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

ZAGG INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per par value)

(Unaudited)

	2017			2016
ASSETS
Current assets
Cash and cash equivalents	$	24,989		$	11,604
Accounts receivable, net of allowances of $734 and $824 in 2017 and 2016, respectively	123,220			83,835
Inventories	75,046			72,769
Prepaid expenses and other current assets	4,547			3,414
Income tax receivable	—			2,814
Total current assets	227,802			174,436
Property and equipment, net of accumulated depreciation of $12,540 and $18,371 in 2017 and 2016, respectively	13,444			17,755
Goodwill	12,272			12,272
Intangible assets, net of accumulated amortization of $66,639 and $55,298 in 2017 and 2016, respectively	39,244			53,362
Deferred income tax assets	24,403			50,363
Other assets	3,426			2,541
Total assets	$	320,591		$	310,729
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	96,472		$	85,022
Income tax payable	2,052			—
Accrued liabilities	10,515			22,216
Sales returns liability	32,189			28,373
Accrued wages and wage related expenses	5,652			6,169
Deferred revenue	315			273
Line of credit	23,475			31,307
Current portion of long-term debt, net of deferred loan costs of $141 and $65 in 2017 and 2016, respectively	13,922			10,484
Total current liabilities	184,592			183,844
Non-current portion of long-term debt, net of deferred loan costs of $0 and $141 in 2017 and 2016, respectively	—			9,623
Total liabilities	184,592			193,467
Stockholders' equity
Common stock, $0.001 par value; 100,000 shares authorized; 34,104 and 33,840 shares issued in 2017 and 2016, respectively	34			34
Additional paid-in capital	96,145			92,782
Accumulated other comprehensive income (loss)	(348		)	(2,114		)
Treasury stock, 6,065 and 5,831 common shares at cost in 2017 and 2016, respectively	(37,637		)	(36,145		)
Retained earnings	77,805			62,705
Total stockholders' equity	135,999			117,262
Total liabilities and stockholders' equity	$	320,591		$	310,729

ZAGG INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	For the Three Months Ended December 31,						For the Years Ended December 31,
	2017			2016			2017			2016
Net sales	$	176,924		$	114,929		$	519,495		$	401,857
Cost of sales	120,748			85,075			350,497			274,255
Gross profit	56,176			29,854			168,998			127,602
Operating expenses:
Advertising and marketing	3,399			3,862			11,101			12,440
Selling, general and administrative	26,671			25,986			105,398			96,229
(Gain) loss on disputed mophie purchase price	(6,967		)	—			(6,967		)	24,317
Transaction costs	114			124			725			2,591
Impairment of intangible asset	—			—			1,959			—
Amortization of definite-lived intangibles	3,007			3,476			12,047			13,385
Total operating expenses	26,224			33,448			124,263			148,962
Income (loss) from operations	29,952			(3,594		)	44,735			(21,360		)
Other income (expense):
Interest expense	(555		)	(484		)	(2,081		)	(1,851		)
Other income (expense)	633			(76		)	698			(348		)
Total other expense	78			(560		)	(1,383		)	(2,199		)
Income (loss) before provision for income taxes	30,030			(4,154		)	43,352			(23,559		)
Income tax (provision) benefit	(21,971		)	9			(28,252		)	7,972
Net income (loss)	$	8,059		$	(4,145	)	$	15,100		$	(15,587	)
Earnings (loss) per share attributable to stockholders:
Basic earnings (loss) per share	$	0.29		$	(0.15	)	$	0.54		$	(0.56	)
Diluted earnings (loss) per share	$	0.28		$	(0.15	)	$	0.53		$	(0.56	)

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 principals (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.
			For the Three Months Ended December 31,						For the Years Ended December 31,
Adjusted EBITDA Reconciliation			2017			2016			2017		2016
Net income (loss) in accordance with GAAP			$	8,059		$	(4,145	)	$	15,100	$	(15,587	)
	Adjustments:
	a.	Stock based compensation expense	1,067			151			3,602		3,830
	b.	Depreciation and amortization	5,382			5,787			21,888		22,270
	c.	Impairment of intangible asset	—			—			1,959		—
	d.	Other (income) expense	(76		)	560			1,383		2,199
	e.	mophie transaction expenses	(611		)	124			—		2,591
	f.	mophie fair value inventory write-up related to acquisition	—			—			—		2,586
	g.	mophie restructuring charges	—			959			437		2,160
	h.	mophie employee retention bonus	—			341			346		841
	i.	Loss on disputed mophie purchase price (2016 only)	—			—			—		24,317
	j.	Provision for income taxes	21,971			(9		)	28,252		(7,972		)
Adjusted EBITDA			35,792			3,768			72,967		37,235