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Edited Transcript of CHKE earnings conference call or presentation 23-Apr-19 2:00pm GMT

Q4 2018 Cherokee Inc Earnings Call

VAN NUYS Apr 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Cherokee Inc earnings conference call or presentation Tuesday, April 23, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Henry I. Stupp

Cherokee Inc. - CEO & Director

* Steven L. Brink

Cherokee Inc. - CFO

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Conference Call Participants

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* David Michael King

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Eric Martin Beder

Small Cap Consumer Research, LLC - CEO & Consumer Analyst

* Kimberly Esterkin

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Presentation

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Operator [1]

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Greetings, and welcome to the Cherokee Global Brands Fourth Quarter and Full Year 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Esterkin, Director of Investor Relations. Thank you. You may begin.

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Kimberly Esterkin, [2]

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Thank you, and good morning. Speaking today will be the company's Chief Executive Officer, Henry Stupp; and Chief Financial Officer, Steve Brink. Before I hand the call over to management, please note that on this call, certain information presented contains forward-looking statements. Forward-looking statements are neither a prediction nor a guarantee of future events or circumstances and are based on currently available market, operating, financial and competitive information and assumptions. Our actual results could differ in a material manner from those expressed in such forward-looking statements for any reason, including those listed in the company's SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results.

Further, this conference call includes a discussion of non-GAAP financial measures as the term is defined in Regulation-G. The most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the company's financial results, prepared in accordance with GAAP, are included in the earnings press release, which is posted on the company's website at cherokeeglobalbrands.com. And with that, I'll hand the call over to Cherokee's Chief Executive Officer, Henry Stupp

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Henry I. Stupp, Cherokee Inc. - CEO & Director [3]

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Thank you, Kim, and good morning, everyone. We appreciate your participation on today's call. With the close of our fiscal year, Cherokee Global Brands entered a new chapter with a business that is once again primed for growth and more diversified than ever before. As we combine the strengths of our 360-degree capabilities platform and our portfolio of high-equity brands, the results reflect the flexibility and relevance that we bring to our licensing partners. We've never been better positioned to deliver on our pledge to think like a retailer, even as retailer's strategies divert significantly from the past in order to establish new and diversified revenue streams.

We entered fiscal 2019 with several ambitious goals: First, we structured and realigned our business operations to harness the combined power of our multi-brand model and brand-building platform; second, convert remaining indirect sales to licensing sales; third, shore up our financial and liquidity position; fourth, divest our non-core assets; and fifth, position our own brands for growth, while fully leveraging our brand-building expertise to the benefit of our retail and licensing partners.

Despite a challenging retail environment, we made considerable progress against these goals, which I look forward to sharing in greater detail with you today. We successfully navigated through industry and company headwinds to meet our goals, broaden our customer base and introduce new revenue streams that leverages our platform of capabilities for years to come. Our ability to diversify our portfolio across geographies, customers, categories and consumer touch points, along with our relentless focus on driving profitable growth, led to 150% improvement in adjusted EBITDA, while our SG&A declined 42% for the fiscal year.

Our resolve to focus on both improving our bottom line performance and stabilizing our financial position is coming to fruition. And I am pleased to report that our annual report will include an unqualified audited opinion on our financial statement. That is, our financial statements for this year will not include the going-concern qualification that was included in last year's audit opinion.

From an operational standpoint, our diversified brand portfolio, coupled with our 360-degree platform of capabilities, continues to distinguish us in the marketplace. Our subsequent shift from a solely a direct-to-retail licensing model to one that encompasses wholesale and retail licensing partnerships allows us to grow our own brands, while also creating and developing brands and products for others. We are meeting our customer's evolving needs, and I'm confident that Cherokee Global Brands diversification and flexibility positions us for long-term growth, increased profitability and further stability going forward.

We continue to leverage and build upon our 360-degree platform of capabilities, and we are positioned to build brands for specific retailers and develop existing brands that are already meaningful to our partners, reflects this capability on a limited basis in the past and are accelerating our efforts based on demand and market development. We are uniquely positioned to deepen our relationships with retailers, as private brands emerge as the key differentiator and as retailers seek to build equity for their existing brands alongside the strength of recognized national brands.

Through our brand development platform, we will continue to introduce new revenue streams and create immersive relationships with new and existing retail partners without taking on inventory risk. Our partners will benefit as we enable them to deliver more product and introduce new categories faster and better than ever before.

Our unique 360-degree platform combines product design and development, brand marketing and media outreach and growth strategies and tactics, and we believe that this positions us as a full-circle differentiated resource for our retail and wholesale licensees.

Turning to our brand portfolio. We are at a defining moment in the evolution of our company. In recent years, we've become a fundamentally different company that extends well beyond our Cherokee brand. Through our strategic acquisitions, we've realized our vision to evolve from a mono-brand licensor that has been limited to legacy direct-to-retail relationships to a true house of differentiated brands, each serving a unique consumer niche.

With that as a backdrop, we are excited to announce that we will be transitioning our corporate name from Cherokee Global Brands to Apex Global Brands in the coming months to reflect this more expansive vision and fully unlock the value of our multi-brand model. Apex marks the culmination of our portfolio and platform synergy and embodies our partners' aspirations to elevate and diversify their assortment. Leveraging the Apex platform, our own brands will grow into new categories and markets without limitations. And our retail partners and licensees will expand their global reach and relevance by taking full advantage of our platform.

The universal drivers for the retail business of the future will continue to be vision, agility and scale, and the Apex platform and portfolio unites these pillars into a single purpose, one that continues to drive everything that we do, to always think like a retailer and to evolve alongside our licensing partners. So it's with great excitement that I'm formalizing these plans that following our Annual Shareholder meeting in June, Cherokee Global Brands will be re-branded as Apex Global Brands. Our name change will be the first of a 3-stage corporate re-branding plan that will include a new corporate brand identity, an updated corporate website and revised communication materials that will promote the brands we own, the brands we create and the brands we develop for others. We will keep you updated on our progress over the coming months and look forward to debuting as Apex this June.

We are optimistic about our future plans and are confident that the significant actions we've taken over the past year have positioned us for meaningful growth and profitability in the years ahead. As Apex Global Brands, we will more fully convey who we are, how we operate and the comprehensive value we deliver and provide to our licensees, business partners, employees, and of course, our shareholders. Before discussing our brands further, I'd like to hand the call over to Steve Brink, our CFO, to review our fourth quarter and fiscal 2019 results. Steve?

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Steven L. Brink, Cherokee Inc. - CFO [4]

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Thanks, Henry. Good morning, everyone. Today, I will review our fiscal 2019 fourth quarter and full year financial results, our liquidity as well as our outlook for fiscal 2020. Revenues were $6.1 million for the fourth quarter compared to $6.9 million in the prior year's fourth quarter. For the full year of fiscal 2019, revenues totaled $24.4 million compared to $29.4 million the year before.

These decreases are primarily due to the expiration or nonrenewal of several licensing agreements, including our direct-to-retail licenses for Tony Hawk, Liz Lange and Cherokee School Uniforms as well as our divestiture of Flip Flop Shops franchise business in June 2018. These lost revenues were approximately $1.5 million in the fourth quarter and $9.5 million for the year. Note that the fourth quarter fiscal 2018 was the last quarter we reported revenues from Kohl's and Target. It's helpful to exclude these lost revenues to better understand the underlying growth of our current and new licensees. For these ongoing licensees, the revenues grew 13% for the quarter and 23% for the year. Included in our Hi-Tec portfolio of brands, our Hi-Tec, Magnum and Interceptor. These royalties were nearly 50% of our revenues in fiscal 2019 and were up 12% for the quarter and 20% for the year.

We're seeing growth from multiple licensees across several different territories and the launch of apparel with Interbrand is also contributing. Gross fees from our Cherokee brand were approximately 40% of our revenues in fiscal 2019. We lost revenues of the nonrenewal of our school uniforms licensee and an international licensee, but this was partially offset by second quarter revenues from our new pan-European licensee. We talked about our new design services revenue stream before, particularly our agreement with a major retailer in China. These revenues amounted to approximately $800,000 for the fourth quarter and $1.4 million for the full year.

You can see the positive effects of the restructuring plan in our operating expense again this quarter. Our ongoing SG&A expenses were down 56% in the fourth quarter and 42% for the full year. In spite of the lost revenues I mentioned earlier, our adjusted EBITDA grew 150% for the year, largely because we were able to reduce SG&A by over $10 million this year in comparison to the year before. We eliminated redundant positions, exited unused facilities and terminated various consulting and other contracts. As I've mentioned before, our interest expense includes our cash interest payments based on LIBOR plus amortization of deferred financing costs, and in the second quarter of this past year, there was a significant noncash charge related to refinancing our debt.

Of our total interest expense for the year of $11.5 million, $6.9 million was cash and $4.6 million was noncash. In the fourth quarter, about $1.6 million of our interest expense was cash. For the year, we generated net operating losses for tax purposes in both the United States and Europe. We're not recognizing the benefits of these NOLs in our income statement because of recent pretax losses in these jurisdictions. The result is that we have noncash tax expense reflected in our income statement, which totaled $1.4 million for the year as a total tax expense of $2.7 million.

Our income statements for fiscal 2019 and fiscal 2018 include operating charges for restructuring, business acquisitions and integration along with the impairment charge we recorded in the fourth quarter of fiscal 2018. These items are substantially lower in fiscal 2019 than they were in fiscal 2018, and in the second half of fiscal 2019, we did not have these large onetime items. As a result, we saw large improvement in our operating loss from $46.4 million in fiscal 2018 to an operating profit of $1.9 million in fiscal 2019. Our net loss from continuing operations also improved from a loss of $55.9 million in fiscal 2018 to a loss of $12.3 million in fiscal 2019. Excluding the onetime and noncash items, our adjusted EBITDA was $3.1 million for the fourth quarter of fiscal 2019, an increase from a loss of $0.1 million in the fourth quarter of the previous year.

For the full year, our adjusted EBITDA was $9.8 million, up 150% from $3.9 million in the previous year.

As I mentioned, this improvement was driven primarily by the rightsizing of our SG&A, combined with the organic growth of our existing licensees and design services.

Now let's review liquidity. We ended the year with $4.3 million of cash on hand. Our long-term debt totaled $54.5 million net of debt issuance costs. $1.3 million of this is classified as current. Note that at the end of fiscal 2018, all of our long-term debt was classified as current. In January of 2019, our credit agreement with Gordon Brothers was amended, and we borrowed an additional $5.3 million. A portion of the net proceeds was used to repay $2 million that we borrowed a month earlier from a major stockholder and 2 of our board members. As a result, we are no longer required to raise the $2 million of additional capital before May 4, 2019, which was previously required by our credit agreement.

We appreciate this vote of confidence from Gordon Brothers to our directors and our shareholders. When we refinanced our previous credit facility back in 2018 August, we issued warrants to purchase 1.6 million shares of our common stock to a large stockholder and a board member as part of their exchange of approximately [$11.5] million of subordinated notes and new subordinated debt in our current capital structure with Gordon Brothers. These warrants were recently exercised in cash, resulting in cash proceeds to us of $200,000 in the fourth quarter of fiscal 2019 and $600,000 in the first quarter of fiscal 2020.

Now let's turn to guidance. For fiscal 2020, which for us, will end on February 1, 2020, we currently expect revenues to range from $26 million to $28.5 million and adjusted EBITDA to range from $11 million to $12.5 million.

Lastly, I'd like to provide an update on our continuing listing on NASDAQ. We have until June 3, 2019, to regain compliance with the bid price rule. You can find more detail regarding these requirements in our 10-K we just filed this morning. We also filed our preliminary proxy last week for upcoming annual meeting in June, and one of the proposals in our proxy this year is the reverse stock split. Assuming this is approved by our stockholders, we can increase the bid price in our stock to an acceptable level by affecting the reverse split if necessary.

To summarize, it's been 2 quarters since we announced our fiscal 2019 restructuring plan and refinanced our debt. It's gratifying to see the significant changes reflected in our improved financial results but it's even better to observe the effectiveness of our operating platform in developing our brands and revenue streams around the world. We have an excellent group of licensees. We've already replaced a good portion of the revenues that we lost going into fiscal 2019 when our Hawk, Cherokee and Liz Lange DTR licenses did not renew. Now we're looking forward to profitable growth as we expand revenues off this new base with less overhead. Now I'll turn the call back to Henry

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Henry I. Stupp, Cherokee Inc. - CEO & Director [5]

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Thank you, Steve. As we discussed before Steve's presentation, Apex establishes a strong and relevant corporate identity that allows our brands and those of our partners to fully express their individuality and potential. Jumping into specific brand updates, a focus on providing highlights around our core brands, starting with the Hi-Tec portfolio. The Hi-Tec portfolio, which includes Hi-Tec, Magnum, Interceptor and 50 Peaks, continues to gain momentum, with licensing revenue growing $1.9 million to $11.6 million for fiscal 2019, a year-over-year increase of 20%.

We are pleased to report that the most comprehensive assortment of Hi-Tec brand and product in the brand's 40-plus year history is now available globally. We've maintained our authority in our core footwear business, while also expanding into exciting new categories and opportunities, including a broader range of apparel, footwear and accessories, sold within major sporting goods and specialty retailers, an extra tough work and service program that will reach new distribution channels and an outdoor cross-over footwear and apparel program that is distributed globally. The domestic introduction of Hi-Tec men's and women's apparel and accessories continued to grow as retailers and consumers embraced the expanded expression of the Hi-Tec brand. Since our initial introduction at the end of the second quarter in fiscal 2019, we've expanded our retail footprint considerably. In concert with our best-in-class licensee partners, we've been able to secure placement with the majority of the nation's larger brick-and-mortar and e-commerce retailers. The reception for our Hi-Tec category expansion has been equally strong in Europe. Through our pan-European licensees, we've already -- we're already seeing expanded commitments for our apparel, footwear and accessory lines for all of calendar 2019.

Outside of Europe, distribution of Hi-Tec branded footwear in Latin America, South Africa and Asia is growing, and we look forward to exploring category expansion opportunities as we scale the brand in these regions. At year-end, our Hi-Tec brand and footwear and accessories were distributed in more than 100 countries in addition to our growing e-commerce business, which is taking off on a number of fronts. First, our active promotion of our Hi-Tec spring and summer collections through digital and influencer marketing led to an increase of total views by 150 million in the United States alone. Clearly, our social and digital media campaigns are having an impact, and we will continue to bolster these efforts and parlay successes across our entire portfolio.

We also continue to expand our product and category breadth particularly in apparel and accessories for our Magnum brand, which is one of the world's fastest-growing military, tactical and service industry footwear brands. We will continue to ramp up awareness and affinity for Magnum through marketing activations and category expansion. Our exclusive distribution agreements with Walmart North America are driving success for our Interceptor brand and here too, category expansion will be a key to growth. We are in advanced discussions to expand Interceptor globally in footwear, apparel and accessories in early fiscal 2021.

Turning our attention to the Cherokee brand where sales of $9.7 million for fiscal year 2019 were down approximately $1.4 million or 12%, largely due to the nonrenewal or expiration of legacy partners along with our transition from a direct-to-retail to a wholesale licensing model. As legacy relationships are replaced and business models shift, we know that a sustainable growth plan exists for the Cherokee brand domestically but will take time. And we, along with our best-in-class licensees, are committed to making this happen. Today, we offer a wide assortment of Cherokee men's, women's and children's products across multiple channels, retailers and licensees. Our licensees expertise and commitment to the Cherokee brand will be key to our growth strategy and their efforts are progressing well, particularly for Cherokee Kids and School Uniforms. Additional licensee expansion is also underway, including a planned reintroduction of our heritage footwear, apparel and accessory collections that will be distributed at the upper tier of retail. As we depart from legacy terms and limitations, expand distribution into new channels and gain traction with new partners, we look forward to realizing positive comps for the Cherokee brand.

On the global front, we continue to identify additional licensees to build upon our European base for Cherokee following our third quarter 2019 launch. As we think about the future of the Cherokee brand, we continue to pursue a multi-category and multichannel approach. Partnering with best-in-class licensees will remain a core component of our growth strategy, as will pursuing tri-party licensing deals. Our sales and marketing efforts are also gaining traction, with renewed interest both domestically and internationally, for our other brands in our portfolio, including Everyday California, Liz Lange and Sideout.

And lastly, I'll review our Tony Hawk brand, which now includes our street-wear lifestyle brand, called Tony Hawk Signature. For the full year 2019, Tony Hawk brand revenues totaled roughly $600,000 as compared to $5.5 million in prior year period. Revenues for the Tony Hawk brand continued to decline in the fourth quarter as we finalize our transition from our legacy direct-to-retail model to a new wholesale licensing base.

With this transition complete and our domestic and international licensees securing solid placement, we expect positive future results and continued expansion into multiple channels and geographies. While relatively new, our core wholesale licensees are already ramping up, and brand momentum is building. We continue to amplify global brand messaging for Tony Hawk through events and strategic partnerships. For example, in January, we launched the Tony Hawk Signature line during Paris Fashion Week, and we will explore innovative brand collaborations and engage key pacemakers and influencers that fuel the brands buzz. Through these efforts, we are beginning to secure additional interest for the Tony Hawk brand with leading retailers throughout Europe. Separately, we are in discussion with licensees in other territories, including Asia, India and Australia and New Zealand. I cannot be prouder of our global change for creating these positive brands impressions across our entire portfolio every day.

Fiscal 2019 was a year of transition, and we are running this company for the long-term. The strategic choices that we put in place this year will continue to pay off. Actions we've taken to stabilize our financial position and revitalize our business model have put us in a strong position to expand reach for the brands we own, the brands we create and the brands we develop for others well into the future. Our strategic choices will negate the impact of nonrenewals and frequent management changes at our retail partners both of which have hindered our progress in the past. We are entering this new chapter with an operational model that is stronger and a business that is more diversified than ever before. As Apex Global Brands, we will own our brand authority by expanding our current brands into new categories and markets, and most importantly, by forging deeper, wider relationships with our licensees. We are confident that Apex's strong portfolio and flexible platform will be a winning combination that will translate into stability, profitability and industry relevance long into the future. Thank you again for your time this morning and for your continued support of Cherokee Global Brands. We look forward to continuing to update you on our progress in the coming quarters. And with that, we will now open up the call to your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Eric Beder with SCC Research.

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Eric Martin Beder, Small Cap Consumer Research, LLC - CEO & Consumer Analyst [2]

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Congrats on the quarter and the guidance. Could you talk a little bit about the SG&A savings, sort of, how you got to that? What should we be thinking about going forward as you start to ramp up revenue in terms of being able to leverage the SG&A side?

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Steven L. Brink, Cherokee Inc. - CFO [3]

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Sure, Eric. I think what you're seeing now is a reflection of the restructuring plans that have been in place in the last -- not just this year, but even before. So we're continuing to hold the line on any spending that is not necessary and looking for ways to save. So you see those results. I think going forward, I think the guidance would imply $15 million to $16 million of SG&A next year. That's -- we think we're at a pretty low spot to begin with, so we're looking for now as we build brands and build a revenue base opportunities to spend more in the marketing area, and that's where you see that incremental growth from Middle East and in the PD area where we're supporting our licensees or in China. So those are the areas where you see spending, not an overhead.

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Eric Martin Beder, Small Cap Consumer Research, LLC - CEO & Consumer Analyst [4]

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Great. When you look at Tony Hawk as an example and I see you're doing with Cherokee, you're bringing out a high-end line. And how does that diffuse itself through the rest of the piece to drive overall growth? And how have you seen that happen?

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Henry I. Stupp, Cherokee Inc. - CEO & Director [5]

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Eric, we basically establish all of our brands a halo strategy, where we can target multiple channels of distribution. It's a well-established path for brands to reinvent themselves, to increase their relevance by digging into its heritage and its history and targeting new consumers through the release of vintage products, heritage products that over time, come back into vogue. So we saw a lot of success with that, starting with the Hi-Tec brand when we reintroduced HTS74, where we took a legacy shoe at the Silver Shadows, and we launched it with Liberty of London, and that allowed us to start expanding with other retailers like Shufersal and as we moved through the distribution channels, we started at the highest level, and we allowed it to trickle down to where today (inaudible) and the acceptance of the brands, we started to introduce the same concept for both Tony Hawk and Cherokee where we are mining bestsellers from our history and will be marketing and supporting it at retail and the intrigue and the desire from retailers to get back into those kind of products that have that heritage, that deep history is relevant and important.

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Eric Martin Beder, Small Cap Consumer Research, LLC - CEO & Consumer Analyst [6]

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What about some of the brands that are kind of dormant like maybe a Sideout of some of those? Do they have any potential for that kind of strategy?

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Henry I. Stupp, Cherokee Inc. - CEO & Director [7]

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Yes. We've seeing more activity now, and as a company, we're looking at the entire brand portfolio. We do see brands coming back into vogue. We're seeing a lot of retailers who are looking to bring back brands that were popular in the '70s and '80s. And so a brand like Sideout is a good example, where it had been idling for a number of years. And now we're able to leverage our relationships with retailers, our relationships with licensees, tap into the existing design infrastructure and start recruiting licensees to reintroduce it at retail. So we -- our goal this year, frankly, is -- with the difficulties we faced for the last couple of years, our goal this year is to really maximize each brand opportunity, leverage the infrastructure, spend more time on sales and marketing, which is really the focus, and start driving top-line revenue with a good handle on our expenses.

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Eric Martin Beder, Small Cap Consumer Research, LLC - CEO & Consumer Analyst [8]

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Great. And last question. Free cash flow and obviously, your EBITDA is going to go up again. What is the use of free cash flow this year, pay down debt? Look at acquisitions once more? What do you think is the goal here?

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Steven L. Brink, Cherokee Inc. - CFO [9]

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Well, I think the -- as we've said before that the free cash flow, you'll start to see after working capital changes in the back half of fiscal '20. We're still working down some of the restructuring obligations in the first half. And then we will have our normal debt amortization payments of $1.3 million next year. And then after that, additional cash flow will be used to deleverage, for sure.

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Operator [10]

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Our next question comes from the line of Dave King with Roth Capital Partners.

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David Michael King, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [11]

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I guess first, congrats on the continued progress, especially on the expense front. First question is on revenue and the guidance there. How should we be thinking about the cadence for the growth over the next several quarters? I think you guided to maybe 12% growth I think at the midpoint. You will be anniversarying the Flip Flop I think in June. So how should we think about the trajectory as the year plays out?

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Steven L. Brink, Cherokee Inc. - CFO [12]

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Well. We're not -- as you can see, we're not giving quarterly guidance. But I think for the most part, you'd see relatively consistent growth and with the exception of probably Q2 where in Q2 last year, we had a big number from our new pan-European licensee for Cherokee so comping that up would be difficult. But -- other than that, I think growth should be relatively steady.

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David Michael King, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [13]

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Okay. That helps, Steve. And then in terms of by brand or business, how should we be thinking about the various drivers between -- what is your biggest driver between Hi-Tec and Hawk, kind of, retailer, et cetera?

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Henry I. Stupp, Cherokee Inc. - CEO & Director [14]

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So, well, we go brand-by-brand, starting with Hi-Tec. The Hi-Tec portfolio, we're having a lot of success with the Magnum brand globally, and that's leading to category expansion, which will start kicking in, in the back half of this year. We do expect the footwear to continue to grow on Magnum. We're seeing the same thing on Interceptor, not only on the Interceptor footwear, which is exclusively distributed by Walmart in North America that we're now adding additional licensees for non-footwear, specifically apparel and accessories. So we do expect that brand to grow as well. And then Hi-Tec, our licensees, domestically and internationally as well as our distribution partners, are all seeing growth, and we're having our licensees work with our distributors so that we can expand the product offering on a global scale.

So for example, our European licensees distributing product that is being designed, developed and sourced by our domestic licensees and vice versa, and that's allowing us to get more product into channels faster than ever before. So the strength of Hi-Tec was a great opportunity for us. We're still relatively in its infancy a couple of years in. So a very difficult transition from an operating income based to a licensing company, and now that our licensees are starting to develop product and we're supporting it with some great marketing activities we're seeing a lot of retail penetration, and we're quite confident that that's going to be a significant growth driver in the future. With Tony Hawk, we obviously had a tough transition from our former DTR partner. However, our domestic and international licensees have secured solid placement. We're going to have a good comp from last year to this year. We expect a lot of growth. We think our licensees are doing a fantastic job in designing component product, getting good distribution. The strength of our licensees is critical at this stage. They're motivated, they're distributing product, they're stocking inventory so they're able to respond quickly. And that's a very positive development for us. So we do believe that Hawk will continue to grow, especially as we get into closer and closer to the Olympics, and we're already starting to see more and more inbound inquiries about the category, the street-skate category. So we think that we're on trend there and the opportunity is positive. On the Cherokee side internationally, we're in good shape, and our goal there is to introduce more categories to our existing partners. And domestically, we feel that we've made a lot of improvements by getting the right mix of licensees, several of which are doing a stellar job and opening up more accounts with great product. We're doing more brick-and-mortar and more e-commerce with known accounts, the big box and the e-comms, but also some new distribution channels, particularly in growing channels like Tractor Supply, pharma fleet, where we're getting a lot of interest. We're quite pleased with the sell-throughs of the product and the placement, and now it's just a question of making sure that we're able to grow it. We think we've got -- made significant progress with our group of licensees, which we transitioned a little bit over the last 18 months. So it's looking more positive there as well.

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David Michael King, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [15]

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Okay. Great. It's good to hear. And lastly from me on M&A, Henry. How are you thinking about the environment currently? And then I guess more importantly, to what extent is your balance sheet where it needs to be, to be -- to allow you to be on some of acquisition footing.

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Henry I. Stupp, Cherokee Inc. - CEO & Director [16]

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Well, our number 1 goal this year is to really maximize the brands within the portfolio. That's where the company is primarily focused. There are opportunities that present themselves every week. We do discuss them closely with Gordon Brothers, has proven to be a very good partner with us. So with that said, we're primarily focused on the portfolio, but we are looking at our options, possibly other acquisitions, in partnership with Gordon Brothers brands.

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Operator [17]

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We have reached the end of the question-and-answer session, and with that, the conclusion of today's call. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.