Xcel Brands
Mar 21, 2017

Xcel Brands Announces Fourth Quarter and Full Year 2016 Financial Results

Company Achieves Third Consecutive Year of Double-Digit Annual Revenue Growth Up 18% to $32.8 Million

2016 GAAP Net Income of $2.7 Million; Non-GAAP Net Income of $4.9 Million

2016 Adjusted EBITDA of $8.5 Million

NEW YORK, March 21, 2017 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (NASDAQ:XELB) ("Xcel" or the "Company"), a media and brand management company, today announced its financial results for the fourth quarter and full year ended December 31, 2016.

"This was a transformative year for us in which we achieved another year of double-digit revenue growth while continuing to make progress on our strategic plan to better position the company for long-term growth," said Robert W. D'Loren, Xcel's Chairman and Chief Executive Officer. "Despite a retail environment challenged by an unprecedented cycle of change, we continue to believe our business model has us well-positioned to deliver solutions for today's challenges." He further stated, "I am pleased with the expansion of our department store business with our H Halston brand at Dillard's. We are beginning to see the return on investment from our short lead time production platform."

Full Year 2016 Results
Total revenue for the year ended December 31, 2016 increased 18% to $32.8 million, compared with $27.7 million in the prior year.

GAAP net income was $2.7 million for the year ended December 31, 2016, or $0.14 per diluted share, compared with GAAP net income of $2.6 million, or $0.15 per diluted share, in the prior year. After adjusting for certain cash and non-cash items, non-GAAP net income for the year ended December 31, 2016 decreased approximately 21% to $4.9 million, or $0.26 per diluted share, compared with $6.3 million, or $0.36 per diluted share, in the prior year. These results are primarily reflective of increased staffing and scaling of our operations and infrastructure in order to support growth in our business.

Adjusted EBITDA for the year ended December 31, 2016 decreased by $0.8 million or approximately 8% to $8.5 million, compared with $9.3 million in the prior year.

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 December 31, 2016 remains strong, with stockholders' equity of $106.2 million, cash and cash equivalents of approximately $14.1 million, and working capital of approximately $11.5 million.

Fourth Quarter 2016
Total revenue for the fourth quarter of fiscal 2016 decreased approximately 7% to $6.9 million, compared with $7.5 million for the prior year quarter. This was primarily attributable to strong headwinds experienced by our interactive television partner QVC in the latter part of 2016.

GAAP net income was $2.8 million for the quarter ended December 31, 2016, or $0.14 per diluted share, compared with net income of $0.8 million, or $0.04 per diluted share, in the prior year quarter. After adjusting for certain cash and non-cash items, non-GAAP net income for the quarter ended December 31, 2016 was $0.3 million, or $0.01 per diluted share, compared with $2.1 million, or $0.10 per diluted share, in the prior year quarter.

Adjusted EBITDA for the quarter ended December 31, 2016 decreased by approximately 52% to $1.4 million, compared with $3.0 million for the quarter ended December 31, 2015.

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 Tuesday, March 21, 2017. 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 888-542-1101. 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 4121068.

About Xcel Brands
Xcel Brands, Inc. (NASDAQ:XELB) is a media and brand management company engaged in the design, production, licensing, 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 direct-response 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, 2015 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. 

Xcel Brands, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
      
  December 31, 2016   December 31, 2015 
  (unaudited)   
Assets   
Current Assets:   
Cash and cash equivalents$  14,127 $  16,860
Accounts receivable, net   6,969    7,594
Prepaid expenses and other current assets   807    655
Total current assets   21,903    25,109
Property and equipment, net   2,600    871
Trademarks and other intangibles, net   111,220    112,323
Goodwill   12,371    12,371
Restricted cash   1,509    1,109
Other assets   1,517    343
Total non-current assets   129,217    127,017
Total Assets$   151,120  $   152,126
    
Liabilities and Stockholders' Equity   
Current Liabilities:   
Accounts payable, accrued expenses and other current liabilities$  1,523 $  1,448
Accrued payroll   2,185    1,924
Deferred revenue   234    597
Current portion of long-term debt   6,427    8,918
Current portion of contingent obligations   -     250
Total current liabilities   10,369    13,137
Long-Term Liabilities:   
Long-term debt, less current portion   25,495    31,860
Deferred tax liabilities, net   6,901    6,749
Other long-term liabilities   2,181    297
Total long-term liabilities   34,577    38,906
Total Liabilities   44,946    52,043
    
Commitments and Contingencies   
    
Stockholders' Equity:   
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding   -     - 
Common stock, $.001 par value, 35,000,000 shares authorized at December 31, 2016 and December 31, 2015, and 18,644,982 and 18,434,634 issued and outstanding at December 31, 2016 and December 31, 2015, respectively   19    18
Paid-in capital   97,354    93,999
Retained earnings   8,801    6,066
Total Stockholders' Equity   106,174    100,083
    
Total Liabilities and Stockholders' Equity$   151,120  $   152,126
    

 

Xcel Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
        
 For the Quarter Ended
December 31, 
 For the Year Ended
December 31,
  2016    2015   2016    2015  
  (unaudited)   (unaudited)   (unaudited)   
Revenues       
Net licensing revenue$  6,855  $  7,323 $  32,603  $  27,405 
Net e-commerce sales   60     150    151     316 
Total revenues   6,915     7,473    32,754     27,721 
Cost of goods sold   49     136    196     267 
Gross profit   6,866     7,337    32,558     27,454 
        
Operating expenses       
Salaries, benefits and employment taxes   3,601     2,601    16,082     12,240 
Other design and marketing costs   742     614    3,181     2,375 
Other selling, general and administrative expenses   1,112     1,161    4,881     3,643 
Facility exit costs   -      -     670     -  
Stock-based compensation   973     1,227    4,727     4,640 
Depreciation and amortization   388     426    1,560     1,379 
Total operating expenses   6,816     6,029    31,101     24,277 
        
Other expenses (income)       
Gain on reduction of contingent obligation   (3,409)    -     (3,409)    (3,000)
Loss on extinguishment of debt   -      -     -      1,371 
Total other income, net   (3,409)    -     (3,409)    (1,629)
        
Operating income   3,459     1,308    4,866     4,806 
        
Interest and finance expense       
Interest expense - term debt   330     295    1,333     1,220 
Other interest and finance charges   91     133    515     584 
Total interest and finance expense   421     428    1,848     1,804 
        
Income from continuing operations before income taxes   3,038     880    3,018     3,002 
        
Income tax provision   318     121    315     156 
        
Income from continuing operations   2,720     759    2,703     2,846 
        
Income (loss) from discontinued operations, net   34     9    34     (272)
        
Net income$  2,754  $  768 $  2,737  $  2,574 
        
Basic net income (loss) per share:       
Continuing operations$  0.15  $  0.04 $  0.15  $  0.18 
Discontinued operations, net   0.00     0.00    0.00     (0.02)
Net income$  0.15  $  0.04 $  0.15  $  0.16 
        
Diluted net income (loss) per share:       
Continuing operations$  0.14  $  0.04 $  0.14  $  0.17 
Discontinued operations, net   0.00     0.00    0.00     (0.02)
Net income$  0.14  $  0.04 $  0.14  $  0.15 
        
Basic weighted average common shares outstanding   18,673,760     18,438,585    18,625,670     16,151,163 
Diluted weighted average common shares outstanding   19,042,615     19,406,691    19,044,749     17,223,240 
        

 

Xcel Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
    
 For the Year Ended December 31,
  2016    2015 
  (unaudited)   
Cash flows from operating activities   
Net income$  2,737  $  2,574 
Adjustments to reconcile net income to net cash provided by operating activities:   
(Income) loss from discontinued operations, net   (34)    272 
Depreciation and amortization expense   1,560     1,379 
Amortization of deferred finance costs   205     141 
Stock-based compensation   4,727     4,640 
Recovery of allowance for doubtful accounts   -      (21)
Amortization of note discount   245     406 
Deferred income tax provision (benefit)   168     (394)
Tax benefit from vested stock grants and exercised options   -      (306)
Non-cash property exit charge   648     -  
Gain on reduction of contingent obligation   (3,409)    (3,000)
Loss on extinguishment of debt   -      1,371 
Changes in operating assets and liabilities:   
Accounts receivable   625     (3,931)
Prepaid expenses and other assets   (131)    (187)
Accounts payable, accrued expenses and other current liabilities   258     (217)
Deferred revenue   (363)    341 
Other liabilities   680     119 
Net cash provided by operating activities from continuing operations   7,916     3,187 
    
Net cash provided by operating activities from discontinued operations, net   -      108 
Net cash provided by operating activities   7,916     3,295 
    
Cash flows from investing activities   
Cash consideration for asset acquisition of the H Halston Brand   -      (14)
Cash consideration for asset acquisition of the C Wonder Brand   -      (3,587)
Cost to acquire additional intangible assets   (26)    -  
Security deposit received related to sublease of former office   400     -  
Investment in unconsolidated affiliate   (100)    -  
Disbursement for loan made in exchange for promissory note receivable   (877)    -  
Purchase of property and equipment   (2,160)    (530)
Net cash used in investing activities   (2,763)    (4,131)
    
Cash flows from financing activities   
Proceeds from issuance of common stock, net of direct costs   -      16,107 
Proceeds from exercise of stock options and warrants   20     65 
Tax benefit from vested stock grants and exercised options   -      306 
Shares repurchased including vested restricted stock in exchange for withholding taxes    (1,429)    (748)
Payment of deferred finance costs   (152)    (10)
Payment of long-term debt   (5,500)    (3,256)
Payment of earn-out obligations   (425)    -  
Payment of installment obligations related to the acquisition of the Ripka Brand   -      (2,190)
Net cash (used in) provided by financing activities   (7,486)    10,274 
    
Net (decrease) increase in cash, cash equivalents, and restricted cash   (2,333)    9,438 
    
Cash, cash equivalents, and restricted cash at beginning of period   17,969     8,531 
    
Cash, cash equivalents, and restricted cash at end of period$  15,636  $  17,969 
    
Reconciliation to amounts on consolidated balance sheets:   
Cash and cash equivalents$  14,127  $  16,860 
Restricted cash   1,509     1,109 
Total cash, cash equivalents, and restricted cash$  15,636  $  17,969 
    
Supplemental disclosure of non-cash activities:   
Issuance of common stock in connection with acquisition of the C Wonder Brand$  -   $  9,000 
Contingent obligation related to acquisition of the C Wonder Brand$  -   $  2,850 
Issuance of common stock as payment for a portion of the Ripka Seller Notes$  -   $  5,400 
Issuance of common stock as payment for a portion of the QVC Earn-Out$  -   $  2,515 
Financing of certain insurance obligations$  294  $  -  
    
Supplemental disclosure of cash flow information:   
Cash paid during the period for income taxes$  230  $  453 
Cash paid during the period for interest$  1,256  $  1,157 
    

 

    
Xcel Brands, Inc. and Subsidiaries 
Reconciliation of Non-GAAP measures 
(Unaudited) 
          
Non-GAAP net income:         
  Quarter Ended
December 31,
 Year Ended
December 31,
 
(amounts in thousands)  2016   2015   2016   2015  
          
Net income $  2,754  $  768  $  2,737  $  2,574  
Non-cash interest and finance expense    9     85     245     415  
Stock-based compensation    973     1,227     4,727     4,640  
Loss on extinguishment of debt    -     -     -     1,371  
Gain on reduction of contingent obligations    (3,409)    -     (3,409)    (3,000) 
Non-recurring property exit charges    -     -     670     -  
(Income) loss from discontinued operations, net    (34)    (9)    (34)    272  
Non-GAAP net income $  293  $  2,071  $  4,936  $  6,272  
          
          
Non-GAAP diluted EPS:         
  Quarter Ended
December 31,
 Year Ended
December 31,
 
   2016   2015   2016   2015  
          
Diluted earnings per share $  0.14  $  0.04  $  0.14  $  0.15  
Non-cash interest and finance expense     -      -      0.01     0.02  
Stock-based compensation    0.05     0.06     0.25     0.27  
Loss on extinguishment of debt    -      -      -      0.08  
Gain on reduction of contingent obligations    (0.18)    -      (0.18)    (0.18) 
Non-recurring property exit charges    -      -      0.04     -   
(Income) loss from discontinued operations, net    -      -      -      0.02  
Non-GAAP diluted EPS $  0.01  $  0.10  $  0.26  $  0.36  
          
          
Weighted average shares - Non-GAAP diluted:         
  Quarter Ended
December 31,
 Year Ended
December 31,
 
   2016   2015   2016   2015  
          
Basic weighted average shares    18,673,760     18,438,585     18,625,670     16,151,163  
Effect of exercising warrants    364,631     872,339     414,131     946,902  
Effect of exercising stock options    4,224     95,767     4,948     125,175  
Weighted average shares - Non-GAAP diluted    19,042,615     19,406,691     19,044,749     17,223,240  
          
          
Adjusted EBITDA:         
  Quarter Ended
December 31,
 Year Ended
December 31,
 
(amounts in thousands)  2016   2015   2016   2015  
          
Net income $  2,754  $  768  $  2,737  $  2,574  
Depreciation and amortization    388     426     1,560     1,379  
Interest and finance expense    421     428     1,848     1,804  
Income tax provision    318     121     315     156  
State and local franchise taxes    27     24     102     108  
Stock-based compensation    973     1,227     4,727     4,640  
Loss on extinguishment of debt    -     -     -     1,371  
Gain on reduction of contingent obligations    (3,409)    -     (3,409)    (3,000) 
Non-recurring property exit charges    -     -     670     -  
(Income) loss from discontinued operations, net    (34)    (9)    (34)    272  
Adjusted EBITDA $  1,438  $  2,985  $  8,516  $  9,304    
   

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, gain on the reduction of contingent obligations, loss on extinguishment of debt, non-recurring facility exit charges, and net income or loss from discontinued operations. 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 other financing costs, loss on extinguishment of debt, gain on the reduction of contingent obligations, income taxes, other state and local franchise taxes, depreciation and amortization, non-recurring facility exit charges, and net income or loss from discontinued operations.

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.

For further information please contact:

Hunter Wells / John Mills
ICR
646-277-1246
Hunter.wells@icrinc.com / John.mills@icrinc.com