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 market
share gains achieved by 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 nearly double the rest of
the 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.
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 StatementsCertain 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.
-Financial Tables Follow-
| 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 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
| |
|
|
|
|
|
|
|
|
| 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 |
|
| |
|
|
|
|
|
|
|
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 |
) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
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 |
) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
Contacts
ICR
Brendon Frey
203-682-8200
Brendon.Frey@icrinc.com
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