EMERYVILLE, Calif., Aug. 3 /PRNewswire-FirstCall/ -- LeapFrog Enterprises, Inc. (NYSE: LF), a leading designer, developer and marketer of technology-based learning products, today announced financial results for the second quarter ended June 30, 2009.
(Logo: http://www.newscom.com/cgi-bin/prnh/20090219/LFLOGO)
Net sales for the quarter were $49.4 million, down 27.7% compared to $68.3 million in the same quarter a year ago. Gross margin for the quarter was 37.9%, compared to a gross margin of 39.3% a year ago. Net loss for the quarter was $12.2 million, an improvement of 40.6% compared to a net loss of $20.6 million a year ago. Net loss per share was $0.19, an improvement of $0.13 per share compared to a net loss per share of $0.32 a year ago.
Retail point-of-sale, or POS, dollars were up 4% year-over-year for the 26-weeks ended July 4, 2009 compared to the 26-weeks ended July 5, 2008. (Please see Description of Retail Point-of-Sale Dollars below for an explanation of this operating metric.)
"While it continues to be a challenging, promotionally-driven consumer environment, I feel good about our work with retail partners on POS performance, market share gains and sales of higher-margin products. The Tag Reading System and Leapster Learning Game System product lines continue to sell well at retail even in a reduced advertising environment. Sales of our recently launched Tag Junior and Scout learning toy line products are ahead of expectations," said Jeffrey Katz, Chairman and Chief Executive Officer. "Operationally, we have made great strides in bringing our cost structure down and reducing channel inventory to appropriate levels. We are well positioned to return to profitability as retail conditions improve."
Second Quarter 2009 Financial Results
Net Sales
Net sales for the quarter were $49.4 million, down 27.7% compared to $68.3 million for the same quarter a year ago. Excluding the impact of currency fluctuations, the decline in net sales would have been 25.8%. Net sales were down year-over-year primarily as a result of lower product shipments to retailers due to high retailer inventory levels at the end of 2008. Net sales were also down due to lower sales to schools as a result of the strategic restructuring of our school business last year.
Segment Results
Net sales from the United States segment for the quarter were $38.8 million, down 30.8% compared to $56.0 million a year ago. Net sales from the international segment were $10.6 million, down 13.6% compared to $12.3 million a year ago. Excluding the impact of currency fluctuations, the decline in international sales would have been 3.0%. Both the United States and international markets were affected by high retailer inventory levels at the end of 2008.
Gross Profit and Gross Margin
Gross profit for the quarter was $18.7 million, down 30.3% compared to $26.9 million a year ago as a result of lower sales in the quarter. Gross margin for the second quarter 2009 was 37.9% compared to 39.3% in the second quarter 2008. Gross margin declined year-over-year as a result of lower sales relative to a fixed cost base partially offset by a higher-margin product mix.
Operating Expenses
Operating expenses for the quarter were $37.0 million, down 24.6% compared to $49.0 million a year ago, an improvement of $12.0 million. Selling, general and administrative expenses were $20.5 million, down 21.4% from $26.0 million a year ago reflecting the impact of lower headcount. Research and development expenses were $9.5 million, down 25.9% from $12.9 million a year ago as a result of lower headcount and development costs. Advertising expenses were $4.3 million, down 44.4% from $7.8 million a year ago. In the second quarter of 2008, there was a substantial advertising campaign for the launch of the Tag Reading System. Advertising expenses were 8.8% of net sales in the second quarter of 2009, compared to 11.4% in the second quarter of 2008.
Loss from Operations
Loss from operations for the quarter was $18.2 million, an improvement of 17.7% or $4.0 million, compared to a loss from operations of $22.2 million a year ago.
Net Loss
Net loss for the quarter was $12.2 million, an improvement of 40.6%, or $8.4 million, compared to a net loss of $20.6 million a year ago. Net loss was positively impacted by a $6.2 million non-cash tax benefit for the release of an income tax reserve, and its associated interest expense, based on expiration of the applicable statute of limitations. Net loss per share was $0.19, an improvement of $0.13 compared to a loss of $0.32 per share a year ago.
Financial Position
Cash and equivalents were $52.8 million at June 30, 2009, compared with $68.3 million at June 30, 2008. Inventories were $64.4 million at June 30, 2009, compared with $86.3 million at June 30, 2008. The company has no debt outstanding on its asset-backed line of credit.
"Our top-line and bottom-line performance for the quarter was slightly better than we expected. Gross margin was down only slightly despite the heavy promotional environment in the first half of this year. We have significantly reduced our cost structure, and, as a result, our loss from operations improved 18% year-over-year. Our net loss per share improved by $0.13, or 41%, year-over-year. Our financial position remains solid. We have a strong cash position and no debt," said Bill Chiasson, Chief Financial Officer.
Guidance
For the third quarter of 2009, LeapFrog expects:
- Net sales to be between $100 and $120 million
- Gross margin to be between 38% and 43%
- Operating expenses to be between $40 and $44 million, down approximately 21% to 28% year-over-year
For the fourth quarter of 2009, LeapFrog expects net sales and gross margin to be higher year-over-year and operating expenses to decline by more than 35% compared to the fourth quarter of 2008.
"While results of the second quarter were slightly above our expectations, we are not changing our outlook for the year given the challenging consumer environment and the importance of holiday sales to our business. We are carefully monitoring the environment and are prepared to ramp the business up or down as market conditions dictate. We continue to strive to improve our cash flow for the year. As the economy recovers, we believe our lower cost structure, leading brand, and strong product portfolio will position LeapFrog for profitable growth," continued Mr. Chiasson.
Conference Call and Webcast
LeapFrog will hold a conference call to discuss second quarter 2009 financial results today, August 3, 2009, at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time).
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 20757275. A replay of the call will be available for one month. To access the replay, please dial (706) 645-9291 and use conference ID 20757275.
Description of Retail Point-of-Sale Dollars
Retail point-of-sale dollars is a non-audited operating metric that represents a measure of 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 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 and in more than 100,000 classrooms across the United States. NOTE: LEAPFROG, the LeapFrog Logo, Leapster and TAG 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, gross margin, operating expenses, and operating results; 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 March 11, 2009, and our Form 10-Q filed on May 5, 2009, 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:
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 Six Months Ended
June 30, June 30,
--------------- ---------------
2009 2008 2009 2008
---- ---- ---- ----
Net sales $49,412 $68,341 $79,291 $126,615
Cost of sales 30,671 41,454 52,464 78,597
------ ------ ------ ------
Gross profit 18,741 26,887 26,827 48,018
Operating expenses:
Selling, general and
administrative 20,459 26,013 40,398 56,774
Research and development 9,540 12,876 19,513 24,986
Advertising 4,333 7,793 6,501 12,325
Depreciation and
amortization 2,637 2,366 5,537 4,717
----- ----- ----- -----
Total operating expenses 36,969 49,048 71,949 98,802
------ ------ ------ ------
Loss from operations (18,228) (22,161) (45,122) (50,784)
Other income (expense)
Interest income 166 706 348 1,802
Interest expense (1) (20) (27) (33)
Other expense, net (335) (1,940) (768) (2,462)
---- ------ ---- ------
Total other expense (170) (1,254) (447) (693)
---- ------ ---- ----
Loss before income taxes (18,398) (23,415) (45,569) (51,477)
Benefit from income
taxes (6,181) (2,846) (6,231) (3,471)
------ ------ ------ ------
Net Loss $(12,217) $(20,569) $(39,338) $(48,006)
======== ======== ======== ========
Net loss per share:
Class A and B - basic
and diluted $(0.19) $(0.32) $(0.62) $(0.75)
Weighted average shares
outstanding:
Class A and B - basic
and diluted 63,920 63,679 63,833 63,645
LeapFrog Enterprises, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------- ---------------
2009 2008 2009 2008
---- ---- ---- ----
Operating activities:
Net loss $(12,217) $(20,570) $(39,338) $(48,006)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating
activities:
Depreciation and
amortization 4,936 4,849 10,168 9,256
Unrealized foreign exchange
(gain) loss (249) 1,557 (1,568) 823
Deferred income taxes (2) (73) 126 (76)
Stock-based compensation
expense 2,568 2,154 5,572 5,112
Impairment of investment in
auction rate securities -- 1,476 23 1,731
Allowance for doubtful
accounts (639) 760 (1,449) 569
Decrease in other accounts
receivable-related
allowances (9,195) (7,427) (31,688) (20,085)
Other changes in operating
assets and liabilities:
Accounts receivable (16,998) (4,624) 90,625 95,572
Inventories (4,216) (30,771) (5,507) (33,914)
Prepaid expenses and other
current assets 717 (2,594) 238 (4,709)
Other assets 102 31 206 310
Accounts payable 11,855 20,450 (24,758) 9,546
Accrued liabilities (1,570) 6,113 (18,232) (26,957)
Long-term liabilities (6,453) (1,214) (6,329) (1,339)
Income taxes payable (157) (37) (364) 25
Other 868 (828) 1,701 (20)
--- ---- ----- ---
Net cash used in operating
activities (30,650) (30,748) (20,574) (12,162)
Investing activities:
Purchases of property and
equipment (1,422) (2,651) (2,722) (4,045)
Capitalization of product
costs (1,282) (3,307) (3,512) (8,546)
------ ------ ------ ------
Net cash used in investing
activities (2,704) (5,958) (6,234) (12,591)
Financing activities:
Proceeds from stock option
exercises and employee
stock purchase plans -- 239 41 419
Net cash paid for payroll
taxes on restricted
stock unit releases (73) (317) (79) (394)
--- --- --- ---
Net cash (used in) provided
by financing activities (73) (78) (38) 25
Effect of exchange rate
changes on cash 937 (744) 578 (424)
--- ---- --- ----
Net change in cash and cash
equivalents (32,490) (37,528) (26,268) (25,152)
Cash and cash equivalents,
beginning of period 85,323 105,836 79,101 93,460
------ ------- ------ ------
Cash and cash equivalents,
end of period $52,833 $68,308 $52,833 $68,308
======= ======= ======= =======
LeapFrog Enterprises, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
June 30, December 31,
----------------- -----------
2009 2008 2008
---- ---- ----
(Audited)
Assets
Current assets:
Cash and cash equivalents $52,833 $68,308 $79,101
Accounts receivable,
net of allowances for
doubtful accounts of
$1,302, $345 and $3,872 33,087 50,880 89,918
Inventories 64,355 86,329 58,196
Prepaid expenses and
other current assets 10,730 25,136 10,822
Deferred income taxes 3,065 3,481 3,189
----- ----- -----
Total current assets 164,070 234,134 241,226
Long-term investments 5,473 9,792 4,962
Deferred income taxes 495 213 497
Property and equipment, net 16,484 19,855 19,611
Capitalized product costs, net 15,301 18,024 16,227
Goodwill 19,549 19,549 19,549
Other assets 4,792 8,297 5,260
----- ----- -----
Total assets $226,164 $309,864 $307,332
======== ======== ========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable $31,931 $56,414 $56,357
Accrued liabilities 26,368 30,627 44,596
Income taxes payable 104 118 229
--- --- ---
Total current liabilities 58,403 87,159 101,182
Long-term deferred income taxes 14,686 18,917 22,404
Other long-term liabilities 3,030 2,187 3,820
Stockholders'equity:
Class A common stock - 139,500 shares
authorized; outstanding 36,779,
36,042 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 372,370 358,994 364,657
Accumulated other comprehensive
income (loss) (311) 5,033 (2,055)
Accumulated deficit (221,836) (162,248) (182,498)
-------- -------- --------
Total stockholders' equity 150,045 201,601 179,926
------- ------- -------
Total liabilities and
stockholders' equity $226,164 $309,864 $307,332
======== ======== ========
LeapFrog Enterprises, Inc.
Supplemental Financial Information
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------- --------------
2009 2008 2009 2008
---- ---- ---- ----
Net sales $49,412 $68,341 $79,291 $126,615
Cost of sales (1) 30,671 41,454 52,464 78,597
------ ------ ------ ------
Gross profit 18,741 26,887 26,827 48,018
Operating expenses: (2)(3)
Selling, general and
administrative 20,459 26,013 40,398 56,774
Research and development 9,540 12,876 19,513 24,986
Advertising 4,333 7,793 6,501 12,325
Depreciation and
amortization 2,637 2,366 5,537 4,717
----- ----- ----- -----
Total operating expenses 36,969 49,048 71,949 98,802
------ ------ ------ ------
Loss from operations (18,228) (22,161) (45,122) (50,784)
Other income (expense)
Interest income 166 706 348 1,802
Interest expense (1) (20) (27) (33)
Other expense, net (4) (335) (1,940) (768) (2,462)
---- ------ ---- ------
Total other expense (170) (1,254) (447) (693)
---- ------ ---- ----
Loss before income taxes (18,398) (23,415) (45,569) (51,477)
Benefit from income taxes (6,181) (2,846) (6,231) (3,471)
------ ------ ------ ------
Net Loss $(12,217) $(20,569) $(39,338) $(48,006)
======== ======== ======== ========
(1) Includes depreciation
and amortization 2,299 2,483 4,631 4,539
(2) Includes stock-based
compensation as
follows:
Selling, general and
administrative 2,398 2,064 4,853 4,521
Research and development 171 90 719 591
(3) Includes severance
costs as follows:
Selling, general and
administrative 276 446 829 446
Research and development 251 14 517 14
(4) Includes impairment of
auction rate securities -- 1,550 23 1,731
SOURCE LeapFrog Enterprises, Inc.
