Você está na página 1de 5

November 4, 2015

Institutional Research

ALPHA SELECT LIST


ZAGG, Inc.

BUY

(ZAGG - $9.03)
Mike Malouf
Senior Research Analyst
617-275-5175
mike.malouf@craig-hallum.com

Strong Quarter Due To Solid InvisibleSHIELD Sales.


Maintaining BUY Rating And $10.50 Price Target.
ZAGG is a leading designer and manufacturer of accessories to the portable consumer
electronics. Its main products include the InvisibleSHIELD, a transparent coating that protects
devices against scratches, as well as headphones and protective cases for mobile phones.

Ross Licero
Research Analyst
617-275-5177
ross.licero@craig-hallum.com

OUR CALL

www.craig-hallum.com

Changes
Rating:
Fundamental Trend:
Price Target:
FY14A Rev (MM):
FY15E Rev (MM):
FY16E Rev (MM):
FY14A EPS*:
FY15E EPS*:
FY16E EPS*:

Previous

Current
--

Buy

---$269.9
--$0.78
--

Improving
$10.50
$261.6
$270.7
$290.0
$0.58
$0.79
$0.89

*Adjusted EPS

Profile
Price:
52 Week Range:
Avg. Daily Vol.(K):
Shares Out (MM):
Market Cap (MM):
Stated Book Val./Sh.:
Net Cash /Sh.:
Short Interest (MM):
Insiders Own:
LT EPS Growth:
Debt (MM):
Year Ends:

$9.03
$4.81 $10.29
320
28.9
$261
$4.67
$0.52
2.8
35%
10%
$0.0
Dec.

Rev (MM)
Mar
Jun
Sep
Dec
FY

2014A
$49.0
$50.2
$60.0
$102.4
$261.6

2015E
$57.2A
$66.7A
$66.8A
$80.0
$270.7

Adj. EPS
Mar
Jun
Sep
Dec
FY
EBITDA*

2014A
$0.09
$0.09
($0.08)
$0.49
$0.58
$32.1

2015E
$0.17A
$0.19A
$0.18A
$0.26
$0.79
$43.1

2016E

7.7x
15.6x

5.7x
11.4x

5.3x
10.1x

EV/EBITDA*
P/E
*Adjusted

ZAGG continues its strong execution, led by a new seasoned management team.
Measures have been taken to better manage inventory, contracts have been
renegotiated with key suppliers in order to drive gross margin, and a foundation is in
place for accelerated growth in Europe. These changes are now coming through in the
reported numbers and we are confident that ZAGG will continue to deliver solid
results. While the low hanging fruit has now been picked, we believe there remain
significant opportunities to drive both top and bottom line growth through continued
execution in the international channel (now over 10% of sales), expansion of the
historically elusive online channel, and entrance into the enterprise channel. While the
Apple iPhone 6 release last year will create difficult comparisons in the 4th quarter, we
are confident in the companys ability to maintain modest growth over the next several
years. We believe that given its visible and significant FCF, Zaggs current valuation
(5.3x 2016 EBITDA, 10.1x 2016 EPS and around a 12% FCF yield) remains
compelling. We are reiterating our Buy ZAGG and $10.50 price target which reflects
roughly 6.5x our 2016 EBITDA estimate of $46.1 million.

INVESTMENT HIGHLIGHTS
Q3 Actuals
Revenue (MM)
Adj. EPS
Adj. EBITDA

2016E

$290.0

$0.89
$46.1

Management
CEO
CFO

Price Target: $10.50

Randy Hales
Brad Holiday

$66.8
$0.18
$9.9

Company
Guidance
NA
NA
NA

C-H
Estimate
$66.0
$0.17
$9.5

First Call
Consensus
$62.0
NA
$8.7

Continued Screen Protection Strength Drives Strong Q2 Results ZAGG


reported revenue and EBITDA of $66.8 million and $9.9 million vs. our estimates
of $66.0 million and $9.5 million, respectively. Screen protectors again took the
spotlight during Q3 accounting for 72% of sales (the highest percentage since 2Q
2011). While the companys tablet keyboard sales were down significantly y/y we
believe new offerings for the Microsoft Surface and the Apple iPad Pro should
help stem the decline. Power and audio products were also weak due to the timing
of new products headed into the holiday season. Importantly, GM remained strong
at over 37% driven by the strength in screen protector sales.
EBITDA Guidance Raised As a result of increased confidence that strategic
initiatives are materializing coupled with the continued strength in high margin
screen protector sales, management raised EBITDA guidance to $42-$44 million
from $40-$43 million which equates to a 16% margin. Given the difficult
comparison in Q4, management conservatively reiterated 2015 revenue guidance
of $260-$270 million but said it will be at the higher end of that range.
International Expansion Remains On-Track Management noted that ZAGG is
on track to grow sales internationally by 50% in 2015. During the quarter,
international sales accounted for 10.6% of total revenue, up from 9.0% in the
previous quarter. While still a small part of the business, we believe ZAGG
continues to grow brand awareness abroad which should lead to new customer wins
and facilitate a multi-year growth opportunity.

SEE LAST PAGE FOR IMPORTANT DISCLOSURES

Page 1 of 5

November 4, 2015

QUARTERLY RESULTS
Q3 Key Metrics
C-H
Actuals Estimate Difference
Gross Margin
37.2%
37.0%
0.2%
Operating Margin
9.3%
8.1%
1.2%
Source: Company reports, Craig-Hallum.

ZAGG reported revenue and EBITDA of $66.8 million and $9.9 million, vs. our
estimates of $66.0 million and $9.5 million, respectively. The EBITDA
outperformance was primarily driven by better than expected sales of high
margin InvisibleSHIELDs which accounted for 72% of total revenue. Gross
margins of 37.2% (vs. our 37% estimate) combined with continued strong
expense management led to a 120bp beat on OM%. Management raised FY2015
gross margin guidance to 38% (previously mid-high 30% range) to reflect the
continued strong InvisibleSHIELD performance.

ESTIMATE CHANGES
We are adjusting our revenue and EBITDA estimates to account for Q3 results.
Our new 2015 revenue and EBITDA estimates are $270.7 million and $43.1
million respectively. Additionally, we are maintaining our 2016 revenue and
EBITDA estimates of $290.0 million and $46.1 million, respectively. We
believe that with continued execution of its growth and cost initiatives, ZAGG
could exceed these estimates.

Revenue (MM)
Adj. EPS
Adj. EBITDA

2015 Guidance

New C-H

$260.0-$270.0
NA
$42.0-$44.0

$270.7
$0.79
$43.1

2016 Guidance

New C-H

NA
NA
NA

$290.0
$0.89
$46.1

Revenue (MM)
Adj. EPS
Adj. EBITDA

Previous
C-H
$269.9
$0.78
$42.2

First Call
Consensus
$272.4
$0.57
$43.5

Previous
C-H
$290.0
$0.86
$46.1

First Call
Consensus
$285.9
$0.64
$45.9

STOCK OPPORTUNITY
ZAGG is a leader in an industry that directly participates in the multi-year
growth trend of smartphones and tablets. ZAGG should not only benefit from
these trends but should also expand distribution both domestically and
internationally, while launching new ancillary products. With uncertainty related
to distribution changes and high inventory levels behind them, combined with
diminished competition, we are maintaining our Buy rating and $10.50 price
target which represents approximately 6.5x projected 2016 EBITDA of $46.1
million.
ZAGG Inc.
ALPHA SELECT LIST
Institutional Research

Page 2 of 5

November 4, 2015

RISKS
We believe an investment in ZAGG involves the following risks:

Retail Concentration
Best Buy AT&T and Sprint account for over 50% of ZAGGs revenue. If
one of these companies were to stop carrying ZAGGs products, the
company would struggle to meet revenue and earnings expectations. Recent
signings of new retailers have helped to alleviate this risk.
Competition
The consumer electronics accessories market is highly competitive. If
competition were to create a more effective product, ZAGGs revenue and
margins could be negatively impacted.
Change in consumer preferences
If consumers no longer regarded the protection of their devices as important,
ZAGGs revenue and margins would be negatively impacted.

CRAIG-HALLUM ALPHA SELECT LIST


The Alpha Select List is an actively researched collection of small, underfollowed public companies we believe have the potential to become much larger.
An acorn list of sorts, the Alpha Select List will typically consist of sub-$250M
market cap companies with attractive business models, above average
growth trends, favorable macro/secular themes, and management teams that we
believe have the ability to take the business to the next level.

ZAGG Inc.
ALPHA SELECT LIST
Institutional Research

Page 3 of 5

November 4, 2015

ZAGG Inc.
Mike Malouf (617-275-5175)
mike.malouf@craig-hallum.com

Net Sales
Sequential Growth
Year/Year Growth

Cost of sales
% of Rev

Gross profit
% of Rev

Advertising and marketing


% of Rev

SG&A
% of Rev

Amortization of definite lived intangibles


Impairment of goodwill
Total operating expenses
% of Rev

Operating Income (GAAP)


% of Rev

Interest expense
Deconsolidation of HzO/Equity investment in HzO
Interest and other income
Total other (expense) income
Pretax income (GAAP)
Income tax provision
Tax rate

Net income (GAAP)


% of Rev

Net loss attributable to noncontrolling interest


Net income attributable to stockholders
Adjusted net income
GAAP EPS
Diluted shares
Adjusted EPS
Net income
Impairment of notes receivable
Modification of stock option
Stock based compensation
DA
Impairment of goodwill
iFrogz acquisition expenses
iFrogz inventory fair value inventory setup
Provision for income taxes
Impairment of notes receivable
Other expense
Noncontrolling interest
Adjusted EBITDA
% of Rev

ZAGG Inc.
ALPHA SELECT LIST
Institutional Research

Fiscal 2010 Fiscal 2011 Fiscal 2012 Fiscal 2013


76,143
98.5%

38,745
50.9%

37,398
49.1%

5,067
6.7%

15,517
20.4%

20,584
27.0%

16,814

179,144
135.3%

96,893
54.1%

82,251
45.9%

10,258
5.7%

43,839
24.5%

50
54,147
30.2%

28,104

264,426
47.6%

143,881
54.4%

120,545
45.6%

12,432
4.7%

53,492
20.2%

9,731
11,497
87,152
33.0%

33,393

219,356
-17.0%

132,235
60.3%

87,121
39.7%

8,951
4.1%

46,357
21.1%

9,620
11,246
76,174
34.7%

10,947

Mar-14
1Q14
49,003
-26.7%
-4.8%

31,225
63.7%

17,778
36.3%

2,008
4.1%

11,403
23.3%

Jun-14
2Q14
50,154
2.3%
-2.0%

33,367
66.5%

16,787
33.5%

1,378
2.7%

11,402
22.7%

Sept-14
3Q14
60,013
19.7%
20.3%

50,849
84.7%

9,164
15.3%

1,377
2.3%

11,971
21.5%

Dec-14
4Q14
102,415
70.7%
53.3%

62,800
61.3%

39,615
38.7%

2,779
2.7%

14,335
21.5%

2,427

2,427

2,427

2,427

15,838

15,207

15,775

19,541

32.3%

1,940

30.3%

1,580

26.3%

(6,611)

19.1%

20,074

Fiscal 2014

Mar-15
1Q15

261,585

57,216

19.3%

178,241
68.1%

83,344
31.9%

7,542
2.9%

49,111
18.8%

9,708
66,361
25.4%

16,983

-78.1%
16.8%

34,258
59.9%

22,958
40.1%

2,631
4.6%

12,754
22.3%

Jun-15
2Q15
66,689
16.6%
33.0%

41,732
62.6%

24,957
37.4%

2,060
3.1%

14,510
21.8%

Sept-15
3Q15
66,774
0.1%
11.3%

41,903
62.8%

24,871
37.2%

2,759
4.1%

13,750
20.6%

Dec-15
4Q15E
80,000
19.8%
-21.9%

50,400
63.0%

29,600
37.0%

2,900
3.6%

15,250
19.1%

2,134

2,134

2,134

2,134

17,519

18,704

18,643

20,284

30.6%

5,439

28.0%

6,253

27.9%

6,228

25.4%

9,316

Fiscal
2015E
270,679
3.5%

168,293
62.2%

102,386
37.8%

10,350
3.8%

56,264
20.8%

8,536
75,150
27.8%

27,236

Fiscal
2016E
290,000
7.1%

183,685
63.3%

106,315
36.7%

11,035
3.8%

57,800
19.9%

8,536
77,371
26.7%

28,944

22.1%

15.7%

12.6%

5.0%

4.0%

3.2%

-11.0%

19.6%

6.5%

9.5%

9.4%

9.3%

11.6%

10.1%

10.0%

(243)

(3,021)
1,906
11
(1,104)
26,999
(9,415)

(6,321)
(2,866)
(308)
(9,495)
23,898
(9,393)

(576)
(2,013)
128
(2,461)
8,486
(3,696)

(44)
90
46
1,986
(998)

(40)
24
(16)
1,564
(771)

(40)
90
50
(6,561)
2,242

(47)
(82)
(129)
19,945
(6,946)

(171)
122
(49)
16,934
(6,473)

(27)
80
53
5,492
(2,292)

(26)
(59)
(85)
6,167
(2,476)

(26)
(76)
(102)
6,126
(2,387)

(40)
(40)
9,276
(3,710)

(119)
(55)
(174)
27,061
(10,865)

(160)
(160)
28,784
(11,514)

43.6%

50.3%

49.3%

988

793

2.0%

1.6%

7
(236)
16,578
(6,650)
40.1%

9,928
13.0%

9,928
9,963
$0.41
24,176
9,963

993
347

34.9%

17,584

4,790

9.8%

5.5%

2.2%

664
18,248
26,633
$0.61
29,062
$0.92
18,248

14,505
35,984
$0.46
31,657
$1.14
14,505

4,790
22,887
$0.15
31,442
$0.73
4,790

1,560
1,696
5,918

6,019
11,548

9,495

4,126
12,197
11,246
3,696
591
2,461

62,457

39,107

236
(35)
18,154

1,935
4,506
9,415
1,489
1,104
(612)
45,259

23.8%

25.3%

6,650

39.3%

14,505

9,393

23.6%

17.8%

34.2%

(4,319)
-7.2%

34.8%

12,999

38.2%

10,461
4.0%

3,200
5,002
$0.11
29,678
$0.17
3,200

3,691
5,527
$0.12
29,754
$0.19
3,691

876
2,940

934
3,156

988
2,775
$0.03
30,864
$0.09
988

793
2,704
$0.03
30,575
$0.09
793

(4,319)
(2,540)
-$0.14
30,312
-$0.08
(4,319)

12,999
14,900
$0.43
30,288
$0.49
12,999

520
3,020

650
3,052

506
3,123

572
3,684

2,248
12,879
6,473

(46)
5,480
11.2%

771

(2,242)

6,946

16
5,282

(50)
(2,982)

129
24,330

10.5%

-5.0%

23.8%

49
32,110
12.3%

5.6%

40.1%

3,691

12.7%

10,461
17,839
$0.34
30,510
$0.58
10,461

998

41.7%

3,200

5.5%

2,292

2,476

(53)
9,255

85
10,342

16.2%

15.5%

39.0%

3,739
5.6%

40.0%

5,566

40.2%

16,196

40.0%

17,270

7.0%

6.0%

6.0%

3,739
5,200
$0.13
28,900
$0.18
3,739

5,566
7,386
$0.20
28,300
$0.26
5,566

16,196
23,115
$0.56
29,158
$0.79
16,196

17,270
24,792
$0.62
28,000
$0.89
17,270

898
3,455

900
3,300

3,608
12,851

4,000
13,200

3,710

10,865

11,514

174

160

43,055

46,144

2,387
(639)
102
9,942
14.9%

40
13,516
16.9%

15.9%

15.9%

Page 4 of 5

November 4, 2015

REQUIRED DISCLOSURES
11/3/2015

ZAGG

Zagg Inc

$9.03

$12.00
$10.00
$8.00
$6.00
$4.00
$2.00

Jul-15

Sep-15

May-15

Jan-15

Mar-15

Nov-14

Jul-14

Sep-14

May-14

Jan-14

Mar-14

Nov-13

Jul-13

Sep-13

May-13

Jan-13

Mar-13

Nov-12

$0.00

Initiate: December 9, 2010Rating: Buy Price Target: $13


.
August 16, 2011 Rating: Buy Price Target: $20
November 2, 2012 Rating: Buy Price Target: $17
May 3, 2013 Rating: Hold Price Target: $7
July 17, 2013 Rating: Hold Price Target: $5.50
November 6, 2013 Rating: Hold Price Target: $4.00
February 26, 2014 Rating: Hold Price Target: $5.50
December 19, 2014 Rating: Hold Price Target: $6.50
January 23, 2015 Rating: Buy Price Target: $8.50
February 25, 2015 Rating: Buy Price Target: $9.50
March 24, 2015 Rating: Hold Price Target: $10.50
August 26, 2015 Rating: Buy Price Target: $10.50

Source: Thomson
Ratings definitions:
Buy rated stocks generally have twelve month price targets that are more than 20% above the current price. Hold rated
stocks generally have twelve month price targets near the current price. Sell rated stocks generally have no price target
and we would sell the stock.
Fundamental trend definitions:
Improving means growth rates of key business metrics are generally accelerating. Stable means growth rates of key
business metrics are generally steady. Mixed means growth rates of some key business metrics are positive but others are
negative. Declining means growth rates of key business metrics are generally decelerating.
Ratings Distribution (9/30/2015)

Rating
Buy
Hold
Sell
Total

% Of Companies
Covered
80%
19%
1%
100%

% With Investment
Banking Relationships
17%
2%
0%
14%

Information about valuation methods and risks can be found in the STOCK OPPORTUNITY
and RISKS sections, respectively, of this report.
CHLM makes a market in this security.
CHLM has received non-investment banking revenue from the subject company in the last 12 months. CHLM expects to
receive or intends to seek compensation for investment banking services from the subject company in the next three
months.
Analysts receive no direct compensation in connection with the firms investment banking business. Analysts may be eligible
for bonus compensation based on the overall profitability of the firm, which takes into account revenues from all of the firms
business, including investment banking.

OTHER DISCLOSURES
Although the statements of fact in this report have been obtained from and are based upon recognized statistical services,
issuer reports or communications, or other sources that Craig-Hallum believes to be reliable, we cannot guarantee their
accuracy. All opinions and estimates included in this report constitute Craig-Hallum's judgment as of the date of this report
and are subject to change without notice. Craig-Hallum may effect transactions as principal or agent in the securities
mentioned herein. The securities discussed or recommended in this report may be unsuitable for investors depending on
their specific investment objectives and financial position. This report is offered for informational purposes only, and does
not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be
prohibited. Additional information available upon request. Member SIPC.

REGULATION AC CERTIFICATION
I, Mike Malouf, hereby certify that the views expressed in this research report accurately reflect my personal views about the
subject security and issuer. No part of my compensation was, is or will be directly or indirectly related to the specific
recommendations or views contained herein.

ZAGG Inc.
ALPHA SELECT LIST
Institutional Research

Page 5 of 5
2015 Craig-Hallum Capital Group LLC