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Institutional Research
BUY
(ZAGG - $9.03)
Mike Malouf
Senior Research Analyst
617-275-5175
mike.malouf@craig-hallum.com
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
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
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.
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
SG&A
% 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
ZAGG Inc.
ALPHA SELECT LIST
Institutional Research
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
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