Q2 2019 Earnings Call
At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone, California.
As a reminder, this conference call is being recorded I would now like to turn the conference over to your host Mr. Brendon Frey you may begin.
Thank you Laura.
Good afternoon, and thank you for joining us today to review Tag second quarter 2019 financial results.
On the call today, we have Chris to her Chief Executive Officer, and Taylor Smith, Chief Financial Officer.
Oh and Kristen tell his prepared comments, we will open the call for a question and answer session.
Our second quarter earnings press release was issued today after the market closed at approximately 45 eastern time.
As a follow on to the earnings release, we published the supplemental financial information on our Investor Relations website. We also furnished this document the FCC on form 8-K.
You can find all earnings document on our Investor Relations website at Www Dot Dot com in the quarterly results section under financials tab.
We are recording this call and a podcast of the conference call will be archived at the Zagg Investor Relations Relations web page under the events tap for one year.
Before we begin we would 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 for the performance of the company.
These statements do not guarantee future performance and speak as of the date hereof.
For a more detailed discussion on the factors that can cause actual results to differ materially from those projected any forward looking statements.
We refer all of you to the risk factors contained in Zaggs annual report on Form 10-K , and quarterly reports on Form 10-Q filed with Securities and Exchange Commission.
Zagg assumes no obligation to revise any forward looking statements that may be that may be made in today's release or call.
Please note that on todays call. In addition to discussing the GAAP financial results and the outlook for the company, we will discuss adjusted EBITDA and diluted operating earnings per share both non-GAAP financial measures.
An explanation of Zaggs 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 Zaggs 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 now I'd like to turn the call over to Krista Hearn Chris.
Thank you Brendan.
Good afternoon, and thank you for taking the time to join us today.
As you saw from our earnings release issued earlier. This afternoon, we delivered second quarter results that were in line with most read recent guidance first half revenues and adjusted EBITDA.
Similar to the fourth quarter performance was shaped by a few specific factors, namely the impact of our three recent acquisitions gear fore handle and brave and all of which are heavily back weighted in terms of say is although we've tied to full operating expense burden since the beginning of this year.
Tough comparisons for all Paul kind of refund the initial rollout of our four slide as Chuck said to many of our retail partners in the year ago period early shipments of screen protection and wireless charging accessories ahead of the expected tax increase on January force, which puts it into the fourth quarter of 2018.
Competition within our screen protection product category, which has negatively impacted our market share and the challenges facing the entire mobile accessory market you have to softer demand for smartphones year to date.
With respect to the acquisitions, we continued to make good progress developing new products and distribution opportunities for these brands and expect each to exceed the full year growth guidance, we established at the statutory 19.
We expect each of these brands to be important contributors to the success for many years to come.
On to tough comparisons of wireless charging products and early shipments of terrace effective products. Both of these headwinds started to ease somewhat in the second quarter compared to the fourth quarter and are not expected to materially impact the back half of the year.
We participate a number of very competitive categories, including screen protection, Although screen protection market share appears to have stabilized over the last few months at approximately 45%.
We've experienced headwinds during the first half as competition has increased at several retail outlets across the price bands.
To address this competitive stress one we'll be launching additional innovation into our screen protection line. During the second half of 2019 to affordable Sargent visit machine vision got products.
Two we'll be launching a segmentation strategy across a number of our retail customers that would allow us to address lower MSR pre price points with less featured risk private products.
In terms of the decline in smartphone sales and the impact on mobile accessories. Unfortunately did not stabilize during the second quarter as we'd anticipated funding a deferred the start to the year.
In fact, we saw increased softness in smartphone says as the second quarter progressed and this trend has continued into staff to the third quarter. This is clearly impacting our core categories and the slowdown in smartphone sales has been cited on several recent OEM earnings call with several major players reporting unit sales down in mid teen to low 20% range.
Based on current trends combined with the latest tariff increase and a softer market due for smartphone demand in the second half of 19.
We have taken a more conservative outlook for the remainder of the year.
Ted will go to the guidance in more detail shortly but we now expect full year revenue to contract to a range of 520 million to $550 million.
The reduction in revenues is coming from our core business, mainly screen protection in wireless charging both of which are heavy tight to devices. Despite these headwinds in the core business. We expect combined revenue growth specific to our acquisitions exceed our original goal targets of 5% to 10% when compared to 2018.
We are obviously disappointed with the way 2019 is playing out for the core business as we did not foresee such a drop off in demand for smartphones in response to the current challenges facing zagg in the industry at large we are implementing a series of cost savings initiatives in order to help preserve profitability between 19 and beyond.
They include headcount reductions amounted approximately 10% as a global company head count.
Acceleration of cost synergies from recent acquisitions into 2019.
And reduction of a number of discretionary operating expense categories.
We anticipate these actions will generate approximately $8 million in annual savings starting in 2020.
Despite the step back in earnings we are taking this year, we're confident our portfolio of leading brands supported by a strong product team expensive distribution networks would position zagg to profitably grow our share of the mobile lifecycle session MFS in us and overseas in the years ahead.
Our confidence is supported by the following reasons.
Zagg occupies leading quarterly market share position in several categories, including screen protection at 45% portable battery packs at 20% and wireless charging pads at 28%.
In addition, despite losing some battery case market share to competitors during the first quarter, we were able to increase our quarterly share from 25% to 36% compared to the first quarter 2019, and in fact June monkfish market share actually saw more food gained a number one spot at 51%.
We expect to grow to screen protection and case business overtime through increasing attach rates, we continue to see improvements in both screen protection and protective case attach rates, both of which increased compared to the previous year.
An increase in juice pack sales compared to last year with the launch of the juice pack axis Mophies innovative wireless charging juice pack product during the second half as it would be lowered into retail sooner than ever before joined fall OEM device launches.
We will launch a new suite of wireless charging products into key retailers. During the second half of 2019 wireless charging remains a big opportunity for the company as majority smartphones now come with the wireless charging technology and more smartphone user increasingly aware of this technology.
In Q4, we have a brand is still under penetrated in the U.S. Dole gaining share every month, we believe DTR technology is a compelling differentiator and a protective case category and an exciting growth vehicle for Zagg as we've seen early evidence in our central data over the last quarter.
Increased distribution, the halo products as well as products from our existing brand portfolio to QVC and HSN HSN and exciting new channels. In addition, Taylor gives the company a brand in power that can capitalize on the online and he marketplace opportunities.
We continue to grow in international markets in which the AG products are still largely under indexed we've seen nice growth in Europe and most recently in Latin America as our Invisibleshield on demand service remains a significant differentiator in markets, where there was a proliferation of devices and small retail footprint.
We will continue to push cost savings initiatives throughout the PNM to drive and improve long term profitability and better operating expense leverage.
Looking out beyond 2019, we expect innovation a fight to Fiveg technology will reverse the recent downward trend as smartphone sales as consumers adopt this new technology that will be a two to three year upward trend for smartphones is ultimately this will be a strong driver of our core business and we continue as we continue to bring new products innovation to the market.
While we remain very excited about our future and prospects. We have determined that it is appropriate to announce at this time that the company has retained bank of America Merrill Lynch to assist the company exploring strategic alternatives to maximize stockholder value.
We do not expect to comment further on this process until we've made a decision and are prepared to announce his final outcome.
Before I hand, the call over to Taylor I'd like to reiterate that despite the headwinds we faced in 2019, we feel confident in strategic direction for the company to have a strong experienced management team to execute the plan.
With that I'd like to hand, the call over to Taylor.
Thanks, Chris since many details of our quarterly financial performance were included in the supplemental financial information issued earlier today I would just like to take a few minutes to add some additional comments on our financial performance Q2, net sales and adjusted EBITDA results were in line with our expectations and guidance communicated on the last call. So I'll focus my remarks on our year to date performance net sales decreased approximately 20% to 186 million driven by the impact of tariff related product pulled forward into 2018 in advance of expected tariff increases a decrease in OEM smartphone sales and a difficult first half compare due to the more feet charge Pat load ins during the prior year. These decreases have been partially offset by sales of gear for Halo and brave and branded products gross profit as a percentage of net sales remained flat at approximately 33% gross profit margin has not changed significantly. However, it has been impacted by decreases in sales of screen protection, our highest margin category being offset by an increase in same.
Sales of gear foreign Halo products, a reduction in discounts and credits and a continued focus on driving cost of goods sold improvements.
Operating expenses increased approximately 37% compared to last year due primarily to the impact of gear for Halo, and brave and including the amortization of intangible assets, which increased by $3.5 million compared to the first half last year.
In addition, we saw increased marketing investment to support our growing portfolio of brands and products, including our online and Amazon channels. We closely monitor return on AD spend through our online channels and will invest additional marketing funds when the profit generated exceeds our internal hurdle rates during the second quarter. We did experience some accelerated operating cost investments primarily linked to one our invisibleshield on demand launch into Latin America, and the continued invisibleshield on demand growth in our European business and two charges related to your four including higher than anticipated placement and marketing cost to support product launches with a key customer during the second quarter and unanticipated transition costs incurred as we completed the integration of gear for operations also during the second quarter.
Adjusted EBITDA was a negative $6.6 million versus $24.5 million in the prior year period, which is consistent with the guidance. We provided on the last earnings call.
The decrease was the result of lower net sales and an increase in operating expenses already discussed.
Turning to the balance sheet compared to the year ago accounts receivable increased 23% to $103 million and Dsos increased from 65 days to 87 days.
The increase in a R&D DSO is primarily driven by two factors first direct sales to Verizon increased significantly during the second quarter, which are on 90 day payment terms Bryson direct HR currently represents approximately 19% of outstanding accounts receivable. The second reason is an increasing mix of sales into the energy in our international business, which are generally at 90 day payment terms the quality of our receivables remains very good.
Inventory increased approximately 59% to 111 million compared to the same period last year over half of the increase was due to an incremental due to incremental inventory associated with our recent acquisitions. In addition, we saw an increase in inventories international to support its 2019 growth, which is projected to be approximately 40% year over year and some additional inventory on hand due to the slowing of OEM handset sales during the first half of 2019.
Despite the increased inventory position the aesynt the excess inventory skews our current product that has helped to mitigate some of the tariff impacts during 2019 and will continue to be sold down throughout the second half of the year consolidated inventory turns were approximately five times, excluding acquisitions down from 7.8 times in the prior year period, we expect improvement back to our historical turns in the high Sixs and low sevens by the time, we exit the year.
In terms of share repurchase during the first half the company repurchased approximately $1 million Anzac stock and approximately $13 million in the last 12 months given the levels our stock prices prices traded out over the last quarter. We would have liked to have been more active in stock buybacks. However, as the amount outstanding on our credit line approach is $100 million were restricted in our ability to invest in share repurchase. In addition, given the back half weighting of our forecast that our inventory investments needed in the second half that we prioritized ahead of share repurchase as we've discussed previously share repurchase as a long term focus and will balance our long term use of capital between share repurchase debt service and tuck in M&A.
Given the recent acquisitions the focus on second half execution and our announcement today that we will be considering strategic alternatives. Our focus is on servicing the debt.
Net debt, which is consolidated debt less cash increased $82 million compared to $1 million last year.
The increase was due to cash used for three acquisitions of approximately $55 million $13 million for share repurchase and to fund ongoing operations, particularly with our newly acquired brands, excluding cash paid for acquisitions and share repurchase during the last 12 months. The company would have had net debt of approximately $14 million at the end of the first quarter.
I wanted to spend a few minutes discussing the restructuring that Chris touched on in his prepared remarks.
In response to the profitability headwinds and to position the company for long term profitable growth, we initiated a restructuring plan during the second quarter of 2019, which extended into the first part of the third quarter. These in these initiatives include headcount reductions of approximately 10% of our global headcount acceleration of cost synergies from recent acquisitions in 2019, and the reduction of a number of discretionary operating expense categories. 2019 results will include a onetime severance restructuring charge totaling approximately $1.9 million spread over the second and third quarters, which has been incorporated into our rest of year guidance.
The head count reductions are expected to provide gross annualized savings of approximately $8 million, though were realized some though will realize some of these cost savings in the back half of 2019.
From an operating expense perspective, we'd expect full year 2019 operating expenses to be approximately 30% to 31% of net sales and expect the $8 million in gross annualized savings to be achieved during 2020.
I also wanted to quickly discuss what we're doing as a company to address the impact of tariffs given the recent news from the Trump administration late last week first let me give a quick recap of the tariff increases and the impact of Zagg over the last 12 months on September 24th of last year, a 10% tariff was levied and begin to impact our screen protection and wireless charging pad products sourced from Chinese factories for competitive reasons, we absorbed this tariff and worked with suppliers to offset the burden with product cost savings, which we were largely able to achieve.
On May 10th 2019, the Trump administration increased tariff rates on screen protection and wireless charge pads from 10% to 25%.
Given the impact of gross profit, we began working with customers to communicate that these costs will be passed along and that the wholesale price for these impacted products would increase our goal is to remain margin dollar neutral and given current estimates and discussions with customers. We believe we're on a path to achieve this last Thursday, President Trump tweeted that effective September Onest 2019 tariffs on the remaining $300 billion of goods imported from China would increase by 10%.
For Zagg that includes the remainder of our products sourced in China.
Consistent with our previous actions taken were working closely with factories to further reduce product costs exploring alternate manufacturing facilities outside of China, and we're approaching customers to notify them that will be passing along unmitigated tariff increases through increases in the wholesale price. The ultimate goal is to remain margin dollar neutral.
Last I wanted to spend a few minutes discussing our guidance for 2019 and what changed from our last call.
As Chris and Ive mentioned, we've experienced a number of headwinds, including the reduction in smartphone handset sales, which has continued to soften throughout the first half.
Up until the end of June our forecasting process for off for fall OEM device launches assumed a launch consistent with last year, but reduced for the reductions in sell through that we've experienced thus far during the year our sell throughs continue to soften during the first half our forecast for the fall launches has also continued to decrease.
Starting at the end of July at the end of June and into July we began receiving specific customer forecast for the fall OEM launches and found that customers.
Customer forecast for the initial load ins and subsequent sell through was well below our original expectations.
Generally the outlook for smartphone unit sales in the second half of 2019 is expected to be lower than originally projected as it appears many consumers will delay a smartphone upgrade until fiveg phones networks and content are available in fall 2020.
This sentiment has been echoed and recent research reports by industry analysts and earnings releases from both component manufacturers and Oems given these headwinds and specific customer feedback we've made adjustments to our full year 2019 guidance range. Net sales is now estimated to be $520 million to $550 million compared to our previous guidance range of $610 million to $630 million.
Gross margins are still expected to be in the mid thirtys as a percent of sales.
Operating earnings per share, which excludes the tax effected impact of transaction related expenses, including amortization from gear for Halo and Brave and is now estimated to be a range of 75 cents to one dollar per share down from the previous range of $1.47 to $1.60 per share on an expectation of approximately 29.7 million shares outstanding.
We use operating earnings per share to help provide an easier apple Apple to apples comparison with the prior year as it excludes the impact of tax related expenses, sorry of acquisition related expenses.
We continue to estimate our annual tax rate at this time to be approximately 25% and we'll provide updates as we progress through the second half.
Adjusted EBITDA for 2019 is estimated at $52 million to $62 million down from the previous estimate of $82 million to $86 million. The vast majority of the decrease in second half forecasted net sales net sales is directly linked to sales of screen protection, our highest margin product category and new power products with gross margin is projected to be higher than our historical average for power.
Although we'll achieve operating expense cost savings during the second half from the restructuring activities. The loss of these heart high margin sales coupled with other operating expenses that are largely fixed has resulted in the reduction of our profit compared to our prior guidance free cash flow, which we define as adjusted EBITDA minus Capex and cash tax expense is estimated to be approximately $43 million with regard to the timing of revenue in the second half.
We expected Q3, Q4 mix fairly consistent with our historical average other than the fact that we're projecting the bulk of the Halo loadings at QVC will occur during the fourth quarter. Thus, we would expect third quarter revenue to be approximately 40% to 42% of the second half total.
With that we will now open up the call for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key and you touched on Kelly's found again that side then the number one key on you touched on telephone. If your question has been answered or you wish Jay movie Safran Mchugh. Please pass the counties.
Your first question comes from the line of Mike.
With Craig Hallum. Your line is now.
Hi, yes. Thanks, Thanks for taking my questions I'm just.
Trying to focus a little bit on the on the backend here can you take us through again, what you think.
You said in the release that the tier four and the Halo business was running above expectations.
Just give us a sense of what your expectations were with regards to those again and then where you think that they are going to be now just so we get a sense of the impact of the shortfall in the screen protection.
Yes, so I think we guided at between five and 10% growth for the acquisitions Mike.
I can tell you we're tracking a bulk desks expectation so strongly to double digits accrual ticking gear for.
We had some nice placements in the first two quarters, which leads us to believe we're in a strong position in the second half.
And Haidl, primarily as we've always mentioned is very back end driven in terms of the HSN and QVC channel and visibility on the appeal was that we were receiving already puts that business.
Life or needs to be an above in terms of the the geysers gateways.
So we feel good about the acquisitions and where they're heading.
Okay, and when you take a look at the orders that are coming in.
Are you getting the sense that.
And as you look at your mix between Android and Apple is there a particular.
And is it more particular weakness with regards to the to the iOS side versus the the Android side.
No it to meet to be honest, Mike with both those brands. It's all new doors. This new distribution for us. So we haven't tracked one one OEM versus the other and when you look at Halo, it's actually non device specific so its more audio and it's more general Paul or that we're rolling into HSN QVC. So we don't have any device specific data on data.
Okay actually my question was related to the weakness regarding screen protection, particularly with the Fiveg cycle. That's ahead of US just trying to see if there is a.
Sense of.
Of the impact of that cycle within those brands.
Yes, I would say we're seeing it across all all this to me to be fair run and I think the some of the reports that you would have seen from some of the Oems will reflect that but I mean the.
There is no more I can say in terms of from a specific brand, but were seeing softness across all.
Okay, and then just a final question with regards to working capital, obviously, a pretty big use of working capital in the first half so far.
Just to give a sense of your free cash flow estimates of $43 million, where do you see working capital for the year winding up.
Yes, I think.
Mention some of the headwinds with regard to inventory out we certainly expect to burn down.
Inventories are progressed throughout the year.
And so I'd expect that we'd be using working capital between the inventory and also a are to drive that.
That improvement in free cash flow so.
As we move throughout the year and I mentioned the inventory turns specifically, we'd expect those to be back to kind of more historical levels. Once we've kind of worked through this tariff inventory and some of the other excess that we have as we support back half of the year growth.
Okay. Thanks for taking my questions.
Thanks, Mike Yes.
Thank you we have your next question coming from the line of Dave King with Roth Capital. Your line is now.
Thanks afternoon guys.
I guess first off on Hey, So I guess first off on the restructuring.
Did you say that that it's about 8 million in savings they expect to realize on that thats going to be mainly in.
In 2020.
Taylor.
Yes, so what I said was approximately $8 million in gross savings.
So in terms of head count reduction and in a straight costs that will be saved over an annualized basis, we'll start achieving some of those savings in the back half of the year approximately 3 million on a gross basis.
But.
To help provide some guidance as to what this might mean to next year.
On an annualized basis, the gross numbers approximately $8 million.
Okay. So then.
As I think about the geography of that in terms of the 3 million and then maybe the 8 million how much that's coming out of.
Cost of goods sold versus.
Opex to get to those the mid Thirtys gross margin guidance, you gave and then the Opex guidance you gave.
So the so with those particular items are all operating expense.
Essentially all.
Head count reduction.
Okay. Okay.
Switching gears a bit in terms of the.
The second half guidance, if you will for for revenue growth looks like it's for kind of 14 percentage growth versus the down 10.
You had this quarter, how do you see that playing out by by quarter between third and fourth.
Yes, So I mentioned in my remarks, we'd expected to be pretty consistent with historical numbers other than the fact that halo is primarily going to be a Q4 loaded. So approximately if you look at the Q3 Q4 mix it will be about 40% to 42% third quarter and then the balance in the fourth.
Okay.
And then it sounds like the acquisitions in terms of Halo and gear for.
Based on your remarks, Chris It sounds like Thats up maybe low double digits call. It 80 million of annual contribution from the acquisitions.
Does that sound right I guess, how much did they contribute in the second quarter and then sort of what are you. What are you thinking for the second half from those.
I would say I think of the the equal rate more more mid to high in terms of the double digits.
Dave.
So okay.
That's where we would be with us for the second half yes.
And then how and how much did they contribute in the second quarter.
The contribution second quarters, approximately $16 million.
Okay, great so it's better than expected.
And then I guess lastly for me.
In terms of the guidance in the kind of $42 million of of incremental revenue you expect in the back half sounds like the acquisitions are the bulk of that in terms of the offsets.
It sounds like iPhone.
Launch going slower is going to be an offset but how much of a contribution do you expect from from juice packs now that you have.
You don't need to amplify approval any more how much of an incremental benefit do you expect to get from that.
Yes, if you look at the back half of the year, we've kind of talked about this directionally.
I don't think we're going to get back to the 2017 days, but we certainly expect growth over last year in the back half of the year.
We've talked about.
How was successfully been in the past with launching after an Apple launch the best we've ever done was in late December .
Up 17, when we got products launch, we would expect we'd be able to do a little bit better than that this year certainly kind of in your November timeframe and so.
There is getting it in before holiday.
We'll definitely be incremental to us in the business, but again it should.
We should be over last year, but not over the 2017 year, yes, I'd just add to that has been to exit the reception on the product assessment is being very very encouraging.
From consumers and feedback et cetera, So we feel really good about it.
The latest NPD data shows that reflects that light. So we back at 51% market share. So we feel good about the new spec gases Asia.
Okay perfect. Thanks for taking my questions and good luck with the rest there.
Thanks, Dave Thanks, Dave.
Thank you Mark.
Question coming from the line of our yet Albert with da Davidson. Your line is now.
Great. Thank you for the questions.
Wanted to first half.
How should we think about your ability to continue to grow the business during that time.
When the smartphone industry experience is experiencing a decline and then secondly, if you could speak to where specifically that 10% cut in head count will come from.
Thanks.
Yes, so I'll take the first question data and then I'll pass over to you on the the cost restructuring. So in terms of how are we going to make sure. We continue to grow at if it's all around product launches for us states opening new doors and innovation. So we have a lot of exciting new products slated for Q3 in Q4, we feel really really strongly that movie.
Well, except that small patently base. So for us its continued what we do and it's all around product and our distribution footprint in terms of growing new new doors, particularly international space with values. So the it continues to be opening new doors, most recently Latin America as Bina.
An eye opening growth area for us that it's taking off really really quickly. So we continue to look at fueling our international growth and as well as the North America growth.
And then in terms of what was your question.
What departments do we tend to see it or Geos did we.
Remove heads as part of the cost structure.
Yes exactly.
Yes, so I mean, the head count reductions is really it was a global initiative and and really we looked across departments and looked at areas in which we believe we can be more efficient in terms of product development.
Marketing back office and ultimately we had some make some very difficult calls.
To remove some people from the business, we have a great team globally, but.
As we looked at the back half of the year and clearly experienced some headwinds in the first half in terms of profitability. The goal was to set ourselves up for success. This year, but really set ourselves up for long term success and so like I said globally, we had to make a number of tough calls across all departments.
And ultimately we arrived at about $8 million in annualized savings, yes, just to confirm an impacted every one of our geos yeah.
All right. Thank you.
Thanks Dennis.
Thank you we have your next question coming from the line of Jon Hickman with Ladenburg. Your line is now.
Hey, thanks.
Chris could you elaborate a little more.
On.
Your expectations for.
Maybe next year as the Fiveg being.
Starts to take off yet.
I mean, how are you going to rebound.
It's hard to say, how big is that revolve be John because its all going to be based on the number of devices that come with Fiveg enabled how quickly the network in the infrastructure gets rolled out but speaking with our partners.
They are all very encouraged about what fiveg would do for the industry and they expect that it's a it's a one to two to three year roll always not Colombia.
One Big Bang I think is going to be extended over a number of years and essentially no.
I really see it as the Nextera.
The next big growth engine for for the entire industry. So we feel good about it then.
As you read into the technology I think we're uniquely placed without products, we have to take advantage of it so.
Overall.
Very pleased with the rollout of Fiveg want to compete for us.
So.
So.
I know that Fiveg phones are going to like give us more speed and we'll be able to.
Do things faster what's happening to the.
Battery life on the power side.
Yes, so what we would have our vascular business.
Yeah, what we're reading and learning and John is a it is more power hungry consumption. So I think it's a really nice unique opportunity for the multi brand to to be able to attach on to Fiveg is as it is more hora consumption required.
Okay. Thank you appreciate it.
Thanks, John Thanks, Joe.
Thank you.
And do you have your next question coming from the line of staff Vance in Darien mid Valley FBR. Your line is now.
Hello. This is Richard Magnuson in for Jeff Van Sinderen. Thank you for taking our call. My first question is in EMEA.
Sure if I missed this how much do you expect the legacy screen protection to be down this year and then out of all your.
Your your revenue lines, where do you expect the biggest shortfall for this year.
We have a guide we don't guide specifically by the category level, but I can tell you that on a year over year basis. There's couple of things to consider so when we compare 18 to 19, we've talked about.
Couple of headwinds one of them being that we pulled some revenue into 2018 in anticipation of what we thought was a it was an increase in in tariffs on on January Onest.
So as we've looked at that over the last couple of months to try to get an idea. So ultimately how much that was because at the time. We estimated at approximately was six to eight weeks of inventory, but with a slowdown in handset sales, it's clearly made it longer than that so.
Between that load and last year, and then the expectations for this year and creates a bit of a.
Unusual comparison 2018 to 19, I think certainly we expect screen protection to be down.
On a year over year basis, but.
Yes.
Other than that we don't provide specific guidance at the category level.
Okay.
Okay, and you mentioned the tariff you mentioned in the call about perhaps moving some of your.
Your business outside of China could you give any more details on that regarding maybe the timeline.
Yes, so right now Richard we have one or two CN that we patent with that are actually in the process or have moved already so.
It's going to be an ongoing process for us and by category.
But I would expect that.
Through the course of 2019 the back half 2019, we'll see another one or two CMS that we work with closely move production facilities, and NGL 2020, depending on where where we land and tariffs.
I would expect that we should see more of that type of a shift from a production perspective.
Okay, and then just a final question regarding.
Acquisitions are there any other product categories for you may consider adding to your portfolio.
Yes for sure. So we're always looking at it in terms of what makes what makes sense for us as a company.
We have a dedicated business development group. So we have a number of opportunities we're looking at but we have nothing stands right now.
All right well, thank you very much.
Thanks, Ritu Thanks Richard.
Thank you I am showing no further questions at this time.
I would now like to turn the conference back to Mr., Chris Okay.
Thank you.
Thank you all for joining us for the Q2 earnings call and I look forward to updating again in our next call. Thanks for joining us.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful goal you may all disconnect.