Market Overview

Iconix Reports Financial Results For The Fourth Quarter & Full Year 2018

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NEW YORK, March 27, 2019 (GLOBE NEWSWIRE) --

  • Total revenue of $187.7 million, a 17% decline from prior year. Continued growth internationally as segment revenue up 10% from the prior year.
  • Improved financial stability during 2018 by closing on Delayed Draw Term Loan and issuing new 5.75% Convertible Notes.
  • Signed 83 license deals over the last six months, representing $45 million of aggregate guaranteed minimum royalties through the life of the agreements for the next several years.
  • Rationalized cost structure of business with cost reductions of approximately $30 million on an annualized basis.

Iconix Brand Group, Inc. (NASDAQ:ICON) ("Iconix" or the "Company") today reported financial results for the fourth quarter and full year ended December 31, 2018.

Bob Galvin, CEO commented, "We have finalized our review of business and operational goals and objectives and we have put our plan into effect.  As a result, we have reduced our operational cost structure by approximately $30 million to align with our plan.  On the business front, the quarter was negatively impacted by the Sears bankruptcy, while our international business continued to demonstrate strong growth.  We continue to build the pipeline of our future business, as we have signed 83 deals over the last six months for aggregate guaranteed minimum royalties of approximately $45 million through the life of the agreements for the next several years."

Unless otherwise noted, the following represents financial results for continuing operations only.

Fourth Quarter & Full Year 2018 Financial Results 

GAAP Revenue by Segment Three months ended December 31,   Twelve months ended December 31,
($, 000's) 2018   2017   % Change   2018   2017   % Change
               
Womens 8,732   20,013   -56 %   57,401   96,833   -41 %
Mens 11,321   8,212   38 %   39,073   39,780   -2 %
Home 4,036   6,132   -34 %   24,568   28,807   -15 %
International 18,616   17,942   4 %   66,647   60,413   10 %
Total Revenue 42,705   52,299   -18 %   187,689   225,833   -17 %
 

For the fourth quarter of 2018, total revenue was $42.7 million, a 18% decline as compared to $52.3 million in the prior year quarter. For the full year 2018, total revenue was $187.7 million, a 17% decline as compared to $225.8 million in the full year 2017. Such decline was expected, principally as a result of the transition of our Danskin, OP and Mossimo direct to retail licenses in our Womens segment, as previously announced. Our revenue for the fourth quarter of 2018 and the full year 2018 were also impacted by the effect of the Sears bankruptcy on our Joe Boxer & Bongo brands in Womens and the Cannon brand in Home. Our Mens segment revenue increased 38% in the fourth quarter of 2018 as compared to the prior year quarter primarily from the Umbro, Ecko and Buffalo brands although the Mens segment declined 2% for 2018 mostly as a result of the transition of the Starter brand from Walmart to Amazon.  Our International segment grew for both the quarter and the year primarily based on the performance of our brands in China, Europe and India.

In the first quarter of 2018, the Company adopted a new revenue recognition accounting standard (ASU No. 2014-09 Revenue from Contracts with Customers – Topic 606). Adoption of this standard increased the fourth quarter of 2018 revenue by approximately $2.3 million and increased revenue for the full year 2018 by approximately $3.9 million.

SG&A Expenses:

Total SG&A expenses in the fourth quarter of 2018 were $29.0 million, a 29% decrease compared to $40.9 million in the fourth quarter of 2017. Most of the decline for the quarter was a decrease in compensation, advertising and professional expenses.

Total SG&A expenses in the full year 2018 were $121.4 million, a 6% increase compared to $114.6 million in the full year 2017.  Included in these expenses was an $8.2 million bad debt expense as a result of the Sears bankruptcy filing.  Excluding the bad debt expense related to the Sears bankruptcy, SG&A expenses decreased 1% year over year.

Trademark, Goodwill and Investment Impairment:

In the fourth quarter of 2018, the Company recorded a non-cash trademark impairment charge of $58.7 million, primarily in the Womens segment related to the write-down in the Mossimo, Joe Boxer and Mudd trademarks, to reduce various trademarks in those segments to fair value.  The Company also recorded a non-cash investment impairment charge of $2.5 million in the fourth quarter of 2018 due to impairment of the Company's investment in iBrands.

For the full year 2018, the Company recorded a non-cash trademark impairment charge of $136.4 million primarily in the Womens segment, which was primarily related to the Mossimo, Joe Boxer and Mudd brands. The Company also recorded a non-cash goodwill impairment charge of $37.8 million in the full year 2018 due to impairment of goodwill in the Womens segment.

Operating Income and Adjusted EBITDA (1):

Adjusted EBITDA is a non-GAAP metric, and a reconciliation table is included below. 

Operating loss for the fourth quarter of 2018 was $52.1 million, as compared to operating loss of $18.3 million in the fourth quarter of 2017.  Adjusted EBITDA in the fourth quarter of 2018 was $11.9 million which represents operating loss of $52.1 million excluding trademark and investment impairments of $61.2 million and other net charges of $2.8 million.  Adjusted EBITDA in the fourth quarter of 2017 was $18.9 million which represents operating loss of $18.3 million excluding trademark and investment impairments of $28.5 million and other net charges of $8.7 million.  Refer to footnote 1 below for a full detailed reconciliation of operating loss to adjusted EBITDA.  The change period over period is primarily as a result of the change in revenue as is outlined above.    

Operating loss for the full year 2018 was $119.0 million, as compared to operating loss of $564.7 million in the full year 2017.  Adjusted EBITDA in the full year 2018 was $74.6 million which represents operating loss of $119.0 million excluding goodwill, trademark and investment impairments of $176.7 million and other net charges of $16.9 million.  Adjusted EBITDA in the full year 2017 was $117.7 million which represents operating loss of $564.7 million excluding goodwill, trademark and investment impairments of $654.0 million and other net charges of $28.3 million.  Refer to footnote 1 below for a full detailed reconciliation of operating loss to adjusted EBITDA.  The change year over year is primarily as a result of the change in revenue as is outlined above. 

Adjusted EBITDA by Segment (1) Three months ended December 31,   Twelve months ended December 31,
($, 000's) 2018   2017   % Change
  2018   2017   % Change
               
Womens 4,833     16,609     -71 %   42,501     87,590     -51 %
Mens 5,750     (934 )   716 %   13,584     11,781     15 %
Home 4,060     5,117     -21 %   19,970     25,141     -21 %
International 3,533     8,984     -61 %   24,958     27,861     -10 %
Corporate (6,303 )   (10,846 )   42 %   (26,370 )   (34,723 )   24 %
Adjusted EBITDA 11,873     18,930     -37 %   74,643     117,650     -37 %
               

Interest Expense, Other Income and Loss on extinguishment of debt:

Interest expense in the fourth quarter of 2018 was $14.9 million, as compared to interest expense of $21.8 million in the fourth quarter of 2017. In the fourth quarter of 2018, the Company recognized a $7.2 million gain resulting from the Company's accounting for the 5.75% Convertible Notes which requires recording the fair value of this debt at the end of each period with any change from the prior period accounted for as other income or loss in the current period's income statement.

Interest expense in the full year 2018 was $59.2 million, as compared to interest expense of $67.9 million in the full year 2017.  In the full year 2018, the Company recognized a $81.0 million gain resulting from the Company's accounting for the 5.75% Convertible Notes which requires recording the fair value of this debt at the end of each period with any change from the prior period accounting for as other income or loss in the current period's income statement.  Additionally, in the full year 2018, the Company acquired an additional 5% interest in its Iconix Australia joint venture and as a result, recognized a $8.4 million pre-tax non-cash gain on the remeasurement of the Company's initial investment.  In the full year 2018, the Company recognized a $1.0 million gain, as compared to a gain of $2.7 million in the full year 2017, each related to payments received from the sale of its minority interest in Complex Media in 2016.

In the full year 2018, the Company recognized a gain on extinguishment of debt of $4.5 million related to the early extinguishment of a portion of the Company's 1.50% Convertible Notes due 2018 as compared to a loss of $20.9 million in the full year 2017 related to the early extinguishment of a portion of the Company's term loan and the repurchase of a portion of the Company's 1.50% Convertible Notes due 2018. 

Provision for Income Taxes:

The effective income tax rate for the fourth quarter of 2018 is approximately -11.1% which resulted in a $6.7 million income tax provision, as compared to an effective income tax rate of 165.5% in the prior year quarter which resulted in a $66.8 million income tax benefit.  The effective income tax rate for the full year 2018 is approximately -7.9% which resulted in a $6.5 million income tax provision, as compared to an effective income tax rate for the full year 2017 of 14.7% which resulted in a $96.0 million income tax benefit.

The decrease in the effective tax rate for both the fourth quarte

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