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Xcel Brands, Inc. Announces First Quarter 2023 Results image

Xcel Brands, Inc. Announces First Quarter 2023 Results

  • Company announces completion of its strategic transformation plan to shift its business model from a wholesale/production model to a modern, asset-light and highly profitable media and consumer products business model, resulting in approximately $13 million in annual cost savings.
  • Company announces major new Halston licensing agreement, which will provide upfront cash payment in the second quarter 2023, and future guaranteed minimum royalties and significant minimum net sale requirements.
  • Revenues for the quarter ended March 31, 2023, were $6.1 million, up from $4.1 million in the immediately-preceding quarter ended December 31, 2022.

New York, NY — Xcel Brands announced its financial results for the first quarter ended March 31, 2023. The Company also provided updates on its strategic transformation efforts to date.

Robert W. D’Loren, Chairman and Chief Executive Officer of Xcel commented, “During the first quarter of 2023 and subsequent months, we have made significant progress toward our efforts to transform the Company into a modern, working capital asset-light, and highly profitable media and consumer products business. In addition to the new licensing agreements that were announced in April, we recently signed a new master licensing agreement for the Halston Brand, which provides us with both immediate additional liquidity today and a tremendous opportunity to grow the brand in the future. At the same time, we have already started to realize benefits from cost savings, and expect those to be fully realized by the third quarter of this year, resulting in total savings of $13 million on an annualized basis. Based on our progress to date, we expect to achieve positive monthly EBITDA by the end of 2023 and beyond.”

Strategic Transformation

In the first quarter of 2023, Xcel began to restructure its business operations by entering into new licensing agreements with best-in-class business partners. The Company entered into a new interactive television licensing agreement with America’s Collectibles Network, Inc. d/b/a JTV (“JTV”) for the Ripka Brand, and a separate license with JTV for the Ripka Brand’s e-commerce business.

In conjunction with the successful launch of the C Wonder Brand on HSN in March, Xcel licensed the wholesale production operations related to the brand to One Jeanswear Group, LLC (“OJG”). This new license with OJG also includes other new celebrity brands that Xcel plans to launch in 2023 and beyond, for distribution through interactive television and Xcel’s livestreaming and social commerce platforms. OJG currently produces all apparel for Xcel’s LOGO by Lori Goldstein Brand.

For its Halston Brand, Xcel entered into a new master licensing agreement, which resulted in an up-front advance payment in May 2023. This agreement has a term of twenty five years (consisting of an initial 5-year period, followed by a twenty year period), contains minimum net sales requirements that increase throughout the term, and provides for future guaranteed minimum royalties.

The Company expects the transition of its operating businesses to be completed by the end of the second quarter of 2023.

First Quarter 2023 Financial Results

Total revenue was $6.1 million, a decrease of $2.7 million or 31% compared with the prior year quarter, primarily driven by lower licensing revenue as a result of the sale of the Isaac Mizrahi brand in the second quarter of 2022, partially offset by higher product revenues as the result of the sale of our C Wonder apparel inventory to HSN as part of the restructuring and transformation of our business operating model.

Net loss attributable to Xcel Brands was approximately $5.6 million, or $(0.29) per basic and diluted share, compared with a net loss of $3.5 million, or $(0.18) per basic and diluted share, for the prior year quarter. After adjusting for certain cash and non-cash items, results on a non-GAAP basis were a net loss of approximately $3.6 million, or $(0.18) per share for the quarter ended March 31, 2023, and a net loss of approximately $1.9 million, or $(0.10) per share, for the quarter ended March 31, 2023. Adjusted EBITDA was negative $3.2 million for the current quarter and negative $0.9 million for the prior year quarter.

Balance Sheet

The Company’s balance sheet at March 31, 2023 reflected stockholders’ equity of approximately $64 million, cash and working capital of approximately $5 million, exclusive of the current portion of lease obligations.

 

 

For the Three Months Ended
March 31,
2023 2022
Revenues
Net licensing revenue $ 2,222 $ 5,961
Net sales 3,828 2,786
   Net revenue 6,050 8,747
Cost of goods sold 2,693 1,680
     Gross profit 3,357 7,067
Operating costs and expenses
Salaries, benefits and employment taxes 3,465 4,861
Other selling, general and administrative expenses 3,493 3,416
Total operating costs and expenses 6,958 8,277
Operating loss before other expenses, including non-cash expenses (3,601 ) (1,210 )
Other expense, including non-cash expenses
Depreciation and amortization 1,797 1,820
Loss from equity method investment 515
Other expense, including non-cash expenses 2,312 1,820
Operating loss (5,913 ) (3,030 )
Interest and finance expense
Interest expense – term loan debt 708
Other interest and finance charges (income), net 25 1
Total interest and finance expense 25 709
Loss before income taxes (5,938 ) (3,739 )
Income tax benefit
Net loss (5,938 ) (3,739 )
Less: Net loss attributable to noncontrolling interest (295 ) (252 )
Net loss attributable to Xcel Brands, Inc. stockholders $ (5,643 ) $ (3,487 )
Loss per share attributed to Xcel Brands, Inc. common stockholders:
Basic and diluted net loss per share $ (0.29 ) $ (0.18 )
Weighted average number of common shares outstanding:
Basic and diluted weighted average common shares outstanding 19,633,194 19,571,119
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, 2023 December 31, 2022
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,612 $ 4,608
Accounts receivable, net 5,969 5,110
Inventory 3,099 2,845
Prepaid expenses and other current assets 1,032 1,457
Total current assets 11,712 14,020
Non-Current Assets:
Property and equipment, net 1,237 1,418
Operating lease right-of-use assets 5,185 5,420
Trademarks and other intangibles, net 46,130 47,665
Equity method investment 18,680 19,195
Deferred tax assets, net 1,107 1,107
Other assets 110 110
Total non-current assets 72,449 74,915
Total Assets $ 84,161 $ 88,935
Liabilities and Equity
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities $ 5,549 $ 3,958
Accrued income taxes payable 555 568
Accrued payroll 477 416
Current portion of operating lease obligations 1,395 1,376
Current portion of contingent obligations 243
Total current liabilities 7,976 6,561
Long-Term Liabilities:
Long-term portion of operating lease obligations 5,531 5,839
Contingent obligations 6,396 6,396
Total long-term liabilities 11,927 12,235
Total Liabilities 19,903 18,796
Commitments and Contingencies
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, and 19,571,119 shares issued and outstanding at March 31, 2022 and December 31, 2021. 20 20
Paid-in capital 103,649 103,592
Accumulated deficit (38,440 ) (32,797 )
  Total Xcel Brands, Inc. stockholders’ equity 65,229 70,815
Noncontrolling interest (971 ) (676 )
Total Equity 64,258 70,139
Total Liabilities and Equity $ 84,161 $ 88,935
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
For the Three Months Ended
March 31,
2023 2022
Cash flows from operating activities
Net loss $ (5,938 ) $ (3,739 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense 1,797 1,820
Amortization of deferred finance costs 91
Stock-based compensation 57 32
Proportional share of trademark amortization of equity method investee 515
Deferred income tax benefit
Changes in operating assets and liabilities:
Accounts receivable (859 ) (1,036 )
Inventory (254 ) (566 )
Prepaid expenses and other assets 425 15
Accounts payable, accrued expenses and other current liabilities 1,396 2,620
Cash paid in excess of rent expense (54 ) (128 )
Net cash used in by operating activities (2,915 ) (891 )
Cash flows from investing activities
Purchase of property and equipment (81 ) (35 )
Net cash used in investing activities (81 ) (35 )
Cash flows from financing activities
Proceeds from long-term debt (625 )
Net cash used in financing activities (625 )
Net decrease in cash, cash equivalents, and restricted cash (2,996 ) (1,551 )
Cash, cash equivalents, and restricted cash at beginning of period 4,608 5,222
Cash, cash equivalents, and restricted cash at end of period $ 1,612 $ 3,671
Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents $ 1,612 $ 3,063
Restricted cash 608
Total cash, cash equivalents, and restricted cash $ 1,612 $ 3,671
Supplemental disclosure of cash flow information:
  Cash paid during the period for interest $ $ 623
  Cash paid during the period for income taxes $ 16 $

Non-GAAP net (loss) income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income as net (loss) income attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, our proportional share of trademark amortization of equity method investees, stock-based compensation, loss on extinguishment of debt, gain on sales of assets, gain on reduction of contingent obligations, costs (recoveries) in connection with potential acquisitions, certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers due to the COVID-19 pandemic, asset impairments, and income taxes. 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 (loss) income attributable to Xcel Brands, Inc. stockholders before depreciation and amortization, our proportional share of trademark amortization of equity method investees, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation, gains on reduction of contingent obligations, gains on sale of assets, costs (recoveries) in connection with potential acquisitions, asset impairments, and certain adjustments to the provision for doubtful accounts related to the bankruptcy of and economic impact on certain retail customers due to the COVID-19 pandemic.

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 these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus, these non-GAAP measures 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 these measures in a different manner than we do.

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.

($ in thousands) Three Months Ended
March 31, March 31,
2023 2022
(Unaudited) (Unaudited)
Net loss attributable to Xcel Brands, Inc. stockholders $ (5,643 ) $ (3,487 )
Amortization of trademarks 1,520 1,514
Proportional share of trademark amortization of equity method investee 515
Stock-based compensation 57 32
Deferred income tax benefit
Non-GAAP net loss $ (3,551 ) $ (1,941 )
Three Months Ended
March 31, March 31,
2023 2022
(Unaudited) (Unaudited)
Diluted loss per share $ (0.29 ) $ (0.18 )
Amortization of trademarks 0.08 0.08
Proportional share of trademark amortization of equity method investee 0.03
Stock-based compensation 0.00
Certain adjustments to provision for doubtful accounts
Deferred income tax benefit
Non-GAAP diluted EPS $ (0.18 ) $ (0.10 )
Non-GAAP weighted average diluted shares 19,633,194 19,571,119
($ in thousands) Three Months Ended
March 31, March 31,
2023 2022
(Unaudited) (Unaudited)
Net loss attributable to Xcel Brands, Inc. stockholders $ (5,643 ) $ (3,487 )
Depreciation and amortization 1,797 1,820
Proportional share of trademark amortization of equity method investee 515
Interest and finance expense 25 709
State and local franchise taxes 21 36
Stock-based compensation 57 32
Adjusted EBITDA $ (3,228 ) $ (890 )

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