ZAGG (ZAGG) 29 May 202020 Q1 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to the ZAGG’s First Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Brendon Frey. Sir, you may begin.

Liz. you, Thank thank ZAGG’s and joining today us Good quarter you XXXX review first financial to afternoon, for results.

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

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

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

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

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

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

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

the discussing GAAP company’s GAAP adjusted An the we measures. the note impact in excluding today, today’s outlook SEC of The the and no and any factors for Form information with performance a filed now Exchange G, made forward-looking can both factors For measures in on be the of derived financial materially call required limitations, release again GAAP. to call. on profit, detailed actual from the Relations non-GAAP on all use Commission. not contained Securities Investor a over results any call refer report that EBITDA statements Chris accordance non-GAAP March company, in financial is this Please inventory the explanation that obligation non-GAAP those in to reports release and ZAGG gross I’d financial annual non-GAAP that XX-K forward-looking in on with the more is risk in ZAGG’s any detailed release. the these results Form between discussion use non-GAAP press of you call, by of XXXX section the the website. press measures And which substitute discuss revise the of projected write-downs, company’s today’s of which addition cause ZAGG’s Ahern. on and like in measure can will such are Chris? reconciliation to and measures be differ ZAGG’s quarterly And assumes or turn to statements, XX-Q we in to for the to included the has found Regulation and may

Thanks, thank call on you us for healthy. hope and Brendon, and you and our joining families today. all safe your everyone are to I

all home start personally required and working partners. diligently we commitment this significant top virus those which late thoughts with in the during are for entire our I’m of protecting ensure battling in pandemic. of meaningful thank employees, affected we a the you’ve a and to who to the times. outbreak, have our proud the we these a facing year. into our communications to majority our ZAGG extremely we to year, higher everyone I I the everyone for Even operate, a the compared worked that employees want our earning. responded communities of vast their evolving on unique and new quarter remote company to how that situation, Prior to created unprecedented solid good well effect ZAGG shown had want challenges COVID-XX we in can the behalf tariffs the express has doors have including set has perspective. the adjusted changes by Our from with dedication gross to from and EBITDA first especially been team Throughout to organization, keep how safe went by and were as were a gratitude in to the XXXX, of improvement delivering on we working last the with headwinds line margin line of experiencing sight frontline

is outlined XXXX guidance performance XX. plan call during March fourth tracking Our our we on to our when quarter

chain the still of in that concern call country. of supply the not isolate the appear of early impact a virus evening, in related as the U.S. be primarily COVID-XX and and areas stages outbreak the few was On to orientated to around the the demand to

XX, However, at was the which emergency, night, season very the several President shelter states close national Utah suspended National the a situation to requiring soon to quickly changed March after On our declared followed call. coronavirus. nonessential player individuals after home. Association That Basketball was diagnosed the the businesses by with and Jazz

taken working preserve close to a experienced in inventory. the out or last over drop-off of March, took start the our many sales of weeks down by with few actions spread partners required and liquidity their steep orders result to the on-hand a steps pushing As of doors, wholesale of to canceling we the they virus,

other demand purchases in home. weather March of the their our period at groceries, and We supplies prolonged to saw direct-to-consumer channels as time also necessities shifted cleaning to slow consumers

loan very amendments included: revolving credit temporarily available to took and These team of a reduce closing layoff align of further the portion deferring and global of million host to delaying actions COVID-XX. furloughs nonessential the go-forward backdrop a portion of few a forecast. global salaries; and of on management sales lost the the with financial flexibilities. our XX%, source; difficult administration a Our canceling Board March, all senior borrowings; secured cash over CARES initiatives; or facility reducing cost-reduction immediate even quarter weeks Directors’ portion to our a implemented approximately our Board under we costs operating increased due to last Directors to compensation; as global small or our business the actions on Act; enhance our temporarily of work closing fourth adjusted purchase Despite management demand orders of increase implementing reducing spending projects; $XX

Our top line InvisibleShield gains by year-over-year in growth multi-wireless power and charging products. solid our screen performance was business, driven with along in protection HALO

that which long we incorporate introduction protection history developed GearX launch with case light, fall this the a screen advanced leader of solution followed antibacterial launches. to blue products, innovative surface off our the half continue current the screen protection several This strategy that health environment. in will Kastus, partnership We technology, the the our screen InvisibleShield were our by with timely of XXXX of and introducing VisionGuard, wellness and It started of protection. antimicrobial new all given filters was last under year, all antimicrobial launches, our along new in protection with

new our We also have under that will product two strategy launched launch. shortly and wellness developed or health lines

for consumers in range April, early big you have These antibacterial retailers. use, through even especially focus During as our have this launched stronger, wipes sold we device box wipes and increased their across have be well sold we Early to device will UV and are wireless which mobile for market. find health. this sanitizers, or on devices. will forward protecting phone this your seeing quarter, I signals can Later launch product, encouraging demand look in-store to at used their and the sanitize home

remote home In as that or first saw and support addition, began keyboards, quarter charging we from products families the at several late work a as and wireless in learnings in individuals home staying audio. spike such

open share this to particularly these tied shift retail online our retailers. retail as share of market to is stores heavily hours, consumer and As as traffic our see we to purchasing protection accelerated sell-through erosion a in did that of or result business this recapturing smartphones, returns reduced We wireless anticipate closed the channel. occurred in some screen as stores

In the as As to we going much into to and of last as restrictions year ease saw Today, as remained sales period states experienced underway, trends carrier, their began same reopen. compared retailer to to we XX% last early the to a from range April. are down slowly carried stores approximately week doors the But week month. open down the and percentage April of retail lockdown on early May, from got began brick-and-mortar wholesale XX%. each late improve depending quarter XX% progressed, in to over open, second March few the the the XX% the

doors the we’re of will be We that continue in frame. doors July to partner our open weekly, see opened vast more the and anticipating time majority

trends sales our ad terms spend as for performance, second rates effective In online. QX slowly outpaced improving. are seeing Overall, improved conversion and by have direct-to-consumer quarter to sales dotcom very XX% of date we’re the over XXXX

approximately million our be $XXX of to to XX% million. trying We’re currently March in forecast $XXX below

at of when XXXX the we’re normalize, conservatively and time While visibility future for not for we’re several begin categories consumer relates demand this quarters, receipts. next to our over due guidance especially business to planning and our it as the to timing expenses providing unclear lack

the reducing all including by includes BRAVEN sales we brand position longer Kastus restructuring audio, consumers on like I on the for in term, audio competition our going through company higher-margin simplifying the With battery dive lines, of The iFrogz battery of team categories the our the including size discontinuing amount of remainder within our decline we our licensing years innovation, agreements a from throughout hand and further sustained can product shift review to near potentially, the believe continued and the while SKU initiated on solutions. forward by certain keyboard station and into created DXO, to ZAGG profitable categories the partners, charging the of lines. where inventory brought power brands, to pandemic. the the businesses, profitability over we’ve year, case separate better expanding uncertainty and, past several through we respect the With the of the have To in counts the that or exiting COVID-XX executive supporting mophie cases, the and product demand recoverability of growth, plan Healthe. developed is and discontinuing wireless category future took term with either as deep done to internally focus declined due a

after the you those as opportunity launches of device with are a cases device our we a launch, few lose always for who months familiar that sales will significant recall thus, our launched. battery out were addition, In

a significant times, Ultimately, not right which produce battery contributed to higher that are heavily positive cases product demand. been for Lastly, and lead of consumer although generated these $XX contributed to product million all engineered operating inventory factors did have have company. the costs output the XXXX, category, a this our it difficult positions time, has in amount for

are we exit that current Given grow, for we and difficult confident to focus environment on categories retail decision the need the a to made can our category profitably product we market.

commitments In move terms finished is simplifying sourcing and each risk long goal time reducing significantly in remaining reduce certain away product our from of the to number the categories. of lead categories, and SKUs of inventory by goods

write-downs, incur our shortly, can and better one-time this long-term restructuring, more result year including nimble increased our charges expect our serve shareholders. operating while generating will higher to the association retail consumers core in value actions While partners that margins, will we Taylor for we review inventory in and which company

As the near-term with so organization the business doing endure sites we our our look we’re in adapting to towards future. and challenges,

and of key are positions our strengthening steps out will to the are with strengthening connections this success our strategies I of taking for goal category-leading set our and brands the that evaluating with consumer relationships our – ZAGG am the the weather in off confident company. interest longer-term volatility near-term the we partners. best positioning, strengthening We’re

to as opportunities the business your staying I portfolio lasting and shareholders the now is this all safe over be to hand be as from impact continued of team, manage with we hope that well year you on brands opportunities call degree will that exist new flexibility the will And of for our ZAGG will anticipate the I the We of healthy. pandemic. support. behalf capitalize Taylor. to created and the by currently high a prepared Thank everyone entire our for any on

were the wireless few line from lost approximately pandemic, brand, non-cash counts many the power a station iFrogz Thanks, exiting earlier three, audio, with by our in comments just primarily of one, in mophie in to the case increased provided two, certain included financial QX supplemental COVID-XX like approximately sales performance financial line of to, businesses, to of discontinuance million $XX including range mophie an March decreased, as due discontinuing information financial Chris. mentioned. in and to of sales additional guidance, and $XX to quarterly sales million the profit $XX call. category, reducing and the our due ending guidance lines; last issued four, as on QX and we net XX% increase net take million, simplification earnings details $X power battery we many the demand inventory COVID-XX. sales product of BRAVEN to reductions gross the SKU HALO the a I quarter ZAGG linked screen The due increased increase keyboard product write-down of protection – in with to percentage decreased a financial effects year-over-year demand million of would was to Chris performance. product since the of minutes add lines. sales and products first on today, driven Despite the Since some our our quarterly

of sales XX% impact as the year inventory the of approximately been would write-down, percentage gross period. prior this profit in XX% have Excluding a non-cash versus

both employees expenses as addition in an the airfreight online Chinese primarily the million charges linked last impairment equipment intangibles QX of quarter, impact result non-cash discontinuance In the $X and to first to and goodwill increased The restructuring year. at BRAVEN increased the were quarter; product than $XXX,XXX year planned in the linked of the charge first or capitalization to for a brand $XX to at the to the QX and first across end to million and the increased to increases undertaken the decline Latin of back non-cash approximately tariffs due to operating to the linked compared the of and last terminated by of a impact $X million $XX was partially during region. increase later to These freight of approximately write-off end discussed; million tied lines last America quarter; coming due offset inventory market in the from compared year. activities COVID-XX. of experienced linked investment rates expansion we an of factories write-down, headwinds severance the additional XX%,

Due from one-time impairment $XXX,XXX was in charges, year goodwill have partially adjusted offset negative of by I that to versus improvement adjusted are period. and the expenses linked declined was the the compared airfreight inventory would intangibles approximately QX the by included to charges equipment, headwinds sales The but of to versus to and severance $X Excluding non-cash the nature impairment EBITDA addbacks million tariffs EBITDA and gross previously. prior to discussed $X was these operating the period. year as negative year. profit million during write-down, last prior and the increased write-off the

million days. a good. the the XX% write-down after compared million the $XXX to million, XX and XXXX. ago, quality The from of $XX to to remains decreased sheet, of very $XX our last year improved million was DSOs and end Turning $XXX balance year compared days accounts of significantly a at to XXX Inventory million receivable normal to receivables level more $XX

the compared Excluding decreased year-end. write-down in QX, the inventory inventory by to million impact approximately of $X

last basis, last and and our last impact year. second assumptions, less million Given an are year. but was retail in brands, compared on being for to $XX acquired compared we’re of sell-through, of and timing. a the inventory cash, to are purchases to cash to at $XX GearX used in the demand which levels, appropriate carefully consolidated of due end to demand conservative our COVID-XX, to on forecasts very from OEM The debt million Net significant retail quarter monitoring million launch million tariff half year balance inventory gross line support the in QX uncertainty customer versus ensure customer and was XXXX the in bringing increased in future increases $XXX increase credit that is debt On demand, $XX amount HALO QX we given device newly rates. inventory

million. stronger restructuring, and combined company taken the expansion, that like facility our the a product business. on we us that spend total the this This emerge we’ve offerings from credit as I’d minutes simplify April, and Like $XXX will we’re amount gives initiatives to Chris, preserve on increase the to our COVID-XX. amended we response discussing and we’ve profitable focus few profitable actions we the with headwinds that the business confidence to to most period COVID-XX cash, and impacted credit line by cost-cutting a million available navigate $XXX During lines has so the undertaken, more product from retention to COVID-XX cash put of successfully under

and earnings after and year. a XX, office to the left QX or March earnings strong Chris shaping QX, be is the call, – lifetime which well As the ago, were we in left very I last the up like confident feels above

As to tested Chris Jazz time NBA COVID-XX mentioned, Utah the canceled. have that by was the the season night the night the Thunder over, game. Rudy Gobert And Jazz been positive from for prior

the Basketball to reduced Over the we or retail. see next XX NCAA throughout canceled and closures hours, saw started store hours tournament

reliance our business partners impact significant. Given our on significant the has through to franchise sales retail locations, been and

closures started as orders tunnel light the end As and followed store various and have local the retail stay-at-home Chris varied orders you retail at and in throughout the guidelines. some mentioned, closures of to all in March. starting mid- Though, related U.S. These we’re the stay-at-home state to markets know, store late see

of by the rest or employees; reductions to we of it cash executive XX% salaries, our the to closed of the for marketing with approximately compensation $XX potential Board stock-based X% took the senior for of administration and travel and XXXX; implemented management; of align internationally our $X or by reduce remainder throughout under approximately We all actions nonessential expenses. the million of Directors’ layoffs on global COVID-XX As XX% throughout reductions cash business, of the loan borrowings demand mobilized Chris, to significantly replaced significant and small line remainder projects; amended temporarily for preserve significantly the headwinds canceled purchase spending reduced furloughs million; CARES including increase and quickly we following the reduction portion Act saw team force temporarily reduced I approximately and the business reduced through spend these available XX% mentioned; of credit XX% XX% adjusted – compensation; March orders a a or XXXX, as and domestically XXXX. limited deferred the certain employees to on canceled of delayed forecast; of with task

decisions In addition, at looking exit as we decision simplify station ZAGG our audio, the mentioned, and not iFrogz discontinue counts our will businesses, mophie Chris Ultimately, product And brand, SKU product and were ultimate discontinuing top profitability. all of some the the These long-term lightly, reducing battery including brands improved to sacrifice sales, lines, drive goal long-term. lines. focus line the these business lines. product we’ll critically made BRAVEN certain case is growth we product the profitability made keyboard power and on profitable category decisions and but examined although to and the most

the and discontinued sales. in million XXXX, for lines $XX net During accounted the product approximately BRAVEN brand

to dollars However, long support incremental profit they else expenses EBITDA. negative due to adjusted expect produced discounting constant, term. these held needed to we drive and decisions everything these With operating brands,

we’ll these through actions, pressure to to we mid-XXs sell gross year-to-date the we in historical the year, few inventory. all margins see average of As throughout XXXX excess next as quarters a but compared our some of of the expect result improve

into next move average expect in which historical we mid-XXs. again, margins, the improvement gross to year, is our compared As we

subsequent March, worldwide expenses visibility, on of initiatives in be demand, to operating a reinstate the impacts limited that the will expect we the range to but since due further we customer visibility We in and end time. will quarterly for be of guidance approximately the XXs been providing remaining have withdrew Due XXXX. up as annual orders they later the the retail total open the stay-at-home of we to many lifted for operating to demand million high the not may when year our we For guidance XXXX are basis now call and to and of having guidance $XX update where implemented quarters reduction this in we expenses, will on better have April. at be With any that, questions. cost

the question Thomas Our Davidson. [Operator first with line Instructions] Forte comes of D.A. from

is now line open. Your

thanks Great, taking for my question.

get back So I follow-up, have I and in might a and the queue. question a think then I

about performance for as that general think little there. you points sales the can priority your But versus to the rule, the maintaining direct wholesale? data some I gave a extent So talk on you as the you’re direct far sales inventory sales seeing? a what’s your versus as more

question. initially, sales, actually of, we focused Yes, on obviously, essentials. On everything decline a great seen – Tom because our Amazon direct we

or we a to saw bit space. But out in out of coming little starting traction dip. of – So our sorry, direct-to-consumer from a see of good really April March, we’re

We’ve more as that focusing putting our our as actually categories well inventory ring-fenced obviously own digital on We’re those in on both Amazon. we’re and on platforms. from products spend spend key dotcom

nice we’re pretty seeing is continue so this strong. So month, traction the to forecast and see and really

when to fuel So we’re fire as really as putting direct-to-consumer. can the in it much comes we

some growth the year. forecast nice into coming the other nice the seen we’ve platforms, and see there end QXH of On back

we you we’ve some focused. know, nice very a built as feel But that our number on they’re well. QX brands with of that As momentum QX, channel

invest channel. that dollars in direct-to-consumer overall, to and continue we strong, is So

All right.

follow-up, So queue. back then in one then get I’ll and the

that’s to have of side, able guess on so the I question. And some my much antibacterial So quickly? these, how products it, call develop pretty follow-up you been

But date. other launches been that of create the So properties an thing, quickly? very to so how you’re product know it I able products the you’ve that address is had doing had that that protector these at those some early you screen

we’ve very closely working in wellness quick it But our our strategy to our partners. And and very have to quick of retail line and quickly enough mixture terms to also, a unfortunate fortunate, we two on of one – occurred, been talking prior it’s Tom. been things, opportunity meet The bit health to with with team in had very, Yes, I very around and carrier, this around would A react. basically of nimble. the products to or able two where able and we also, very to this the in be situation product. in as were been requirements came react partners say,

I’m a So quickly proud looking But of reacted in little to also we of we products very team the were fortunate how as this. space. bit terms at that starting they’ve certain happen in to be

more you, get Thank will I for Chris. Thanks. back in Okay. queue the questions.

Thanks, Tom.

Our Hickman next Jon Ladenburg. with question from comes

Your line is now open.

– you I that you – previous Is you said? your fast. that writing be did guidance? say in down were you and Did what pretty you was XX% to so expect talking QX pretty fast, sales But from

Yes.

that $XXX right So to million, guided said that’s million in will was and approximately XX% to at – but be we $XXX tracking that early never what QX sales QX, we we of now Chris didn’t amount. estimating March were about

then away? And little by you to a Is BRAVEN? just to go elaborate exiting you could mean going what you Or and… are that try going bit on

Yes.

ultimately, for tooling partners the throughout certain year as So there we long and Jon, in there. will exiting supporting have the be – is be brand, as retail products will – but we is already because range partners, we the

brand. going go and to a So to the we’re product whole out products set we’re is on of support that of for back develop new What foreseeable set the current able we’re not the future. saying

Or… be you’re the So I through, mean but products – indirectly year? right what, at retail – available the will end of those now,

particular we’re to partners like product. Yes, current yes. for our selling have, that that’s there’s well and we And partner, maintain support a that the lineup able products that any with if

not you’re R&D like putting So any either?

Correct. That’s look. to right the way

from you. it Thank Okay. That’s me.

Thanks, Jon.

Thanks, Jon.

[Operator Thomas Instructions] line question with D.A. a of Davidson. We Forte follow-up have the from

line Your open. now is

one three, time. a had I I’ll Thanks. Great. go at

for later XG Chris, unit first are to that stimulate you the this there’ll that expecting want So and opportunity should seeing for it that tremendous anything extent a be we’re to suggest delays smartphones, year? the material I ask, XG present to growth in to extent foremost, that rollout ZAGG,

probably off coming the will we devices, expect with they see most period be COVID-XX straight have Samsung, do compliant, time, Tom. the some obviously, the now longer Not had launch think a of in given, take had. XG bat, it I impact, But devices right? terms as to you of latest

XG. growth we we So that anticipate will around see

our planning at business around right stick we’re hockey the growth that. off And looking not We’re bat.

more ramp it in sustained to growth, be expect slower terms We plan as of but more well.

seeing you would you that though, suggest any that is XG opportunity Are to on anything, robust? less long-term the

still believe Tom. is there, that I No. opportunity

is great. possible iPhone a stimulate more. it that shorter-term To opportunity in create offering what Okay, for and extent then $XXX Two Apple a could growth unit smartphones you?

by from will believe opportunity Yes. for feedback I I really produce field, do us. devices some think it well Getting the consumers. an do that the had accepted been

protection screen of full set products cases. around be that, and We it have

with ready of any in marketplace take product obviously, the to brings. that opportunities and, excited that we’re So advantage

All right.

two apologize, I more. So

to given channels? that So selling success can apply to how your QXH distribution what success you you on extent thoughts has other on your

Yes.

has products, QXH, of the been of So right? And product, the very driven functionality quality I would say, a very of strong developed with our success partnership. it closely product. the the by the been the primarily right, success So has very,

So if how major you these to partners, with it’s of taking retailers anything, much dictates can And what that’s what all a partner with product we’re away. we good seeing carriers and is how market. we’re bring Tom, very really our

and the is we’ll successful. be innovation focus the continue for partnership products on around me, it’s how So with all

would our tell blueprint that we So across I of key you, all use partners.

Excellent.

chain? is, we long-term So your think of thoughts of question supply role. last I the question for me for China how your have and of then should future luck. The COVID-XX the change best role about Has

changed hasn’t long-term role. Tom, around thoughts, It the our

we’ve at I that the business, looking our supply been with tariffs, think how brought diversify to COVID-XX, chain. we our with a business, do prior as the difficulties

of think our we’ve part So So that. to China have can right? to continue business, I can evaluate that as of at or sets were products been be I And move And we outside still and already looking tell ready with we’ll key obviously, diversify. you, already China, but quickly number product as of we very strategy. we’ll continue is to a a

Great. you, Taylor. Thank Take Thank you, care. Chris.

Thanks, Tom.

Tom. Thanks,

today’s to like question-and-answer turn back session. remarks. That concludes I’d for the call closing

our you’re families, Yes. I and update. for staying and speaking all you again you Thank first quarter for our to XXXX. to joining your Thank safe, we look you, you. for forward all hope update QX

conference participating. Ladies you gentlemen, today’s call. concludes and this Thank for

now disconnect. may You