November 4, 2015 Institutional Research

SEE LAST PAGE FOR IMPORTANT DISCLOSURES Page 1 of 5

Mike Malouf Senior Research Analyst 617-275-5175 mike.malouf@craig-hallum.com Ross Licero Research Analyst 617-275-5177 ross.licero@craig-hallum.com www.craig-hallum.com

Changes Previous Current

Rating: -- Buy

Fundamental Trend: -- Improving Price Target: -- $10.50 FY14A Rev (MM): -- $261.6 FY15E Rev (MM): $269.9 $270.7 FY16E Rev (MM): -- $290.0 FY14A EPS*: -- $0.58 FY15E EPS*: $0.78 $0.79 FY16E EPS*: -- $0.89 *Adjusted EPS

Profile Price: $9.03 52 Week Range: $4.81 – $10.29 Avg. Daily Vol.(K): 320 Shares Out (MM): 28.9 Market Cap (MM): $261 Stated Book Val./Sh.: $4.67 Net Cash /Sh.: $0.52 Short Interest (MM): 2.8 Insiders Own: 35% LT EPS Growth: Debt (MM):

10% $0.0

Year Ends:

Dec.

Rev (MM) 2014A 2015E 2016E

Mar $49.0 $57.2A Jun $50.2 $66.7A Sep $60.0 $66.8A Dec $102.4 $80.0

FY $261.6 $270.7 $290.0

Adj. EPS 2014A 2015E 2016E

Mar $0.09 $0.17A Jun $0.09 $0.19A Sep ($0.08) $0.18A Dec $0.49 $0.26

FY $0.58 $0.79 $0.89 EBITDA* $32.1 $43.1 $46.1 EV/EBITDA* 7.7x 5.7x 5.3x P/E 15.6x 11.4x 10.1x *Adjusted

Management CEO Randy Hales CFO Brad Holiday

ALPHA SELECT LIST

ZAGG, Inc. BUY (ZAGG - $9.03) Price Target: $10.50

Strong Quarter Due To Solid InvisibleSHIELD Sales. Maintaining BUY Rating And $10.50 Price Target.

ZAGG is a leading designer and manufacturer of accessories to the portable consumer

electronics. Its main products include the InvisibleSHIELD, a transparent coating that protects

devices against scratches, as well as headphones and protective cases for mobile phones.

OUR CALL ZAGG continues its strong execution, led by a new seasoned management team.

Measures have been taken to better manage inventory, contracts have been

renegotiated with key suppliers in order to drive gross margin, and a foundation is in

place for accelerated growth in Europe. These changes are now coming through in the

reported numbers and we are confident that ZAGG will continue to deliver solid

results. While the low hanging fruit has now been picked, we believe there remain

significant opportunities to drive both top and bottom line growth through continued

execution in the international channel (now over 10% of sales), expansion of the

historically elusive online channel, and entrance into the enterprise channel. While the

Apple iPhone 6 release last year will create difficult comparisons in the 4th quarter, we

are confident in the company’s ability to maintain modest growth over the next several

years. We believe that given its visible and significant FCF, Zagg’s current valuation

(5.3x 2016 EBITDA, 10.1x 2016 EPS and around a 12% FCF yield) remains

compelling. We are reiterating our Buy ZAGG and $10.50 price target which reflects

roughly 6.5x our 2016 EBITDA estimate of $46.1 million.

INVESTMENT HIGHLIGHTS

Q3 ActualsCompany

Guidance

C-H

Estimate

First Call

Consensus

Revenue (MM) $66.8 NA $66.0 $62.0

Adj. EPS $0.18 NA $0.17 NA

Adj. EBITDA $9.9 NA $9.5 $8.7

Continued Screen Protection Strength Drives Strong Q2 Results – ZAGG

reported revenue and EBITDA of $66.8 million and $9.9 million vs. our estimates

of $66.0 million and $9.5 million, respectively. Screen protectors again took the

spotlight during Q3 accounting for 72% of sales (the highest percentage since 2Q

2011). While the company’s tablet keyboard sales were down significantly y/y we

believe new offerings for the Microsoft Surface and the Apple iPad Pro should

help stem the decline. Power and audio products were also weak due to the timing

of new products headed into the holiday season. Importantly, GM remained strong

at over 37% driven by the strength in screen protector sales.

EBITDA Guidance Raised – As a result of increased confidence that strategic

initiatives are materializing coupled with the continued strength in high margin

screen protector sales, management raised EBITDA guidance to $42-$44 million

from $40-$43 million which equates to a 16% margin. Given the difficult

comparison in Q4, management conservatively reiterated 2015 revenue guidance

of $260-$270 million but said it will be at the higher end of that range.

International Expansion Remains On-Track – Management noted that ZAGG is

on track to grow sales internationally by 50% in 2015. During the quarter,

international sales accounted for 10.6% of total revenue, up from 9.0% in the

previous quarter. While still a small part of the business, we believe ZAGG

continues to grow brand awareness abroad which should lead to new customer wins

and facilitate a multi-year growth opportunity.

November 4, 2015

ZAGG Inc. ALPHA SELECT LIST Page 2 of 5 Institutional Research

QUARTERLY RESULTS

Actuals

C-H

Estimate Difference

Gross Margin 37.2% 37.0% 0.2%

Operating Margin 9.3% 8.1% 1.2%Source: Company reports, Craig-Hallum.

Q3 Key Metrics

ZAGG reported revenue and EBITDA of $66.8 million and $9.9 million, vs. our

estimates of $66.0 million and $9.5 million, respectively. The EBITDA

outperformance was primarily driven by better than expected sales of high

margin InvisibleSHIELDs which accounted for 72% of total revenue. Gross

margins of 37.2% (vs. our 37% estimate) combined with continued strong

expense management led to a 120bp beat on OM%. Management raised FY2015

gross margin guidance to 38% (previously mid-high 30% range) to reflect the

continued strong InvisibleSHIELD performance.

ESTIMATE CHANGES

We are adjusting our revenue and EBITDA estimates to account for Q3 results.

Our new 2015 revenue and EBITDA estimates are $270.7 million and $43.1

million respectively. Additionally, we are maintaining our 2016 revenue and

EBITDA estimates of $290.0 million and $46.1 million, respectively. We

believe that with continued execution of its growth and cost initiatives, ZAGG

could exceed these estimates.

2015 Guidance New C-HPrevious

C-H

First Call

Consensus

Revenue (MM) $260.0-$270.0 $270.7 $269.9 $272.4

Adj. EPS NA $0.79 $0.78 $0.57

Adj. EBITDA $42.0-$44.0 $43.1 $42.2 $43.5

2016 Guidance New C-HPrevious

C-H

First Call

Consensus

Revenue (MM) NA $290.0 $290.0 $285.9

Adj. EPS NA $0.89 $0.86 $0.64

Adj. EBITDA NA $46.1 $46.1 $45.9

STOCK OPPORTUNITY

ZAGG is a leader in an industry that directly participates in the multi-year

growth trend of smartphones and tablets. ZAGG should not only benefit from

these trends but should also expand distribution both domestically and

internationally, while launching new ancillary products. With uncertainty related

to distribution changes and high inventory levels behind them, combined with

diminished competition, we are maintaining our Buy rating and $10.50 price

target which represents approximately 6.5x projected 2016 EBITDA of $46.1

million.

November 4, 2015

ZAGG Inc. ALPHA SELECT LIST Page 3 of 5 Institutional Research

RISKS

We believe an investment in ZAGG involves the following risks:

Retail Concentration

Best Buy AT&T and Sprint account for over 50% of ZAGG’s revenue. If

one of these companies were to stop carrying ZAGG’s products, the

company would struggle to meet revenue and earnings expectations. Recent

signings of new retailers have helped to alleviate this risk.

Competition

The consumer electronics accessories market is highly competitive. If

competition were to create a more effective product, ZAGG’s revenue and

margins could be negatively impacted.

Change in consumer preferences

If consumers no longer regarded the protection of their devices as important,

ZAGG’s revenue and margins would be negatively impacted.

CRAIG-HALLUM ALPHA SELECT LIST

The Alpha Select List is an actively researched collection of small, under-

followed public companies we believe have the potential to become much larger.

An “acorn” list of sorts, the Alpha Select List will typically consist of sub-$250M

market cap companies with attractive business models, above average

growth trends, favorable macro/secular themes, and management teams that we

believe have the ability to take the business to the next level.

November 4, 2015

ZAGG Inc. ALPHA SELECT LIST Page 4 of 5 Institutional Research

ZAGG Inc.

Mike Malouf (617-275-5175)

mike.malouf@craig-hallum.com Fiscal 2010 Fiscal 2011 Fiscal 2012 Fiscal 2013

Mar-14

1Q14

Jun-14

2Q14

Sept-14

3Q14

Dec-14

4Q14 Fiscal 2014

Mar-15

1Q15

Jun-15

2Q15

Sept-15

3Q15

Dec-15

4Q15E

Fiscal

2015E

Fiscal

2016E

Net Sales 76,143 179,144 264,426 219,356 49,003 50,154 60,013 102,415 261,585 57,216 66,689 66,774 80,000 270,679 290,000 Sequential Growth -26.7% 2.3% 19.7% 70.7% -78.1% 16.6% 0.1% 19.8%

Year/Year Growth 98.5% 135.3% 47.6% -17.0% -4.8% -2.0% 20.3% 53.3% 19.3% 16.8% 33.0% 11.3% -21.9% 3.5% 7.1%

Cost of sales 38,745 96,893 143,881 132,235 31,225 33,367 50,849 62,800 178,241 34,258 41,732 41,903 50,400 168,293 183,685 % of Rev 50.9% 54.1% 54.4% 60.3% 63.7% 66.5% 84.7% 61.3% 68.1% 59.9% 62.6% 62.8% 63.0% 62.2% 63.3%

Gross profit 37,398 82,251 120,545 87,121 17,778 16,787 9,164 39,615 83,344 22,958 24,957 24,871 29,600 102,386 106,315 % of Rev 49.1% 45.9% 45.6% 39.7% 36.3% 33.5% 15.3% 38.7% 31.9% 40.1% 37.4% 37.2% 37.0% 37.8% 36.7%

Advertising and marketing 5,067 10,258 12,432 8,951 2,008 1,378 1,377 2,779 7,542 2,631 2,060 2,759 2,900 10,350 11,035 % of Rev 6.7% 5.7% 4.7% 4.1% 4.1% 2.7% 2.3% 2.7% 2.9% 4.6% 3.1% 4.1% 3.6% 3.8% 3.8%

SG&A 15,517 43,839 53,492 46,357 11,403 11,402 11,971 14,335 49,111 12,754 14,510 13,750 15,250 56,264 57,800 % of Rev 20.4% 24.5% 20.2% 21.1% 23.3% 22.7% 21.5% 21.5% 18.8% 22.3% 21.8% 20.6% 19.1% 20.8% 19.9%

Amortization of definite lived intangibles - 50 9,731 9,620 2,427 2,427 2,427 2,427 9,708 2,134 2,134 2,134 2,134 8,536 8,536

Impairment of goodwill - - 11,497 11,246 - - -

Total operating expenses 20,584 54,147 87,152 76,174 15,838 15,207 15,775 19,541 66,361 17,519 18,704 18,643 20,284 75,150 77,371 % of Rev 27.0% 30.2% 33.0% 34.7% 32.3% 30.3% 26.3% 19.1% 25.4% 30.6% 28.0% 27.9% 25.4% 27.8% 26.7%

Operating Income (GAAP) 16,814 28,104 33,393 10,947 1,940 1,580 (6,611) 20,074 16,983 5,439 6,253 6,228 9,316 27,236 28,944 % of Rev 22.1% 15.7% 12.6% 5.0% 4.0% 3.2% -11.0% 19.6% 6.5% 9.5% 9.4% 9.3% 11.6% 10.1% 10.0%

Interest expense (243) (3,021) (6,321) (576) (44) (40) (40) (47) (171) (27) (26) (26) (40) (119) (160)

Deconsolidation of HzO/Equity investment in HzO 1,906 (2,866) (2,013) - - - - - - - - - - -

Interest and other income 7 11 (308) 128 90 24 90 (82) 122 80 (59) (76) - (55) -

Total other (expense) income (236) (1,104) (9,495) (2,461) 46 (16) 50 (129) (49) 53 (85) (102) (40) (174) (160)

Pretax income (GAAP) 16,578 26,999 23,898 8,486 1,986 1,564 (6,561) 19,945 16,934 5,492 6,167 6,126 9,276 27,061 28,784

Income tax provision (6,650) (9,415) (9,393) (3,696) (998) (771) 2,242 (6,946) (6,473) (2,292) (2,476) (2,387) (3,710) (10,865) (11,514) Tax rate 40.1% 34.9% 39.3% 43.6% 50.3% 49.3% 34.2% 34.8% 38.2% 41.7% 40.1% 39.0% 40.0% 40.2% 40.0%

Net income (GAAP) 9,928 17,584 14,505 4,790 988 793 (4,319) 12,999 10,461 3,200 3,691 3,739 5,566 16,196 17,270 % of Rev 13.0% 9.8% 5.5% 2.2% 2.0% 1.6% -7.2% 12.7% 4.0% 5.6% 5.5% 5.6% 7.0% 6.0% 6.0%

Net loss attributable to noncontrolling interest 664 - - - - -

Net income attributable to stockholders 9,928 18,248 14,505 4,790 988 793 (4,319) 12,999 10,461 3,200 3,691 3,739 5,566 16,196 17,270

Adjusted net income 9,963 26,633 35,984 22,887 2,775 2,704 (2,540) 14,900 17,839 5,002 5,527 5,200 7,386 23,115 24,792

GAAP EPS $0.41 $0.61 $0.46 $0.15 $0.03 $0.03 -$0.14 $0.43 $0.34 $0.11 $0.12 $0.13 $0.20 $0.56 $0.62

Diluted shares 24,176 29,062 31,657 31,442 30,864 30,575 30,312 30,288 30,510 29,678 29,754 28,900 28,300 29,158 28,000

Adjusted EPS $0.92 $1.14 $0.73 $0.09 $0.09 -$0.08 $0.49 $0.58 $0.17 $0.19 $0.18 $0.26 $0.79 $0.89

Net income 9,963 18,248 14,505 4,790 988 793 (4,319) 12,999 10,461 3,200 3,691 3,739 5,566 16,196 17,270

Impairment of notes receivable

Modification of stock option 1,560

Stock based compensation 993 1,696 6,019 4,126 520 650 506 572 2,248 876 934 898 900 3,608 4,000

DA 347 5,918 11,548 12,197 3,020 3,052 3,123 3,684 12,879 2,940 3,156 3,455 3,300 12,851 13,200

Impairment of goodwill 11,246

iFrogz acquisition expenses 1,935 - - - - -

iFrogz inventory fair value inventory setup 4,506 - - - - -

Provision for income taxes 6,650 9,415 9,393 3,696 998 771 (2,242) 6,946 6,473 2,292 2,476 2,387 3,710 10,865 11,514

Impairment of notes receivable 1,489 591 (639)

Other expense 236 1,104 9,495 2,461 (46) 16 (50) 129 49 (53) 85 102 40 174 160

Noncontrolling interest (35) (612) - - - - - - - -

Adjusted EBITDA 18,154 45,259 62,457 39,107 5,480 5,282 (2,982) 24,330 32,110 9,255 10,342 9,942 13,516 43,055 46,144 % of Rev 23.8% 25.3% 23.6% 17.8% 11.2% 10.5% -5.0% 23.8% 12.3% 16.2% 15.5% 14.9% 16.9% 15.9% 15.9%

November 4, 2015

ZAGG Inc. ALPHA SELECT LIST Page 5 of 5 Institutional Research © 2015 Craig-Hallum Capital Group LLC

REQUIRED DISCLOSURES

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Zagg Inc 11/3/2015 $9.03ZAGG

Initiate: December 9, 2010–Rating: Buy– Price Target: $13 …. August 16, 2011 – Rating: Buy – Price Target: $20 November 2, 2012 – Rating: Buy – Price Target: $17 May 3, 2013 – Rating: Hold – Price Target: $7 July 17, 2013 – Rating: Hold – Price Target: $5.50 November 6, 2013 – Rating: Hold – Price Target: $4.00 February 26, 2014 – Rating: Hold – Price Target: $5.50 December 19, 2014 – Rating: Hold – Price Target: $6.50 January 23, 2015 – Rating: Buy – Price Target: $8.50 February 25, 2015 – Rating: Buy – Price Target: $9.50 March 24, 2015 – Rating: Hold – Price Target: $10.50 August 26, 2015 – Rating: Buy – Price Target: $10.50

Source: Thomson

Ratings definitions: Buy rated stocks generally have twelve month price targets that are more than 20% above the current price. Hold rated stocks generally have twelve month price targets near the current price. Sell rated stocks generally have no price target

and we would sell the stock.

Fundamental trend definitions: Improving means growth rates of key business metrics are generally accelerating. Stable means growth rates of key business metrics are generally steady. Mixed means growth rates of some key business metrics are positive but others are negative. Declining means growth rates of key business metrics are generally decelerating.

Ratings Distribution (9/30/2015)

% Of Companies % With Investment

Rating Covered Banking Relationships

Buy 80% 17%

Hold 19% 2%

Sell 1% 0%

Total 100% 14% Information about valuation methods and risks can be found in the “STOCK OPPORTUNITY” and “RISKS” sections, respectively, of this report.

CHLM makes a market in this security.

CHLM has received non-investment banking revenue from the subject company in the last 12 months. CHLM expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months.

Analysts receive no direct compensation in connection with the firm’s investment banking business. Analysts may be eligible for bonus compensation based on the overall profitability of the firm, which takes into account revenues from all of the firm ’s business, including investment banking.

OTHER DISCLOSURES

Although the statements of fact in this report have been obtained from and are based upon recognized statistical services, issuer reports or communications, or other sources that Craig-Hallum believes to be reliable, we cannot guarantee their accuracy. All opinions and estimates included in this report constitute Craig-Hallum's judgment as of the date of this report and are subject to change without notice. Craig-Hallum may effect transactions as principal or agent in the securities mentioned herein. The securities discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. This report is offered for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. Additional information available upon request. Member SIPC.

REGULATION AC CERTIFICATION

I, Mike Malouf, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. No part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views contained herein.