LeapFrog Reports Third Quarter 2012 Net Sales Increased 28%

Income from Operations Increased 48%

Raises Full Year 2012 Guidance

Nov 05, 2012, 16:01 ET from LeapFrog Enterprises, Inc.

EMERYVILLE, Calif., Nov. 5, 2012 /PRNewswire/ -- LeapFrog Enterprises, Inc. (NYSE: LF) today announced financial results for the third quarter ended September 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20090219/LFLOGO)

Highlights of third quarter 2012 results compared to third quarter 2011 results:

  • Consolidated net sales were $193.1 million, up 28%.
  • Income from operations was $36.9 million, up 48%.
  • Net income per diluted share was $0.60, up 71% or $0.25 per share. 
  • Cash and cash equivalents were $49.4 million as of September 30, 2012, up 93% or $23.8 million compared to the balance as of September 30, 2011. 

Highlights of nine month 2012 results compared to nine month 2011 results:

  • Consolidated net sales were $336.6 million, up $91.6 million or 37%.
  • Income from operations was $20.8 million, an improvement of $30.8 million.
  • Net income per diluted share was $0.35, an improvement of $0.55 per share.

"The quality of execution from the LeapFrog team has been exceptional this year.  We are making terrific progress in the transformation of our business while delivering market-leading financial growth," said John Barbour, Chief Executive Officer.  "This summer, we introduced LeapPad2, the next generation of the #1 kids' learning tablet.  In a very competitive tablet market, LeapPad2 has already won many accolades, been featured on every major top holiday toy list and is a top-selling product in key retail layaway programs.

"Our 17 years of experience in creating revolutionary products that improve children's lives through delivering fun, engaging and compelling entertainment that's filled with rich learning nutrition has helped us create the best learning tablet for children and a content library that is filled with hundreds of games, books, videos, music and apps that have all been created or selected by qualified child development and education experts. Together, our platforms and content provide a winning proposition that helps children achieve their potential while also creating significant value for our shareholders and our business partners." 

Financial Overview for the Third Quarter 2012 Compared to the Third Quarter 2011

Third quarter 2012 net sales were $193.1 million, up 28% compared to $150.8 million last year, and included a 1% negative impact from changes in currency exchange rates.  Net sales growth was primarily driven by the introduction of new products, continued high consumer demand for the LeapPad line, and strong content sales.  In the U.S. segment, net sales were $145.7 million, up 26% compared to $116.0 million last year.  In the International segment, net sales were $47.4 million, up 36% compared to $34.9 million last year, and included a 3% negative impact from changes in currency exchange rates.

Income from operations was $36.9 million for the third quarter of 2012, up 48% compared to $24.9 million a year ago.  Net income was $41.7 million, up 81% compared to $23.0 million a year ago.  Net income included non-recurring tax benefits of $6.4 million in the third quarter of 2012 and $2.9 million in the third quarter of 2011.

Net income per diluted share was $0.60 for the third quarter of 2012, up 71% or $0.25 per share compared to $0.35 a year ago.  Excluding the impact of non-recurring tax benefits, net income per diluted share increased $0.20 per share compared to the prior year.

"We delivered a great third quarter performance with strong sales and earnings growth," said Ray Arthur, Chief Financial Officer.  "Consumer demand for our educational entertainment continued to be robust. Early retail sales of LeapPads through retailer layaway programs have been very strong, although it is likely that these programs pulled forward some demand into the third quarter from the fourth quarter.  Improvements in our supply chain have helped us build higher retail inventory of LeapPads as we head into the all-important holiday season." 

Guidance

"We have good momentum heading into the holidays.  Given the strength of our third quarter results, retail point-of-sale trends and inventory position, we are raising our full year 2012 guidance," continued Mr. Arthur.  "Our guidance is based on our best view as of today, but keep in mind that our full year 2012 results will be highly dependent on the economy and consumer sales during the holiday season.  In addition, please note that we expect our advertising expenditures to increase by approximately 20% to 25% in the fourth quarter compared to a year ago, as we concentrate our advertising during the key holiday weeks when consumers are shopping for gifts.  Our results for the year will ultimately depend on holiday sell-through of our products." 

For the full year 2012, we now expect:

  • Net sales to be between $535 million and $550 million, an increase of $80 million to $95 million, or 18% to 21%, compared to $455 million in 2011.
  • Net income per diluted share to be in the range of $0.75 to $0.81 compared to $0.30 in 2011. 

Conference Call and Webcast

LeapFrog will hold a conference call to discuss third quarter 2012 financial results on November 5, 2012, at 2:00 p.m. Pacific Standard Time (5:00 p.m. Eastern Standard Time).  The conference call will be webcast live and can be accessed at LeapFrog's investor relations web site at www.leapfroginvestor.com.  An archive of the webcast will be available on the web site approximately three hours following completion of the call. In addition, more information about LeapFrog, including this press release and other financial and investor information, is also available on the investor relations web site.

To participate in the call, please dial (706) 634-0183 and request conference ID 47975795.  A telephonic replay of the call will be available for one month.  To access the replay, please dial (404) 537-3406 and use conference ID 47975795.

About LeapFrog

LeapFrog Enterprises, Inc. is the leader in educational entertainment for children. LeapFrog's award-winning product portfolio helps millions of children achieve their potential by delivering best-in-class curriculum through engaging content, fun multimedia learning platforms and toys. The Learning Path, LeapFrog's proprietary online destination for parents and extended family, provides personalized feedback on a child's learning progress and offers recommendations to enhance each child's learning experience. Through the power of play, LeapFrog's products and curriculum help children of all ages prepare for school and life success. LeapFrog's products are available in more than 45 countries and have been used by teachers in more than 100,000 U.S. classrooms.  LeapFrog is based in Emeryville, California, and was founded in 1995 by a father who revolutionized technology-based learning solutions to help his child learn how to read. Come see the learning at www.leapfrog.com.  

TM & © 2012 LeapFrog Enterprises, Inc. All rights reserved.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties, including statements regarding anticipated financial results. Our actual results may differ materially from those expressed or implied by such forward-looking statements. The risks that could cause our results to differ include, without limitation, deterioration of global economic conditions, our ability to correctly predict highly changeable consumer preferences and product trends, our ability to continue to develop new products and services, our reliance on a small group of retailers for the majority of our gross sales, our dependence on our suppliers for our components and raw materials, the seasonality of our business, our growing focus on online products and services, system failures in our online services or web store, our reliance on a limited number of manufacturers, our ability to maintain sufficient inventory levels, our ability to compete effectively with competitors, our ability to maintain or acquire licenses, third parties who claim we are infringing on their intellectual property rights, errors or defects in our products, privacy concerns about our Internet-connected products, the sufficiency of our liquidity, the risk associated with international operations, continued compliance and associated costs with and/or changes in laws and regulations, negative political developments, natural disasters, armed hostilities, terrorism, labor strikes or public health issues, the loss of members of our executive management team, continued ownership by a few stockholders of a majority of voting power in us, and the volatility of our stock price.  These risks and others are discussed under "Risk Factors" in our filings with the U.S. Securities and Exchange Commission, including our 2011 annual report on Form 10-K filed on February 29, 2012.  All information provided in this release is as of the date hereof, and we undertake no obligation to update this information.

Contact Information

Investors:

Media:

Karen Sansot, CFA

Monica Ma

Investor Relations

Media Relations

(510) 420-4803

(510) 596-3437

ksansot@leapfrog.com

mma@leapfrog.com

 

 LEAPFROG ENTERPRISES, INC. 

 CONSOLIDATED STATEMENTS OF OPERATIONS 

 (In thousands, except per share data) 

 (Unaudited) 

 Three Months Ended September 30, 

 Nine Months Ended September 30, 

2012

2011

2012

2011

Net sales

$193,072

$150,832

$336,562

$244,930

Cost of sales

115,771

89,025

200,974

152,385

Gross profit

77,301

61,807

135,588

92,545

Operating expenses:

Selling, general and administrative

21,257

17,875

65,158

56,012

Research and development

9,164

8,276

26,902

24,648

Advertising

7,179

7,790

13,932

13,617

Depreciation and amortization

2,838

2,917

8,751

8,261

Total operating expenses

40,438

36,858

114,743

102,538

Income (loss) from operations

36,863

24,949

20,845

(9,993)

Other income (expense):

Interest income

37

35

226

104

Interest expense

(49)

(22)

(49)

(102)

Other, net

(898)

(3,632)

(2,014)

(4,475)

Total other income (expense), net

(910)

(3,619)

(1,837)

(4,473)

Income (loss) before income taxes

35,953

21,330

19,008

(14,466)

Benefit for income taxes

(5,785)

(1,718)

(5,163)

(1,558)

Net income (loss)

$  41,738

$  23,048

$  24,171

$ (12,908)

Net income (loss) per share:

 Class A and B - basic 

$     0.62

$     0.35

$     0.36

$    (0.20)

 Class A and B - diluted 

$     0.60

$     0.35

$     0.35

$    (0.20)

Weighted average shares used to calculate 

  net income (loss) per share:

 Class A and B - basic 

67,400

65,618

66,912

65,244

 Class A and B - diluted 

69,512

66,018

69,071

65,244

 

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

September 30,

December 31,

2012

2011

2011

ASSETS

Current assets:

Cash and cash equivalents

$ 49,427

$ 25,663

$ 71,863

Accounts receivable, net of allowances for doubtful accounts of $3,893, $676 and $659, respectively

170,106

136,256

157,418

Inventories

115,083

70,338

34,288

Prepaid expenses and other current assets

9,522

8,089

8,078

Deferred income taxes

1,035

1,585

983

Total current assets

345,173

241,931

272,630

Long-term investments

-

2,681

2,681

Deferred income taxes

1,309

907

1,311

Property and equipment, net

20,411

17,891

17,881

Capitalized product costs, net

10,935

13,215

12,511

Goodwill

19,549

19,549

19,549

Other intangible assets, net

1,550

3,960

3,350

Other assets

1,534

1,841

1,119

Total assets

$ 400,461

$ 301,975

$ 331,032

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$ 82,128

$ 57,851

$ 34,629

Accrued liabilities

45,722

32,979

50,380

Income taxes payable

414

373

377

Total current liabilities

128,264

91,203

85,386

Long-term deferred income taxes

3,798

3,480

3,542

Other long-term liabilities

2,723

9,455

9,360

Stockholders' equity:

Class A Common Stock, par value $0.0001;

Authorized - 139,500 shares; Issued and outstanding: 61,905, 49,862 and 54,923, respectively

6

5

6

Class B Common Stock, par value $0.0001;

Authorized - 40,500 shares; Issued and outstanding: 5,715, 15,817 and 11,113, respectively

1

2

1

Treasury stock

(185)

(185)

(185)

Additional paid-in capital

403,187

393,230

395,627

Accumulated other comprehensive income

976

75

(225)

Accumulated deficit

(138,309)

(195,290)

(162,480)

Total stockholders' equity

265,676

197,837

232,744

Total liabilities and stockholders' equity

$ 400,461

$ 301,975

$ 331,032

 

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Operating activities:

Net income (loss)

$ 41,738

$23,048

$24,171

$(12,908)

Adjustments to reconcile net income (loss) to net cash provided by

(used in) operating activities:

Depreciation and amortization

5,749

5,063

16,871

14,510

Deferred income taxes

26

345

238

456

Stock-based compensation expense

2,027

1,640

5,066

4,064

Loss on sale of long-term investments, net of tax

-

-

91

-

Loss on disposal of long-term assets

-

(45)

2

8

Allowance for doubtful accounts

119

(107)

3,371

172

Other changes in operating assets and liabilities:

Accounts receivable, net

(118,335)

(87,704)

(15,493)

21,131

Inventories

(61,856)

(7,815)

(80,149)

(23,006)

Prepaid expenses and other current assets

(133)

1,040

(1,367)

219

Other assets

58

181

(414)

(55)

Accounts payable

49,889

29,780

47,454

26,468

Accrued liabilities

14,117

9,690

(4,805)

(8,410)

Other long-term liabilities

(6,266)

(2,678)

(6,638)

(2,290)

Income taxes payable

35

144

37

206

Net cash provided by (used in) operating activities

(72,832)

(27,418)

(11,565)

20,565

Investing activities:

Purchases of property and equipment

(4,004)

(2,085)

(10,396)

(9,369)

Capitalization of product costs

(1,731)

(1,979)

(5,623)

(6,319)

Sale of investments

-

-

2,500

-

Other

-

-

-

2

Net cash used in investing activities

(5,735)

(4,064)

(13,519)

(15,686)

Financing activities:

Proceeds from stock option exercises and employee stock purchase plans

1,268

105

4,007

2,049

Net cash paid for payroll taxes on restricted stock unit releases

(301)

(107)

(1,513)

(717)

Net cash provided by (used in) financing activities

967

(2)

2,494

1,332

Effect of exchange rate changes on cash

101

(586)

154

(27)

Net change in cash and cash equivalents

(77,499)

(32,070)

(22,436)

6,184

Cash and cash equivalents, beginning of period

126,926

57,733

71,863

19,479

Cash and cash equivalents, end of period

$ 49,427

$25,663

$49,427

$ 25,663

 

LEAPFROG ENTERPRISES, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Net sales

$193,072

$150,832

$336,562

$244,930

Cost of sales (1)

115,771

89,025

200,974

152,385

Gross profit

77,301

61,807

135,588

92,545

Operating expenses: (2) (3)

Selling, general and administrative

21,257

17,875

65,158

56,012

Research and development

9,164

8,276

26,902

24,648

Advertising

7,179

7,790

13,932

13,617

Depreciation and amortization

2,838

2,917

8,751

8,261

Total operating expenses

40,438

36,858

114,743

102,538

Income (loss) from operations

36,863

24,949

20,845

(9,993)

Other income (expense):

Interest income

37

35

226

104

Interest expense

(49)

(22)

(49)

(102)

Other, net

(898)

(3,632)

(2,014)

(4,475)

Total other income (expense), net

(910)

(3,619)

(1,837)

(4,473)

Income (loss) before income taxes

35,953

21,330

19,008

(14,466)

Benefit for income taxes

(5,785)

(1,718)

(5,163)

(1,558)

Net income (loss)

$ 41,738

$ 23,048

$ 24,171

$ (12,908)

(1)

Includes depreciation and amortization

2,911

2,146

8,120

6,249

(2)

Includes stock-based compensation as follows:

Selling, general and administrative

1,794

1,366

4,438

3,484

Research and development

233

274

628

580

(3)

Includes severance costs as follows:

Selling, general and administrative

6

1

266

2,422

Research and development

208

-

208

22

Segment data:

Net sales:

U.S. segment

145,691

115,974

247,050

181,449

International segment

47,381

34,858

89,512

63,481

Income (loss) from operations*:

U.S. segment

24,781

17,956

2,059

(17,760)

International segment

12,082

6,993

18,786

7,767

 

*

Certain corporate-level operating expenses associated with sales and marketing, product support, human resources, legal, finance, information technology, corporate development, procurement activities, research and development, legal settlements and other corporate costs are charged entirely to our U.S. segment, rather than being allocated between the U.S. and International segments.

 

SOURCE LeapFrog Enterprises, Inc.



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