Skullcandy, Inc. Reports Second Quarter 2016 Results
PARK CITY, UTAH – August 9, 2016 – Skullcandy, Inc. (NASDAQ: SKUL) today announced financial results for the second quarter ended June 30, 2016.
“We are pleased with our second quarter results. The success we saw with our brands in a challenging retail environment is a testament to the consumer focus and passion of our team. For the Skullcandy brand, we saw significant strength in our largest domestic accounts led by our expanded wireless portfolio which helped fuel sell-through at a rate that exceeded the overall headphone market according to NPD. Wireless is the future of audio and the Skullcandy brand is winning. For the Astro Gaming brand, we continue to experience strong growth and expect the fall launch of the new A50 headset to set the standard for the best console gaming headset in the market. While our overall Company results were hampered by some temporary headwinds including the ongoing clean-up of our China region and several retailer bankruptcies around the world, we are excited as a team to be on full attack,” said Skullcandy, Inc. President and CEO, Hoby Darling.
Net sales in the second quarter of 2016 and 2015 were $57.3 million and $57.4 million, respectively. Domestic (U.S.) net sales increased 4% to $42.3 million from $40.7 million in the same quarter a year ago. International (Non U.S.) net sales decreased 10% to $15.0 million from $16.7 million in the same quarter a year ago, primarily due to significantly decreased sales in China.
Gross profit in the second quarter of 2016 decreased 4% to $23.6 million from $24.5 million in the same quarter a year ago. Gross margin decreased to 41.1% in the second quarter of 2016 from 42.7% in the same quarter a year ago primarily due to continued clean up in China.
Selling, general and administrative (SG&A) expenses in the second quarter of 2016 increased 9% to $25.5 million from $23.5 million in the same quarter a year ago. The increase in SG&A expenses is primarily due to certain transaction costs related to the Company's sale process, customer bankruptcies, litigation, personnel related expenses, demand creation, and research and innovation expenses. These increases are partially offset by decreases in administrative costs. As a percentage of net sales, SG&A expenses increased 400 basis points to 45% as compared to 41% in the same quarter a year ago. Excluding certain non-routine costs related to our sale process, litigation, and customer bankruptcies, SG&A expenses were up 3% year over year.
Operating (loss) income in the second quarter of 2016 was $(2.0) million, a decrease of $3.0 million compared to $1.0 million in the same quarter a year ago, driven by a lower gross profit and increased SG&A expenses. Excluding certain non-routine costs related to our sale process, litigation, and customer bankruptcies, the change in operating (loss) income year over year was $1.6 million.
Net (loss) income in the second quarter of 2016 was $(1.6) million, or $(0.05) per share, based on 28.7 million weighted average diluted common shares outstanding, and net (loss) income in the same quarter a year ago was $1.2 million, or $0.04 per share, based on 29.0 million weighted average diluted common shares outstanding.
Second quarter 2016 results include pre-tax expenses of approximately $1.3m, or $0.03 of net income per share, in certain non-routine costs related to our sale process, litigation, and customer bankruptcies.
Balance Sheet Highlights
As of June 30, 2016, cash, cash equivalents, and short-term investments increased 75% to $41.2 million compared to $23.6 million as of December 31, 2015. The increase was primarily due to the Company’s collection efforts on receivables from fourth quarter sales and a decrease in the Company's early payments with certain vendors. Accounts receivable, net decreased 37% to $53.1 million as of June 30, 2016 from $84.9 million as of December 31, 2015. Inventories, net increased 7% to $44.5 million as of June 30, 2016 from $41.7 million as of December 31, 2015. The Company continued to have no outstanding debt as of June 30, 2016.
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About Skullcandy, Inc.
Skullcandy, Inc. creates world-class audio experiences through its Skullcandy® and Astro Gaming® brands. Founded at the intersection of music, sports, technology and creative culture, Skullcandy brand creates world-class audio and gaming products for the risk takers, innovators, and pioneers who inspire us all to live life at full volume. From new innovations in the science of sound and human potential, to collaborations with up-and-coming musicians and athletes, Skullcandy lives by its mission to inspire life at full volume through forward-thinking technologies and ideas, and leading edge design and materialization. Astro Gaming creates premium video gaming equipment for professional gamers, leagues, and gaming enthusiasts. Astro Gaming was founded in the pits of competitive gaming and has become synonymous with pinnacle gaming experiences. Skullcandy and Astro Gaming products are sold and distributed through a variety of channels around the world from the Company’s global locations in Park City, San Francisco, Tokyo, Zurich, and Mexico City as well as through partners in some of the most important culture, sports, and gaming hubs in the world. The Skullcandy brand website can be found at http://www.skullcandy.com. The Astro Gaming website can be found at http://www.astrogaming.com.
Forward-Looking Statements
Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the Company’s anticipated future financial and operating results and any other statements about the Company’s future expectations, beliefs or prospects expressed by management are forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs, but they involve a number of risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from expectations are disclosed under the “Risk Factors” section of the 2015 10-K filed with the Securities and Exchange Commission on March 4, 2016. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company does not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
Contacts
ICR
Brendon Frey
203-682-8200
Brendon.Frey@icrinc.com
-Financial Tables Follow-
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SKULLCANDY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, per share information)
(unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net sales | $ | 57,282 | $ | 57,393 | $ | 103,569 | $ | 103,035 | |||||||
Cost of goods sold | 33,727 | 32,866 | 62,647 | 59,849 | |||||||||||
Gross profit | 23,555 | 24,527 | 40,922 | 43,186 | |||||||||||
Selling, general and administrative expenses | 25,527 | 23,502 | 49,668 | 45,807 | |||||||||||
(Loss) income from operations | (1,972 | ) | 1,025 | (8,746 | ) | (2,621 | ) | ||||||||
Other expense (income) | 311 | (111 | ) | 491 | 884 | ||||||||||
Interest (income) expense | (34 | ) | 5 | (46 | ) | (11 | ) | ||||||||
(Loss) income before income taxes and noncontrolling interest | (2,249 | ) | 1,131 | (9,191 | ) | (3,494 | ) | ||||||||
Income tax benefit | (675 | ) | (19 | ) | (2,712 | ) | (813 | ) | |||||||
Net (loss) income | (1,574 | ) | 1,150 | (6,479 | ) | (2,681 | ) | ||||||||
Net loss attributable to noncontrolling interest | — | (65 | ) | — | (168 | ) | |||||||||
Net (loss) income attributable to Skullcandy, Inc. | $ | (1,574 | ) | $ | 1,215 | $ | (6,479 | ) | $ | (2,513 | ) | ||||
Net (loss) income per common share attributable to Skullcandy, Inc. | |||||||||||||||
Basic | $ | (0.05 | ) | $ | 0.04 | $ | (0.23 | ) | $ | (0.09 | ) | ||||
Diluted | (0.05 | ) | 0.04 | (0.23 | ) | (0.09 | ) | ||||||||
Weighted average common shares outstanding | |||||||||||||||
Basic | 28,665 | 28,380 | 28,614 | 28,326 | |||||||||||
Diluted | 28,665 | 28,952 | 28,614 | 28,326 | |||||||||||
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SKULLCANDY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(unaudited)
June 30, 2016 | December 31, 2015 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 24,617 | $ | 23,030 | ||||
Short-term investments | 16,602 | 543 | ||||||
Total cash, cash equivalents, and short-term investments | 41,219 | 23,573 | ||||||
Accounts receivable, net | 53,128 | 84,909 | ||||||
Inventories | 44,498 | 41,686 | ||||||
Prepaid expenses and other current assets | 11,963 | 6,189 | ||||||
Current deferred tax assets | 4,492 | 3,999 | ||||||
Total current assets | 155,300 | 160,356 | ||||||
Property and equipment, net | 14,566 | 14,830 | ||||||
Intangibles | 6,743 | 7,433 | ||||||
Goodwill | 13,867 | 13,867 | ||||||
Deferred financing fees | 26 | 31 | ||||||
Non-current deferred tax assets | 558 | 923 | ||||||
Other non-current assets | 654 | 250 | ||||||
Total assets | $ | 191,714 | $ | 197,690 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 17,211 | $ | 13,216 | ||||
Accrued liabilities | 16,341 | 21,931 | ||||||
Current deferred tax liability | 8 | 190 | ||||||
Total current liabilities | 33,560 | 35,337 | ||||||
Non-current deferred tax liability | 996 | 1,148 | ||||||
Non-current liabilities | 1,280 | 1,117 | ||||||
Total liabilities | 35,836 | 37,602 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock | — | — | ||||||
Common stock | 3 | 3 | ||||||
Treasury stock | (43,294 | ) | (43,294 | ) | ||||
Additional paid-in capital | 139,638 | 137,535 | ||||||
Accumulated other comprehensive income (loss) | (652 | ) | (818 | ) | ||||
Retained earnings | 60,183 | 66,662 | ||||||
Total stockholders’ equity | 155,878 | 160,088 | ||||||
Total liabilities and stockholders’ equity | $ | 191,714 | $ | 197,690 | ||||
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SKULLCANDY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (6,479 | ) | $ | (2,681 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 5,204 | 5,230 | |||||
Loss on disposal of property and equipment and intangible assets | — | 64 | |||||
Provision for doubtful accounts | 833 | 11 | |||||
Deferred income taxes | (2,062 | ) | 2,720 | ||||
Non-cash interest expense | 5 | 5 | |||||
Amortization of stock-based compensation expense | 2,342 | 2,055 | |||||
Foreign currency remeasurement (gain) loss | (458 | ) | 550 | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 31,039 | 19,394 | |||||
Inventories | (2,650 | ) | (6,531 | ) | |||
Prepaid expenses and other current assets | (5,697 | ) | (5,191 | ) | |||
Accounts payable | 3,702 | (9,484 | ) | ||||
Accrued liabilities | (3,559 | ) | (17,969 | ) | |||
Net cash provided by (used in) operating activities | 22,220 | (11,827 | ) | ||||
Cash flows from investing activities: | |||||||
Purchase of property and equipment | (3,937 | ) | (5,807 | ) | |||
Purchases of short-term investments | (16,043 | ) | — | ||||
Proceeds from sales of short-term investments | — | 7,514 | |||||
Loan to third party | (500 | ) | — | ||||
Net cash (used in) provided by investing activities | (20,480 | ) | 1,707 | ||||
Cash flows from financing activities: | |||||||
Proceeds from exercise of stock options | 9 | 358 | |||||
Taxes paid related to net share settlement | (163 | ) | (245 | ) | |||
Income tax (detriment) benefit from share based compensation | (84 | ) | 95 | ||||
Net cash (used in) provided by financing activities | (238 | ) | 208 | ||||
Effect of exchange rate changes on cash and cash equivalents | 85 | (10 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 1,587 | (9,922 | ) | ||||
Cash and cash equivalents, beginning of period | 23,030 | 21,623 | |||||
Cash and cash equivalents, end of period | $ | 24,617 | $ | 11,701 | |||
Supplemental cash flow information: | |||||||
Cash paid for interest | $ | — | $ | — | |||
Cash paid for income tax | $ | 4,580 | $ | 3,725 | |||
Supplemental non-cash activities: | |||||||
Purchase of property and equipment financed through accounts payable | $ | 298 | $ | 329 | |||
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SKULLCANDY, INC.
SEGMENT INFORMATION
(unaudited)
We manage our business in two segments which are comprised of Domestic and International. The Domestic segment primarily consists of Skullcandy and Astro Gaming product sales to customers in the United States. The international segment primarily includes Skullcandy product sales to customers in Europe, Asia, Canada, Mexico, and all other geographic areas outside the United States that are served by the Company’s International operations.
The table below summarizes information about reportable segments for the three and six months ended June 30, 2016 and 2015 (in thousands):
Three months ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
Net sales: | ||||||||||||||
Domestic | $ | 42,324 | $ | 40,728 | $ | 1,596 | 4 | % | ||||||
International | 14,958 | 16,665 | (1,707 | ) | (10 | )% | ||||||||
Total net sales | $ | 57,282 | $ | 57,393 | $ | (111 | ) | — | % | |||||
Three months ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
Gross profit: | ||||||||||||||
Domestic | $ | 17,904 | $ | 17,849 | $ | 55 | — | % | ||||||
International | 5,651 | 6,678 | (1,027 | ) | (15 | )% | ||||||||
Total gross profit | $ | 23,555 | $ | 24,527 | $ | (972 | ) | (4 | )% | |||||
Three months ended June 30, | ||||||||||||||
2016 | 2015 | Basis Point Change | ||||||||||||
Gross margin %: | ||||||||||||||
Domestic | 42.3 | % | 43.8 | % | (150 | ) | ||||||||
International | 37.8 | % | 40.1 | % | (230 | ) | ||||||||
Total gross margin | 41.1 | % | 42.7 | % | (160 | ) | ||||||||
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Six months ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
Net sales: | ||||||||||||||
Domestic | $ | 74,093 | $ | 71,352 | $ | 2,741 | 4 | % | ||||||
International | 29,476 | 31,683 | (2,207 | ) | (7 | )% | ||||||||
Total net sales | $ | 103,569 | $ | 103,035 | $ | 534 | 1 | % | ||||||
Six months ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
Gross profit: | ||||||||||||||
Domestic | $ | 29,992 | $ | 30,175 | $ | (183 | ) | (1 | )% | |||||
International | 10,930 | 13,011 | (2,081 | ) | (16 | )% | ||||||||
Total gross profit | $ | 40,922 | $ | 43,186 | $ | (2,264 | ) | (5 | )% | |||||
Six months ended June 30, | ||||||||||||||
2016 | 2015 | Basis Point Change | ||||||||||||
Gross margin %: | ||||||||||||||
Domestic | 40.5 | % | 42.3 | % | (180 | ) | ||||||||
International | 37.1 | % | 41.1 | % | (400 | ) | ||||||||
Total gross margin | 39.5 | % | 41.9 | % | (240 | ) | ||||||||
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