Q2 2019 Earnings Call

Thank you and good morning.

Before we begin I'd like to bring to your attention that statements that are not historical facts contained in this conference call are forward looking statements that involve a number of risks uncertainties and other factors all of which are difficult or impossible to predict and many of which are beyond the control of the company.

This may cause the actual results performance or achievements of the company to materially differ from the results performance or achievements expressed or implied by such forward looking statements.

We refer you to our public filings and the press release, we issued this morning for summary of such factors.

The words believe anticipate expect May will should.

Estimate project plan confident or similar expressions identify forward looking statements.

Listeners are cautioned to not place undue reliance on these forward looking statements, which speak only as of the date the statement was made.

Other than as required by law, we undertake no obligation to update or revise these forward looking statements, whether as a result of information future events or otherwise.

Additionally, the terms adjusted EBITDA and non-GAAP net income are all <unk>.

GAAP metrics and reconciliation tables for each can be found in the press release distributed today in the Investor relations portion of our website.

Www Dot sequential brands group dotcom.

On today's call are sequential brands group, CEO , Karen Marie and Chief Financial Officer, Peter Laughs.

I'll now turn the conference call over to Ms. Mary.

Mr. Sir you may begin when you're ready.

Good morning, and thank you for joining us for our second quarter 2019 earnings Conference call.

Sequential is in the midst of a transformation as we execute on our plan to best position the company for higher margin growth starting in 2020.

The first phase occurred this quarter with the completion of the divestiture of the Martha Stewart and Emerald Lagasse brands.

This sale allowed us to reduce our debt by 25% or 154 million and refocus our resources on higher margin brands.

The second phase is rightsizing, the business, which includes a significant reduction of expenses.

This is a multi faceted process, which incorporates reductions in all areas of our business such as headcount.

The relocation of our corporate headquarters and other cost savings.

The process is well underway and we expect it to be completed by the ended the year.

In conjunction with the transformation occurring across the business. We are also experiencing transitions with several of our brands.

Specifically, we are elevating some of our brands and as a result, changing some of our licensee.

The results for this year's second quarter and the remainder of the year were and will be impacted by one time items included in last year's results and not included in this years results.

I talked about a few of these one time items on our last earnings call.

They include revenue from a former footwear licensee for Ellen Tracy, which is a category that we plan to re launch later this year and revenue from two now terminated Jessica Simpson partnerships that we are currently replacing.

These transitions make for a difficult comparison this year.

However.

We are confident that we're on the right path.

To best position, our brands and the company for 2020.

We have a number of new licenses and renewals in the past 18 months.

And we have a robust pipeline of growth opportunities that we are actively pursuing.

On that note, let me take you through some of the highlights of our core brands, including Jessica Simpson and one of the.

Guy and Jos.

Which make up the majority of our business.

There has been a lot of activity underway this quarter for the Jessica Simpson brand.

The brands core footwear business at Macys, and Nordstrom's is performing well.

We recently launched Jessica Simpson Dot com, where consumers can now experience the world of Jessica while having access to purchase products such as fragrance footwear denim.

Luggage handbags and swimwear.

Last month, Jessica announced the publication of our upcoming memoir, which will be out in February .

She has several publicity commitments tied to the books promotion, including a five city media tour.

In September Jessica will appear on HSN to promote her apparel and footwear line as well.

Last but not least we have a robust pipeline of new business and renewals of key licenses underway for the brand.

C and one brand at Walmart had a solid quarter due to strong performance in core basics as well as footwear.

In addition to Walmart the brand continues to perform well in specialty and boutique footwear stores, such as shoe Palace Simons an athlete's foot.

The marketing initiatives tied to the end one brands 25th anniversary has been impactful.

Walmart participated in the brand's latest paint the park program, which took place in New Orleans last month.

Plans are currently underway to expand the AD one brand into a new category backpacks, which we expect to launch next year.

Diviya brand at Walmart has experienced recent growth and the brands International presence continues to expand particularly in China, where there are now a growing number of the vs stores and a new via office in Beijing.

Gaiams core business at Amazon and Walmart continues to grow.

The brand's recent expansion into nationwide drug stores, including Cvs is performing well and we're in discussions to expand into more categories with them.

As a result of a successful test of Gaiams men's line at Kohl's Dotcom. The line is now being tested in select Kohl's stores.

The line of Guy and personal care products are on track to launch at the ended the year in select drug stores nationwide.

In addition, we are exploring international opportunities for the brand in China and Southeast Asia.

As the health and wellness category expands into the world of Nutrition home and beauty, we believe gaiam is well positioned to capture more market share.

Moving to the Joe's brand in the quarter, we announced the expansion of the brand into fragrance for the first time.

The new line will launch in the fall.

Joes business in women's men's and kids is trending well, we're focused on building out the brand's presence in better and best distribution channels.

We recently repositioned and re launched the Caribbean Jo brand, which has been well received in the marketplace. The relaunch was a culmination of work we've done to refresh the iconic brand with a more modern sensibility, while not losing its accessible laid back DNA that consumers love.

We have signed several new partnerships for the brand in categories, such as fragrance men's and kids swimwear women's pajamas, and lounge wear and mens and womens sportswear.

And we're excited to add additional categories in areas, where that brand can play.

Historically for guidance. The company has provided a total revenue number that included revenue from existing business as well as a new business estimate.

For the full year 2019, the company expects revenue from existing business to be in the range of $104 million to $108 million revenue.

In addition, we are hard at work on potential new business opportunities, which would provide incremental revenue to this range.

On the expense side as indicated in my remarks due to the transition underway that is impacting every aspect of our business. We believe it is premature to provide full year 2019, adjusted EBITDA guidance on today's call.

However, we are energized by the 2020 plan, we are executing against which is expected to drive an operating expense base of approximately $30 million before minority interest.

We feel great about our go forward strategy and the work we're doing to build a leaner company with a strong portfolio of brands well positioned for future growth.

With that let me turn the call over to Peter to go through the second quarter financial results.

Thank you Karen.

As Karen mentioned for the second quarter of 2019, we were up against a few nonrecurring items that were included in last year's results.

Total revenue from continuing operations, which includes our existing brands following the Martha Stewart and Emeril Lagasse divestiture for the second quarter ended June Thirtyth 2019 was 26.4 million compared to 33.1 million in the prior year quarter.

On a GAAP basis net loss from continuing operations for this year's second quarter.

It was 3.3 million or five cents per diluted share compared to net income from continuing operations for the second quarter of 2018 of 2.2 million or three cents per diluted share.

non-GAAP net loss from continuing operation for this years quarter was 2.6 million or four cents per diluted share compared to non-GAAP net income from continuing operations of 4.5 million or seven cents per diluted share in the prior year period.

Adjusted EBITDA from continuing operations for the second quarter of this year was 13.3 million compared to 21.2 million.

In the second quarter last year.

Total revenue from continuing operations for the six months ended June 32019 was 51.9 million compared to 62.6 million in the prior year period.

On a GAAP basis net loss from continuing operations for the six months ended June Thirtyth 2019 was 8.1 million or 13 cents per diluted share compared to net loss from continuing operations for the six months ended June 32018.

At 1.4 million.

Or two cents per diluted share.

non-GAAP net loss from continuing operations for the six months ended June 32019 was $6.9 million or 11 cents per diluted share compared to non-GAAP net income from continuing operations of $5.8 million or nine cents per diluted share in the prior year period.

Adjusted EBITDA from continuing operations for the six months ended June 32019 was $24.6 million compared to 39 million in the prior year period.

We closed the second quarter of 2019, with 9 million of cash, including restricted cash and 457.7 million of debt net of cash.

This reflects our recent pay down of debt of 154 million following the sale of the Martha and Emerald brands.

As Kevin discussed, while 2019 results will be impacted by difficult comparisons and Sequentials transition year. We are confident that we're on the right path to deliver meaningful value to our shareholders.

We look forward to keeping you updated on our progress. Thank you for joining us on our call today.

Thank you ladies and gentlemen, this concludes our call for today. Thank you for your participation and interest and you may now disconnect your lines and have a wonderful day.