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Xcel Brands, Inc. Announces Third Quarter 2018 Financial Results

Company Reports Third Quarter Total Revenues of $8.3 Million; +5 % from Prior Year Quarter

Third Quarter Operating Income of $1.4 Million, +11 % from Prior Year Quarter

Third Quarter Net Income of Approximately $1.0 Million, Non-GAAP Net Income of $1.6 Million;
Adjusted EBITDA of $2.3 Million

NEW YORK, Nov. 14, 2018 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (XELB) (“Xcel” or the “Company”), a consumer products company, today announced its financial results for the third quarter and nine months ended September 30, 2018.

Robert W. D'Loren, Chairman and Chief Executive Officer of Xcel commented, “Our third quarter results saw a marked improvement in total revenues, operating income and net income from the prior year. We continue to experience positive momentum across our multiple channels of distribution, including expanding our wholesale and direct to consumer platforms.  He further stated, I am pleased by our results and the direction we are heading.”  

Third Quarter 2018 Financial Results

Total revenue for the third quarter of 2018 was $8.3 million, a net increase of $0.4 million over the prior year quarter, primarily driven by sales from the Company’s jewelry wholesale and e-commerce business. Net revenue for the third quarter of 2018 increased $.1 million from $7.9 million to $8.0 million as higher licensing revenue from the Company’s ongoing interactive television business was primarily offset by lower revenue associated with the previously reported transition of the C. Wonder Brand from QVC, whose sell-off period terminated in January 2018.

Net income was approximately $1.0 million for the quarter ended September 30, 2018, or $0.05, per basic and diluted share, compared with net income of $0.3 million, or $0.01 per basic and diluted share, for the prior year quarter.  After adjusting for certain cash and non-cash items, non-GAAP net income for the quarters ended September 30, 2018 and September 30, 2017, were approximately $1.6 million, or $0.09 per diluted share for each period.

Adjusted EBITDA for the quarter ended September 30, 2018 was approximately $2.33 million, compared to approximately $2.36 million in the prior year quarter, a decrease of $0.03 million from the same quarter in the prior year. 

Nine Months Ended September 30, 2018 Financial Results

Total revenue for the nine months ended September 30, 2018 was $25.5 million, an increase of $0.8 million or 3% over the prior year period.  Total revenue for the nine months ended September 30, 2018 was positively affected by the launch of the wholesale and e-commerce jewelry business. Net revenue for the nine months ended September 30, 2018 was $24.9 million, an increase of $0.19 from the prior year period primarily attributable to net margin from wholesale and e-commerce sales of our jewelry business.  

Net income was approximately $1.4 million for the nine months ended September 30, 2018, or $0.07 per basic and diluted share, an increase of $1.3 million, or $0.07 per basic and diluted share from the prior year nine months.  After adjusting for certain cash and non-cash items, non-GAAP net income for the nine months ended September 30, 2018 was approximately $4.5 million, or $0.25 per diluted share, compared with $4.3 million, or $0.22 per diluted share in the prior year nine months, representing an increase of 6% and 12%, respectively, from the prior year period.

Adjusted EBITDA for the nine months ended September 30, 2018 was approximately $6.7 million, an increase of $0.15 million, or 2.3% from the prior year period. 

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, 2018 remained strong, with stockholders' equity of approximately $100 million, cash and cash equivalents of $8.6 million, and working capital, exclusive of contingent obligations payable with stock, of approximately $11.2 million. During the current nine months, the Company reduced its term debt by approximately $4.5 million to approximately $17.6 million. 

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 9:00 a.m. Eastern Time on Wednesday, November 14, 2018. 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 10005782.

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, 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, 2017 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, 2018   December 31, 2017
    (Unaudited)   (Note 1)
Assets              
Current Assets:              
Cash and cash equivalents   $ 8,638     $ 10,185  
Accounts receivable, net     9,640       8,528  
Inventory     924       -  
Prepaid expenses and other current assets     1,508       592  
Total current assets     20,710       19,305  
Property and equipment, net     2,999       2,376  
Trademarks and other intangibles, net     109,272       110,120  
Restricted cash     1,509       1,509  
Other assets     726       1,708  
Total non-current assets     114,506       115,713  
Total Assets   $ 135,216     $ 135,018  
               
Liabilities and Stockholders' Equity              
Current Liabilities:              
Accounts payable, accrued expenses and other current liabilities   $ 2,499     $ 1,260  
Accrued payroll     1,653       2,270  
Deferred revenue     13       16  
Current portion of long-term debt     5,315       5,459  
Current portion of long-term debt, contingent obligations     2,950       100  
Total current liabilities     12,430       9,105  
Long-Term Liabilities:              
Long-term debt, less current portion     12,266       19,389  
Deferred tax liabilities, net     8,092       6,375  
Other long-term liabilities     2,307       2,455  
Total long-term liabilities     22,665       28,219  
Total Liabilities     35,095       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 September 30, 2018 and December 31, 2017, respectively, and 18,266,202 and 18,318,961 issued and outstanding at September 30, 2018 and December 31, 2017, respectively     18       18  
Paid-in capital     100,055       98,997  
Retained earnings (accumulated deficit)     48       (1,321 )
Total Stockholders' Equity     100,121       97,694  
               
Total Liabilities and Stockholders' Equity   $ 135,216     $ 135,018  
               


 
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 Nine Months Ended
    September 30,   September 30,
    2018   2017   2018   2017
Revenues                        
Net licensing revenue   $ 7,823     7,890   $ 24,445   $ 24,690
Sales     444     -     1,075     -
  Total revenue     8,267     7,890     25,520     24,690
Cost of goods sold (sales)     231     -     640     -
  Net revenues     8,036     7,890     24,880     24,690
                         
Operating costs and expenses                        
Salaries, benefits and employment taxes     3,815     4,079     12,361     12,806
Other design and marketing costs     639     287     2,194     1,803
Other selling, general and administrative expenses     1,281     1,188     3,691     3,602
Stock-based compensation     447     690     1,415     2,496
Depreciation and amortization     456     389     1,323     1,173
Total operating costs and expenses     6,638     6,633     20,984     21,880
                         
Operating income     1,398     1,257     3,896     2,810
                         
Interest and finance expense                        
Interest expense - term debt     224     273     706     905
Other interest and finance charges     34     41     104     135
Total interest and finance expense     258     314     810     1,040
                         
Income before income taxes     1,140     943     3,086     1,770
                         
Income tax provision     158     691     1,717     1,704
                         
Net income   $ 982   $ 252     1,369     66
                         
Basic net income per share:   $ 0.05   $ 0.01   $ 0.07   $ 0.00
                         
Diluted net income per share:   $ 0.05   $ 0.01   $ 0.07   $ 0.00
                         
Basic weighted average common shares outstanding     18,266,202     18,470,977     18,304,608     18,530,963
Diluted weighted average common shares outstanding     18,267,043     18,872,753     18,310,654     18,896,418
                         

 

 
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
             
    For the Nine Months Ended
September 30,
    2018   2017
         
Cash flows from operating activities            
Net income   $ 1,369     $ 66  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization expense     1,323       1,173  
Amortization of deferred finance costs     129       146  
Stock-based compensation     1,415       2,496  
Amortization of note discount     31       28  
Deferred income tax provision     1,717       1,704  
Changes in operating assets and liabilities:            
Accounts receivable     (1,112 )     (2,548 )
Inventory     (924 )       -   
Prepaid expenses and other assets     (51 )     211  
Accounts payable, accrued expenses and other current liabilities     967       (1,237 )
Deferred revenue     (3 )     (161 )
Other liabilities     (148 )     456  
Net cash provided by operating activities     4,713       2,334  
             
Cash flows from investing activities            
  Cost to acquire intangible assets     -       (23 )
  Purchase of property and equipment     (1,099 )     (167 )
Net cash used in investing activities     (1,099 )     (190 )
             
Cash flows from financing activities            
Shares repurchased including vested restricted stock in exchange for            
withholding taxes     (702 )     (814 )
Payment of deferred finance costs     -       (7 )
Payment of long-term debt     (4,459 )     (7,177 )
Net cash used in financing activities     (5,161 )     (7,998 )
             
Net decrease in cash, cash equivalents, and restricted cash     (1,547 )     (5,854 )
             
Cash, cash equivalents, and restricted cash at beginning of period     11,694       15,636  
             
Cash, cash equivalents, and restricted cash at end of period   $ 10,147     $ 9,782  
             
Reconciliation to amounts on consolidated balance sheets:            
  Cash and cash equivalents   $   8,638     $   8,273  
  Restricted cash     1,509       1,509  
  Total cash, cash equivalents, and restricted cash   $ 10,147     $ 9,782  
             
Supplemental disclosure of non-cash activities:            
  Settlement of Ripka earnout through offset to note receivable    $   100     $ -  
             
Supplemental disclosure of cash flow information:            
 Cash paid during the period for income taxes   $ 258     $ 151  
 Cash paid during the period for interest   $ 754     $ 1,175  
             

 

             
Xcel Brands, Inc. and Subsidiaries
Reconciliation of Non-GAAP measures
(Unaudited)
             
Non-GAAP net income:            
  Three Months Ended
September  30,
  Nine Months Ended
September 30,
(amounts in thousands) 2018   2017   2018   2017
             
Net income $ 982   $ 252   $ 1,369   $ 66
Non-cash interest and finance expense   11     9     31     28
Stock-based compensation   447     690     1,415     2,496
Deferred income tax provision   158     691     1,717     1,704
Non-GAAP net income $ 1,598   $ 1,642   $ 4,532   $ 4,294
                       
             
Non-GAAP diluted EPS:            
  Three Months Ended
September  30,
  Nine Months Ended
September 30,
  2018   2017   2018   2017
             
Diluted earnings per share $ 0.05   $ 0.01   $ 0.07   $ -
Non-cash interest and finance expense    -     0.00     -     -
Stock-based compensation   0.03     0.04     0.08     0.13
Deferred income tax provision   0.01     0.04     0.10     0.09
Non-GAAP diluted EPS $ 0.09   $ 0.09   $ 0.25   $ 0.22
                       
             
             
Adjusted EBITDA:            
  Three Months Ended
September  30,
  Nine Months Ended
September 30,
(amounts in thousands) 2018   2017   2018   2017
             
Net income $ 982   $ 252   $ 1,369   $ 66
Depreciation and amortization   456     389     1,323     1,173
Interest and finance expense   258     314     810     1,040
Income tax provision    158     691     1,717     1,704
State and local franchise taxes   33     25     80     81
Stock-based compensation   447     690     1,415     2,496
Adjusted EBITDA $ 2,334   $ 2,361   $ 6,714   $ 6,560
                       

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, 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 before stock-based compensation, interest and finance expense, 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.