Q1 2021 Xcel Brands Inc Earnings Call
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I mean to the X L brands first quarter earnings Conference call. Please be advised that reproduction of this call in whole or in part is not permitted without prior written authorization of X L brands and as a reminder, this conference is being recorded.
I'd now like to turn the call over to Andrew Berger of SM Berger <unk> company. Thank you Andrew you may begin.
Good evening, everyone and thank you for joining US we appreciate your participation and interest income.
Everyone is safe and well with us on today's call are chairman and Chief Executive Officer, Robert Demorest, Chief Financial Officer, Jim Herein, and executive Vice President of business development and Treasury Seth Burroughs.
By now everyone should have a day have had access to the earnings release for the first quarter ended March 31, 2021, which went out a short while ago and in addition, the company expects to file with the Securities and Exchange Commission. Its quarterly report on form 10-Q on May 17th.
The release and quarterly report will be available on the company's website at Www X L brands back on this call is being webcast and 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 SEC.
<unk> does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
In addition, the ongoing COVID-19 pandemic continues to have a significant impact on the company's business.
Condition cash flow and results of operations.
There remains significant uncertainty about the duration and extent of the impact will depend on that.
The dynamic nature of these circumstances mean, what he said on today's call could change materially at any time.
Finally, please note that on today's call management will refer to certain non-GAAP financial measures such as non-GAAP net income non-GAAP diluted earnings per share and adjusted EBITDA on management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify.
This trends relating to the Companys results of operations.
Our management believes these financial performance measurements are also useful because these measure.
For certain costs and other events that management believes are not representative of our core business operating results and thus they provide supplemental information to assist investors in evaluating the company's financial results.
Non-GAAP measures 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.
You may refer to the attachment on the company's earnings release or to part one item two of the form 10-Q for a reconciliation of non-GAAP measures.
And now I'm pleased to introduce Robert <unk>, Chairman and Chief Executive Officer, Bob. Please go ahead.
Thank you Andrew Good evening, everyone and thank you for joining us I hope all of you on your families are staying safe and healthy.
I will start today's call with some brief opening remarks, followed by some operating highlights and insights into 2021 after that our CFO, Jim Haran will discuss our financial results in more detail.
With the extraordinary events of 2020 now nearly behind US our team has been hard at work during the first quarter of 2021, and not just rebuilding and recovery, but also expanding and growing the business as I mentioned in our last earnings call. We expected our Q1.
Wholesale businesses to be soft with momentum picking up in Q2, and a return to normalized growth in Q3 and Q4 of this year as we entered.
We enter Q2, we are beginning to see the green shoots of a recovery across all channels of distribution, including our wholesale business in order to accelerate the growth of our business. We recently entered into two significant transactions, which we believe will expand our opportunities to create significant value in 2002.
'twenty, one and beyond.
First we acquired the Lori Goldstein brands on April 1st.
I am pleased to announce that in less than 60 days, we have successfully integrated the business into our existing licensing platform and the initial results from the brands performance in April and early May have been strong we expect Lori Goldstein will contribute to earnings in Q2 of this year and for the remainder of the year.
We believe our interactive television business has fully recovered from the COVID-19 pandemic, our Isaac Mizrahi live business is doing exceptionally well and has exceeded plan on every month. This year with April sales at 122% of sales plan and up significantly over last year our <unk>.
Recently acquired Lori Goldstein business with free program to Prime time, shortly after our acquisition and generated 110% of sales plan for April and is off to a great start our Judith Ripka fine jewelry business on QVC and HSN generated sales of 122% and one.
142% of sales planned for April on.
QVC and HSN, respectively, as we continue to grow.
Our halston and Isaac Mizrahi brands on HSN and in International Interactive TV channels, including the shopping channel in Canada on T V. S. N in Australia, which are included in our wholesale sales results.
Interactive TV continues to be a core capability of <unk>.
Our brands and we're excited to see our businesses in these channels continue to do incredibly well coming out of the COVID-19 pandemic also we refinanced our debt facility on April 14th which provided us with additional liquidity of over $10 million and.
Reduced loan amortization by $6 million over the term of the loan. In addition, this gives US an available acquisition line of credit of up to $75 million subject to lender approval for any opportunistic transactions that may exist in the current retail environment.
I believe that the worst of the impact of the COVID-19 pandemic is behind US and we are now getting the business back on track to drive growth in 2021 and be on now I'd like to briefly discuss our business by channels of distribution.
As I stated our interactive television business is doing extremely well. We believe that also believe that our experience and interact with TV positions us with a significant advantage to grow livestream shopping across all channels of distribution turning.
Now to our direct to consumer E Commerce and live streaming businesses, our Judith Ripka E. Commerce business was up 45% for mother's day holiday compared to the same period last year and is up 25%.
For the year, our Longaberger E Commerce and live streaming business is demonstrating strong monthly growth of approximately 29% per month in its first year of operations with an anticipated run rate of sales exceeding 10 million by year end. This compares to a $2 5 million run rate.
At year end 2020, I am pleased to report that in June we will conduct our first Judith Ripka live streaming event simultaneously with the opening of our Westchester store and plan to continue to grow our direct to consumer businesses with the addition of live streaming across all brands.
Now turning to our wholesale businesses, while we have taken a cautious approach with the wholesale apparel business heading into 2021. The business continues to improve since the outbreak of COVID-19 last March April sales have been strong and we expect that business to show significant growth in Q2 as compared to Q.
One and with continued growth accelerating in Q3 and Q4, how would you. The thrift got wholesale business is up dramatically out of the 300 per cent from last year. We opened over 33 independent jewelry doors and are on plan to be at over 75 doors by year end, our drop ship programs with retailers such as socks.
Doing well and we plan to open more premium retail dropship accounts by year end as mentioned in our previous earnings call.
Our sales goal for our wholesale and direct to consumer segment is over $35 million for 2021.
We are well positioned for growth as we emerge from the unprecedented impacts of the COVID-19 crisis.
I am excited by the opportunities we are pursuing to create value in the coming quarters and years. As you can see April and May are showing the green shoots of a return to growth across all channels of distribution and I look forward to reporting our progress throughout the year now I'd like to turn the call over to Jim to discuss our financial results for the quarter.
Jim.
Bob Good evening everyone.
I will briefly discuss financial results for the quarter ended March 31 2021. Please note that net financial results are described more fully in our quarterly report on form 10-Q, which was filed this evening.
Yeah.
Total revenues for the quarter was $7 8 million in net decrease of approximately $1 7 million or 18% from it.
For your corner, primarily driven by a transition of halston to a wholesale model for our interactive television channel distribution.
Bob mentioned, we expect to see the rebound from this for the remainder of the year as our wholesale business growth.
Net product sales were down approximately $4 million year over year. It was on wholesale apparel sales, primarily as a result of the economic impact of the ongoing COVID-19, pandemic, which did not impact us until Q2 of 2020 were partially offset by growth in our <unk>.
Our active TV wholesales sales of juice Victor products as well as significant growth in ecommerce sales is longer Burger brands and products.
From a trend perspective, this was our third consecutive quarter of product sales growth with net sales increasing by approximately 35% as compared with the fourth quarter of 2020.
Despite the year over year revenue declines gross profit margin from product sales increased from 38% on that part of your corner for.
48% in the current quarter.
Our decision to move away from certain licensing arrangements for wholesale and direct to consumer model gives us greater control of our product and the long term benefits. We expect from increased revenues from volume and margin growth.
Our operating expenses were $8 5 million for the current quarter of three 6% from $8 2 million in the prior year quarter for.
Primarily driven by increases in payroll and marketing costs as we position ourselves for growth.
2021.
Net loss, excluding non controlling interest was approximately $2 5 million for the current quarter or minus 13 cents per basic and diluted share compared with a net loss for $8 million for next.
For cents per basic and diluted share for the prior year corner.
After adjusting for certain cash and non cash items non-GAAP net loss for the current quarter was approximately $1 5 million or minus <unk> <unk> per share compared with non-GAAP net earnings from <unk>.
Ultimately <unk> 2 million for one cents per share in prior year quarter.
Adjusted EBITDA for the current quarter was negative <unk> 9 million compared with positive <unk> 7 million for the prior year quarter.
Decrease in top line revenue of $1 7 million was the primary contributing factor in the decrease in adjusted EBITDA.
As a reminder, non-GAAP net income non-GAAP diluted EPS and adjusted EBITDA non-GAAP on what are the terms on.
Our earnings press release.
Our form 10-Q presents a reconciliation of these items with the most directly comparable GAAP measures.
Now turning to our cash and liquidity.
As of March 31, 2021, the company had unrestricted cash and cash equivalents of approximately $3 million compared with cash of approximately $5 million at December 31 2020.
As Bob previously mentioned, we acquired the logo Lori Goldstein brand on April 1st of this year and refinanced our term debt shortly thereafter.
This increased our term debt balance from $16 8 million as of March 31 for approximately 25 million following the refinancing and coupled with a $4 million revolving credit facility for <unk>.
Why is the company with over $10 million on increased liquidity following the refinancing.
As a result on our cash balance as of the end of April was approximately $10 million.
And our term debt net of cash was approximately 50.
In addition, our average scheduled loan amortization.
<unk> on average one 5 million per year.
As Bob mentioned, we also entered into a $75 million acquisition facility with BHI on first Eagle subject to net credit approval, which provides us with additional capacity for acquisitions.
It is important to note that we do not pay any unused line or other fees for such funds until they are drawn.
We believe that the company has a strong balance sheet and the financial capacity to continue to grow our business, both organically and from future acquisitions.
And with that I would like to turn the call back over to Bob Bob.
Thank you, Jim Ladies and gentlemen, this concludes our prepared remarks operator.
And we will now begin the question and answer session to ask a question you may price itself.
So other than one on you touched on phone if youre using a speakerphone. Please pick up your handset before pressing the keys for us.
Your question. Please press Star then two once again that is star then one to ask your question and we will pause momentarily to assemble the roster.
Okay.
And again that is star then one to ask a question.
And our first question today will come from Jim <unk> with Jefferies Capital. Please go ahead.
Hey, Bob could you.
Update us if there's anything to say on what's going on with Walmart and C Wonder.
Sure.
We are continuing with the online business with Amgen.
And we added.
Several new categories coming.
Coming into the spring season.
The footwear and accessories businesses are doing particularly well our handbag business is doing well there.
And we are working on concepts now to present to Walmart.
For spring.
22 for in store sales.
And we won't know until the buyers come in and do their review but.
We're excited about the potential of <unk>.
Actually getting in store.
Yeah.
Is this a possible game changer.
Hum.
I would say their interest.
It will be a strong business.
We get in with.
On the Walmart in store, but I would say there are other things.
On that are our also game changes here John Longaberger is one of the most exciting things we're working on.
Not to diminish the importance for let's say wonder at Walmart of course, but.
Okay.
It's good.
To have 2020 behind us.
With some other things that are happening, particularly with all on a burger and the possibilities for lets say weather.
Okay. Thank you.
Thank you.
The next question will come from her at Bras with Wellington Shields. Please go ahead.
Gentlemen, I'm glad everybody is well on the families are well.
Bob are you getting any sleep because of your little one or not.
So I've been blessed.
Sure.
On the savings very unusual she goes to sleep at seven P M and wakes up at seven Am every day.
I don't know if its debt.
Davey is surely a guess or my wife's doing a brilliant job, it's probably a combination of us. Thank.
Thank you yeah. Thanks, Thanks for.
I'm sure it's a combination of both.
On.
Let me focus on longer broke up for a moment.
<unk> mentioned that.
By the end of last year, you were doing $2 $5 million worth of revenue Youre expectations are $10 million by the end of this year.
One assumed debt.
That gives you profitability.
Oh, yes.
And just to be clear Howard, we're talking about run rate because the sales growth.
It's so dramatic on a weekly basis.
We're looking at run rate as we go forward.
And.
It's it's.
It's a fascinating business as we recruit members, which is a key metric.
For us to look at us for business growth the growth in stylist each stylist.
We recruit onboard increases sales by $6000.
For a year. So we're we're running about 4000 members now 2000 stylists and the goal is to.
Two have on boarded by year end between another three to 5000.
Which would put us on a very strong run rate going into 'twenty two.
Very exciting business.
As youre, adding members and style as Youre, adding skus.
Yes.
We started with about 200 Skus today were close to 2000.
If youre not familiar with us about a third of our business is marketplace.
So.
<unk>.
Built on marketplace for artisans around America that are making goods.
Here in the U S.
And.
That is part of the buying function as well as an on boarding function to bring more companies and artisans into the marketplace and then about another third of our products our consumables like.
Home fragrance and food products and then a third are what we call value driven products products that were sourcing and of course.
Our core baskets, which we are we are still making in Dresden, Ohio.
So.
So.
Scott you growth we expect.
Currently we're at about 2000.
Goal is to get to about 3000 by year end.
And continue to grow from there.
So looking at longer Burger.
Just described 2020 in 2021, how do I look at this thing over the next couple of years.
Because if you go back longer burgers on.
15 to 20 years ago. This is a $1 billion business.
So how can I look at it two to three years down the road.
I think the way.
You have to look at it is the way we do in terms of how we set the goals for the business.
10000, stylists, we should be on a $60 million run rate of revenue.
And then it's just math from there at 20000, you're you're at $120 million and so on so that's how we look at it we just.
<unk> recruited a very senior person from the direct selling business to come in head up sales and <unk>.
Recruiting and he is building.
National team.
That's going to drive the recruiting.
So it's really a bit of a flywheel the more you add to the base of stylus.
The.
More of your sales growth.
So it's really on boarding new artisans on to the marketplace to increase the product offering and recruiting stylists and that drives the business Howard It is.
It's the best.
Digital live streaming and direct selling.
Total debt with the company two to reposition it coming out of bankruptcy.
So.
Live streaming represents.
How much of the potential revenue 100 percentage basis.
Looking for 2022, or even 2023 or four just on your.
General thoughts not asking for projections.
Sure so.
Should be about 25% of our Longaberger sales were.
Currently.
Conducting live shows every first Monday of the month.
The shows are doing exceptionally well we are currently selling more per minute than most interactive television networks around the world, except for QVC U S and as that customer base grows we think we could actually be.
QVC U S numbers say 7000 to 10000 per minute, one way or live streaming.
So that's the goal and the customer base grows as we grow the style of space.
Because the way we set up the live streaming is we centralized the law.
Live streaming we do it from here, we have the production from our.
Our stylists, they just need to invite their customers to the livestream event and then do the follow up.
After the livestream events and they get paid there.
For marketing fees for just making NAV.
Let me.
Then turned to Lori Goldstein.
For the.
The 2021 2022 timeframe.
What can I look at in terms of potential revenue coming off of two.
2019 turnaround in 2020, one how do I look at Lori Goldstein.
So one other key things for US was to get Lawrie back into Prime time, which we were able to do almost immediately after closing.
This day difference in selling in prime time.
Well now as opposed to selling them.
And less prime hours.
And now it's.
Doing product reviews to correct. Some of the mistakes that were made in product in 2019, which we think.
We have resolved.
Certainly the sell throughs on new product that we're working very well.
The goal is to get the Lori Goldstein business back to where it was which would be on.
Most double where it was when we when we closed on it.
Youre talking about a couple of hundred million dollars in.
Yes and revenue.
Well in in sales.
Lori Goldstein product.
And then of course for Us where we're recording licensing royalties so.
An ideal world the goal would be to double the royalties from from.
From where we acquired them.
Alright.
Let me Chris.
Two other items if I may please.
It isn't often.
I look at a company that is selling it.
40% of book value book.
He is a little bit better than the $4.50 per share and it's selling for 40, 40% excuse me on book value.
Any thoughts as to possibly why debt.
Situation exists.
It's.
So a hard question to answer Howard.
Part of it is.
<unk>.
Quiddity in the market, although trading volume has been has been good non.
From the institution.
On community, but more from the retail community.
On.
I would say that.
And Sun.
And suddenly guards.
Hard for people to understand the value of the intangible and that's a big.
Factor in.
Value add.
I understand that.
We've taken down.
Okay.
Paid almost two thirds of a million dollars if I remember.
Reading, the Q, which just came out.
<unk>.
For a $75 million acquisition line.
What type of multiple of EBITDA on you were looking at four times as an example for for acquisition purposes.
So to date.
We've acquired.
Our new compass.
Company <unk> brand almost every 18 months since we started.
The business in 11.
We have not paid more than three to three five times royalties and generally speaking less than five times EBITDA. So I would say that is that is correct. That's the target.
So although I know you cant comment about target, but if I looked at spending $50 million at four times EBITDA with the interest rate that you are being charged call it 7%.
And.
<unk> million dollars to depreciation and amortization, you're still talking about close to 40.
Pre tax.
Since you've made on acquisitions for $50 million, that's four times EBITDA.
My numbers it sounds right.
Year numbers do sound right.
Generally speaking that is the way it would work that would be highly accretive to.
For the shareholders.
Depending on expense cuts it could be more.
If were investing.
And the brand it could be somewhat less but generally speaking that's the way it works.
Bob.
Well on all of you the best.
<unk>.
And thank you for your time.
Thank you highlight thanks Sarah.
And there are no further questions at this time I'd like to turn the call back over to Mr. <unk> for any closing remarks.
Ladies and.
Gentlemen, thank you for your time. This evening, we greatly appreciate your continued interest and support in <unk> brands.
As always stay fit eat well and be healthy.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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