EMERYVILLE, Calif., Aug. 4 /PRNewswire-FirstCall/ -- LeapFrog Enterprises,
Inc. (NYSE: LF), a leading developer of technology-based learning products,
today announced financial results for the second quarter ended June 30, 2008.
Second Quarter Financial Highlights
-- Increased year-over-year net sales by 22% to $68.3 million
-- Improved net loss to $20.6 million, or $0.32 per share
-- Improved gross margin to 39.3%
-- Decreased operating expenses to $49.0 million, including a 13%
reduction in SG&A
"We completed a very important milestone in the second quarter with the
on-time launch of our new Tag Reading System in June, and we also launched our
two new web-connected educational gaming systems, Leapster2 and Didj, in early
July," said Jeffrey G. Katz, president and chief executive officer of
LeapFrog. "The early sell-through of Tag and Tag books is good and our
overall second quarter U.S. Consumer sales were strong, reflecting initial
sales to retailers of Tag, Leapster2 and Didj. Leapster continues to sell
well and early online results for Leapster2 are also good. That said, the
second half of the year will be much more important with respect to
sell-through of these products, particularly given the seemingly endless bad
economic news impacting consumers. Looking ahead to the second half, we are
locked and loaded to support our biggest ever product launch year. We'll be
focused on continued supply chain execution, the launch of the LeapFrog
Learning Path in August, and a broad media and promotional campaign consistent
with the large scope of products we are bringing to market."
Second Quarter 2008 Financial Results
Net Sales and Segment Results
Net sales for the quarter ended June 30, 2008 were $68.3 million, compared
with $56.0 million for the quarter ended June 30, 2007, an increase of 22.0%.
Net sales from the U.S. Consumer segment totaled $50.0 million for the second
quarter 2008, compared with $31.9 million for the second quarter 2007. The
increase from 2007 was the result of initial shipments of new products. Net
sales from the International segment declined to $12.3 million for the second
quarter 2008, compared with $13.9 million for the second quarter 2007. The
International segment's sales do not reflect the impact of new products, as
they will be introduced in the second half of 2008. Net sales from the School
segment totaled $6.0 million for the second quarter 2008, down from
$10.2 million for the second quarter 2007 due to the continuing effects of
strong competition compounded by weak school funding levels.
Gross Profit and Gross Margin
Gross profit improved to $26.9 million in the second quarter 2008,
compared with $20.3 million for the second quarter 2007. Gross margin for the
quarter ended June 30, 2008 increased to 39.3%, compared with 36.2% for the
second quarter 2007, reflecting the accretive effect of new, higher-margin
product sales and reduced discounts.
Operating Expenses
Operating expenses decreased 3.3% to $49.0 million for the second quarter
2008, compared with $50.7 million for the second quarter 2007. Selling,
general and administrative expense decreased 13.0% to $26.0 million for the
second quarter 2008 and research and development expense decreased 7.9% to
$12.9 million. These declines were driven by previously implemented headcount
reductions. Advertising expense nearly doubled year-over-year to $7.8 million
for the second quarter 2008, supporting the initial roll-out of the Tag
Reading System in June.
Other Income/(Expense)
Other income/(expense) included a $1.6 million write-down of the company's
investment in auction rate securities to a carrying value of $9.8 million.
Provision for/(Benefit from) Income Tax
LeapFrog recognized an income tax benefit of $2.8 million for the second
quarter 2008 compared with an expense of $0.4 million for the second quarter
2007. The 2008 quarter includes a $1.9 million benefit from the completion of
the examination by the IRS of claims for research and experimentation credits
as well as a tax benefit from year-to-date losses on foreign operations.
Net Loss
The company recorded a net loss of $20.6 million, or $0.32 per share, for
the second quarter 2008, compared with a net loss of $28.0 million, or
$0.44 per share, for the second quarter of 2007. Higher sales and gross
margin and lower operating expenses all contributed to the improved financial
results.
Balance Sheet
Inventories were $86.3 million at June 30, 2008, compared with
$103.8 million at June 30, 2007 and $52.4 million at December 31, 2007. Cash
and investments totaled $78.1 million at June 30, 2008, compared with
$153.8 million at June 30, 2007 and $104.4 million at December 31, 2007.
Bill Chiasson, chief financial officer, stated, "We're pleased with second
quarter sales, which are a good early indicator of potential demand for our
new products. Second quarter Leapster sales were strong and Tag got off to a
good start. While we are encouraged by our second quarter results, our
guidance remains unchanged. It is still early in the selling season and we
continue to expect the majority of our 2008 shipments and consumer purchases
will occur in the second half of the year, as usual. In addition, the outlook
for consumer spending remains weak."
The company reiterated its current expectations for full year 2008
results:
-- New products introduced in 2007 and 2008 are expected to comprise
approximately half of 2008 net sales;
-- Net sales are expected to grow at an annual percentage rate in the
mid-to-high teens;
-- Gross margin is expected to continue to improve;
-- Selling, general and administrative expenses and research and
development expenses are expected to decrease approximately 10%-15%
year-over-year;
-- The company expects a nominal loss for the year; and
-- Cash and investments are expected to be approximately $100 million at
year-end.
Conference Call and Webcast
A conference call will be held today, August 4, at 5:00 p.m. Eastern time
(2:00 p.m. Pacific time) to provide further discussion of the results for the
second quarter of 2008. A live Web cast of the conference call will be
offered on LeapFrog's investor relations website at
http://www.leapfroginvestor.com and on http://www.earnings.com. To
participate in the call, please dial (706) 634-0183 and request Conference ID
56966204. A replay of the Web cast will be available on these Web sites
through August 4, 2009. A telephone replay is also available through
September 4, 2008 at (706) 645-9291; I.D. No. 56966204.
About LeapFrog
LeapFrog Enterprises, Inc. is a leading designer, developer, and marketer
of innovative, technology-based learning products and related proprietary
content, dedicated to making learning effective and engaging for all ages, at
home and in schools, around the world. The company was founded in 1995 and is
based in Emeryville, California. LeapFrog has developed a family of learning
platforms that come to life with an extensive library of software titles
covering important subjects such as phonics, reading, writing, math, music,
geography, social studies, spelling, vocabulary and science. In addition, the
company has created a broad line of stand-alone educational products for
children. LeapFrog's award-winning products are available in six languages at
major retailers in more than 35 countries around the world. LeapFrog School's
multisensory products currently reach students in more than 100,000 classrooms
across the United States. LeapFrog School is a business division of LeapFrog
Enterprises, Inc.
NOTE: LEAPFROG, the LeapFrog Logo, TAG, LEAPSTER, and DIDJ are trademarks
or registered trademarks of LeapFrog Enterprises, Inc.
Forward-Looking Statements
Cautionary Statement under the Private Securities Litigation Reform Act of
1995:
Except for the historical information contained herein, this news release
contains forward-looking statements, including statements regarding the
timing, scope and success of future product launches, expected benefits of new
products and services, anticipated 2008 financial results, including expected
net sales, margins, expenses, profitability, cash flow and cash balances for
2008. These forward-looking statements involve risks and uncertainties,
including risks related to the company's ability to launch and support new
products, services and features on time and at anticipated margin and profit
levels; the acceptance by consumers, retailers and schools of the company's
new strategy related to Internet-connected products and related Internet
services, including with respect to the LeapFrog Learning Path; the company's
ability to launch and operate its network infrastructure to support the new
Internet-related business; the effect of marketing on the sales of the
company's products and services; and overall consumer sentiment. These and
other risks and uncertainties detailed from time to time in the company's SEC
filings, including its 2007 annual report on Form 10-K filed on March 13,
2008, could cause the company's actual results to differ materially from those
discussed in this release. All forward-looking statements are based on
information available to the company on the date hereof, and the company
assumes no obligation to update such statements.
Contact Information:
Investors: Media:
Eileen VanEss Mischa Dunton
Investor Relations Corporate Communications
(510) 420-5361 (510) 596-5441
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
2008 2007 2007
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $68,308 $64,260 $93,460
Short-term investments - 75,500 -
Accounts receivable,
net of allowances 50,880 35,456 126,936
Inventories 86,329 103,782 52,415
Prepaid expenses and
other current assets 25,136 21,482 20,427
Deferred income taxes 3,481 3,959 3,405
Total current assets 234,134 304,439 296,643
Property and equipment, net 37,879 30,846 34,017
Deferred income taxes 213 159 213
Intangible assets, net 24,003 25,221 24,512
Long-term investments 9,792 14,000 10,925
Other assets 3,843 9,139 4,152
Total assets $309,864 $ 383,804 $370,463
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $56,414 $51,368 $46,868
Accrued liabilities and
deferred revenue 30,627 28,187 57,591
Income taxes payable 118 1,405 93
Total current liabilities 87,159 80,960 104,552
Long-term liabilities 21,104 22,215 22,438
Commitments and contingencies - - -
Stockholders' equity:
Class A common stock,
par value $0.0001; 139,500
shares authorized; shares
issued and outstanding:
36,042, 35,317 and 35,857
at June 30, 2008 and
2007, and December 31,
2007, respectively 4 4 4
Class B common stock,
par value $0.0001; 40,500
shares authorized; shares
issued and outstanding:
27,614 at June 30, 2008 and
2007, and December 31, 2007,
respectively 3 3 3
Treasury stock (185) (185) (185)
Additional paid-in capital 358,994 348,712 353,857
Accumulated other comprehensive
income 5,033 3,476 4,036
Accumulated deficit (162,248) (71,381) (114,242)
Total stockholders' equity 201,601 280,629 243,473
Total liabilities and
stockholders' equity $309,864 $383,804 $370,463
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Unaudited
Three Months Ended June 30, Six Months Ended June 30,
2008 2007 2008 2007
Net sales $68,341 $55,995 $126,615 $ 116,919
Cost of sales 41,454 35,711 78,597 71,932
Gross profit 26,887 20,284 48,018 44,987
Operating expenses:
Selling, general
and administrative 26,013 29,909 56,774 62,342
Research and
development 12,876 14,032 24,986 28,493
Advertising 7,793 4,223 12,325 9,806
Depreciation and
amortization 2,366 2,510 4,717 4,929
Total operating
expenses 49,048 50,674 98,802 105,570
Loss from operations (22,161) (30,390) (50,784) (60,583)
Other income (expense):
Interest income 749 2,205 1,897 4,439
Interest expense (20) (66) (33) (74)
Other (expense)
income, net (1,983) 637 (2,557) 417
Total other income
(expense) (1,254) 2,776 (693) 4,782
Loss before provision
for income taxes (23,415) (27,614) (51,477) (55,801)
Provision for
(benefit from)
income taxes (2,846) 414 (3,471) 2,653
Net loss $(20,569) $(28,028) $(48,006) $(58,454)
Net loss per
common share:
Basic and diluted $(0.32) $ (0.44) $ (0.75) $(0.92)
Shares used in
calculating net
loss per
common share:
Basic and diluted 63,679 63,325 63,645 63,280
LEAPFROG ENTERPRISES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2008 2007
Net loss $(48,006) $(58,454)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 9,256 8,764
Unrealized foreign exchange (gain) loss 823 (2,084)
Deferred income taxes (76) (2,814)
Stock-based compensation 5,112 4,545
Impairment of investment in auction rate
securities 1,731 -
Investment accretion - (778)
Provision for (recovery on) doubtful accounts 569 (226)
Other changes in operating assets and
liabilities:
Accounts receivable 75,487 106,586
Inventories (33,914) (30,762)
Prepaid expenses and other current assets (4,709) 1,857
Other assets 310 (2)
Accounts payable 9,546 4,648
Accrued liabilities and deferred revenue (27,351) (21,814)
Long-term liabilities (1,339) 2,545
Income taxes payable 25 681
Other (20) (740)
Net cash provided by operating activities (12,556) 11,952
Investing activities:
Purchases of property and equipment (12,591) (11,097)
Purchases of investments - (442,341)
Sale of investments - 434,403
Net cash used in investing activities (12,591) (19,035)
Financing activities:
Proceeds from the exercise of stock options
and employee stock purchase plan 419 1,588
Net cash provided by financing activities 419 1,558
Effect of exchange rate changes on cash (424) 2,441
Net change in cash and cash equivalents
for the period (25,152) (3,054)
Cash and cash equivalents at beginning
of period 93,460 67,314
Cash and cash equivalents at end of period $68,308 $64,260
SOURCE LeapFrog Enterprises, Inc.
