LeapFrog Reports 2011 Net Income Increased Fourfold

EMERYVILLE, Calif., Feb. 9, 2012 /PRNewswire/ -- LeapFrog Enterprises, Inc. (NYSE: LF) today announced financial results for the fourth quarter and full year ended December 31, 2011.

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

Highlights of fourth quarter 2011 results compared to fourth quarter 2010 results:

• Consolidated net sales were $210 million, up 11%.
• Income from operations was $34 million, up 26%.
• Net income was $33 million, up 30%.
• Net income per diluted share was $0.49, up 29%.  

Highlights of full year 2011 results compared to full year 2010 results:

• Consolidated net sales were $455 million, up 5%.
• Income from operations was $24 million, three times higher than a year ago.
• Net income was $20 million, four times higher than a year ago.
• Net income per diluted share was $0.30, nearly four times higher than a year ago.  
• Operating cash flow improved by $93 million.
• U.S. retail point-of-sale, or POS, dollars(1) were up 10% for the 52-weeks ended December 31, 2011 compared to the 52-weeks ended January 1, 2011.

“We delivered solid earnings and cash flow growth in 2011 due to the strong performance of new platforms and content, international growth, and improved operational management,” said John Barbour, Chief Executive Officer.  “LeapFrog has more than 16 years' heritage of creating award-winning educational entertainment for children.  In 2011, we successfully launched another exciting platform, LeapPad™, a revolutionary children’s learning tablet that offers more than 100 pieces of rich, educational digital content.  With LeapPad and Leapster Explorer™, we are building a deep base of multimedia learning platforms that offers strong distribution opportunities for our in-house developed educational content and the wide selection of curated third-party content that we introduced in the fourth quarter of 2011.  With LeapPad, we further strengthened our leading platform portfolio and are transforming from being a creator of educational entertainment to being both a creator and a distributor of educational entertainment.”

Financial Overview for the Fourth Quarter 2011 Compared to the Fourth Quarter 2010

Fourth quarter 2011 net sales were $210 million, up 11% compared to $190 million last year, and were not materially impacted by changes in currency exchange rates.  Net sales growth was primarily driven by LeapPad and sales of its associated content.  Fourth quarter 2011 net sales increased 6% in the U.S. segment and increased 32% in the international segment, with international segment net sales including unfavorable changes in currency exchange rates of two percentage points.  Gross profit was $94 million for the quarter, up 9% to a year ago.  Gross margin was 44.5% for the fourth quarter 2011, down 70 basis points compared to a year ago.  Income from operations was $34 million for the fourth quarter 2011, up 26% compared to $27 million a year ago.

Financial Overview for the Full Year 2011 Compared to the Full Year 2010

Full year 2011 net sales were $455 million, up 5% compared to $433 million last year, and were not materially impacted by changes in currency exchange rates.  Net sales growth was primarily driven by LeapPad and sales of its associated content.  Net sales in the U.S. segment were essentially flat as a result of the impact of high levels of retail inventory from 2010 carrying over into 2011 and the decline of an older platform.  Retail point-of-sale, or POS, dollars, however, increased 10% in the U.S. for the year.  Net sales in the international segment increased 28%, including favorable changes in currency exchange rates of two percentage points.  Gross profit was $186 million for the year, up 4% to a year ago.  Gross margin was 40.9% for 2011, down 50 basis points compared to the prior year.  Income from operations was $24 million for the year, up threefold compared to $8 million in the prior year.

“We executed against our stated goal for the year of driving significant earnings growth through operating efficiencies and diligent expense control,” said Mark Etnyre, Chief Financial Officer.  “As a result of executing against these goals, and the increase in our net sales, our net income increased fourfold in 2011 compared to 2010.  We expect continued strong earnings growth in 2012 to be driven by net sales growth in both our U.S. and international segments and prudent operating expense management.”  

Guidance

For the full year 2012, we expect:

• Net sales to increase by 6% to 8% compared to 2011.
• Net income per diluted share to be in the range of $0.40 to $0.45.  

For the first quarter of 2012, we expect:

• Net sales to increase by 20% to 30% compared to the first quarter of 2011.
• Net loss per share to be in the range of $0.26 to $0.30, compared to a net loss per share of $0.34 in the first quarter of 2011.

Conference Call and Webcast

LeapFrog will hold a conference call to discuss fourth quarter and full year 2011 financial results on February 9, 2012, at 2:00 p.m. Pacific Standard Time (5:00 p.m. Eastern Standard Time).  The conference call will be webcast and can be accessed at LeapFrog's investor web site at www.leapfroginvestor.com.  To participate in the call, please dial (706) 634-0183 and request conference ID 48725351.  A replay of the call will be available for one month.  To access the replay, please dial (404) 537-3406 and use conference ID 48725351.

Description of Retail Point-of-Sale Dollars

Retail point-of-sale, or POS, dollars is a non-audited operating metric that represents a measure of U.S. retailers’ sales of LeapFrog products to consumers.  Retail point-of-sale dollars differs significantly from LeapFrog’s reported net sales, which reflect all products sold by LeapFrog to its retailer customers in all markets and also includes other sources of revenue.  The point-of-sale data, based on retail prices, is provided to LeapFrog by retailers and also includes sales through online retailers and our online retail store at LeapFrog.com.  LeapFrog believes this represents approximately 95% of our U.S. retailers’ dollar sales of LeapFrog products to consumers, based on historical shipments by us to such retailers.  LeapFrog management uses point-of-sale data to evaluate the retail channel sales environment and develop net sales forecasts.  Results for retail point-of-sale dollars are for the 52 weeks ended December 31, 2011 and the 52 weeks ended January 1, 2011.  

About LeapFrog

LeapFrog Enterprises, Inc. is an education innovator and leading developer of educational entertainment for children. LeapFrog’s award-winning product portfolio is designed to help every child achieve his or her potential by delivering best-in-class curriculum through engaging content, age-appropriate technology-based 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 product 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.

NOTE: LEAPFROG, the LeapFrog logo, LEAPPAD, and LEAPSTER EXPLORER are trademarks or registered trademarks of LeapFrog Enterprises, Inc.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, without limitation, statements regarding anticipated financial results (including net sales, earnings growth, operating expense management, and net income (loss) per share) and the market position of the LeapPad. 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, highly changeable consumer preferences and toy trends, our ability to achieve anticipated sales levels, the overall economic environment and its effect on retail business, the seasonality of our business, introductions of products that compete with our platforms by a variety of other companies, our ability to respond quickly and cost effectively to changes in manufacturing costs and in consumer demand for our products, our ability to manage operating expenses effectively, and our ability to provide high-quality experiences to consumers with all of our products and services.  These risks and others are discussed under “Risk Factors” in our filings with the U.S. Securities and Exchange Commission, including our 2010 annual report on Form 10-K filed on February 22, 2011.  All information provided in this release is as of the date hereof, and we undertake no obligation to update this information.

(1) Please see Retail Point-of-Sale Dollars below for an explanation of this operating metric.

SOURCE LeapFrog Enterprises, Inc.