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, 2020				December 31, 2019
ASSETS
Current assets:
	Cash and cash equivalents	$	17,314			$	17,801
	Accounts receivable, net of allowances of $2,000 and $1,143	63,090				142,804
	Income tax receivable	5,666				—
	Inventories	91,328				144,944
	Prepaid expenses and other current assets	4,900				6,124
Total current assets				182,298				311,673
Property and equipment, net of accumulated depreciation of $12,865 and $14,159				15,926				18,019
Intangible assets, net of accumulated amortization of $101,810 and $95,632				55,061				63,110
Deferred income tax assets, net				23,704				22,657
Operating lease right of use assets				10,456				9,636
Goodwill				24,920				43,569
Other assets				428				567
Total assets				$	312,793			$	469,231
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	44,945			$	87,303
	Income tax payable	—				5,266
	Sales returns liability	25,660				43,853
	Accrued wages and wage related expenses	5,254				6,328
	Accrued liabilities	7,087				15,164
	Current portion of operating lease liabilities	2,774				2,099
Total current liabilities				85,720				160,013
Line of credit				92,040				107,140
Operating lease liabilities				10,631				10,599
Other long-term liabilities				9,444				—
Total liabilities				197,835				277,752
Stockholders’ equity:
	Common stock, $0.001 par value; 100,000 shares authorized; 36,884 and 36,610 shares issued	37				37
	Treasury stock, 7,055 and 7,055 common shares at cost	(50,455)				(50,455)
	Additional paid-in capital	118,862				116,533
	Accumulated other comprehensive loss	(1,234)				(1,631)
	Retained earnings	47,748				126,995
Total stockholders’ equity				114,958				191,479
Total liabilities and stockholders’ equity				$	312,793			$	469,231

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, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Net sales				$	77,117			$	106,796			$	168,098			$	185,546
Cost of sales				53,805				69,037				163,728				123,965
Gross profit				23,312				37,759				4,370				61,581
Operating expenses:
	Advertising and marketing	2,419				4,514				6,845				9,099
	Selling, general and administrative	23,743				34,483				56,336				66,069
	Transaction costs	51				374				396				621
	Impairment of goodwill	—				—				18,649				—
	Loss on disposal of intangible assets and equipment	—				8				3,683				6
	Amortization of intangible assets	3,357				4,599				6,901				9,065
Total operating expenses				29,570				43,978				92,810				84,860
Loss from operations				(6,258)				(6,219)				(88,440)				(23,279)
Other (expense) income:
	Interest expense	(956)				(1,103)				(2,490)				(2,113)
	Other income	217				1,192				219				676
Total other (expense) income				(739)				89				(2,271)				(1,437)
Loss before provision for income taxes				(6,997)				(6,130)				(90,711)				(24,716)
Income tax benefit				3,664				794				11,823				4,956
Net loss				$	(3,333)			$	(5,336)			$	(78,888)			$	(19,760)
Loss per share attributable to stockholders:
	Basic loss per share	$	(0.11)			$	(0.18)			$	(2.65)			$	(0.68)
	Diluted loss per share	$	(0.11)			$	(0.18)			$	(2.65)			$	(0.68)

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 adjusted EBITDA, adjusted gross profit and adjusted gross profit margin 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 they fail 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, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net loss in accordance with U.S. GAAP			$	(3,333)		$	(5,336)		$	(78,888)		$	(19,760)
Adjustments:
a.	Stock-based compensation expense	1,310			1,475			2,604			2,660
b.	Depreciation and amortization	4,969			6,199			10,345			12,256
c.	Other expense (income), net	739			(89)			2,271			1,437
d.	Transaction costs	51			374			396			621
e.	BRAVEN employee retention bonus	—			46			—			93
f.	Former CFO retention bonus	—			—			—			110
g.	Inventory step-up amount in connection with acquisition of HALO	—			142			—			573
h.	Severance expense	—			407			528			407
i.	March 2020 inventory write-down	—			—			44,833			—
j.	Impairment of goodwill	—			—			18,649			—
k.	Loss on disposal of intangible assets and equipment	—			—			3,683			—
l.	Income tax benefit	(3,664)			(794)			(11,823)			(4,956)
Total adjustments			3,405			7,760			71,486			13,201
Adjusted EBITDA			$	72		$	2,424		$	(7,402)		$	(6,559)

ZAGG INC AND SUBSIDIARIES

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

(Amounts in thousands, except per share amounts)

(Unaudited)

GROSS PROFIT RECONCILIATION			Three Months Ended												Six Months Ended
						June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Gross profit in accordance with U.S. GAAP			$	23,312			$	37,759			$	4,370			$	61,581
Adjustment:
	March 2020 inventory write-down	—				—				44,833				—
Adjusted gross profit			$	23,312			$	37,759			$	49,203			$	61,581
Adjusted gross profit margin			30		%		35		%		29		%		33		%