U.S. Markets closed

Xcel Brands Announces Third Quarter 2017 Financial Results

Third Quarter Net Revenues of $7.9 Million
Third Quarter GAAP Net Income of $0.3 Million
Third Quarter Non-GAAP Net Income of $1.6 Million; Adjusted EBITDA of $2.4 Million

NEW YORK, Nov. 09, 2017 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (XELB) (“Xcel” or the “Company”), a media and brand management company, today announced its financial results for the third quarter and nine months ended September 30, 2017.

Robert W. D'Loren, Chairman and Chief Executive Officer of Xcel commented, “2017 continues to be a transformative year for the Company, characterized by continued market share growth in our department store business.  We remain focused on working with our retail partners to optimize our fast-to-market production platform, and we are improving performance, increasing our door count, and expanding into more product categories.

“We continue to reinvest our operating cash flow into the business and we are making great progress implementing our integrated technology platform. Once fully operational, Xcel will have developed the most advanced, technology-based design and production platform that completely digitizes design, merchandising, and production supply lines. These advancements strategically position us as an industry leader, which will allow Xcel to take advantage of solid growth opportunities ahead,” concluded Mr. D’Loren.   

Third Quarter 2017 Financial Results

Total net revenues for the third quarter of 2017 were $7.9 million, down approximately 5% from $8.3 million in the prior year quarter. This was primarily attributable to lower revenue associated with the C Wonder brand that is transitioning away from QVC and from the exiting of the LCNY license agreement in July 2016, both previously reported. These decreases were partially offset by higher net revenue from the wholesale department store business. 

GAAP net income was $0.3 million for the quarter ended September 30, 2017, or $0.01 per diluted share, compared with net income of approximately $0.1 million, or $0.01 per diluted share, in the prior year quarter. After adjusting for certain cash and non-cash items, non-GAAP net income for the quarter ended September 30, 2017 was $1.6 million, or $0.09 per diluted share, compared with $1.5 million, or $0.08 per diluted share in the prior year quarter. 

Adjusted EBITDA for the quarter ended September 30, 2017 increased to approximately $2.4 million, compared with $2.3 million for the same quarter in the prior year.  Additionally, on a sequential basis, operating results in terms of EBITDA and non-GAAP net income continue to show improvements when compared with prior quarters in 2017 as the Company’s strategy of focusing on its own brands and the growth of the fast-to-market production platform continues to deliver positive results.

First Nine Months of Fiscal 2017 Financial Results

Total net revenues for the nine months ended September 30, 2017 were $24.7 million, down approximately 4% from $25.8 million in the same period in 2016. The decrease was attributable primarily to the previously mentioned LCNY brand termination and C Wonder brand transition. These decreases were partially offset by higher revenues from the wholesale department store business as Xcel increases the number of stores its brands are sold in and expands its short-lead production platform into more product categories.

GAAP net income was approximately $0.07 million for the nine months ended September 30, 2017, or $0.00 per diluted share, compared with net loss of less than ($0.1) million, or approximately ($0.00) per share on a diluted basis, for the nine months ended September 30, 2016. After adjusting for certain cash and non-cash items, non-GAAP net income for the nine months ended September 30, 2017 was $4.3 million, or $0.22 per diluted share, compared with $4.6 million, or $0.24 per diluted share, for the same period in the prior year.

Adjusted EBITDA for the nine months ended September 30, 2017 decreased approximately $0.5 million to $6.6 million, compared with $7.1 million for the same period in the prior year.

See reconciliation tables below for non-GAAP metrics. These non-GAAP metrics may be inconsistent with similar measures presented by other companies and should only be used in conjunction with our results reported according to U.S. generally accepted accounting principles ("GAAP"). Any financial measure other than those prepared in accordance with GAAP should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

The Company's balance sheet at September 30, 2017 remained strong, with stockholders' equity of $107.8 million, cash and cash equivalents of $8.3 million, and working capital of approximately $11.1 million.  During the current nine months, the Company reduced its senior term debt by $5.8 million to $19.5 million, with no other principal payment due for the fourth quarter. 

Conference Call and Webcast

The Company will host a conference call with members of the executive management team to discuss these results with additional comments and details at 5:30 p.m. Eastern Time on Thursday, November 9, 2017. A webcast of the conference call will be available live on the Investor Relations section of Xcel's website at www.xcelbrands.com. Interested parties unable to access the conference call via the webcast may dial 888-857-6931. A replay of the conference call will be available on the Company website for 30 days following the event and can be accessed at 844-512-2921 using replay pin number 50627328.

About Xcel Brands

Xcel Brands, Inc. (XELB) is a media and consumer products company engaged in the design, production, licensing, marketing, and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods, and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded by Robert W. D’Loren in 2011 with a vision to reimagine shopping, entertainment, and social as one. Xcel owns and manages the Isaac Mizrahi, Judith Ripka, H Halston, C. Wonder, and Highline Collective brands, pioneering a ubiquitous sales strategy which includes the promotion and sale of products under its brands through interactive television, internet, brick and mortar retail, and e-commerce channels. Headquartered in New York City, Xcel Brands is led by an executive team with significant production, merchandising, design, marketing, retailing, and licensing experience, and a proven track record of success in elevating branded consumer products companies. With a team of over 100 professionals focused on design, production, and digital marketing, Xcel maintains control of product quality and promotion across all of its product categories and distribution channels. Xcel differentiates by design.  www.xcelbrands.com 

Forward Looking Statements

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "ongoing," "could," "estimates," "expects," "intends," "may," "appears," "suggests," "future," "likely," "goal," "plans," "potential," "projects," "predicts," "seeks," "should," "would," "guidance," "confident" or "will" or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding our anticipated revenue, expenses, profitability, strategic plans and capital needs. These statements are based on information available to us on the date hereof and our current expectations, estimates and projections and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including, without limitation, the risks discussed in the "Risk Factors" section and elsewhere in the Company's Annual Report on form 10-K for the year ended December 31, 2016 and its other filings with the SEC, which may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. 

For further information please contact:

Andrew Berger
SM Berger & Company, Inc.
216-464-6400
andrew@smberger.com

 
Xcel Brands, Inc. and Subsidiaries 
Unaudited Condensed Consolidated Balance Sheets 
(in thousands, except share and per share data) 
           
  September 30, 2017   December 31, 2016
  (Unaudited)    
Assets          
Current Assets:          
Cash and cash equivalents $ 8,273   $ 14,127
Accounts receivable, net   9,517     6,969
Prepaid expenses and other current assets   594     807
Total current assets   18,384     21,903
Property and equipment, net   2,441     2,600
Trademarks and other intangibles, net   110,396     111,220
Goodwill   12,371     12,371
Restricted cash   1,509     1,509
Other assets   1,501     1,517
Total non-current assets   128,218     129,217
           
Total Assets $ 146,602   $ 151,120
           
Liabilities and Stockholders' Equity          
Current Liabilities:          
Accounts payable, accrued expenses and other current liabilities $ 839   $ 1,523
Accrued payroll   1,781     2,185
Deferred revenue   73     234
Current portion of long-term debt   4,459     6,427
Current portion of long-term debt, contingent obligations   100    
Total current liabilities   7,252     10,369
Long-Term Liabilities:          
Long-term debt, less current portion   20,337     25,495
Deferred tax liabilities, net   8,605     6,901
Other long-term liabilities   2,637     2,181
Total long-term liabilities   31,579     34,577
Total Liabilities   38,831     44,946
           
Commitments and Contingencies          
           
Stockholders' Equity:          
Preferred stock, $.001 par value, 1,000,000 shares authorized, none
issued and outstanding
    -        - 
Common stock, $.001 par value, 35,000,000 shares authorized at
September 30, 2017 and December 31, 2016, and 18,468,801 and
18,644,982 issued and outstanding at September 30, 2017 and December
31, 2016, respectively
  18     19
Paid-in capital   98,886     97,354
Retained earnings   8,867     8,801
Total Stockholders' Equity   107,771     106,174
           
Total Liabilities and Stockholders' Equity $ 146,602   $ 151,120
           


 
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
                       
  For the Three Months   For the Nine Months
  Ended September 30,   Ended September 30,
  2017
  2016   2017
  2016
                       
Net revenues $ 7,890     $ 8,320     $ 24,690     $ 25,793  
                       
Operating costs and expenses                      
Salaries, benefits and employment taxes   4,079       4,054       12,806       12,481  
Other design and marketing costs   287       779       1,803       2,439  
Other selling, general and administrative expenses   1,188       1,175       3,602       4,540  
Stock-based compensation   690       1,089       2,496       3,754  
Depreciation and amortization   389         387       1,173         1,172  
Total operating costs and expenses   6,633       7,484       21,880       24,386  
                       
Operating income   1,257       836       2,810       1,407  
                       
Interest and finance expense                      
Interest expense - term debt   273       340       905       1,003  
Other interest and finance charges   41       122       135         424  
Total interest and finance expense   314       462       1,040       1,427  
                       
Income (loss) before income taxes     943         374         1,770         (20 )
                       
Income tax provision (benefit)    691         256       1,704         (3 )
                       
Net income (loss) $   252     $   118     $   66     $   (17 )
                       
Basic net income (loss) per share 0.01     0.01      $ 0.00       (0.00 )
                       
Diluted net income (loss) per share 0.01     0.01      $ 0.00       (0.00 )
                       
Basic weighted average common shares outstanding   18,470,977       18,692,775       18,530,963       18,608,034  
Diluted weighted average common shares outstanding   18,872,753       19,068,011       18,896,418       18,608,034  
                       


 
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
  For the Nine Months Ended September 30,
  2017
  2016
       
Cash flows from operating activities          
Net income (loss) $   66     $   (17 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization expense     1,173         1,172  
Amortization of deferred finance costs     146         140  
Stock-based compensation     2,496         3,754  
Amortization of note discount     28         236  
Deferred income tax      1,704         (3 )
Non-cash property exit charge     -          648  
Changes in operating assets and liabilities:          
Accounts receivable     (2,548 )       (1,210 )
Prepaid expenses and other assets     211         199  
Accounts payable, accrued expenses and other current liabilities     (1,237 )       1,306  
Deferred revenue     (161 )       (585 )
Other liabilities     456         1,129  
Net cash provided by operating activities     2,334         6,769  
           
Cash flows from investing activities          
Cost to acquire intangible assets     (23 )       (26 )
Purchase of property and equipment     (167 )       (1,911 )
Net cash used in investing activities     (190 )       (1,937 )
           
Cash flows from financing activities          
Proceeds from exercise of stock options     -          20  
Shares repurchased including vested restricted stock in exchange for withholding taxes     (814 )       (1,210 )
Payment of deferred finance costs     (7 )       (69 )
Payment of long-term debt     (7,177 )       (4,625 )
Payment of QVC earnout obligation     -          (250 )
Net cash used in financing activities     (7,998 )       (6,134 )
           
Net decrease in cash, cash equivalents and restricted cash     (5,854 )       (1,302 )
           
Cash, cash equivalents, and restricted cash at beginning of period     15,636         17,969  
           
Cash, cash equivalents, and restricted cash at end of period $   9,782      $    16,667  
           
Reconciliation to amounts on consolidated balance sheets:          
Cash and cash equivalents $   8,273      $    15,158  
Restricted cash     1,509         1,509  
Total cash, cash equivalents, and restricted cash $   9,782      $    16,667  
           
Supplemental disclosure of cash flow information:          
 Cash paid during the period for income taxes $   151      $    168  
 Cash paid during the period for interest $   1,175      $    909  
           


                     
  Xcel Brands, Inc. and Subsidiaries
  Reconciliation of Non-GAAP measures
  (Unaudited)
                     
    Non-GAAP net income:                
        Quarter Ended
September 30,
  Nine Months Ended
September 30,
    (amounts in thousands)   2017   2016   2017   2016 
                     
    Net income (loss)   $   252   $   118   $   66   $   (17 )
    Non-cash interest and finance expense       9       78       28       236  
    Stock-based compensation       690       1,089       2,496       3,754  
    Non-recurring facility exit charges       -       -       -       670  
    Deferred income tax provision (benefit)       691       256       1,704       (3 )
    Non-GAAP net income   $   1,642   $   1,541   $   4,294   $   4,640  
                     
    Non-GAAP diluted EPS:                
        Quarter Ended
September 30,
  Nine Months Ended
September 30,
        2017   2016   2017   2016 
                     
    Diluted earnings (loss) per share   $   0.01   $   0.01     0.00       (0.00 )
    Non-cash interest and finance expense        0.00     0.00     0.00       0.01  
    Stock-based compensation       0.04       0.06       0.13       0.20  
    Non-recurring facility exit charges       -        -        -        0.03  
    Deferred income tax provision (benefit)     0.04       0.01       0.09       (0.00 )
    Non-GAAP diluted EPS   $   0.09   $   0.08   $   0.22   $   0.24  
                     
    Weighted average shares - Non-GAAP diluted:                
        Quarter Ended
September 30,
  Nine Months Ended
September 30,
        2017   2016   2017   2016 
                     
    Basic weighted average shares       18,470,977       18,692,775       18,530,963       18,608,034  
    Effect of exercising warrants       364,340       369,288       364,247       435,298  
    Effect of exercising stock options       37,436       5,948       1,208       28,000  
    Non-GAAP weighted average diluted shares       18,872,753       19,068,011       18,896,418       19,071,332  
                     
    Adjusted EBITDA:                
        Quarter Ended
September 30,
  Nine Months Ended
September 30,
    (amounts in thousands)   2017   2016   2017   2016 
                     
    Net income (loss)   $   252   $   118   $   66   $   (17 )
    Depreciation and amortization       389       387       1,173       1,172  
    Interest and finance expense       314       462       1,040       1,427  
    Income tax provision (benefit)       691       256       1,704       (3 )
    State and local franchise taxes       25       26       81       75  
    Stock-based compensation       690       1,089       2,496       3,754  
    Non-recurring facility exit charges       -       -       -       670  
    Adjusted EBITDA   $   2,361   $   2,338   $   6,560   $   7,078  
                               

Non-GAAP net income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income as net income, exclusive of stock-based compensation, non-cash interest expense from discounted debt related to acquired assets, gain on the reduction of contingent obligations, loss on extinguishment of debt, non-recurring facility exit charges, certain discrete tax items related to vesting or exercise of stock-based awards, and net income or loss from discontinued operations. Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy. 

Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income before stock-based compensation, interest and other financing costs, loss on extinguishment of debt, gain on the reduction of contingent obligations, income taxes, other state and local franchise taxes, depreciation and amortization, non-recurring facility exit charges, and net income or loss from discontinued operations.

Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to our results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because they provide supplemental information to assist investors in evaluating our financial results. Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA in a different manner than we calculate these measures. In evaluating non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this document. Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.