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LeapFrog Reports Second Quarter 2011 Results

EMERYVILLE, Calif., Aug. 2, 2011 /PRNewswire via COMTEX/ --

LeapFrog Enterprises, Inc. (NYSE:LF) today announced financial results for the second quarter ended June 30, 2011.

(Logo: http://photos.prnewswire.com/prnh/20090219/LFLOGO)

Highlights:

  • Retail point-of-sale, or POS, dollars(1) were up 7% in the U.S. for the 26 weeks ended July 2, 2011 compared to the 26 weeks ended July 3, 2010.
  • Consolidated net sales were $54 million in the second quarter, down 13% compared to a year ago, reflecting the effect of higher retail inventory at the end of 2010 and the timing of new product shipments relative to a year ago.
  • Net loss per share was $0.21 in the second quarter, compared to a net loss per share of $0.20 a year ago. For the first six months of the year, net loss per share improved $0.01 compared to a year ago.
  • Working capital improved $17 million for the first six months of the year compared to a year ago.

"Our second quarter performance was as we expected," said John Barbour, Chief Executive Officer. "While net sales declined due to the year-end retail carry-over, operating expenses were well managed, and we delivered a flat bottom line."

"Our global POS performance continues to remain solid, driven by the great educational entertainment our products provide. We will further strengthen our product portfolio this month with the launch of LeapPad, a personalized learning tablet for children that will offer more than 100 pieces of content to educate and entertain children by year end. July pre-order sales of LeapPad provided a good read on consumer demand, and we expect it to be a top-seller during the holidays. Long-term, I believe that LeapFrog has tremendous earnings potential given our leading brand, best-in-class educational focused content, and strong product portfolio," continued Mr. Barbour.

Second Quarter 2011 Results Compared to Second Quarter 2010 Results

Net sales were $54 million, down 13%, and included a one percentage point favorable impact from changes in currency exchange rates.

Net sales from the United States segment were $39 million, down 20%, as expected, reflecting the effect of higher retail inventory at the end of 2010 and the timing of new product launches.

Net sales from the International segment were $15 million, up 11%, and included a six percentage point favorable impact from changes in currency exchange rates.

Gross margin was 34.9%, down 1.5 percentage points, primarily due to lower sales volume.

Loss from operations was $13 million, compared to $12 million a year ago.

Guidance

"Our solid POS performance has resulted in retail inventory reaching levels consistent with the prior year. As a result, we expect net sales and earnings growth in the second half of the year," said Mark Etnyre, Chief Financial Officer.

"We believe we are tracking to achieve the previously provided full-year guidance. In 2011, we expect net sales to be flat to slightly down compared to 2010 and net income per share to be in the range of $0.15 to $0.20. In the third quarter of 2011, we expect net sales to be in the range of $139 million to $142 million and net income per share to be in the range of $0.24 to $0.28," continued Mr. Etnyre.

Conference Call and Webcast

LeapFrog will hold a conference call to discuss second quarter 2011 financial results on August 2, 2011, at 2:00 p.m. Pacific Daylight Time (5:00 p.m. Eastern Daylight 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 83977303. A replay of the call will be available for one month. To access the replay, please dial (404) 537-3406 and use conference ID 83977303.

Description of Retail Point-of-Sale Dollars

Retail point-of-sale, or POS, 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, based on retail prices, is provided to LeapFrog by retailers and also includes sales through online retailers and our online retail store at LeapFrog.com. 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. Results for retail point-of-sale dollars are for the 26 weeks ended July 2, 2011 and the 26 weeks ended July 3, 2010.

About LeapFrog

LeapFrog Enterprises, Inc. is a leading developer of educational entertainment for children. LeapFrog's award-winning product portfolio is designed to help every child achieve their full potential by delivering best-in-class curriculum through engaging content, technology-based platforms, and toys. The Learning Path, LeapFrog's proprietary online destination for parents and extended family, provides personalized feedback on a child's learning progress and offers product recommendations to enhance each child's learning experience. Through the power of play, LeapFrog's products and curriculum help children of all ages prepare for life and academic success. LeapFrog's products are available in more than 45 countries and have been used by teachers in more than 100,000 U.S. classrooms. LeapFrog is based in Emeryville, California and was founded in 1995 by a father who revolutionized technology-based learning solutions to help his child learn how to read. Come see the learning at www.leapfrog.com.

NOTE: LEAPFROG, the LeapFrog logo, and LEAPPAD are trademarks or registered trademarks of LeapFrog Enterprises, Inc.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include statements regarding anticipated financial results (including net sales, earnings growth and net income per share). Our actual results may differ materially from those expressed or implied by such forward-looking statements. The risks that could cause our results to differ include highly changeable consumer preferences and toy trends, our ability to achieve anticipated sales levels, particularly with respect to newly-launched products, the overall economic environment and its effect on retail business, the seasonality of our business, introductions of products that compete with our platforms by a variety of other companies, our ability to respond quickly and cost effectively to changes in manufacturing costs and in consumer demand for our products, our ability to manage operating expenses effectively, and our ability to provide high-quality experiences to consumers with all of our products and services. These risks and others are discussed under "Risk Factors" in our filings with the U.S. Securities and Exchange Commission, including our 2010 annual report on Form 10-K filed on February 22, 2011. All information provided in this release is as of the date hereof, and we undertake no obligation to update this information.

(1) Please see Description of Retail Point-of-Sale Dollars below for an explanation of this operating metric.

Contact Information




Investors:

Media:

Karen Sansot

Monica Ma

Investor Relations

Media Relations

(510) 420-4803

(510) 596-3437

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)
















Three Months Ended June 30,


Six Months Ended June 30,





2011


2010


2011


2010












Net sales

$ 54,420


$ 62,413


$ 94,098


$ 104,819


Cost of sales

35,438


39,666


63,360


69,640



Gross profit

18,982


22,747


30,738


35,179












Operating expenses:









Selling, general and administrative

17,650


17,737


38,137


38,858


Research and development

8,141


9,361


16,372


17,957


Advertising

3,492


4,710


5,827


8,054


Depreciation and amortization

2,791


3,118


5,344


5,544



Total operating expenses

32,074


34,926


65,680


70,413




Loss from operations

(13,092)


(12,179)


(34,942)


(35,234)












Other income (expense):









Interest income

36


54


69


114


Interest expense

(44)


(22)


(80)


(25)


Other, net

(283)


(654)


(843)


(1,384)



Total other expense, net

(291)


(622)


(854)


(1,295)




Loss before income taxes

(13,383)


(12,801)


(35,796)


(36,529)

Provision for (benefit from) income taxes

387


(220)


160


(390)



Net loss

$ (13,770)


$ (12,581)


$ (35,956)


$ (36,139)












Net loss per share:









Class A and B - basic and diluted

$ (0.21)


$ (0.20)


$ (0.55)


$ (0.56)












Weighted average shares used to calculate net loss per share:









Class A and B - basic and diluted

65,293


64,303


65,027


64,189

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)




June 30,


December 31,




2011


2010


2010

ASSETS







Current assets:








Cash and cash equivalents


$ 57,733


$ 55,662


$ 19,479


Accounts receivable, net of allowances for doubtful accounts of $840, $908 and $776, respectively


48,964


57,479


157,646


Inventories


63,398


46,330


47,455


Prepaid expenses and other current assets


9,266


10,185


8,321


Deferred income taxes


1,771


2,028


1,678


Total current assets


181,132


171,684


234,579

Long-term investments


2,681


3,685


2,681

Deferred income taxes


980


1,240


989

Property and equipment, net


18,184


14,293


15,059

Capitalized product costs, net


13,253


14,864


13,184

Goodwill


19,549


19,549


19,549

Other intangible assets, net


4,589


6,901


5,653

Other assets


2,023


2,118


1,786


Total assets


$ 242,391


$ 234,334


$ 293,480









LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:








Accounts payable


$ 28,127


$ 38,048


$ 31,390


Accrued liabilities


23,527


21,152


41,425


Income taxes payable


229


539


167


Total current liabilities


51,883


59,739


72,982

Long-term deferred income taxes


3,394


3,099


3,199

Other long-term liabilities


12,013


11,962


11,734

Stockholders' equity:








Class A Common Stock, par value $0.0001;








Authorized - 139,500 shares; Issued and outstanding:








49,758, 37,234 and 43,783, respectively


5


4


5


Class B Common Stock, par value $0.0001;








Authorized - 40,500 shares; Issued and outstanding:








15,817, 27,141 and 20,961, respectively


2


3


2


Treasury stock


(185)


(185)


(185)


Additional paid-in capital


391,592


383,804


387,833


Accumulated other comprehensive income


2,025


(626)


292


Accumulated deficit


(218,338)


(223,466)


(182,382)


Total stockholders' equity


175,101


159,534


205,565


Total liabilities and stockholders' equity


$ 242,391


$ 234,334


$ 293,480

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)










Three Months Ended June 30,


Six Months Ended June 30,




2011


2010


2011


2010

Operating activities:









Net loss

$ (13,770)


$ (12,581)


$ (35,956)


$ (36,139)

Adjustments to reconcile net loss to net cash provided by operating activities:









Depreciation and amortization

4,921


5,094


9,447


9,434


Deferred income taxes

49


141


(84)


61


Stock-based compensation expense

1,196


449


2,424


2,907


Loss on disposal of long-term assets

-


-


53


-


Allowance for doubtful accounts

(132)


99


279


330

Other changes in operating assets and liabilities:









Accounts receivable, net

(11,053)


(17,743)


108,835


89,265


Inventories

(8,384)


(11,213)


(15,191)


(18,574)


Prepaid expenses and other current assets

1,750


182


(821)


(2,896)


Other assets

152


283


(236)


1,041


Accounts payable

5,995


10,497


(3,312)


(19,943)


Accrued liabilities

2,120


(2,383)


(18,100)


(18,500)


Long-term liabilities

321


(286)


583


68


Income taxes payable

184


277


62


297


Other

-


29


-


3



Net cash provided by operating activities

(16,651)


(27,155)


47,983


7,354

Investing activities:









Purchases of property and equipment

(2,662)


(1,923)


(7,284)


(4,363)


Capitalization of product costs

(2,171)


(1,231)


(4,340)


(3,947)


Purchases of intangible assets

-


-


-


(5,335)


Disposal of property and equipment

-


-


67


-


Other

-


-


(65)


-



Net cash used in investing activities

(4,833)


(3,154)


(11,622)


(13,645)

Financing activities:









Proceeds from stock option exercises and employee stock purchase plans

1,682


387


1,944


833


Net cash paid for payroll taxes on restricted stock unit releases

(74)


(83)


(610)


(112)



Net cash provided by (used in) financing activities

1,608


304


1,334


721

Effect of exchange rate changes on cash

115


(479)


559


(380)

Net change in cash and cash equivalents

(19,761)


(30,484)


38,254


(5,950)

Cash and cash equivalents, beginning of period

77,494


86,146


19,479


61,612

Cash and cash equivalents, end of period

$ 57,733


$ 55,662


$ 57,733


$ 55,662

LEAPFROG ENTERPRISES, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands)

(Unaudited)
















Three Months Ended June 30,


Six Months Ended June 30,





2011


2010


2011


2010












Net sales

$ 54,420


$ 62,413


$ 94,098


$ 104,819


Cost of sales (1)

35,438


39,666


63,360


69,640



Gross profit

18,982


22,747


30,738


35,179












Operating expenses: (2) (3)









Selling, general and administrative

17,650


17,737


38,137


38,858


Research and development

8,141


9,361


16,372


17,957


Advertising

3,492


4,710


5,827


8,054


Depreciation and amortization

2,791


3,118


5,344


5,544



Total operating expenses

32,074


34,926


65,680


70,413




Loss from operations

(13,092)


(12,179)


(34,942)


(35,234)












Other income (expense):









Interest income

36


54


69


114


Interest expense

(44)


(22)


(80)


(25)


Other, net

(283)


(654)


(843)


(1,384)



Total other expense, net

(291)


(622)


(854)


(1,295)




Loss before income taxes

(13,383)


(12,801)


(35,796)


(36,529)

Provision for (benefit from) income taxes

387


(220)


160


(390)



Net loss

$ (13,770)


$ (12,581)


$ (35,956)


$ (36,139)












(1)

Includes depreciation and amortization

2,130


1,976


4,103


3,890












(2)

Includes stock-based compensation as follows:








Selling, general and administrative

1,016


128


2,120


2,248


Research and development

180


321


304


659












(3)

Includes severance costs as follows:









Selling, general and administrative

55


213


2,421


443


Research and development

18


101


22


284












Segment data:








Net sales:









U.S. segment

39,123


48,680


65,475


81,334


International segment

15,297


13,733


28,623


23,485












Income (loss) from operations*:









U.S. segment

(14,442)


(12,956)


(35,716)


(34,848)


International segment

1,350


777


774


(386)













*


Certain corporate-level operating expenses associated with sales and marketing, product support, human resources, legal, finance, information technology, corporate development, procurement activities, research and development, legal settlements and other corporate costs are charged entirely to our U.S. segment, rather than being allocated between the U.S. and International segments. All related prior period financial data has been recast to conform to the current presentation.

SOURCE LeapFrog Enterprises, Inc.