APEX Apex Global Brands Inc

Apex Global Brands (OTCBB: APEX), a global brand management and licensing organization that markets a portfolio of high-equity lifestyle brands it owns, creates and elevates, today reported financial results for its third quarter of Fiscal 2021, which ended October 31, 2020.

“Consistent with the overall retail sector, we continued to see challenges in the third quarter,” said Henry Stupp, Chief Executive Officer of Apex Global Brands.  “The COVID-19 pandemic continues to impact our business.  While our licensees and business partners are adapting, it remains difficult to predict the near-term impact, let alone the long-term impact, on our business.  We are experiencing both weekly changes to retail operations depending on the safer-at-home policies of individual states and countries that limit in-person shopping capacity, yet many of our global retail partners are seeing a rise in online shopping.  Nevertheless, given the current state of the economy, we cannot predict if that shift to online purchasing will result in a successful holiday shopping season.”

Mr. Stupp continued, “Given the current macro conditions, we continue to make efforts to rationalize our costs and improve the efficiencies of our operations.  We have successfully reduced our costs, and, on a year-to-date basis, our SG&A expenses declined by 28% over the prior-year period.  In addition, as I noted in the prior quarter, we are achieving increased efficiency due to our extensive asset library and the introduction of newer technologies, such as 3D product development and virtual brand showrooms, which make remote working more effective.  As we enter the new calendar year, we will continue to adapt our business and work closely with each of our licensees and retail partners to best meet the challenges of the retail industry.”

CARES Act Benefits

Apex Global Brands expects to receive federal income tax refunds of approximately $9.1 million resulting from changes to the net operating losses carryback provisions of the federal tax code that came from the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Company has submitted refund claims to the Internal Revenue Service for a portion of these tax refunds. However, the timing of these future cash receipts is unknown due to processing delays by the Internal Revenue Service related to the COVID-19 pandemic. A significant portion of these refunds are contractually required to pay down obligations to the Company’s senior secured lenders.

In April 2020, the Company received a $0.7 million Paycheck Protection Program loan under the CARES Act. The Paycheck Protection Program Flexibility Act has extended the time frame to use these loan proceeds for payroll, rent, utilities and interest. A substantial portion of this loan is expected to be forgiven.

Forbearance

Apex Global Brands and its senior secured lender agreed on December 15, 2020 to amend their credit agreement and extend the forbearance through December 31, 2020 or March 31, 2021 if certain milestones are met. The forbearance agreement has provisions that assist Apex’s cash management and requires the Company to continue to evaluate strategic alternatives designed to provide liquidity to refinance the term loans under the senior secured credit facility. In exchange for these concessions, the senior secured lender will receive additional fees, which together with other exit fees, are expected to total approximately $2.5 million. The forbearance agreement accelerates the maturity of the underlying debt from August 3, 2021 to March 31, 2021 or to December 31, 2020 if certain milestones are not met.

Revenues

Revenues were $4.1 million in the third quarter of Fiscal 2021, a decrease of 17% from $4.9 million in the third quarter of the prior year.   The decline in third quarter revenues reflects the non-renewal of certain licenses and the decrease in sales of licensees’ products stemming from the COVID-19 pandemic. For the first nine months of Fiscal 2021, revenues totaled $12.5 million, a decrease of 20% from $15.5 million in the first nine months of Fiscal 2020.

Operating and Non-Operating Expenses

Selling, general and administrative expenses, which comprise the Company’s normal operating expenses, were $2.3 million in the third quarter of Fiscal 2021, a decrease of 28% from $3.2 million in the third quarter of the prior year. This decrease in SG&A reflects cost-savings measures undertaken in response to the COVID-19 pandemic and the related shortfall in revenues, along with the beneficial impact of the Company’s restructuring efforts, which resulted in reduced spending for payroll, facilities and general operations.

For the first nine months of Fiscal 2021, selling, general and administrative expenses also saw significant declines, totaling $7.3 million, down 28% from $10.1 million in the first nine months of Fiscal 2020. The Company incurred $0.7 million of transaction and other costs in the third quarter of Fiscal 2021, including amounts related to its forbearance agreement with its senior secured lender.

Interest expense was $2.9 million in the third quarter of Fiscal 2021, compared to $2.2 million in the third quarter of the prior year. For the first nine months of Fiscal 2021, interest expense was $7.5 million, compared to $6.7 million in the first nine months of the prior year. As a result of the forbearance agreements with the Company’s senior secured lender and modifications to the Company’s subordinated debt agreements, $3.3 million of interest in the first nine months of Fiscal 2021 was added to the principal balances of the underlying debt instruments and not paid in cash. Interest expense increased in comparison to the prior year due to incremental forbearance and other exit fees.

For the first nine months of Fiscal 2021, the Company reported an income tax benefit of $9.4 million, primarily due to changes in federal regulations regarding the carryback of net operating losses implemented by the CARES Act.   This compares to an income tax expense of $2.0 million for the first nine months of Fiscal 2020. In the first nine months of Fiscal 2021, Apex paid $0.7 million in cash taxes, compared to $0.8 million paid in the first nine months of Fiscal 2020.

Operating loss in the third quarter of Fiscal 2021 totaled $3.8 million, compared to a loss of $3.9 million in the third quarter of the prior year. Operating loss during the first nine months of Fiscal 2021 was $10.9 million. This year-to-date operating loss resulted primarily from non-cash impairment charges of $14.4 million. In the first quarter of Fiscal 2021, the book value of the Company’s goodwill was lowered by $5.4 million due to reductions in the Company’s market capitalization, and the book value of the Company’s non-amortizing trademarks were lowered by $4.4 million due to revenue projection declines caused by the onset of the COVID-19 pandemic. The Company’s non-amortizing trademarks were lowered by an additional $4.6 million in the third quarter of Fiscal 2021 due to further reductions in the company’s revenue projections as the COVID-19 pandemic continues to hamper revenues of the Company’s licensees.

Net loss was $6.0 million in the third quarter of Fiscal 2021, or a loss of $10.58 per diluted share, on 564,000 shares outstanding, compared to net loss of $6.8 million, or a loss of $12.35 per diluted share, on 553,000 shares outstanding in the third quarter of the prior year.

Net loss for the first nine months of Fiscal 2021 was $9.2 million, or a loss of $16.34 per diluted share, on 560,000 shares outstanding, compared to a net loss of $10.4 million, or a loss of $19.32 per diluted share, on 536,000 shares outstanding in the prior year.

Adjusted EBITDA totaled $1.8 million in the third quarter of Fiscal 2021, an increase of $0.1 million from $1.7 million in the third quarter of the prior year. Adjusted EBITDA in the first nine months of Fiscal 2021 decreased to $5.2 million from $5.4 million in the first nine months of Fiscal 2020.

Balance Sheet & Liquidity Measures

As of October 31, 2020, the Company had cash and cash equivalents of $1.6 million. The Company’s forbearance agreement with its senior secured lender and the modification of the Company’s subordinated promissory note agreements defer the interest and principal payments that would otherwise be payable in cash by the Company, thereby improving its liquidity position. These deferrals extend through the forbearance period for the Company’s senior secured debt and extend through January 1, 2021 for the Company’s subordinated debt. Payments to the Company’s subordinated debt holders are generally restricted by the Company’s credit agreement with its senior secured lender.

As of October 31, 2020, the Company’s outstanding borrowings under the senior secured term loans were $45.8 million, outstanding borrowings under subordinated promissory notes were $14.8 million, and outstanding borrowings under the Paycheck Protection Program promissory note were $0.7 million. A substantial portion of the Paycheck Protection Program loan is anticipated to be forgiven. Additional information regarding the Company’s debt and the related forbearance agreement is available in Apex’s quarterly report on Form 10-Q for the period ended October 31, 2020.

Fiscal 2021 Outlook

Due to the evolving and uncertain nature of the COVID-19 pandemic and its impact on Apex Global Brands’ business, the Company is maintaining its current suspension of forward-looking guidance. While revenues are expected to be down year-over-year, so too will the Company’s expenses. Apex initiated cost saving measures beginning in the first quarter of Fiscal 2021 in response to the anticipated decline in revenues. Apex cannot provide assurance that these cost savings measures will be adequate to offset further revenue declines, and COVID-19 may have a material impact on operating results, cash flows and financial condition beyond Apex’s current expectations. The Company anticipates that it may be increasingly difficult to obtain license renewals or new licenses, which could put increasing pressure on the Company’s business model.   Furthermore, the forbearance agreement with Apex’s lender accelerates the maturity date of its senior secured debt to March 31, 2021 or to December 31, 2020 if certain milestones are not met. There is substantial uncertainty about the potential success of the Company’s efforts to find strategic alternatives to provide liquidity to refinance the debt on or prior to the maturity date.

Movement to the OTC

Apex Global Brands has been making a concerted effort over the past two years to meet the Nasdaq Stock Market’s listing requirements. However, on November 3, 2020, the Company received a notification from the Panel that it determined to delist the Company’s common stock from the Nasdaq Capital Market effective November 5, 2020. On that day, Apex Global Brand’s common stock began trading on the Pink Open Market of the OTC Markets Group under the same ticker “APEX.”

About Apex Global Brands

Apex Global Brands is a global brand management and licensing organization that markets a portfolio of high-equity lifestyle brands it owns creates and elevates. The brand portfolio spans multiple consumer product categories and retail tiers around the world and includes Hi-Tec®, Magnum®, 50 Peaks®, Interceptor®, Cherokee®, Tony Hawk®, Point Cove®, Carole Little®, Everyday California® and Sideout®. The Company currently maintains license agreements with leading retailers and manufacturers that span approximately 140 countries in over 20,000 retail locations and digital commerce. For more information, please visit the Company's website at apexglobalbrands.com.

Forward Looking Statements

This news release may contain forward-looking statements regarding future events and the future performance of Apex Global Brands. Forward-looking statements in this press release include, without limitation, express or implied statements regarding: the Company’s efforts to find strategic alternatives to provide liquidity to refinance its debt on or prior to the maturity date; the Company’s anticipated receipt of federal income tax refunds, including the timing thereof; the effects of the Company’s cost saving efforts; the anticipated and ongoing impacts of the novel coronavirus (COVID-19) pandemic; the Company’s expectations regarding its new and existing license agreements and the performance of its licensees thereunder; the Company’s ability to sustain necessary liquidity and grow its business; and anticipated market developments and opportunities. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and is based on currently available market, operating, financial and competitive information and assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expected or projected, including, among others, risks that: the Company will be unsuccessful in its efforts to find strategic alternatives to provide liquidity to refinance its debt on or prior to the maturity date; the Company will not receive the anticipated federal income tax refunds in a timely manner or at all; the Company and its partners will not achieve the results anticipated in the statements made in this release; the impact of the COVID-19 pandemic, and the related responses of the government, consumers and the Company, on its business, financial condition and results of operations is more adverse than currently predicted; that anticipated revenues or cash collections will be lower than anticipated or that expenses will be higher than anticipated, which could cause the Company to fail to meet the financial covenants and milestones in its credit facility and thereby give its lender the right to terminate the forbearance and declare an event of default and to exercise its rights under the credit facility; global economic conditions and the financial condition of the apparel and retail industry and/or adverse changes in licensee or consumer acceptance of products bearing the Company’s brands may lead to reduced royalties; the ability and/or commitment of the Company’s licensees to design, manufacture and market Cherokee®, Hi-Tec®, Magnum®, 50 Peaks®, Interceptor®, Carole Little®, Tony Hawk® and Hawk Brands®, Everyday California® and Sideout® branded products could cause our results to differ from our anticipations; the Company’s dependence on a select group of licensees for most of the Company’s revenues makes us susceptible to changes in those organizations; our level of indebtedness and restrictions under our indebtedness; and the Company’s dependence on its key management personnel could leave us exposed to disruption on any termination of service. A more detailed discussion of such risks and uncertainties are described in the Company’s annual report on Form 10-K filed on April 30, 2020, its periodic reports on Forms 10-Q and 8-K, and subsequent filings with the SEC the Company makes from time to time. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.

Note Regarding Use of Non-GAAP Financial Measures

Certain of the information set forth herein, including Adjusted EBITDA, may be considered non-GAAP financial measures. Apex believes this information is useful to investors as a measure of profitability, because it helps them compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization, and the cost of acquiring or disposing of businesses and restructuring our operations. In addition, the Company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company’s operating performance and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. A reconciliation of net loss from continuing operations as reported in our consolidated statements of operations is reconciled to Adjusted EBITDA in tabular form later in this release under the heading “Reconciliation of GAAP to Non-GAAP Financial Data”.

Investor Contacts:Apex Global BrandsSteve Brink, CFO818-908-9868

Addo Investor RelationsKimberly Esterkin/Patricia Nir310-829-5400

APEX GLOBAL BRANDS INC.CONSOLIDATED BALANCE SHEETS (UNAUDITED)(In thousands, except share and per share amounts)

		October 31,2020				February 1,2020
Assets
Current assets:
Cash and cash equivalents		$	1,629			$	1,209
Accounts receivable, net			3,927				4,962
Income tax and other receivables			8,876				157
Prepaid expenses and other current assets			1,331				1,431
Total current assets			15,763				7,759
Property and equipment, net			240				319
Intangible assets, net			49,647				59,110
Goodwill			6,752				12,152
Accrued revenue and other assets			3,508				3,582
Total assets		$	75,910			$	82,922
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable and other current liabilities		$	6,145			$	6,282
Current portion of long-term debt			60,938				56,044
Deferred revenue—current			1,263				3,551
Total current liabilities			68,346				65,877
Long-term liabilities:
Long-term debt			490				—
Deferred income taxes			8,379				9,515
Long-term lease liabilities			1,159				1,389
Other liabilities			842				794
Total liabilities			79,216				77,575
Commitments and contingencies (Note 7)
Stockholders’ (deficit) equity:
Preferred stock, $.02 par value, 1,000,000 shares authorized, none issued			—				—
Common stock, $.02 par value, 25,000,000 shares authorized, shares issued 569,130 (October 31, 2020) and 557,053 (February 1, 2020)			11				11
Additional paid-in capital			79,139				78,641
Accumulated deficit			(82,456	)			(73,305	)
Total stockholders’ (deficit) equity			(3,306	)			5,347
Total liabilities and stockholders’ (deficit) equity		$	75,910			$	82,922

 

APEX GLOBAL BRANDS INC.CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)(In thousands, except per share amounts)

	Three Months Ended								Nine Months Ended
	October 31,2020				November 2,2019				October 31,2020				November 2,2019
Revenues	$	4,050			$	4,894			$	12,463			$	15,549
Operating expenses:
Selling, general and administrative expenses		2,291				3,193				7,288				10,117
Stock-based compensation and stock warrant charges		110				153				405				876
Transaction and other costs		654				73				654				284
Restructuring charges		—				138				(97	)			180
Intangible assets and goodwill impairment charges		4,607				5,000				14,407				5,000
Depreciation and amortization		223				232				668				743
Total operating expenses		7,885				8,789				23,325				17,200
Operating loss		(3,835	)			(3,895	)			(10,862	)			(1,651	)
Other (expense) income:
Interest expense		(2,895	)			(2,182	)			(7,507	)			(6,678	)
Other (expense) income, net		(27	)			(59	)			(175	)			2
Total other expense, net		(2,922	)			(2,241	)			(7,682	)			(6,676	)
Loss before income taxes		(6,757	)			(6,136	)			(18,544	)			(8,327	)
(Benefit) provision for income taxes		(788	)			692				(9,393	)			2,026
Net loss	$	(5,969	)		$	(6,828	)		$	(9,151	)		$	(10,353	)
Net loss per share:
Basic loss per share	$	(10.58	)		$	(12.35	)		$	(16.34	)		$	(19.32	)
Diluted loss per share	$	(10.58	)		$	(12.35	)		$	(16.34	)		$	(19.32	)
Weighted average common shares outstanding:
Basic		564				553				560				536
Diluted		564				553				560				536

APEX GLOBAL BRANDS INC.RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL DATA (In thousands)

We define Adjusted EBITDA as net income before (i) interest expense, (ii) other (expense) income, net, (iii) (benefit) provision for income taxes, (iv) depreciation and amortization, (v) intangible assets and goodwill impairment charges, (vi) restructuring charges, (vii) transaction and other costs and (viii) stock-based compensation and stock warrant charges. Adjusted EBITDA is not defined under generally accepted accounting principles (“GAAP”) and it may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA, along with GAAP measures, as a measure of profitability, because Adjusted EBITDA helps us compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization, and the cost of acquiring or disposing of businesses and restructuring our operations. We believe it is useful to investors for the same reasons. Adjusted EBITDA has limitations as a profitability measure in that it does not include the interest expense on our long-term debt, non-operating income or expense items, our provision for income taxes, the effect of our expenditures for capital assets and certain intangible assets, the costs of acquiring or disposing of businesses and restructuring our operations, or our non-cash charges for stock-based compensation and stock warrants. A reconciliation from net loss as reported in our condensed consolidated statements of operations to Adjusted EBITDA is as follows: 

	Three Months Ended								Six Months Ended
(In thousands)	October 31,2020				November 2,2019				October 31,2020				November 2,2019
Net loss	$	(5,969	)		$	(6,828	)		$	(9,151	)		$	(10,353	)
(Benefit) provision for income taxes		(788	)			692				(9,393	)			2,026
Interest expense		2,895				2,182				7,507				6,678
Other expense (income)		27				59				175				(2	)
Depreciation and amortization		223				232				668				743
Intangible assets and goodwill impairment charges		4,607				5,000				14,407				5,000
Restructuring charges		—				138				(97	)			180
'Transaction and other costs		654				73				654				284
Stock-based compensation and stock warrant charges		110				153				405				876
Adjusted EBITDA	$	1,759			$	1,701			$	5,175			$	5,432