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)

		December 31, 2019				December 31, 2018
ASSETS
Current assets:
	Cash and cash equivalents	$	17,801			$	15,793
	Accounts receivable, net of allowances of $1,143 and $885	142,804				156,667
	Income tax receivable	—				375
	Inventories	144,944				82,919
	Prepaid expenses and other current assets	6,124				5,473
Total current assets				311,673				261,227
Property and equipment, net of accumulated depreciation of $14,159 and $11,844				18,019				16,118
Intangible assets, net of accumulated amortization of $95,632 and $78,627				63,110				52,054
Deferred income tax assets				22,657				19,403
Operating lease right of use assets				9,636				—
Goodwill				43,569				27,638
Other assets				567				1,571
Total assets				$	469,231			$	378,011
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	87,303			$	80,908
	Income tax payable	5,266				—
	Sales returns liability	43,853				54,432
	Accrued wages and wage related expenses	6,328				6,624
	Accrued liabilities	15,164				13,723
	Current portion of operating lease liabilities	2,099				—
Total current liabilities				160,013				155,687
Line of credit				107,140				58,363
Operating lease liabilities				10,599				—
Other long-term liabilities				—				5,470
Total liabilities				277,752				219,520
Stockholders’ equity:
	Common stock, $0.001 par value; 100,000 shares authorized; 36,610 and 34,457 shares issued	37				34
	Treasury stock, 7,055 and 6,983 common shares at cost	(50,455)				(49,733)
	Additional paid-in capital	116,533				96,486
	Accumulated other comprehensive loss	(1,631)				(1,410)
	Retained earnings	126,995				113,114
Total stockholders’ equity				191,479				158,491
Total liabilities and stockholders’ equity				$	469,231			$	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 Years Ended
	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Net sales	$	189,888	$	166,513	$	521,922	$	538,231
Cost of sales	122,445		108,062		338,553		352,358
Gross profit	67,443		58,451		183,369		185,873
Operating expenses:
Advertising and marketing	5,955		3,672		19,183		11,994
Selling, general and administrative	34,901		29,931		135,039		108,623
Transaction costs	762		1,042		1,930		1,678
Amortization of intangible assets	3,992		3,478		17,005		11,882
Total operating expenses	45,610		38,123		173,157		134,177
Income from operations	21,833		20,328		10,212		51,696
Other income (expense):
Interest expense	(1,576)		(552)		(4,910)		(1,684)
Other income (expenses)	351		(121)		565		(483)
Total other expenses	(1,225)		(673)		(4,345)		(2,167)
Income before provision for income taxes	20,608		19,655		5,867		49,529
Income tax benefit (provision)	4,390		(5,337)		8,053		(10,340)
Net income	$	24,998	$	14,318	$	13,920	$	39,189
Earnings per share attributable to stockholders:
Basic earnings per share	$	0.86	$	0.52	$	0.48	$	1.40
Diluted earnings per share	$	0.85	$	0.52	$	0.48	$	1.38

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			For the Three Months Ended									For the Years Ended
					December 31, 2019			December 31, 2018			December 31, 2019			December 31, 2018
Net income in accordance with U.S. GAAP			$	24,998		$	14,318		$	13,920		$	39,189
Adjustments:
a.	Stock-based compensation expense	731			844			4,022			3,009
b.	Depreciation and amortization	5,896			4,959			23,903			18,288
c.	Other expense, net	1,225			673			4,345			2,167
d.	Inventory step-up amount in connection with acquisitions in 2018 and 2019	—			108			589			179
e.	Transaction costs	762			1,042			1,930			1,678
f.	BRAVEN employee retention bonus	—			77			93			77
g.	Former CFO retention bonus	—			366			110			366
h.	CEO signing bonus	—			400			—			400
i.	Consulting fees to former CEO	—			—			—			700
j.	Restructuring expenses	—			—			2,225			—
k.	Adjustment to fair value of acquisition contingent consideration	560			—			915			—
l.	Legal settlements	750			—			750			—
m.	Income tax (benefit) provision	(4,390)			5,337			(8,053)			10,340
Total Adjustments			5,534			13,806			30,829			37,204
Adjusted EBITDA			$	30,532		$	28,124		$	44,749		$	76,393

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 EARNINGS PER SHARE RECONCILIATION			For the Three Months Ended									For the Years Ended
					December 31, 2019			December 31, 2018			December 31, 2019			December 31, 2018
Net income in accordance with U.S. GAAP			$	24,998		$	14,318		$	13,920		$	39,189
Adjustments:
a.	Amortization expense related to 2018 and 2019 acquisitions	1,975			705			7,901			792
b.	Transaction costs	762			1,042			1,930			1,678
c.	Inventory step-up amount in connection with acquisitions in 2018 and 2019	—			108			589			179
d.	BRAVEN employee retention bonus	—			—			93			77
e.	Restructuring expenses	—			—			2,225			—
f.	Stock-based compensation issued as retention	332			—			1,363			—
g.	Adjustment to fair value of acquisition contingent consideration	560			—			915			—
Total adjustments before tax			3,629			1,855			15,016			2,726
	Tax effect 1	(981)			(502)			(4,060)			(737)
	Adjustments, net of tax	2,648			1,353			10,956			1,989
Adjusted net income			$	27,646		$	15,671		$	24,876		$	41,178
Diluted shares outstanding			29,379			28,258			29,242			28,500
Diluted operating earnings per share			$	0.94		$	0.55		$	0.85		$	1.44

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