc. (NYSE:LF) is a leading designer, developer and marketer of innovative, technology-based learning products and related proprietary content, dedicated to making learning effective and engaging for all ages, at home and in schools, around the world. Emeryville, California-based LeapFrog has developed a family of learning platforms that come to life with more than 100 interactive software titles, covering important subjects such as phonics, reading, math, music, geography, social studies, spelling, vocabulary and science. In addition, the company has created more than 35 stand-alone educational products for ages six months to 16 years.
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LeapFrog’s award-winning U.S. consumer products are available in six languages at major retailers in more than 25 countries around the world. The LeapFrog SchoolHouse curriculum programs are currently in classrooms across the U.S. with more than 200 interactive books and over 450 skill cards representing more than 6,000 pages of educational content.
LEAPFROG, the LeapFrog Logo, FLY and LEAPSTER L-MAX are trademarks or registered trademarks of LeapFrog Enterprises, Inc. © 2005 LeapFrog Enterprises, Inc. All rights reserved.
Forward-Looking Statements
Cautionary Statement Under The Private Securities Litigation Reform Act Of 1995:
Except for the historical information contained herein, this news release contains forward-looking statements, including statements regarding our anticipated future product introductions. These forward-looking statements involve risks and uncertainties, including the ability of the company and its finished goods manufacturers to produce sufficient volumes of current and future products in a timely fashion and at satisfactory quality and cost levels; the company’s ability to efficiently manage its shipping and logistics operations; and the availability of components and materials to make the company’s products. These and other risks and uncertainties detailed from time to time in the company’s SEC filings, including its 2004 annual report on Form 10-K filed on March 29, 2005, could cause the company’s actual results to differ materially from those discussed in this release. All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.
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LEAPFROG ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| | | | | | | | | | | | |
| | | March 31,
| | | December 31, 2004
| |
| | | 2005
| | | 2004
| | |
| | | (Unaudited) | | | (Audited) | |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 35,343 | | | $ | 45,845 | | | $ | 60,559 | |
Short-term investments | | | 150,794 | | | | 154,824 | | | | 28,188 | |
Restricted cash | | | — | | | | 8,418 | | | | 8,418 | |
Accounts receivable, net of allowances of $2,353, $851 and $2,519 at March 31, 2005 and 2004 and December 31, 2004, respectively | | | 69,305 | | | | 69,170 | | | | 228,187 | |
Inventories, net | | | 129,289 | | | | 115,063 | | | | 131,189 | |
Prepaid expenses and other current assets | | | 13,715 | | | | 8,821 | | | | 13,321 | |
Deferred income taxes | | | 34,153 | | | | 18,774 | | | | 25,009 | |
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Total current assets | | | 432,599 | | | | 420,915 | | | | 494,871 | |
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Property and equipment, net | | | 22,915 | | | | 20,923 | | | | 24,807 | |
Deferred income taxes | | | 7,087 | | | | 553 | | | | 6,633 | |
Intangible assets, net | | | 29,024 | | | | 30,555 | | | | 29,496 | |
Other assets | | | 3,979 | | | | 6,318 | | | | 3,987 | |
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Total assets | | $ | 495,604 | | | $ | 479,264 | | | $ | 559,794 | |
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Accounts payable | | $ | 32,169 | | | $ | 38,607 | | | $ | 62,811 | |
Accrued liabilities | | | 36,278 | | | | 26,294 | | | | 53,868 | |
Deferred revenue | | | 332 | | | | 240 | | | | 364 | |
Income taxes payable | | | 6,811 | | | | 3,069 | | | | 6,951 | |
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Total current liabilities | | | 75,590 | | | | 68,210 | | | | 123,994 | |
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Deferred rent and other long term liabilities | | | 1,212 | | | | 540 | | | | 1,300 | |
Deferred income taxes | | | — | | | | 31 | | | | — | |
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Commitments and contingencies | | | | | | | | | | | | |
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Stockholders’ equity: | | | | | | | | | | | | |
Class A common stock, par value $0.0001; 139,500 shares authorized; shares issued and outstanding: 33,962; 31,651 and 33,415 at March 31, 2005 and 2004 and December 31, 2004, respectively | | | 3 | | | | 3 | | | | 3 | |
Class B common stock, par value $0.0001; 40,500 shares authorized; 27,614; 27,883 and 27,614 shares issued and outstanding at March 31, 2005 and 2004 and December 31, 2004, respectively | | | 3 | | | | 3 | | | | 3 | |
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Additional paid-in capital | | | 323,218 | | | | 301,654 | | | | 318,796 | |
Deferred compensation | | | (1,899 | ) | | | (1,965 | ) | | | (2,000 | ) |
Accumulated other comprehensive income | | | 2,056 | | | | 783 | | | | 2,398 | |
Retained earnings | | | 95,421 | | | | 110,005 | | | | 115,300 | |
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Total stockholders’ equity | | | 418,802 | | | | 410,483 | | | | 434,500 | |
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Total liabilities and stockholders’ equity | | $ | 495,604 | | | $ | 479,264 | | | $ | 559,794 | |
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LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | |
| | | Quarter Ended March 31,
| |
| | | 2005
| | | 2004
| |
Net sales | | $ | 71,859 | | | $ | 71,632 | |
Cost of sales | | | 44,087 | | | | 39,684 | |
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Gross profit | | | 27,772 | | | | 31,948 | |
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Operating expenses: | | | | | | | | |
Selling, general and administrative | | | 33,209 | | | | 26,769 | |
Research and development | | | 14,739 | | | | 13,946 | |
Advertising | | | 6,493 | | | | 8,686 | |
Depreciation and amortization | | | 2,430 | | | | 1,793 | |
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Total operating expenses | | | 56,871 | | | | 51,194 | |
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Loss from operations | | | (29,099 | ) | | | (19,246 | ) |
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Interest expense | | | (4 | ) | | | (1 | ) |
Interest income | | | 853 | | | | 397 | |
Other income/(expense), net | | | 55 | | | | 863 | |
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Loss before provision for income taxes | | | (28,195 | ) | | | (17,987 | ) |
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Benefit for income taxes | | | (8,316 | ) | | | (6,164 | ) |
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Net loss | | $ | (19,879 | ) | | $ | (11,823 | ) |
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Net loss per common share: | | | | | | | | |
Basic and diluted | | $ | (0.32 | ) | | $ | (0.20 | ) |
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Shares used in calculating net loss per common share: | | | | | | | | |
Basic and diluted | | | 61,187 | | | | 59,373 | |
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LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | |
| | | Quarter Ended March 31,
| |
| | | 2005
| | | 2004
| |
Net loss | | $ | (19,879 | ) | | $ | (11,823 | ) |
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Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation | | | 3,833 | | | | 3,755 | |
Amortization | | | 472 | | | | 493 | |
Unrealized FX Gain/Loss | | | 3,538 | | | | (240 | ) |
Loss on disposal of property and equipment | | | 74 | | | | — | |
Provision for doubtful accounts | | | (124 | ) | | | 638 | |
Deferred income taxes | | | (9,612 | ) | | | (6,942 | ) |
Deferred rent | | | (86 | ) | | | (32 | ) |
Deferred revenue | | | (32 | ) | | | (1,177 | ) |
Amortization of Deferred Compensation | | | 272 | | | | 481 | |
Stock option compensation related to nonemployees | | | 17 | | | | 135 | |
Tax benefit from exercise of stock options and other | | | 1,034 | | | | 3,179 | |
Amortization of bond premium | | | — | | | | 50 | |
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Other changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | 158,059 | | | | 210,563 | |
Inventories | | | 1,545 | | | | (24,073 | ) |
Prepaid expenses and other current assets | | | (407 | ) | | | 1,273 | |
Other assets | | | — | | | | (272 | ) |
Accounts payable | | | (30,515 | ) | | | (47,534 | ) |
Accrued liabilities | | | (17,452 | ) | | | (18,404 | ) |
Income taxes payable | | | (143 | ) | | | (1,636 | ) |
Other liabilities | | | (2 | ) | | | (8 | ) |
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Net cash provided by operating activities | | | 90,592 | | | | 108,426 | |
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Investing activities: | | | | | | | | |
Purchases of property and equipment | | | (2,023 | ) | | | (4,128 | ) |
Purchase of intangible assets | | | — | | | | (6,000 | ) |
Purchases of investments | | | (190,665 | ) | | | (138,364 | ) |
Sale of investments | | | 76,483 | | | | 37,356 | |
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Net cash used in investing activities | | | (116,205 | ) | | | (111,136 | ) |
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Financing activities: | | | | | | | | |
Proceeds from the exercise of stock options and ESPP | | | 3,201 | | | | 3,410 | |
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Net cash provided by financing activities | | | 3,201 | | | | 3,410 | |
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Effect of exchange rate changes on cash | | | (2,804 | ) | | | (174 | ) |
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Increase (decrease) in cash and cash equivalents | | | (25,216 | ) | | | 526 | |
Cash and cash equivalents at beginning of year | | | 60,559 | | | | 45,319 | |
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Cash and cash equivalents at end of period | | $ | 35,343 | | | $ | 45,845 | |
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Supplemental Disclosure of Cash Flow Information | | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Income taxes | | $ | 376 | | | $ | — | |
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Non-cash investing and financing activities: | | | | | | | | |
Issuance of restricted stock to employees | | $ | 289 | | | $ | — | |
Amount payable related to technology license | | $ | — | | | $ | 4,000 | |
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