Q3 2024 Xcel Brands Inc Earnings Call
Related to the Companys results of operations. Our management believes these financial performance measurements are also useful because these measures adjust 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. These non-GAAP.
Measures should not be considered in isolation, whereas alternatives net income earnings per share or any other measure of financial performance calculated and presented in accordance with GAAP.
Robert <unk>: You may refer to the attachment to the company's earning 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.
Robert <unk>: Thank you Seth and good afternoon, everyone and thank you for joining us today.
Robert <unk>: I'd like to start today's call with a brief update on our performance for the third quarter and our outlook for the remainder of the year after that our CFO, Jim Haran will discuss our financial results in more detail during the third quarter. We made continued progress on executing and concluding our.
Robert <unk>: <unk> fundamental plan to transition fully to our core working capital light licensing business live streaming over TV and in social media.
Robert <unk>: Although our topline licensing revenues declined as a result of the sale of the Lori Goldstein brand at the end of last quarter. We Nonetheless improved our bottom line operating results as a result of our strategic cost reductions.
Robert <unk>: Actions and increased revenues from our brand portfolio.
Robert <unk>: Our non-GAAP earnings for the quarter improved by approximately 56% from last year and our adjusted EBITDA improved by approximately 26% from the third quarter of 2023. The C. Wonder brand is performing well on HSN remaining on plan.
Up in retail sales, 60% over last year. Despite september's disruptions caused by two hurricanes. These hurricanes cost shows to be cancelled and fulfillment to be disrupted although the impact of that in continued into October we expect to make up lost sales with increased.
Robert <unk>: Fourth quarter programming, we expect to see retail sales volume continued to grow very strongly into 2025 on HSN and with other retailers and as previously mentioned we are on track to launch additional new categories in footwear and handbags in spring of 2025.
Robert <unk>: Hills by Christie Brinkley successfully launched on HSN during the second quarter, we believe based upon.
Robert <unk>: Third quarter results, we are on track to exceed the launch plan by 90% strong sales growth is expected to continue in 2025, given planned airtime for next year.
Robert <unk>: Importantly, the brand signed its first ancillary product license during the third quarter, and we will introduce additional categories of products on HSN.
In addition, all other retailers finally, we have received strong interest for potential <unk>.
Robert <unk>: Licensing partners for the brand across multiple categories, including footwear bags beauty skincare home and garden.
Robert <unk>: Looking at our Judith Ripka business.
Robert <unk>: Royalties continue to increase coming off of a 45% second quarter growth rates for the first quarter. The third quarter achieved 98% growth from the second quarter and almost 500% year over year growth. We expect continued quarterly sequential revenue growth with holiday sales to drive.
Fourth quarter royalties.
Robert <unk>: We look forward to seeing continued sales momentum carried forward into 2025 and beyond.
Robert <unk>: J T V.
Robert <unk>: As previously discussed.
Robert <unk>: G III launched halston apparel this quarter.
Robert <unk>: In addition, they expect to begin shipping footwear and handbags during the fourth quarter for spring 2025, as previously discussed we expect revenues from this license to begin to pick up in 2025 and beyond as previously mentioned.
Robert <unk>: Army soft launched its video and social commerce marketplace during the second quarter and began marketing in July.
Robert <unk>: For XL Army represents a natural extension of our expertise in video commerce over DB. The army team is doing a great job building awareness for the App and Onboarding Premier brands.
Robert <unk>: We are pleased with results to date, we believe this marketplace will be one of the forces to transform video and social commerce in the U S and it will achieve its goal to democratize, the influencer and creator economy, we're very excited about the potential of <unk>.
Robert <unk>: As we wrap up 2024, and enter 2025 with a robust roster of new brand launches and a group of some of the best Influencer and celebrity design, our spokesperson and our industry. We expect total social media followings for our brand portfolio will exceed 50 million followers in 'twenty.
25 Army is off to a good start.
Robert <unk>: With nearly.
Robert <unk>: 30000 users and twenty-five aspirational brands, our business with HSN is growing strongly and our company is focused on what we do best and where things are going in the retail space.
Robert <unk>: Space and now I would like to turn the call over to Jim to discuss our financial results.
Jim Haran: Thanks, Bob and good.
Jim Haran: Afternoon, everyone.
Jim Haran: I will now briefly discuss our financial results for the quarter and nine months ended September 32024.
Jim Haran: Total revenue for the current quarter was $1 9 million, representing a decrease of approximately <unk> seven.
Jim Haran: $7 million from the third quarter of 2023. This decline was primarily driven by a $29 million decline in net licensing revenues, mainly attributable to the sale of the Lori Goldstein brand in the second quarter of 'twenty, four and partly offset by increased licensing revenues generated by our other brands most.
Jim Haran: Notably the C Wonder brand and a new tower Hill by Christie Brinkley brand bolt on HSN.
Jim Haran: Despite the disruptions to our HSN business caused by two hurricanes in the third quarter that impacted their studio location and fulfillment facility.
Jim Haran: Also during the current quarter, we recognized approximately $4 million of revenue from the sale of all of our remaining inventory of the Longaberger brand to a third party cost.
Jim Haran: Following the sale, we no longer have any inventory on our books.
Jim Haran: On a year to date basis, our total revenue for the current nine months decreased by approximately $8 4 billion, primarily due to our exit from all wholesale operating businesses as part of our project fundamentals plan that began in 'twenty three.
Jim Haran: The only product sales during the current year of approximately $100000 related to the final sale of some jewelry inventory.
Jim Haran: As I mentioned.
Jim Haran: A $400000 of the remaining Longaberger brand inventory.
Jim Haran: Year to date licensing revenue also declined by approximately <unk> 5 million to $6 5 million for the current year period, mainly due to the previously mentioned sale of Lori Goldstein brand.
Jim Haran: Our direct operating costs and expenses were $2 8 million for the current quarter down by $2 8 million or 50% from the prior year quarter.
Jim Haran: Our year to date basis direct operating cost expenses decreased from $17 8 million for the nine months to $9 $9 million for the current period, representing a reduction of approximately $7 9 million.
Jim Haran: 44%.
Jim Haran: These decreases in direct operating cost for both the quarterly and year to date periods were attributable to the discontinuance of the wholesale business in the prior year, which included reductions in staffing levels as well as related reductions and other overhead costs.
With the project fundamentals initiatives substantially completed we have reduced our operating cost to run rates of approximately $11 million per year with the potential for further reductions.
Jim Haran: Looking at our other operating costs and expenses, which are predominantly noncash in nature depreciation and amortization expense decreased by approximately $48 million for the prior year quarter and $1 2 million for the prior year nine months, primarily as a result of the sale of the <unk> brand.
Jim Haran: So both the current quarter and current year to date period, we recognized a $6 3 million.
Jim Haran: Non cash charge to recognize the estimated value of our contractual contingent obligation to transfer a portion.
Equity ownership interest and O&M Costco <unk> after March 2025.
Jim Haran: In conjunction with the sale of the Isaac Mizrahi brand in 2022.
Jim Haran: Provision that our revenue targets were not achieved the company will give back 12, 5% of the membership interest to WH pace.
Jim Haran: Also included in the 2024 year to date results of various other amounts from the first two quarters of the year, most notably, including a $3 $8 million gain on the divestiture of the lower Youll see brand and a $3 5 million asset impairment charge related to the exit from and sublease of a prior office.
Jim Haran: Location.
Jim Haran: Overall, we had a net loss for the current quarter of approximately $9 2 million or minus <unk> 39 per share compared with a net loss of $5 1 million.
Jim Haran: We were minus <unk> 26 per share in the prior year quarter.
Jim Haran: The net loss included $7 8 million of noncash charges, most notably the $6 $3 billion charge related to our investment in the Topco.
Jim Haran: Thank you this loss out we had a $2 $2 million improvement compared with last year.
Jim Haran: On a non-GAAP basis, we had a net loss for the current quarter of $1 3 million or minus.
Jim Haran: <unk> <unk> per share, which represents a 56% improvement from the non-GAAP net loss of $3 million or minus <unk> 15 per share in the third quarter of 2023.
Jim Haran: And finally, our adjusted EBITDA was negative $1 billion for the current quarter as compared to EBITDA of negative $1 4 million in the prior year quarter.
Jim Haran: As previously mentioned HSN revenues were impacted by two Hurricanes, we were expecting to make up a portion of that revenues in the fourth quarter.
Jim Haran: With our new cost structure in place and projected revenue growth management anticipates improved EBITDA in the fourth quarter of 2024 and continued improvement going forward now that we have right sized our cost structure. Our non-GAAP measures should continue to improve in future periods as licensing revenues are projected to grow up.
Jim Haran: On a year to date basis, we had a net loss.
Jim Haran: First nine months of approximately $15 3 million or minus <unk> 68 per share compared with a net loss of $14 3 million or minus <unk> 73 per share in the prior year nine months.
Jim Haran: On a non-GAAP basis, we had a net loss for the current nine months of $3 4 million or minus <unk> 15 per share, which represents approximately 60% improvement from a non-GAAP net loss of $8 7 million or minus <unk> 44 per share in the prior year nine months.
Jim Haran: Adjusted EBITDA on a year to date basis was negative $2 7 million, representing a year over year improvements of approximately 42% from the negative $4 6 billion of EBITDA in the prior year comparable period.
Jim Haran: Once again I would like to take this opportunity to remind everyone. The non-GAAP net income non-GAAP diluted EPS and adjusted EBITDA are non-GAAP unaudited terms, our earnings press release and Form 10-Q presents a reconciliation of these items with the most directly comparable GAAP measures.
Jim Haran: Now turning to our balance sheet and liquidity.
Jim Haran: As of September 32024, the company had total cash cash equivalents of approximately $1 million.
Jim Haran: Of which 7 million was restricted.
Jim Haran: Our net working capital.
Jim Haran: Excluding the current portion of lease obligations differed revenue.
Jim Haran: I guess it is payable in shares was a deficit of approximately $26 million. However, last week, we entered into a new $10 million term loan agreement, which provides the company with approximately $3 5 million of additional liquidity after repayment of the previous term loan debt and increased our working capital by approximately four points.
Jim Haran: $5 million subsequent to September 32024.
Jim Haran: Additionally, quarterly principal repayments under our term loan will not commence until March 31 2026.
Speaker Change: And with that I would like to turn the call back over to Bob Bob.
Bob Bob: Thank you Jim This concludes our prepared remarks operator.
Bob Bob: Thank you we will now open the line for a question.
A reminder, please press star one to join the queue.
Speaker Change: I called upon to ask quick question Anthony dialogue, because neither by please pickup your handset and ensure that Nick Poland is not on mute.
Bob Bob: <unk> your question.
Your first question comes from the line of Mike <unk>.
Bob Bob: With no debt capital markets. Please go ahead.
Speaker Change: Good evening, everyone and thanks for taking my questions I appreciate it I was wondering.
Speaker Change: Rob if you can give us a little bit more color on how halston is performing I know that you're indicating that there's some new product and kind of being shipped and that sort of thing I was wondering if you can kind of give us some insights on how that's looking as we go into the balance of this year into the first quarter of next year.
Michael: Hi, Michael.
Speaker Change: We've looked at the product, we think they've done a nice job.
Michael: With this collection.
Speaker Change: And we.
Speaker Change: We don't have sales reports on shoes and bags, so we won't know until.
45 days after the quarter.
Speaker Change: We hear that.
Speaker Change: <unk> is off to a good start and.
Speaker Change: There.
Speaker Change: They are comfortable with where they are and what their expectations are for next year and spa.
Speaker Change: Sportswear outerwear.
Speaker Change: Handbags and footwear.
Speaker Change: You seem to be sanguine as you were about the prospects of 2025 with Hudson at this point I mean, your opinion hasn't really changed at this point.
Speaker Change: No we expect that they will do what they have said.
Speaker Change: And we're happy with the product.
Speaker Change: Some of the adjustments that they made.
Speaker Change: Particularly in the apparel.
Speaker Change: And.
Speaker Change: We're comfortable with where they are.
Speaker Change: I know that the thank you explained for situates situation with Isaac Mizrahi and I was wondering if maybe you can give us the background story.
Speaker Change: The structure, there and how you anticipate your interest in <unk> is going to continue going forward.
Speaker Change: Yes, we took a conservative approach.
Speaker Change: On the.
Speaker Change: The asset value with Isaac.
Speaker Change: Because given where things have been going Michael and it it's not a systemic issue with <unk> our challenge has been.
Speaker Change: Getting <unk> back in person and studio and his hours are down significantly.
Speaker Change: We are introducing.
Speaker Change: Someone to pick up a lot of Isaacs airtime in studio in next year and that will be starting in January.
Speaker Change: We're optimistic but we saw it.
Speaker Change: It would be best.
Speaker Change: Two to stay conservative as the asset value is concerned.
Speaker Change: Jim can walk you through the mechanics of that that adjustment.
Speaker Change: Okay is there anything specifically going into it.
Speaker Change: I mean, essentially what it is we're going to we put a reserve against the value we netted against the asset on the balance sheet and we took a noncash charge for in the quarter I'm.
Speaker Change: Pretty straightforward.
And that will work itself out when the.
Speaker Change: Measurement period arrives early next year, and we think that the.
The adjustment that we made now.
Speaker Change: We'll fulfill what we think that adjustment will be at that time, so there'll be very little impact in 2025 alright.
Speaker Change: Alright, thanks for the color and my last question.
Speaker Change: Jim you were indicating that Q4 is going to show the improvement do you still anticipate that Q4 will show adjusted EBITDA positive in Q4.
Where do you think that you.
Speaker Change: You might swing towards profit profit.
Speaker Change: Going forward.
Speaker Change: Okay.
Speaker Change: I don't know.
Speaker Change: Returned positive it will certainly be an improvement in the third quarter. There was still some impact in October with our HSN business from the residual of the two hurricanes and.
Speaker Change: Again without having the benefit of having the reporting and we're just doing the best we can forecast that we do know there'll be an improvement we don't know if it will be to the extent, where it will turn it back to profitability.
Speaker Change: Is there any way to monitor or provide some.
Speaker Change: Monetary whether how much revenues might have been impacted by the hurricanes is there any way to quantify that.
Speaker Change: I can tell you with what that wasn't Michael.
Speaker Change: About 450.
Speaker Change: 500000.
Speaker Change: And.
Speaker Change: We were able to secure more airtime.
Speaker Change: Tes or TSV.
Speaker Change: Moved.
Speaker Change: Cause of the hurricane.
Speaker Change: Two last week.
Speaker Change: It was a great job, we did 98% realization.
Speaker Change: The show.
Speaker Change: And that was.
Speaker Change: Great TSA for us on HSN, So we're hopeful.
Speaker Change: That the returns will be normal.
Speaker Change: And we can swing to profitability.
Speaker Change: In the fourth quarter, but we won't know until until everything ships.
Speaker Change: In the reporting period ends.
Speaker Change: And if I may just squeeze one more in I know that you were anticipating launching additional.
Speaker Change: Brands going into the quarter and I was just wondering where do you stand on the timeline of additional brands that you've kind of indicated in the last quarter.
Speaker Change: So.
Speaker Change: We did say.
Speaker Change: There would be a new brand launch in March.
Next year that will be.
Speaker Change: Our home category.
Speaker Change: Brand, we have several others in this in the home and kitchen category that we will be launching <unk>.
Speaker Change: Next year.
Speaker Change: <unk> are under LOI one.
Speaker Change: We're wrapping up definitive agreements and working on prototypes of that March launch.
Speaker Change: Several other.
Speaker Change: Potential new transactions that we're hoping that we'll launch next year as well in apparel and one in home hard goods.
Speaker Change: Great. Thank you for the update good luck to you guys.
Speaker Change: Yes.
Michael: Thank you Michael Thank you.
Speaker Change: Your next question comes from the line of Anthony on the data.
Speaker Change: Please go ahead.
Good evening everyone.
Speaker Change: Thank you for taking the questions. So just a follow up as far as the fourth quarter expectations, I guess kind of given the timing of today's call I mean, any sense as to like where you think revenue might come in and just it sounds like it should be better than the third quarter, but is there any other additional color you could provide.
Speaker Change: As far as what you think will happen here.
Speaker Change: I think if.
Speaker Change: Everything that we did in the lab.
Speaker Change: Last two weeks.
Speaker Change: December ships this year.
It should hold Anthony.
Speaker Change: Hum.
Speaker Change: As I said, we won't know unless the shipments get out.
By year end.
Speaker Change: Got you so sorry, when you say it should hold it you mean relative to.
Speaker Change: The third quarter or fourth quarter of last year amount or is it just.
Speaker Change: Just clarify that where where we've been forecasting for fourth quarter.
Okay got you Okay. That's.
Speaker Change: Thats very helpful. Okay, and then just curious I mean, what is your sense as far as inventory levels at retailers.
Speaker Change: Just overall what are you as far as what you are saying for the macro.
Speaker Change: Yeah.
Speaker Change: Perspective, I know, Bob you referenced a little bit of that in your press release, but just overall.
Speaker Change: When you look at the macro picture.
Speaker Change: Inventory levels of retailers.
Speaker Change: Could any of that impact competitively your business.
Speaker Change: Well.
Speaker Change: Obviously, if retailers are over inventoried if sales on it what they thought.
Speaker Change: They will aggressively mark down.
Speaker Change: And pushed sales.
Speaker Change: Could that impact.
Speaker Change: Our interactive television business.
Speaker Change: Maybe generally.
Speaker Change: But there could be some impact.
Speaker Change: And there could be an impact on halston, but I don't think.
<unk> three has enough inventory out there with wholesome and at this time that there would be.
Speaker Change: Cereal impacts there.
Speaker Change: Okay.
Speaker Change: That's very helpful and then as far as the army.
We gave us an update on a number of plants I mean, how do you think about the.
Speaker Change: The trajectory of additional brand launches for next year, what are you expecting.
Speaker Change: Just curious in regards to that so on me as being very selective about the kinds of brands.
Anthony: They bring on Anthony.
Speaker Change: They're looking for.
Anthony: Luxury aspirational brands.
Anthony: That have higher average order values than say, what you would typically find on tech tuck shops or on slip.
Anthony: Our goal with army is to keep.
Anthony: The average order values above 100, and today Tech talk shop.
Anthony: And flip or at around 20, those are the two competing marketplaces.
Anthony: So it's and we believe the universe of brands four for me.
Anthony: Will be five to 600 brands it will be that better zone.
Anthony: Marketplace and live streaming.
Anthony: So with 30 boarded now there is there is no reason that.
Anthony: He couldn't add another couple of hundred brand and.
Anthony: And begin that ramp up.
No that's very helpful and then.
Speaker Change: Far as your operating costs, certainly you guys have done a nice job of reducing your.
Anthony: Cost.
Anthony: And it sounds like based on what Jim said, there are some opportunities to perhaps take on additional.
Anthony: Expenses.
Anthony: Can you provide us with any more color as to whats youre looking to do perhaps.
Anthony: Yes, we've been looking very carefully at overhead.
Anthony: And we think that without disrupting.
Anthony: Operations. There is another 500 to 750000 in operating expenses that we can cut.
Anthony: We are we are.
Anthony: Going to move to do that going into Q1 of next year.
Anthony: Got you, Okay, and then lastly.
Anthony: Do you guys have improved your liquidity with the new term loans.
Anthony: Just going forward I mean, do you guys see.
Anthony: Perhaps.
Anthony: Hey.
Anthony: A need for another capital raise or do you think.
Anthony: You'll be in good shape.
Anthony: How should we be thinking about that I think it depends upon all of the transactions that we have in our pipeline.
Anthony:
Anthony: I said earlier some of these are in LOI.
Anthony: And.
Anthony: Converting to definitive agreements.
Anthony: Only one of them would require a capital it would be a purchase.
Existing revenue stream and brand the others are more.
Anthony: Influencer and personality, driven jv's, which have some startup costs. So.
Anthony: We.
Anthony: And they are all accretive to us based on conversations that we've had with retailers, particularly our <unk>.
Anthony: Interactive TV partners in QVC and HSN.
Anthony: And.
Anthony: If we see that we need to do that we would to conclude all of these transactions.
Anthony: Understood all right well, thank you very much and best of luck and happy holidays to all.
Anthony: Thank you Anthony.
Anthony: Two.
Again, if you would like to ask a question best I want to join the queue.
Anthony: Your next question comes from the line of.
Anthony: Yes.
Anthony: Why.
Anthony: With Gabelli.
Anthony: Please go ahead.
Anthony: Robert Congratulations on these some of the stronger season. Thank you.
Anthony: When I started looking at some of the numbers out there for <unk>.
Anthony: 2025.
Anthony: How comfortable are you with an EBITDA number of call it $7 million.
Anthony: So.
Anthony: There's a range out there.
Anthony: Howard and.
Anthony: We're comfortable.
Anthony: In that range between call. It four four number in the 86 numbers that are out there of course.
Anthony: That will be driven by <unk> performance.
Anthony: Because it drops a significant amount of.
EBITDA.
Anthony: And to some extent some of the new transactions that we're working on and if we can if we can get those signed early and start to generate revenue.
Anthony: We will drive both top and bottom line.
Anthony: How significant could that be when you talked about top line bottom line.
The second part of the second half of.
Anthony: 2025.
Anthony: So I will tell you basically now.
Speaker Change: We're good where we are at the analyst numbers are Howard.
Speaker Change: Taking the mean between the two we're talking about a company that's selling yet.
Speaker Change: One one times EBITDA.
Speaker Change: Well any thoughts to that.
Speaker Change: While it is an attractive multiple as you know but also.
Speaker Change: We have significant asset value.
Speaker Change: We believe that.
Speaker Change: Just the halston contract alone.
Speaker Change: Its worst buybacks our market cap.
Speaker Change: How did you know that was my next question in terms of balance sheet.
Speaker Change: Hi.
Speaker Change: Okay.
Speaker Change: We look at it the same way you do Howard.
Speaker Change: And.
Speaker Change: That EBITDA multiple and just given the.
Speaker Change: Okay.
Speaker Change: Embedded value our intangibles.
Speaker Change: It's incredible.
Speaker Change: To see the stock price where it is.
Speaker Change: Best of luck Merry Christmas and a happy new year. Thank you.
Speaker Change: Thank you.
Speaker Change: That concludes our question and answer session.
Speaker Change: Ill turn the call back to the speakers for any closing remarks.
Speaker Change: Thank you operator, ladies and gentlemen, thank.
Speaker Change: Thank you all for your time. This afternoon, we greatly appreciate your continued interest and support and XL brands.
Speaker Change: I wish all of you the very best in this holiday season, and a happy and healthy and prosperous new year and as always.
Speaker Change: Ed.
Speaker Change: Well and be healthy.
Speaker Change: Yes.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Yeah.
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