(Logo: http://www.newscom.com/cgi-bin/prnh/20090219/LFLOGO)
Net sales for the quarter were
Operating cash flow was
Retail point-of-sale, or POS, dollars were up 8% year-over-year for the 16-weeks ended
'First quarter results were as we anticipated given the seasonally low sales period and high retailer inventory levels at the end of 2008. Channel inventory remains higher than normal, and we are actively working with retailers to reduce inventory to satisfactory levels by adjusting our promotional strategies and marketing plans. Our efforts are working, and point-of-sale results were strong in the first 16 weeks due to solid sales of our Tag and Leapster products. POS results were favorable throughout the first quarter and particularly encouraging over Easter in the second quarter. While we are optimistic about POS results to date, we realize that today's consumer remains promotionally driven and is seeking deals. We expect this behavior to continue through the second quarter,' said
'Our objective over the next few months is to reduce retailer inventory to appropriate levels while bolstering our sales through the introduction of new and attractively-priced products. This spring, we are launching Tag Junior, which will make our award-winning Tag Reading System available to a younger age group. We are also launching the Scout line. Throughout the year, we will introduce new content for the reading and gaming business lines, make significant improvements to Tag and Leapster2 and roll out substantially more features and capabilities on the LeapFrog Learning Path.
'We're on track to get the inventory overhang issue behind us. When the economy starts to recover, we believe LeapFrog's outstanding brand, robust product portfolio and lower cost structure will enable us to return to profitability,' continued Mr. Katz.
First Quarter 2009 Financial Results
Net Sales
Net sales for the quarter were
Segment Results
Net sales from
Gross Profit and Gross Margin
Gross profit for the quarter was
Operating Expenses
Operating expenses for the quarter were
Loss from Operations
Loss from operations for the quarter was
Net Loss
Net loss for the quarter was
Financial Position
Cash and equivalents were
'LeapFrog's financial position remains solid. We ended the quarter with a strong cash position, no debt and positive cash flow. Over the past year, we have significantly reduced our cost structure, and, as a result, our net loss was flat year-over-year despite a
Guidance
For the second quarter of 2009, LeapFrog expects:
- Net sales to be between
$35 and $45 million - Gross margin to be between 30% and 33%
- Operating expenses to be between
$34 and $36 million , down approximately 27% to 31% year-over-year
For the third quarter of 2009, LeapFrog expects:
- Net sales to be between
$100 and $120 million - Gross margin to be between 37% and 41%
- Operating expenses to be between
$40 and $44 million , down approximately 21% to 28% year-over-year
'As indicated in our guidance, we expect second and third quarter net sales to be down 35% to 50% relative to last year as we continue to work with retailers to reduce inventory levels. Retailer inventory levels are expected to reach satisfactory levels by early in the third quarter, and we expect year-over-year sales growth to resume in the fourth quarter. Gross margin is expected to decline in the second and third quarters of 2009 compared to the prior year due to lower sales relative to fixed costs and higher promotional expenses. Sequentially, we expect gross margin to improve each quarter as sales volumes increase and pressure from promotions are offset by a favorable mix of software to hardware sales,' said Mr. Chiasson.
'It is still too early to forecast full year results with any certainty. We are carefully monitoring the environment and are prepared to ramp the business up or down as market conditions dictate. We are focused on further reducing our operating cost structure and improving our cash flow for the year. As the economy recovers, we believe our lower cost structure, strong brand, and healthy product portfolio will position LeapFrog for profitable growth,' continued Mr. Chiasson.
Conference Call and Webcast
LeapFrog will hold a conference call to discuss first quarter 2009 financial results today,
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 95318583.
Description of Retail Point-of-Sale Dollars
Retail point-of-sale dollars is a non-audited operating metric that represents U.S. retailers' sales of LeapFrog products to consumers. Retail point-of-sale dollars differs significantly from LeapFrog's reported net sales, which reflect all products sold by LeapFrog to its retailer customers in all markets and also includes other sources of revenue. The point-of-sale data is provided to LeapFrog by retailers. LeapFrog believes this represents approximately 95% of our U.S. retailers' dollar sales of LeapFrog products to consumers, based on historical shipments by us to such retailers. LeapFrog management uses point-of-sale data to evaluate the retail channel sales environment and develop net sales forecasts.
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
NOTE: LEAPFROG, the LeapFrog Logo, TAG, and LEAPSTER are trademarks or registered trademarks of LeapFrog Enterprises, Inc.
Forward-Looking Statements
Cautionary Statement under the Private Securities Litigation Reform Act of 1995:
This news release contains forward-looking statements, including: statements regarding anticipated financial results, including net sales, inventory levels, point-of-sale dollars, gross margin, operating expenses, operating results and cash flows; the timing of changes in economic conditions; consumer buying patterns; launches of new products and services; build-out of existing products and services; and benefits of strategies and new products and services. These forward-looking statements involve risks and uncertainties, including risks related to the recession and its effect on retail business, overall consumer sentiment and trends relating to children's products and their effect on retailer buying behavior, the rates of acceptance by consumers of our web-based products and services, our ability to respond quickly to changes in demand for our products, and our ability to provide high-quality experiences to consumers with all of our products and services. These and other risks and uncertainties detailed from time to time in our SEC filings, including our 2008 annual report on Form 10-K filed on
Contact Information
Investors: Media:
Karen Sansot Mischa Dunton
Investor Relations Corporate Communications
(510) 420-4803 (510) 596-5441
LeapFrog Enterprises, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
2009 2008
Net sales $29,879 $58,274
Cost of sales 21,793 37,143
Gross profit 8,086 21,131
Operating expenses:
Selling, general and
administrative 19,938 30,761
Research and development 9,973 12,110
Advertising 2,168 4,532
Depreciation and amortization 2,899 2,351
Total operating expenses 34,978 49,754
Loss from operations (26,892) (28,623)
Interest income 159 967
Interest expense (25) (13)
Other expense, net (413) (392)
Total other income (expense) (279) 562
Loss before income taxes (27,171) (28,061)
Benefit from income taxes (50) (625)
Net loss $(27,121) $(27,436)
Net loss per common share:
Class A and B - basic and diluted $(0.43) $(0.43)
Weighted average shares
outstanding:
Class A and B - basic and diluted 63,786 63,491
LeapFrog Enterprises, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2009 2008
Operating activities:
Net loss $(27,121) $(27,436)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 5,232 4,407
Unrealized foreign exchange loss (1,319) (734)
Deferred income taxes 128 (3)
Stock-based compensation expense 3,004 2,958
Impairment of investment in auction rate
securities 23 255
Decrease in allowance for doubtful accounts (810) (191)
Decrease in other accounts receivable-related
allowances (22,493) (12,658)
Disposal of property and equipment (4) (21)
Other changes in operating
assets and liabilities:
Accounts receivable 107,623 100,196
Inventories (1,291) (3,143)
Prepaid expenses and other current assets (479) (2,115)
Other assets 104 279
Accounts payable (36,613) (10,904)
Accrued liabilities and deferred revenue (16,662) (33,070)
Long-term liabilities 124 (125)
Income taxes payable (207) 62
Other 837 829
Net cash provided by operating activities 10,076 18,586
Investing activities:
Purchases of property and equipment (1,300) (1,394)
Capitalization of product costs (2,230) (5,239)
Net cash used in investing activities (3,530) (6,633)
Financing activities:
Proceeds from stock option exercises and employee
stock purchase plans 41 180
Net cash paid for payroll taxes on restricted stock
unit releases (6) (77)
Net cash provided by financing activities 35 103
Effect of exchange rates on cash (359) 320
Net change in cash and cash equivalents 6,222 12,376
Cash and cash equivalents, beginning of period 79,101 93,460
Cash and cash equivalents, end of period $85,323 $105,836
LeapFrog Enterprises, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, December 31,
2009 2008 2008
(Audited)
Assets
Current assets:
Cash and equivalents $85,323 $105,836 $79,101
Accounts receivable, net of
allowances for doubtful
accounts of $1,884, $288
and $3,872 5,598 39,207 89,918
Inventories 59,487 55,558 58,196
Prepaid expenses and other
current assets 11,301 22,542 10,822
Deferred income taxes 3,076 3,409 3,189
Total current assets 164,785 226,552 241,226
Long-term investments 4,939 10,670 4,962
Deferred income taxes 482 212 497
Property and equipment, net 18,025 19,408 19,611
Capitalized product costs, net 16,250 17,139 16,227
Goodwill 19,549 19,549 19,549
Other assets 5,006 8,532 5,260
Total assets $229,036 $302,062 $307,332
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $19,744 $29,909 $56,357
Accrued liabilities and deferred
revenue 27,934 30,550 44,596
Income taxes payable 22 79 229
Total current liabilities 47,700 60,538 101,182
Long-term deferred income taxes 22,662 20,191 22,404
Other long-term liabilities 3,686 2,198 3,820
Stockholders' equity:
Class A common stock - 139,500
shares authorized; outstanding
36,674, 35,895 and 36,627 4 4 4
Class B common stock - 40,500
shares authorized; outstanding
27,141, 27,614 and 27,141 3 3 3
Treasury stock (185) (185) (185)
Additional paid-in capital 367,696 356,917 364,657
Accumulated other comprehensive
income (loss) (2,911) 4,074 (2,055)
Accumulated deficit (209,619) (141,678) (182,498)
Total stockholders' equity 154,988 219,135 179,926
Total liabilities and
stockholders' equity $229,036 $302,062 $307,332
LeapFrog Enterprises, Inc.
Supplemental Financial Information
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2009 2008
Net sales $29,879 $58,274
Cost of sales (1) 21,793 37,143
Gross profit 8,086 21,131
Operating expenses: (2) (3)
Selling, general and administrative 19,938 30,761
Research and development 9,973 12,110
Advertising 2,168 4,532
Depreciation and amortization 2,899 2,351
Total operating expenses 34,978 49,754
Loss from operations (26,892) (28,623)
Interest income 159 967
Interest expense (25) (13)
Other expense, net (4) (413) (392)
Total other income (expense) (279) 562
Loss before income taxes (27,171) (28,061)
Benefit from income taxes (50) (625)
Net loss $(27,121) $(27,436)
(1) Includes depreciation and
amortization $2,333 $2,056
(2) Includes stock-based compensation
as follows:
Selling, general and
administrative $2,455 $2,458
Research and development 549 500
(3) Includes severance costs
as follows:
Selling, general and
administrative $553 $430
Research and development 266 805
(4) Includes impairment of
auction rate securities $23 $255
SOURCE LeapFrog Enterprises, Inc.
