Post on 11-Feb-2018
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SkullcandyInvestor
Presentation
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Safe Harbor Statement
Forward Looking Statements
This presentation contains forward-looking statements. The words believe, expect, anticipate, intend, estimate and other
expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-lookingstatements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflectmanagements good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknownrisks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially fromanticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-lookingstatements speak only as of the date the statements are made. The Company undertakes no obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: our comments relating to maintainingexisting sales levels with our current customers while attracting new ones; operating in international markets and expanding into adjacent
markets while strengthening our market share in our existing markets; initiating effective cost cutting initiatives; and financial projections.
The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon manydetailed assumptions. While the Company believes that its assumptions are reasonable, you are cautioned that it is very difficult to predictthe impact of known factors, and it is impossible for the Company to anticipate all factors that could affect its actual results. Importantfactors that could cause actual results to differ materially from expectations are disclosed under the RiskFactors section of the 2012 10-K filed with the Securities and Exchange Commission on March 13, 2013. All written and oral forward-looking statements attributable tothe Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements in the prospectus aswell as other cautionary statements that are made from time to time in the Companys public communications. You should evaluate allforward-looking statements made in this presentation in the context of these risks and uncertainties.
Non-GAAP Financial Measures
This presentation contains certain information that has not been derived in accordance with generally accepted accounting principles
(GAAP). Reconciliations of such information to the most directly comparable information derived in accordance with GAAP arecontained in this presentation. This information should not be considered a substitute for any measures derived in accordance with GAAP.
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Company Overview
Who We Are
A Leading performance audio brand rooted inaction sports and lifestyle cultures
Revolutionized the headphone market byreinventing a uninspired category
Pioneered the distribution of headphones inspecialty retailers focused on action sports and
the youth lifestyle
Set-up international direct sales office in Europe;products are now sold in more than 80 countries
Built a world-class product development andadvanced concept engineering platform
Implementing a multi-brand strategy to expandinto new audio segments and adjacentcategories
Acquired Astro Gaming, the premier headsetbrand in the gaming category
Announced yesterday new Company leadership
2012
Net Sales $297.7
YoY % Growth 28.1%
Gross Margin % 47.3%
Adjusted EBITDA (non-GAAP) (1) $50.6
Adjusted EBITDA Margin % (non-GAAP) 17.0%
Adjusted Net Income (non-GAAP) (2) $28.0
Adjusted Diluted EPS (non-GAAP) (3) $1.00
1) Non-GAAP adjusted EBITDA is adjusted for bad debt expense associated with a majorretailer and litigation and settlement expense of $2.8M
2) Non-GAAP Adjusted net income is adjusted for bad debt expense associated with a majorretailer and litigation and settlement expense of $2.1M, net of tax benefit
3) Based on YE 2012 share count of 28MNote:See the attached appendix for a reconciliation of adjusted net income to netincome, adjusted EBITDA to net income, and adjusted diluted EPS to diluted EPS.
$M
Select Financial Information
Confidential
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The
EpicenterOf
YouthCulture
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Wide Range OfInnovativePerformance AudioProducts
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StrongPlatform OfBrandsAcrossMultipleCategories
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Key Investment Highlights
Large and growing
headphone market
Evolving market andcompetitive dynamics
In-house design team
Proprietary sound andtechnology
Portfolio of leading brands
Significant growth
opportunities
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Pillars Of Our Business
ScalableOperatingPlatform
AuthenticBrand
Proprietary andInnovativeDesigns
Leading AudioSound Quality
Confidential
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$BU.S. Headphone Market at Retail
$2.4
$2.9
2011 2012E
23.4%
The Global Headphone Market IsLarge And Growing Rapidly
We estimate the global audio headphonemarket to be over $5.0 billion at retail
The US audio headphone market grew ~23.0%over the past 12 months (YE 2012)
Growth in headphones and other mobileaccessories is being driven primarily by demandfor smart devices and digital content
Demand for smartphones and tablets hasproven very inelastic despite broader consumeruncertainty
Worldwide smartphone shipments will post ayear-over-year increase of over 30.0%
Additionally, worldwide smartphone shipmentsare excepted to grow at a CAGR of over 18.0%from 2011 to 2016
Sources:IDC, NPD Consumer Data, Skullcandy estimates
Confidential
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Evolving Headphone Market AndCompetitive Dynamics
Growth in premium priced headphonesoutpacing growth in earphones
The competitive landscape is crowded,but there is high degree of churn asnew entrants are quickly forced out
Many new entrants lack brandauthenticity and commitment to productdevelopment
Earphone category becoming morefeature and price sensitive
Amazon and other internet retailerschanging the way consumers shop
Retail landscape is struggling and willbe forced to change business model tosurvive
Growth in headphones and earphoneswill be dependent on new, compellingfeature sets and different use cases
Headphone market will consolidatearound the top three or four leading
brands
New brands will not survive long-term;barriers to entry are increasing
Internet will become a primary locationof purchase for consumer electronics
Brick and mortar business model willevolve (smaller footprint, higher focuson mobility)
Large big box retailers will garner moremarket share in CE space
Current Competitive Dynamics Our View of the Future
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Leading Audio Sound Quality
Product Development Transformation Built strong team of:
Industrial designers
Mechanical engineers
Graphic designers
Audio engineers Category managers
Invested in materials and equipment Developed a proprietary sound profile Developed customized headphone drivers
Moved to a dual-sourcing model Created a new product roadmap Continued focus on quality, fit, sound, and
ideation
Skullcandy has spent two years building a leading in-house productdesign and development platform
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Roadmap Of New Skullcandy Products
Confidential
Product strategy will focus on new products between $50 and $150,where performance, style and brand come together
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2013 Key Skullcandy Product Stories
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2013 Key Skullcandy Product Stories
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O B d DNA
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Our Brand DNAConvergence Of Product And Lifestyle
ProductPerformance
Style Innovation LifestyleBrandDNA
+ + + =
Confidential
G th O t iti
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Growth Opportunities
Execute on dual brand gaming strategy
Aggressively expand in key internationalmarkets
Expand into premium audio segments of themarket
Extend into new consumer audio segments
Expand U.S. distribution
Drive higher sell through in existing domesticdistribution while market consolidates
A. Improve packagingB. Upgrade retail experienceC. Reduce off-price sales
Enter new, adjacent categories
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D l B d G i St t
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Dual Brand Gaming StrategyAstro Gaming Premium Positioning
Confidential
D l B d G i St t
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Dual Brand Gaming StrategySkullcandyBrand Extension
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G th O t it
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Growth Opportunity
Product, Marketing and Channel Alignment
Unify brand message and communicate globally
Coordinate global product launches
Optimize distribution strategies
Proliferate in-store listening stations and brand experienceExpand to serve select markets directly, through joint
ventures or via high-quality distributors
Acquired European distribution rights in August 2011 Built direct European office Leverage tax efficiencies Direct business in China, Japan, and Canada in 2013
Key International Markets
EUROPE CHINA JAPANCANADA
Confidential
International strategy: Replicate the U.S. model to export the brandglobally
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FinancialReview
S Of 2012 Fi i l R lt
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Summary Of 2012 Financial Results
Net sales increased 28.1% to $297.7 million, year-over-year
North America net sales increased to $250.3 million
International net sales increased to $47.4 million
Adjusted net income (non-GAAP) increased 19.3% to $28.0 million
Adjusted diluted EPS (non-GAAP) was $1.00, or flat to last year (based on28.0 million diluted weighted shares)
2011 adjusted diluted EPS (non-GAAP) was $1.00 (based on 23.6 milliondiluted weighted shares)
Strong Balance Sheet
Working capital at Q4 growing slightly ahead of full year sales
Nearly $28.0M of credit availability
Completed multi-buyer credit insurance program in November
New credit facility in Q2 2013
Confidential
Strong Track Record Of Gro th And Profitabilit
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Strong Track Record Of Growth And Profitability
YoY %Growth
$9.1
$35.3
$80.4
$118.3
$160.6
$232.5
$297.7
2006 2007 2008 2009 2010 2011 2012
$1.0
$9.9
$21.4
$30.8
$39.0
$46.2
$50.6
2006 2007 2008 2009 2010 2011 2012
Adjusted EBITDA Growth
$M
Net Sales Growth
$M
Adj. EBITDA% margin
287.7% 127.8% 47.1% 35.8% 44.8% 28.1% 28.0% 26.6% 24.3% 19.9% 17.0%11.0% 26.0%
78.8%92.3%
Confidential
Initiatives To Reset Business
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Initiatives To Reset BusinessAnd Get Back On Track
Renewed focus on sell through and customer profitability
Improve packaging and point-of-sale retail experience Enhance and expand activation of marketing assets
Reduce off-price channel sales
Work with existing customers to reduce sales returns and allowances
Discontinue relationships with unprofitable customers and improving pricing discipline
Expanding global retail presence for both the Astro Gaming and the SkullcandyGaming brands
Investments in serialization, reverse logistics, product warranty and compliance toimprove (back-end operating efficiencies and competitive position)
Target supply chain savings through cost down efficiencies and volume discountsto improve margins and offset any unfavorable trends in China
All products now dual sourced
Large quality control and sourcing team in China and the U.S.
Evaluating the transfer of some production out of China
Confidential
SuccessfulAcquisitionAnd
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Successful Acquisition AndIntegration Of Astro Gaming
Purchased Astro Gaming in April 2011 for $10.8M
Through 2011, Astro Gaming products were sold exclusively online
Strong brand with dedicated following among core gamers
Gross margins were initially challenged
Company was operating at a loss
Strong performance in 2012
Dominant player in the high end premium segment of gaming category
Retail ASP over $200
Cost improvements resulted in ability to enter retail channel
Retail expansion resulted in an incremental $10.0M+ in 2012
Positive operating income
Provides gateway for Skullcandy brand to enter the gaming space
Confidential
Further Build Out Of International Platform
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Further Build-Out Of International Platform
Conversion of international distribution through acquisition and green field
Acquired European distribution rights through acquisition in August 2011 for $18.6M(including inventory)
Expand to serve select markets directly, through joint ventures, or high-qualitydistributors
Ability to leverage effective tax rate from 43.5% in FY 2011 to 36.1% at YE 2012
Confidential
Support global expansion and new growth opportunities
DiversifiedGrowthAcrossAllBusinessSegments
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$28.6$42.6 $42.4
$56.1$46.0 $52.1
$73.8$82.7
$7.4
$10.7 $10.0
$16.3
$14.6$18.9
$9.6
$18.3
$36.0
$53.3 $52.4
$72.4
$60.6
$71.0
$83.4
$101.0
Q1 '11 Q1 '12 Q2 '11 Q2 '12 Q3 '11 Q3 '12 Q4 '11 Q4 '12
International
Domestic
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Diversified Growth Across All Business Segments
Quarterly Sales Growth
$M
48.1%
38.2% 17.2%
Confidential
21.1%
FinancialHighlightsAnd Statistics
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Financial Highlights And Statistics
Unit volume up +25.0%, year-over-year, as of YE 2012
Significant mix shift to over ear and on ear products in 2012 over 2011
ASP up high teens, year-over-year, as of YE 2012
Geographic mix
Mid single digit Increase in unit growth above $50 price point
As of YE 2012, 50.0%+ of Skullcandy headphone sales were micdproducts compared to less than 40.0%, year-over-year
As of YE 2012, our top 15 customers made up approximately 50.0% ofgross revenues, down from approximately 60.0%, year-over-year
Astro Gaming opened retail doors with major big box retailers
Confidential
Q1 2013: Reset And Get Back on Track
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Q1 2013: Reset And Get Back on Track
Q1 2013 Revenue down ~30% from Q1 2012
Challenging year-over-year comparison
High channel inventory levels and low sell through heading into Q1 2013
Reducing off-price sales
Impact of bankruptcy with major UK retailer
Gross margins in-line with Q4 2012
Projected a loss of $0.25 - $0.30 per share
$0.03 cents per share associated with departure of former CEO
Investments in demand creation (Crusher launch)
Higher operational costs to support Astro and International expansion
Confidential
SkullcandyAnnouncesnew Management
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Skullcandy Announces new Management
Hoby Darling appointed CEO on March 18, 2013 General manager, Nike+ Digital Sport
Head of Strategy & Planning, Nike Affiliates
SVP Strategic Development and General Counsel, Volcom
Rick Alden, founder and board member appointed interim CEO on February 7,2013 Back in the business focusing on customer advocacy and retail experience
Winning at point of sale / sell through
New products / brand extensions
Confidential
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ThankYou