NATURE OF OPERATIONS AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

ZAGG Inc and its subsidiaries (the “Company”) are innovation leaders in mobile tech accessories for smartphones and tablets. For over 15 years, the Company has developed creative product solutions that enhance and protect mobile devices for consumers around the world. The Company has an award-winning product portfolio that includes screen protection, power management, wireless charging, audio, mobile keyboards, protective cases, and other mobile accessories sold under the ZAGG®, InvisibleShield®, mophie®, IFROGZ®, Gear4®, and HALO® brands.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the financial position, the results of operations, and cash flows of the Company for the periods presented. The Company recommends that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods, with related disclosures of these amounts in the notes to the financial statements. Actual results could differ from those estimates.

Coronavirus Outbreak and Company Impact

In December 2019, a mutated strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China. The outbreak, which had previously been concentrated in China, has largely spread through the U.S. and the world. This COVID-19 pandemic has materially impacted the Company's financial condition and results of operations. The Company recommends that the condensed consolidated financial statements and notes thereto in this Quarterly Report on Form 10-Q be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I to this Quarterly Report on Form 10-Q, and the Company's Risk Factors in Item 1A of Part II to this Quarterly Report on Form 10-Q for further information.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 to the Company’s consolidated financial statements included in the 2019 Form 10-K. Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.

Adoption of Accounting Standards Codification (“ASC”) Topic 326, “Financial Instruments - Credit Losses”

The Company adopted ASC Topic 326,“Financial Instruments - Credit Losses” (“Topic 326”) with a date of initial application of January 1, 2020. As a result of this adoption, the Company has changed its accounting policy for estimating allowance for credit losses on its accounts receivable, as detailed below.

The Company applied Topic 326 prospectively by recording a cumulative effect adjustment in retained earnings beginning January 1, 2020, which allows for the application of the standard solely to the transition period in 2020 but does not require application to prior fiscal comparative periods presented. Therefore, the prior period comparative information has not been adjusted and continues to be reported under the previous incurred credit loss allowance methodology.

The adoption of Topic 326 resulted in a decrease of $359 in retained earnings as a cumulative effect of adoption. The new standard did not have a material impact in the Company’s consolidated balance sheets or condensed consolidated statements of operations. In addition, the adoption of Topic 326 had no impact to cash provided by or used in operating, financing, or investing on the condensed consolidated statements of cash flows.

Allowance for credit losses accounting policy

The Company estimates the allowance for credit losses in relation to accounts receivable based on relevant qualitative and quantitative information about historical events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported accounts receivable. Topic 326 permits different methods to calculate the estimate for the allowance for credit losses. The Company started with its historical loss experience as suggested by Topic 326 and evaluated its previous method of estimating the allowance for credit losses. The Company determined that its previous method of using an aging schedule to develop historical credit loss percentages, which is allowed under Topic 326, is appropriate. The historical credit loss percentages are developed for each aging category based on eight quarters of credit loss history and the Company determined that its customers in each of these aging categories share similar risk characteristics.

Additionally, as required by Topic 326, the Company adjusts the historical credit loss percentage by current and forecasted economic conditions. Due to the short-term nature of its accounts receivable and that it carries credit insurance on a significant portion of the accounts receivable balance, the Company believes changes to economic conditions may not have significant effect on the estimate of the allowance for credit losses for accounts receivable; thus, the Company determined to include a baseline credit loss percentage into the historical credit loss percentage for each aging category to reflect the potential impact of the current and future economic conditions. Such baseline credit loss is adjusted when changes in the economic environment change the Company's expectation for future credit losses.

As of September 30, 2020, the Company determined the baseline of credit loss percentage should be increased in response to the COVID-19 pandemic and estimated the allowance for credit losses to be $1,088.