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Zagg Inc (ZAGG) Q4 2019 Earnings Call Transcript

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ZAGG earnings call for the period ending December 31, 2019.

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Zagg Inc (ZAGG)
Q4 2019 Earnings Call
Mar 11, 2020, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by and welcome to the ZAGG Fourth Quarter 2019 Earnings Conference Call. At this time all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker Brendon Frey. Thank you. Please go ahead, sir.

Brendon Frey -- Managing Director

Thank you, Justin. Good afternoon and thank you for joining us today to review ZAGG's fourth quarter 2019 financial results. On the call today we have Chris Ahern, Chief Executive Officer and Taylor Smith, Chief Financial Officer. Following Chris and Taylor's prepared comments, we will open the call for a question-and-answer session.

Our fourth quarter earnings press release was issued today after the market closed at approximately 4:05 PM Eastern Time. As a follow-on to the earnings release, we published the supplemental financial information on our Investor Relations website. And we also furnished this document to the SEC on Form 8-K. You can find all of our earnings documents on our Investor Relations website at in the quarterly results section under the Financials tab. We are recording this call and a podcast of the conference call will be archived at the ZAGG Investor Relations web page under the Events tab 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 or 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 in the forward-looking statements, we refer all of you to the risk factors contained in ZAGG's annual report on Form 10-K and quarterly report on Form 10-Q filed with the Securities and Exchange Commission. ZAGG assumes no obligation to revise any forward-looking statements that may be made in today's press release or call.

Please note that on today's 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 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 now I'd like to turn the call over to Chris Ahern. Chris?

Chris Ahern -- Chief Executive Officer

Thank you, Brendon. Good afternoon and thank you for taking the time to join us today. Our fourth quarter revenue increased 14% year-over-year to $190 million, which represents our highest growth rate in some time and a quarterly top line record for the Company. In terms of our performance versus expectations, full year revenue came in just below the low end of our guidance range, while adjusted EBITDA fell short of our projections.

It proved to be a more challenging holiday season than planned. Many of our retail partners experienced lower overall demand in our key categories due in part to the shorter selling period between Thanksgiving and Christmas and continued softness in device sales.

To help drive sales, we increased our advertising spend and ran incremental promotions with several major accounts. While this had a positive impact on sales, it didn't generate the amount of replenishment orders that we had hoped as many retailers chose to end the year with leaner inventory levels. We also experienced some cost overruns from our newly acquired brands and greater pressure from tariffs in the fourth quarter as we were not able to fully offset or pass it on the full extent of the price increases we had planned. In the end, the combination of higher spend, tariff headwinds and an unfavorable channel and product mix versus expectations resulted in our EBITDA falling short of projection. Despite how the fourth quarter unfolded, there are a number of takeaways from 2019 that give us reason to be optimistic about our business in 2020 and beyond.

Our three acquisitions Gear4, HALO and BRAVEN, which we acquired in late 2018 and early '19 respectively, contributed approximately $83 million in revenue in 2019, up over 20% over 2018 levels. During 2019 we made great progress and significantly increased in distribution for Gear4 in the US. Following a successful test in a number of Verizon doors in May, we rolled out to all the door locations in September.

During the back half of the year, we also added doors at AT&T, Sprint, Target as well as several others. We began 2020 with approximately 27,500 domestic points of distribution for Gear4 compared to roughly 9,500 at the start of 2019. Over the past 12 months we have also expanded and evolved Gear4 product offering launching new case designs compatible with several new OEM devices from Apple, Samsung and Google. Consumer response to the brand and its differentiated D3O technology has been very encouraging and we are focused on continuing to build awareness among US consumers in the coming year. During 2019 Gear4 gained two points of market share going head to head against established brands. We fully expect our market share to continue growing in 2020 and beyond.

As we've discussed in the past, the acquisition of HALO brought with it a great portfolio of power products along with strong relationship with the Home Shopping Network and QVC, a direct-to-consumer channel that ZAGG had not developed prior to this transaction. During the fourth quarter HALO was regularly featured in QVC in sales, particularly for the brand as their broad line-up for vehicle starters were very strong. While this business has historically been quite seasonal with the majority of sales events occurring during the third and fourth quarters, we are working on increasing the brand's channel presence during the first half of this year.

During 2019 we also made headway securing sales opportunities for some of our other brands on HSN. For example, we launched a portfolio of IFROGZ branded true wireless earbuds and a multi-power skew [Phonetic] during the second half of 2019. Based on performance, we're looking forward to a successful relationship with HSN.

While it is the smallest of our three acquisitions, BRAVEN had a busy Q4 adding 1,100 new doors. In the fall, we launched an all-new rugged, portable speaker product line featuring durable shockproof and waterproof construction while delivering exceptional sound quality. These products have been very well received and we expect BRAVEN contribution to our overall results to continue to grow in 2020.

In terms of our core business, our domestic screen protection market share has stabilized at approximately 45%, number one in the industry by a wide margin. InvisibleShield continues to lead the category through innovation. 2019's product launch was highlighted by the Glass Elite VisionGuard+ suite of products that offers maximum breakage protection while also protecting the health of your eyes. Our newest innovation is an antimicrobial solution which is integrated into the screen protection and will continue to protect the consumers against 99.9% of harmful bacteria for as long as the screen protection [Phonetic] remains on the device. At CES in January, we announced that all future InvisibleShield product launches will feature this antimicrobial technology.

Innovation will continue to drive the business forward in 2020 as we have a great product pipeline that will further enhance the consumer experience and allow us to maintain and grow price points at retail.

We've also seen good success with the product segmentation strategy in [Phonetic] addressing entry level or value price points, which we implemented in mid 2019. As I mentioned, our screen protection market share has stabilized at approximately 45% since this strategy has been implemented.

Internationally our screen protection business is enjoying great momentum driven by the success of our use of this strategy in which we invested heavily during 2019. In 2019 we installed InvisibleShield On Demand machines in over 2,900 additional wireless carriers and retail doors across Europe and Latin America, bringing our global installed base to over 6,200 units at the end of 2019. These productive new doors along with additional accounts planned for ISOD in 2020 will continue to serve as a mass [Phonetic] component of our growth going forward. At the same time, we continue to work toward replicating the success we've had with ISOD overseas here in the US by expanding its availability beyond our current network of roughly 620 CPR stores and ZAGG franchise locations.

In 2020, we plan to roll out further 4,000 machines across four key markets, Europe, North America, Latin America and Asia-Pacific growing our global installed base to over 10,000 units.

Mophie's year was highlighted by launch of several new products at Apple retail stores where we expanded our offering with a full line of cables and new wireless charging solutions, including two multi-device wireless charge pads designed to work with a variety of devices within the Apple ecosystem. We also launched a new wireless charging solution across most of our retail partners and we're very pleased with the sales we're seeing. In fact, the wireless products were so successful across our partner base and sold well above our forecast, which resulted in us chasing supply through the fourth quarter and into the first few months of 2020. mophie ended 2019 as the number one brand in wireless charge pad category with a 31% market share.

Midway through 2019 in response to the challenges faced by ZAGG and the industry at large, we implemented a series of cost initiatives in order to put the Company in a stronger position and drive long-term profitable growth. They include; one, reducing our global headcount by approximately 10%; two, accelerating some synergies from recent acquisitions; and three, decreasing the number of discretionary operating expense categories. These actions generated approximately $8 million in gross annual savings starting in 2020. More recently, we've identified opportunities to increase cost savings related to our 2018 and 2019 acquisitions and efficiently deploy marketing spend globally, better leveraging ISOD investments and have invested in resources to have improved inventory forecasting and management. We expect a year-over-year decrease in total opex expense and improvements in inventory terms.

We also announced last summer [Phonetic] that the Board of Directors retained Banc of America Securities to assist the Company in exploring strategic alternatives to maximize shareholder value. It was a very thorough and rigorous process during which we engaged with approximately 60 interested strategic and financial parties. We've provided a thorough summary of the process in the press release filed earlier today. Based primarily on the challenges the business faced during 2019, which include a softer demand for devices, the impact from tariffs and a more than difficult expected holiday season, offers for the Company were significantly below current stock price. The Board therefore unanimously determined that delivering on the Company's long-term strategic plan is the best path to driving share -- stockholder value. In the event we receive future transaction interest, the Board would welcome the opportunity to evaluate any transactions that can maximize stockholder value.

In 2020 our key priorities under the long-term plan are, continue to drive innovation in product categories that address consumer pain points, execute strategies and an increasing market share on our core product categories, capitalize on the rollout of 5G in the second half of 2020 by launching innovative products that protect and enhance 5G enabled devices, improve profitability through optimization of our operating expense structure and improve inventory management.

We feel we have the right long-term strategy in place to grow sales and increase profitability. That said, based on the past two years and how they have unfolded with several external headwinds beyond our control and taking into account the current challenges and uncertainties being caused by the outbreak and spread of coronavirus, we believe at this point it's prudent to guide a full-year 2020 revenue consistent with 2019 with improved profitability to $48 million. Our objective is to exceed this target and we look forward to updating you on the progress, especially as we get a better understanding of the impact of coronavirus and visibility into the rollout and adoption of 5G become clear in the second half of the year.

As it relates to the outbreak of coronavirus, it's obviously a very fluid situation that we continue to monitor closely. We have taken safety of our employees and our partners as top priority. This has resulted in a corporate travel ban to and from Asia, no country to country travel within Europe, within the US we have restricted travel to essential travel only and we will continue to monitor the situation in the US closely. Our China-based team has predominantly been working remotely and have done a great job working with our manufacturing partners minimizing supply chain impact in Q1. The biggest impact that we currently see in Q1 would be an increase in logistics cost based on having to secure airfreight, etc. Our 2020 outlook is based on what we know right now and we will provide updates depending changes in the future.

I'll now turn the call over to Taylor, who will review the financials and guidance in more detail.

Taylor Smith -- Chief Financial Officer

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 fourth quarter financial performance. Q4 net sales increased approximately 14% to $190 million, in line with the low end of our guidance range. The year-over-year increase was driven by increased sales of protective cases under our Gear4 brand and increased power management sales driven primarily by HALO product sales and new mophie wireless product launches during the second half of 2019. These increases were partially offset by lower sales of screen protection and power case products compared to last year. At the beginning of 2019, we estimated our newly acquired Gear4, HALO and BRAVEN brands would grow by approximately 10% over 2018 levels. It was great to see these brands grow by over 20% and we expect solid future growth in the years to come.

Gross profit as a percentage of net sales remained flat, but we saw upside from an increase in sales of Gear4 cases and HALO power products. These improvements were offset by increased duties from products manufactured in China, a decrease in sales of our screen protection products and a shift in our channel mix.

As we mentioned on the first -- or on the last earnings call, there are several levers, we've attempted to pull to mitigate the significant increase in tariffs that we've experienced in 2019. Those levers have included; one, negotiating price reductions with manufacturers; two passing along tariff increases to customers; three, purchasing inventory in advance of tariff increases; and four, exploring the movement of manufacturing out of China. These efforts were largely successful during the first three quarters of 2019. However, given the significant increases that went into effect late in the year we struggled to offset a significant portion of the tariff increases which impacted both our gross profit as well as duties capitalized into inventory during the fourth quarter.

Although we did achieve cost-downs with our factories, many of those price reductions were not realized until late into the fourth quarter. In addition, due to the competitive nature of the categories that we compete in, we found it extremely difficult to pass along the duty increases to customers as we had originally projected.

As we look into 2020, we're pleased that the Trump administration provided a waiver on our wireless charging products and in mid-February, further reduced tariffs by 7.5 percentage points on a number of our categories, including mophie power stations and juice packs, InvisibleShield film screen protection, Gear4 cases and BRAVEN and IFROGZ's bluetooth speakers and headphones. Although these tariff decreases combined with the cost-downs achieved with our factories will provide some relief from the tariff increases in 2019, we still expect tariffs to be a margin headwind throughout 2020 which has been incorporated into our 2020 guidance.

Q4 operating expenses increased 20% or approximately $7 million compared to last year, due primarily to the full quarter impact of Gear4 and HALO operating expenses including some unanticipated cost overruns in the fourth quarter, increased marketing investments to support second half product launches as well as to drive sell-through of our growing portfolio of brands, products and channels during the holiday season, and last, additional investment in our InvisibleShield on Demand infrastructure. These increases were partially offset by a Companywide restructuring, as Chris mentioned, that was executed during the third quarter of 2019.

Q4 adjusted EBITDA was $31 million versus $28 million in the prior-year period. Although, we saw growth compared to the prior year, Q4 results fell short of our expectations. The key drivers that impacted adjusted EBITDA relative to guidance included some unmitigated tariff increases, product and channel mix shifts and operating expense overages, particularly with our newly acquired brands. Despite these headwinds to profitability we're confident in the strategy we have in place and expect 2020 to be a year of adjusted EBITDA margin improvement.

Turning to the balance sheet, compared to a year ago accounts receivable decreased 9% to $143 million and DSOs improved significantly from 87 days to a more normal level of 69 days. Despite some headwinds from increased terms internationally and with key US customers, DSOs benefited from the timing of sales during the fourth quarter of 2019 versus the prior year. The quality of our receivables remains very good.

Inventory was $145 million compared to $83 million at the end of 2018 and $138 million at the end of the third quarter of 2019. The key drivers of the increase in inventory were; one, incremental inventory associated with our acquisitions; two, duties and freight capitalized in inventory; three, inventory growth for international markets to support that growing business; and four, some excess inventory linked to the decrease in demand for handsets in the US. Despite the increased inventory position, the excess SKUs are largely current product, which has helped to mitigate some of the tariff impacts during 2019 and alleviate some of the supply chain constraints in China due to the coronavirus.

Consolidated inventory turns, excluding capitalized duties and freight, was approximately 5 times, down from 7 times in the prior year. We expect to get back to approximately six turns by the time we exit 2020.

Net debt, which is consolidated debt less cash, increased to $89 million compared to $43 million last year. The increase was due to cash used for the HALO acquisition of approximately $20 million, $1 million for share repurchase and the remaining to fund ongoing operations, including expenses associated with our newly acquired brands and second half 2019 tariff increases.

With regard to our free cash flow, our priorities have consistently been to service our outstanding debt, repurchase stock, fund tuck-in acquisitions, and last support internal growth initiatives. Given our recent M&A activities and 2019 business headwinds, our focus for the next several quarters will be on paying down the debt to give us flexibility down the road, including the ability to opportunistically buy back our stock in the second half of the year.

Our year-end gross debt was $107 million and until it's below $100 million, we are prohibited from repurchasing stock under our existing credit agreement. During 2019, the Board approved a $20 million stock repurchase authorization that is still active with the entire $20 million available for future buybacks. We'll revisit our capital allocation as we move through the year.

Last, I wanted to just spend a few minutes discussing our guidance for 2020. As Chris mentioned, although we are confident in our strategy and expect 5G technology to contribute a long-term uplift to our business, given some of the macro uncertainties that could impact the business, particularly in the second half, we have decided to take a more prudent approach to guidance for 2020.

We are forecasting 2020 net sales flat with 2019. The key assumptions built into this guidance include, increased first half sales from our core business and the recently acquired Gear4, HALO and BRAVEN brands offset by challenging comparisons in the second half combined with some uncertainty related to the impact of 5G technology in 2020 and the potential impact of the outbreak and spread of the coronavirus which has created a fluid situation, both from a supply perspective in China and a retail perspective in the rest of the world.

We did experience some delay in our Chinese factories coming back online in the first quarter after Chinese New Year, but have good line of sight to delivering on the vast majority of the customer demand during the quarter though we will incur approximately $2 million in incremental expedited airfreight charges during the quarter. Our current guidance is based on what we know now and we'll provide updates if anything changes down the road.

Gross margins are currently estimated to be in the mid 30%s as a percent of sales, roughly flat compared to 2019. This takes into consideration product cost-downs at factories and product category mix improvements, including a higher mix of screen protection and cases, offset by a full year of the increased duty rates and the additional airfreight that I mentioned. We estimate our annual tax rate at this time to be approximately 25% and we'll provide updates as we progress through the year. We estimate 2020 diluted earnings per share to be approximately $0.50 on approximately 30.1 million shares outstanding.

Adjusted EBITDA for 2020 is estimated at $48 million or approximately 9% of revenues. This assumes an overall reduction in operating expense during 2020 as a result of the restructuring activities during 2019 as well as other cost-down initiatives. One important call out in our business model, any incremental sales and associated margin above our current guidance would come with very little incremental operating expense and therefore the percentage flow-through to the bottom line would be very meaningful.

While we don't typically provide quarterly guidance, given the number of moving parts and that we're more than two-thirds the way through the first quarter, we wanted to share some specific details to help you understand the change in our year-over-year performance.

We currently estimate Q1 2020 sales to be in a range of $90 million to $94 million compared to $79 million last year. We're projecting Q1 adjusted EBITDA to improve to negative mid to low single digit range, compared to negative $9 million in the first quarter last year with further improvement in the second quarter versus the prior-year period.

With that, we will now open up the call for questions.

Questions and Answers:


Thank you. [Operator Instructions] And our first question is going to come from Mike Malouf from Craig-Hallum. Your line is now open.

Mike F Malouf -- Craig-Hallum Capital -- Analyst

Great. Thanks for taking my questions. If I can just talk about InvisibleShield first. It sounds like you maintained market share for a couple of quarters now. Can you just give us a little bit of insight into what's going on with that market and how attach rates are going? Are you seeing attach rates go down a little bit? Just kind of an overview of what's going on with the InvisibleShield market would be helpful. Thanks.

Chris Ahern -- Chief Executive Officer

Yeah. Thanks, Mike. So firstly in terms of attach rates year-on-year Q1, we're actually seeing ourselves quite strong over -- showing over last year. So demand is clearly there for the product. I think what we've done from a segmentation perspective has really helped to solidify our market share. So for instance, being able to capture the value price point, but also be able to attain the higher MSRPs with the InvisibleShield brand. So all in all, we're very happy with how the segmentation strategy has played out and we're seeing the demand reflect that in Q1 as well.

Mike F Malouf -- Craig-Hallum Capital -- Analyst

And what would you say is your average unit price difference between, say, at the end of '19, given some of the changes you had versus, say, the end of '18 or even the end of '17? What would you see the average cost per shield?

Taylor Smith -- Chief Financial Officer

Yeah, good question, Mike. It's gone down slightly, but I'd say it's not materially different. I think what the strategy has enabled us to do is hit some of those lower price points, which although not a terribly significant portion of our overall sales, has just allowed us to maintain the share that we were at. So overall it's probably a couple of dollars of total sell-in, but still fairly consistent with what we saw last year.

Chris Ahern -- Chief Executive Officer

And we've maintained our gross margin percentage well on that segmentation.

Taylor Smith -- Chief Financial Officer


Mike F Malouf -- Craig-Hallum Capital -- Analyst

Okay. And then just on inventories, it looks like you had some continued sort of pressure there and you've sort of gave a list of four things. I'm just wondering if you could just give us a little bit more detail surrounding the specific on the duty side.

Taylor Smith -- Chief Financial Officer

Yeah, it's a good question. So as part of inventory any freight and duties that you used or that you pay to bring the inventory to your location and prepare it to sell gets capitalized into your inventory. And so if you kind of compare year-over-year, and this is a combination of both -- some increase in inventory and then also the rate increase with the tariffs, particularly in the fourth quarter, capitalized freight and duties increased by a little over $20 million. And so, if you compare kind of where we were at Q3 with where we ended in Q4 on a straight inventory perspective, we're actually down, but obviously we're up because of the capitalized freight and duty. So it was -- definitely meaningfully contributed to the increase in the fourth quarter as far as inventory goes.

Mike F Malouf -- Craig-Hallum Capital -- Analyst

Okay. And then just one final question on the acquisition, strategic review process. You said that you had -- I think I've read it right, you didn't get any bids that were above the stock price. One, is that how I should read it? And then two, perhaps you could provide just maybe some insight into what the acquisition or what the acquirers or potential acquirers or what the thought process was if you've got any feedback.

Chris Ahern -- Chief Executive Officer

Yeah. So I would say, Mike, you read it correctly. That's how you should read this. In terms of the potential buyers at the time, some of the concerns, mainly around the uncertainties around tariff. We had more difficult holiday season, some softer demand, all of those combined didn't help within in the process and they were some of the key concerns.

And then obviously toward the back end of the actual process itself, as we got into February, coronavirus didn't help either, but I would say not the key differentiator, but didn't help in terms of instilling confidence.

Mike F Malouf -- Craig-Hallum Capital -- Analyst

Yeah. Okay, thanks a lot for taking my questions.

Chris Ahern -- Chief Executive Officer

Thanks, Mike.

Taylor Smith -- Chief Financial Officer

Thanks, Mike.


Thank you. And our next question comes from Thomas Forte from D.A. Davidson. Your line is now open.

Chris Ahern -- Chief Executive Officer

Hey, Tom.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

Thanks for taking my question. So the first one I had was with the tariffs in '18 and '19 and then more recently the coronavirus, how should we think about the long-term role of China as it pertains to your supply chain?

Chris Ahern -- Chief Executive Officer

Yeah. So I would [Technical Issues] for us, the way -- with the tariffs and all new products going forward we are designing the products with the tariff in mind. That's not to say that we are looking at alternative supply chain or CMs outside of China. We have one or two CMs already where we're doing trials. But ultimately it's going to take some time. So for us the key is to continue to drive cost down of the product, but also develop a product with tariffs in mind. Hope it answers.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

Okay. But is there a -- do you think that long term you'll diversify your supply chain to be less dependent on China?

Chris Ahern -- Chief Executive Officer

Yeah, for sure. But just going back to my second point, that's going to take some time. So I would say over the course of the next 12 to 18 months we'll see some diversification and -- primarily on some of our larger type categories is where we are -- we're going to be doing that. So for instance wireless charging, we've already got a pilot ongoing in Vietnam where potentially we can shift production to. But yeah, we will be diversifying on production sites.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

And then my second question is, so when you talked about the -- again, thinking about the coronavirus and then projecting the flat sales for this year, you talked about the current state of the supply chain and how you may have some incremental cost as far as airfreight. But does that mean that trying to stabilize there? And then also what are your thoughts from a -- does that also mean forecasting in potentially soft demand for some of the geographies that have been hit harder? So is it a combination of reflection of supply chain and potentially demand softness?

Chris Ahern -- Chief Executive Officer

Yeah, so let me approaches it in two different ways. So we'll start with the actual supply side. So we've been very fortunate. Our team really got ahead of us in Q1, Tom, whereby we were able to secure the majority -- the vast majority of our demand, our products for Q1. So in Q1, we are not seeing a major impact from it. However, as we progressed, particularly over the last two weeks, we had seen demand softening in our international footprint in particular. So for instance, Italy, as you would expect, is on lockdown. Lot of impact from less retailers going -- or less consumers buying in retail.

We're seeing some softening in other areas as well. So what we've done is -- we see good line of sight to Q1. We have a decent line of sight to Q2 whereby we are seeing some softening in demand in our international space. But we ultimately felt it prudent that we cannot tell you what is going to happen from -- basically from the end of Q1 onwards. It really is down to the coronavirus and how it's impacting in our footprint from a retail perspective.

But without caronvirus, I will tell you the first half we've got some good line of sight to our possibilities of distribution. So it's really the unknowns in the second half and that's why we felt it's prudent to keep the revenue flat.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

The last question. I think for InvisibleShield you had the last year was about protecting consumers from harmful blue light. And this year, I think you had some anti-microbial element which seems like your timing there is really fortuitous. Can you talk about that and can you talk about your ability to keep that product in stock?

Chris Ahern -- Chief Executive Officer

Yeah. So [Indecipherable] was very fortuitous and we've seen really strong demand for that product. We've been working really hard with the supply chain to make sure that we're able to service that. I will tell you, we're in a little bit of catch-up mode with that and that's primarily because of the DIP [Phonetic] and being able to integrate that solution into our screen protection. But we have good line of sight to be able to capture majority of it in Q1 and we feel strongly that we'll be able to do it in Q2 as well. But yeah, the product is proving very, very popular with both consumers and our retailers.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

Thank you for taking my question, Chris.

Chris Ahern -- Chief Executive Officer

Thank you, Tom.

Taylor Smith -- Chief Financial Officer

Thanks, Tom.


Thank you. And our last question comes from Jon Hickman from Ladenburg. Your line is now open.

Chris Ahern -- Chief Executive Officer

Hi, Jon.

Jonathan R Hickman -- Ladenburg Thalmann & Co. -- Analyst

Thank you. Like in the past your revenues have fallen about 40% in the first half and 60% second half. Do you still -- is that still how you see the year, given your uncertainties?

Taylor Smith -- Chief Financial Officer

Yeah, it's a great question, Jon. If you'd have asked me three weeks ago, I would have very confidently told you we were kind of 37%, 38% front half with the balance in the second half of the year. Given what's kind of transpired over the last three weeks and what we've seen in Italy and other parts of the world, I think there's probably a shift based on flat revenue guidance and what we're already seeing some nice growth in Q1 and a pretty good line of sight to Q2 that based on flat revenue we'd probably see higher sales certainly in the first half than we have historically.

And, as Chris mentioned, part of our guidance in the second half is just the uncertainty with regard to coronavirus and then also obviously 5G, and we expect that to be significant from a long-term perspective. It's just very difficult given all the other things going on in the macro environment to be able to accurately predict that, which is why we've guided flat.

Jonathan R Hickman -- Ladenburg Thalmann & Co. -- Analyst

Okay. And then can you explain to me again why the higher airfreight costs -- why are you airfreighting instead of on the water?

Taylor Smith -- Chief Financial Officer

Yes. Yes. So the -- all of our factories kind of at the end of January, they send their workers home for Chinese New Year, which is typical with Chinese factories. The return of the workers was delayed by the Chinese government because of coronavirus and because of those delays production has been somewhat delayed in a number of our -- with a number of our categories. And so in order to get the product [Technical Issues] customer demand it's required us to spend some more on airfreight to be able to get the product here on time.

Jonathan R Hickman -- Ladenburg Thalmann & Co. -- Analyst

Okay, I get it. Thank you. Appreciate it.

Taylor Smith -- Chief Financial Officer

Thanks, Jon.

Chris Ahern -- Chief Executive Officer

Yeah, thanks, Jon.


Thank you. And I'm showing no further questions. I would now like to turn the call back over to Chris Ahern, CEO for closing remarks.

Chris Ahern -- Chief Executive Officer

Thank you all for joining us for this quarter results. We look forward to updating you in our next call.


[Operator Closing Remarks]

Duration: 34 minutes

Call participants:

Brendon Frey -- Managing Director

Chris Ahern -- Chief Executive Officer

Taylor Smith -- Chief Financial Officer

Mike F Malouf -- Craig-Hallum Capital -- Analyst

Thomas Forte -- D.A. Davidson & Co. -- Analyst

Jonathan R Hickman -- Ladenburg Thalmann & Co. -- Analyst

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