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ZAGG (NASDAQ:ZAGG)

Q2 2012 Earnings Call

August 02, 2012 5:30 pm ET

Executives

Kimberly Rogers-Carrete

Robert G. Pedersen - Co-Founder, Chairman and Chief Executive Officer

Brandon T. O'Brien - Chief Financial Officer, Principal Accounting Officer and Corporate Secretary

Analysts

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

David S. Strasser - Janney Montgomery Scott LLC, Research Division

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

Michael Latimore - Northland Capital Markets, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the ZAGG Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Kim Rogers-Carrete with Genesis Select Investment Relations. Please go ahead.

Kimberly Rogers-Carrete

Thank you, Patrick. Good afternoon, ladies and gentlemen, and thank you for joining us today for the ZAGG Inc. Second Quarter 2012 Conference Call. On the call today from the company are Robert G. Pedersen II, Chairman, Co-Founder and Chief Executive Officer; along with ZAGG's Chief Financial Officer, Brandon O'Brien. By now, everyone should have access to the second quarter 2012 earnings release. If you have not received a copy of the release, it can be found on the Investor Relations portion of the ZAGG website under the Investor Relations tab. This call is being webcast, and a replay will be available on the company's website through midnight, September 2, 2012.

Before we begin, we'd like to remind everyone that the prepared remarks contain certain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future results of operations or the performance of the company. These statements do not guarantee future performance and speak only as of the date hereof. We refer all of you to the risk factors contained in ZAGG's annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission, for a more detailed discussion on factors that can cause actual results to differ materially from those projected in any forward-looking statements. ZAGG assumes no obligation to revise any forward-looking statements that may be made in today's release or call. Please note that on today's call, in addition to discussing the GAAP financial results and the outlook for the company, the following non-GAAP financial measures will be discussed: EBITDA and adjusted EBITDA. An explanation of ZAGG's use of these non-GAAP financial measures in this call and the reconciliation between GAAP and non-GAAP measures required by SEC Regulation G is included in ZAGG's press release today, which again can be found on the Investor Relations section of the company's website. The non-GAAP information is not a substitute for any performance measure derived in accordance with GAAP, and the use of such non-GAAP measures has limitations, which are detailed in the company's press release.

And with that, I would now like to turn the call over to Robert Pedersen, ZAGG's Co-Founder, Chairman and CEO. Robert?

Robert G. Pedersen

Thank you, Kim. Good afternoon, everyone, and thank you for participating in our call today to discuss our second quarter 2012 results, another record quarter for ZAGG and our second highest quarter results ever, second only to the all-time record we reported in the most recent December quarter, which is typically our strongest quarter of the year.

Revenue for the quarter was $61.6 million, representing year-over-year growth of 58.9%. This is off a very strong second quarter last year and it is also an 11% increase from the previous quarter, which was until today, our second highest quarter. The year-over-year increase was a result of an extended retail channel for our products, which drove strong growth, particularly in the invisibleSHIELD and keyboard folio sales.

The revenue breakdown for our 2 largest product categories was 41% for the invisibleSHIELD with keyboards and folio having a dramatic increase in sales this quarter.

Net income attributable to stockholders in the quarter was $5.8 million, up 112% from $2.7 million last year and a sequential gain of 14%.

Fully diluted earnings per share were $0.18 compared to $0.10 in last year's second quarter, a gain of 80% year-over-year and a 12.5% increase from that $0.16 reported last quarter. Brandon will discuss the financial results in greater detail following my remarks.

The big story this quarter was our success in expanding distribution for our iPad third generation products in the indirect channel. It was greater than with any previous iPad release. We have seen demand carryover into the second quarter across the board for iPad accessories, off the launch of the new iPad last March, resulting in a high levels of sales for ZAGG keyboard and keyboard folio products I mentioned earlier.

Of the launch of the new iPad, we were able to broaden the distribution for the folio and the FLEX and now you can find them on our top retailers, including Best Buy, Radio Shack, AT&T, Verizon and Target.

The feedback we are getting on the sell-through of our tablet products is very good. And our research confirms that we dominate the space as the top-selling tablet for keyboards and folio cases with our retailers. We created this space and we remain the leading brand with excellent products. No competitor offers better products in terms of design, functionality and quality. We look to continue to leverage our first mover advantage in the tablet keyboard space with more creative products, solutions going into the holiday season and early next year at CES.

Our next big new product this year could be keyboards and folios for the 7-inch tablet, particularly if Apple releases its 7-inch tablet for the holiday season. Let's take a step back and look at how product development and product management is evolving at ZAGG. I've talked about our product-centric focus in previous calls and I'd like to lay out how we are progressing on this important goal.

At the beginning of the year, ZAGG implemented a product getting process to filter and qualify all new product concepts that come to the company from a variety of sources, both internal and external, including from customers, suppliers, third parties, employees and notably, our own internal product teams. We fine tuned the organization of our product management and product development teams to maximize their effectiveness. This was done by defining our new product processes and discipline and adding the support and organizational tool to help manage the process. We've added product management and engineering talent to these teams. Both groups are working very closely to make sure that the product pipeline remains full and are focused on bringing great new products to the market. As a result, our product pipeline is more robust now than it's ever been before. And as we look to extend our product market leadership position in the existing categories. And like we did with the tablet keyboards, create new categories where ZAGG will be the first to market with creative and compelling product solutions.

In the past 60 days, since implementation, we have reviewed over 100 new product concepts with several making it to the list of planned product launches. As we go into the holiday season and the CES tradeshow early next year, we will be introducing products and new categories that leverage our existing product strengths. We've develop products for the potential entry into new product category line that we believe will represent a significant opportunity for ZAGG as device processing power continues to increase, and mobile software becomes more robust. Now we can't be any more specific at this particular opportunity due to competitive concerns and uncertainty around launch timing. But, suffice it to say that we are working hard on both near and longer-term opportunities.

Before the end of the year, we will be releasing 2 new generations of keyboard products and keyboard cases that will further extend our leadership position in this category. ZAGG was first to market in tablet keyboard cases with the ZAGGmate at the end of 2010. And our upcoming line of keyboards and folios will be optimized for new tablet sizes, in keeping with our device agnostic strategy.

This quarter, we announced some changes to our leadership team and have a new Executive Vice President of marketing, Kent Wutrich. Kent came to us through the iFrogz acquisition, where he was a Founder and a Vice President of creative. With his team, he has been putting together consolidated and comprehensive marketing and branding strategy based on 1 overarching brand message for ZAGG as a company and then for each of our branded lines. We look at ZAGG as a company that holds a portfolio of brands, where one of the leading brands is eponymous and this strategy allows to buy or build more brands in the future. Today, ZAGG breaks down into 3 brand categories: ZAGG which is our accessories brand, delivering added value technology in each new product. This is our premium long life cycle product line. InvisibleSHIELD, which will continue to make better shields for consumers with differentiated features and premium price points. iFrogz, which is our youth-oriented value brand that is nimble and quick to market in response to trends, fashions and fads the consumers are looking for at value price points.

With this more-focused strategy, we aim to lead brands first by making the brand identity names and marks more prominent in our packaging and displays in an effort to build greater brand awareness and affinity with our customers. This will be particularly important to the iFrogz brand, where we have several product lines like Ear Pollution, iFrogz Audio and Boost. We create products that are featured and promoted with brands that consumers are seeking. For CES in early 2013, we will be updating our packaging and collateral to reflect this new approach to our branding strategy.

Another refinement to our leadership structure was announcing Derek Smith as Executive Vice President of Sales. Derek now leads the company's global sales efforts to increase distribution in retail outlets and online, both domestic and international. Under this new alignment, Derek is currently building out an international sales strategy on a country-by-country basis, and then by retailer and cellular operators in each geography. He anticipates finalizing his plan by the end of 2012 and have people in place ready to hit the ground running on July -- or January 1, 2013.

Based on our precedent experience with retail outlets and rollouts, we anticipate revenues under this particular part of the plan from these new International markets by the end of 2013.

As I say every quarter, our results reflect the successful implementation of our business strategy. We continue to focus on 3 objectives of the company. Creative product solutions, the preferred brand and targeted global distribution. We feel like we are making progress against all 3 objectives. In terms of targeted global distribution, as we released new product categories and new improved or enhanced version of existing product categories, we are developing the methodology and discipline around building targeted strategic distribution. We work collaboratively with retailers to help them achieve their strategic goals by offering product that enables retailers to attain their objectives in their mobile sales strategy. We are looking to minimize channel conflicts by being thoughtful and methodical in product placement, particularly for new products. This will help us get more of our latest products into specific retailers, while allowing us to continue to broaden our retail presence with the balance of the product line.

We continue to build and implement internal systems that improve the operation of our business. One example is the incentive compensation program we rolled out this year, tying teams' goals to our broader company objectives, which seems to be working very well and continues to help focus each of the company's functional teams. Another example is the ZAGG Logan office, up in Logan, Utah, previously known as the iFrogz office, which has successfully converted to ZAGG's ERP system, effectively improving reporting and budgeting. This quarter, we started moving some of our inventory by ocean freight. By doing this with one of our high-volume product lines, keyboards and folios, we are projecting a freight savings of over $4 million over the next 12 months. We have tasked our product development teams to maintain the gross margin targets of their categories. And I'm delighted to say that based on current manufacturing and distribution costs and estimates of future cost, the product slated to roll out this year and next year are at or above product margin guidelines.

ZAGG is a leader in an exciting category with a secular growth opportunity, but we are still in the early innings of this game, creating distribution, product and brand where ZAGG is at the forefront. There's a lot of excitement around the company as we see strong momentum going into the second half of the year.

We are pleased to welcome 2 new board members to our Board of Directors: Dan Maurer, Senior Vice President and General Manager, Consumer Group at Intuit; and Todd Heiner, Founder and Chief Executive Officer of Express Locations LLC, T-Mobile stores, who both joined our Board in July. ZAGG is building a board that can help guide us on our journey to build the global brand. And these new directors each bring with them extensive leadership skills, retail experience and global brand and marketing expertise that will be extremely valuable to ZAGG in our quest to become a billion-dollar company.

With that, I would like to turn the call over to Brendan O'Brien, our CFO, for a detailed review of the financials. Brandon?

Brandon T. O'Brien

Thank you, Robert, and thank you to all our listeners for joining us on the call today. As stated in today's release, we will be disclosing consolidated financial results reflecting our main business units, ZAGG Inc., and the results of our subsidiaries, iFrogz Inc., ZAGG Europe Ltd. and ZAGG International.

On the call today, I will speak only to consolidated results, unless otherwise stated. The financial statements provided in today's release reflects Q2 2012 financial details for our subsidiaries, as well as consolidated results. So you may refer to them for further clarifications. The quarter I'm referring to you for the purposes of today's call is Q2 2012.

Revenue for the quarter was $61.6 million versus $38.8 million in the quarter from the prior year, representing year-over-year growth of 59%. The current quarter revenue includes $16.1 million from our iFrogz segment. We acquired iFrogz in June 2011, and there was only 9 days of revenue contribution included in the prior period, so $2.4 million.

The breakdown for the sources of revenue is as follows: for the quarter, 79% of sales came from our retail channel versus 72% in the same period last year; 14% of sales were from ZAGG.com and iFrogz.com versus 22% in the same quarter last year; and 6% was from the kiosks and standalone stores versus 4% in the same quarter last year; the balance of 1% came from shipping and handling versus 2% for Q1 2011.

International sales accounted for 12% of total revenues in the quarter as compared with 10% the prior-year period. International sales grew on a dollar basis primarily due to expanded distribution in Europe. We continue to see diversification in our product revenues with 41% of revenues coming from the invisibleSHIELD product line versus 63% in the second quarter of last year.

Gross profit for the quarter was $28.4 million versus $17.8 million in the second quarter of 2011, which translates into gross margins for the quarter of 46.1% versus 45.8% for the same period last year.

Operating income in the quarter was $10.8 million versus $4.2 million in the same period last year. Operating margins for the quarter were 18%, compared to 11% for the same period last year, which were impacted by some nonrecurring charges specific to that quarter. We also incurred $1.5 million in stock compensation expense during the quarter compared to $2 million in the second quarter of 2011. The effective tax rate for the quarter was 39.2% compared to 36.6% for the same period last year. We are making progress on our global tax reorganization and anticipate tax savings starting in 2013 as we implement the strategy.

Net income attributable to stockholders in the quarter came in at $5.8 million versus $2.7 million in the same quarter in the prior year. Our fully-diluted share count for the quarter was 31.7 million shares, a 16% increase and the diluted share number as compared to the second quarter of 2011. Total shares issued and outstanding at June 30, 2012, were 30,326,229. At June 30, 2012, we had $1 million outstanding options, $0.9 million outstanding warrants and $0.7 million outstanding restricted stock grants. We use a treasury method in calculating our diluted shares outstanding, which assumes that proceeds received from the exercise of warrants and options are used to purchase shares in the open market before new shares are issued. On a prospective basis, for the remainder of 2012, our diluted shares outstanding will be approximately 33.0 million shares. Our fully diluted earnings per share were $0.18 for the quarter versus $0.10 in the same period last year.

Adjusted EBITDA for the quarter came in at $15.1 million or $0.48 per diluted share. That compares to adjusted EBITDA of $9.5 million or $0.35 per share for the second quarter of 2011. This represents an increase of 60% in adjusted EBITDA as compared to the second quarter of 2011.

Turning to the balance sheet. Working capital at the end of the quarter was $72.3 million compared to working capital of $74.5 million on December 31, 2011. We reported a cash balance of $12.5 million. For the second quarter, we were net users of cash due primarily to our investment in inventories as we purchased and started moving a large portion of our inventory by ocean instead of airfreight and built up our inventory level for keyboards. We estimate that this will result in savings of about $4 million over the next 12 months on a pretax basis. The balance on the line of credit at the end of the quarter was $2.6 million, representing accrued interest on the outstanding term loan and the term loan balance of $41 million as of the end of the second quarter.

Accounts receivable for the quarter were $40.5 million, as compared to $45.5 million on December 31, 2011. DSOs in the quarter were 59 compared to 59 for the quarter ended December 31, 2011. We continue to be very comfortable with the quality of our accounts receivable.

Inventories for the quarter were $34.2 million, an increase of $4.6 million from the December 31, 2011 balance. We continue to evaluate inventory on a monthly basis and reserve against slow-moving inventory as needed. We feel our current inventory levels are in good shape worldwide.

As noted in the press release that went out this afternoon, we are raising our guidance for the remainder of 2012 with revenue to exceed $256 million, based on our current distribution partners, product mix and pricing outlook. We forecast gross margins in the mid to high 40s and adjusted EBITDA in the range of $56 million to $61 million. This forecast is based on the anticipated continued presence of ZAGG and iFrogz branded products in the existing channel and increase in the percentage of sales from higher ASP products and new product launches.

With that, I'd like to turn the call back over to Robert.

Robert G. Pedersen

Thank you, Brandon. Operator, at this time, I would like to turn the call over to Q&A. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mike Malouf from Craig-Hallum Capital.

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

I have a couple of questions for you. Maybe we could just get a little bit of color on the inventory. How much was -- was really a focus on the shipping chains that you're going to do that'll be a big benefit? And then how much with regards to, say, the increase in keyboards?

Robert G. Pedersen

Great question, Mike. We had about $3 million of an increases come as a result of getting inventory on the water as opposed to airfreighting it. The rest of that is came from increasing our inventories of the keyboards and the folios. As you may recall, we had been in a position where in the past, we were shipping everything as quickly as we could. We were able actually to get some of that over here, we were able to catch up and have built an inventory supply here in the U.S. to better service our customers on a timely manner.

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

Great. And then a question on the HzO. I know that, that continues to cost you on your minority interest there. Any update there? And any sense of how much or how long would that drag on your income is going to be there?

Robert G. Pedersen

HzO continues to progress, Mike. What we're seeing is that the way that it's working, the technology as it continues to improve, the strategy to go directly to OEMs is a longer lifecycle. And we do anticipate that we'll have a little continued drag until we start seeing those revenues. We can't calculate exactly when those revenues will be at this time, but the timeframe certainly is getting shorter than longer, in terms of it being able to start seeing the actual revenue's coming in. And we're pretty confident -- again, it's a separate company. We can't speak directly for HzO. But from everything we're seeing right now, we anticipate that we'll start seeing revenues within the next 6 to 12 months.

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

Okay, great. And then maybe just a final question with regards to the accessory market minus the invisibleSHIELD. How is the competitive environment out there right now? What's the response been from some of the competitors? Are you seeing more competitors come in there? Is it more cutthroat than it has been, just given how large the market has grown over the last year or so? Or are you kind of running away with it, so to speak?

Robert G. Pedersen

We're still able to maintain our market leadership position and seeing good momentum there with the retailers. For retailers to switch and to go with another vendor, even if they did have a product that was comparable, which we don't believe that there is another option that is as good as ours. But even if they did, there are couple of other things that they have to consider. And one is IP. We have a lot of IP around our invisibleSHIELD line and strong protections there. Also, the logistics of how we're able to deliver hundreds of new device launches every year in different cuts and logistically to be able to have hundreds of thousands, if not millions of devices, on shelves the day of launch, I mean, products for various devices on the shelf is a very difficult thing to do. And there aren't many companies in the world that can do what we do. And so luckily, we still have the quality of the product that dominates in the marketplace and consumers believe that we have the best quality. And we continue to improve that, we continue to look at variations and improvements at the film. You'll see some other variations and improvements of the film coming up later this year that are pretty exciting as well. So we believe that we are holding our market position for the invisibleSHIELD and continue to expand it.

Operator

Our next question comes from David Strasser from Janney Montgomery.

David S. Strasser - Janney Montgomery Scott LLC, Research Division

I guess 2 questions. First of all, what is the status of the rollout within Walmart of invisibleSHIELD?

Robert G. Pedersen

You bet, David. Walmart, as you know, is a new account for us on the ZAGG branded product lines. We've already had a great relationship and sold a lot of products with the iFrogz branded product line through audio and cases. The InvisibleSHIELD, we rolled out at the end of last quarter with 1 SKU and it's done well. I believe that it's exceeded their expectations and we plan to continue to rollout and we anticipate to continue to rollout additional SKUs, not just with the invisibleSHIELD but other product categories. And that's something, of course, that we can't be definitive about at this time, but that would be our anticipation.

David S. Strasser - Janney Montgomery Scott LLC, Research Division

Okay, and I guess another question. As you raise the revenue guidance into the back half of the year, do you think that's coming more from -- where do you think that incremental revenue comes from? Is it iFrogz, is it invisibleSHIELD, is it accessory? Where do you think is the biggest delta there?

Robert G. Pedersen

Yes, really, because Apple dominates as a device manufacturer right now, the launch of the iPhone 5 and has been for the last 4 iPhones and tablets that have been launched in the past, they've been very strong indicators for us in terms of our revenue and our revenue growth. And you can see a pattern that even though we're device agnostic, because Apple leads the way right now in terms of manufacture in this industry, we definitely follow that lead. We had anticipation and others anticipated that potentially that the iPhone 5 would be launched earlier in the year, as early as June. And if you look in years past, potentially in July, August, we anticipate now that it's most likely is going to be later in the year in the fall. And so we based our revenue in our guidance on that. That would be a big piece. The other, of course, is the potential for the mini iPad, a 7-inch iPad that we would have accessories for and be able to have those on the shelves as well. And in addition, in terms of the other areas of growth, we believe that our online sales will continue to be strong. Of course, the fourth quarter is always the strongest quarter for our online sales. And so that would be a strong indicator for us in the fourth quarter. And then continuing to expand our iFrogz branded products into some of our existing channels and seeing the growth that we've gotten into some new accounts and expanded SKUs in some new accounts in the last few months, that we'll see that actually proliferate over the next few months.

Operator

Our next question comes from Jon Hickman from Ladenburg.

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

Last quarter, we talked a little bit about what your expectations were regarding the stock-based compensation. And I seem to remember that you guided for around $600,000, and it turned out to be about 1,500 -- $1.5 million, which is a difference of $800,000. And I think that showed up in your SG&A expenses. So could you talk about that?

Brandon T. O'Brien

You bet, John. Yes, this is Brandon. Just to touch on that, Robert alluded to in his comments the fact that we were able to offer to our employees, the option to take part of their bonus in stock. We had a very strong following the majority of our employees opted to take that in stock, showing the overall belief they have in the success that we're going to have as a company. So it was a good thing for us. It was a little bit higher than we had anticipated and that has kind of led to the increase in the stock-based compensation. If you go for the rest of the year, we're going to average about $1.2 million a quarter for the rest of the year to amortize those restricted stock grants that will vest next year.

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And then could you repeat -- international sales were 14%?

Robert G. Pedersen

12%.

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

12%. Okay, and then ...

Robert G. Pedersen

14% was online.

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

And then, so $3 million, I want to go back to the question about inventories and how much was due to shipping on ocean. So there was a $9 million difference from first quarter to second quarter in your inventory levels. You said $3 million of that was due to shipping on ocean?

Brandon T. O'Brien

Putting product on the water. If you break it down, we've got 74% of our inventories within finished goods and 26% is in raw materials. So we put product on the water. We were also able, with our manufacturer in China, to get a little bit ahead of the demand so that we could build up some stock of the keyboard product line here in the U.S. and that's the majority of the other delta, the remaining $6 million delta.

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And then margins do you still expect mid to high 40%, I'm just repeating what you said earlier, right?

Brandon T. O'Brien

That's correct. Yes.

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

And the fluctuations will depend primarily on how much goes through the retail channel versus how much goes to your business?

Robert G. Pedersen

Not so much. Really, what effects that is the sales mix shift. So obviously, our invisibleSHIELD film has the highest gross margin on that. So as we're seeing success in some of other product line, that's impactful on that gross margin line. But even with the different gyrations we're seeing there, we still are comfortable with the mid-to upper range -- mid to upper 40s of the range for gross margins.

Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And then the $4 million in savings from shipping on the ocean, will you reflect it in gross margins?

Robert G. Pedersen

It will be. Yes, it will reflect through gross margins and we'll see that over the next 12 months.

Operator

[Operator Instructions] Our next question comes from Mike Latimore from Northland Capital.

Michael Latimore - Northland Capital Markets, Research Division

I guess on the keyboard and folios, did your supply and manufacturing of those, did they meet demand in the quarter?

Robert G. Pedersen

Yes. As we alluded to, we were able to grow that inventory balance. And so we were able to keep up with the demand, actually got a little bit ahead of it, which is good for us. And now we don't have to expedite those products in the future. We'll be able to get those on the water. So we've built up a good stock here in the U.S. to meet the demand that we're seeing.

Michael Latimore - Northland Capital Markets, Research Division

And then obviously the iPhone unit volumes just kind of industry-wide were down sequentially. Did you see kind of your products that are most closely aligned with that also follow a similar trend or different?

Robert G. Pedersen

Again, Apple products are not our only manufacturer of product lines. And so you're going to see a similar trend probably with the Apple products themselves. But because we have other device manufacturers in there in the mix, it's going to be spread out a little bit. But one thing that Apple did have, of course, it was very evident was the iPad sales were up and much higher than they anticipated, and we saw that as well. And so there's a balancing that takes place there. So you may not see as many units, but you're seeing the average selling price increases a little bit with the iPad, accessories and the invisibleSHIELD for the iPad. And so with the average selling price being a little bit higher, there's some compensation there.

Michael Latimore - Northland Capital Markets, Research Division

Okay. And then on iFrogz, what's the rough mix between audio and cases at iFrogz nowadays?

Brandon T. O'Brien

Yes, the differentiation between those 2 products. We are still seeing -- we've seen a transition as it goes to more audio products away from case products. And currently, where we're seeing that right now is, you got a mix, it's about a 70-30. So it's transitioning further from 50-50 as we're seeing such strong demand for the audio products, particularly in Walmart.

Michael Latimore - Northland Capital Markets, Research Division

I got it. And then just keep the same tax rate, the next couple quarters here, is that right?

Robert G. Pedersen

Yes. The tax rate is a bit of a beast to get through there exactly where we want it to be. It's taking longer than we had hoped it would to implement our international tax strategies. I mean, some things were impactful on our tax rate during the current quarter is we had, in the current quarter, the tax rate was affected by the percentage of the manufacturing credit that we get as we transition more of our sales to the Chinese manufacturers and less of it is the invisibleSHIELD. That's a little bit impactful. We're closing down our operations in the U.K. as we've transitioned everything over to Ireland. So there was a little bit there that we won't be able to realize that tax benefit. So that what kind of drove the rate up from last quarter when we've been 36%, 37% and we went up to 39%. I still think as we projected out for the rest of the year, we're going to be 37%, 38%, is the rate that we're currently looking at.

Operator

This ends our Q&A session for today, I'll pass it back to management for closing remarks.

Robert G. Pedersen

Thank you, operator. I'm delighted with our progress as a company and as a brand in this quarter. ZAGG is undergoing a productive evolutionary change as we build our company for the future. We remain the market leader in our sector and we have an exciting pipeline of products poised to expand our leadership position in the mobile device accessory sector. I'd like to thank all of our team members for their hard work this quarter and to express my thanks to all of our retailers and customers and partners, business affiliates, which we could not achieve our goals and hit these numbers without everyone playing their part in their role. So thank you very much everybody. And it's a great time to be part of ZAGG and thanks for participating in today's call. We appreciate your support as shareholders and for your interest in ZAGG. We appreciate you speaking with us and we look forward to talking again on our next quarterly conference call. Have a great day. And go ZAGG.

Operator

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.

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