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ZAGG Reports Record Second Quarter 2018 Results

July 31, 2018

SALT LAKE CITY, July 31, 2018 (GLOBE NEWSWIRE) -- ZAGG Inc (Nasdaq: ZAGG), a leading global mobile lifestyle company, today announced financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights (Comparisons versus Second Quarter 2017)

-- Net sales of $118.6 million, an increase of 3% compared to $115.2 million -- Gross profit of 32% compared to 31% -- Net income of $3.2 million compared to $3.4 million -- Diluted earnings per share of $0.11 compared to $0.12 -- Adjusted EBITDA of $10.9 million compared to $12.1 million

Year-to-Date 2018 Highlights (Comparisons versus Year-to-Date 2017)

-- Net sales of $230.6 million, an increase of 11% compared to $208.2 million -- Gross profit of 33% compared to 31% -- Net income of $10.2 million compared to a net loss of $2.7 million -- Diluted earnings per share of $0.36 compared to a diluted loss per share of $0.10 -- Adjusted EBITDA of $24.5 million compared to $14.8 million

“Our solid second quarter performance contributed to a very strong first half of 2018,” commented Chris Ahern, Chief Executive Officer. “We continue to execute the product, distribution and brand building strategies that have produced market leading positions for our InvisibleShield and mophie businesses. With our focus on driving operational excellence throughout our organization combined with current industry trends, we believe there is a long runway for global growth within the mobile lifestyle market. This includes our more established categories such as screen protection and power cases as well as power management where I believe we are just starting to scratch the surface of our potential in wireless charging. Looking ahead, I am excited about our prospects for continued growth for the remainder of this year and beyond.”

“Additionally, we’re excited about the acquisition of the BRAVEN audio brand,” continue Mr. Ahern. “BRAVEN is a category creator and leader in technology, and expands our house of brands into new segments of the large and growing audio category while leveraging our global distribution to rapidly scale the company. Together, we look forward to continuing the BRAVEN brand heritage of developing intelligently designed products with cutting-edge innovation and craftsmanship.”

Second Quarter Results (in millions, except per share amounts)

Three Months Ended June 30, June 30, 2018 2017 --------- --------- Net sales $ 118.6 $ 115.2 Gross profit $ 37.7 $ 35.8 Gross profit margin 32 % 31 % Net income $ 3.2 $ 3.4 Diluted earnings per share $ 0.11 $ 0.12 Adjusted EBITDA $ 10.9 $ 12.1

Net sales increased $3.4 million or 3% to $118.6 million, the highest second quarter sales result in ZAGG’s history, compared to $115.2 million. The increase in net sales was primarily attributable to (1) the increase in sales of our power management products, specifically related to wireless charging accessories, and (2) increased sales of screen protection products in key wireless and retail accounts, particularly in international markets. These increases were partially offset by a decrease in sales of power cases.

Gross profit increased $1.9 million or 5% to $37.7 million (32% of net sales) compared to $35.8 million (31% of net sales). The increase in gross profit margin was primarily attributable to (1) the mix of screen protection products, our highest margin product category, which increased to approximately 54% of net sales compared to approximately 51% of net sales, and (2) improved margins on mophie-branded products.

Operating expenses increased $2.2 million or 7% to $32.5 million (27% of net sales) compared to $30.3 million (26% of net sales). The increase in operating expenses was primarily attributable to (1) increases in headcount to support additional growth of the Company, and (2) increases in advertising and marketing spend.

Net income decreased $0.2 million to $3.2 million compared to $3.4 million. Diluted earnings per share was $0.11 (on 28.7 million shares) compared to $0.12 (on 28.2 million shares).

Adjusted EBITDA decreased $1.2 million or 10% to $10.9 million compared to $12.1 million.

Year-to-Date Results (in millions, except per share amounts)

Six Months Ended June 30, June 30, 2018 2017 --------- --------- Net sales $ 230.6 $ 208.2 Gross profit $ 75.3 $ 64.4 Gross profit margin 33 % 31 % Net income (loss) $ 10.2 $ (2.7 ) Diluted earnings (loss) per share $ 0.36 $ (0.10 ) Adjusted EBITDA $ 24.5 $ 14.8

Net sales increased $22.4 million or 11% to $230.6 million, the highest second quarter year-to-date sales result in ZAGG’s history, compared to $208.2 million. The increase in net sales was primarily attributable to (1) the increase in sales of our power management products, specifically related to wireless charging accessories, and (2) increases in screen protection products in key wireless and retail accounts, particularly in international markets. These increases were partially offset by a decrease in sales of power cases.

Gross profit increased $10.9 million or 17% to $75.3 million (33% of net sales) compared to $64.4 million (31% of net sales). The increase in gross profit margin was primarily attributable to (1) the mix of screen protection products, our highest margin product category, which increased to approximately 52% of net sales compared to approximately 49% of net sales, and (2) improved margins on mophie-branded products.

Operating expenses decreased $3.5 million or 5% to $62.1 million (27% of net sales) compared to $65.6 million (32% of net sales). The decrease in operating expenses was primarily attributable to (1) a $2.0 million charge in 2017 related to the impairment of a patent that did not recur in 2018, and (2) operating expense synergies realized related to the mophie integration. These decreases in operating expense were partially offset by (1) increases in headcount to support additional growth of the Company and (2) increases in advertising and marketing spend.

Net income increased $12.9 million to $10.2 million compared to a net loss of $2.7 million. Diluted earnings per share was $0.36 (on 28.7 million shares) compared to a diluted loss per share of $0.10 (on 28.0 million shares).

Adjusted EBITDA increased $9.7 million or 66% to $24.5 million compared to $14.8 million.

2018 Business Outlook

The Company updated its annual guidance for 2018 to reflect a lower projected annual effective tax rate:

-- Net sales of $550 million to $570 million -- Gross profit margin as a percentage of net sales in the low to mid 30′s range -- Adjusted EBITDA of $77 million to $80 million -- Diluted earnings per share of $1.30 to $1.50 -- Annual effective tax rate of approximately 25% compared to approximately 27% in the last annual business outlook

Conference Call

A conference call will be held today, July 31, 2018, at 5:00 p.m. EST to review these results. Interested parties may access via the Internet on the Company’s website at: investors.zagg.com (the URLs are included here in this exhibit as inactive textual references and information contained on, or accessible through, our websites is not a part of, and is not incorporated by reference into, this report).

About Non-GAAP Financial Information

This press release includes Adjusted EBITDA as a non-GAAP financial measure. Readers are cautioned that Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, other income (expense), transaction expenses, mophie restructuring charges, mophie employee retention bonus, consulting fee to former CEO, and impairment of intangible asset) is not a financial measure under US generally accepted accounting principles (GAAP). In addition, this financial information should not be construed as an alternative to any other measure of performance determined in accordance with GAAP, or as an indicator of operating performance, liquidity or cash flows generated by operating, investing and financing activities, is as there may be significant factors or trends that it fails to address. As such, it should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. We present Adjusted EBITDA because we believe that it is helpful to some investors as a measure of performance. We caution readers that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Accordingly, its use can make it difficult to compare current results with results from other reporting periods and with the financial results of other companies. We have provided a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measures in the supplemental financial information attached to this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release contains (and oral communications made by us may contain) ““forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “target,” “future,” “seek,” “likely,” “strategy,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our outlook for the Company and statements that estimate or project future results of operations or the performance of the Company.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

i. the ability to design, produce, and distribute the creative product solutions required to retain existing customers and to attract new customers; ii. building and maintaining marketing and distribution functions sufficient to gain meaningful international market share for our products; iii. the ability to respond quickly with appropriate products after the adoption and introduction of new mobile devices by major manufacturers like Apple, Samsung, and Google; iv. changes or delays in announced launch schedules for (or recalls or withdrawals of) new mobile devices by major manufacturers like Apple, Samsung, and Google; v. the ability to successfully integrate new operations or acquisitions; vi. the impact of inconsistent quality or reliability of new product offerings; vii. the impact of lower profit margins in certain new and existing product categories, including certain mophie products; viii. the impacts of changes in economic conditions, including on customer demand; ix. managing inventory in light of constantly shifting consumer demand; x. the failure of information systems or technology solutions or the failure to secure information system data, failure to comply with privacy laws, security breaches, or the effect on the Company from cyber-attacks, terrorist incidents, or the threat of terrorist incidents; xi. adoption of or changes in accounting policies, principles, or estimates; and xii. changes in tax laws and regulations.

Any forward-looking statement made by us in this press release speaks only as of the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Readers should also review the risks and uncertainties listed in our most recent Annual Report on Form 10-K and other reports we file with the U.S. Securities and Exchange Commission, including (but not limited to) Item 1A - “Risk Factors” in the Form 10-K and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the risks described therein from time to time. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. The forward-looking statements contained in this press release are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

About ZAGG Inc

ZAGG Inc (NASDAQ:ZAGG) is a global leader in accessories and technologies that empower mobile lifestyles. The Company has an award-winning product portfolio that includes screen protection, mobile keyboards, power management solutions, social tech, and personal audio sold under the ZAGG®, mophie®, InvisibleShield®, and IFROGZ® brands. ZAGG has operations in the United States, Ireland, and China. ZAGG products are available worldwide, and can be found at leading retailers including Best Buy, Verizon, AT&T, Sprint, Walmart, Target, Walgreens and Amazon.com. For more information, please visit the company’s websites at www.zagg.com and www.mophie.com and follow us on Facebook, Twitter and Instagram.

CONTACT:

Investor Relations:ICR Inc.Brendon Frey203-682-8216brendon.frey@icrinc.com

Company:ZAGG IncJeff DuBois801-506-7336jeff.dubois@ZAGG.com

ZAGG INC AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except par value)(Unaudited)

June 30, December 2018 31, 2017 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 18,582 $ 24,989 Accounts receivable, net of allowances of $431 and $734 83,990 123,220 Inventories 69,662 75,046 Income tax receivable 1,285 — Prepaid expenses and other current assets 5,463 4,547 --------- - --------- - Total current assets 178,982 227,802 --------- - --------- - Property and equipment, net of accumulated depreciation of $14,212 and $12,540 12,532 13,444 Goodwill 12,272 12,272 Intangible assets, net of accumulated amortization of $72,253 and $66,639 33,630 39,244 Deferred income tax assets 23,914 24,403 Other assets 3,846 3,426 --------- - --------- - Total assets $ 265,176 $ 320,591 - ------- - - ------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 60,372 $ 96,472 Income tax payable — 2,052 Accrued liabilities 6,838 8,168 Sales returns liability 34,620 34,536 Accrued wages and wage related expenses 5,836 5,652 Deferred revenue — 315 Current portion of line of credit — 23,475 Current portion of long-term debt, net of deferred loan costs of $0 and $141 — 13,922 --------- - --------- - Total current liabilities 107,666 184,592 --------- - --------- - Non-current portion of line of credit 20,000 — --------- - --------- - Total liabilities 127,666 184,592 --------- - --------- - Stockholders’ equity: Common stock, $0.001 par value; 100,000 shares authorized; 34,423 and 34,104 shares 34 34 issued Additional paid-in capital 94,977 96,145 Accumulated other comprehensive loss (1,028 ) (348 ) Treasury stock, 6,247 and 6,065 common shares at cost (40,643 ) (37,637 ) Retained earnings 84,170 77,805 --------- - --------- - Total stockholders’ equity 137,510 135,999 --------- - --------- - Total liabilities and stockholders’ equity $ 265,176 $ 320,591 - ------- - - ------- -

ZAGG INC AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)(Unaudited)

Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2018 2017 2018 2017 ----------- ----------- ----------- ----------- Net sales $ 118,565 $ 115,227 $ 230,631 $ 208,173 Cost of sales 80,908 79,403 155,381 143,743 --------- - --------- - --------- - --------- - Gross profit 37,657 35,824 75,250 64,430 --------- - --------- - --------- - --------- - Operating expenses: Advertising and marketing 2,638 2,070 5,233 5,076 Selling, general and administrative 27,035 24,952 51,342 52,006 Transaction costs 18 300 18 515 Impairment of intangible asset — — — 1,959 Amortization of intangible assets 2,773 3,005 5,545 6,026 --------- - --------- - --------- - --------- - Total operating expenses 32,464 30,327 62,138 65,582 --------- - --------- - --------- - --------- - Income (loss) from operations 5,193 5,497 13,112 (1,152 ) Other income (expense): Interest expense (346 ) (619 ) (846 ) (1,110 ) Other (expense) income (681 ) 67 (186 ) 48 --------- - --------- - --------- - --------- - Total other expense (1,027 ) (552 ) (1,032 ) (1,062 ) --------- - --------- - --------- - --------- - Income (loss) before provision for 4,166 4,945 12,080 (2,214 ) income taxes --------- - --------- - --------- - --------- - Income tax provision (951 ) (1,542 ) (1,835 ) (521 ) --------- - --------- - --------- - --------- - Net income (loss) $ 3,215 $ 3,403 $ 10,245 $ (2,735 ) - ------- - - ------- - - ------- - - ------- - Earnings (loss) per share attributable to stockholders: Basic earnings (loss) per share $ 0.11 $ 0.12 $ 0.36 $ (0.10 ) Diluted earnings (loss) per share $ 0.11 $ 0.12 $ 0.36 $ (0.10 ) - ------- - - ------- - - ------- - - ------- -

ZAGG INC AND SUBSIDIARIESRECONCILIATION OF NON- U.S. GAAP FINANCIAL INFORMATION TO U.S. GAAP(in thousands)(Unaudited)

UNAUDITED SUPPLEMENTAL DATA The following information is not a financial measure under generally accepted accounting principles (GAAP). In addition, it should not be construed as an alternative to any other measures of performance determined in accordance with GAAP, or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities as there may be significant factors or trends that it fails to address. We present this financial information because we believe that it is helpful to some investors as a measure of our operations. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare our results with our results from other reporting periods and with the results of other companies. Three Months Ended Six Months Ended Adjusted EBITDA Reconciliation June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 ------------- ------------- ------------- ----------- Net income (loss) in accordance $ 3,215 $ 3,403 $ 10,245 $ (2,735 ) with U.S. GAAP - ------ ---- - ------ ---- - ------ ---- - ------ - Adjustments: a. Stock-based compensation expense 807 966 1,408 1,636 b. Depreciation and amortization 4,200 5,233 9,230 11,022 c. Impairment of intangible asset — — — 1,959 d. Other expense, net 1,027 552 1,032 1,062 e. Transaction expenses 18 300 18 515 f. mophie restructuring charges — 23 — 437 g. mophie employee retention bonus — 46 — 346 h. Consulting fee to former CEO 700 — 700 — i. Income tax provision 951 1,542 1,835 521 -------- ---- -------- ---- -------- ---- --------- - Adjusted EBITDA $ 10,918 $ 12,065 $ 24,468 $ 14,763 - ------ ---- - ------ ---- - ------ ---- - ------ -

Years Ended Guidance* Actual Adjusted EBITDA Reconciliation December 31, 2018 December 31, 2017 ----------------- ----------------- Net income in accordance with U.S. $ 40,200 $ 15,100 GAAP - ------ -------- - ------ -------- Adjustments: a. Stock-based compensation expense 3,667 3,602 b. Depreciation and amortization 18,358 21,888 c. Impairment of intangible asset — 1,959 d. Other expense 1,375 1,383 e. mophie restructuring charges — 437 f. mophie employee retention bonus — 346 g. Income tax provision 14,900 28,252 -------- -------- -------- -------- Adjusted EBITDA $ 78,500 $ 72,967 - ------ -------- - ------ --------

*Midpoint of 2018 guidance

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