ZAGG (ZAGG) 8-K Results of Operations and Financial Condition

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(Unaudited)

		September 30, 2018				December 31, 2017
ASSETS
Current assets:
	Cash and cash equivalents	$	17,780			$	24,989
	Accounts receivable, net of allowances of $707 and $734	115,801				123,220
	Income tax receivable	941				—
	Inventories	78,666				75,046
	Prepaid expenses and other current assets	6,649				4,547
Total current assets				219,837				227,802
Property and equipment, net of accumulated depreciation of $15,284 and $12,540				13,936				13,444
Intangible assets, net of accumulated amortization of $75,151 and $66,639				32,505				39,244
Deferred income tax assets				22,134				24,403
Goodwill				12,570				12,272
Other assets				1,667				3,426
Total assets				$	302,649			$	320,591
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	67,355			$	96,472
	Income tax payable	—				2,052
	Sales returns liability	43,506				34,536
	Accrued wages and wage related expenses	5,812				5,652
	Accrued liabilities	8,091				8,168
	Deferred revenue	—				315
	Current portion of line of credit	—				23,475
	Current portion of long-term debt, net of deferred loan costs of $0 and $141	—				13,922
Total current liabilities				124,764				184,592
Non-current portion of line of credit				28,000				—
Total liabilities				152,764				184,592
Stockholders’ equity:
	Common stock, $0.001 par value; 100,000 shares authorized; 34,433 and 34,104 shares issued	34				34
	Treasury stock, 6,448 and 6,065 common shares at cost	(43,734)				(37,637)
	Additional paid-in capital	95,642				96,145
	Accumulated other comprehensive loss	(853)				(348)
	Retained earnings	98,796				77,805
Total stockholders’ equity				149,885				135,999
Total liabilities and stockholders’ equity				$	302,649			$	320,591

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

		Three Months Ended												Nine Months Ended
		September 30, 2018				September 30, 2017				September 30, 2018				September 30, 2017
Net sales				$	141,087			$	134,398			$	371,718			$	342,571
Cost of sales				88,916				86,006				244,297				229,749
Gross profit				52,171				48,392				127,421				112,822
Operating expenses:
	Advertising and marketing	3,089				2,627				8,322				7,703
	Selling, general and administrative	27,349				26,720				78,692				78,727
	Transaction costs	618				96				635				611
	Impairment of intangible asset	—				—				—				1,959
	Amortization of intangible assets	2,859				3,014				8,404				9,040
Total operating expenses				33,915				32,457				96,053				98,040
Income from operations				18,256				15,935				31,368				14,782
Other income (expense):
	Interest expense	(286)				(417)				(1,132)				(1,527)
	Other (expense) income	(176)				18				(362)				67
Total other expense				(462)				(399)				(1,494)				(1,460)
Income before provision for income taxes				17,794				15,536				29,874				13,322
Income tax provision				(3,168)				(5,760)				(5,003)				(6,281)
Net income				$	14,626			$	9,776			$	24,871			$	7,041
Earnings per share attributable to stockholders:
	Basic earnings per share	$	0.52			$	0.35			$	0.88			$	0.25
	Diluted earnings per share	$	0.51			$	0.34			$	0.87			$	0.25

ZAGG INC AND SUBSIDIARIES

RECONCILIATION OF NON-U.S. GAAP FINANCIAL INFORMATION TO U.S. GAAP

(in thousands)

(Unaudited)

UNAUDITED SUPPLEMENTAL DATA
The following information is not a financial measure under generally accepted accounting principles ("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									Nine Months Ended
					September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Net income in accordance with U.S. GAAP			$	14,626		$	9,776		$	24,871		$	7,041
Adjustments:
a.	Stock-based compensation expense	757			899			2,165			2,536
b.	Depreciation and amortization	4,099			5,486			13,329			16,505
c.	Impairment of intangible asset	—			—			—			1,959
d.	Other expense, net	462			399			1,494			1,460
e.	Transaction costs	618			96			635			611
f.	mophie restructuring charges	—			—			—			437
g.	mophie employee retention bonus	—			—			—			346
h.	Inventory step-up amount in connection with the BRAVEN Acquisition	72			—			72			—
i.	Consulting fee to former CEO	—			—			700			—
j	Income tax provision	3,168			5,760			5,003			6,281
Total Adjustments			9,176			12,640			23,398			30,135
Adjusted EBITDA			$	23,802		$	22,416		$	48,269		$	37,176

ZAGG INC AND SUBSIDIARIES

RECONCILIATION OF NON-U.S. GAAP FINANCIAL INFORMATION TO U.S. GAAP

(in thousands)

(Unaudited)

		Years Ended
		Guidance			Actual
ADJUSTED EBITDA RECONCILIATION (CONTINUED)			December 31, 2018			December 31, 2017
Net income in accordance with U.S. GAAP			$	39,400		$	15,100
Adjustments:
a.	Adjustments to net income	25,200			29,615
b.	Income tax provision	12,400			28,252
Total Adjustments			37,600			57,867
Adjusted EBITDA			$	77,000		$	72,967