Xcel Brands
Nov 10, 2016

Xcel Brands Announces Third Quarter 2016 Financial Results

Company Reports Double-Digit Quarterly Revenue Growth of 14% to $8.3 million;
Year-to-Date Revenue Growth of 28% to $25.8 million

Third Quarter 2016 GAAP Net Income of $0.1 million; Non-GAAP Net Income of $1.3 million 
Year-to-Date 2016 GAAP Net Loss of ($0.02) million; Non-GAAP Net Income of $4.6 million

Third Quarter Adjusted EBITDA Growth of 5% to $2.3 million;
Year-to-Date Adjusted EBITDA Growth of 12% to $7.1 million

NEW YORK, Nov. 10, 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 third quarter and nine months ended September 30, 2016.

"We are pleased to report double-digit top-line growth for the quarter and year-to-date," said Robert W. D'Loren, Xcel's Chairman and Chief Executive Officer. "Despite lower than expected growth in the interactive television channel during the quarter, we believe that the strength of our brands and our unique business model, including our design, marketing, and Quick Time Response (QTR) production platforms, will continue to drive growth despite a challenging retail environment. To that end, we are excited by the early results of our Quick Time Response design and production platform and our partnership with Hudson's Bay Company, and we expect to announce new retail partnerships in the QTR department store business for Spring 2017."

Third Quarter 2016
Total revenue for the third quarter of fiscal 2016 increased 14% to $8.3 million, compared with $7.3 million for the prior year quarter.

GAAP net income was $0.12 million for the quarter ended September 30, 2016, or $0.01 per share, compared with net income of $0.03 million, or $0.00 per share, in the prior year quarter. After adjusting for certain cash and non-cash items, non-GAAP net income for the quarter ended September 30, 2016 was $1.3 million, or $0.07 per diluted share, compared with $1.4 million, or $0.08 per diluted share, in the prior year quarter.

Adjusted EBITDA for the quarter ended September 30, 2016 increased by 5% to $2.3 million, compared with $2.2 million for the quarter ended September 30, 2015.

The net income, non-GAAP net income and Adjusted EBITDA results for the quarter reflect the Company's judicious management of its operating expenses, while continuing to invest in the future.

First Nine Months of Fiscal 2016
Total revenue for the nine months ended September 30, 2016 increased 28% to $25.8 million, compared with $20.2 million in the same period in 2015.

GAAP net loss was ($0.02) million for the nine months ended September 30, 2016, or ($0.00) per share, compared with net income of $1.8 million, or $0.11 per diluted share, for the nine months ended September 30, 2015. After adjusting for certain cash and non-cash items, non-GAAP net income for the nine months ended September 30, 2016 increased 11% to $4.6 million, or $0.24 per diluted share, compared with $4.2 million, or $0.26 per diluted share, for the same period in the prior year.

Adjusted EBITDA for the nine months ended September 30, 2016 increased by $0.8 million or approximately 12% to $7.1 million, compared with $6.3 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 September 30, 2016 remains strong, with stockholders' equity of $102.6 million, cash and cash equivalents of approximately $15.2 million, and working capital of approximately $14.4 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 Thursday, November 10, 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 877-440-5803. 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 3962922.

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 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 
Unaudited Condensed Consolidated Balance Sheets 
(in thousands, except share and per share data) 
      
   September 30, 2016   December 31, 2015  
   (Unaudited)    
Assets     
Current Assets:     
  Cash and cash equivalents $  15,158  $  16,860  
  Accounts receivable, net    8,804     7,594  
  Prepaid expenses and other current assets    455     655  
    Total current assets    24,417     25,109  
  Property and equipment, net    2,456     871  
  Trademarks and other intangibles, net    111,502     112,323  
  Goodwill    12,371     12,371  
  Restricted cash    1,509     1,109  
  Other assets    282     343  
    Total non-current assets    128,120     127,017  
Total Assets $   152,537   $   152,126   
      
Liabilities and Stockholders' Equity     
Current Liabilities:     
  Accounts payable, accrued expenses and other current liabilities $  4,678  $  3,372  
  Deferred revenue    12     597  
  Current portion of long-term debt    5,302     8,918  
  Current portion of long-term debt, contingent obligations    -      250  
    Total current liabilities    9,992     13,137  
Long-Term Liabilities:     
  Long-term debt, less current portion    31,094     31,860  
  Deferred tax liabilities, net    6,746     6,749  
  Other long-term liabilities    2,074     297  
    Total long-term liabilities    39,914     38,906  
Total Liabilities    49,906     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 September 30, 2016 and    
  December 31, 2015, and 18,680,560 and 18,434,634 issued and outstanding at    
  September 30, 2016 and December 31, 2015, respectively    19     18  
  Paid-in capital    96,563     93,999  
  Retained earnings     6,049     6,066  
    Total Stockholders' Equity    102,631     100,083  
      
Total Liabilities and Stockholders' Equity $   152,537   $   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
September 30,
 For the Nine Months Ended
September 30,
 
    2016      2015     2016      2015   
Revenues           
  Net licensing revenue $  8,311   $  7,289  $  25,748   $  20,082  
  Net e-commerce sales    20      47     91      166  
    Total revenues    8,331      7,336     25,839      20,248  
  Cost of goods sold    41      51     147      131  
    Gross profit    8,290      7,285     25,692      20,117  
            
Operating expenses           
  Salaries, benefits and employment taxes    4,054      3,463     12,481      9,639  
  Other design and marketing costs     779      669     2,439      1,761  
  Other selling, general and administrative expenses    1,145      961     4,439      2,482  
  Stock-based compensation    1,089      1,292     3,754      3,413  
  Depreciation and amortization    387      373     1,172      953  
    Total operating expenses    7,454      6,758     24,285      18,248  
            
Other expenses (income)           
  Gain on reduction of contingent obligation    -       -      -       (3,000) 
  Loss on extinguishment of debt    -       -      -       1,371  
    Total other income, net    -       -      -       (1,629) 
            
Operating income     836      527     1,407      3,498  
            
Interest and finance expense           
  Interest expense - term debt    340      304     1,003      925  
  Other interest and finance charges    122      128     424      451  
    Total interest and finance expense    462      432     1,427      1,376  
            
Income (loss) from continuing operations before income taxes    374      95     (20)     2,122  
            
Income tax provision (benefit)    256      51     (3)     35  
            
Income (loss) from continuing operations    118      44     (17)     2,087  
            
Loss from discontinued operations, net    -       (14)    -       (281) 
            
Net income (loss) $  118   $  30  $  (17)  $  1,806  
            
Basic and diluted net income (loss) per share:           
Continuing operations $  0.01   $  0.00  $  (0.00)  $  0.14  
Discontinued operations, net    -       (0.00)    -       (0.02) 
Net income (loss) $  0.01   $  0.00  $  (0.00)  $  0.12  
            
Diluted net income (loss) per share:           
Continuing operations $  0.01   $  0.00  $  (0.00)  $  0.13  
Discontinued operations, net    -       (0.00)    -       (0.02) 
Net income (loss) $  0.01   $  0.00  $  (0.00)  $  0.11  
            
Basic weighted average common shares outstanding    18,692,775      17,187,272     18,608,034      15,380,609  
Diluted weighted average common shares outstanding    19,068,011      18,278,182     18,608,034      16,471,519  
            

 

Xcel Brands, Inc. and Subsidiaries 
Unaudited Condensed Consolidated Statements of Cash Flows 
(in thousands) 
       
  For the Nine Months Ended September 30, 
    2016     2015  
       
Cash flows from operating activities      
  Net (loss) income $  (17)  $  1,806  
  Adjustments to reconcile net (loss) income to net cash       
  provided by operating activities:      
    Loss from discontinued operations, net    -       281  
    Depreciation and amortization expense    1,172      953  
    Amortization of deferred finance costs    140      116  
    Stock-based compensation    3,754      3,413  
    Recovery of allowance for doubtful accounts    -       (21) 
    Amortization of note discount     236      333  
    Deferred income tax benefit    (3)     (5) 
    Tax benefit from vested stock grants and exercised options     -       (83) 
    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    (1,210)     (3,829) 
    Prepaid expenses and other assets    199      (141) 
    Accounts payable, accrued expenses and other current liabilities    1,306      (1,040) 
    Deferred revenue    (585)     415  
    Other liabilities    1,129      718  
Net cash provided by operating activities from continuing operations    6,769      1,287  
       
Net cash provided by operating activities from discontinued operations, net    -       104  
Net cash provided by operating activities    6,769      1,391  
       
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     -       (3,586) 
    Cost to acquire additional intangible assets    (26)     -   
    Purchase of property and equipment    (1,911)     (94) 
    Restricted cash for security deposits    (400)     (1,112) 
Net cash used in investing activities    (2,337)     (4,806) 
       
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    -       83  
    Shares repurchased including vested restricted stock in exchange for       
    withholding taxes     (1,210)     (711) 
    Payment of deferred finance costs    (69)     (10) 
    Payment of long-term debt     (4,625)     (2,256) 
    Payment of QVC Earn-Out obligation    (250)     -   
    Payment of installment obligations related to the acquisition of the Ripka Brand    -       (2,190) 
Net cash (used in) provided by financing activities    (6,134)     11,088  
       
Net (decrease) increase in cash and cash equivalents    (1,702)     7,673  
       
Cash and cash equivalents, beginning of period    16,860      8,531  
       
Cash and cash equivalents, end of period $  15,158   $  16,204  
       
Supplemental disclosure of non-cash activities:      
  Issuance of common stock in connection with C Wonder Brand acquisition  $  -    $  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  
       
Supplemental disclosure of cash flow information:      
  Cash paid during the period for income taxes $  168   $  447  
  Cash paid during the period for interest $  909   $  855  
       

 

             
 Xcel Brands, Inc. and Subsidiaries 
 Reconciliation of Non-GAAP measures 
             
             
  Non-GAAP net income:          
    Three Months Ended
September 30, 
 Nine Months Ended
September 30,
  
  (amounts in thousands)  2016   2015   2016   2015   
             
  Net income (loss) $  118  $  30  $  (17) $  1,806   
  Non-cash interest and finance expense    78     84     236     330   
  Stock-based compensation    1,089     1,292     3,754     3,413   
  Loss on extinguishment of debt    -     -     -     1,371   
  Gain on reduction of contingent obligations    -     -     -     (3,000)  
  Non-recurring property exit charges    -     -     670     -   
  Loss from discontinued operations, net    -     14     -     281   
  Non-GAAP net income $  1,285  $  1,420  $  4,643  $  4,201   
             
             
  Non-GAAP diluted EPS:          
    Three Months Ended
September 30, 
 Nine Months Ended
September 30,
  
     2016   2015   2016   2015   
             
  Diluted earnings (loss) per share $  0.01     -   $  -   $  0.11   
  Non-cash interest and finance expense  $  -      0.01  $  0.01     0.02   
  Stock-based compensation $  0.06     0.07  $  0.20     0.21   
  Loss on extinguishment of debt $  -      -   $  -      0.08   
  Gain on reduction of contingent obligations $  -      -   $  -      (0.18)  
  Non-recurring property exit charges $  -      -   $  0.03     -    
  Loss from discontinued operations, net $  -      -   $  -      0.02   
  Non-GAAP diluted EPS $  0.07  $  0.08  $  0.24  $  0.26   
             
             
  Weighted average shares - Non-GAAP diluted:          
    Three Months Ended
September 30, 
 Nine Months Ended
September 30,
  
     2016   2015   2016   2015   
             
  Basic weighted average shares    18,692,775     17,187,272     18,608,034     15,380,609   
  Effect of exercising warrants    369,288     962,292     435,298     962,292   
  Effect of exercising stock options    5,948     128,618     28,000     128,618   
  Weighted average shares - Non-GAAP diluted    19,068,011     18,278,182     19,071,332     16,471,519   
             
             
  Adjusted EBITDA:          
    Three Months Ended
September 30, 
 Nine Months Ended
September 30,
  
  (amounts in thousands)  2016   2015   2016   2015   
             
  Net income (loss) $  118  $  30  $  (17) $  1,806   
  Depreciation and amortization    387     373     1,172     953   
  Interest and finance expense    462     432     1,427     1,376   
  Income tax (benefit) expense    256     51     (3)    35   
  State and local franchise taxes    26     27     75     83   
  Stock-based compensation    1,089     1,292     3,754     3,413   
  Loss on extinguishment of debt    -     -     -     1,371   
  Gain on reduction of contingent obligations    -     -     -     (3,000)  
  Non-recurring property exit charges    -     -     670     -   
  Loss from discontinued operations, net    -     14     -     281   
  Adjusted EBITDA $  2,338  $  2,219  $  7,078  $  6,318   
             
             

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 (if any), loss on extinguishment of debt (if any), 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.

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