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Xcel Brands, Inc. Announces Fourth Quarter and Fiscal Year 2019 Results

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Fourth Quarter Total Revenues of $11.4 Million, up 14% from the Prior Year Quarter, and Full Year Total Revenues of $41.7 Million, up 18% from Prior Year

NEW YORK, April 13, 2020 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (XELB) (“Xcel” or the “Company”), a media and consumer products company, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2019.

Robert W. D'Loren, Chairman and Chief Executive Officer of Xcel commented, “We continue to be pleased by our top-line revenue growth resulting from the investment in our wholesale and e-commerce channels. This diversification of our distribution channels, combined with our continued efforts and wins in the licensing channel, helped us to deliver a strong finish for the fiscal year.”

Fourth Quarter 2019 Financial Results

Net revenue for the fourth quarter of 2019 was $11.4 million, a net increase of approximately $1.4 million over the prior year quarter, primarily driven by sales from the Company’s wholesale apparel operations and jewelry wholesale and e-commerce operations. Gross profit for the fourth quarter of 2019 decreased approximately $0.3 million to $7.6 million from $7.9 million in the prior year quarter, primarily attributable to lower net licensing revenue that was partially offset by wholesale margins.

GAAP net loss was approximately $5.3 million for the fourth quarter, or ($0.28) per basic and diluted share, compared with a GAAP net loss of $0.3 million, or ($0.02) per basic and diluted share, for the prior year quarter. The current year quarter’s net loss is primarily attributable to a $6.2 million impairment charge related to the Judith Ripka Trademarks. After adjusting for certain cash and non-cash items, non-GAAP net income for the quarters ended December 31, 2019 and December 31, 2018 was approximately $0.9 million, or $0.05 per diluted share, and approximately $1.2 million, or $0.07 per diluted share, respectively.

Adjusted EBITDA for the fourth quarter of 2019 decreased approximately $0.2 million to $1.5 million, compared with approximately $1.7 million in the prior year quarter.

Full Year December 31, 2019 Financial Results

Net revenue for the year ended December 31, 2019 was $41.7 million, an increase of approximately $6.2 million or 18% over the prior year. The increase in revenue for the current year was primarily attributable to expansion of the Company’s jewelry wholesale and e-commerce sales and wholesale apparel sales. Gross profit for the year ended December 31, 2019 declined approximately $1.3 million to $31.5 million from $32.8 million in the prior year, primarily attributable to lower net licensing revenue and was partially offset by wholesale margins.

GAAP net loss was approximately $3.4 million for the current year, or ($0.18) per basic and diluted share, compared with $1.1 million of net income , or $0.06 per basic and diluted share from the prior year. After adjusting for certain cash and non-cash items, non-GAAP net income for the year ended December 31, 2019 was $4.8 million, and non-GAAP earnings per share was $0.25 per diluted share, compared with $6.5 million, or $0.36 per diluted share in the prior year.

Adjusted EBITDA for the year ended December 31, 2019 was approximately $7.1 million, compared with approximately $8.4 million in 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 December 31, 2019 remained strong, with stockholders' equity of approximately $98.5 million, cash and cash equivalents of $4.6 million, and working capital, exclusive of the current portion of lease obligations and any contingent obligations payable in stock, of approximately $9.5 million. During the current year, the Company made payments on its debt obligations of approximately $4.7 million.

The Company currently expects the impacts of the COVID-19 pandemic are significantly adversely affecting its business, financial condition and operating results and are expected to continue to do so for the near future. For more information see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Operating Results – Other factors” of our Annual report on Form 10-K for the year ended December 31, 2019.

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 5:00 p.m. Eastern Time on Monday, April 13, 2020. 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 1-855-327-6837. 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 10009142.

About Xcel Brands
Xcel Brands, Inc. (XELB) is a media and consumer products company engaged in the design, production, marketing, wholesale, 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 the Isaac Mizrahi, Judith Ripka, Halston, and C. Wonder brands, and it owns and manage the Longaberger brand through its controlling interest in Longaberger Licensing LLC, pioneering a ubiquitous sales strategy which includes the promotion and sale of products under its brands through interactive television, brick-and-mortar retail, e-commerce and peer to peer 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 an experienced team of 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, 2019 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

Consolidated Balance Sheets

(in thousands, except share and per share data)

December 31, 2019

December 31, 2018

(Unaudited)

Assets

Current Assets:

Cash and cash equivalents

$

4,641

$

8,837

Accounts receivable, net

10,622

11,010

Inventory

899

1,988

Prepaid expenses and other current assets

1,404

2,040

Total current assets

17,566

23,875

Property and equipment, net

3,666

3,202

Operating lease right-of-use assets

9,250

-

Trademarks and other intangibles, net

111,095

108,989

Restricted cash

1,109

1,482

Other assets

505

511

Total non-current assets

125,625

114,184

Total Assets

$

143,191

$

138,059

Liabilities and Stockholders' Equity

Current Liabilities:

Accounts payable, accrued expenses and other current liabilities

$

4,391

$

5,140

Accrued payroll

1,444

2,011

Current portion of accrued rent liability

-

690

Current portion of operating lease obligation

1,752

-

Current portion of long-term debt

2,250

5,325

Current portion of long-term debt, contingent obligations

-

2,950

Total current liabilities

9,837

16,116

Long-Term Liabilities:

Long-term portion of accrued rent liability

-

2,202

Long-term portion of operating lease obligation

9,773

-

Long-term debt, less current portion

17,471

11,300

Deferred tax liabilities, net

7,434

8,139

Other long-term liabilities

224

420

Total long-term liabilities

34,902

22,061

Total Liabilities

44,739

38,177

Commitments and Contingencies

Stockholders' Equity:

Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding

-

-

Common stock, $.001 par value, 50,000,000 shares authorized at December 31, 2019 and December 31, 2018, respectively, and 18,866,417 and 18,138,616 issued and outstanding at December 31, 2019 and December 31, 2018, respectively

19

18

Paid-in capital

101,736

100,097

Accumulated deficit

(3,659

)

(233

)

Total Xcel Brands, Inc. Stockholders' Equity

98,096

99,882

Non-controlling interest

356

-

Total Stockholders' Equity

98,452

99,882

Total Liabilities and Stockholders' Equity

$

143,191

$

138,059



Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

For the Three Months Ended

For the Twelve Months Ended

December 31,

December 31,

2019

2018

2019

2018

Revenues

Net licensing revenue

$

5,341

$

6,745

$

26,435

$

31,190

Net sales

6,015

3,201

15,292

4,276

Net revenue

11,356

9,946

41,727

35,466

Cost of goods sold (sales)

3,723

2,062

10,272

2,702

Gross Profit

7,633

7,884

31,455

32,764

Operating costs and expenses

Salaries, benefits and employment taxes

3,796

3,850

15,834

16,560

Other design and marketing costs

812

851

3,164

2,696

Other selling, general and administrative expenses

1,538

1,520

5,552

5,211

Costs in connection with potential acquisition

1059

-

1290

-

Facilities exit charge

0

799

0

799

Stock-based compensation

199

373

976

1,788

Depreciation and amortization

963

457

3,902

1,780

Impairment of intangible assets

6,200

-

6,200

-

Total operating costs and expenses

14,567

7,850

36,918

28,834

Other Income

Gain on reduction of contingent obligation

-

-

2,850

-

Total other income

-

-

2,850

-

Operating (loss) income

(6,934

)

34

(2,613

)

3,930

Interest and finance expense

Interest expense - term debt

304

206

1,211

912

Other interest and finance charges

13

(5

)

74

99

Loss on extinguishment of debt

0

-

189

-

Total interest and finance expense

317

201

1,474

1,011

(Loss) income before income taxes

(7,251

)

(167

)

(4,087

)

2,919

Income tax (benefit) provision

(1,922

)

114

(642

)

1,831

Net (loss) income

(5,329

)

(281

)

(3,445

)

1,088

Less: Net loss attributable to non-controlling interest

(19

)

-

(19

)

-

Net (loss) income attributable to Xcel Brands, Inc. stockholders

$

(5,310

)

$

(281

)

$

(3,426

)

$

1,088

Basic net (loss) income per share:

$

(0.28

)

$

(0.02

)

$

(0.18

)

$

0.06

Diluted net (loss) income per share:

$

(0.28

)

$

(0.02

)

$

(0.18

)

$

0.06

Basic weighted average common shares outstanding

18,911,760

18,210,104

18,857,657

18,280,788

Diluted weighted average common shares outstanding

18,911,760

18,210,104

18,857,657

18,281,638



Xcel Brands, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

For the Year Ended December 31,

2019

2018

Cash flows from operating activities

Net (loss) income

$

(3,445

)

$

1,088

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense

3,902

1,780

Impairment of intangible assets

6,200

-

Amortization of deferred finance costs

146

169

Stock-based compensation

976

1,788

Amortization of note discount

16

41

Allowance for doubtful accounts

(50

)

172

Loss on extinguishment of debt

189

-

Deferred income tax provision

(705

)

1,764

Gain on reduction of contingent obligation

(2,850

)

-

Changes in operating assets and liabilities:

Accounts receivable

438

(2,653

)

Inventory

1,089

(1,988

)

Prepaid expenses and other assets

(59

)

(373

)

Accounts payable, accrued expenses and other current liabilities

(1,454

)

4,382

Deferred revenue

(266

)

256

Cash paid in excess of rent expense

(431

)

-

Other liabilities

(196

)

167

Net cash provided by operating activities

3,500

6,593

Cash flows from investing activities

Cash consideration for asset acquisition of the Halston Heritage Brand

Cost to acquire intangible assets

(8,830

)

-

Investment in joint venture

(375

)

-

Purchase of property and equipment

(1,133

)

(1,476

)

Net cash used in investing activities

(10,338

)

(1,476

)

Cash flows from financing activities

Shares repurchased including vested restricted stock in exchange for

withholding taxes

(174

)

(1,033

)

Payment of deferred finance costs

(315

)

-

Proceeds from long-term debt

7,500

-

Payment of long-term debt

(4,742

)

(5,459

)

Net cash provided by (used in) financing activities

2,269

(6,492

)

Net decrease in cash, cash equivalents, and restricted cash

(4,569

)

(1,375

)

Cash, cash equivalents, and restricted cash at beginning of period

10,319

11,694

Cash, cash equivalents, and restricted cash at end of period

$

5,750

$

10,319

Reconciliation to amounts on consolidated balance sheets:

Cash and cash equivalents

$

4,641

$

8,837

Restricted cash

1,109

1,482

Total cash, cash equivalents, and restricted cash

$

5,750

$

10,319

Supplemental disclosure of non-cash activities:

Operating lease right-of-use asset

$

10,409

$

-

Operating lease obligation

$

13,210

$

-

Reduction of accrued rent

$

2,801

$

-

Settlement of seller note through offset to receivable

$

600

$

-

Settlement of contingent obligation through offset to note receivable

$

100

$

100

Issuance of common stock in connection with Halston Heritage assets acquisition

$

1,058

$

-

Contingent obligation related to acquisition of Halston Heritage assets at fair value

$

900

$

-

Liability for equity-based bonuses

$

220

$

(345

)

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes

$

136

$

302

Cash paid during the period for interest

$

1,176

$

969



The following table is a reconciliation of net (loss) income (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:

($ in thousands)

Three Months Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net (loss) income

$

(5,329

)

$

(281

)

$

(3,445

)

$

1,088

Amortization of trademarks

796

260

3,105

1,031

Impairment of intangible assets

6,200

-

6,200

-

Non-cash interest and finance expense

-

10

16

41

Stock-based compensation

199

373

976

1,788

Loss on extinguishment of debt

-

-

189

-

Gain on reduction of contingent obligations

-

-

(2,850

)

-

Costs in connection with potential business combinations

1,059

-

1,290

-

Non-recurring facility exit charges

-

799

-

799

Deferred income tax (benefit) provision

(1,985

)

47

(705

)

1,764

Non-GAAP net income

$

940

$

1,208

$

4,776

$

6,511

The following table is a reconciliation of diluted (loss) earnings per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:

Three Months Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Diluted (loss) earnings per share

$

(0.28

)

$

(0.02

)

$

(0.18

)

$

0.06

Amortization of trademarks

0.04

0.02

0.16

0.06

Impairment of intangible assets

0.33

-

0.33

-

Non-cash interest and finance expense

-

-

-

-

Stock-based compensation

0.01

0.02

0.05

0.10

Loss on extinguishment of debt

-

-

0.01

-

Gain on reduction of contingent obligations

-

-

(0.15

)

-

Costs in connection with potential acquisition

0.05

-

0.07

-

Non-recurring facility exit charges

-

0.04

-

0.04

Deferred income tax (benefit) provision

(0.10

)

0.01

(0.04

)

0.10

Non-GAAP diluted EPS

$

0.05

$

0.07

$

0.25

$

0.36

Non-GAAP weighted average diluted shares

18,913,476

18,210,883

18,858,379

18,281,638

The following table is a reconciliation of net (loss) income (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:

($ in thousands)

Three Months Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net (loss) income

$

(5,329

)

$

(281

)

$

(3,445

)

$

1,088

Impairment of intangible assets

6,200

-

6,200

Depreciation and amortization

963

457

3,902

1,780

Interest and finance expense

317

201

1,285

1,011

Income tax (benefit) provision

(1,922

)

114

(642

)

1,831

State and local franchise taxes

38

33

197

113

Stock-based compensation

199

373

976

1,788

Loss on extinguishment of debt

-

-

189

-

Gain on reduction of contingent obligations

-

-

(2,850

)

-

Costs in connection with Potential business combinations

1,059

-

1,290

-

Non-recurring facility exit charges

-

799

-

799

Adjusted EBITDA

$

1,525

$

1,696

$

7,102

$

8,410


Non-GAAP net income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income as net income (loss), exclusive of intangible asset impairments, amortization of trademarks, stock-based compensation, non-cash interest and finance expense from discounted debt related to acquired assets, loss on extinguishment of debt, gain on reduction of contingent obligations, costs in connection with potential acquisitions, non-recurring facility exit charges, and deferred income taxes. 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 (loss) before interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, depreciation and amortization, intangible asset impairments, stock-based compensation, gain on reduction of contingent obligations, costs in connection with potential acquisitions, and non-recurring facility exit charges.

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 these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus these non-GAAP measures 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 these measures in a different manner than we do. 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.