NEW YORK, May 4, 2018 /PRNewswire/ --
- First quarter results in line with Company's
expectations
- 1.50% Convertible Note debt refinancing
complete
- Projecting stable cash position and debt covenant
compliance
- Reiterating full year 2018 revenue and free cash flow
guidance
- Launched Umbro brand at Target and continued to grow
Starter on Amazon
Iconix Brand Group, Inc. (Nasdaq: ICON) ("Iconix" or the
"Company") today reported financial results for the first quarter
ended March 31, 2018.
John Haugh, CEO of Iconix
commented, "Following intense focus on our balance sheet resulting
in the successful resolution of all near term debt obligations, we
are excited to speak with the investor community to discuss
progress on our growth initiatives.
During the quarter, we launched Umbro with Target. The product
looks great and customers are responding favorably. We are thrilled
to bring Umbro's world leadership in soccer apparel and equipment
to a valuable partner like Target.
We have demonstrated our ability to successfully reposition some
of our core brands and we continue to work closely with our
best-in-class licensees to maintain the strength of our long-term
partnerships, while evaluating opportunities to drive brand
portfolio growth.
We are thus maintaining our revenue and free cash flow
guidance for the year."
2018 Guidance:
- Reiterating previously announced full year revenue guidance of
$190 million to $220 million
- On track to deliver approximately $12
million of full year cost-savings, aligning expenses with
revenue base
- Previous GAAP net income guidance of approximately $7 million to $17
million, being increased to $17
million to $27 million
principally due to the Q1 gain on extinguishment of debt and the
elimination of non-cash interest expense related to our 5.75%
convertible notes
- Reiterating non-GAAP net income guidance of $20 million to $30
million
- Reiterating full year free cash flow guidance of $50 million to $70
million
It should be noted that GAAP net
income will be affected by non-cash adjustments to fair
value from the Company's 5.75% Convertible Notes discussed
below. Such periodic adjustments to fair value cannot be
estimated in advance and thus are not taken into account in
guidance.
Non-GAAP net income and free cash flow are non-GAAP metrics, and
reconciliation tables for each are included in this press
release.
Unless otherwise noted, the following represents financial
results for continuing operations only.
First Quarter 2018
Financial Results
|
|
Total
Revenue:
|
|
Adjusted Non-GAAP
Revenue by Segment
|
Three months ended
Mar. 31,
|
($, 000's)
|
2018
|
2017*
|
%
Change
|
|
|
|
|
Womens
|
16,598
|
28,143
|
-41%
|
Mens
|
9,945
|
10,193
|
-2%
|
Home
|
6,512
|
7,336
|
-11%
|
International
|
15,493
|
12,032
|
29%
|
Total Adjusted
Revenue
|
48,548
|
57,704
|
-16%
|
|
*Revenue is adjusted
for approximately $1.0 million of revenue from the SE Asia
joint venture which was deconsolidated in 2017.
|
For the first quarter of 2018, total revenue was $48.5 million, a 17% decline as compared to
$58.7 million in the prior year
quarter. Such decline was expected principally as a result of the
transition of our Danskin, Ocean Pacific and Mossimo DTR's in our
Women's segment, as previously announced. Revenue in the first
quarter of 2017 included approximately $1.0
million of licensing revenue from the Company's Southeast Asia joint venture which was
deconsolidated in the second quarter of 2017. As a result, there
was no comparable revenue for this item in the first quarter of
2018. Excluding Southeast Asia,
revenue declined approximately 16% for the first quarter of
2018.
In the first quarter 2018 the Company adopted a new revenue
recognition accounting standard (ASU No. 2014-09 Revenue from
Contracts with Customers – Topic 606). Adoption of the standard
decreased Q1 2018 revenue by approximately $1.9 million but is expected to increase
full-year 2018 revenue by approximately $2.5 to $3
million.
SG&A Expenses:
Total SG&A expenses in the first quarter of 2018 were
$28.6 million, a 13% increase
compared to $25.4 million in the
first quarter of 2017. However, 2018 includes a number of unique
items, including special charges, restructuring costs, and a
non-cash purchase accounting adjustment. Adjusting for these items
in 2018 and special charges in 2017, SG&A decreased
approximately $1.1 million or 5%.
Stock based compensation was $1.0
million in the first quarter of 2018 as compared to
$1.7 million in the first quarter of
2017.
Gain on sale of trademarks:
Gain on sale of trademarks in the first quarter of 2018 were
$1.1 million. The gain on sale
of trademarks for the current quarter was related to the completion
of the sale of the Sharper Image and Badgley Mischka trademarks from certain of the
Company's international joint ventures.
Operating Income:
Operating Income
by Segment
|
Three months ended
Mar. 31,
|
($, 000's)
|
2018
|
2017
|
%
Change
|
|
|
|
|
Womens
|
14,628
|
26,281
|
-44%
|
Mens
|
5,874
|
5,944
|
-1%
|
Home
|
5,743
|
6,625
|
-13%
|
International
|
6,486
|
5,520
|
18%
|
Corporate
|
(12,238)
|
(10,760)
|
-14%
|
Operating
Income
|
20,493
|
33,610
|
-39%
|
|
|
|
|
Operating Margin
by Segment
|
Three months ended
Mar. 31,
|
|
2018
|
2017
|
Var
|
|
|
|
|
Womens
|
88%
|
93%
|
-5%
|
Mens
|
59%
|
58%
|
1%
|
Home
|
88%
|
90%
|
-2%
|
International
|
42%
|
46%
|
-4%
|
Operating
Margin
|
42%
|
58%
|
-16%
|
|
|
|
|
Operating income for the first quarter of 2018 was $20.5 million, as compared to $33.6 million in the first quarter of
2017. Operating margin for the first quarter 2018 was 42% as
compared to 58% in the first quarter 2017. However, when
excluding special charges, restructuring costs, non-cash purchase
accounting adjustments and gain on sale of trademarks from 2018
results and special charges from 2017 results, operating income is
$25.8 million and $35.8 million in 2018 and 2017, respectively, and
operating margin is 53% and 61% in 2018 and 2017, respectively.
Interest Expense:
Interest expense in the first quarter of 2018 was $14.5 million, as compared to interest expense of
$15.0 million in the first quarter of
2017. The Company's reported interest expense includes non-cash
interest related to its 1.50% Convertible Notes of approximately
$3.0 million in the first quarter of
2018 as compared to $4.0 million in
the first quarter of 2017.
Other Income:
In the first quarter of 2018, the Company recognized a
$24.4 million gain resulting from the
Company's accounting for the 5.75% Convertible Notes which requires
recording the fair value of this debt at the end of each period
with any change from the prior period accounted for as other income
or loss in the current period's income statement. The first
quarter of 2018 also includes a gain of $4.5
million related to the early extinguishment of a portion of
the Company's 1.50% Convertible Notes and a $1.0 million gain related to the
final payment received from the sale of its minority interest
in Complex Media in 2016. This compares to a loss of
$5.5 million related to the early
extinguishment of a portion of the Company's term loan in the first
quarter of 2017. The Company has excluded these amounts from
its non-GAAP results.
Provision for Income Taxes:
The effective income tax rate for the first quarter of 2018 is
approximately 4.4% which resulted in a $1.7 million income tax provision, as
compared to an effective income tax rate of 46.0% in the prior year
quarter which resulted in a $5.9
million income tax provision. The decrease in the
effective tax rate for the first quarter is primarily as a result
of the release of a portion of the valuation allowance on deferred
tax assets, as well as the impact of the gain related to the
mark-to-market adjustment from the Company's 5.75% Convertible
Notes in the current quarter of which a large portion was a
permanent difference and therefore no tax was provided. Excluding
any mark-to-market adjustments from the Company's 5.75% Convertible
Notes, we expect the full year 2018 tax rate to be
approximately 32% and approximately 30% on a GAAP basis
and non-GAAP basis, respectively.
GAAP Net Income and GAAP Diluted EPS:
GAAP net income from continuing operations attributable to
Iconix Brand Group, Inc. for the first quarter of 2018
reflects income of $32.7 million as
compared to income of $4.4 million in
the first quarter of 2017. GAAP diluted EPS from continuing
operations for the first quarter of 2018 reflects income of
$0.51 as compared to income of
$0.06 in the first quarter of
2017.
Non-GAAP Net Income and Non-GAAP Diluted EPS:
Non-GAAP Net
Income & Diluted EPS Reconciliation: (1)
|
|
|
|
|
|
|
($, 000's, except per
share data)
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
EPS
|
|
Three Months Ended
Mar. 31,
|
|
Three Months Ended
Mar. 31,
|
|
2018
|
2017
|
%
Change
|
|
2018
|
2017
|
%
Change
|
|
|
|
|
|
|
|
|
GAAP net income
(loss) & EPS from continuing operations
attributable to Iconix (1)
|
32,715
|
4,402
|
643%
|
|
$0.51
|
$0.06
|
750%
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
non-cash interest
related to ASC 470
|
2,998
|
4,046
|
|
|
$0.05
|
$0.07
|
|
(gain) / loss on
extinguishment of debt
|
(4,473)
|
5,482
|
|
|
($0.08)
|
$0.10
|
|
gain on sale of
Complex Media
|
(958)
|
-
|
|
|
($0.02)
|
$0.00
|
|
gain on change
in fair value of convertible debt
|
(25,174)
|
-
|
|
|
($0.43)
|
$0.00
|
|
special
charges
|
2,706
|
2,167
|
|
|
$0.05
|
$0.04
|
|
foreign currency
translation gain/(loss)
|
(551)
|
431
|
|
|
($0.01)
|
$0.01
|
|
income taxes
(benefit) related to above
|
1,256
|
(4,224)
|
|
|
$0.02
|
($0.07)
|
|
valuation allowance
& foreign tax credit
|
(2,793)
|
0
|
|
|
($0.05)
|
$0.00
|
|
non-controlling
interest
|
(38)
|
45
|
|
|
($0.00)
|
$0.00
|
|
accretion of redeemable
non-controlling interest
|
-
|
-
|
|
|
$0.04
|
$0.02
|
|
Net
Adjustments
|
(27,027)
|
7,947
|
|
|
($0.42)
|
$0.16
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income
& EPS from continuing operations
attributable to Iconix
|
5,688
|
12,349
|
-54%
|
|
$0.10
|
$0.21
|
-55%
|
|
|
|
|
|
|
|
|
Note: All items in
the above reconciliation table may not add due to
rounding.
|
Non-GAAP weighted
average diluted shares reconciliation (1)
|
|
|
Three Months Ended
Mar. 31,
|
|
2018
|
2017
|
%
Change
|
|
|
|
|
GAAP weighted average
diluted shares
|
59,117
|
56,964
|
4%
|
Add: antidilutive
shares resulting from net loss
|
-
|
599
|
NA
|
Non-GAAP weighted
average diluted shares
|
59,117
|
57,563
|
3%
|
Non-GAAP net income from continuing operations for the first
quarter of 2018 was $5.7 million as
compared to $12.3 million in the
first quarter of 2017. Non-GAAP diluted EPS from continuing
operations for the first quarter of 2018 was $0.10 as compared to $0.21 in the first quarter of 2017.
Balance Sheet and Liquidity:
($, 000's)
|
Mar. 31,
2018
|
Cash
Summary:
|
|
Unrestricted Domestic
Cash (wholly owned)
|
23,201
|
Unrestricted Domestic
Cash (in consolidated JV's)
|
14,317
|
Unrestricted
International Cash
|
14,499
|
Restricted
Cash
|
43,719
|
|
|
Total Cash
|
$95,736
|
|
|
Debt
Summary:
|
|
Senior Secured Notes
due January 2020
|
397,500
|
5.75% Convertible
Notes due August 2023
|
116,172
|
Variable Funding Note
due January 2020
|
100,000
|
2017 Senior Secured
Term Loan due August 2022
|
192,313
|
|
|
Total Debt (Face
Value)
|
$805,985
|
Free Cash Flow:
Free Cash Flow
Reconciliation: (2)
|
|
|
|
($, 000's)
|
|
|
|
|
Three Months Ended
Mar. 31,
|
|
2018
|
2017
|
%
Change
|
Net cash provided by
operating activities
|
$20,551
|
$11,901
|
73%
|
Plus:
Cash from sale of trademarks and related notes
receivable
|
201
|
2,947
|
|
Plus:
Cash from notes receivable from licensees
|
1,409
|
1,250
|
|
Plus:
Net cash from sale of Badgley Mischka & Sharper Image in
JVs
|
86
|
-
|
|
Less:
Capital Expenditures
|
(282)
|
(179)
|
|
Less:
Distributions to non-controlling interests
|
(6,587)
|
(2,917)
|
|
|
|
|
|
Free Cash Flow from
operations
|
$15,378
|
$13,002
|
18%
|
The Company generated $15.4
million of free cash flow in the first quarter of 2018, an
18% increase as compared to $13.0
million in the first quarter of 2017.
Conference Call
The Company will host a conference call today at 10:00 AM ET. The call can be accessed on the
Company's website at www.iconixbrand.com or by telephone at
844-286-1555 or 270-823-1180 (conference ID: 8498368). A written
transcript will be posted online as soon as available.
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 ®, ARTFUL
DODGER ®, and HYDRAULIC®. 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 retailers and
manufacturers. 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, 2017 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
Unaudited
Condensed Consolidated Income Statements
|
|
($, 000's, except
earnings per share data)
|
|
|
|
|
Three Months Ended
Mar, 31,
|
|
2018
|
2017
|
%
Change
|
|
|
|
|
Licensing
revenue
|
48,548
|
58,722
|
-17%
|
|
|
|
|
Selling, general and
administrative expenses
|
28,640
|
25,392
|
13%
|
Depreciation and
amortization
|
654
|
653
|
|
Equity loss
(earnings) on joint ventures
|
(96)
|
(933)
|
|
Gain on sale of
trademarks
|
(1,143)
|
-
|
|
|
|
|
|
Operating income
(loss)
|
20,493
|
33,610
|
-39%
|
|
|
|
|
Other (income)
expenses
|
|
|
|
Interest expense
|
14,549
|
15,049
|
|
Interest income
|
(122)
|
(126)
|
|
Other income, net
|
(26,132)
|
(1)
|
|
(Gain) loss on extinguishment of debt
|
(4,473)
|
5,482
|
|
Foreign currency translation loss (gain)
|
(551)
|
429
|
|
Other expenses -
net
|
(16,729)
|
20,833
|
-180%
|
|
|
|
|
Income (loss) before
income taxes
|
37,222
|
12,777
|
191%
|
|
|
|
|
Provision (benefit)
for income taxes
|
1,650
|
5,887
|
-72%
|
|
|
|
|
Net income
(loss)
|
35,572
|
6,890
|
416%
|
|
|
|
|
Less: Net income
(loss) attributable to non-
controlling interest
|
2,857
|
2,488
|
15%
|
|
|
|
|
Net income (loss)
attributable to Iconix Brand
Group, Inc.
|
32,715
|
4,402
|
643%
|
|
|
|
|
Income (loss) from
discontinued operations,
before income taxes
|
-
|
(7,379)
|
100%
|
Less: Net income
attributable to non-controlling
interest from discontinued operations
|
-
|
1,303
|
NA
|
Net income (loss)
from discontinued operations
attributable to Iconix Brand Group, Inc.
|
-
|
(8,682)
|
100%
|
|
|
|
|
Net income (loss)
attributable to Iconix Brand
Group, Inc.
|
32,715
|
(4,280)
|
864%
|
|
|
|
|
Earnings (loss) per
share - basic:
|
|
|
|
Continuing
operations
|
0.51
|
0.06
|
750%
|
Discontinued
operations
|
-
|
(0.15)
|
100%
|
Earnings (loss) per
share - basic
|
0.51
|
(0.09)
|
667%
|
|
|
|
|
Earnings (loss) per
share - diluted:
|
|
|
|
Continuing
operations
|
0.51
|
0.06
|
750%
|
Discontinued
operations
|
-
|
(0.15)
|
100%
|
Earnings (loss) per
share - diluted
|
0.51
|
(0.09)
|
667%
|
|
|
|
|
Weighted average
number of common shares
outstanding:
|
|
|
|
Basic
|
59,117
|
56,964
|
4%
|
|
|
|
|
Diluted
|
59,117
|
56,964
|
4%
|
|
|
|
|
Forecasted
Reconciliation of Net Income: (1)
|
|
|
($, 000's)
|
Year
Ending
|
|
Dec. 31,
2018
|
|
Low
|
High
|
|
|
|
Forecasted GAAP Net
Income
|
17,000
|
27,000
|
|
|
|
Adjustment for
non-cash interest related to ASC 470
|
3,000
|
3,000
|
Gain on
extinguishment of debt
|
(4,473)
|
(4,473)
|
Special
charges
|
8,000
|
8,000
|
Gain on sale of
Investment
|
(958)
|
(958)
|
Foreign currency
translation
|
(551)
|
(551)
|
Tax on non-GAAP items
& valuation allowance/ foreign tax credit
|
(2,018)
|
(2,018)
|
Net
Adjustments
|
3,000
|
3,000
|
Forecasted Non-GAAP
Net Income
|
20,000
|
30,000
|
|
|
|
Footnotes
(1) Non-GAAP net income and non-GAAP diluted EPS (along with
non-GAAP weighted average diluted shares) are non-GAAP financial
measures which represent net income excluding any non-cash interest
related to ASC Topic 470, non-cash, non-recurring gains and
charges, foreign currency translation gains and losses, and charges
related to professional fees incurred as a result of the
correspondence with the Staff of the SEC, the SEC investigation,
internal investigations, the previously disclosed class action and
derivative litigations, and costs related to the transition of
Iconix management, all net of tax. The Company believes these are
useful financial measures in evaluating its financial condition
because they are more reflective of the Company's business purpose,
operations and cash expenses.
Based on the average closing stock price for the quarter ended
March 31, 2018, there were no
potential dilutive shares related to our convertible notes for GAAP
purposes.
(2) Free Cash Flow, a non-GAAP financial measure, represents net
cash provided by operating activities, plus cash received from the
sale of trademarks and formation of joint ventures, less
distributions to non-controlling interests and capital
expenditures. Free Cash Flow excludes notes receivable from
sale of trademarks and the formation of joint ventures, cash used
to acquire the membership interests of our joint venture partners,
mandatory debt service requirements, and other non-discretionary
expenditures. Free Cash Flow should not be considered in isolation,
as a measure of residual cash flow available for discretionary
purposes, or as an alternative to operating results presented in
accordance with GAAP. The Company believes Free Cash Flow is useful
because it provides information regarding actual cash received in a
specific period from the Company's comprehensive business strategy
of maximizing the value of its brands through traditional
licensing, international joint ventures and other arrangements. We
have excluded the cash used to buy back our joint venture
membership interests from the above definition because we believe
that, like other acquisitions, such actions are capital
transactions. It also provides supplemental information to assist
investors in evaluating the Company's financial condition and
ability to pursue opportunities that enhance shareholder value.
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content:http://www.prnewswire.com/news-releases/iconix-reports-financial-results-for-the-first-quarter-2018-300642652.html
SOURCE Iconix Brand Group, Inc.