Market Overview

Iconix Reports Financial Results for the Fourth Quarter & Full Year 2019

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NEW YORK, March 30, 2020 (GLOBE NEWSWIRE) --

  • Total revenue of $43.2 million compared to $42.7 million in the prior year quarter.
  • GAAP Operating Loss- $59.6 million as compared to $52.1 million in the prior year quarter.
  • Adjusted EBITDA increases 71% from the prior year quarter, while Adjusted EBITDA margin improves to 51% from 30% in the prior year quarter.
  • Signed 191 license deals during 2019, representing $135 million of aggregate guaranteed minimum royalties over the life of these contracts.
  • Improved cost structure of business during the year, decreasing SG&A cost 20% from prior year quarter and 31% year-over-year.

Iconix Brand Group, Inc. (NASDAQ:ICON) ("Iconix" or the "Company") today reported financial results for the fourth quarter and full year ended December 31, 2019.

Bob Galvin, CEO commented, "Results for the fourth quarter of 2019 were consistent with management's expectations, as we continue to stabilize the business and our operational cost structure.  Our focus on the business and decreasing costs continue to help improve our Adjusted EBITDA margin.  We continue to develop our pipeline of future business, as we signed 191 deals during 2019 for aggregate guaranteed minimum royalties of approximately $135 million."

Fourth Quarter & Full Year 2019 Financial Results

GAAP Revenue by Segment
(000's)

    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
      2019     2018     2019     2018
Licensing revenue:                
Women's   $10,637   $8,732   $37,491   $57,401
Men's     11,302     11,321     36,793     39,073
Home     3,548     4,036     14,753     24,568
International     17,691     18,616     59,947     66,647
    $43,178   $42,705   $148,984   $187,689
                         

For the fourth quarter of 2019, total revenue was $43.2 million, a 1% increase, compared to $42.7 million in the fourth quarter of 2018. The 22% increase in revenue in our Women's segment was principally as a result of a strong performance in our Danskin and Rampage brands and the impact of our recent Joe Boxer agreement with the new Sears. Sales in our home segment declined 12% as a result of the termination of our direct-to-retail license for our Royal Velvet brand, partly offset by increases in revenue from our Charisma brand. Our International segment declined 5% in the fourth quarter of 2019 primarily as a result of our termination of the licensee for Umbro in China.

For the twelve months ended December 31, 2019, total revenue was $149.0 million, a 21% decline, compared to $187.7 million in the twelve months ended December 31, 2018. The decrease was primarily driven by decreases in our Women's and Home segments as a result of the transition of several brands from their historical direct to retail relationships to non-exclusive arrangements.

SG&A Expenses:

Total SG&A expenses in the fourth quarter of 2019 were $23.2 million, a 20% decline compared to $29.0 million in the fourth quarter of 2018. The decline for the quarter was primarily driven by a decrease in advertising and bad debt expense somewhat offset by the costs related to previously disclosed ongoing government and SEC investigations.

Total SG&A expenses in the twelve months ended December 31, 2019 were $84.0 million, a 31% decline compared to $121.4 million in the twelve months ended December 31, 2018. Excluding the impact of an $8.2 million bad debt expense as a result of the Sears bankruptcy filing in 2018, SG&A expenses decreased 26% year over year.

Trademark, Investment and Asset Impairment:

In the fourth quarter of 2019, the Company recorded a non-cash trademark impairment charge of $65.6 million, primarily related to the write-down in the Joe Boxer and Mudd trademarks in the Women's segment and Fieldcrest in the Home segment. The Company also recorded a non-cash investment impairment charge of $9.6 million in the fourth quarter of 2019 due to impairment of the Company's investment in MG Icon, which owns the Material Girl trademark, and an asset impairment charge of $1.8 million related to the consolidation and partial sublease of our New York office space. In the fourth quarter of 2018, the Company recorded a non-cash trademark impairment charge of $58.7 million, primarily in the Women's segment related to the write-down in the Mossimo, Joe Boxer and Mudd trademarks. 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.

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 2019 was $59.6 million, as compared to operating loss of $52.1 million for the fourth quarter of 2018.  The fourth quarter 2019 results include $77.0 million of charges related to trademark impairments, investment impairment and an asset impairment related to the downsizing of our New York office, as compared to $61.2 million of total impairment charges in the prior year quarter. Adjusted EBITDA in the fourth quarter of 2019 was $21.9 million, which represents an operating loss of $59.6 million excluding net charges of $81.5 million.  Adjusted EBITDA in the fourth quarter of 2018 was $12.8 million, which represents an operating loss of $52.1 million excluding net charges of $64.9 million.  The change period over period in Adjusted EBITDA is primarily as a result of reduced SG&A expenses driven by the Company's cost reduction initiative. Refer to footnote 1 below for a full detailed reconciliation of operating income to Adjusted EBITDA.     

Operating loss for the twelve months ended December 31, 2019 was $30.8 million, as compared to an operating loss of $119.0 million for the twelve months ended December 31, 2018.  Adjusted EBITDA for the twelve months ended December 31, 2019 was $81.5 million, which represents operating loss of $30.8 million excluding net charges of $112.3 million.  Adjusted EBITDA for the twelve months ended December 31, 2018 was $76.0 million, which represents an operating loss of $119.0 million excluding net charges of $195.0 million. The change period over period in Adjusted EBITDA is primarily as a result of reduced SG&A expenses driven by the Company's cost reduction initiative mostly offset by the reduction in revenue as outlined above. 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 Company's interest in its subsidiaries and joint ventures, as applicable, 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
December
 31,
      For the Twelve Months Ended
December
 31,
   
(000's) 2019   2018   % Change       2019   2018   % Change    
                                           
Women's $ 9,139   $ 5,041   81%         $ 35,493   $ 42,723   -17%      
Men's   4,778     5,940   -20%           15,625     13,876   13%      
Home   3,081     4,071   -24%           12,871     19,994   -36%      
International   11,247     4,019   180%           37,566     25,737   46%      
Corporate   (6,393 )   (6,303 ) -1%           (20,032 )   (26,370 ) 24%      
Adjusted EBITDA $ 21,852   $ 12,768   71%         $ 81,523   $ 75,960   7%      
                                           
Adjusted EBITDA Margin (2)   51%     30%               55%     40%          

Adjusted EBITDA margin in the fourth quarter of 2019 was 51% as compared to Adjusted EBITDA margin in the fourth quarter of 2018 of 30%.  The change period over period in Adjusted EBITDA margin is primarily as a result of the Company's decrease in expenses. 

Adjusted EBITDA margin in the twelve months ended December 31, 2019 was 55% as compared to Adjusted EBITDA margin in the twelve months ended December 31, 2018 of 40%.  The change period over period in Adjusted EBITDA margin is primarily as a result of reduced SG&A expenses driven by the Company's cost reduction initiative. 

Interest Expense and Other (Income) Loss, net:

Interest expense in the fourth quarter of 2019 was $13.9 million as compared to $14.9 million in the fourth quarter of 2018.  In the fourth quarter of 2019, Other (income) loss was a $12.1 million loss as compared to a $7.3 million gain in the fourth quarter of 2018.  This gain or loss results primarily 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 twelve months ended December 31, 2019 was $57.3 million as compared to $59.2 million in the twelve months ended December 31, 2018. For Other (Income) Loss, net for the twelve months ended December 31, 2019, the Company recognized a $5.3 million loss as compared to a $91.3 million gain in the prior year period. This gain or loss results primarily 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 periods income statement.

Provision for Income Taxes:

The effective income tax rate for the fourth quarter of 2019 is approximately -8.0%, which resulted in a $6.8 million income tax provision, as compared to an effective income tax rate of -11.1% in the fourth quarter of 2018, which resulted in a $6.7 million income tax provision.  The effective tax rate for the three months ended December 31, 2019 remains consistent as compared to the three months ended December 31, 2018 primarily due to foreign withholding tax incurred on foreign sourced revenue, which remain consistent quarter-over-quarter.

The effective income tax rate for the twelve months ended December 31, 2019 is approximately -8.6%, which resulted in a $8.1 million income tax provision, as compared to an effective income tax rate of -7.9% in the twelve months ended December 31, 2018, which resulted in a $6.5 million income tax provision.  The effective tax rate for the twelve months ended December 31, 2019 remains consistent as compared to the twelve months ended December 31, 2018 primarily due to foreign withholding tax incurred on foreign sourced revenue, which remain consistent year-over-year.

GAAP Net Income and GAAP Diluted EPS:

GAAP net income attributable to Iconix for the fourth quarter of 2019 reflected a loss of $95.0 million, compared to a loss of $69.1 million for the fourth quarter of 2018. GAAP diluted EPS for the fourth quarter of 2019 reflected a loss of $8.11, compared to a loss of $9.04 for the fourth quarter of 2018.

GAAP net income attributable to Iconix for the twelve months ended December 31, 2019 reflected a loss of $111.5 million, compared to a loss of $100.5 million for the twelve months ended December 31, 2018.  GAAP diluted EPS for the twelve months ended December 31, 2019 reflected a loss of $10.56 compared to a loss of $14.93 for the twelve months ended December 31, 2018.

Adjusted EBITDA (1):

Adjusted EBITDA for the fourth quarter of 2019 was $21.9 million, compared to $12.8 million for the fourth quarter of 2018.  Adjusted EBITDA for the twelve months ended December 31, 2019 was $81.5 million, compared to $76.0 million for the twelve months ended December 31, 2018.

Adjusted EBITDA: (1)        
(000's)        
         
  For the Three Months Ended December 31,  
    2019     2018   % Change  
         
GAAP Operating Income (Loss) $(59,636)   $(52,092)      
         
Add:        
stock-based compensation   209     (2,297)      
depreciation and amortization   423     540      
loss on termination of licenses       4,900      
contract asset impairment charges   136     889      
trademark, goodwill, investment and asset impairment charges   76,966     61,195      
special charges   4,805     1,859      
non-controlling interest   (2,580)     (2,217)      
non-controlling interest related to depreciation, amortization and trademark impairment   1,529     (9)      
    81,488     64,860      
         
Adjusted EBITDA $21,852   $12,768   71%    
Adjusted EBITDA Margin (2)   51%     30%      
         


Adjusted EBITDA: (1)        
(000's)        
         
  For the Twelve Months Ended December 31,  
    2019     2018   % Change  
         
GAAP Operating Income (Loss) $(30,780)   $(119,037)      
         
Add:        
stock-based compensation   971     (2,405)      
depreciation and amortization   1,816     2,329      
costs associated with debt financings       8,344      
loss on termination of licenses       10,550      
contract asset impairment charges   3,769     1,294      
trademark, goodwill, investment and asset impairment charges   93,966     176,729      
special charges   19,868     9,040      
non-controlling interest   (9,597)     (10,852)      
non-controlling interest related to depreciation, amortization and trademark impairment   1,510     (32)      
    112,303     194,997      
         
Adjusted EBITDA $81,523   $75,960   7%    
Adjusted EBITDA Margin (2)   55%     40%      
         

Balance Sheet and Liquidity:

 (000's) December 31, 2019   December 31, 2018  
Cash Summary:        
Unrestricted Domestic, Canada and China (Wholly Owned) $29,144   $45,936  
Unrestricted Luxembourg (Wholly Owned)   17,023     12,213  
Unrestricted in consolidated JV's   9,298     8,460  
Restricted Cash   15,946     16,026  
         
Total Cash $71,411   $82,635  
         
Debt Summary:        
Senior Secured Notes due January 2043* $338,130   $365,481  
Variable Funding Note due January 2043   100,000     100,000  
5.75% Convertible Notes due August 2023   94,430     109,715  
Senior Secured Term Loan due August 2022   175,600     189,421  
         
Total Debt (Face Value) $708,160   $764,617  
         
*- The Company's Senior Secured Notes include a test that measures the amount of principal and interest required to be paid on the debt to the approximate cash flow available to pay such principal and interest; the test is referred to as the debt service coverage ratio ("DSCR").  As a result of a decline in royalty collections during the twelve months ended March 31, 2019, the DSCR fell below 1.10x as of March 31, 2019. Beginning April 1, 2019, the Senior Secured Notes are in a Rapid Amortization Event pursuant to the Securitization Notes Indenture.  In rapid amortization, the residual will immediately be used to pay down the principal.  Iconix will continue to receive its management fee from the Securitization Notes and the Company does not believe the loss of our residual, if any, will have a significant impact on our operations.  

Fiscal 2020 Outlook

Due to the impact that COVID-19 is having across the globe, and the rapid and continuous economic developments, we are not providing guidance for fiscal 2020 at this time. The impact of COVID-19 on our business could be material to our operating results, cash flows and financial condition. Due to the evolving and uncertain nature of this situation, we are not able to estimate the full extent of the impact on Iconix's operating results, cash flows and financial condition. We will provide additional updates as the situation warrants.

Iconix Brand Group, Inc. owns, licenses and markets a portfolio of consumer brands including: CANDIE'S ®, BONGO ®, JOE BOXER ®, RAMPAGE ®, MUDD ®, MOSSIMO ®, LONDON FOG ®, OCEAN PACIFIC ®, DANSKIN ®, ROCAWEAR ®, CANNON ®, ROYAL VELVET ®, FIELDCREST ®, CHARISMA ®, STARTER ®, WAVERLY ®, ZOO YORK ®, UMBRO ®, LEE COOPER ®, ECKO UNLTD. ®, MARC ECKO ®, ARTFUL DODGER ®, and HYDRAULIC®. In addition, Iconix owns interests in the MATERIAL GIRL ®, ED HARDY ®, TRUTH OR DARE ®, MODERN AMUSEMENT ®, BUFFALO ® and PONY ® brands. The Company licenses its brands to a network of retailers and manufacturers. Through its in-house business development, merchandising, advertising and public relations departments, Iconix manages its brands to drive greater consumer awareness and brand loyalty.

Forward-Looking Statements

In addition to historical information, this press release contains forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements include projections regarding the Company's beliefs and expectations about future performance and, in some cases, may be identified by words like "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek" and similar terms or phrases. These statements are based on the Company's beliefs and assumptions, which in turn are based on information available as of the date of this press release. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement and could harm the Company's business, prospects, results of operations, liquidity and financial condition and cause its stock price to decline significantly. Many of these factors are beyond the Company's ability to control or predict. Important factors that could cause the Company's actual results to differ materially from those indicated in the forward-looking statements include, among others: the ability of the Company's licensees to maintain their license agreements or to produce and market products bearing the Company's brand names, the Company's ability to retain and negotiate favorable licenses, the Company's ability to meet its outstanding debt obligations, the impact of novel coronavirus on global production, manufacturing, distribution and sales and the events and risks referenced in the sections titled "Risk Factors" in the Company's Annual Report on Form 10‑K for the year ended December 31, 2018 and subsequent Quarterly Reports on Form 10-Q and in other documents filed or furnished with the Securities and Exchange Commission. Our forward-looking statements do not reflect the potential impact of any acquisitions, mergers, dispositions, business development transactions, joint ventures or investments we may enter into or make in the future. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements are made only as of the date hereof and the Company undertakes no obligation to update or revise publicly any forward-looking statements, except as required by law.

Media contact:
John T. McClain
Executive Vice President and Chief Financial Officer
Iconix Brand Group, Inc.
jmcclain@iconixbrand.com
212-730-0030

Unaudited Consolidated Statement of Operations
(000's, except earnings per share data)

  Three Months
Ended
    Three Months
Ended
    Year
Ended
    Year
Ended
 
  December 31,
2019
    December 31,
2018
    December 31,
2019
    December 31,
2018
 
Licensing revenue $ 43,178     $ 42,705     $ 148,984     $ 187,689  
Selling, general and administrative expenses   23,150       28,992       83,996       121,429  
Loss on termination of licenses         4,900             10,550  
Depreciation and amortization   422       540       1,816       2,329  
Equity (earnings) loss on joint ventures   2,276       (831 )     (14 )     (3,043 )
Gains on sale of trademarks, net                     (1,268 )
Asset impairment   1,766             1,766        
Goodwill impairment                     37,812  
Trademark impairment   65,587       58,696       65,587       136,417  
Investment impairment   9,613       2,500       26,613       2,500  
Operating income (loss)   (59,636 )     (52,092 )     (30,780 )     (119,037 )
Other expenses (income):                              
Interest expense   13,864       14,895       57,264       59,214  
Interest income   (102 )     (190 )     (360 )     (495 )
Other (income) loss, net   12,116       (7,304 )     5,291       (91,305 )
Gain on extinguishment of debt                     (4,473 )
Foreign currency translation loss   98       700       858       1,153  
Other expenses (income) – net   25,976       8,101       63,053       (35,906 )
Income (loss) before income taxes   (85,612 )     (60,193 )     (93,833 )     (83,131 )
Provision for income taxes   6,829       6,666       8,083       6,538  
Net loss   (92,441 )     (66,859 )     (101,916 )     (89,669 )
Less: Net income attributable to non-controlling interest   2,579       2,218       9,597       10,852  
Net loss attributable to Iconix Brand Group, Inc. $ (95,020 )   $ (69,077 )   $ (111,513 )   $ (100,521 )
                               
Earnings (loss) per share:                              
  Basic $ (8.11 )   $ (9.04 )   $ (10.56 )   $ (14.93 )
  Diluted $ (8.11 )   $ (9.04 )   $ (10.56 )   $ (14.93 )
                               
Weighted average number of common shares outstanding:                              
  Basic   11,716       7,642       10,559       6,734  
  Diluted   11,716       7,642       10,559       6,734  
                               

Footnotes

(1) Adjusted EBITDA is a non-GAAP financial measure, which represents operating income excluding stock-based compensation (benefit) expense, depreciation and amortization, impairment charges, costs associated with recent financings, special charges related to potential settlement and professional fees incurred as a result of cooperation with the Staff of the SEC, the SEC and related SDNY investigations, internal investigations, the previously disclosed class action and derivative litigations, costs related to the transition of Iconix management, but including gains on sales of trademarks and non-controlling interest. The Company believes Adjusted EBITDA is a useful financial measure in evaluating its financial condition because it is more reflective of the Company's business purpose, operations and cash expenses.  Uses of cash flows that are not reflected in Adjusted EBITDA include interest payments and debt principal repayments, which can be significant.  As a result, Adjusted EBITDA should not be considered as a measure of our liquidity.  Other companies that provide Adjusted EBITDA information may calculate EBITDA and Adjusted EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.

Adjusted EBITDA Reconciliation for the Three Months Ended December 31, (1):
  GAAP
Operating
Income
  Impairment
Charges
  Special Charges   Loss on Termination
of Licenses
  Depreciation
&
Amortization
  Stock Compensation   Contract Asset Impairment   Non-controlling
Interest, net
  Adjusted
EBITDA
($, 000s) 2019   2018     2019 2018   2019 2018   2019 2018   2019 2018   2019 2018     2019 2018   2019   2018     2019   2018  
Women's (27,198 ) (50,217 )   35,281 55,059   - -   - -   - -   - (9 )   - 208   1,056   -     9,139   5,041  
Men's 7,103   3,361     872 131   - -   - 4,900   13 13   - -     - 189   (3,210 ) (2,654 )   4,778   5,940  
Home (14,709 ) 1,334     17,789 2,719   - -   - -   - -   1 7     - 11   -   -     3,081   4,071  
International (1,944 ) 3,690     11,645 786   - -   - -   71 105   3 (17 )   136 481   1,336   (1,026 )   11,247   4,019  
Corporate (22,888 ) (10,260 )   11,379 2,500   4,805 1,859   - -   339 422   205 (2,278 )   - -   (233 ) 1,454     (6,393 ) (6,303 )
Total Income (59,636 ) (52,092 )   76,966 61,195   4,805 1,859   - 4,900   423 540   209 (2,297 )   136 889   (1,051 ) (2,226 )   21,852   12,768  
                                                                   


Adjusted EBITDA Reconciliation for the Twelve Months Ended December 31, (1):  
  GAAP Operating Income   Impairment Charges   Special Charges   Costs associated with debt financings   Loss on Termination
of Licenses
  Depreciation & Amortization   Stock Compensation   Contract Asset Impairment   Non-controlling Interest, net   Adjusted EBITDA
($, 000s) 2019   2018     2019   2018   2019   2018   2019   2018   2019   2018   2019 2018   2019   2018     2019   2018   2019   2018     2019   2018  
Women's (961 ) (128,050 )   35,281   170,593   -   -   -   -   -   -   - -   -   75     117   222   1,056   (117 )   35,493   42,723  
Men's 24,878   11,754     872   131   -   -   -   -   -   10,550   50 90   -   -     (144 ) 275   (10,031 ) (8,924 )   15,625   13,876  
Home (4,932 ) 17,221     17,789   2,719   -   -   -   -   -   -   - -   6   30     8   24   -   -     12,871   19,994  
International 23,487   27,447     11,645   786   -   -   -   -   -   -   300 460   14   213     3,788   773   (1,668 ) (3,942 )   37,566   25,737  
Corporate (73,252 ) (47,409 )   28,379   2,500   19,868   9,040   -   8,344   -   -   1,466 1,779   951   (2,723 )   -   -   2,556   2,099     (20,032 ) (26,370 )
Total Income (30,780 ) (119,037 )   93,966   176,729   19,868   9,040   -   8,344   -   10,550   1,816 2,329   971   (2,405 )   3,769   1,294   (8,087 ) (10,884 )   81,523   75,960  
                                                                                     

(2) Adjusted EBITDA margin is a non-GAAP financial measure, which represents Adjusted EBITDA as a percentage of revenue.  The Company believes Adjusted EBITDA margin is a useful financial measure in evaluating its financial condition because it is more reflective of the Company's business purpose, operations and cash expenses.  Uses of cash flows that are not reflected in Adjusted EBITDA margin include interest payments and debt principal repayments, which can be significant.  As a result, Adjusted EBITDA margin should not be considered as a measure of our liquidity.  Other companies that provide Adjusted EBITDA margin information may calculate EBITDA margin and Adjusted EBITDA margin differently than we do. The definition of Adjusted EBITDA margin may not be the same as the definitions used in any of our debt agreements.

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