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

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value amounts)

(Unaudited)

		June 30, 2019				December 31, 2018
ASSETS
Current assets:
	Cash and cash equivalents	$	12,885			$	15,793
	Accounts receivable, net of allowances of $431 and $885	102,578				156,667
	Income tax receivable	3,427				375
	Inventories	110,565				82,919
	Prepaid expenses and other current assets	6,393				5,473
Total current assets				235,848				261,227
Property and equipment, net of accumulated depreciation of $13,860 and $11,844				17,714				16,118
Intangible assets, net of accumulated amortization of $87,692 and $78,627				70,542				52,054
Deferred income tax assets				15,396				19,403
Operating lease right of use assets				10,380				—
Goodwill				43,560				27,638
Other assets				1,315				1,571
Total assets				$	394,755			$	378,011
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	70,988			$	80,908
	Sales returns liability	37,522				54,432
	Accrued wages and wage related expenses	6,665				6,624
	Accrued liabilities	9,511				13,723
	Current portion of operating lease liabilities	2,154				—
Total current liabilities				126,840				155,687
Line of credit				95,363				58,363
Operating lease liabilities				11,889				—
Other long-term liabilities				7,913				5,470
Total liabilities				242,005				219,520
Stockholders’ equity:
	Common stock, $0.001 par value; 100,000 shares authorized; 36,140 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	111,279				96,486
	Accumulated other comprehensive loss	(1,425)				(1,410)
	Retained earnings	93,315				113,114
Total stockholders’ equity				152,750				158,491
Total liabilities and stockholders’ equity				$	394,755			$	378,011

ZAGG INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Net sales	$	106,796	$	118,565	$	185,546	$	230,631
Cost of sales	69,037		80,908		123,965		155,381
Gross profit	37,759		37,657		61,581		75,250
Operating expenses:
Advertising and marketing	4,514		2,638		9,099		5,233
Selling, general and administrative	34,491		27,035		66,075		51,342
Transaction costs	374		18		621		18
Amortization of intangible assets	4,599		2,773		9,065		5,545
Total operating expenses	43,978		32,464		84,860		62,138
(Loss) income from operations	(6,219)		5,193		(23,279)		13,112
Other income (expense):
Interest expense	(1,103)		(346)		(2,113)		(846)
Other income (expense)	1,192		(681)		676		(186)
Total other income (expense)	89		(1,027)		(1,437)		(1,032)
(Loss) income before provision for income taxes	(6,130)		4,166		(24,716)		12,080
Income tax benefit (provision)	794		(950)		4,956		(1,835)
Net (loss) income	$	(5,336)	$	3,216	$	(19,760)	$	10,245
(Loss) earnings per share attributable to stockholders:
Basic (loss) earnings per share	$	(0.18)	$	0.11	$	(0.68)	$	0.36
Diluted (loss) earnings per share	$	(0.18)	$	0.11	$	(0.68)	$	0.36

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									Six Months Ended
					June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net (loss) income in accordance with U.S. GAAP			$	(5,336)		$	3,216		$	(19,760)		$	10,245
Adjustments:
a.	Stock-based compensation expense	1,475			807			2,660			1,408
b.	Depreciation and amortization	6,199			4,200			12,256			9,230
c.	Other (income) expense, net	(89)			1,027			1,437			1,032
d.	Transaction costs	374			18			621			18
e.	BRAVEN employee retention bonus	46			—			93			—
f.	Former CFO retention bonus	—			—			110			—
g.	Inventory step-up amount in connection with acquisition of 2018 and 2019	142			—			573			—
h.	Consulting fee to former CEO	—			700			—			700
i	Restructuring expenses	407			—			407			—
j	Income tax (benefit) provision	(794)			950			(4,956)			1,835
Total Adjustments			7,760			7,702			13,201			14,223
Adjusted EBITDA			$	2,424		$	10,918		$	(6,559)		$	24,468

ZAGG INC AND SUBSIDIARIES

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

(Amounts in thousands, except per share amounts)

(Unaudited)

DILUTED OPERATING (LOSS) EARNINGS PER SHARE RECONCILIATION			Three Months Ended									Six Months Ended
					June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net (loss) income in accordance with U.S. GAAP			$	(5,336)		$	3,216		$	(19,760)		$	10,245
Adjustments:
a.	Amortization expense related to 2018 and 2019 acquisitions	2,047			—			3,951			—
b.	Transaction costs related to 2018 and 2019 acquisitions	374			—			621			—
c.	Inventory step-up amortization related to 2018 and 2019 acquisitions	142			—			573			—
d.	BRAVEN employee retention bonus	46			—			93			—
e.	Restructuring expenses	407			—			407			—
f.	Share-based compensation issued as retention	690			—			690			—
Total adjustments before tax			3,706			—			6,335			—
	Tax effect 1	(1,002)			—			(1,713)			—
	Adjustments, net of tax	2,704			—			4,622			—
Adjusted net (loss) income			$	(2,632)		$	3,216		$	(15,138)		$	10,245
Diluted shares outstanding			29,064			28,666			28,974			28,679
Diluted operating (loss) earnings per share			$	(0.09)		$	0.11		$	(0.52)		$	0.36

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