Market Overview

Iconix Reports Financial Results for the Third Quarter 2020

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  • Total revenue of $24.5 million compared to $35.5 million in the prior year quarter.
  • GAAP Operating Income $66.4 million as compared to a loss of $8.1 million in the prior year quarter.
  • Adjusted EBITDA of $13.7 million, compared to $20.9 million in the prior year quarter.
  • Continued to improve cost structure, decreasing SG&A expenses by $16.4 million from prior year quarter.
  • Completed Sale of Starter China in September 2020 with net proceeds of $15.6 million and in October repaid $11.7 million of Senior Secured Term Loan.

NEW YORK, Nov. 16, 2020 (GLOBE NEWSWIRE) -- Iconix Brand Group, Inc. (NASDAQ:ICON) ("Iconix" or the "Company") today reported financial results for the third quarter ended September 30, 2020.

Bob Galvin, CEO commented, "As we continue to navigate through the pandemic and the resulting economic conditions, the well-being of our employees, licensees and communities remains at the forefront. Despite COVID-19, we continued to expand our business, including a successful launch of Umbro products in Walmart. We have remained focused on building our pipeline of future business, as a result, we have signed 148 deals during 2020 for aggregate guaranteed minimum royalties of approximately $90 million. Moving forward, we will remain flexible to respond to changes in the economic and retail environments."

Third Quarter 2020 Financial Results

GAAP Revenue by Segment
(000's)

    For the Three Months
Ended September 30,
  For the Nine Months
Ended September 30,
      2020     2019     2020     2019
Licensing revenue:                
Women's   $ 5,919   $ 10,317   $ 16,805   $ 26,855
Men's     5,705     7,942     15,419     25,491
Home     3,487     3,430     10,436     11,205
International     9,351     13,782     32,028     42,255
    $ 24,462   $ 35,471   $ 74,688   $ 105,806

For the third quarter of 2020, total revenue was $24.5 million, a 31% decline, compared to $35.5 million in the third quarter of 2019. Revenue across all segments was primarily negatively impacted by the effects of the COVID-19 pandemic on the global economy. The 43% decrease in revenue in our Women's segment was principally as a result of a decrease in licensing revenue from our Mudd and Joe Boxer brands. Revenue from the Men's segment decreased 28% mainly due to a decrease in licensing revenue from our Buffalo and Umbro brands. Sales in our Home segment improved by 2% principally due to an increase in licensing revenue from our Charisma brand. Our International segment revenue declined 32% mainly due to decreases in Latin America and Europe.

SG&A Expenses:
Total SG&A expenses in the third quarter of 2020 were $9.9 million, a 62% decline compared to $26.3 million in the third quarter of 2019. The decline for the quarter was primarily driven by a decrease in professional fees, advertising costs and compensation expense.

Gain on Sale of Trademarks
Gain on sale of trademarks reflect the $59.6 million gain of the sale of 100% of our interest in Umbro China Ltd., and $14.5 million gain on sale of Starter China Ltd., each completed during the third quarter of 2020.

Trademark and Investment Impairment:
In the third quarter of 2020, the Company recorded a non-cash trademark impairment charge of $4.8 million. The charge for the third quarter of 2020 was based on the impact of the COVID-19 pandemic on current and estimated future cash flows on the fair value of the Pony and Hydraulic indefinite-lived trademarks. The Company recorded investment impairments of $17.1 million in the third quarter of 2020 as a result of from exiting our Ecko Mark/Ecko joint venture in China and a reduction in the fair value of our Candies joint venture in China. The Company recorded investment impairment in the third quarter of 2019 of $17.0 million related to the sale of its equity investment in Marcy Media.

Operating Income and Adjusted EBITDA (1):

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

Operating income for the third quarter of 2020 was $66.4 million, as compared to operating loss of $8.1 million for the third quarter of 2019.  The third quarter 2020 results include $22.0 million of charges related to impairments and $74.1 million in gains on sale of trademarks. Adjusted EBITDA in the third quarter of 2020 was $13.7 million, which represents operating income of $66.4 million excluding net adjustments of $52.7 million. Adjusted EBITDA in the third quarter of 2019 was $20.9 million, which represents operating loss of $8.1 million excluding net charges of $29.0 million. The change period over period in Adjusted EBITDA is primarily as a result of reduced revenue largely driven by the impact of COVID-19 on our business, somewhat offset by reduced 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.      

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 any non-controlling interest in such entities. 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) 2020   2019   % Change       2020   2019   % Change  
                                         
Women's $ 6,777   $ 10,105     -33 %     $ 16,451   $ 26,354     -38 %
Men's   1,522     3,303     -54 %       5,857     10,847     -46 %
Home   3,588     2,999     20 %       9,670     9,789     -1 %
International   6,593     9,022     -27 %       17,669     26,321     -33 %
Corporate   (4,766 )   (4,530 )   -5 %       (12,897 )   (13,638 )   5 %
Adjusted EBITDA $ 13,714   $ 20,899     -34 %     $ 36,750   $ 59,673     -38 %
                                         
Adjusted EBITDA Margin (2)   56 %   59 %             49 %   56 %      

Adjusted EBITDA margin in the third quarter of 2020 was 56% as compared to Adjusted EBITDA margin in the third quarter of 2019 of 59%. The change period over period in Adjusted EBITDA margin is primarily as a result of the Company's decrease in revenue.

Interest Expense and Other (Income) Loss, net:

Interest expense in the third quarter of 2020 was $18.5 million as compared to $14.4 million in the third quarter of 2019. The legal final maturity date of the Securitization Notes is in January of 2043. The Company did not repay or refinance the Securitization Notes prior to the anticipated repayment date. Therefore, beginning January 2020, the Company accrues additional interest on the Securitization Notes that is not payable until 2043. The increase in interest expense period over period is primarily the result of the step up in interest for the securitization. In the third quarter of 2020, Other (income) loss was income of $0.3 million as compared to a loss of $12.0 million in the third quarter of 2019. This result is 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 consolidated income statement.

Provision for Income Taxes:

The effective income tax rate for the third quarter of 2020 is approximately 1.9%, which resulted in a $0.9 million income tax expense, as compared to an effective income tax rate of 1.7% in the third quarter of 2019, which resulted in a $0.6 million income tax benefit.  The increase in the tax expense is a result of expenses incurred for which no tax benefit was able to be recognized for the third quarter of 2020.

GAAP Net Income and GAAP Diluted EPS:

GAAP net income attributable to Iconix for the third quarter of 2020 reflected income of $45.7 million, compared to a net loss of $35.7 million for the third quarter of 2019. GAAP diluted EPS for the third quarter of 2020 reflected income of $1.51 per share, compared to loss of $3.07 per share for the third quarter of 2019.

Adjusted EBITDA (1):

Adjusted EBITDA for the third quarter of 2020 was $13.7 million, compared to $20.9 million for the third quarter of 2019.

Adjusted EBITDA: (1)        
(000's)        
  For the Three Months Ended September 30,  
    2020     2019   % Change  
         
GAAP Operating Income (Loss) $ 66,351   $ (8,115 )    
Add:        
stock-based compensation expense   196     363      
depreciation and amortization   315     421      
contract asset write offs, net   581     3,634      
impairment charges   21,959     17,000      
gain on sale of trademarks and investments   (74,105 )   -      
special charges   460     9,084      
non-controlling interest   (976 )   (1,482 )    
non-controlling interest related to D&A and impairment   (1,067 )   (7 )    
    (52,637 )   29,013      
         
Adjusted EBITDA $ 13,714   $ 20,899   -34 %  
Adjusted EBITDA Margin (2)   56 %   59 %    
         
Adjusted EBITDA: (1)        
(000's)        
  For the Nine Months Ended September 30,  
    2020     2019   % Change  
         
GAAP Operating Income (Loss) $ 65,047   $ 28,857      
Add:        
stock-based compensation expense   608     761      
depreciation and amortization   894     1,393      
gain on sale of trademarks and investments   (75,705 )   -      
contract asset write offs, net   700     3,634      
impairment charges   40,954     17,000      
special charges   9,303     15,063      
non-controlling interest   (3,555 )   (7,017 )    
non-controlling interest related to D&A and impairment   (1,496 )   (19 )    
    (28,297 )   30,815      
         
Adjusted EBITDA $ 36,750   $ 59,672   -38 %  
Adjusted EBITDA Margin (2)   49 %   56 %    
         

Balance Sheet and Liquidity:

(000's) September 30, 2020   December 31, 2019  
Cash Summary:        
Unrestricted Domestic, Canada and China (Wholly Owned) $ 48,370   $ 29,144  
Unrestricted Luxembourg (Wholly Owned)   14,813        17,023  
Unrestricted in consolidated JV's       7,347         9,298  
Restricted Cash      12,760        15,946  
Total Cash $ 83,290   $ 71,411  
         
Debt Summary:        
Senior Secured Notes due January 2043* $ 323,876   $ 338,130  
Variable Funding Note due January 2043      100,000     100,000  
5.75% Convertible Notes due August 2023       94,430         94,430  
Senior Secured Term Loan due August 2022 **   116,420     175,600  
Payroll Protection Plan Loan        1,307     -  
Total Debt (Face Value) $ 636,033   $ 708,160  
         
*- The legal final maturity of the Securitization Notes is in January of 2043, as the Company did not repay or refinance the Securitization Notes prior to the anticipated repayment date. Therefore, beginning in January 2020, the Company is no longer required to make previously designated contractual principal payments. Future principal payments are formulaically based on a percentage of receipts of royalty revenue, and as such are subject to market factors outside of the Company's control. There can be no assurance that all or any future principal payments projected for the Senior Secured Notes will be made in accordance with the projections provided.  
**- As a result of the completion of the sale of Starter China, the Company received $15.6 million of net proceeds, and on October 4, 2020, repaid $11.7 million of Senior Secured Term Loan principal not reflected above.  

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 year 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.

About Iconix Brand Group, Inc.

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 occurrence of any strategic transaction and the impact of any potential strategic transaction, including acquisitions or dispositions, 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 COVID-19 on our and our licensees' business, results of operations, financial condition and liquidity and the impact of COVID-19 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 10K for the year ended December 31, 2019 and subsequent Quarterly Reports on Form 10Q 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)

    For the Three Months Ended September 30,     For the Nine Months Ended September 30,    
    2020     2019     2020     2019    
Licensing revenue   $ 24,462     $ 35,471     $ 74,688     $ 105,806    
Selling, general and administrative expenses     9,915       26,318       42,043       60,846    
Depreciation and amortization     315       421       894       1,393    
Equity (earnings) loss on joint ventures     27       (153 )     1,455       (2,290 )  
Gain on sale of investment                 (1,600 )        
Gain on sale of trademarks     (74,105 )           (74,105 )        
Investment impairment     17,145       17,000       17,245       17,000    
Trademark impairment     4,814             23,709          
Operating income (loss)     66,351       (8,115 )     65,047       28,857    
Other expenses (income):                                  
Interest expense     18,489       14,430       52,249       43,399    
Interest (income)     (1 )     (96 )     (51 )     (259 )  
Other (income) loss, net     (285 )     11,971       1,851       (6,821 )  
Foreign currency translation loss     531       391       596       760    
Other expenses – net     18,734       26,696       54,645       37,079    
Income (loss) before income taxes     47,617       (34,811 )     10,402       (8,222 )  
Provision (Benefit) for income taxes     915       (585 )     39       1,253    
Net income (loss)     46,702       (34,226 )     10,363       (9,475 )  
Less: Net income attributable to non-controlling interest     976       1,482       3,555       7,017    
Net income (loss) attributable to Iconix Brand Group, Inc.   $ 45,726     $ (35,708 )   $ 6,808     $ (16,492 )  
                                   
Earnings (loss) per share:                                  
Basic   $ 3.66     $ (3.07 )   $ 0.55     $ (1.62 )  
Diluted   $ 1.51     $ (3.07 )   $ 0.37     $ (1.62 )  
Weighted average number of common shares outstanding:                                  
Basic     12,517       11,631       12,051       10,169    
Diluted     31,189       11,631       33,801       10,169    

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, 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 and costs related to the transition of Iconix management. 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 September 30, (1):
  GAAP Operating Income   Impairment
Charges
  Special Charges   Gain on sale of Trademarks & Investments   Depreciation & Amortization   Stock Compensation   Contract Asset Impairment   Non-controlling Interest, net   Adjusted EBITDA
($, 000s) 2020   2019     2020 2019   2020 2019   2020   2019   2020 2019   2020 2019   2020 2019     2020   2019     2020   2019  
Women's 6,207   9,988     570 -   - -   -   -   - -   - -   - 117     -   -     6,777   10,105  
Men's (1,249 ) 5,277     4,244 -   - -   -   -   - 13   - -   - (144 )   (1,473 ) (1,843 )   1,522   3,303  
Home 3,588   2,990     - -   - -   -   -   -     - 1   - 8     -   -     3,588   2,999  
International 6,556   6,243     - -   - -   -   -   67 69   - 4   581 3,653     (611 ) (947 )   6,593   9,022  
Corporate 51,249   (32,613 )   17,145 17,000   460 9,084   (74,105 ) -   248 339   196 358   - -     41   1,302     (4,766 ) (4,530 )
Total Income 66,351   (8,115 )   21,959 17,000   460 9,084   (74,105 ) -   315 421   196 363   581 3,634     (2,043 ) (1,488 )   13,714   20,899  
                                                     
                                                     
                                                     
Adjusted EBITDA Reconciliation For the Nine Months Ended September 30, (1):
                                   
  GAAP Operating Income   Impairment Charges   Special Charges   Gain on sale of Trademarks & Investments   Depreciation & Amortization   Stock Compensation   Contract Asset Impairment   Non-controlling Interest, net   Adjusted EBITDA
($, 000s) 2020   2019     2020 2019   2020 2019   2020   2019   2020 2019   2020 2019   2020 2019     2020   2019     2020   2019  
Women's 5,750   26,237     10,638 -   - -   -   -   - -   - -   63 117     -   -     16,451   26,354  
Men's 4,593   17,775     4,348 -   637 -   -   -   4 37   - -   16 (144 )   (3,741 ) (6,821 )   5,857   10,847  
Home 4,512   9,777     5,152 -   - -   -   -   - -   1 4   5 8     -   -     9,670   9,789  
International 14,569   25,432     3,548 -   - -   -   -   198 230   2 10   616 3,653     (1,264 ) (3,004 )   17,669   26,321  
Corporate 35,623   (50,364 )   17,268 17,000   8,666 15,063   (75,705 ) -   692 1,126   605 747   - -     (46 ) 2,789     (12,897 ) (13,639 )
Total Income 65,047   28,857     40,954 17,000   9,303 15,063   (75,705 ) -   894 1,393   608 761   700 3,634     (5,051 ) (7,036 )   36,750   59,672  
                                                     

(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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