Market Overview

Xcel Brands, Inc. Announces First Quarter 2019 Results

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•  First Quarter Total Revenues of $10.3 Million, up 18% from the Prior Year Quarter 

•  GAAP Net Income of $0.13 million, Diluted EPS of $0.01 and non-GAAP Diluted EPS of $0.08 

•  On February 11, 2019 Xcel Acquired the Halston and Halston Heritage Trademarks

NEW YORK, May 14, 2019 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (NASDAQ:XELB) ("Xcel" or the "Company"), a media and consumer products company, today announced its financial results for the first quarter ended March 31, 2019.

Robert W. D'Loren, Chairman and Chief Executive Officer of Xcel commented, "We are pleased with the growth in our top line revenue and continued improvements in our products and assortments. Although our bottom-line results are slightly down from last year's first quarter, we exceeded our expectations and are optimistic that we will continue to grow our business".

First Quarter 2019 Financial Results

Total revenue increased to $10.3 million, a net increase of $1.5 million, or 18% over the prior year quarter, primarily driven by sales from the apparel and jewelry wholesale and e-commerce operations. Net revenue decreased $0.1 million to $8.5 million from $8.6 million in the prior year quarter.

GAAP net income was approximately $0.13 million, or $0.01, per diluted share, compared with a GAAP net income of $0.5 million, or $0.03 per diluted share, for the prior year quarter.  After adjusting for certain cash and non-cash items, non-GAAP net income for the quarters ended March 31, 2019 and March 31, 2018, was approximately $1.5 million, or $0.08 per diluted share and approximately $1.7 million, or $0.09 per diluted share, respectively.  Adjusted EBITDA was approximately $2.0 million, compared to approximately $2.2 million in the prior year quarter.     

See reconciliation tables below for non-GAAP metrics. These non-GAAP metrics may be inconsistent with similar measures presented by other companies and should only be used in conjunction with our results reported according to U.S. generally accepted accounting principles. Any financial measure other than those prepared in accordance with GAAP should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

The Company's balance sheet at March 31, 2019 remained strong, with stockholders' equity of approximately $100 million, cash and cash equivalents of approximately $7 million, and working capital, exclusive of contingent obligations payable with stock, of approximately $9 million. During the current quarter, the Company increased its term debt by approximately $5.0 million to approximately $22 million.  The increase was attributable to $7.5 million in loan proceeds to fund a portion of the Halston and Halston Heritage trademark acquisition.

On February 12, 2019 Xcel acquired the Halston and Halston Heritage Trademarks. This transaction consolidates ownership of the Halston trademarks, as Xcel previously acquired the H by Halston and H Halston trademarks in December of 2014. 

Conference Call and Webcast
The Company will host a conference call with members of the executive management team to discuss these results with additional comments and details at 9:00 a.m. Eastern Time on Tuesday, May 14, 2019. A webcast of the conference call will be available live on the Investor Relations section of Xcel's website at www.xcelbrands.com. Interested parties unable to access the conference call via the webcast may dial 1-855-327-6837. A replay of the conference call will be available on the Company website for 30 days following the event and can be accessed at 844-512-2921 using replay pin number 10006811.

About Xcel Brands
Xcel Brands, Inc. (NASDAQ:XELB) is a media and consumer products company engaged in the design, production, marketing, and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands.  Xcel was founded by Robert W. D'Loren in 2011 with a vision to reimagine shopping, entertainment, and social as one. Xcel owns and manages the Isaac Mizrahi, Judith Ripka, Halston and C. Wonder brands, pioneering a ubiquitous sales strategy which includes the promotion and sale of products under its brands through interactive television, internet, brick-and-mortar retail, and e-commerce channels. Headquartered in New York City, Xcel Brands is led by an executive team with significant production, merchandising, design, marketing, retailing, and licensing experience, and a proven track record of success in elevating branded consumer products companies. With an experienced team of professionals focused on design, production, and digital marketing, Xcel maintains control of product quality and promotion across all of its product categories and distribution channels. Xcel differentiates by design.  www.xcelbrands.com

Forward Looking Statements
This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "ongoing," "could," "estimates," "expects," "intends," "may," "appears," "suggests," "future," "likely," "goal," "plans," "potential," "projects," "predicts," "seeks," "should," "would," "guidance," "confident" or "will" or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding our anticipated revenue, expenses, profitability, strategic plans and capital needs. These statements are based on information available to us on the date hereof and our current expectations, estimates and projections and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including, without limitation, the risks discussed in the "Risk Factors" section and elsewhere in the Company's Annual Report on form 10-K for the year ended December 31, 2018 and its other filings with the SEC, which may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

For further information please contact:

Andrew Berger
SM Berger & Company, Inc.
216-464-6400
andrew@smberger.com


 
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)
             
    March 31, 2019   December 31, 2018
Assets          
Current Assets:          
Cash and cash equivalents   $   6,802     $   8,837  
Accounts receivable, net       9,976         11,010  
Inventory       1,417         1,988  
Prepaid expenses and other current assets       1,749         2,040  
Total current assets       19,944         23,875  
Property and equipment, net       3,312         3,202  
Operating lease right-of-use assets       8,354        —   
Trademarks and other intangibles, net       119,004         108,989  
Restricted cash       1,109         1,482  
Other assets       594         511  
Total non-current assets       132,373         114,184  
Total Assets   $   152,317     $   138,059  
             
Liabilities and Stockholders' Equity            
Current Liabilities:            
Accounts payable, accrued expenses and other current liabilities   $   3,888     $   4,868  
Accrued payroll       1,859         2,011  
Deferred revenue       264         272  
Current portion of accrued rent liability      —          690  
Current portion of operating lease obligation       1,106        —   
Current portion of long-term debt       4,000         5,325  
Current portion of long-term debt, contingent obligations       2,850         2,950  
Total current liabilities       13,967         16,116  
Long-Term Liabilities:            
Long-term portion of accrued rent liability      —          2,202  
Long-term portion of operating lease obligation       9,861        —   
Long-term debt, less current portion       18,637         11,300  
Deferred tax liabilities, net       8,214         8,139  
Other long-term liabilities       224         420  
Total long-term liabilities       36,936         22,061  
Total Liabilities       50,903         38,177  
             
Commitments and Contingencies            
             
Stockholders' Equity:            
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding      —         —   
Common stock, $.001 par value, 50,000,000 shares authorized at March 31, 2019 and December 31, 2018, respectively, and 18,916,394 and 18,138,616 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively       19         18  
Paid-in capital       101,501         100,097  
Accumulated deficit       (106 )       (233 )
Total Stockholders' Equity       101,414         99,882  
Total Liabilities and Stockholders' Equity   $   152,317     $   138,059  
             

 

 
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share data)
               
  For the Three Months Ended
  March 31,
  2019   2018
Revenues      
Net licensing revenue $ 7,863     $ 8,481  
Sales   2,438       285  
Total revenue   10,301       8,766  
Cost of goods sold (sales)   1,832       180  
Net revenues   8,469       8,586  
               
Operating costs and expenses              
Salaries, benefits and employment taxes   4,145       4,425  
Other design and marketing costs   758       738  
Other selling, general and administrative expenses   1,590       1,293  
Stock-based compensation   347       507  
Depreciation and amortization   948       411  
Total operating costs and expenses   7,788       7,374  
               
Operating income   681       1,212  
               
Interest and finance expense              
Interest expense - term debt   264       248  
Other interest and finance charges   26       38  
Loss on extinguishment of debt   189        
Total interest and finance expense   479       286  
               
Income before income taxes   202       926  
               
Income tax provision   75       426  
               
Net income $ 127     $ 500  
               
Basic net income per share: $ 0.01     $ 0.03  
               
Diluted net income per share: $ 0.01     $ 0.03  
               
Basic weighted average common shares outstanding   18,562,073       18,333,912  
Diluted weighted average common shares outstanding   18,562,763       18,716,802  
               

 

 
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
           
  For the Three Months Ended March 31,
  2019   2018
Cash flows from operating activities      
Net income $   127     $   500  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization expense     948         411  
Amortization of deferred finance costs     34         44  
Stock-based compensation     347         507  
Amortization of note discount     16         10  
Loss on extinguishment of debt     189         -   
Deferred income tax provision     75         426  
Changes in operating assets and liabilities:          
Accounts receivable     1,035         (800 )
Inventory     571        —   
Prepaid expenses and other assets     (492 )       (59 )
Accounts payable, accrued expenses and other current liabilities     (1,323 )       557  
Deferred revenue     (8 )       8  
Cash paid in excess of rent expense     (91 )      —   
Other liabilities     (196 )       (35 )
Net cash provided by operating activities     1,232         1,569  
           
Cash flows from investing activities          
Cash consideration for acquisition of Halston Heritage assets     (8,830 )      —   
Purchase of property and equipment     (282 )       (1,043 )
Net cash used in investing activities     (9,112 )       (1,043 )
           
Cash flows from financing activities          
Shares repurchased including vested restricted stock in exchange for          
withholding taxes    —          (90 )
Payment of deferred finance costs     (286 )      
Proceeds from long-term debt     7,500        —   
Payment of long-term debt     (1,742 )       (1,725 )
Net cash provided by (used in) financing activities     5,472         (1,815 )
           
Net decrease in cash, cash equivalents, and restricted cash     (2,408 )       (1,289 )
           
Cash, cash equivalents, and restricted cash at beginning of period     10,319         11,694  
           
Cash, cash equivalents, and restricted cash at end of period $   7,911     $   10,405  
           
Reconciliation to amounts on consolidated balance sheets:          
Cash and cash equivalents $   6,802     $   8,896  
Restricted cash     1,109         1,509  
Total cash, cash equivalents, and restricted cash $   7,911     $   10,405  
           
Supplemental disclosure of non-cash activities:          
Operating lease right-of-use asset $   8,733     $  —   
Operating lease obligation $   11,437     $  —   
Reduction of accrued rent $   2,704     $  —   
Settlement of seller note through offset to receivable $   600     $  —   
Settlement of contingent obligation through offset to note receivable $   100     $  —   
Issuance of common stock in connection with Halston Heritage asset acquisition $   1,059     $  —   
Contingent obligation related to acquisition of Halston Heritage assets, at fair value $   900     $  —   
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for income taxes $   10     $   8  
Cash paid during the period for interest $   458     $   276  
           

 

       
Xcel Brands, Inc. and Subsidiaries
Reconciliation of Non-GAAP measures
(Unaudited)
       
Non-GAAP net income:      
  Three Months Ended
March  31,
(amounts in thousands)   2019       2018  
       
Net income  $   127     $   500  
Amortization of trademarks     737         257  
Non-cash interest and finance expense     16         10  
Stock-based compensation     347         507  
Loss on extinguishment of debt     189         -   
Deferred income tax provision     75         426  
Non-GAAP net income $   1,491     $   1,700  
       
       
Non-GAAP diluted EPS:      
  Three Months Ended
March  31,
    2019       2018  
       
Diluted earnings per share $   0.01     $   0.03  
Amortization of trademarks     0.04         0.01  
Non-cash interest and finance expense      -          -   
Stock-based compensation     0.02         0.02  
Loss on extinguishment of debt     0.01         -   
Deferred income tax provision     -          0.03  
Non-GAAP diluted EPS $   0.08     $   0.09  
       
       
Weighted average shares - Non-GAAP diluted:      
  Three Months Ended
March  31,
    2019       2018  
       
Basic weighted average shares     18,562,073         18,333,912  
Effect of exercising warrants     690         364,130  
Effect of exercising stock options     -          18,760  
Non-GAAP diluted weighted average shares outstanding     18,562,763         18,716,802  
       
       
Adjusted EBITDA:      
  Three Months Ended
March  31,
(amounts in thousands)   2019       2018  
       
Net income $   127     $   500  
Depreciation and amortization     948         411  
Interest and finance expense     290         286  
Income tax provision      75         426  
State and local franchise taxes     38         33  
Stock-based compensation     347         507  
Loss on extinguishment of debt     189         -  
Adjusted EBITDA $   2,014     $   2,163  
       

 

Non-GAAP net income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income, exclusive of amortization of trademarks, stock-based compensation, non-cash interest and finance expense from discounted debt related to acquired assets, loss on extinguishment of debt, and deferred tax provision. Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company's tax strategy.

Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income before stock-based compensation, interest and finance expense, loss on extinguishment of debt, income taxes, other state and local franchise taxes, and depreciation and amortization.

Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to our results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because they provide supplemental information to assist investors in evaluating our financial results. Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA in a different manner than we calculate these measures. In evaluating non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this document. Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.

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