Market Overview

Iconix Reports Financial Results For The Third Quarter 2019

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NEW YORK, Nov. 12, 2019 (GLOBE NEWSWIRE) --

  • Total revenue of $35.5 million compared with $46.2 million from the prior year quarter.
  • GAAP Operating Income- reports $8.1 million loss as compared to $12.1 million of income in the prior year quarter.
  • Adjusted EBITDA increases 30% from the prior year quarter, while Adjusted EBITDA margin improves to 59% from 35% in the prior year quarter.
  • Signed 155 license deals year to date, representing $126 million of aggregate guaranteed minimum royalties over the life of these contracts.

Iconix Brand Group, Inc. (NASDAQ:ICON) ("Iconix" or the "Company") today reported financial results for the third quarter ended September 30, 2019.

Bob Galvin, CEO commented, "Results for the third quarter of 2019 were consistent with managements' expectations, as we continue to stabilize the business and our operational cost structure.  Our focus on the business and costs continue to help improve our Adjusted EBITDA margin.  We continue to develop our pipeline of future business, as we have signed 155 deals year to date for aggregate guaranteed minimum royalties of approximately $126 million. Additionally, we have entered into an agreement regarding our shareholder class action litigation and an agreement in principle regarding the SEC investigation, potentially putting both of these lingering legacy matters behind us."

Third Quarter 2019 Financial Results

GAAP Revenue by Segment
(000's)

    For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
   
    2019     2018     2019     2018    
Licensing revenue:                                  
Women's   $ 10,317     $ 15,201     $ 26,855     $ 48,670    
Men's     7,942       7,282       25,491       27,752    
Home     3,430       7,060       11,205       20,533    
International     13,782       16,681       42,255       48,029    
    $ 35,471     $ 46,224     $ 105,806     $ 144,984    

For the third quarter of 2019, total revenue was $35.5 million, a 23% decline, compared to $46.2 million in the third quarter of 2018. Such decline was expected, principally as a result of the transition of our Danskin and Mossimo direct to retail licenses in our Women's segment, as previously announced. Our revenue for the third quarter of 2019 was also impacted by the effect of the Sears bankruptcy on our Joe Boxer and Bongo brands in Women's and the Cannon brand in Home. While we recently signed new agreements with the new Sears and Kmart for the Cannon and Joe Boxer brands, the overall revenue for the Cannon and Joe Boxer brands was down year over year. Our Men's segment revenue increased 9% in the third quarter of 2019, compared to the prior year quarter primarily from the Buffalo and Starter brands.  Our International segment declined 17% in the third quarter of 2019 primarily as a result of poor performance of Umbro in China and Umbro and Lee Cooper in Europe.

For the nine months ended September 30, 2019, total revenue was $105.8 million, a 27% decline, compared to $145 million in the nine months ended September 30, 2018.

SG&A Expenses:

Total SG&A expenses in the third quarter of 2019 were $26.3 million, a 13% decline compared to $30.2 million in the third quarter of 2018. Most of the decline for the quarter was a decrease in advertising and bad debt expense somewhat offset by the cost related to the potential SEC settlement and the impairment of the contract assets. Total SG&A expenses in the nine months ended September 30, 2019 were $60.8 million, a 34% decline compared to $92.4 million in the nine months ended September 30, 2018.

Operating Income and Adjusted EBITDA (1):

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

Operating loss for the third quarter of 2019 was $8.1 million, as compared to operating income of $12.1 million in the third quarter of 2018.  Third quarter results include a $17 million impairment charge related to our investment in Marcy Media. Adjusted EBITDA in the third quarter of 2019 was $20.9 million which represents an operating loss of $8.1 million excluding net charges of $29.0 million.  Adjusted EBITDA in the third quarter of 2018 was $16.1 million which represents operating income of $12.1 million excluding net charges of $4.0 million.  The change period over period in Adjusted EBITDA is primarily as a result of the cost reduction initiative, somewhat offset by the change in revenue as outlined above. Refer to footnote 1 below for a full detailed reconciliation of operating income to Adjusted EBITDA.     

Operating income for the nine months ended September 30, 2019 was $28.9 million, as compared to an operating loss of $66.9 million in the nine months ended September 30, 2018.  Adjusted EBITDA for the nine months ended September 30, 2019 was $59.7 which represents operating income of $28.9 million excluding net charges of $30.8 million.  Adjusted EBITDA for the nine months ended September 30, 2018 was $63.2 million which represents operating loss of $66.9 million excluding net charges of $130.1 million. The change period over period in Adjusted EBITDA is primarily as a result of the change in revenue as outlined above, mostly offset by the cost reduction initiative.  Refer to footnote 1 below for a full detailed reconciliation of operating income to Adjusted EBITDA.     

Note: All items in the following tables are attributable to the Iconix Brand Group, Inc. and exclude the results related to non-controlling interest. Certain numbers may not add due to rounding.

Adjusted EBITDA by Segment (1) For the Three Months Ended
September
 30,
      For the Nine Months Ended
September
 30,
   
(000's) 2019   2018   % Change       2019   2018   %
Change
   
                                           
Women's $ 10,105   $ 7,662     32 %     $ 26,354   $ 37,683     -30 %  
Men's   3,303     1,236     167 %       10,848     7,920     37 %  
Home   2,999     3,574     -16 %       9,789     15,921     -39 %  
International   9,021     9,013     0 %       26,321     21,719     21 %  
Corporate   (4,530 )   (5,405 )   16 %       (13,638 )   (20,068 )   32 %  
Adjusted EBITDA $ 20,898   $ 16,080     30 %     $ 59,674   $ 63,175     -6 %  
                                           
Adjusted EBITDA Margin (2)   59 %   35 %             56 %   44 %        

Adjusted EBITDA margin in the  third quarter of 2019 was 59% as compared to adjusted EBITDA margin in the  third quarter of 2018 of 35%. The change period over period in adjusted EBITDA margin is primarily as a result of the Company's decrease in expenses which outpaced the decrease in revenues. 

Adjusted EBITDA margin in the  nine months ended September 30, 2019 was  56% as compared to adjusted EBITDA margin in the  nine months ended September 30, 2018 of 44%. The change period over period in adjusted EBITDA margin is primarily as a result of the Company's decrease in expenses which outpaced the decrease in revenues. 

Interest Expense and Other (Income) Loss, net:

Interest expense in the  third quarter of 2019 was $ 14.4 million as compared to $ 14.9 million in the third quarter of 2018.  In the third quarter of 2019, Other income (loss) was a $12.0 million loss as compared to a $25.8 million gain in the third quarter of 2018. This gain or loss results 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 respective period's income statement.

Interest expense in the  nine months ended September 30, 2019 was $ 43.4 million as compared to $ 44.3 million in the nine months ended September 30, 2018. For Other (Income) Loss, net for the nine months ended September 30, 2019, the Company recognized a $6.8 million gain as compared to a $84.0 million gain in the prior year period.

Provision for Income Taxes:

The effective income tax rate for the  third quarter of 2019 is approximately 2%, which resulted in a  $0.6 million income tax benefit, as compared to an effective income tax rate of  4.5% in the third quarter of 2018, which resulted in a $1.0 million income tax provision. The decrease in the effective tax rate is due to expenses recorded in the third quarter of 2019 for which no tax benefit was able to be recognized and to a trademark impairment recorded in the third quarter of 2018, for which the Company recognized a tax benefit.

The effective income tax rate for the nine months ended September 30, 2019 is approximately -15%, which resulted in a  $1.3 million income tax provision, as compared to an effective income tax rate of 0.6% in the nine months ended September 30, 2018, which resulted in a $0.1 million income tax benefit.  The increase in tax expense is due to  expenses recorded in the nine months ended September 30, 2019 for which no tax benefit was able to be recognized and to trademark impairment recorded in the prior year nine months, for which the Company recognized a tax benefit.

GAAP Net Income and GAAP Diluted EPS:

GAAP net income attributable to Iconix for the  third quarter of 2019 reflects a loss of $ 35.7 million, compared to income of $ 20.2 million for the third quarter of 2018. GAAP diluted EPS for the third quarter of 2019 reflects a loss of $ 3.07, compared to income of $ 0.26 for the third quarter of 2018.

GAAP net income attributable to Iconix for the nine months ended September 30, 2019 reflects a loss of $ 16.5 million, compared to a loss of $ 31.4 million for the nine months ended September 30, 2018.  GAAP diluted EPS for the nine months ended September 30, 2019 reflects a loss of $ 1.62 compared to a loss of $ 7.35 for the nine months ended September 30, 2018.

Adjusted EBITDA (1):

Adjusted EBITDA for the third quarter of 2019 was $20.9 million, compared to $16.1 million for the third quarter of 2018. Adjusted EBITDA for the   nine months ended September 30, 2019 was $59.7 million, compared to $63.2 million for the nine months ended September 30, 2018.

Adjusted EBITDA: (1)      
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