LeapFrog 2013 Annual Report Download - page 4

While we are very proud of the great learning solutions we introduced in 2013, our financial results fell short
of our expectations. After a very strong 2012 performance with 28 percent net sales growth, our net sales in
2013 were down 5 percent year-over-year. The sales decline was due to a variety of factors including a very
challenging retail environment and increased competition. While this was our second most profitable year
in the last decade, income from operations was down versus 2012. Even with these declines and increased
investments in long-term strategic initiatives, we generated meaningful cash flow, and our cash balance at
the end of 2013 was the highest it has ever been at the end of our calendar year.
We remain encouraged by the progress we have made in transforming LeapFrog over the past few years
from an educational toy company to an educational entertainment company with a far greater focus on
content. We have introduced a brand new type of platform, a children’s learning tablet, established a very
large installed base of hardware, vastly expanded our content library, launched an app center, opened
our platforms to third-party content and introduced many accessories. We continued to build an online
community with parents and created online tools that give parents even more insight into ways to support
their children’s learning. Importantly, we also identified and started investing in strategic long-term initiatives
such as new platforms and content, international expansion, online communities and improved information
technology systems.
As a result of the actions we took, our financial results improved significantly. Over the last four years, net
sales grew at a 10 percent compound annual growth rate. We have also successfully expanded our reach
outside of the U.S., and international sales have grown from 19 percent of net sales in 2009 to 30 percent
in 2013. Income from operations improved from a loss of $8 million in 2009 to a gain of $35 million in 2013.
Additionally, our cash balance reflects a 28 percent compound annual growth rate over the last four years,
and we have no debt.
Our strong balance sheet and cash position provide us the opportunity to invest in our mission to help
children achieve their potential while also creating value for our shareholders. We will continue to develop
products that provide fun, engaging entertainment for children that are also filled with the nutrition of
learning. As we do so, we will continue to expand our reach in new geographies and in new types of
entertainment and also strengthen our capabilities to grow. Some examples of the actions we expect to take
in 2014 include:
We will continue to develop next-generation platforms and exciting content that offer unique learning
experiences to help children achieve their potential.
We have exciting new tablets planned for 2014 that will help us continue to be the market leader in the
kids’ learning tablet space. Importantly, too, we will expand and refresh our best-selling content library
with exciting new cartridges, books and apps. We are developing new content that can be accessed
beyond our platforms, as well. Already this year, in partnership with Lionsgate, we created and launched
the first of a series of Letter Factory Adventures™ learning videos, incorporating the next generation
of our popular frog characters. Our original Letter Factory™ continues to be one of the most highly
consumer-rated children’s animation videos with more than 2.5 million copies sold to date.
We will expand into new categories.
In 2014, we will introduce a new type of platform and other highly innovative new products with the goal
of diversifying our portfolio and expanding our current categories. These products have not yet been
publicly announced, but we are very encouraged by early consumer testing and private previews with
industry partners.
LeapFrog Annual Report 2013