ZAGG - Earnings call transcript Q3 2019

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Operator

Good afternoon, ladies and gentlemen, and welcome to the ZAGG’s Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host Mr. Frey. Brendon begin. may you Sir,

Brendon Frey

you, Ian. us financial you joining And Good to review afternoon. today XXXX thank ZAGG’s for Thank third results. quarter

Executive Chief call Chris the we Officer; Chief and On Taylor Officer. Financial today, Smith, Ahern, have

Following the for Chris a open call and comments, session. will prepared Taylor’s we question-and-answer

after Eastern third Time. Our today earnings at closed release press market quarter approximately issued was the X:XX PM

furnished financial this earnings information to to As the release, And we we a website. a on also our on SEC supplemental document Investor the Form Relations follow-on published X-K.

website documents You section the www.zagg.com all under our can Results find on earnings our Quarterly Investor Relations at the tab. Financials in

the call, archived one year. Events We this and are be podcast call at of recording Investor the ZAGG will under tab conference the for a page Relations

we your remind additional include, outlook for may These or the management to, hereof. the we operations, that do These the everyone statements, certain to the company. as would and make but project contain of not not Before to response of of the statements or speak that questions. forward-looking statements our in like remarks date prepared limited future and are statements results performance performance future forward-looking company statements and guarantee estimate begin,

in and or Exchange statements to XX-K refer forward-looking For we today’s annual differ all Form on revise cause XX-Q on ZAGG’s of materially and risk obligation a more to contained made any Commission. may the to in statements, detailed you call. on report can no Securities actual reports release from in results discussion factors that be forward-looking that with assumes those Form filed quarterly factors ZAGG the projected any the

and which adjusted measures press Investor and Relations the ZAGG’s section An the of the of addition non-GAAP in on and these which financial are SEC on included any measures. today, today's in both financial Regulation can non-GAAP and call EBITDA substitute detailed we release. the discuss diluted G reconciliation and explanation by that will non-GAAP financial non-GAAP between found measures results use the of such information GAAP be press with non-GAAP a note The in to earnings operating share, accordance this in for required measure derived release the company, GAAP, company’s performance again per outlook use Please discussing measures has of website. call, GAAP the is not the for is in the company’s ZAGG’s limitations,

like the now Chris? I’d to Ahern. turn to Chris call over

Chris Ahern

taking afternoon you time Good to for Brendon. today. join thank and a all us you, Thank

marked audio, and and quarter in And EBITDA to The more net combined power we as contributions third adjusted gains BRAVEN recent across our to GearX in PNR $XX a international much acquisitions million. of drove experience way. the return to markets cases, markets. more of our sales increases step continue up $XXX and from strong HALO InvisibleShield a support growth sales [ph] products our with international realize to The X% benefits increase meaningful million

third quarter, performed have the did stabilized half well domestic first to innovative to we compared several years. during as launched year, the face products over core the marketplace year-over-year continues our see the While that we pressures new business decline of

and review the product through then to QX in guidance. I'm will Taylor financials each the going discuss walk you these detail on of categories. highlights more

questions. We to take happy will then be

innovative InvisibleShield’s leader heads. protecting new also VisionGuard in position antimicrobials in an eliminates and which surface antimicrobial on XX% collection our technology, protection protection, with VisionGuard which the is feature our bacteria of introduction first filtration of technology largest of as but device this its kind light expanded screen cases, includes a Starting device of it’s only screens. the blue not This strengthens protection, category, with combination new InvisibleShield and

along brand This market. higher this with brand's entire We new XX Google's innovation glass continue divestiture introduced over rest products Pixel versus X screen focus the of drive as XX of elite exciting allows line to XX% on as of the XX, with Pro, premium the protection ASPs Pixel as new well Max, X Pro and smartphones, for XL. most to us recent iPhone

to Screen approximately protection have last market share XX% appears over the stabilized two quarters.

increased with the during pleased monthly we line were in see Although expectations, of XX% September. our to month market share

this our We're portfolio mentioned strategy innovative products centered to to this one, be working to grow market two, points. I call, segmenting MSR stabilize last retail level the the in our test it's our well. market into executing price around strategy launching on and category our As share continues and and

with GearX, Samsung its very and new Apple, launched several to had new Google. differentiated from technology their case and quarter a is we helping compatible designs devices OEM and it has brand expansion. Consumer productive On been and new response encouraging distribution as doors very DXO drive

adding good network, retail at AT&T, expanding across Target brand others. make well progresses several During our quarter, continue Sprint, the the to doors as as Verizon, we U.S.

to which improvement, over January. to healthy acquired experience addition business we with thanks Turning the this in of power, management, a our year-over-year power starting HALO brand,

quarter, several our During ahead the began QVC we HALO loading load of four quarter third events. sales into products

expanded Apple two products solutions, a multi and charge new pads stores, including wireless In designed device devices variety work with Apple line multi launched at ecosystem. where cables the offering full have within to with of addition, our we seven of a charging wireless new they

partners, versions charging very retail with are across We've seeing. stations also our these wireless of of the sensor we're launched most pleased and we new

lightning we to speed, October time. batteries take just to slim, the at so line of pack extra irritation juice the pack the latest to with to or in now design, hitting recently, access and yet stores. respect in port frees we the October wireless of devices this Apple mophie next are can iPhones. These we life leading With a same The were for charge and we power cases, shipped able market listen was access announced announced, protective just fastest recently which the line calls our product battery industry in lightweight users ever juice delivers bring music sorry,

to in XX% share XXXX. quarter during happy steady market to market dip we're report this fourth quarter at continuous third finished But XX% Our and of share. share growth the category

during fourth devices. our to share of the for quarter from Apple expect juice gains the continue new launch We pack access the

and XXXX. In These rugged BRAVEN’s quarter and well delivering expect portable shockproof, exceptional been new construction, very audio, products the head fourth nice sound line, as we launched contribution while featuring durable, during received speaker the a into quality. waterproof we have we

offer across America. for in Latin the doors and In team various retail stores business, our productive new international carrier Europe and

strong the to XX%. in sales achieving of compared growth in International and fact key straining last to be plan. third investment for quarter continue international to see international our long-term growth a business area We continues an year, are up

powered our we All-in-all, earnings tracking guidance the smartphone third expectations. to expect be devices. in slightly detail we go and that will and our market more call. in $XXX fueled quarter paid stabilization the out had some million at expected, still the launch but while shortly, as full range within last sales Apple million of $XXX seen communicated we below the the initial by we are through unit Taylor Overall, the year revenue

into we XXXX, during be OEM XXXX year-over-year half we during the to XXXX. pull of first due from fourth expected XXXX expect new of and first first the beyond half -- comparisons sales quarter launch the two one XXXX positive handsets quarter out that Looking half of to

technology. In new sales addition, we expect as this the to the XG in trend reverse consumers technology adopt smartphone innovation of recent downward

strong this expect Ultimately, and innovation be be business a to We to as sales. a upward three-year core trend two of to markets. to we new continue driver for our will the bring also this products

the that Board to to of the at the Directors to to maximize our want Merrill we're of alternatives shareholder process Lynch strategic emphasize Bank as turn of Taylor, the work committed are Before I go value. I we America doing call over deeply through

as However, have responding we this we comments to we not to a state position in outcome last decision announced various and I and to call, the until a announce in in made includes this this are earnings rumors our process when media. prepare

that, I'll to call hand Taylor. the With over

Taylor Smith

Thanks, just quarter today, financial issued Chris. to on were a few comments minutes quarterly Since included information many in would take additional financial performance earlier performance. our third of to our some financial details like I add the supplemental

sales cases under offset market. Net protective management sales X% product within increased GearX sales sales, our products our lower protection by products approximately to was driven by and U.S. partially $XXX of sales increased and multi brand quarter. of launched power by This primarily increased HALO the during the screen new million, driven

impact highest screen decrease percentage Profit remained Gross XX%, in margin increased at despite flat sales of from net the approximately our as protection, tariffs, and category. a a sales of

passing and three, our tariff the and call of negotiating tariff on exploring efforts These vast As mitigating manufacturing increases, the to successful impacts included tariff have along majority out last in largely tariffs following; customers; increases reductions efforts margin we four, earnings movement to two, one, in inventory price of XXXX. of the advance the mentioned of in been the China. mitigation have manufacturers; purchasing

decline protection products, cases, GearX branded increase brand in with of of and of company terms In offset new average. HALO above were products. sales sales the invisibleshield in product These which mix, also margins carry power screen gross visionguard higher both the combined was an by

operating to the million $X includes This adjustment. GearX, impact XX%, third the expenses. of assets due Operating and compared expenses of intangible year, or and HALO accounting approximately purchase BRAVEN quarter increased a last primarily amortization to

$X resulted third alone quarter million operating to last items compared increase a year. two the in These expense

during July quarter. severance this impacted the as the plan resulted addition, that last a $X mentioned implemented on a and we third year, June charge call, In restructuring which we million in

expect approximately $X restructuring annual to of gross drive We million. savings the

the new expectations. forward. products fixed leverage further during $XX increased with was in which XXXX, first saw drive period, with our our the expect to $XX the half When better marketing of with million is pleased results consistent channels. combined third improvement investment million of efforts, XXXX growing support and launches, compared versus product our we're as adjusted we in portfolio support operating in EBITDA year to brands, of prior restructuring Last, costs improvements and well with quarter Adjusted to as going EBITDA

by AR sheet, XXX factors. was from driven increased to Turning receivable DSO days accounts two DSOs in million, XX increase is The XX% to the increased year and days. XX balance primarily to a ago, and compared

direct day outstanding approximately First, the of increased Verizon XX AR. during currently AR significantly payment third which are Direct quarter, terms. to Verizon sales XX% represents on

remains same which to sales period XX $XXX good. an last business, compared Second, million receivables we $XX are The terms. our mix -- at of our saw Inventory to very generally the million on quality international payment in from increase year. increased day

which carried acquisitions, incremental the and to associated QVC backend true our Over with end load-ins largely significant due particularly inventory October HALO balance a was weighted. are increase half is during support of sales recent to inventory for This quarter at which November.

some addition, to saw which at increase growth, projected of its XX% inventory and on inventory slowing sales to an be during hand, approximately to in international due handset XXXX. OEM year-over-year In additional the we support XXXX is

helped increased the into throughout XXXX. inventory the down product the will excess that fourth during position, impacts be and to of current skews inventory XXXX Despite and sold some tariff mitigate the of has continue to quarter

inventory Consolidated times, times acquisitions the approximately X excluding in were turns period. your prior down X to from

between the expect year. X the to X we to to by exit back We time turns get

$XX HALO Net debt, million due and fund our and less $XX use to year. operations, acquisitions to remaining $XX to with cash of ongoing newly million debt to brands. cash, to share last the was The $XX for acquired particularly increase the approximately increased million GearX for repurchase which is million, consolidated compared

estimates As our sales behind slightly OEM the Chris year. for handset half mentioned, the of second are

confident sales, per million, earnings XXs shares XX.X provided, of of are net still percent range share a we million of to a guidance gross which sales profit in a million as the range $X in the However, $XXX outstanding. $X.XX in to margin in approximately range is, $XXX on mid operating

help provide prior a we expenses, GearX, impact from the BRAVEN use year. including As to and related excludes restructuring the operating reminder, of an affected amortization with comparison acquisitions, easier and which apples apples transaction the HALO tax earnings share, to per

our estimate to continue rate million. XX%, approximately to $XX EBITDA to for XXXX We is whilst annual tax be estimated adjusted million $XX

open now questions. for will we call that, the With up

Operator

[Operator first is from Malouf Craig-Hallum. Mike question Instructions] from Your

Chris Ahern

Mike. Hi,

Operator

me, Excuse Mike.

Your line open. now is

Clarke Murphy

for Mike. is Clarke on guys. for This on Hi, Murphy

Chris Ahern

Hi, Clarke

Clarke Murphy

your that were wanted the noticed Hi. with market was talk you first And about start to competition InvisibleShield this your in we what to increased guys of XX% share this? I down in we just just off doing in combat wondering, question, you are our space. quarter. to letter, And kind

Chris Ahern

in terms it's the XX%, last data of our, our terms quarter of stabilized in so like Yeah, the updates.

nature's sure grow we're So points. what segmentation done own place we to the is competitive in to price we a some entry our and put we've that, of to address consider would able whereby what level make are maintain it brand being

So, we've implemented that strategy.

last This our for is play device expectation. launches quarter quarter starting new and to out or the to

So, month there. market and anticipate already -- some September, share continue increase of one back share to the an that on point of we've share seen get we we by would

see of because a we as the segmentation into NPD lot brands all share of of of from some hold process. data be You won't house back part which the would suppressed market playing where market, obviously the are also the

share stabilize, be we again. plan overall, good that feel the we've market and able to to So grow got a maintain even

Clarke Murphy

on of device devices color more just And kind kind of know I the the one XG next or for additional year great. next or for if Okay, guys any expectations sale so. the you Gen quickly, any have

have may that? caller guys you on If

Chris Ahern

can’t have two a of for expect in really build the really end rollout years. marketplace, and next see will we that but is QX, as OEM a of us growth by the infrastructure three and that and timing comment of the be technology us back for adopted obviously And on similar panel XG Obviously, would consumers we launches, big that the thing we next launches year. we the to

are what we're about yeah, So, in excited down. new terms XXXX of devices coming

Clarke Murphy

Okay. Thanks, guys.

Taylor Smith

Thank you.

Chris Ahern

Clarke. Thanks,

Operator

next King Dave Thank you. Capital Partners. question The from from ROTH is

Dave King

Thanks. Afternoon, guys.

Chris Ahern

Dave. Hey,

Dave King

Hey.

and the GearX, And contributed what to expectations they you the much then in are terms off first quarter? have they in what guess QX? I should revenue current So in of how in your be HALO on contributing do business

Chris Ahern

Yeah.

So, during million. the number third the that they was $XX contributed quarter about

X% originally the million of talked of able approximately you they at above three know, year, beyond the we XX, a real revenue look then, with expect thought that the we we we've here about could brands guided year, talked above and $XX full when what headway given we last in be, been we that. XX% and originally kind make since to QX we the do know, brands to the some as the So, you to quite about it that bit

know, guide we to just our wouldn't of know, specific rest the probably know, well XX% you that So, had it's, you one originally the assured brands a you number on projected. what, but above

Dave King

Okay.

Chris Ahern

real next that a the doors for for have as farther we door with. we far open Dave, step still good growth the of as Yeah, in see can we that – as year, us acquisitions some area of terms partners retail relationships

the acquisitions So next year. about we're excited for

execution While with well. we're there year as growth next for are happy year runway really the this still farther

Dave King

other the have with the some good okay. margin your you bit are hear. to segmentation on And Okay, versus I guard. those I stuff little was earlier color protectors. think then question screen gears new That's the for typical like on also strategy Switching on that's and good – vision realized the a are margins? what product it - higher How margins

margins screen we forward expectation as move know, beyond? sort you for the So as and QX protector here of we into what's

Chris Ahern

Yeah.

would margin So it. a terms we in I would look – if at of not that the I growing have actually screen protection the maintaining

segmented reason diluting But on anti-microbial the for whole so vision, light not innovation margin. maintaining percent. around we're that under we're the we our margin strategy we're margin. So correctly actually with sure impacting And margins, protection, increasing was side, making the blue segmentation, our our without

if So increasing at as perspective, your it managers. from overall an look stabilizing not

Dave King

Okay.

Congrats new out. Okay. that juice one for I guess getting on access. And more the then, on me pack

QX? should that? you be How contribution years? us? much you that that that previous a QX? of modeling QX? we sort all You And did get Or in from early do other any you it know, how know, of, the juice benefit in load cycle, to was sort that Is would for you expect how similar did ship you you as then As launches and to in of for contextualize of this Thanks. had pack

Chris Ahern

Yeah.

would give be of to don't want stores, it's to Taylor I revenue but, revenue, going bit know, all you a et you So say, on you the know, color of cetera. side? if I hit for

Taylor Smith

a was you was get believe into if I look couple think years, in it ever the back get I December. Yeah, best know, QX product that of XXXX. you launched we'd

to at think we this going but back to we juice level, As look year, we're incremental get don't access. sales, probably certainly that from expect, definitely the we pack

want able last question, wouldn't above and position a for particular I expect where guide do probably So, a beyond to we to a as were probably previous the definitely product year. but mentioned in I what category, be we on we would, would be

Dave King

Yeah.

Okay, taking of luck And for that's great year. good questions. rest thanks the for color. And the

Chris Ahern

Thanks, Dave.

Taylor Smith

Dave. Thanks,

Operator

you. question from is The from next Ladenburg. Thank Jon Hickman

Jon Hickman

questions. taking for Thanks my

Taylor Smith

Hi, Jon.

Jon Hickman

you bit Taylor, elaborate operating expenses. the could a little on

that related about about during something accounting from the well the an said acquisition. the Is acquired XXX,XXX that to as was that intangibles, hit the purchase we of inventory brands charge just from You amortization a because charge acquired. period as that

I that that, severance million related In the about charge the the during a for to was charges there addition for restructure. quarter mentioned, restructuring to $X.X the hit

So help there. won't the us that, million in won't to out be again X.X XXX,XXX get quarter fourth

So by will operating $X down million. come maybe playing expenses

Taylor Smith

right we charges. recur, should, $X.X mean, QX. off, million, time and reduction consecutive And from those at both yeah, definitely that right. of There's an a reduction result a I We you I should of QX incremental or think as shouldn't least, see those Yeah. know, come one

Jon Hickman

would quarter? of that an like savings? into a $X X you Is XXXX say annual kind And million million

Taylor Smith

the of restructure. dollars. annual I know, is of we as with is execute million you that $X reductions headcount like, it Yeah. There's able look about were at with part savings the The the on, way to gross

into we'd take able to be that year. if So, anything next didn't we do

we're and headcount grow. invest the to be other be there's as some going where we Of to going to maybe business of need to going that are areas course, added, other

million so, some Does amount That's as sense? make adjusted we wouldn't headcount for I that into gross that X the entire grow And bring savings. may the business need, XXXX. into the we

Jon Hickman

you minute. one the that's here got thing, how more off a about on I Did guys States? And going the for in Yeah. And product? anything cut demand say

Taylor Smith

it a happy I'm we to make Jon. on some give No, so color. comment you didn't But

growth starting in continue internationally. for And to here in North see InvisibleShield we're we some on So, America. to make demand headway

continues more doors pleased It any we as our Latin to opportunity the and be opening an So well service. given to with as brands way conjunction Europe with America, new that in other service. couldn't both get lead that

In the the of on service next the North are give color no, or yes, as by be make to some and we we early mentioned North we're more haven't know starting to we headway partners this publicly in some able position gone year quarter. end that We America, with you be but out will from some the partner, working of that as – a America. in year will

Jon Hickman

thank you. Okay,

Chris Ahern

Thanks, Jon.

Operator

you. Thank

final Henderson Your question D.A. Sean Davidson. from is from

Sean Henderson

Hey, guys, thanks taking my question. for

you kind just China, sourcing on if of on how just provide outside – give basis? could of of updated guys your quick, kind frame of a some that? about you And some real think timeline some moving outlook time Just on updated

Taylor Smith

Yeah, sure.

started not looking at Sean. So we're solution, just

before working our all one market; areas we current product. is us of we class launch set new those the into that focus And negotiations. we account bring with products take in obviously So and to of of in actually terms three China with you of partners tariff obviously for know

that's one we're area at. So where looking

entire don't in Secondly, of process. to where classes more that take obviously leeway products we actually out the the is deal corn have

retail of -- have carrier we will with and on pass partners would had class. that negotiations had some where We we our and

China some you started detail, much of out part we can't about mentioned of wireless category production power we I in expect into amount in categories. arena. process have And charging China, key as the obviously timelines moving our in Obviously, a XXXX, some around with be particularly will in would go of is outside but a of significant our too

of display have have category We So know, to actually entire you're us plan the here. out the back we plan. detail if the not at much XXXX. out terms do to into But go you too with going it. that's but know, pretty happy end how to go in we It business of takes overall look to we're a and China for you

Sean Henderson

Okay, much Thanks great. very color. the for

Taylor Smith

Sean. Thank you

Operator

That for the comments. to Thank turn Q&A the conference you. would back speakers the like concludes I to session. closing now

Taylor Smith

appreciate our joining Thank on today's you you for updating we join giving We pioneer next you time to call. us call, and on you. our us performance. to us Thank the forward look

Operator

Ladies wonderful conference. day. for you. a have participation concludes your and you Thank Thank gentlemen, today's this and

You may disconnect.

ZAGG (ZAGG) 6 Nov 192019 Q3 Earnings call transcript