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Edited Transcript of SQBG earnings conference call or presentation 9-Aug-19 12:30pm GMT

Q2 2019 Sequential Brands Group Inc Earnings Call

NEW YORK Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Sequential Brands Group Inc earnings conference call or presentation Friday, August 9, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Karen Murray

Sequential Brands Group, Inc. - CEO, Secretary & Director

* Peter J. Lops

Sequential Brands Group, Inc. - CFO

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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 the 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 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 GAAP metrics (sic) [non-GAAP] 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 CEO, Karen Murray; and Chief Financial Officer, Peter Lops.

I'll now turn the conference call over to Ms. Murray. Ms. Murray, you may begin when you're ready.

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Karen Murray, Sequential Brands Group, Inc. - CEO, Secretary & Director [2]

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Good morning, and thank you for joining us for our second quarter 2019 earnings conference call. Sequential is in the midst of the 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 Emeril Lagasse brand. This sale allowed us to reduce our debt by 25% or $154 million, and we focus our resources on higher-margin brands.

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

In conjunction with the transformation occurring across the business, we are also experiencing transitions with several of our brands. Specifically, we're elevating some of our brands and as a result, changing some of our licensees. The results for this year's second quarter and the remainder of the year were and will be impacted by onetime items included in last year's results and not included in this year's results. I talked about a few of these onetime 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 relaunch later this year and revenue from 2 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're actively pursuing.

On that note, let me take you through some of the highlights of our core brands, including Jessica Simpson, AND1, AVIA, GAIAM and Joe's, which make up the majority of our business.

There's been a lot of activity underway this quarter for the Jessica Simpson brand. The brand's core footwear business at Macy's and Nordstrom is performing well. We recently launched jessicasimpson.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 her upcoming memoir, which will be out in February. She had several publicity commitments tied to the book's promotion, including a 5-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.

The AND1 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 and Athlete's Foot. The marketing initiatives tied to the AND1 brand's 25th anniversary have 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 AND1 brand into a new category, backpacks, which we expect to launch next year.

The AVIA brand at Walmart has experienced recent growth and the brand's international presence continues to expand, particularly in China where there are now a growing number of AVIA stores and a new AVIA office in Beijing.

GAIAM's core business at Amazon and Walmart continues to grow. The brand's recent expansion into nation-wide 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 GAIAM's men's line at kohls.com, the line is now being tested in Select Kohl's stores. The line of GAIAM personal care products are on track to launch at the end of the year in Select drugstores nation-wide. 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. Joe's business in women's, men's and kids is trending well. We are focused on building out the brand's presence in better and best distribution channels.

We recently repositioned and relaunched the Caribbean Joe 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 kid's swimwear, women's pajamas and loungewear and men's and women's sportswear, and we're excited to add additional categories in areas where the 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 are 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.

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

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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 30, 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 was $3.3 million or $0.05 per diluted share compared to net income from continuing operations for the second quarter of 2018 of $2.2 million or $0.03 per diluted share. Non-GAAP net loss from continuing operations for this year's quarter was $2.6 million or $0.04 per diluted share compared to non-GAAP net income from continuing operations of $4.5 million or $0.07 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 6 months ended June 30, 2019, 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 6 months ended June 30, 2019, was $8.1 million or $0.13 per diluted share compared to net loss from continuing operations for the 6 months ended June 30, 2018 of $1.4 million or $0.02 per diluted share. Non-GAAP net loss from continuing operations for the 6 months ended June 30, 2019, was $6.9 million or $0.11 per diluted share compared to non-GAAP net income from continuing operations of $5.8 million or $0.09 per diluted share in the prior year period.

Adjusted EBITDA from continuing operations for the 6 months ended June 30, 2019, 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 paydown of debt of $154 million following the sale of the Martha and Emeril brands.

As Karen discussed, while 2019 results will be impacted by difficult comparisons in Sequential's 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.

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Operator [4]

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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.