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Xcel Brands, Inc. Announces Third Quarter and First Nine Months of 2019 Results

• Nine Month Net Revenues of $30.4 Million, up 19% from the Prior Year Period 

• Nine Month GAAP Net Income of $1.9 million, Diluted EPS of $0.10 

• Nine Month Non-GAAP Diluted EPS of $0.20, Adjusted EBITDA $5.6 million

NEW YORK, Nov. 13, 2019 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (XELB) (“Xcel” or the “Company”), a media and consumer products company, today announced its financial results for the third quarter and nine months ended September 30, 2019.

Robert W. D'Loren, Chairman and Chief Executive Officer of Xcel commented, “We continue to grow our top-line revenue driven by improvements made in our products.  Although our third quarter results were not in line with our expectations, we expect to achieve our financial goals for the full year.  Overall, I am pleased with our product direction and operating results”.

Third Quarter 2019 Financial Results

Net revenue increased to $10.9 million, a net increase of approximately $2.7 million, or 32% over the prior year quarter, primarily driven by sales from the apparel and jewelry wholesale and e-commerce operations. Gross profit remained flat at approximately $8.0 million for the current and the prior year quarters.

GAAP net loss was approximately ($0.1) million, or ($0.01), per share, compared with a GAAP net income of $1.0 million, or $0.05 per share, for the prior year quarter. After adjusting for certain cash and non-cash items, non-GAAP net income for the current quarter and prior year quarter was approximately $1.2 million or $0.06 per diluted share, and approximately $1.9 million or $0.10 per diluted share, respectively. Adjusted EBITDA was approximately $1.8 million, compared with approximately $2.3 million in the prior year quarter.

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.

First Nine Months of Fiscal 2019 Financial Results

Net revenue increased to $30.4 million, a net increase of approximately $4.9 million, or 19% over the prior year nine-month period, primarily driven by sales from the apparel and jewelry wholesale and e-commerce operations.  Gross profit decreased $1.1 million to $23.8 million from $24.9 million in the prior year nine months, primarily attributable to lower net licensing revenue.

GAAP net income was approximately $1.9 million for the nine months ended September 30, 2019, or $0.10 per diluted share, an increase of $0.5 million, or $0.03 per diluted share from the prior year nine months, representing an increase of approximately 38% in GAAP net income and earnings per share from the prior year period.  After adjusting for certain cash and non-cash items, non-GAAP net income for the nine months ended September 30, 2019 was approximately $3.8 million, or $0.20 per diluted share, compared with $5.3 million, or $0.29 per diluted share in the prior year nine months.

Adjusted EBITDA for the nine months ended September 30, 2019 was approximately $5.6 million, a decrease of $1.1 million 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, 2019 remained strong, with stockholders' equity of approximately $103 million, cash and cash equivalents of approximately $5.9 million, and working capital, exclusive of current portion of operating lease liability, of approximately $8.7 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 5:00 p.m. Eastern Time on Wednesday, November13, 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 14 days following the event and can be accessed at 844-512-2921 using replay pin number 10007966.

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. The Company owns and manages the Isaac Mizrahi brands (the "Isaac Mizrahi Brand"), the Judith Ripka brands (the "Ripka Brand"), the Halston brands ("Halston Brand"), the C Wonder brands (the "C Wonder Brand"), and other proprietary brands, pioneering a ubiquitous sales strategy which includes the promotion and sales of products under its brands through interactive television, internet, brick-and-mortar retail, and e-commerce channels. Headquartered in New York City, Xcel 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 product 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.  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)
               
    September 30, 2019     December 31, 2018
    (Unaudited)      
Assets              
Current Assets:              
Cash and cash equivalents   $ 5,890     $ 8,837  
Accounts receivable, net     9,972       11,010  
Inventory     2,075       1,988  
Prepaid expenses and other current assets     1,293       2,040  
Total current assets     19,230       23,875  
Property and equipment, net     3,613       3,202  
Operating lease right-of-use assets     9,583       -  
Trademarks and other intangibles, net     117,347       108,989  
Restricted cash     1,109       1,482  
Other assets     571       511  
Total non-current assets     132,223       114,184  
Total Assets   $ 151,453     $ 138,059  
               
Liabilities and Stockholders' Equity              
Current Liabilities:              
Accounts payable, accrued expenses and other current liabilities   $ 4,527     $ 5,140  
Accrued payroll     1,232       2,011  
Current portion of accrued rent liability     -       690  
Current portion of operating lease obligation     1,732       -  
Current portion of long-term debt     4,750       5,325  
Current portion of long-term debt, contingent obligations     -       2,950  
Total current liabilities     12,241       16,116  
Long-Term Liabilities:              
Long-term portion of accrued rent liability     -       2,202  
Long-term portion of operating lease obligation     10,221       -  
Long-term debt, less current portion     15,939       11,300  
Deferred tax liabilities, net     9,419       8,139  
Other long-term liabilities     224       420  
Total long-term liabilities     35,803       22,061  
Total Liabilities     48,044       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 September 30, 2019 and December 31, 2018, respectively, and 18,958,247 and 18,138,616 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively     19       18  
Paid-in capital     101,739       100,097  
Retained earnings (accumulated deficit)     1,651       (233 )
Total Stockholders' Equity     103,409       99,882  
               
Total Liabilities and Stockholders' Equity   $ 151,453     $ 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 Nine Months Ended
    September 30,   September 30,
    2019    2018   2019   2018
Revenues                        
Net licensing revenue   $ 6,428     $ 7,823   $ 21,094   $ 24,445
Net sales     4,504       444     9,277     1,075
Net revenue     10,932       8,267     30,371     25,520
Cost of goods sold (sales)     2,950       231     6,549     640
Gross Profit     7,982       8,036     23,822     24,880
                         
Operating costs and expenses                        
Salaries, benefits and employment taxes     4,045       3,815     12,038     12,361
Other design and marketing costs     797       639     2,352     2,194
Other selling, general and administrative expenses     1,356       1,281     4,014     3,691
Costs in connection with potential acquisition     126       -     231     -
Stock-based compensation     295       447     777     1,415
Depreciation and amortization     991       456     2,939     1,323
Total operating costs and expenses     7,610       6,638     22,351     20,984
                         
Other Income                        
Gain on reduction of contingent obligation     -       -     2,850     -
Total other income     -       -     2,850     -
                         
Operating income     372       1,398     4,321     3,896
                         
Interest and finance expense                        
Interest expense - term debt     317       224     907     706
Other interest and finance charges     13       34     61     104
Loss on extinguishment of debt     -       -     189     -
Total interest and finance expense     330       258     1,157     810
                         
Income before income taxes     42       1,140     3,164     3,086
                         
Income tax provision     137       158     1,280     1,717
                         
Net (loss) income   $ (95 )   $ 982   $ 1,884   $ 1,369
                         
Basic net (loss) income per share:   $ (0.01 )   $ 0.05   $ 0.10   $ 0.07
                         
Diluted net (loss) income per share:   $ (0.01 )   $ 0.05   $ 0.10   $ 0.07
                         
Basic weighted average common shares outstanding     18,975,265       18,266,202     18,839,424     18,304,608
Diluted weighted average common shares outstanding   18,975,265       18,267,043     18,840,149     18,310,654
                         



Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
               
    For the Nine Months Ended September 30,
    2019     2018
           
Cash flows from operating activities              
Net income   $ 1,884       $ 1,369  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization expense     2,939         1,323  
Amortization of deferred finance costs     114         129  
Stock-based compensation     777         1,415  
Amortization of note discount     16         31  
Allowance for doubtful accounts     (144 )       -  
Loss on extinguishment of debt     189         -  
Deferred income tax provision     1,280         1,717  
Gain on reduction of contingent obligation     (2,850 )       -  
Changes in operating assets and liabilities:              
Accounts receivable     1,182         (1,112 )
Inventory     (87 )       (924 )
Prepaid expenses and other assets     (14 )       (51 )
Accounts payable, accrued expenses and other current liabilities     (1,744 )       964  
Cash paid in excess of rent expense     (337 )       -  
Other liabilities     (196 )       (148 )
Net cash provided by operating activities     3,009         4,713  
               
Cash flows from investing activities              
Cash consideration for acquisition of Halston Heritage assets     (8,830 )       -  
Purchase of property and equipment     (918 )       (1,099 )
Net cash used in investing activities     (9,748 )       (1,099 )
               
Cash flows from financing activities              
               
Shares repurchased including vested restricted stock in exchange for              
withholding taxes     (24 )       (702 )
Payment of deferred finance costs     (315 )       -  
Proceeds from long-term debt     7,500         -  
Payment of long-term debt     (3,742 )       (4,459 )
Net cash provided by (used in) financing activities     3,419         (5,161 )
               
Net decrease in cash, cash equivalents, and restricted cash     (3,320 )       (1,547 )
               
Cash, cash equivalents, and restricted cash at beginning of period     10,319         11,694  
               
Cash, cash equivalents, and restricted cash at end of period   $ 6,999       $ 10,147  
               
Reconciliation to amounts on consolidated balance sheets:              
Cash and cash equivalents   $ 5,890       $ 8,638  
Restricted cash     1,109         1,509  
Total cash, cash equivalents, and restricted cash   $ 6,999       $ 10,147  
               
Supplemental disclosure of non-cash activities:              
Operating lease right-of-use asset   $ 10,409       $ -  
Operating lease obligation   $ 13,210       $ -  
Accrued rent offset to operating lease right-of-use assets   $ 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   $ 168       $ (345 )
               
Supplemental disclosure of cash flow information:              
Cash paid during the period for income taxes   $ 91       $ 258  
Cash paid during the period for interest   $ 1,108       $ 754  
               

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

           
($ in thousands) Three Months Ended
September 30,
2019   2018
(Unaudited)   (Unaudited)
Net income (loss) $ (95 )   $ 982
Amortization of trademarks 786     257
Non-cash interest and finance expense     11
Stock-based compensation 295     447
Costs in connection with potential acquisition 126    
Deferred income tax provision 137     158
Non-GAAP net income $ 1,249     $ 1,855
           
The following table is a reconciliation of diluted earnings (loss) per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:
           
  Three Months Ended
September 30,
2019   2018
(Unaudited)   (Unaudited)
Diluted earnings (loss) per share $ (0.01 )   $ 0.05
Amortization of trademarks 0.04     0.01
Non-cash interest and finance expense    
Stock-based compensation 0.01     0.03
Costs in connection with potential acquisition 0.01    
Deferred income tax provision 0.01     0.01
Non-GAAP diluted EPS $ 0.06     $ 0.10
Non-GAAP weighted average diluted shares 19,559,816     18,267,043
           
The following table is a reconciliation of net income (loss) (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:
           
($ in thousands) Three Months Ended
September 30,
2019   2018
(Unaudited)   (Unaudited)
Net income $ (95 )   $ 982
Depreciation and amortization 991     456
Interest and finance expense 330     258
Income tax provision 137     158
State and local franchise taxes 38     33
Costs in connection with potential acquisition 126    
Stock-based compensation 295     447
Adjusted EBITDA $ 1,822     $ 2,334
           
The following table is a reconciliation of net income (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net income:
           
($ in thousands) Nine Months Ended
September 30,
2019   2018
(Unaudited)   (Unaudited)
Net income $ 1,884     $ 1,369
Amortization of trademarks 2,309     772
Non-cash interest and finance expense 16     31
Stock-based compensation 777     1,415
Loss on extinguishment of debt 189    
Gain on reduction of contingent obligation (2,850 )  
Costs in connection with potential acquisition 231    
Deferred income tax provision 1,280     1,717
Non-GAAP net income $ 3,836     $ 5,304
           
The following table is a reconciliation of diluted earnings per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:
           
  Nine Months Ended
September 30,
2019   2018
(Unaudited)   (Unaudited)
Diluted earnings per share $ 0.10     $ 0.07
Amortization of trademarks 0.12     0.04
Non-cash interest and finance expense    
Stock-based compensation 0.04     0.08
Loss on extinguishment of debt 0.01    
Gain on reduction of contingent obligation (0.15 )  
Costs in connection with potential acquisition 0.01    
Deferred income tax provision 0.07     0.10
Non-GAAP diluted EPS $ 0.20     $ 0.29
Non-GAAP weighted average diluted shares 18,840,149     18,310,654
           
The following table is a reconciliation of net income (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:
           
($ in thousands) Nine Months Ended
September 30,
2019   2018
(Unaudited)   (Unaudited)
Net income $ 1,884     $ 1,369
Depreciation and amortization 2,939     1,323
Interest and finance expense 968     810
Income tax provision 1,280     1,717
State and local franchise taxes 159     80
Costs in connection with potential acquisition 231    
Stock-based compensation 777     1,415
Loss on extinguishment of debt 189    
Gain on reduction of contingent obligation (2,850 )  
Adjusted EBITDA $ 5,577     $ 6,714
           

Non-GAAP net income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income, exclusive of 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 the reduction of contingent obligations, costs in connection with potential acquisitions 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. Prior to 2019, the Company did not adjust non-GAAP net income and non-GAAP EPS for the amortization of trademarks or costs in connection with potential acquisitions.

Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income before stock-based compensation, costs in connection with potential acquisitions, interest and finance expense, loss on extinguishment of debt, gain on the reduction of contingent obligations, income taxes, other state and local franchise taxes, and depreciation and amortization. Prior to 2019, the Company did not adjust non-GAAP net income and non-GAAP EPS for the amortization of trademarks or costs in connection with potential acquisitions.

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.