Q2 2020 Xcel Brands Inc Earnings Call
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It's now my pleasure to introduce your host Andrew Berger of Investor Relations. Thank you you may begin.
Good afternoon, everyone. Thank you for joining us we appreciate your participation and interest and hope that all of you are safe I always difficult at certain times.
By now everyone should have access to the earnings release for the second quarter ended June Thirtyth 2020, which was issued yesterday and in addition, the company filed with the Securities Exchange Commission. Its quarterly report on form 10-Q on August 19th 2020.
The released in the annual reports are available on the company's website at Www Dot X all brands dotcom.
This call is being webcast in a replay will be available on the company's investor Relations website.
Before we begin please keep in mind that this call will contain forward looking statements. All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today.
These risk factors are explained in detail in the company's most recent annual report filed with the FCC.
XL does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information future about or otherwise.
In addition, the coping 19 pandemic continues to have a significant impact on the company's business financial condition cash flow in results of operations. There were significant uncertainty about the duration and extent.
Of the virus.
I never nature of these circumstances means what is set on today's call could change materially at any time.
Finally, please note that on todays call management will refer to certain non-GAAP financial measures such as non-GAAP net income.
GAAP diluted earnings per share.
Adjusted EBITDA.
Our management uses these non-GAAP metrics as matters operating performance to assist in comparing performance from period to period on a consistent basis, it's why identify business trends relating to the company's results of operations.
Our management believes these financial performance measurements are also useful because these measures, but just for certain cost to get older beds that management believes are not representative of our core business operating results and das they provide supplemental information to assist investors.
Valuating the Companys financial results.
Non-GAAP measures should not be considered an isolation or as alternatives to net income earnings per share or any other measure of financial performance calculated and presented in accordance with gap.
You may refer to the attachment to the company's earnings release or could part one item to.
Form 10-Q, four a reconciliation of non-GAAP measures.
Now at least introduced Robert Lauren Chairman and Chief Executive Officer, Bob. Please go ahead.
Thank you Andrew good afternoon, everyone and thank you for joining us So I hope all of you in your family's remain safe and healthy.
Start today's call some thoughts around recent events in our industry, followed by an overview of our second quarter financial performance and then provide some operating highlights after that our CFO, Jim Heron will discuss our financial results in more detail.
We are oh living through an extraordinary period of business and social change the past five months have presented a period of unprecedented challenge, but also demonstrates improves XL the agility resilient and the dedication of our employees supply chain and retail.
Partners.
Well, our financial performance this quarter reflect the impact to cope with 19 worldwide. We have taken this opportunity to accelerate our core strategic focus to leverage our technology platform to drive areas of growth as we move forward out of this crisis.
In Q2, we experienced our first full quarter.
The impact from the covert 19 pandemic with widespread canceled orders on retail partner store closures in our wholesale and non QVC licensing business.
That said, Hey March our team launched a new digital peer to peer business with our longer Burger brand with a focus on home and wellness products that is showing tremendous potential in this current environment.
We've added lounge, and athleisure to our power lines and we've signed over 15 new licenses.
License agreement with a focus on.
Unless as well as some exciting new collaborations for our Judah took the bread all while safeguarding our employees significantly reducing our expenses and meaningfully improving our balance sheet cash.
Conservation measures and inventory management.
They stated before our objective is to emerge from the.
Twice a stronger than when you came into it now.
I'd like to give an overview of our financial performance and provide an update on our path to recovery in each of our major channels of distribution.
Our total revenues were down on a year over year, a basis by 45% for the quarter and 25% for the first half due to the impacts of Cobot 19, we successfully held our gross profit margins steady year over year for the first half and grew that and for the quarter.
Same time, the gross margins in our ecommerce business grew year over year for both the quarter and on a year to date basis, how long the Burger business. While still early has an average sales growth right of over 100 per cent per month, and we have recruited over 3500 home and lifestyle sales associates.
In the past eight weeks. This is a key growth rate metric for this business.
Well our bottom line results for the quarter were significantly negatively impacted by the current economic environment, resulting from Corbett 19, our non-GAAP earnings and EBITDA for the second quarter were up slightly year over year, Jim will speak more on this later now let us take a look.
Closer at our operations by distribution channel, although our interactive television business revenue was down year over year in the current quarter. The decrease was attributable to a combination of QVC pivoting airtime to home and electronics products.
Adjusting to remote broadcasting well have were down in April and May compared to our pre covered plan. We have exceeded our pretty good plan in June and July by 7% and 25% respectively. We believe that our QVC sales are fully back on track we are actively work.
And with QVC to develop more products for the fourth quarter that are working well in this current environment, including loungewear sleepwear and face masks, we are launching a new age Halston mine on HSN GBC UK in Italy, the shopping channel in Canada on T.D.S. and Australia. This fall we are.
And our uncharted waters here, but the flexibility of our business model enables three our enables us to react faster and provide new solutions as retailers continue to adjust to the current environment.
In our non QVC licensing business, we continue to develop and manage our portfolio of over 60 licenses across our brands.
We expected our non QVC licensees to experience canceled orders and reduce sales from the impact that cobot 19 accordingly.
We experienced a 48% and 25% decrease and non QVC not licensing income in Q2 and for the six month period ended June 30 2020, respectively.
There was no was better than our initial forecast and approximately 90% of our licensees our current with payments of royalties.
The outlook for non QVC licensing revenues for the balance of 2020 is uncertain, we have been and continue to monitor business openings as our country. So he gets back and to stay at home policies enacted by each state and are leaning into retailers, who have stayed open throughout this pandemic, including one.
And the price clubs where possible.
We have also spent significant time with each of our licensees assisting them where possible with having their businesses into new categories and sell effort as we are sharing information on.
As well as sharing information on federal assistance programs as previously announced we launched apparel.
At Walmart under our C. Wonder brand in February through our wholesale division.
Was launched a price points that Walmart hopes will establish a new higher quality value proposition for its customers.
Based on the lines initial performance Walmart plans to expand the branded 10, new complementary categories. This fall as such our team has worked with best in class licensees in categories, such as handbags footwear, a small leather goods fashion jewelry and sleepwear to design and develop products that Walmart has confirmed the law.
This fall in addition to the Walmart program, we've successfully signed over 15, new licensees during the second quarter in categories, including eyewear sleep worry intimates home Sanitizers face mask P. P E.
And home categories continue to work to identify categories and retail channels that present opportunities in this current environment.
We had great momentum in our wholesale business before cobot 19 hit us all.
As I previously stated based on our plan and our strong order book, we were showing sales growth in access at 40% for 2020 that said, our wholesale apparel business experienced canceled orders with our two with our Q2 deliveries that resulted in lost sales we expect self contained.
I need to be down in Q3 and are cautiously optimistic about Q4.
For result will be dependent upon how the consumer behavior that stores continue to open and stabilize and other economic factors.
Our wholesale business will be impacted in 2020, we believe.
We are positioned to resume that level of growth when we all come out of this crisis also we have sold 100% of our on hand inventory and have managed through this crisis fairly with our supply chain partners like apparel, our jewelry wholesale business was impacted by the closing of store.
By our retail partners most of our wholesale orders for the second quarter were cancelled to offset this loss sales we have shifted our sales efforts to the independent retailer in the channel and early indications are very positive finally, our joint business team did an outstanding job managing our June.
Inventories through this crisis.
In our direct to consumer businesses, our Judith Ripka ecommerce business is up 28% over the last year.
We've launched several new collections through the pandemic and are working on some exciting new collaborations for this fall and 2021 also we launched our new peer to peer digital platform for our along the Burger brand and are seeing some great momentum with both recruiting as well as self Oh product assortments.
Include home furnishings accessories, food and baskets as previously mentioned, we have recruited over 3500 styles.
This is extremely exciting and shows very significant sales potential, particularly in economies like this where people are seeking ways to make additional income.
We hope to be able to leverage the peer to peer model across our jewelry and other businesses and we'll report on our progress throughout the year as we continue to all the social selling platform out.
In conclusion.
And as I have stated before through our true Omni channel approach, we have positioned ourselves with a presence in all forms of distribution. So that we can reach our customers everywhere. They shop. We have also created a highly flexible model that can supply our retail partner partners, who either a wholesale or vertical retail fees.
Based working capital light model and with our integrated technology platform can do so faster than many in our industry I'm extremely excited by the potential of our long the bigger peer to peer a social commerce platform. This not only diversifies, our product offering to home and wellness categories, but gives us the potash.
Central to harness the power of social Commerce.
Our people our brands, our flexibility and our strong balance sheet, our our strength.
We are doing everything possible to come through the cobot 19 event. So that we emerged for a much stronger now I'd like to turn the call over to Jim to review, our financial results for the quarter and the first half Jim.
Thanks, Bob and good afternoon, everyone I will briefly discuss financial results for the quarter in six months ended June Thirtyth 2000, <unk>. Please note that our financial results described more fully in our quarterly reports on form 10-Q that was filed with the FCC August 19th.
Total revenue for the second quarter up 20, Twond was 5.1 million net decrease of approximately 4.1 million or 45% from the prior year quarter.
The decline experienced in both licensing rather than in product sales for the quarter was primarily driven by government boarded retail store closures as well as an overall slow down and economic activity in certain consumer product categories related to the cobot 19 pandemic.
[noise] declined to a less pronounced no revenues related to the throughout the television distribution channel.
Operating expenses were 5.4 million for the second quarter of 2020 down from 7 million in the prior year quarter.
This 1.6 million, though reduction was primarily due to government assistance received through the paycheck protection program under the Kazakh, which we recognized one point sixmillion as a reduction to current core operating expenses.
It's a program was intended to compensate.
Well operating costs were also partially attributable to the cost reduction actions taken by management in response to the cobot nine p. pandemic, including temporary reductions of employee compensation and cutting non essential cost.
[noise], partially offsetting these cost reductions were increases in some of our non cash expenses, including stock based compensation bad debt expense impairment, probably the equipment and depreciation and amortization expense. The harder amortization expense was primarily due to accounting change for our Jews really trademarks from indefinitely.
To find out what assets effective January onest of this year.
Well bad debt expense was driven by reserves.
South receivable related to certain customers, including wouldn't tell that had been hard, but even part of cold and 19.
[noise] deployment quarter also notably includes $2.9 billion other income related to a gain on the reduction of contingent obligations from the acquisitions the C. Wonder Bryant.
Interest and finance expense for the current quarter would point 3 million compared with 0.3 5 million for the prior year quarter.
A slight decrease from the prior years, mainly attributable to principal payments made on term loan debt, resulting in a low outstanding principal balance.
GAAP net loss was approximately $1.3 million group second quarter of 2024 negative seven cents per basic and diluted share compared with a GAAP net income of 1.9 million, what 10 cents per basic and diluted share the prior year quarter.
After adjusting for certain cash and non cash items non-GAAP net income for the current quarter was approximately 1.2 million and non-GAAP earnings per share was six cents per diluted share compared with approximately $1 million well five cents per diluted share in the prior year quarter.
Adjusted EBITDA for the current quarter was approximately 1.7 million up <unk> point 1 million from the prior year quarter.
As a reminder, non-GAAP net income non-GAAP diluted EPS and adjusted EBITDA on non-GAAP or what are the terms.
Our earnings press release as well as our quarterly report on form 10-Q present, a reconciliation of these items with the most directly comparable GAAP measures.
Now, let's move to a six month results.
In the first six months of 2020 total revenue decreased approximately 4.9 million or 25% over the prior year six month period, primarily in our licensing business. The decrease in licensing revenues was mainly attributable to the previously mentioned in passive cobot 19.
Net product sales for the current six months were down only slightly from the prior year six months or the impact of the covert 19 pandemic. During the second quarter 2020 were partially offset by volume growth experienced in our power wholesale business during the first quarter.
Despite these rather declines our gross profit margin was 82% and the current six months and 81% in the prior to six months or essentially flat year over year.
Gross profit margin from product sales increased from 25% in the prior year six months to 40% in the current six months.
Well operating expenses was $13.6 million for the first half 2020. This was down from 14.7 million in the prior year period.
Just 1.2 million dollar reduction was primarily due to government assistance received through the Paycheck protection program under the Kiszczak for which we recognized the same exiting the quarter one point sixmillion as a reduction to current period operating expenses.
No operating expenses were also partially attributable to cost reduction actions taken by management and response, the cobot 19 pandemic, including temporary reductions of employee compensation and cutting non essential cost.
Partially offsetting these cost reductions were increased increases in some of our non cash expenses, including stock based compensation and pamarot property and equipment and depreciation amortization expense for the reasons mentioned earlier.
Interest and finance expense for the cone six months was 0.5 9 million compared with <unk> 0.8, 3 million for the prior year six months. This decrease is primarily attributable to the fact that the prior year. Six months includes 8.19 million no loss on extinguishment of debt as a real to the February 11, 2019 term loan amendment.
Net loss was approximately 2.2 million for the current six months or 11 cents per Boe per basic and diluted share compared with net income of 2 million or 11 cents per basic and diluted shares to the prior year six months.
Net income for the prior year six must also notably included $2.9 million other income related to the gain on the reduction of the contingent obligations from the acquisition of the C. Wonder brand.
After adjusting for certain cash and noncash items non-GAAP net income for the current six months was approximately 1.4 million and non-GAAP earnings per share was seven cents per diluted share compared with approximately 2.5 million was 13 cents per diluted share and deploy your six months.
Adjusted EBITDA was approximately 2.5 million for the current six months and approximately 3.7 million for the same period in the prior year.
Now turning to our cash position as of June Thirtyth twenties running the company had unrestricted cash and cash equivalents of approximately 5.5 million compared with cash of approximately 4.2 million at March 30, Onest 20, 24.6 million at December 31st 2019.
This increase unrestricted cash during the first 720 20 was primarily attributable to strong operating cash flows which reflect the combination of collections from outstanding debt. This cash conversion and cost control measures implemented by management and government assistance received through the paycheck for protection program.
The increase in cash provided by operating activities was partially offset by continued investments in technology and required payments on our term loan obligations.
Looking at our debt at June Thirtyth 2020, our total bank that was 18.2 million or 12.8 million net of cash were approximately 2.2 times adjusted EBITDA for the trailing 12 months.
Our working capital at June Thirtyth 2020, excluding the current portion of lease obligations was approximately 8.5 million compared with 10.7 million at December 30, Onest 2019.
And finally as Bob mentioned, we've continued to take appropriate actions to reduce our costs and conserve cash and the life of the current economic environment, resulting from the Kobin 19 pandemic.
We're also taking action to provide additional liquidity and flexibility, we restructured and refinance our seem you turned that in April and again in August to allow for reduced principal payments and covenant relief.
Also in April we received $1.8 million through the Paycheck protection program under the Kazakh based on the requirements and conditions under the Kazakh and the Paycheck protection program flexibility as we expected the entire let alone will be forgiven clearly we have treated the proceeds of the loan similar to a grant.
And with that I would like to turn the call back over to Bob Bob. Thank you. Jim. This concludes our prepared remarks operator.
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There are currently no questions in the queue I'll now pass the call back over to management for any closing remarks.
Ladies and gentlemen, thank you for your time. This evening, we greatly appreciate your continued interest in support and XL brand has always and now more than ever stay fit eat well and the healthy.
Thank you. This does conclude today's conference you may disconnect. Your lines that time. Thank you for your participation.
Great.