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

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)

(Unaudited)

		March 31, 2019				December 31, 2018
ASSETS
Current assets:
	Cash and cash equivalents	$	14,789			$	15,793
	Accounts receivable, net of allowances of $700 and $885	93,617				156,667
	Income tax receivable	2,149				375
	Inventories	100,226				82,919
	Prepaid expenses and other current assets	4,371				5,473
Total current assets				215,152				261,227
Property and equipment, net of accumulated depreciation of $12,326 and $11,844				18,016				16,118
Intangible assets, net of accumulated amortization of $83,046 and $78,627				75,189				52,054
Deferred income tax assets				14,302				19,403
Goodwill				43,560				27,638
Other assets				10,574				1,571
Total assets				$	376,793			$	378,011
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	55,045			$	80,908
	Sales returns liability	33,824				54,432
	Accrued wages and wage related expenses	6,183				6,624
	Accrued liabilities	11,791				13,723
Total current liabilities				106,843				155,687
Line of credit				93,363				58,363
Other long-term liabilities				20,052				5,470
Total liabilities				220,258				219,520
Stockholders’ equity:
	Common stock, $0.001 par value; 100,000 shares authorized; 36,117 and 34,457 shares issued	36				34
	Treasury stock, 7,055 and 6,983 common shares at cost	(50,455)				(49,733)
	Additional paid-in capital	109,869				96,486
	Accumulated other comprehensive loss	(1,566)				(1,410)
	Retained earnings	98,651				113,114
Total stockholders’ equity				156,535				158,491
Total liabilities and stockholders’ equity				$	376,793			$	378,011

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)

		For the Three Months Ended
		March 31, 2019				March 31, 2018
Net sales				$	78,750			$	112,066
Cost of sales				54,928				74,474
Gross profit				23,822				37,592
Operating expenses:
	Advertising and marketing	4,585				2,594
	Selling, general and administrative	31,584				24,307
	Transaction costs	247				—
	Amortization of intangible assets	4,466				2,772
Total operating expenses				40,882				29,673
(Loss) income from operations				(17,060)				7,919
Other income (expense):
	Interest expense	(1,010)				(500)
	Other (expense) income	(516)				495
Total other expense				(1,526)				(5)
(Loss) income before provision for income taxes				(18,586)				7,914
Income tax benefit (provision)				4,162				(885)
Net (loss) income				$	(14,424)			$	7,029
(Loss) earnings per share attributable to stockholders:
	Basic (loss) earnings per share	$	(0.50)			$	0.25
	Diluted (loss) earnings per share	$	(0.50)			$	0.24

ZAGG INC AND SUBSIDIARIES

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

(Amounts in thousands)

(Unaudited)

UNAUDITED SUPPLEMENTAL DATA
The following information are not financial measures prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In addition, they should not be construed as an alternative to any other measures of performance determined in accordance with U.S. 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 these measures are helpful to some investors as a measure of our operations. We caution investors that non-U.S. 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
					March 31, 2019			March 31, 2018
Net (loss) income in accordance with U.S. GAAP			$	(14,424)		$	7,029
Adjustments:
a.	Stock-based compensation expense	1,185			601
b.	Depreciation and amortization	6,057			5,030
c.	Other expense, net	1,526			5
d.	Transaction costs	247			—
e.	BRAVEN employee retention bonus	47			—
f.	Former CFO retention bonus	110			—
g.	Inventory step-up amount in connection with acquisition of HALO	431			—
h.	Income tax (benefit) provision	(4,162)			885
Total Adjustments			5,441			6,521
Adjusted EBITDA			$	(8,983)		$	13,550

ZAGG INC AND SUBSIDIARIES

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

(Amounts in thousands)

(Unaudited)

DILUTED OPERATING (LOSS) EARNINGS PER SHARE RECONCILIATION	Three Months Ended
			March 31, 2019			March 31, 2018
Net (loss) income in accordance with U.S. GAAP	$	(14,424)		$	7,029
Adjustments:
a. Amortization expense related to 2018 and 2019 acquisitions	1,904			—
b. Transaction costs related to 2018 and 2019 acquisitions	247			—
c. Inventory step-up amortization related to 2018 and 2019 acquisitions	431			—
d. BRAVEN employee retention bonus	47
Total adjustments before tax	2,629			—
Tax effect 1	(710)			—
Adjustments, net of tax	1,919			—
Adjusted net (loss) income	(12,505)			7,029
Diluted shares outstanding	28,883			28,693
Diluted operating (loss) earnings per share	$	(0.43)		$	0.24

¹ Income tax effect calculated using the estimated 2019 statutory rate of 27.04%