Xcel Brands, Inc. Announces First Quarter 2018 Financial Results

Company Reports First Quarter Total Revenues of $8.8 Million; +4% from Prior Year Quarter

 GAAP Net Income of $0.5 Million, +225% from Prior Year Quarter

Adjusted EBITDA of $2.2 Million, +11% from Prior Year Quarter

NEW YORK, May 14, 2018 (GLOBE NEWSWIRE) — Xcel Brands, Inc. (NASDAQ:XELB) (“Xcel” or the “Company”), a consumer products company, today announced its financial results for the first quarter ended March 31, 2018.

Robert W. D’Loren, Chairman and Chief Executive Officer of Xcel commented, “I am delighted by our positive first quarter results. We are beginning to see positive momentum building in our business across all channels of distribution.”

First Quarter 2018 Financial Results

Total revenue for the first quarter of 2018 was $8.8 million, an increase of $0.4 million or 4% over the prior year quarter.  The improvement in first quarter revenues resulted from commencement of the wholesale and e-commerce jewelry business and a 45% increase in revenues from the company’s apparel and accessories department store business. 

GAAP net income was approximately $0.5 million for the quarter ended March 31, 2018, or $0.03 per basic and diluted share, an increase of $0.9 million or $0.05 per basic and diluted share from the prior year quarter, representing an increase of more than 225% in GAAP net income and EPS from the prior year quarter.  Non-GAAP net income for the quarter ended March 31, 2018, was approximately $1.4 million, or $0.08 per diluted share, compared with $1.1 million, or $0.06 per diluted share in the prior year quarter, representing an increase of 26% and 36%, respectively, from the prior year quarter.

Adjusted EBITDA for the quarter ended March 31, 2018 was approximately $2.2 million, an increase of $0.3 million or 11% from the prior year quarter. 

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 March 31, 2018, remained strong, with stockholders’ equity of approximately $98.9 million, cash and cash equivalents of $8.9 million, and working capital of approximately $9.5 million. During the current quarter, the Company reduced its term debt by $1.7 million to $20.2 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 5:30 p.m. Eastern Time on Monday, May 14, 2018. 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 866-548-4713. 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 1121633.

About Xcel Brands
Xcel Brands, Inc. (NASDAQ:XELB) is a consumer products 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 interactive television, internet, bricks 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, 2017 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.

For further information please contact:

Andrew Berger
SM Berger & Company, Inc.
216-464-6400
andrew@smberger.com

Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
           
  March 31, 2018   December 31, 2017
  (Unaudited)    
Assets          
Current Assets:          
Cash and cash equivalents $ 8,896     $ 10,185  
Accounts receivable, net   9,328       8,528  
Prepaid expenses and other current assets   658       592  
Total current assets   18,882       19,305  
Property and equipment, net   3,290       2,376  
Trademarks and other intangibles, net   109,837       110,120  
Restricted cash   1,509       1,509  
Other assets   1,696       1,708  
Total non-current assets   116,332       115,713  
           
Total Assets $ 135,214     $ 135,018  
           
Liabilities and Stockholders’ Equity          
Current Liabilities:          
Accounts payable, accrued expenses and other current liabilities $ 1,553     $ 1,260  
Accrued payroll   2,253       2,270  
Deferred revenue   24       16  
Current portion of long-term debt   5,475       5,459  
Current portion of long-term debt, contingent obligations   100       100  
Total current liabilities   9,405       9,105  
Long-Term Liabilities:          
Long-term debt, less current portion   17,696       19,389  
Deferred tax liabilities, net   6,801       6,375  
Other long-term liabilities   2,420       2,455  
Total long-term liabilities   26,917       28,219  
Total Liabilities   36,322       37,324  
           
Commitments and Contingencies          
           
Stockholders’ Equity:          
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding          
Common stock, $.001 par value, 50,000,000 shares authorized at March 31, 2018 and December 31, 2017, respectively, and 18,367,149 and 18,318,961 issued and outstanding at March 31, 2018 and December 31, 2017, respectively   18       18  
Paid-in capital   99,695       98,997  
Accumulated deficit   (821 )     (1,321 )
Total Stockholders’ Equity   98,892       97,694  
           
Total Liabilities and Stockholders’ Equity $ 135,214     $ 135,018  
           

 

Xcel Brands, Inc. and Subsidiaries  
Unaudited Condensed Consolidated Statements of Operations  
(in thousands, except share and per share data)  
               
    For the Three Months    
  Ended March 31,  
  2018     2017      
               
Net licensing revenue $ 8,481     $ 8,430      
Sales   285         –       
Total revenue   8,766       8,430      
Cost of goods sold (sales)   180         –       
  Net revenue   8,586       8,430      
               
Operating costs and expenses              
Salaries, benefits and employment taxes   4,425       4,367      
Other design and marketing costs   738       871      
Other selling, general and administrative expenses   1,293       1,280      
Stock-based compensation   507       1,083      
Depreciation and amortization   411         394      
Total operating costs and expenses   7,374       7,995      
               
Operating income   1,212       435      
               
Interest and finance expense              
Interest expense – term debt     248       328      
Other interest and finance charges   38       50      
Total interest and finance expense   286       378      
               
Income before income taxes     926         57      
               
Income tax provision   426         456      
               
Net income (loss) $   500     $   (399 )    
               
Basic net income (loss) per share   0.03       (0.02 )    
               
Diluted net income (loss) per share   0.03       (0.02 )    
               
Basic weighted average common shares outstanding   18,333,912       18,674,943      
Diluted weighted average common shares outstanding   18,716,802       18,674,973      
               

 

Xcel Brands, Inc. and Subsidiaries    
Unaudited Condensed Consolidated Statements of Cash Flows    
(in thousands)    
  For the Three Months Ended March 31,    
  2018     2017      
           
Cash flows from operating activities              
Net income (loss) $   500     $   (399 )    
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:              
Depreciation and amortization expense     411         394      
Amortization of deferred finance costs     44         50      
Stock-based compensation     507         1,083      
Amortization of note discount     10         9      
Deferred income tax provision     426         456      
Changes in operating assets and liabilities:              
Accounts receivable     (800 )       (1,737 )    
Prepaid expenses and other assets     (59 )       (83 )    
Accounts payable, accrued expenses and other current liabilities     557         (647 )    
Deferred revenue     8         (159 )    
Other liabilities     (35 )       21      
Net cash provided by (used) in operating activities     1,569         (1,012 )    
               
Cash flows from investing activities              
Cost to acquire intangible assets     –          (18 )    
Purchase of property and equipment     (1,043 )       (135 )    
Net cash used in investing activities     (1,043 )       (153 )    
               
Cash flows from financing activities              
Shares repurchased including vested restricted stock in exchange for withholding taxes     (90 )       (795 )    
Payment of deferred finance costs     –          (7 )    
Payment of long-term debt     (1,725 )       (1,959 )    
Net cash used in financing activities     (1,815 )       (2,761 )    
               
Net decrease in cash, cash equivalents and restricted cash     (1,289 )       (3,926 )    
               
Cash, cash equivalents, and restricted cash at beginning of period     11,694         15,636      
               
Cash, cash equivalents, and restricted cash at end of period $   10,405      $    11,710      
               
Reconciliation to amounts on consolidated balance sheets:              
Cash and cash equivalents $   8,896      $    10,201      
Restricted cash     1,509         1,509      
Total cash, cash equivalents, and restricted cash $   10,405      $    11,710      
               
Supplemental disclosure of cash flow information:              
 Cash paid during the period for income taxes $   8      $    110      
 Cash paid during the period for interest $   276      $    370      
               

 

 

               
  Xcel Brands, Inc. and Subsidiaries
  Reconciliation of Non-GAAP measures
  (Unaudited)
               
    Non-GAAP net income:          
        Quarter Ended
March 31,
 
    (amounts in thousands)     2018     2017    
               
    Net income (loss)   $ 500   $ (399 )  
    Non-cash interest and finance expense     10     9    
    Stock-based compensation     507     1,083    
    Deferred income tax provision     426     456    
    Non-GAAP net income   $ 1,443   $ 1,149    
               
    Non-GAAP diluted EPS:          
        Quarter Ended
March 31,
 
          2018     2017    
               
    Diluted earnings (loss) per share   $ 0.03   $ (0.02 )  
    Non-cash interest and finance expense     0.00     0.00    
    Stock-based compensation     0.03     0.06    
    Deferred income tax provision     0.02     0.02    
    Non-GAAP diluted EPS   $ 0.08   $ 0.06    
               
    Weighted average shares – Non-GAAP diluted:          
        Quarter Ended
March 31,
 
          2018     2017    
               
    Basic weighted average shares     18,333,912     18,674,943    
    Effect of exercising warrants     364,130     364,430    
    Effect of exercising stock options     18,760     2,645    
    Non-GAAP weighted average diluted shares     18,716,802     19,042,018    
               
    Adjusted EBITDA:          
        Quarter Ended
March 31,
 
    (amounts in thousands)     2018     2017    
               
    Net income (loss)   $ 500   $ (399 )  
    Depreciation and amortization     411     394    
    Interest and finance expense     286     378    
    Income tax provision     426     456    
    State and local franchise taxes     33     29    
    Stock-based compensation     507     1,083    
    Adjusted EBITDA   $ 2,163   $ 1,941    
               

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, and deferred tax provision. 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 finance expense, income taxes, other state and local franchise taxes, and depreciation and amortization.

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.

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