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LeapFrog Reports 2011 Net Income Increased Fourfold
Expects Continued Growth in 2012

EMERYVILLE, Calif., Feb. 9, 2012 /PRNewswire/ -- LeapFrog Enterprises, Inc. (NYSE: LF) today announced financial results for the fourth quarter and full year ended December 31, 2011.

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

Highlights of fourth quarter 2011 results compared to fourth quarter 2010 results:

  • Consolidated net sales were $210 million, up 11%.
  • Income from operations was $34 million, up 26%.
  • Net income was $33 million, up 30%.
  • Net income per diluted share was $0.49, up 29%.  

Highlights of full year 2011 results compared to full year 2010 results:

  • Consolidated net sales were $455 million, up 5%.
  • Income from operations was $24 million, three times higher than a year ago.
  • Net income was $20 million, four times higher than a year ago.
  • Net income per diluted share was $0.30, nearly four times higher than a year ago.  
  • Operating cash flow improved by $93 million.
  • U.S. retail point-of-sale, or POS, dollars(1) were up 10% for the 52-weeks ended December 31, 2011 compared to the 52-weeks ended January 1, 2011.

“We delivered solid earnings and cash flow growth in 2011 due to the strong performance of new platforms and content, international growth, and improved operational management,” said John Barbour, Chief Executive Officer.  “LeapFrog has more than 16 years' heritage of creating award-winning educational entertainment for children.  In 2011, we successfully launched another exciting platform, LeapPad™, a revolutionary children’s learning tablet that offers more than 100 pieces of rich, educational digital content.  With LeapPad and Leapster Explorer™, we are building a deep base of multimedia learning platforms that offers strong distribution opportunities for our in-house developed educational content and the wide selection of curated third-party content that we introduced in the fourth quarter of 2011.  With LeapPad, we further strengthened our leading platform portfolio and are transforming from being a creator of educational entertainment to being both a creator and a distributor of educational entertainment.”

Financial Overview for the Fourth Quarter 2011 Compared to the Fourth Quarter 2010

Fourth quarter 2011 net sales were $210 million, up 11% compared to $190 million last year, and were not materially impacted by changes in currency exchange rates.  Net sales growth was primarily driven by LeapPad and sales of its associated content.  Fourth quarter 2011 net sales increased 6% in the U.S. segment and increased 32% in the international segment, with international segment net sales including unfavorable changes in currency exchange rates of two percentage points.  Gross profit was $94 million for the quarter, up 9% to a year ago.  Gross margin was 44.5% for the fourth quarter 2011, down 70 basis points compared to a year ago.  Income from operations was $34 million for the fourth quarter 2011, up 26% compared to $27 million a year ago.

Financial Overview for the Full Year 2011 Compared to the Full Year 2010

Full year 2011 net sales were $455 million, up 5% compared to $433 million last year, and were not materially impacted by changes in currency exchange rates.  Net sales growth was primarily driven by LeapPad and sales of its associated content.  Net sales in the U.S. segment were essentially flat as a result of the impact of high levels of retail inventory from 2010 carrying over into 2011 and the decline of an older platform.  Retail point-of-sale, or POS, dollars, however, increased 10% in the U.S. for the year.  Net sales in the international segment increased 28%, including favorable changes in currency exchange rates of two percentage points.  Gross profit was $186 million for the year, up 4% to a year ago.  Gross margin was 40.9% for 2011, down 50 basis points compared to the prior year.  Income from operations was $24 million for the year, up threefold compared to $8 million in the prior year.

“We executed against our stated goal for the year of driving significant earnings growth through operating efficiencies and diligent expense control,” said Mark Etnyre, Chief Financial Officer.  “As a result of executing against these goals, and the increase in our net sales, our net income increased fourfold in 2011 compared to 2010.  We expect continued strong earnings growth in 2012 to be driven by net sales growth in both our U.S. and international segments and prudent operating expense management.”  

Guidance

For the full year 2012, we expect:

  • Net sales to increase by 6% to 8% compared to 2011.
  • Net income per diluted share to be in the range of $0.40 to $0.45.  

For the first quarter of 2012, we expect:

  • Net sales to increase by 20% to 30% compared to the first quarter of 2011.
  • Net loss per share to be in the range of $0.26 to $0.30, compared to a net loss per share of $0.34 in the first quarter of 2011.

Conference Call and Webcast

LeapFrog will hold a conference call to discuss fourth quarter and full year 2011 financial results on February 9, 2012, at 2:00 p.m. Pacific Standard Time (5:00 p.m. Eastern Standard 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 48725351.  A replay of the call will be available for one month.  To access the replay, please dial (404) 537-3406 and use conference ID 48725351.

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 52 weeks ended December 31, 2011 and the 52 weeks ended January 1, 2011.  

About LeapFrog

LeapFrog Enterprises, Inc. is an education innovator and leading developer of educational entertainment for children. LeapFrog’s award-winning product portfolio is designed to help every child achieve his or her potential by delivering best-in-class curriculum through engaging content, age-appropriate 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 school and life 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, LEAPPAD, and LEAPSTER EXPLORER 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, without limitation, statements regarding anticipated financial results (including net sales, earnings growth, operating expense management, and net income (loss) per share) and the market position of the LeapPad. 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, without limitation, highly changeable consumer preferences and toy trends, our ability to achieve anticipated sales levels, 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 Retail Point-of-Sale Dollars below for an explanation of this operating metric.

Contact Information



Investors:

Media:

Karen Sansot

Kathryn Green

Investor Relations

Media Relations

(510) 420-4803

(510) 596-3405




LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)
















Three Months Ended December 31,

Twelve Months Ended December 31,





2011


2010


2011


2010












Net sales

$              210,210


$              189,789


$              455,140


$              432,564


Cost of sales

116,603


103,980


268,988


253,590



Gross profit

93,607


85,809


186,152


178,974












Operating expenses:









Selling, general and administrative

21,972


18,303


77,984


77,287


Research and development

9,136


8,497


33,784


33,385


Advertising

25,909


29,533


39,526


49,314


Depreciation and amortization

2,900


2,679


11,161


11,183



Total operating expenses

59,917


59,012


162,455


171,169




Income from operations

33,690


26,797


23,697


7,805












Other income (expense):









Interest income

32


27


136


203


Interest expense

(157)


(201)


(259)


(243)


Other, net

(334)


(587)


(4,809)


(1,790)



Total other income (expense), net

(459)


(761)


(4,932)


(1,830)




Income before income taxes

33,231


26,036


18,765


5,975

Provision for (benefit from) income taxes

421


742


(1,137)


1,030



Net income

$                32,810


$                25,294


$                19,902


$                  4,945












Net income per share:









Class A and B - basic

$                    0.50


$                    0.39


$                    0.30


$                    0.08


Class A and B - diluted

$                    0.49


$                    0.38


$                    0.30


$                    0.08












Weighted average shares used to calculate net income








per share:









Class A and B - basic

65,888


64,656


65,406


64,368


Class A and B - diluted

66,711


66,142


66,332


65,627





LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)




December 31,




2011


2010

ASSETS





Current assets:






Cash and cash equivalents


$         71,863


$         19,479


Accounts receivable, net of allowances for doubtful accounts of 

    $659 and $776, respectively

157,418


157,646


Inventories


34,288


47,455


Prepaid expenses and other current assets


8,078


8,321


Deferred income taxes


983


1,678


    Total current assets


272,630


234,579

Long-term investments


2,681


2,681

Deferred income taxes


1,311


989

Property and equipment, net


17,881


15,059

Capitalized product costs, net


12,511


13,184

Goodwill


19,549


19,549

Other intangible assets, net


3,350


5,653

Other assets


1,119


1,786


    Total assets


$       331,032


$       293,480







LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:






Accounts payable


$         34,629


$         31,390


Accrued liabilities


50,380


41,425


Income taxes payable


377


167


    Total current liabilities


85,386


72,982

Long-term deferred income taxes              


3,542


3,199

Other long-term liabilities


9,360


11,734

Stockholders' equity:






Class A Common Stock, par value $0.0001;






    Authorized - 139,500 shares; Issued and outstanding: 54,923 and 43,783, respectively

6


5


Class B Common Stock, par value $0.0001;






    Authorized - 40,500 shares; Issued and outstanding: 11,113 and 20,961, respectively

1


2


Treasury stock


(185)


(185)


Additional paid-in capital


395,627


387,833


Accumulated other comprehensive income


(225)


292


Accumulated deficit


(162,480)


(182,382)


    Total stockholders' equity


232,744


205,565


    Total liabilities and stockholders' equity


$       331,032


$       293,480





LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)
















Three Months Ended December 31,

Twelve Months Ended December 31,





2011


2010


2011


2010

Operating activities:









Net income

$            32,810


$            25,294


$            19,902


$              4,945

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:





Depreciation and amortization

5,485


5,852


19,995


20,337


Deferred income taxes

198


583


373


662


Stock-based compensation expense

1,498


1,726


5,562


6,172


Gain on sale of long-term investments

-


(454)


-


(454)


Loss on disposal of long-term assets

6


117


14


117


Allowance for doubtful accounts

245


63


417


355

Other changes in operating assets and liabilities:









Accounts receivable, net

(21,612)


(20,562)


(481)


(10,334)


Inventories

36,012


35,624


13,006


(19,178)


Prepaid expenses and other current assets

(5)


2,044


214


(924)


Other assets

722


63


667


1,248


Accounts payable

(23,175)


(57,066)


3,293


(26,980)


Accrued liabilities

17,453


8,154


9,043


1,512


Long-term liabilities

(44)


(525)


(2,053)


(38)


Income taxes payable

4


(357)


210


(75)


Other

-


(199)


-


-



Net cash provided by (used in) operating activities

49,597


357


70,162


(22,635)

Investing activities:









Purchases of property and equipment

(2,363)


(2,043)


(11,732)


(9,547)


Capitalization of product costs

(1,803)


(1,726)


(8,122)


(7,617)


Purchases of intangible assets

-


-


-


(5,335)


Disposal of property and equipment

-


-


67


-


Sale of investments

-


259


-


1,263


Other

-


-


(65)


-



Net cash used in investing activities

(4,166)


(3,510)


(19,852)


(21,236)

Financing activities:









Proceeds from stock option exercises and employee stock purchase plans

980


713


3,029


1,883


Net cash paid for payroll taxes on restricted stock unit releases

(80)


(4)


(797)


(262)


Borrowing on line of credit

35,000


42,000


35,000


42,000


Paydown on line of credit

(35,000)


(42,000)


(35,000)


(42,000)



Net cash provided by financing activities

900


709


2,232


1,621

Effect of exchange rate changes on cash

(131)


125


(158)


117

Net change in cash and cash equivalents

46,200


(2,319)


52,384


(42,133)

Cash and cash equivalents, beginning of period

25,663


21,798


19,479


61,612

Cash and cash equivalents, end of period

$            71,863


$            19,479


$            71,863


$            19,479





LEAPFROG ENTERPRISES, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands)

(Unaudited)
















Three Months Ended December 31,


Twelve Months Ended December 31,





2011


2010


2011


2010












Net sales

$             210,210


$             189,789


$             455,140


$             432,564


Cost of sales (1)

116,603


103,980


268,988


253,590



Gross profit

93,607


85,809


186,152


178,974












Operating expenses: (2) (3)









Selling, general and administrative

21,972


18,303


77,984


77,287


Research and development

9,136


8,497


33,784


33,385


Advertising

25,909


29,533


39,526


49,314


Depreciation and amortization

2,900


2,679


11,161


11,183



Total operating expenses

59,917


59,012


162,455


171,169




Income from operations

33,690


26,797


23,697


7,805












Other income (expense):









Interest income

32


27


136


203


Interest expense

(157)


(201)


(259)


(243)


Other, net

(334)


(587)


(4,809)


(1,790)



Total other income (expense), net

(459)


(761)


(4,932)


(1,830)




Income before income taxes

33,231


26,036


18,765


5,975

Provision for (benefit from) income taxes

421


742


(1,137)


1,030



Net income

$               32,810


$               25,294


$               19,902


$                 4,945












(1)

Includes depreciation and amortization

2,585


3,173


8,834


9,154












(2)

Includes stock-based compensation as follows:








Selling, general and administrative

1,392


1,365


4,877


4,887


Research and development

106


361


685


1,285












(3)

Includes severance costs as follows:









Selling, general and administrative

7


263


2,429


700


Research and development

-


223


22


510












Segment data:








Net sales:









U.S. segment

160,601


152,197


342,050


344,296


International segment

49,609


37,592


113,090


88,268












Income (loss) from operations*:









U.S. segment

23,313


20,407


5,553


(3,022)


International segment

10,377


6,390


18,144


10,827












*

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.