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Edited Transcript of SQBG earnings conference call or presentation 8-Nov-19 1:30pm GMT

Q3 2019 Sequential Brands Group Inc Earnings Call

NEW YORK Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Sequential Brands Group Inc earnings conference call or presentation Friday, November 8, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Peter J. Lops

Sequential Brands Group, Inc. - CFO

* William Sweedler

Sequential Brands Group, Inc. - Chairman

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Presentation

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Operator [1]

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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 to our public filings and the press release we issued this morning for a 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 may 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 non-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.sequentialbrandsgroup.com.

On today's call are Sequential Brands Group's Chairman, Bill Sweedler; and Chief Financial Officer, Peter Lops.

I'll now turn the conference over to Mr. Sweedler. You may begin when you're ready.

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William Sweedler, Sequential Brands Group, Inc. - Chairman [2]

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Good morning. While we're in the final stages of our CEO search, I'm pleased to fill in and join today's call with Peter. The executive team has been hard at work executing on the plan to best position Sequential for long-term success, and I have a few updates to share this morning on the progress.

First, the management team remains focused on driving revenue growth across the portfolio. There are 4 broad initiatives for which we continue to seek opportunity to drive growth for all brands in the sequential portfolio. These include: signing new strategic licensing partnerships, both domestically and abroad; securing partnership renewals, expanding into new categories; and lastly, broadening geographic distribution.

Recent examples in the quarter include signing new licenses in multiple categories for Jessica Simpson, securing new kids footwear deals for Joe's, William Rast and Caribbean Joe and executing new partnerships to expand via an Ellen Tracy in select Scandinavian territories.

Second, we are well underway to rightsizing the cost structure of the business post the sale of Martha Stewart, which includes a significant reduction of our expenses. As management previously outlined, we expect an operating expense base of approximately $30 million before minority interest starting next year. This new optimized operating expense base reflects a significant reduction to the company's current overhead, including corporate head count, SG&A and headquarter-related expenses. To that end, we've made significant progress on the sublease front. We have completed negotiations with a subtenant for 62% of our current corporate headquarters and continue to actively market the balance of the space. We expect these savings to drive a significant and immediate margin improvement as we head into 2020.

Third, we recently amended our lending agreement with KKR, which further improves our liquidity and cash flow and demonstrates the continued support of our lenders. With no upcoming debt maturities, we believe that the company has ample runway to focus on driving the business forward.

Finally, we are working diligently with our financial adviser, Stifel, on the strategic review process, which we announced last month. We have received significant inbound interest, and the strategic process is moving forward. At the same time, as previously stated, we continue to evaluate potential acquisition targets that fit well in our existing brand verticals and would be both delevering and accretive.

In closing, we're excited by our CEO search and the progress we've made to lay the groundwork for 2020 as we transition to a leaner, more nimble operation. We have a collection of strong brands across the lifestyle and active categories, best-in-class wholesale and retail partners, the financial flexibility needed to execute against our growth strategy and a core talented team.

With that, let me turn the call over to Peter who will take you through third quarter financials.

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Peter J. Lops, Sequential Brands Group, Inc. - CFO [3]

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Thank you, Bill. Total revenue from continuing operations for third quarter 2019 was $25.4 million compared to $29.5 million in the prior year quarter. As mentioned on our last call, for the third quarter and the remainder of 2019, results continued to be impacted by onetime items included in the last year's results and not included in this year's results.

On a GAAP basis, net loss from continuing operations for the third quarter of 2019 was $18.4 million or $0.28 per diluted share compared to net loss from continuing operations for the third quarter of 2018 of $10.5 million or $0.16 per diluted share. Included in the net loss from continuing operations for the third quarter of 2019 were noncash impairment charges of approximately $33 million for indefinite-lived intangible assets related to the trademarks for the Jessica Simpson and Joe's brands.

Non-GAAP net loss from continuing operations for the third quarter 2019 was $0.9 million or $0.02 per diluted share compared to non-GAAP net loss from continuing operations of $0.3 million or $0.00 per diluted share in the third quarter of 2018. Adjusted EBITDA from continuing operations for the third quarter of 2019 was $13.2 million compared to $15.1 million in the prior year quarter. 2019 year-to-date revenue from continuing operations was $77.3 million compared to $92 million in the prior year period.

On a GAAP basis, year-to-date 2019 net loss from continuing operations was $26.4 million or $0.41 per diluted share compared to a net loss from continuing operations for the prior year period of $11.8 million or $0.19 per diluted share.

2019 year-to-date non-GAAP net loss from continuing operations was $7.7 million or $0.11 per diluted share compared to non-GAAP net income from continuing operations of $5.7 million or $0.09 per diluted share in the prior year period.

2019 year-to-date adjusted EBITDA from continuing operations was $37.7 million compared to $52.1 million in the prior year period.

With regards to the balance sheet, we closed the third quarter of 2019 with $5.1 million of cash, including restrictive cash and $456.6 million of debt net of cash. For the full year of 2019, the company continues to expect revenue to be in the range of $104 million to $108 million.

In closing, we are encouraged by the activity underway and look forward to the benefits as we enter 2020. Thank you for joining us on our call today. I will now turn the call back over to the operator for Q&A.

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Operator [4]

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(Operator Instructions) Thank you, ladies and gentlemen. This concludes the Q&A session and thus concludes our call for today. Thank you for your participation and interest. You may disconnect your lines, and have a wonderful day.