NEW YORK, Feb. 12, 2018 /PRNewswire/ -- Iconix Brand Group,
Inc. (Nasdaq: ICON) ("Iconix" or the "Company") today announced it
has reached agreements with holders of approximately $110 million principal amount of the Company's
1.5% convertible notes due March 2018
(the "2018 Convertible Notes") to exchange their 2018 Convertible
Notes for new senior subordinated convertible notes (the "New
Convertible Notes") and cash payments representing accrued but
unpaid interest on the 2018 Convertible Notes. The 2018 Convertible
Notes will be exchanged for the New Convertible Notes at an
exchange ratio of $1,000 principal
amount of New Convertible Notes for each $1,000 principal amount of 2018 Convertible Notes
(the "Exchange"). On or prior to the settlement of the Exchange,
the Company may enter into agreements with one or more holders of
2018 Convertible Notes to increase the principal amount of 2018
Convertible Notes participating in the Exchange from $110 million to up to $125
million. The Company expects to settle the Exchange on or
about February 22, 2018.
The New Convertible Notes are expected to have an interest rate
of 5.75% per annum, mature in August
2023 and be secured by the same assets that secure the
obligations of the Company's wholly-owned direct subsidiary, IBG
Borrower LLC, under its existing senior secured credit facility
(the "Existing Senior Credit Facility").
John Haugh, CEO of Iconix
commented, "These exchange transactions are part of the Company's
strategy to satisfy near-term debt obligations and represent a
positive step in improving our balance sheet. We are also
announcing a cost savings initiative to improve our profitability
and free cash flow. With the reduction in near-term debt from this
exchange satisfying a significant condition to the availability of
our delayed draw term loan and the cost savings that have been
identified, we are now in a good position to finalize the solution
for the balance of our upcoming debt obligations."
Haugh further commented, "From a business operations standpoint,
we are reaffirming our 2017 revenue and non GAAP earnings per share
guidance and we are pleased to highlight recent announcements of
Starter with Amazon and Umbro with Target as evidence that we are
making progress ensuring our brands are with the right long-term
partners to maximize market presence and contribution to
Iconix."
The New Convertible Notes will be contractually subordinated in
right of payment to the Company's obligations as a guarantor under
the Existing Senior Credit Facility. Conversions of the New
Convertible Notes will be subject to a make-whole payment by the
Company. The New Convertible Notes will be convertible at any time
by the holders and under certain circumstances by the Company. In
addition, the Company will have the right to repurchase the New
Convertible Notes at par following the one-year anniversary of the
issue date. The Company will be permitted to settle any conversions
of the New Convertible Notes, as well as pay accrued but unpaid
interest on such New Convertible Notes and any make-whole payments,
in cash, shares or a combination thereof.
Further detail regarding the terms and conditions of the
Exchange and the New Convertible Notes are set forth in the
Company's Current Report on Form 8‑K filed with the Securities
and Exchange Commission on February 12,
2018. In addition, the Company expects to file the indenture
pursuant to which the New Convertible Notes are expected to be
issued as an exhibit to a Current Report on Form 8‑K following
its execution.
The Exchange will satisfy the condition to the availability of
the second delayed draw term loan under the Existing Senior Credit
Facility that the Company achieve a reduction in the outstanding
principal amount of the 2018 Convertible Notes of at least
$100.0 million. In addition, the
Company believes that it should be able to satisfy the remaining
conditions to disbursement of the second delayed draw term loan,
allowing the Company to access the additional funds under the
second delayed draw term loan to retire the 2018 Convertible Notes
that will remain outstanding following the Exchange at their
maturity in March 2018. The remaining
conditions consist of (i) the Company being in financial
covenant compliance under the Existing Senior Credit Facility, on a
pro forma basis as of the time of the requested borrowing and on a
projected basis for the succeeding 12 months based on projections
reasonably acceptable to the lenders, and (ii) there not
existing a default or event of default under the Existing Senior
Credit Facility as of the time of the borrowing.
The Listing Rules of The NASDAQ Stock Market LLC ("Nasdaq")
would normally require stockholder approval prior to settlement of
the Exchange; however, the Company requested and has received a
financial viability exception to the stockholder approval
requirement pursuant to Nasdaq Listing Rule 5635(f). On
January 26, 2018, Nasdaq granted the financial viability
exception, provided that the Company complies with the conditions
of the exception provided in Rule 5635(f), which include the
mailing of a letter to stockholders not later than ten days prior
to the consummation of the Exchange, describing the terms of the
Exchange and the New Convertible Notes, indicating that the Company
is relying on the financial viability exception and confirming that
the Audit Committee of the Company's Board of Directors has
expressly approved reliance on this exception.
In connection with the Exchange, Guggenheim Securities, LLC is
acting as the Company's sole financial advisor, and Dechert LLP is
acting as the Company's legal advisor.
Cost Savings Plan:
Iconix announced today that it has initiated a cost savings plan
to improve profitability and free cash flow to further position the
Company for long-term success. The Company expects to achieve
annual savings of approximately $12
million through proactive rightsizing of its expense
structure, appropriately aligned to its expected go-forward revenue
base.
2018 Outlook:
The Company is providing an initial outlook for 2018.
The Company expects 2018 revenue to be in a range of
$190 million to $220 million, as compared to 2017 preliminary
revenue of approximately $225
million. The year-over-year decline primarily reflects the
transition of the DanskinNow and Mossimo brands, which together are
estimated to decline approximately $25
million in 2018.
Additional Information:
In connection with the Exchange, the Company disclosed the
following information in its discussions with noteholders who
agreed to be bound by confidentiality obligations with respect to
such information:
- The Company signed a new multi-year license agreement with
Target for the Umbro brand, a world leader in soccer apparel. The
exclusive Umbro collection will be available in all Target stores
and on Target.com beginning in late February.
- The Company expects to transition its Material Girl brand from
a direct-to-retail license with Macy's to a wholesale license
following the expiration of the contract in January 2020. The Company is currently
negotiating a license with a new vendor that would run contiguous
with Macy's on a non-exclusive basis and then would be available to
be renewed by the vendor for a three-year term. Guaranteed minimum
royalties under the Material Girl license for 2018 are $5.0 million.
- The Company received notice from JCPenney that it is currently
not expecting to renew its Royal Velvet license when it expires in
January 2019. Should the Royal Velvet
license not be renewed by JCPenney, the Company believes there are
other opportunities to redeploy the Royal Velvet brand in the near
future. Guaranteed minimum royalties under the Royal Velvet license
for 2018 are $8.0 million.
- Proforma licensing revenue for the brands that are secured by
the Company's Senior Secured Notes under the Company's
securitization facility was $181
million in 2015, $166 million
in 2016 and $121 million for the
twelve months ended September 30,
2017. Proforma licensing revenue for the twelve months ended
September 30, 2017 of $121 million is adjusted for the effect of the
reduction in royalties expected from the DanskinNow and Mossimo
transitions.
- Licensing revenue generated from the brands that are not
securitized by the Senior Secured Notes under the Company's
securitization facility was $86
million in 2015, $89 million
in 2016, and $84 million for the
twelve months ended September 30,
2017.
- Proforma cash flow available to service additional debt after
paying interest and amortization on the Senior Secured Notes under
the Company's securitization facility, adjusted to reflect the
DanskinNow and Mossimo transitions, for the twelve months ended
September 30, 2017 was approximately
$31.5 million.
- The Company expects 2018 EBITDA to be in a range of
$95 million to $105 million. This compares to EBITDA of
approximately $102 million for the
twelve months ended September 31,
2017, after adjusting for the DanskinNow and Mossimo
transitions. Please see reconciliation tables at the end of this
press release.
EBITDA Reconciliation:
($,
millions)
|
Pro
Forma
|
|
LTM Q3
2017
|
Operating
Income
|
($935)
|
Plus: Depreciation
and Amortization
|
3
|
Plus: Stock Based
Compensation
|
6
|
Plus: Special
Charges
|
11
|
Plus: Impairment
Charge
|
1064
|
Plus: Loss on
Termination of Licenses
|
26
|
Less: Gains on Sales
of Trademarks
|
(29)
|
Less: Gain on
Deconsolidation of Joint Venture
|
(4)
|
Less: Net Income
Attributable to Non-Controlling Interest
|
(13)
|
EBITDA
|
$129
|
Less: Adjustment for
Sale of Brands (1)
|
(3)
|
Less: Danskin
Adjustment
|
(15)
|
Less: Mossimo
Adjustment
|
(9)
|
Proforma
EBITDA
|
$102
|
Notes:
(1) Adjusted to reflect the sale of the Sharper Image and Nick
Graham brands
Forecasted EBITDA Reconciliation Based on Expected Revenue of
$190–$220 Million:
($,
millions)
|
Year Ending Dec.
31, 2018
|
|
High
|
Low
|
Operating
Income
|
$100.0
|
$90.0
|
Plus: Depreciation
and Amortization
|
$2.5
|
$2.5
|
Plus: Stock Based
Compensation
|
$6.0
|
$6.0
|
Plus: Special
Charges
|
$9.0
|
$9.0
|
Less: Net Income
Attributable to Non-Controlling Interest
|
($12.5)
|
($12.5)
|
EBITDA
|
$105.0
|
$95.0
|
About Iconix Brand Group, Inc.
Iconix Brand Group, Inc. owns, licenses and markets a portfolio
of consumer brands including: CANDIE'S ®, BONGO ®, JOE
BOXER ®, RAMPAGE ®, MUDD ®, MOSSIMO ®,
LONDON FOG ®, OCEAN
PACIFIC ®, DANSKIN ®, ROCAWEAR ®, CANNON ®,
ROYAL VELVET ®, FIELDCREST ®, CHARISMA ®,
STARTER ®, WAVERLY ®, ZOO YORK ®, UMBRO ®, LEE
COOPER ®, ECKO UNLTD. ®, MARC ECKO ®, and ARTFUL
DODGER ®. In addition, Iconix owns interests in the MATERIAL
GIRL ®, ED HARDY ®, TRUTH OR DARE ®, MODERN
AMUSEMENT ®, BUFFALO ® and PONY ® brands. The
Company licenses its brands to a network of leading retailers and
manufacturers that touch every major segment of retail distribution
in both the U.S. and worldwide. Through its in-house business
development, merchandising, advertising and public relations
departments, Iconix manages its brands to drive greater consumer
awareness and equity.
Forward-Looking Statements
In addition to historical information, this press release
contains forward-looking statements within the meaning of the
federal securities laws. Such forward-looking statements include
projections regarding the Company's beliefs and expectations about
future performance and, in some cases, may be identified by words
like "anticipate," "assume," "believe," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "potential,"
"predict," "project," "future," "will," "seek" and similar terms or
phrases. These statements are based on the Company's beliefs and
assumptions, which in turn are based on information available as of
the date of this press release. Forward-looking statements involve
known and unknown risks and uncertainties, which could cause actual
results to differ materially from those contained in any
forward-looking statement and could harm the Company's business,
prospects, results of operations, liquidity and financial condition
and cause its stock price to decline significantly. Many of these
factors are beyond the Company's ability to control or predict.
Important factors that could cause the Company's actual results to
differ materially from those indicated in the forward-looking
statements include, among others: the ability of the Company's
licensees to maintain their license agreements or to produce and
market products bearing the Company's brand names, the Company's
ability to retain and negotiate favorable licenses, the Company's
ability to meet its outstanding debt obligations and the events and
risks referenced in the sections titled "Risk Factors" in the
Company's Annual Report on Form 10‑K for the year ended
December 31, 2016 and subsequent Quarterly Reports on
Form 10‑Q and in other documents filed or furnished with the
Securities and Exchange Commission. Our forward-looking statements
do not reflect the potential impact of any acquisitions, mergers,
dispositions, business development transactions, joint ventures or
investments we may enter into or make in the future. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements. These forward-looking statements are
made only as of the date hereof and the Company undertakes no
obligation to update or revise publicly any forward-looking
statements, except as required by law.
Media contact:
David K. Jones
Executive Vice President and Chief Financial
Officer
Iconix Brand Group, Inc.
djones@iconixbrand.com
212-819-2069
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SOURCE Iconix Brand Group, Inc.