1330 Avenue of the Americas
New York, NY 10019
Contact:
Leigh Parrish/Stephanie Rich
FD
(212)850-5600
NexCen Brands Reports First Quarter 2010 Results
Operating Income of $1.7 Million
Cash Generated from Operations of $1.2 Million
Loss from Continuing Operations of ($0.01) Per Diluted Share
NEW YORK – May 17, 2010 – NexCen Brands, Inc. (PINK SHEETS: NEXC.PK) today reported unaudited financial results for the first quarter of 2010.
Kenneth J. Hall, Chief Executive Officer of NexCen Brands, stated, “While our revenues reflect continued weakness in the macro environment, we continued to generate positive cash flow from operations. Additionally, the cost reduction efforts that we implemented in 2009 resulted in our operating income being relatively flat as compared to the prior year. With that said, exploring alternatives to our capital and debt structure remained our priority throughout the quarter and we are pleased to have recently signed an agreement to sell our franchising business. The agreement allows us to address our current debt and capital structure in a manner we believe is most favorable for all of our stakeholders.”
First Quarter 2010 Operating Results and Financial Highlights
The operating results and financial highlights for the first quarter ended March 31, 2010 are as follows:
| · | Total revenues in the first quarter of 2010 decreased 16% to $10.0 million from $12.0 million in the first quarter of 2009. The decrease is primarily due to current economic conditions, including continued weak credit markets for franchisees and softness in consumer spending and retail traffic. |
| · | Total operating expenses in the first quarter of 2010 decreased 18.6% to $8.3 million from $10.2 million in the first quarter of 2009. Total operating expenses in the first quarter of 2010 included $0.1 million in strategic initiative expenses associated with identifying and evaluating alternatives to the Company’s debt and capital structure. Operating income in the first quarter of 2010 of $1.7 million as compared to $1.8 million in the first quarter of 2009 was essentially flat. Net loss in the first quarter of 2010 was $0.7 million, or ($0.01) per diluted share compared to a loss of $0.9 million or ($0.02) per diluted share in the first quarter of 2009. |
| · | Cash generated from operations was $1.2 million in the first quarter of 2010 compared to $0.4 million in the first quarter of 2009. |
| · | The Company had cash and cash equivalents of $7.7 million as of March 31, 2010, compared to cash and cash equivalents of $7.8 million as of December 31, 2009. |
| · | The Company’s outstanding debt balance was $136.5 million at March 31, 2010, compared to $138.2 million at December 31, 2009. |
| · | The Company’s average effective interest rate for its credit facility was 6.4% in the first quarter of 2010, compared to 6.4% in the fourth quarter of 2009, and 6.8% in first quarter of 2009. The Company’s interest expense was $2.6 million in the first quarter of 2010, compared to $2.6 million in the fourth quarter of 2009, and $2.8 million in first quarter of 2009. |
| · | Total franchised locations were 1,706 stores at March 31, 2010 versus 1,772 stores at March 31, 2009. The net decrease of 66 stores, or 3.7%, reflects closures, initiated either by the franchisee or the Company, of underperforming and non-compliant stores. Total franchised locations were 1,713 at December 31, 2009. |
| · | The Company executed franchise agreements for 56 new franchise units during the first quarter of 2010, versus franchise agreements for 71 new franchise units in the fourth quarter of 2009. |
| · | Deferred revenue related to the pipeline for franchise stores to be opened pursuant to executed letters of intent and franchise agreements was $2.4 million at March 31, 2010 as compared to $2.8 million at December 31, 2009. Total deferred revenue including vendor rebates remained constant at $3.2 million at March 31, 2010 and December 31, 2009. |
Agreement to Sell Franchise Business
As previously announced on May 13, 2010, NexCen Brands entered into an agreement to sell its franchise business to an affiliate of Levine Leichtman Capital Partners (“LLCP”), an independent investment firm with significant franchise management experience. The transaction represents the culmination of a strategic review process that NexCen Brands undertook to identify and evaluate potential alternative approaches to addressing its current debt and capital structure.
This morning, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission that includes copies of the sale agreement with LLCP and the related agreements with the Company’s lender, BTMU Capital Corporation. The filing also discusses current expectations for the Company following completion of the sale transaction.
Conference Call Information
The Company will be holding a conference call today at 8:30 am EDT to review its financial results for the first quarter of 2010 and discuss its agreement to sell its franchise business. The conference call may be accessed by dialing 800-944-8766 or 317-713-0002, access code: 27689. A replay of the call will be available through May 24, 2010, by dialing 1-866-281-6782, access code: 154227. The broadcast will be available through the ‘Investor Relations’ link at http://www.nexcenbrands.com and will be archived online shortly after the conference call until June 17, 2010.
The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, which was filed this morning with the Securities and Exchange Commission, is available on the Company’s website at http://www.nexcenbrands.com, under the “Investor Relations” tab, or through the SEC’s website at http://www.sec.gov.
About NexCen Brands, Inc.
NexCen Brands, Inc. is a strategic brand management company with a focus on franchising. It owns a portfolio of franchise brands that includes two retail franchise concepts: TAF™ and Shoebox New York®, as well as five quick service restaurant (QSR) franchise concepts: Great American Cookies®, MaggieMoo's®, Marble Slab Creamery®, Pretzelmaker® and Pretzel Time®. The brands are managed by NexCen Franchise Management, Inc., a subsidiary of NexCen Brands.
Forward-Looking Statement Disclosure
This press release contains “forward-looking statements,” as such term is used in the Securities Exchange Act of 1934, as amended. Such forward-looking statements include those regarding the expectations for the future performance of the Company’s brands and expectations regarding the impact of recent developments on its business. When used herein, the words “anticipate,” “believe,” “estimate,” “intend,” “may,” “will,” “expect” and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. They are not guarantees of future performance or results. The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include: (1) we may not complete the pending sale transaction on the negotiated terms, within the expected timeframe or at all; (2) we may not obtain the approval of the transaction by our stockholders; (3) we may not obtain governmental approvals of the transaction or satisfy other conditions required to close the transaction; (4) economic conditions may vary and may negatively affect the performance of our business; (5) the effects of disruption from the transaction may make it more difficult to maintain relationships with our employees, franchisees, lender, business partners, vendors and other service providers; (6) the amount and timing of any distribution to our stockholders after completion of the transaction may vary due to various factors within and outside the Company’s control; and (7) other risks and factors, as discussed in the Company’s filings with the Securities and Exchange Commission, including the Current Report on Form 8-K that we filed today with the Securities and Exchange Commission and the Risk Factors set forth in Item 1A of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, which we also filed today with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Table 1
NEXCEN BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| | | Three Months Ended March 31, | |
| | | | | | | | |
| | | 2010 | | | | 2009 | |
| | | | | | | | |
| Royalty revenues | $ | 4,941 | | | $ | 5,842 | |
| Factory revenues | | 4,197 | | | | 4,457 | |
| Franchise fee revenues | | 573 | | | | 1,330 | |
| Licensing and other revenues | | 303 | | | | 331 | |
| Total revenues | | 10,014 | | | | 11,960 | |
| | | | | | | | |
| Operating expenses: | | | | | | | |
| Cost of sales | | (2,680 | ) | | | (2,837 | ) |
| Selling, general and administrative expenses: | | | | | | | |
| Franchising | | (2,916 | ) | | | (3,091 | ) |
| Corporate | | (1,416 | ) | | | (2,084 | ) |
| Professional fees: | | | | | | | |
| Franchising | | (268 | ) | | | (410 | ) |
| Corporate | | (540 | ) | | | (837 | ) |
| Special investigations | | — | | | | (33 | ) |
| Strategic initiative expenses | | (149 | ) | | | — | |
| Depreciation and amortization | | (301 | ) | | | (862 | ) |
| Total operating expenses | | (8,270 | ) | | | (10,154 | ) |
| | | | | | | | |
| Operating income | | 1,744 | | | | 1,806 | |
| | | | | | | | |
| Non-operating income (expense): | | | | | | | |
| Interest income | | 47 | | | | 55 | |
| Interest expense | | (2,585 | ) | | | (2,834 | ) |
| Financing charges | | (3 | ) | | | (33 | ) |
| Other income, net | | 146 | | | | 348 | |
| Total non-operating expense | | (2,395 | ) | | | (2,464 | ) |
| | | | | | | | |
| Loss from continuing operations before income taxes | | (651 | ) | | | (658 | ) |
| Income taxes: | | | | | | | |
| Current | | (77 | ) | | | (74 | ) |
| | | | | | | | |
| Loss from continuing operations | | (728 | ) | | | (732 | ) |
| | | | | | | | |
| Income (loss) from discontinued operations, net of tax | | 17 | | | | (133 | ) |
| | | | | | | | |
| Net loss | $ | (711 | ) | | $ | (865 | ) |
| | | | | | | | |
| Loss per share from continuing operations – basic and diluted | $ | (0.01 | ) | | $ | (0.02 | ) |
| Income (loss) per share from discontinued operations – basic and diluted | | 0.00 | | | | (0.00 | ) |
| Net loss per share – basic and diluted | $ | (0.01 | ) | | $ | (0.02 | ) |
| | | | | | | | |
| Weighted average shares outstanding - basic and diluted | | 56,952 | | | | 56,671 | |
Table 2
NEXCEN BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
| | | Three Months Ended March 31, | |
| | | 2010 | | | 2009 | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (711 | ) | | $ | (865 | ) |
| Add: Net (income) loss from discontinued operations | | | (17 | ) | | | 133 | |
| Net loss from continuing operations | | | (728 | ) | | | (732 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | |
| Provision for doubtful accounts | | | 11 | | | | 172 | |
| Depreciation and amortization | | | 336 | | | | 895 | |
| Stock based compensation | | | 65 | | | | 138 | |
| Unrealized gain on investment in joint venture | | | (64 | ) | | | (267 | ) |
| Amortization of debt discount | | | 125 | | | | 139 | |
| Amortization of deferred financing costs | | | 222 | | | | 241 | |
| Accrued interest on Deficiency Note | | | 629 | | | | 540 | |
| Changes in assets and liabilities, net of acquired assets and liabilities: | | | | | | | | |
| Decrease in trade receivables | | | 573 | | | | 937 | |
| Decrease (increase) in other receivables | | | 105 | | | | (91 | ) |
| (Increase) decrease in inventory | | | (166 | ) | | | 13 | |
| Decrease in prepaid expenses and other assets | | | 317 | | | | 450 | |
| Decrease in accounts payable and accrued expenses | | | (25 | | | | (863 | ) |
| Decrease in restructuring accruals | | | (267 | ) | | | (87 | ) |
| Increase (decrease) in deferred revenue | | | 46 | | | | (995 | ) |
| Net cash provided by operating activities from continuing operations | | | 1,179 | | | | 490 | |
| Net cash provided by (used in) operating activities from discontinued operations | | | 17 | | | | (133 | ) |
| Net cash provided by operating activities | | | 1,196 | | | | 357 | |
| Cash flows from investing activities: | | | | | | | | |
| Decrease (increase) in restricted cash | | | 1,977 | | | | (1,000 | ) |
| Purchases of property and equipment | | | (787 | ) | | | (40 | ) |
| Distributions from joint venture | | | — | | | | 110 | |
| Acquisitions, net of cash acquired | | | — | | | | (131 | ) |
| Net cash provided by (used in) investing activities | | | 1,190 | | | | (1,061 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Principal payments on debt | | | (2,289 | ) | | | (296 | ) |
| Payments of contingent consideration | | | (200 | | | | — | |
| Net cash used in financing activities | | | (2,489 | ) | | | (296 | ) |
| Net decrease in cash and cash equivalents | | | (103 | ) | | | (1,000 | ) |
| Cash and cash equivalents, at beginning of period | | | 7,810 | | | | 8,293 | |
| Cash and cash equivalents, at end of period | | $ | 7,707 | | | $ | 7,293 | |
| Cash paid for interest | | $ | 1,614 | | | $ | 1,931 | |
| Cash paid for taxes | | $ | 44 | | | $ | 129 | |
Table 3
NEXCEN BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
| | | March 31, 2010 (Unaudited) | | | December 31, 2010 | |
| Cash and cash equivalents | | $ | 7,707 | | | $ | 7,810 | |
| Short-term restricted cash | | | — | | | | 1,436 | |
| Trade receivables, net of allowances of $1,386 and $1,472, respectively | | | 3,477 | | | | 4,061 | |
| Other receivables | | | 841 | | | | 946 | |
| Inventory | | | 1,289 | | | | 1,123 | |
| Prepaid expenses and other current assets | | | 1,239 | | | | 1,379 | |
| Total current assets | | | 14,553 | | | | 16,755 | |
| | | | | | | | | |
| Property and equipment, net | | | 3,906 | | | | 3,262 | |
| Investment in joint venture | | | 399 | | | | 335 | |
| Trademarks and other non-amortizable intangible assets | | | 72,522 | | | | 72,522 | |
| Other amortizable intangible assets, net of amortization | | | 4,827 | | | | 5,020 | |
| Deferred financing costs and other assets | | | 3,371 | | | | 3,770 | |
| Long-term restricted cash | | | 439 | | | | 980 | |
| Total assets | | $ | 100,017 | | | $ | 102,644 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 6,661 | | | $ | 6,596 | |
| Restructuring accruals | | | 45 | | | | 312 | |
| Deferred revenue | | | 3,197 | | | | 3,151 | |
| Current portion of debt, net of debt discount of $728 and $853, respectively | | | 135,795 | | | | 137,330 | |
| Acquisition related liabilities | | | 620 | | | | 820 | |
| Total current liabilities | | | 146,318 | | | | 148,209 | |
| Acquisition related liabilities | | | 209 | | | | 196 | |
| Other long-term liabilities | | | 3,128 | | | | 3,231 | |
| Total liabilities | | | 149,655 | | | | 151,636 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders’ deficit: | | | | | | | | |
| Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively | | | — | | | | — | |
| Common stock, $0.01 par value; 1,000,000,000 shares authorized; 57,146,302 shares issued and 56,951,730 outstanding at March 31, 2010 and December 31, 2009 | | | 571 | | | | 571 | |
| Additional paid-in capital | | | 2,685,001 | | | | 2,684,936 | |
| Treasury stock, at cost; 194,572 shares at March 31, 2010 and December 31, 2009 | | | (1,757 | ) | | | (1,757 | ) |
| Accumulated deficit | | | (2,733,453 | ) | | | (2,732,742 | ) |
| Total stockholders’ deficit | | | (49,638 | ) | | | (48,992 | ) |
| Total liabilities and stockholders’ deficit | | $ | 100,017 | | | $ | 102,644 | |
