Xcel Brands
Aug 9, 2016

Xcel Brands Announces Second Quarter 2016 Financial Results

Company Reports Double-Digit Quarterly Revenue Growth of 44% to $9.1 Million

Second Quarter 2016 GAAP Net Loss of less than ($0.1) million;
Non-GAAP Net Income of $2.1 million, or Nearly Double from Second Quarter 2015

Second Quarter Adjusted EBITDA Growth of 44% to of $2.7 million

Company Announces Successful Launch of IMNYC Isaac Mizrahi, H Halston, and Highline Collective
Brands Apparel at Lord & Taylor and Hudson's Bay Department Stores

NEW YORK, Aug. 09, 2016 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (NASDAQ:XELB) ("Xcel" or the "Company"), a brand management and media company, today announced its financial results for the second quarter and six months ended June 30, 2016.

"We are pleased to report another quarter of double-digit top-line growth, and are also excited to announce that during the quarter we successfully launched the IMNYC Isaac Mizrahi, H Halston, and Highline Collective brands at Lord & Taylor and Hudson's Bay department stores," said Robert W. D'Loren, Xcel's Chairman and Chief Executive Officer. He further stated, "I am pleased with the historical and continued growth in our interactive television business. We are also focused on gaining market share in the bricks and mortar channel, and plan to continue to invest in our quick-time-response short lead time production platform to drive growth in this channel."

Second Quarter 2016
Total revenue for the second quarter of fiscal 2016 increased 44% to $9.1 million, compared with $6.3 million for the prior year quarter.

GAAP net loss was less than ($0.1) million for the quarter ended June 30, 2016, or ($0.00) per share, compared with net income of $2.1 million, or $0.13 per share on a diluted basis, in the prior year quarter. After adjusting for certain cash and non-cash items, non-GAAP net income for the quarter ended June 30, 2016 was $2.1 million, or $0.11 per diluted share, compared with $1.1 million, or $0.07 per diluted share in the prior year quarter.

Adjusted EBITDA for the quarter ended June 30, 2016 increased by $0.8 million or approximately 44% to $2.7 million, compared with $1.9 million for the quarter ended June 30, 2015.

First Six Months of Fiscal 2016
Total revenue for the six months ended June 30, 2016 increased 36% to $17.5 million, compared with $12.9 million in the same period in 2015.

GAAP net loss was ($0.1) million for the six months ended June 30, 2016, or ($0.01) per share, compared with net income of $1.8 million, or $0.11 per share on a diluted basis, for the six months ended June 30, 2015. After adjusting for certain cash and non-cash items, non-GAAP net income for the six months ended June 30, 2016 was $3.4 million, or $0.17 per diluted share, compared with $2.8 million, or $0.18 per diluted share, for the same period in the prior year.

Adjusted EBITDA for the six months ended June 30, 2016 increased to $4.7 million from $4.1 million for the same period 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 June 30, 2016 remains strong, with stockholders' equity of $102.3 million as of June 30, 2016, cash and cash equivalents of approximately $13.5 million, and adjusted working capital (which excludes obligations payable in stock) of approximately $16.5 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 Tuesday, August 9, 2016. 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 877-681-3378. A replay of the conference call will be available on the Company website for 30 days following the event and can be accessed at 877-870-5176 using replay pin number 3010924.

About Xcel Brands
Xcel Brands, Inc. (NASDAQ:XELB) is a brand management and media 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 an omnichannel 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 
Unaudited Condensed Consolidated Balance Sheets 
(in thousands, except share and per share data) 
      
   June 30, 2016   December 31, 2015  
   (Unaudited)    
Assets     
Current Assets:     
Cash and cash equivalents $13,471  $16,860  
Accounts receivable, net  10,077   7,594  
Prepaid expenses and other current assets    567     655  
Total current assets    24,115     25,109  
Property and equipment, net  2,369   871  
Trademarks and other intangibles, net  111,759   112,323  
Goodwill  12,371   12,371  
Restricted cash  1,509   1,109  
Other assets    282     343  
Total non-current assets    128,290     127,017  
Total Assets $   152,405   $   152,126   
      
Liabilities and Stockholders' Equity     
Current Liabilities:     
Accounts payable, accrued expenses and other current liabilities $3,822  $3,372  
Deferred revenue  39   597  
Current portion of long-term debt  8,058   8,918  
Current portion of long-term debt, contingent obligations    -      250  
Total current liabilities    11,919     13,137  
Long-Term Liabilities:     
Long-term debt, less current portion  29,843   31,860  
Deferred tax liabilities, net  6,490   6,749  
Other long-term liabilities    1,821     297  
Total long-term liabilities    38,154     38,906  
Total Liabilities    50,073     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 June 30, 2016 and    
December 31, 2015, and 18,670,686 and 18,434,634 issued and outstanding at    
June 30, 2016 and December 31, 2015, respectively  19   18  
Paid-in capital  96,382   93,999  
Retained earnings    5,931     6,066  
Total Stockholders' Equity    102,332     100,083  
      
Total Liabilities and Stockholders' Equity $   152,405   $   152,126  
      

 

            
Xcel Brands, Inc. and Subsidiaries 
Unaudited Condensed Consolidated Statements of Operations 
(in thousands, except share and per share data) 
            
            
  For the Three Months Ended June 30, For the Six Months Ended June 30, 
    2016      2015     2016      2015   
Revenues           
Net licensing revenue $9,092   $6,269  $17,437   $12,793  
Net e-commerce sales    24       52      71       119   
Total revenues  9,116    6,321   17,508    12,912  
Cost of goods sold    36       35      106       80   
Gross profit    9,080       6,286      17,402       12,832   
            
Operating expenses           
Salaries, benefits and employment taxes  4,217    3,073   8,427    6,176  
Other design and marketing costs  831    808   1,660    1,092  
Other selling, general and administrative expenses  1,988    535   3,294    1,521  
Stock-based compensation  1,453    1,108   2,665    2,121  
Depreciation and amortization    359       318      785       580   
Total operating expenses    8,848       5,842      16,831       11,490   
                    
Other expenses (income)                   
Gain on reduction of contingent obligation  -    (3,000)  -    (3,000) 
Loss on extinguishment of debt    -      760      -      1,371   
Total other income, net    -      (2,240)    -      (1,629) 
            
Operating income    232       2,684      571       2,971   
            
Interest and finance expense           
Interest expense - term debt  352    309   663    621  
Other interest and finance charges    178       124      302       323   
Total interest and finance expense    530       433      965       944   
                    
Income (loss) from continuing operations before income taxes  (298)   2,251   (394)   2,027  
            
Income tax (benefit) provision  (208)     90      (259)     (16) 
                    
Income (loss) from continuing operations  (90)   2,161   (135)   2,043  
            
Loss from discontinued operations, net    -      (54)    -      (267) 
            
Net income (loss) $  (90)  $  2,107   $  (135)  $  1,776   
            
Basic and diluted net (loss) income per share:           
Continuing operations $(0.00)  $0.15  $(0.01)  $0.14  
Discontinued operations, net    -      (0.01)    -        (0.02) 
Net (loss) income $  (0.00)  $  0.14   $  (0.01)  $  0.12   
            
Diluted net (loss) income per share:           
Continuing operations $(0.00)  $0.14  $(0.01)  $0.13  
Discontinued operations, net    -      (0.01)    -      (0.02) 
Net (loss) income $  (0.00)  $  0.13   $  (0.01)  $  0.11   
            
Basic weighted average common shares outstanding    18,671,648       14,850,874      18,565,198       14,462,305   
Diluted weighted average common shares outstanding    18,671,648       15,963,975      18,565,198       15,575,406   
            

 

Xcel Brands, Inc. and Subsidiaries 
Unaudited Condensed Consolidated Statements of Cash Flows 
(in thousands) 
       
  For the Six Months Ended June 30, 
    2016     2015  
       
Cash flows from operating activities      
Net (loss) income $(135)  $1,776  
Adjustments to reconcile net (loss) income to net cash      
provided by (used in) operating activities:      
Loss from discontinued operations, net  -    267  
Depreciation and amortization expense  785    580  
Amortization of deferred finance costs  94    77  
Stock-based compensation  2,665    2,121  
Recovery of allowance for doubtful accounts  -    (21) 
Amortization of note discount  158    246  
Deferred income tax benefit  (259)   (85) 
Tax benefit from vested stock grants and exercised options  -    (69) 
Non-cash property exit charge  648    -  
Gain on reduction of contingent obligation  -    (3,000) 
Loss on extinguishment of debt  -    1,371  
Changes in operating assets and liabilities:      
Accounts receivable  (2,484)   (2,903) 
Prepaid expenses and other assets  92    (204) 
Accounts payable, accrued expenses and other current liabilities  449    (1,010) 
Deferred revenue  (558)   (78) 
Other liabilities    875       (23) 
Net cash provided by (used in) operating activities from continuing operations  2,330    (955) 
Net cash provided by operating activities from discontinued operations, net    -      207   
Net cash provided by (used in) operating activities    2,330       (748) 
       
Cash flows from investing activities      
Cash consideration for asset acquisition of the H Halston Brand  -    (14) 
Advance deposit for asset acquisition of the C Wonder Brand  -    (300) 
Purchase of property and equipment  (1,718)   (47) 
Restricted cash for security deposits    (400)     (1,109) 
Net cash used in investing activities    (2,118)     (1,470) 
       
Cash flows from financing activities      
Proceeds from exercise of stock options  20    -  
Tax benefit from vested stock grants and exercised options  -    69  
Shares repurchased including vested restricted stock in exchange for      
withholding taxes  (302)   -  
Payment of deferred finance costs  (69)   (10) 
Costs associated with equity offering  -    (316) 
Payment of long-term debt  (3,000)   (1,256) 
Payment of QVC earnout obligation  (250)   -  
Payment of installment obligations related to the acquisition of the Ripka Brand    -      (2,183) 
Net cash used in financing activities    (3,601)     (3,696) 
       
Net decrease in cash and cash equivalents  (3,389)   (5,914) 
       
Cash and cash equivalents, beginning of period    16,860       8,531   
       
Cash and cash equivalents, end of period $  13,471    $  2,617   
       
Supplemental disclosure of non-cash activities:      
Issuance of common stock as payment for a portion of the Ripka Seller Notes $  -     $  5,401   
       
Supplemental disclosure of cash flow information:      
Cash paid during the period for income taxes $  118    $  437   
Cash paid during the period for interest $  560    $  610   
       

 

             
 Xcel Brands, Inc. and Subsidiaries 
 Reconciliation of Non-GAAP measures 
             
  Non-GAAP net income:          
    Quarter Ended June 30,  Six Months Ended June 30,  
  (amounts in thousands)  2016   2015   2016   2015   
             
  Net (loss) income $(90) $2,107  $(135) $1,776   
  Non-cash interest and finance expense  80   86   158   246   
  Stock-based compensation  1,453   1,108   2,665   2,121   
  Loss on extinguishment of debt  -   760   -   1,371   
  Gain on reduction of contingent obligations  -   (3,000)  -   (3,000)  
  Non-recurring property exit charges  670   -   670   -   
  Loss from discontinued operations, net  -   54   -   267   
  Non-GAAP net income $2,113  $1,115  $3,358  $2,781   
             
             
  Non-GAAP diluted EPS:          
    Quarter Ended June 30,  Six Months Ended June 30,  
     2016   2015   2016   2015   
             
  Diluted (loss) earnings per share $-  $0.13  $(0.01) $0.11   
  Non-cash interest and finance expense $-   (0.00) $0.01   0.01   
  Stock-based compensation $0.08   0.07  $0.14   0.14   
  Loss on extinguishment of debt $-   0.05  $-   0.09   
  Gain on reduction of contingent obligations $-   (0.19) $-   (0.19)  
  Non-recurring property exit charges $0.03   -  $0.03   -   
  Loss from discontinued operations, net $-   0.01  $-   0.02   
  Non-GAAP diluted EPS $0.11  $0.07  $0.17  $0.18   
             
             
  Weighted average shares - Non-GAAP diluted:          
    Quarter Ended June 30,  Six Months Ended June 30,  
     2016   2015   2016   2015   
             
  Basic weighted average shares  18,671,648   14,850,874   18,565,198   14,462,305   
  Effect of exercising warrants  673,995   971,873   663,270   971,873   
  Effect of exercising stock options    42,914      141,228      39,777      141,228    
  Weighted average shares - Non-GAAP diluted    19,388,557      15,963,975      19,268,245      15,575,406    
             
             
             
  Adjusted EBITDA:          
    Quarter Ended June 30,  Six Months Ended June 30,  
  (amounts in thousands)  2016   2015   2016   2015   
             
  Net (loss) income $(90) $2,107  $(135) $1,776   
  Depreciation and amortization  359   318   785   580   
  Interest and finance expense  530   433   965   944   
  Income tax (benefit) expense  (208)  90   (259)  (16)  
  State and local franchise taxes  24   27   49   56   
  Stock-based compensation  1,453   1,108   2,665   2,121   
  Loss on extinguishment of debt  -   760   -   1,371   
  Gain on reduction of contingent obligations  -   (3,000)  -   (3,000)  
  Non-recurring property exit charges  670   -   670   -   
  Loss from discontinued operations, net  -   54   -   267   
  Adjusted EBITDA $2,738  $1,897  $4,740  $4,099   
             

Non-GAAP net income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income as net income (loss), 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 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 (loss) before stock-based compensation, interest expense and other financing costs (including gain (loss) on extinguishment of debt), income taxes, other state and local franchise taxes, depreciation and amortization, gain on the reduction of contingent obligations, non-recurring facility exit charges, and net 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 (loss), 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 (loss) 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