LeapFrog Reports First Quarter Fiscal Year 2016 Financial Results

Aug 04, 2015, 16:05 ET from LeapFrog Enterprises, Inc.

EMERYVILLE, Calif., Aug. 4, 2015 /PRNewswire/ -- LeapFrog Enterprises, Inc. (NYSE: LF) today announced financial results for the first quarter fiscal year 2016. The company's fiscal year covers the twelve-month period ending March 31, 2016.

Summary of financial results for the quarter ended June 30, 2015 compared to the quarter ended June 30, 2014:

  • Consolidated net sales were $38.7 million, down 18%. U.S. segment net sales were down 9%, and international segment net sales were down 35%.
  • Net loss per basic and diluted share was $0.39 compared to prior year net loss per basic and diluted share of $0.23.
  • Cash and cash equivalents were $88.2 million as of June 30, 2015 compared to $199.2 million a year ago.

"We are in the very early stages of our transformation and our financial results are on plan as we reset our business. Our cost savings initiatives are beginning to have an impact and we will continue to implement measures to run our business more effectively. With that said, I am encouraged by the progress we achieved in the quarter on the journey to turn around our company. A number of our carry-forward product lines are showing signs of positive momentum and many of our new product introductions for fall 2015 have started to ship," said John Barbour, Chief Executive Officer.

"LeapFrog is an exceptional brand. We strive to leverage our unique set of valuable assets to deliver compelling products and services and stronger financial results. At LeapFrog, we create award-winning products and services that combine developmental expertise, innovative technology and a child's love for fun. This will continue to be our focus as we broaden our portfolio with new products to engage, inspire and enrich a child's developmental journey," continued Mr. Barbour.

Financial Overview for the First Quarter Fiscal Year 2016 Ended June 30, 2015 Compared to the Quarter Ended June 30, 2014

First fiscal quarter net sales were $38.7 million, down 18% compared to $47.0 million last year, and included a 2% negative impact from changes in currency exchange rates. In the U.S. segment, net sales were $28.0 million, down 9% compared to $30.7 million last year. In the International segment, net sales were $10.6 million, down 35% compared to $16.3 million last year, and included a 7% negative impact from changes in currency exchange rates.

Operating expenses for the first fiscal quarter were $34.3 million, down 1% compared to $34.5 million last year. Prior year operating expenses included a $1.1 million reversal of prior period incentive compensation accruals that was not repeated in the current quarter. Loss from operations was $27.1 million, up $1.4 million or 5% from the prior period loss of $25.7 million due to sales declines.

Net loss for the first fiscal quarter was $27.3 million, or $0.39 per basic and diluted share, and included a tax benefit of $0.2 million. Prior year net loss of $16.4 million, or $0.23 per basic and diluted share, included a tax benefit of $9.7 million, or $0.14 per basic and diluted share.

Non-GAAP adjusted EBITDA[1] for the quarter was negative $17.7 million compared to negative EBITDA of $16.2 million a year ago.

"While there is significant work ahead of us, we believe we have the right strategies in place to return the company to growth. Our outlook for the current fiscal year 2016, ending March 31, 2016, is unchanged. We will continue to take steps to reduce operating expenses and manage our business responsibly as we position ourselves for a successful 2015 holiday season.

"Our longer term plan is to achieve double-digit sales growth and positive cash flow in fiscal year 2017, which includes holiday 2016. We will remain focused on product innovation, execution and operational efficiencies to help build a business with sustainable revenue and income growth. To accomplish these plans we will manage our cash balances, capital expenditures and balance sheet prudently," said Ray Arthur, Chief Financial Officer.

Conference Call and Webcast

LeapFrog will hold a conference call to discuss first quarter fiscal year 2016 financial results on August 4, 2015, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern 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 after 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 (844) 732-6283 and request conference ID 87677872. 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 87677872.

About LeapFrog

LeapFrog Enterprises, Inc. is the leader in educational entertainment for children. For 20 years, LeapFrog has created award-winning learning solutions that combine educational expertise, innovative technology and a child's love for fun. With experiences that are personalized to each child's level, LeapFrog helps children achieve their potential through LeapFrog's proprietary learning tablets, its innovative new active video gaming system LeapTV, learn to read and write systems, interactive learning toys and more, all designed or approved by LeapFrog's full-time in-house team of learning experts. LeapFrog's Learning Path, the ultimate guide for parents on early childhood, is designed specifically to help support and guide their child's learning with personalized ideas and feedback, fun activities and expert advice. 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. Learn more at www.leapfrog.com.  

TM & © 2015 LeapFrog Enterprises, Inc. All rights reserved.

Use of Non-GAAP Financial Information

This press release includes non-GAAP financial measures, specifically adjusted EBITDA. 

Adjusted EBITDA is defined as earnings (or net income (loss)) before interest, income taxes, depreciation and amortization, goodwill impairment, impairment of long-lived assets, other expenses (income) and stock-based compensation. As required by SEC rules, we have provided an attached schedule with a reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net income. 

Management believes adjusted EBITDA is one of the appropriate measures for evaluating the operating performance of the Company because it reflects the resources available for strategic opportunities including, among others, to invest in the business, strengthen the balance sheet and make strategic acquisitions.

However, these non-GAAP measures should be considered in addition to, not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP as more fully discussed in the Company's financial statements and filings with the SEC. Additionally, these non-GAAP measures may not be comparable to similarly-titled measures used by other companies. As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties, including statements regarding the stage of our transformation, our financial results being on plan as we reset our business, the impact of our cost savings initiatives, the continued implementation of measures to run our business more effectively, our journey to turn around our company, the positive momentum of our carry forward product lines, LeapFrog being an exceptional brand, our striving to leverage our unique set of valuable assets to deliver compelling products and services that combine developmental expertise, innovative technology and a child's love for fun, our focus as we broaden our portfolio with new products, there being significant work ahead of us, having the right strategies in place to return the company to growth, our expectations for our financial performance in our 2016 fiscal year, steps we take to reduce operating expenses and manage our business responsibly, our positioning for a successful 2015 holiday season, our longer term financial performance plans, managing our cash balances, capital expenditures and balance sheet prudently. 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, our ability to correctly predict highly changeable consumer preferences and product trends, our ability to continue to develop new products and services, our ability to maintain adequate inventory levels, our reliance on a small group of retailers for the majority of our gross sales, deterioration of global economic conditions, the effectiveness of our marketing and advertising efforts, our ability to compete effectively with competitors, our ability to maintain or acquire licenses, our ability to attract and retain highly skilled personnel, the sufficiency of our liquidity, the impact of potential impairment charges or valuation allowances, the seasonality of our business, significant changes in the cost or availability of our components and raw materials, our reliance on a limited number of manufacturers, system failures in our digital services, our ability to protect or enforce our intellectual property rights, defects in our products, the risks associated with international operations, costs or changes associated with compliance with laws and regulations, negative political developments, changes in trade relations, armed hostilities, terrorism, labor strikes, natural disasters or public health issues, failure to successfully implement new strategic operating initiatives, impacts from acquisitions, mergers or dispositions, continued ownership by a few stockholders of a significant percentage of the voting power in the company 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 most recent Form 10-K and Form 10-Q. All information provided in this release is as of the date hereof, and we undertake no obligation to update this information.

[1] Adjusted EBITDA is a non-GAAP financial measure. It is described below and reconciled to its comparable GAAP measure in the accompanying financial tables.

Contact Information

Investors:

Media:

Nancy Lee

Danielle Cantrell

Investor Relations

Public Relations

(510) 420-5150

(510) 420-4886

ir@leapfrog.com 

dcantrell@leapfrog.com

 

 

 LEAPFROG ENTERPRISES, INC. 

 CONSOLIDATED STATEMENTS OF OPERATIONS 

 (In thousands, except per share data) 

 (Unaudited) 

 Three Months Ended June 30, 

2015

2014

Net sales

$ 38,675

$ 46,977

Cost of sales

31,443

38,144

Gross profit

7,232

8,833

Operating expenses:

Selling, general and administrative

21,883

21,044

Research and development

7,783

7,611

Advertising

1,425

3,041

Impairment of long-lived assets

2,770

-

Depreciation and amortization

452

2,842

Total operating expenses

34,313

34,538

     Loss from operations

(27,081)

(25,705)

Other income (expense):

Interest income

34

35

Interest expense

(2)

-

Other, net

(512)

(354)

Total other expense, net

(480)

(319)

     Loss before income taxes

(27,561)

(26,024)

Benefit from income taxes

(236)

(9,656)

Net loss 

$(27,325)

$(16,368)

Net loss per share:

 Class A and B - basic and diluted 

$    (0.39)

$    (0.23)

Weighted average shares used to calculate net loss

per share:

 Class A and B - basic and diluted 

70,645

69,754

 

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

June 30,

March 31, 

2015

2014

2015

ASSETS

Current assets:

Cash and cash equivalents

$  88,241

$199,220

$ 127,176

Accounts receivable, net of allowances for doubtful accounts of $910, $573 and $854, respectively

25,250

32,051

19,618

Inventories

77,900

64,220

71,927

Prepaid expenses and other current assets

12,645

12,479

10,012

Deferred income taxes

881

24,215

553

     Total current assets

204,917

332,185

229,286

Deferred income taxes

696

62,119

1,792

Property and equipment, net

1,208

33,935

1,676

Capitalized content costs, net

23,040

21,668

22,510

Goodwill

-

19,549

-

Other intangible assets, net

3,118

3,883

3,453

Other assets

871

1,423

1,475

     Total assets

$233,850

$474,762

$ 260,192

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$  17,475

$  32,779

$   16,578

Accrued liabilities 

20,444

22,735

21,582

Deferred revenue

11,790

12,439

11,921

Deferred income taxes

530

-

1,630

Income taxes payable

305

457

267

     Total current liabilities

50,544

68,410

51,978

Long-term deferred income taxes              

452

-

323

Other long-term liabilities

206

1,043

1,365

     Total liabilities

51,202

69,453

53,666

Stockholders' equity:

Class A Common Stock, par value $0.0001; Authorized - 139,500 shares; Outstanding: 66,331, 65,537 and 66,084, respectively

7

7

7

Class B Common Stock, par value $0.0001; Authorized - 40,500 shares; Outstanding: 4,394, 4,396 and 4,394, respectively

-

-

-

Treasury stock

(185)

(185)

(185)

Additional paid-in capital 

437,090

425,345

434,728

Accumulated other comprehensive income (loss) 

(4,365)

312

(5,450)

Accumulated deficit

(249,899)

(20,170)

(222,574)

     Total stockholders' equity 

182,648

405,309

206,526

     Total liabilities and stockholders' equity 

$233,850

$474,762

$ 260,192

  

 

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 Three Months Ended June 30, 

2015

2014

Operating activities:

Net loss 

$(27,325)

$ (16,368)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

3,947

6,276

Impairment of long-lived assets

2,770

-

Deferred income taxes

(182)

(10,007)

Stock-based compensation expense

2,662

3,231

Allowance for doubtful accounts

96

342

Other changes in operating assets and liabilities:

Accounts receivable, net

(5,587)

(2,290)

Inventories

(5,223)

(11,560)

Prepaid expenses and other current assets

(2,425)

(1,994)

Other assets

608

51

Accounts payable

1,377

14,324

Accrued liabilities

(1,768)

(2,324)

Deferred revenue

(203)

(425)

Other long-term liabilities

123

(97)

Income taxes payable

23

(237)

Net cash used in operating activities

(31,107)

(21,078)

Investing activities:

Purchases of property and equipment and other intangible assets

(2,926)

(7,582)

Capitalization of content and website development costs

(4,905)

(4,212)

Net cash used in investing activities

(7,831)

(11,794)

Financing activities:

Proceeds from stock option exercises and employee stock purchase plan

-

394

Cash paid for payroll taxes on restricted stock unit releases

(300)

(694)

Common stock repurchased

-

(38)

Excess tax benefits from stock-based compensation

-

11

Net cash used in financing activities

(300)

(327)

Effect of exchange rate changes on cash

303

431

Net change in cash and cash equivalents

(38,935)

(32,768)

Cash and cash equivalents, beginning of period

127,176

231,988

Cash and cash equivalents, end of period

$ 88,241

$199,220

 

 LEAPFROG ENTERPRISES, INC. 

 SUPPLEMENTAL FINANCIAL INFORMATION 

 (In thousands) 

 (Unaudited) 

 Three Months Ended June 30, 

2015

2014

Net sales

$ 38,675

$ 46,977

Cost of sales (1)

31,443

38,144

Gross profit

7,232

8,833

Operating expenses: (2) (3)

Selling, general and administrative

21,883

21,044

Research and development

7,783

7,611

Advertising

1,425

3,041

Impairment of long-lived assets

2,770

-

Depreciation and amortization

452

2,842

Total operating expenses

34,313

34,538

Loss from operations

(27,081)

(25,705)

Other income (expense):

Interest income

34

35

Interest expense

(2)

-

Other, net

(512)

(354)

Total other expense, net

(480)

(319)

Loss before income taxes

(27,561)

(26,024)

Benefit from income taxes

(236)

(9,656)

Net Loss

$(27,325)

$(16,368)

(1)

Includes depreciation and amortization

3,495

3,434

(2)

Includes stock-based compensation as follows:

Selling, general and administrative

2,315

2,838

Research and development

347

393

(3)

Includes severance costs as follows:

Selling, general and administrative

(50)

(21)

Research and development

(25)

-

Segment data:

Net sales:

U.S. segment

28,048

30,708

International segment

10,627

16,269

Loss from operations*:

U.S. segment

(26,602)

(25,291)

International segment

(479)

(414)

*

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.

 

 

 LEAPFROG ENTERPRISES, INC. 

 SUPPLEMENTAL DISCLOSURE REGARDING NON-GAAP FINANCIAL INFORMATION 

 RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES 

 (In thousands, except per share data) 

 (Unaudited) 

The following table presents a reconciliation of net loss, a GAAP measure, to adjusted EBITDA, a non-GAAP measure. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, goodwill impairment, impairment of long-lived assets, other expenses (income), and stock-based compensation.

 Three Months Ended June 30, 

2015

2014

Net loss - GAAP

$(27,325)

$(16,368)

(Less) add:

Interest income

(34)

(35)

Interest expense

2

-

Benefit from income taxes

(236)

(9,656)

Depreciation and amortization

3,947

6,276

Impairment of long-lived assets

2,770

-

Other expense (income), net

512

354

Stock-based compensation

2,662

3,231

Adjusted EBITDA - Non-GAAP

$(17,702)

$(16,198)

 

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SOURCE LeapFrog Enterprises, Inc.



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