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Xcel Brands, Inc. Announces Fourth Quarter and Fiscal Year 2018 Results

Fourth Quarter Total Revenues of $9.9 Million, up 42% from the Prior Year Quarter, 

Full Year Total Revenues of $35.5 Million, up 12% from Prior Year, and 

On February 12, 2019 Xcel Acquired the Halston and Halston Heritage Trademarks

NEW YORK, March 28, 2019 (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, 2018.

Robert W. D'Loren, Chairman and Chief Executive Officer of Xcel commented, “Fiscal year 2018 was a transformative year for us as our fourth quarter and full year results saw a marked improvement in total revenues, operating income and GAAP net income (loss) from the prior year quarter.  We continue to experience positive momentum across our multiple channels of distribution, including expanding our wholesale and direct to consumer businesses.  I am pleased by our results and the direction we are heading.”  

Fourth Quarter 2018 Financial Results

Total revenue for the fourth quarter of 2018 was $9.9 million, a net increase of $2.9 million over the prior year quarter, primarily driven by sales from the Company’s Judith Ripka Fine Jewelry wholesale and e-commerce operations and wholesale apparel operations. Net revenue for the fourth quarter of 2018 increased $0.9 million to $7.9 million from $7.0 million in the prior year primarily attributable to net margin from wholesale and e-commerce sales.

GAAP net loss was approximately $0.3 million for the fourth quarter, or ($0.02), per basic and diluted share, compared with a GAAP net loss of $10.2 million, or ($0.55) per basic and diluted share, for the prior year quarter.  The current quarter’s net loss includes a $0.8 million non-recurring facility exit charge relating to the Company’s prior office and operating facility.  The prior year’s net loss includes a goodwill charge of $12.4 million.  After adjusting for certain cash and non-cash items, non-GAAP net income for the quarters ended December 31, 2018 and December 31, 2017, was approximately $0.9 million, or $0.05 per diluted share and approximately $0.7 million, or $0.04 per diluted share, respectively.

Adjusted EBITDA for the fourth quarter of 2018 was up $0.3 million to approximately $1.7 million, compared to approximately $1.4 million in the prior year quarter. 

Full Year December 31, 2018 Financial Results

Total revenue for the year ended December 31, 2018 was $35.5 million, an increase of $3.8 million or 12% over the prior year.  The increase in total revenue for the current year was primarily attributable to sales from the Company’s Judith Ripka Fine Jewelry wholesale and e-commerce operations and wholesale apparel operations. Net revenue for the year ended December 31, 2018 increased $1.1 million to $32.8 million from $31.7 million in the prior year. This increase was primarily attributable to net margin from wholesale and e-commerce sales.  

GAAP net income was approximately $1.1 million for the current year, or $0.06 per basic and diluted share, an increase of $11.2 million, or $0.61 per basic and diluted share from the prior year’s net loss.  After adjusting for certain cash and non-cash items, non-GAAP net income for the year ended December 31, 2018 was up 12% to approximately $5.5 million, and non-GAAP earnings per share was up 15% to $0.30 per diluted share, compared with $4.9 million, or $0.26 per diluted share in the prior year.

Adjusted EBITDA for the year ended December 31, 2018 was up $0.4 million to approximately $8.4 million, compared to approximately $8.0 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, 2018 remained strong, with stockholders' equity of approximately $100 million, cash and cash equivalents of $8.8 million, and working capital, exclusive of contingent obligations payable with stock, of approximately $11.0 million. During the current year, the Company reduced its term debt by approximately $5.5 million to approximately $17.6 million. 

On February 12, 2019 Xcel Acquired the Halston and Halston Heritage Trademarks. This transaction consolidates ownership of the Halston trademarks, as Xcel previously acquired the H by Halston and H Halston trademarks in December of 2014. 

Mr. D’Loren commented, “This acquisition gives us an opportunity to focus on the entirety of the Halston brand, the labels, and their design nuances while continuing to preserve the iconic American brand’s legacy, embrace its heritage, and build the future of Halston under Xcel.”

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 Thursday, March 28, 2019. 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 10006432.

About Xcel Brands

Xcel Brands, Inc. (XELB) is a media and consumer products company engaged in the design, production, 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, Halston and C. Wonder 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 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, 2018 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, 2018   December 31, 2017
    (Unaudited)    
Assets            
Current Assets:            
Cash and cash equivalents   $ 8,837     $ 10,185  
Accounts receivable, net     11,010       8,528  
Inventory     1,988       -  
Prepaid expenses and other current assets     2,040       592  
Total current assets     23,875       19,305  
Property and equipment, net     3,202       2,376  
Trademarks and other intangibles, net     108,989       110,120  
Restricted cash     1,482       1,509  
Other assets     511       1,708  
Total non-current assets     114,184       115,713  
             
Total Assets   $ 138,059     $ 135,018  
             
Liabilities and Stockholders' Equity            
Current Liabilities:            
Accounts payable, accrued expenses and other current liabilities   $ 5,558     $ 1,260  
Accrued payroll     2,011       2,270  
Deferred revenue     272       16  
Current portion of long-term debt     5,325       5,459  
Current portion of long-term debt, contingent obligations     2,950       100  
Total current liabilities     16,116       9,105  
Long-Term Liabilities:            
Long-term debt, less current portion     11,300       19,389  
Deferred tax liabilities, net     8,139       6,375  
Other long-term liabilities     2,622       2,455  
Total long-term liabilities     22,061       28,219  
Total Liabilities     38,177       37,324  
             
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, 2018 and December 31, 2017, respectively, and 18,138,616 and 18,318,961 issued and outstanding at December 31, 2018 and December 31, 2017, respectively     18       18  
Paid-in capital     100,097       98,997  
(Accumulated deficit) retained earnings     (233 )     (1,321 )
Total Stockholders' Equity     99,882       97,694  
             
Total Liabilities and Stockholders' Equity   $ 138,059     $ 135,018  
                 

 

 
Xcel Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
                         
  For the Quarter Ended   For the Year Ended
  December 31,   December 31,
  2018   2017   2018   2017
  (Unaudited)   (Unaudited)   (Unaudited)    
Revenues                        
Net licensing revenue $ 6,745     $ 7,016     $ 31,190     $ 31,706  
Sales   3,201       -       4,276       -  
Total revenue   9,946       7,016       35,466       31,706  
Cost of goods sold (sales)   2,062       -       2,702       -  
Net revenue   7,884       7,016       32,764       31,706  
Operating costs and expenses                        
Salaries, benefits and employment taxes   3,850       3,954       16,560       16,760  
Other design and marketing costs   851       549       2,696       2,352  
Other selling, general and administrative expenses   1,520       1,097       5,211       4,699  
Facilities exit charge   799       -       799       -  
Stock-based compensation   373       688       1,788       3,184  
Depreciation and amortization   457       389       1,780       1,562  
Goodwill impairment   -       12,371       -       12,371  
Total operating costs and expenses   7,850       19,048       28,834       40,928  
                         
Operating income (loss)   34       (12,032 )     3,930       (9,222 )
                         
Interest and finance expense                        
Interest expense - term debt   206       266       912       1,171  
Other interest and finance charges   (5 )     41       99       176  
Total interest and finance expense   201       307       1,011       1,347  
                         
Income (loss) before income tax before income tax provision (benefit)   (167 )     (12,339 )     2,919       (10,569 )
                         
Income tax provision (benefit)   114       (2,151 )     1,831       (447 )
                         
Net income (loss) $ (281 )   $ (10,188 )   $ 1,088     $ (10,122 )
                         
Earnings per share attributable to common stockholders:                        
Basic $ (0.02 )   $ (0.55 )   $ 0.06     $ (0.55 )
Diluted $ (0.02 )   $ (0.55 )   $ 0.06     $ (0.55 )
Weighted average number of common shares outstanding:                        
Basic   18,210,104       18,416,683       18,280,788       18,502,158  
Diluted   18,210,104       18,416,683       18,281,638       18,502,158  
                         

 

 
Xcel Brands, Inc. and Subsidiaries
Condensed Statements of Cash Flows
(in thousands)
             
    For the Twelve Months Ended
December 31,
    2018   2017
    (Unaudited)    
         
Cash flows from operating activities            
Net income (loss)   $ 1,088     $ (10,122 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
Depreciation and amortization expense     1,780       1,562  
Goodwill impairment     -       12,371  
Amortization of deferred finance costs     169       193  
Stock-based compensation     1,788       3,184  
Allowance for doubtful accounts     172       13  
Amortization of note discount     41       38  
Deferred income tax     1,764       (526 )
Changes in operating assets and liabilities:            
Accounts receivable     (2,653 )     (1,572 )
Inventory     (1,988 )     -  
Prepaid expenses and other assets     (373 )     4  
Accounts payable, accrued expenses and other current liabilities     4,382       (524 )
Deferred revenue     256       (218 )
Other liabilities     167       274  
Net cash provided by operating activities     6,593       4,677  
             
Cash flows from investing activities            
Cost to acquire intangible assets     -       (30 )
Purchase of property and equipment     (1,476 )     (208 )
Net cash used in investing activities     (1,476 )     (238 )
             
Cash flows from financing activities            
Shares repurchased including vested restricted stock in exchange for withholding taxes     (1,033 )     (1,197 )
Payment of deferred finance costs     -       (7 )
Payment of long-term debt     (5,459 )     (7,177 )
Net cash used in financing activities     (6,492 )     (8,381 )
             
Net decrease in cash, cash equivalents, and restricted cash     (1,375 )     (3,942 )
             
Cash, cash equivalents, and restricted cash at beginning of year   $ 11,694     $ 15,636  
             
Cash, cash equivalents, and restricted cash at end of year   $ 10,319     $ 11,694  
             
Reconciliation to amounts on consolidated balance sheets:            
Cash and cash equivalents   $ 8,837     $ 10,185  
Restricted cash     1,482       1,509  
Total cash, cash equivalents, and restricted cash   $ 10,319     $ 11,694  
             
Supplemental disclosure of non-cash activities:            
Liability for equity-based bonuses     (345 )     345  
Settlement of Ripka earnout through offset to note receivable   $ 100     $ -  
             
Supplemental disclosure of cash flow information:            
Cash paid during the period for income taxes   $ 302     $ 167  
Cash paid during the period for interest   $ 969     $ 1,253  
                 

 

               
Xcel Brands, Inc. and Subsidiaries
Reconciliation of Non-GAAP measures
(Unaudited)
               
               
               
Non-GAAP net income:              
  Three Months Ended
December  31,
  Twelve Months Ended
December 31,
(amounts in thousands) 2018   2017   2018   2017
               
Net income (loss) $ (281 )   $ (10,188 )   $ 1,088     $ (10,122 )
Goodwill impairment   -       12,371       -       12,371  
Non-cash interest and finance expense   10       10       41       38  
Stock-based compensation   373       688       1,788       3,184  
Non-recurring facility exit charges   799       -       799       -  
Deferred income tax (benefit) provision   47       (2,230 )     1,764       (526 )
Non-GAAP net income $ 948     $ 651     $ 5,480     $ 4,945  
               
               
Non-GAAP diluted EPS:              
  Three Months Ended
December  31,
  Twelve Months Ended
December 31,
  2018   2017   2018   2017
               
Diluted earnings per share $ (0.02 )   $ (0.54 )   $ 0.06     $ (0.55 )
Goodwill impairment   -       0.66       -       0.67  
Non-cash interest and finance expense   -       -       -       -  
Stock-based compensation   0.02       0.04       0.10       0.17  
Non-recurring facility exit charges   0.04       -       0.04       -  
Deferred income tax (benefit) provision   0.01       (0.12 )     0.10       (0.03 )
Non-GAAP diluted EPS $ 0.05     $ 0.04     $ 0.30     $ 0.26  
               
               
Weighted average shares - Non-GAAP diluted:              
  Three Months Ended
December  31,
  Twelve Months Ended
December 31,
  2018   2017   2018   2017
               
Basic weighted average shares   18,210,104       18,416,683       18,280,788       18,502,158  
Effect of exercising warrants   779       364,084       850       364,209  
Effect of exercising stock options   -       -       -       805  
Non-GAAP diluted weighted average shares outstanding   18,210,883       18,780,767       18,281,638       18,867,172  
               
               
Adjusted EBITDA:              
  Three Months Ended
December  31,
  Twelve Months Ended
December 31,
(amounts in thousands) 2018   2017   2018   2017
               
Net income (loss) $ (281 )   $ (10,188 )   $ 1,088     $ (10,122 )
Goodwill impairment   -       12,371       -       12,371  
Depreciation and amortization   457       389       1,780       1,562  
Interest and finance expense   201       307       1,011       1,347  
Income tax (benefit) provision   114       (2,151 )     1,831       (447 )
State and local franchise taxes   33       26       113       107  
Stock-based compensation   373       688       1,788       3,184  
Non-recurring facility exit charges   799       -       799       -  
Adjusted EBITDA $ 1,696     $ 1,442     $ 8,410     $ 8,002  
               

 

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 stock-based compensation, non-cash interest and finance expense from discounted debt related to acquired assets, goodwill impairment, non-recurring facility exit charges and deferred tax provision. 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 stock-based compensation, interest and finance expense, goodwill impairment, facility exit charge, income taxes, other state and local franchise taxes, and depreciation and amortization.

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.