LeapFrog Reports Third Quarter 2011 Results

Net Sales Increased 9%; Income from Operations Increased 54%

News provided by

LeapFrog Enterprises, Inc.

Nov 01, 2011, 04:04 ET

EMERYVILLE, Calif., Nov. 1, 2011 /PRNewswire/ -- LeapFrog Enterprises, Inc. (NYSE: LF) today announced financial results for the third quarter ended September 30, 2011.

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

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

  • Consolidated net sales were $151 million, up 9%.
  • International segment net sales were $35 million, up 28%.
  • Income from operations was $25 million, up 54%.
  • Net income per diluted share was $0.35, up 46% compared to $0.24 a year ago.  

"We delivered solid growth in the third quarter driven by the successful launch of LeapPad™," said John Barbour, Chief Executive Officer.  "LeapPad further strengthens our product portfolio and leadership in the educational entertainment market.  Having received several prestigious awards and been selected for many retailers' top holiday toy lists, LeapPad is the leader in children's tablets.  We are excited about our momentum and strong position as we head into the holiday season.  At the same time, we are also cautious about potential supply constraints and the current challenging economic environment."  

Financial Overview

For the quarter, net sales were $151 million, up 9% compared to $138 million last year, including favorable changes in currency exchange rates of one percentage point.  A key driver of net sales growth was the launch of LeapPad in the third quarter.  On a segment basis, third quarter net sales increased 5% for the U.S. and increased 28% in international markets, including favorable changes in currency exchange rates of five percentage points.  Gross margin was 41% in the third quarter, down one percentage point compared to a year ago due to a higher mix of hardware sales.  Income from operations for the quarter was $25 million, up 54% compared to $16 million in the prior year.

Guidance

"We continue to execute against our stated goal for the year of driving significant earnings growth through operating efficiencies and tight expense control," said Mark Etnyre, Chief Financial Officer.  "For the full year 2011, we now expect net sales to be in the range of $435 million to $445 million, an increase of 1% to 3% compared to the prior year, and we now expect net income per diluted share to be in the range of $0.17 to $0.22 compared to $0.08 in the prior year."

Conference Call and Webcast

LeapFrog will hold a conference call to discuss third quarter 2011 financial results on November 1, 2011, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern 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 17851541.  A replay of the call will be available for one month.  To access the replay, please dial (404) 537-3406 and use conference ID 17851541.

About LeapFrog

LeapFrog Enterprises, Inc. is a leading developer of educational entertainment for children. LeapFrog's award-winning product portfolio is designed to help children achieve their full potential by delivering best-in-class curriculum through engaging content, 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 life and academic 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, and LEAPPAD 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 statements regarding anticipated financial results (including net sales, earnings growth and net income 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 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.

Contact Information


Investors:

Media:

Karen Sansot

Monica Ma

Investor Relations

Media Relations

(510) 420-4803

(510) 596-3437

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)















Three Months Ended September 30,

Nine Months Ended September 30,




2011

2010

2011

2010











Net sales

$                   150,832

$                   137,956

$                   244,930

$                   242,775

Cost of sales

89,025

79,970

152,385

149,610


Gross profit

61,807

57,986

92,545

93,165











Operating expenses:







Selling, general and administrative

17,875

19,206

56,012

58,984

Research and development

8,276

7,851

24,648

24,888

Advertising

7,790

11,728

13,617

19,781

Depreciation and amortization

2,917

2,959

8,261

8,504


Total operating expenses

36,858

41,744

102,538

112,157



Income (loss) from operations

24,949

16,242

(9,993)

(18,992)











Other income (expense):







Interest income

35

62

104

176

Interest expense

(22)

(17)

(102)

(42)

Other, net

(3,632)

182

(4,475)

(1,203)


Total other income (expense), net

(3,619)

227

(4,473)

(1,069)



Income (loss) before income taxes

21,330

16,469

(14,466)

(20,061)

Provision for (benefit from) income taxes

(1,718)

679

(1,558)

288


Net income (loss)

$                     23,048

$                     15,790

$                    (12,908)

$                    (20,349)











Net income (loss) per share:







Class A and B - basic

$                         0.35

$                         0.25

$                        (0.20)

$                        (0.32)

Class A and B - diluted

$                         0.35

$                         0.24

$                        (0.20)

$                        (0.32)











Weighted average shares used to








calculate net income (loss) per share:







Class A and B - basic

65,618

64,433

65,244

64,271

Class A and B - diluted

66,177

65,319

65,244

64,271

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)











September 30,

December 31,



2011

2010

2010

ASSETS





Current assets:






Cash and cash equivalents

$         25,663

$         21,798

$         19,479

Accounts receivable, net of allowances for doubtful
accounts of $676, $894 and $776, respectively

136,256

136,818

157,646

Inventories

70,338

82,957

47,455

Prepaid expenses and other current assets

8,089

10,341

8,321

Deferred income taxes

1,585

2,292

1,678

    Total current assets

241,931

254,206

234,579

Long-term investments

2,681

2,681

2,681

Deferred income taxes

907

959

989

Property and equipment, net

17,891

15,143

15,059

Capitalized product costs, net

13,215

14,476

13,184

Goodwill

19,549

19,549

19,549

Other intangible assets, net

3,960

6,277

5,653

Other assets

1,841

1,937

1,786

    Total assets

$       301,975

$       315,228

$       293,480








LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:






Accounts payable

$         57,851

$         88,327

$         31,390

Accrued liabilities


32,979

33,167

41,425

Income taxes payable

373

524

167

    Total current liabilities

91,203

122,018

72,982

Long-term deferred income taxes              

3,480

3,197

3,199

Other long-term liabilities

9,455

12,266

11,734

Stockholders' equity:






Class A Common Stock, par value $0.0001;






    Authorized - 139,500 shares; Issued and outstanding:

5

4

5

    49,862, 37,375 and 43,783, respectively






Class B Common Stock, par value $0.0001;






    Authorized - 40,500 shares; Issued and outstanding:

2

3

2

    15,817, 27,141 and 20,961, respectively






Treasury stock

(185)

(185)

(185)

Additional paid-in capital


393,230

385,487

387,833

Accumulated other comprehensive income

75

115

292

Accumulated deficit


(195,290)

(207,677)

(182,382)

    Total stockholders’ equity


197,837

177,747

205,565

    Total liabilities and stockholders’ equity


$       301,975

$       315,228

$       293,480

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)















Three Months Ended September 30,

Nine Months Ended September 30,




2011

2010

2011

2010

Operating activities:







Net income (loss)

$            23,048

$            15,790

$           (12,908)

#

$           (20,349)

Adjustments to reconcile net income (loss) to net cash








provided by (used in) operating activities:







Depreciation and amortization

5,063

5,051

14,510

14,485

Deferred income taxes

259

18

175

79

Stock-based compensation expense

1,640

1,539

4,064

4,446

Loss on disposal of long-term assets

(45)

-

8

-

Allowance for doubtful accounts

(107)

(38)

172

292

Other changes in operating assets and liabilities:







Accounts receivable, net

(87,704)

(79,037)

21,131

10,228

Inventories

(7,815)

(36,228)

(23,006)

(54,802)

Prepaid expenses and other current assets

1,040

(72)

219

(2,968)

Other assets

181

144

(55)

1,185

Accounts payable

29,780

50,029

26,468

30,086

Accrued liabilities

9,690

11,858

(8,410)

(6,642)

Long-term liabilities

(2,592)

419

(2,009)

487

Income taxes payable

144

(15)

206

282

Other

-

196

-

199


Net cash provided by (used in) operating activities

(27,418)

(30,346)

20,565

(22,992)

Investing activities:







Purchases of property and equipment

(2,085)

(3,141)

(9,369)

(7,504)

Capitalization of product costs

(1,979)

(1,944)

(6,319)

(5,891)

Purchases of intangible assets

-

-

-

(5,335)

Disposal of property and equipment

-

-

67

-

Sale of investments

-

1,004

-

1,004

Other

-

-

(65)

-


Net cash used in investing activities

(4,064)

(4,081)

(15,686)

(17,726)

Financing activities:







Proceeds from stock option exercises and employee









stock purchase plans

105

337

2,049

1,170

Net cash paid for payroll taxes on restricted stock









unit releases

(107)

(146)

(717)

(258)


Net cash provided by financing activities

(2)

191

1,332

912

Effect of exchange rate changes on cash

(586)

372

(27)

(8)

Net change in cash and cash equivalents

(32,070)

(33,864)

6,184

(39,814)

Cash and cash equivalents, beginning of period

57,733

55,662

19,479

61,612

Cash and cash equivalents, end of period

$            25,663

$            21,798

$            25,663

$            21,798

LEAPFROG ENTERPRISES, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands)

(Unaudited)















Three Months Ended September 30,

Nine Months Ended September 30,




2011

2010

2011

2010











Net sales

$             150,832

$             137,956

$             244,930

$             242,775

Cost of sales (1)

89,025

79,970

152,385

149,610


Gross profit

61,807

57,986

92,545

93,165











Operating expenses: (2) (3)







Selling, general and administrative

17,875

19,206

56,012

58,984

Research and development

8,276

7,851

24,648

24,888

Advertising

7,790

11,728

13,617

19,781

Depreciation and amortization

2,917

2,959

8,261

8,504


Total operating expenses

36,858

41,744

102,538

112,157



Income (loss) from operations

24,949

16,242

(9,993)

(18,992)











Other income (expense):







Interest income

35

62

104

176

Interest expense

(22)

(17)

(102)

(42)

Other, net (4)

(3,632)

182

(4,475)

(1,203)


Total other income (expense), net

(3,619)

227

(4,473)

(1,069)



Income (loss) before income taxes

21,330

16,469

(14,466)

(20,061)

Provision for (benefit from) income taxes

(1,718)

679

(1,558)

288


Net income (loss)

$               23,048

$               15,790

$              (12,908)

$              (20,349)











(1)

Includes depreciation and amortization

2,146

2,092

6,249

5,981











(2)

Includes stock-based compensation as follows:






Selling, general and administrative

1,366

1,274

3,484

3,522

Research and development

274

265

580

924











(3)

Includes severance costs as follows:







Selling, general and administrative

1

(7)

2,422

437

Research and development

-

3

22

287











(4)

Includes impairment of auction rate securities

-

(194)

-

(194)











Segment data:






Net sales:







U.S. segment

115,974

110,766

181,449

192,099

International segment

34,858

27,190

63,481

50,676











Income (loss) from operations*:







U.S. segment

17,956

11,419

(17,760)

(23,429)

International segment

6,993

4,823

7,767

4,437












*

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.

All related prior period financial data has been recast to conform to the current presentation.














SOURCE LeapFrog Enterprises, Inc.

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