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LeapFrog Reports Third Quarter 2012 Net Sales Increased 28%

Income from Operations Increased 48%

EMERYVILLE, Calif., Nov. 5, 2012 /PRNewswire/ -- LeapFrog Enterprises, Inc. (NYSE: LF) today announced financial results for the third quarter ended September 30, 2012.

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

Highlights of third quarter 2012 results compared to third quarter 2011 results:

  • Consolidated net sales were $193.1 million, up 28%.
  • Income from operations was $36.9 million, up 48%.
  • Net income per diluted share was $0.60, up 71% or $0.25 per share. 
  • Cash and cash equivalents were $49.4 million as of September 30, 2012, up 93% or $23.8 million compared to the balance as of September 30, 2011. 

Highlights of nine month 2012 results compared to nine month 2011 results:

  • Consolidated net sales were $336.6 million, up $91.6 million or 37%.
  • Income from operations was $20.8 million, an improvement of $30.8 million.
  • Net income per diluted share was $0.35, an improvement of $0.55 per share.

"The quality of execution from the LeapFrog team has been exceptional this year.  We are making terrific progress in the transformation of our business while delivering market-leading financial growth," said John Barbour, Chief Executive Officer.  "This summer, we introduced LeapPad2, the next generation of the #1 kids' learning tablet.  In a very competitive tablet market, LeapPad2 has already won many accolades, been featured on every major top holiday toy list and is a top-selling product in key retail layaway programs.

"Our 17 years of experience in creating revolutionary products that improve children's lives through delivering fun, engaging and compelling entertainment that's filled with rich learning nutrition has helped us create the best learning tablet for children and a content library that is filled with hundreds of games, books, videos, music and apps that have all been created or selected by qualified child development and education experts. Together, our platforms and content provide a winning proposition that helps children achieve their potential while also creating significant value for our shareholders and our business partners." 

Financial Overview for the Third Quarter 2012 Compared to the Third Quarter 2011

Third quarter 2012 net sales were $193.1 million, up 28% compared to $150.8 million last year, and included a 1% negative impact from changes in currency exchange rates.  Net sales growth was primarily driven by the introduction of new products, continued high consumer demand for the LeapPad line, and strong content sales.  In the U.S. segment, net sales were $145.7 million, up 26% compared to $116.0 million last year.  In the International segment, net sales were $47.4 million, up 36% compared to $34.9 million last year, and included a 3% negative impact from changes in currency exchange rates.

Income from operations was $36.9 million for the third quarter of 2012, up 48% compared to $24.9 million a year ago.  Net income was $41.7 million, up 81% compared to $23.0 million a year ago.  Net income included non-recurring tax benefits of $6.4 million in the third quarter of 2012 and $2.9 million in the third quarter of 2011.

Net income per diluted share was $0.60 for the third quarter of 2012, up 71% or $0.25 per share compared to $0.35 a year ago.  Excluding the impact of non-recurring tax benefits, net income per diluted share increased $0.20 per share compared to the prior year.

"We delivered a great third quarter performance with strong sales and earnings growth," said Ray Arthur, Chief Financial Officer.  "Consumer demand for our educational entertainment continued to be robust. Early retail sales of LeapPads through retailer layaway programs have been very strong, although it is likely that these programs pulled forward some demand into the third quarter from the fourth quarter.  Improvements in our supply chain have helped us build higher retail inventory of LeapPads as we head into the all-important holiday season." 

Guidance

"We have good momentum heading into the holidays.  Given the strength of our third quarter results, retail point-of-sale trends and inventory position, we are raising our full year 2012 guidance," continued Mr. Arthur.  "Our guidance is based on our best view as of today, but keep in mind that our full year 2012 results will be highly dependent on the economy and consumer sales during the holiday season.  In addition, please note that we expect our advertising expenditures to increase by approximately 20% to 25% in the fourth quarter compared to a year ago, as we concentrate our advertising during the key holiday weeks when consumers are shopping for gifts.  Our results for the year will ultimately depend on holiday sell-through of our products." 

For the full year 2012, we now expect:

  • Net sales to be between $535 million and $550 million, an increase of $80 million to $95 million, or 18% to 21%, compared to $455 million in 2011.
  • Net income per diluted share to be in the range of $0.75 to $0.81 compared to $0.30 in 2011. 

Conference Call and Webcast

LeapFrog will hold a conference call to discuss third quarter 2012 financial results on November 5, 2012, at 2:00 p.m. Pacific Standard Time (5:00 p.m. Eastern Standard Time).  The conference call will be webcast live and can be accessed at LeapFrog's investor relations web site at www.leapfroginvestor.com.  An archive of the webcast will be available on the web site approximately three hours following completion of the call. In addition, more information about LeapFrog, including this press release and other financial and investor information, is also available on the investor relations web site.

To participate in the call, please dial (706) 634-0183 and request conference ID 47975795.  A telephonic replay of the call will be available for one month.  To access the replay, please dial (404) 537-3406 and use conference ID 47975795.

About LeapFrog

LeapFrog Enterprises, Inc. is the leader in educational entertainment for children. LeapFrog's award-winning product portfolio helps millions of children achieve their potential by delivering best-in-class curriculum through engaging content, fun multimedia learning 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 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.  

TM & © 2012 LeapFrog Enterprises, Inc. All rights reserved.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties, including statements regarding anticipated financial results. 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, deterioration of global economic conditions, our ability to correctly predict highly changeable consumer preferences and product trends, our ability to continue to develop new products and services, our reliance on a small group of retailers for the majority of our gross sales, our dependence on our suppliers for our components and raw materials, the seasonality of our business, our growing focus on online products and services, system failures in our online services or web store, our reliance on a limited number of manufacturers, our ability to maintain sufficient inventory levels, our ability to compete effectively with competitors, our ability to maintain or acquire licenses, third parties who claim we are infringing on their intellectual property rights, errors or defects in our products, privacy concerns about our Internet-connected products, the sufficiency of our liquidity, the risk associated with international operations, continued compliance and associated costs with and/or changes in laws and regulations, negative political developments, natural disasters, armed hostilities, terrorism, labor strikes or public health issues, the loss of members of our executive management team, continued ownership by a few stockholders of a majority of voting power in us, and the volatility of our stock price.  These risks and others are discussed under "Risk Factors" in our filings with the U.S. Securities and Exchange Commission, including our 2011 annual report on Form 10-K filed on February 29, 2012.  All information provided in this release is as of the date hereof, and we undertake no obligation to update this information.

Contact Information


Investors:

Media:

Karen Sansot, CFA

Monica Ma

Investor Relations

Media Relations

(510) 420-4803

(510) 596-3437

[email protected]

[email protected]

 

 LEAPFROG ENTERPRISES, INC. 

 CONSOLIDATED STATEMENTS OF OPERATIONS 

 (In thousands, except per share data) 

 (Unaudited) 
















 Three Months Ended September 30, 


 Nine Months Ended September 30, 





2012


2011


2012


2011












Net sales

$193,072


$150,832


$336,562


$244,930


Cost of sales

115,771


89,025


200,974


152,385



Gross profit

77,301


61,807


135,588


92,545












Operating expenses:









Selling, general and administrative

21,257


17,875


65,158


56,012


Research and development

9,164


8,276


26,902


24,648


Advertising

7,179


7,790


13,932


13,617


Depreciation and amortization

2,838


2,917


8,751


8,261



Total operating expenses

40,438


36,858


114,743


102,538




Income (loss) from operations

36,863


24,949


20,845


(9,993)












Other income (expense):









Interest income

37


35


226


104


Interest expense

(49)


(22)


(49)


(102)


Other, net

(898)


(3,632)


(2,014)


(4,475)



Total other income (expense), net

(910)


(3,619)


(1,837)


(4,473)




Income (loss) before income taxes

35,953


21,330


19,008


(14,466)

Benefit for income taxes

(5,785)


(1,718)


(5,163)


(1,558)



Net income (loss)

$  41,738


$  23,048


$  24,171


$ (12,908)












Net income (loss) per share:









 Class A and B - basic 

$     0.62


$     0.35


$     0.36


$    (0.20)


 Class A and B - diluted 

$     0.60


$     0.35


$     0.35


$    (0.20)












Weighted average shares used to calculate 








  net income (loss) per share:









 Class A and B - basic 

67,400


65,618


66,912


65,244


 Class A and B - diluted 

69,512


66,018


69,071


65,244

 

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)




September 30,


December 31,




2012


2011


2011

ASSETS







Current assets:








Cash and cash equivalents


$ 49,427


$ 25,663


$ 71,863


Accounts receivable, net of allowances for doubtful accounts of $3,893, $676 and $659, respectively


170,106


136,256


157,418


Inventories


115,083


70,338


34,288


Prepaid expenses and other current assets


9,522


8,089


8,078


Deferred income taxes


1,035


1,585


983


Total current assets


345,173


241,931


272,630

Long-term investments


-


2,681


2,681

Deferred income taxes


1,309


907


1,311

Property and equipment, net


20,411


17,891


17,881

Capitalized product costs, net


10,935


13,215


12,511

Goodwill


19,549


19,549


19,549

Other intangible assets, net


1,550


3,960


3,350

Other assets


1,534


1,841


1,119


Total assets


$ 400,461


$ 301,975


$ 331,032









LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:








Accounts payable


$ 82,128


$ 57,851


$ 34,629


Accrued liabilities


45,722


32,979


50,380


Income taxes payable


414


373


377


Total current liabilities


128,264


91,203


85,386

Long-term deferred income taxes


3,798


3,480


3,542

Other long-term liabilities


2,723


9,455


9,360

Stockholders' equity:








Class A Common Stock, par value $0.0001;








Authorized - 139,500 shares; Issued and outstanding: 61,905, 49,862 and 54,923, respectively


6


5


6


Class B Common Stock, par value $0.0001;








Authorized - 40,500 shares; Issued and outstanding: 5,715, 15,817 and 11,113, respectively


1


2


1


Treasury stock


(185)


(185)


(185)


Additional paid-in capital


403,187


393,230


395,627


Accumulated other comprehensive income


976


75


(225)


Accumulated deficit


(138,309)


(195,290)


(162,480)


Total stockholders' equity


265,676


197,837


232,744


Total liabilities and stockholders' equity


$ 400,461


$ 301,975


$ 331,032









 

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)
















Three Months Ended September 30,


Nine Months Ended September 30,





2012


2011


2012


2011

Operating activities:









Net income (loss)

$ 41,738


$23,048


$24,171


$(12,908)

Adjustments to reconcile net income (loss) to net cash provided by








(used in) operating activities:









Depreciation and amortization

5,749


5,063


16,871


14,510


Deferred income taxes

26


345


238


456


Stock-based compensation expense

2,027


1,640


5,066


4,064


Loss on sale of long-term investments, net of tax

-


-


91


-


Loss on disposal of long-term assets

-


(45)


2


8


Allowance for doubtful accounts

119


(107)


3,371


172

Other changes in operating assets and liabilities:









Accounts receivable, net

(118,335)


(87,704)


(15,493)


21,131


Inventories

(61,856)


(7,815)


(80,149)


(23,006)


Prepaid expenses and other current assets

(133)


1,040


(1,367)


219


Other assets

58


181


(414)


(55)


Accounts payable

49,889


29,780


47,454


26,468


Accrued liabilities

14,117


9,690


(4,805)


(8,410)


Other long-term liabilities

(6,266)


(2,678)


(6,638)


(2,290)


Income taxes payable

35


144


37


206



Net cash provided by (used in) operating activities

(72,832)


(27,418)


(11,565)


20,565

Investing activities:









Purchases of property and equipment

(4,004)


(2,085)


(10,396)


(9,369)


Capitalization of product costs

(1,731)


(1,979)


(5,623)


(6,319)


Sale of investments

-


-


2,500


-


Other

-


-


-


2



Net cash used in investing activities

(5,735)


(4,064)


(13,519)


(15,686)

Financing activities:









Proceeds from stock option exercises and employee stock purchase plans

1,268


105


4,007


2,049


Net cash paid for payroll taxes on restricted stock unit releases

(301)


(107)


(1,513)


(717)



Net cash provided by (used in) financing activities

967


(2)


2,494


1,332

Effect of exchange rate changes on cash

101


(586)


154


(27)

Net change in cash and cash equivalents

(77,499)


(32,070)


(22,436)


6,184

Cash and cash equivalents, beginning of period

126,926


57,733


71,863


19,479

Cash and cash equivalents, end of period

$ 49,427


$25,663


$49,427


$ 25,663












 

LEAPFROG ENTERPRISES, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands)

(Unaudited)
















Three Months Ended September 30,


Nine Months Ended September 30,





2012


2011


2012


2011












Net sales


$193,072


$150,832


$336,562


$244,930


Cost of sales (1)

115,771


89,025


200,974


152,385



Gross profit

77,301


61,807


135,588


92,545












Operating expenses: (2) (3)









Selling, general and administrative

21,257


17,875


65,158


56,012


Research and development

9,164


8,276


26,902


24,648


Advertising

7,179


7,790


13,932


13,617


Depreciation and amortization

2,838


2,917


8,751


8,261



Total operating expenses

40,438


36,858


114,743


102,538




Income (loss) from operations

36,863


24,949


20,845


(9,993)












Other income (expense):









Interest income

37


35


226


104


Interest expense

(49)


(22)


(49)


(102)


Other, net

(898)


(3,632)


(2,014)


(4,475)



Total other income (expense), net

(910)


(3,619)


(1,837)


(4,473)




Income (loss) before income taxes

35,953


21,330


19,008


(14,466)

Benefit for income taxes

(5,785)


(1,718)


(5,163)


(1,558)



Net income (loss)

$ 41,738


$ 23,048


$ 24,171


$ (12,908)












(1)

Includes depreciation and amortization

2,911


2,146


8,120


6,249












(2)

Includes stock-based compensation as follows:









Selling, general and administrative

1,794


1,366


4,438


3,484


Research and development

233


274


628


580












(3)

Includes severance costs as follows:









Selling, general and administrative

6


1


266


2,422


Research and development

208


-


208


22












Segment data:








Net sales:









U.S. segment

145,691


115,974


247,050


181,449


International segment

47,381


34,858


89,512


63,481












Income (loss) from operations*:









U.S. segment

24,781


17,956


2,059


(17,760)


International segment

12,082


6,993


18,786


7,767












 

*

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.

 

SOURCE LeapFrog Enterprises, Inc.

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