Exhibit 99.1
Sequential Brands Group Announces Second Quarter 2017 Financial Results
Company Announces Multi-Year Strategic Partnership with USA TODAY NETWORK to License the Martha Stewart Brand in Connection with the Food & Wine Experience Event Series
| · | Q2 Revenue increased 23% to $42.1 million |
| · | Q2 GAAP diluted EPS of $0.04; Q2 non-GAAP diluted EPS of $0.12 |
| · | Q2 GAAP net income of $2.5 million; Q2 non-GAAP net income of $7.8 million |
| · | Q2 Adjusted EBITDA increased 43% to $24.7 million |
NEW YORK, July 27, 2017 – Sequential Brands Group, Inc. (“Sequential” or the “Company”) (Nasdaq: SQBG) today announced financial results for the quarter and six months ended June 30, 2017.
Second Quarter 2017 Results:
Total revenue for the quarter ended June 30, 2017 increased 23% to $42.1 million, compared to $34.2 million in the prior year quarter. On a GAAP basis, net income for the second quarter 2017 was $2.5 million or $0.04 per diluted share compared to a net loss for the second quarter 2016 of $(0.1) million or $(0.00) per diluted share. Included in the second quarter 2017 was a charge of $1.9 million related to the Company’s realized loss on the sale of available-for-sale securities.Non-GAAP net income for the second quarter 2017 was$7.8 million, or $0.12 per diluted share, compared to $3.6 million, or $0.06 per diluted share, in the prior year period. Adjusted EBITDA (defined in the accompanying Non-GAAP Financial Measures) for the second quarter of 2017 was $24.7 million, compared to $17.3 million in the prior year quarter. See Non-GAAP Financial Measure Reconciliation tables below for a reconciliation of GAAP to non-GAAP measures.
“Second quarter results were strong reflecting growth across key brands, and our continued focus on cost management,” said Karen Murray, CEO of Sequential Brands Group. “As we head into the second half of the year, we’re encouraged by the continued strength of our core brands and the exciting, new growth initiatives planned for the remainder of the year.”
Year-to-Date 2017 Results:
Total revenue for the six months ended June 30, 2017 increased 20% to $81.5 million, compared to $68.2 million in the prior year period. On a GAAP basis, net income for the six months ended June 30, 2017 was $1.4 million or $0.02 per diluted share compared to a net loss for the six months ended June 30, 2016 of $(1.1) million or $(0.02) per diluted share. The results for the six months ended June 30, 2017 include charges of $1.9 million related to the Company’s realized loss on the sale of available-for-sale securities and $6.7 million related to costs associated with the departure of our former CEO.Non-GAAP net income for the six months ended June 30, 2017 was$13.6 million, or $0.21 per diluted share, compared to $6.2 million, or $0.10 per diluted share, in the prior year period. Adjusted EBITDA (defined in the accompanying Non-GAAP Financial Measures) for the six months ended June 30, 2017 was $47.7 million, compared to $34.0 million in the prior year period. See Non-GAAP Financial Measure Reconciliation tables below for a reconciliation of GAAP to non-GAAP measures.
Financial Update:
For the year ending December 31, 2017, the Company is reiterating guidance of $170 million to $175 million in revenue and $98 million to $102 million of Adjusted EBITDA. The Company’s GAAP net income is now expected to be $13.6 million to $16.2 million due to the Company’s realized loss on the sale of available-for-sale securities during the quarter ended June 30, 2017. The Company’s contractual guaranteed minimum royalties for 2017 are approximately $120 million.Consistent with the Company's historical quarterly results, the Company expects revenue for 2017 to be weighted to the third and fourth quarters due to seasonality in the businesses of many of the Company's licensees.
Business Update:
This morning, the Company is announcing that Gary Klein is stepping down as CFO at the end of August. Andrew Cooper, President, will assume the position of Interim Chief Financial Officer along with his current duties as we initiate a search to identify a permanent replacement.
The Company also announced a multi-year strategic partnership with USA TODAY NETWORK, part of Gannett Co, Inc. (NYSE: GCI), to license the Martha Stewart brand in connection with the USA TODAY NETWORK Food & Wine Experience event series.
Investor Call and Webcast:
Management will provide further commentary today, July 27, 2017, on the Company’s financial results via a conference call and webcast beginning at approximately 8:30 am ET. To join the conference call, please dial (877) 407-0789 or visit the investor relations page on the Company’s websitewww.sequentialbrandsgroup.com.
Non-GAAP Financial Measures:
This press release contains historical and projected measures of Adjusted EBITDA, non-GAAP net income and non-GAAP earnings per diluted share. The Company defines Adjusted EBITDA as net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries, excluding interest income or expense, income taxes, depreciation and amortization, acquisition-related costs, non-cash compensation, MSLO shareholder and pre-acquisition litigation costs, restructuring costs, costs incurred in connection with CEO transition, realized loss on the sale of available-for-sale securities, MSLO pre-acquisition sales tax refunds and severance. Non-GAAP net income and non-GAAP earnings per share are non-GAAP financial measures which represent net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries, excluding acquisition-related costs, mark-to-market adjustments to non-cash stock-based compensation provided to non-employees, restructuring costs, costs incurred in connection with CEO transition, MSLO shareholder and pre-acquisition litigation costs, realized loss on the sale of available-for-sale securities, MSLO pre-acquisition sales tax refunds and adjustment to taxes. These non-GAAP metrics are an alternative to the information calculated under U.S. generally accepted accounting principles (“GAAP”), as provided in the reports the Company files with the Securities and Exchange Commission, may be inconsistent with similar measures presented by other companies and should only be used in conjunction with the Company’s results reported according to 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. We consider these measures to be useful measures of our ongoing financial performance because they adjust for certain costs and other events that the Company believes are not representative of its core licensing business. See below for a reconciliation of these non-GAAP metrics from the most directly comparable GAAP measure.
About Sequential Brands Group, Inc.
Sequential Brands Group, Inc. (Nasdaq: SQBG) owns, promotes, markets, and licenses a portfolio of consumer brands in the home, active and fashion categories. Sequential seeks to ensure that its brands continue to thrive and grow by employing strong brand management, design and marketing teams. Sequential has licensed and intends to license its brands in a variety of consumer categories to retailers, wholesalers and distributors in the United States and around the world. For more information, please visit Sequential’s website at: www.sequentialbrandsgroup.com. To inquire about licensing opportunities, please email: newbusiness@sbg-ny.com.
Forward-Looking Statements
Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements ("forward-looking statements") within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made as of the date hereof and are based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The Company's actual results could differ materially from those stated or implied in forward-looking statements. Forward-looking statements include statements concerning estimates of GAAP net income, Adjusted EBITDA, revenue (including guaranteed minimum royalties), and margins, guidance, plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying assumptions and other statements that are not historical in nature, including those that include the words "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "forecasts," "projects," "aims," "targets," "may," "will," "should," "can," "future," "seek," "could," "predict," the negatives thereof, variations thereon and similar expressions. Such forward-looking statements reflect the Company's current views with respect to future events, based on what the Company believes are reasonable assumptions. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including: (i) risks and uncertainties discussed in the reports that the Company has filed with the Securities and Exchange Commission (the "SEC"); (ii) general economic, market or business conditions; (iii) the Company's ability to identify suitable targets for acquisitions and to obtain financing for such acquisitions on commercially reasonable terms; (iv) the Company's ability to timely achieve the anticipated results of recent acquisitions and any potential future acquisitions; (v) the Company's ability to successfully integrate acquisitions into its ongoing business; (vi) the potential impact of the consummation of recent acquisitions or any potential future acquisitions on the Company's relationships, including with employees, licensees, customers and competitors; (vii) the Company's ability to achieve and/or manage growth and to meet target metrics associated with such growth; (viii) the Company's ability to successfully attract new brands and to identify suitable licensees for its existing and newly acquired brands; (ix) the Company's substantial level of indebtedness, including the possibility that such indebtedness and related restrictive covenants may adversely affect the Company's future cash flows, results of operations and financial condition and decrease its operating flexibility; (x) the Company's ability to achieve its guidance; (xi) continued market acceptance of the Company's brands; (xii) changes in the Company's competitive position or competitive actions by other companies; (xiii) licensees' ability to fulfill their financial obligations to the Company; (xiv) concentrations of the Company's licensing revenues with a limited number of licensees and retail partners; and (xv) other circumstances beyond the Company's control. Refer to the section entitled "Risk Factors" set forth in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for a discussion of important risks, uncertainties and other factors that may affect the Company's business, results of operations and financial condition. The Company's stockholders are urged to consider such risks, uncertainties and factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. The Company is not under any obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Readers should understand that it is not possible to predict or identify all risks and uncertainties to which the Company may be subject. Consequently, readers should not consider such disclosures to be a complete discussion of all potential risks or uncertainties.
For Media and Investor Relations inquiries, contact:
Sequential Brands Group, Inc.
Katherine Nash
T: +1 512-757-2566
E: knash@sbg-ny.com
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| | | June 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
| | | | (Unaudited) | | | | | |
| Assets | | | | | | | | |
| Current Assets: | | | | | | | | |
| Cash | | $ | 19,734 | | | $ | 19,133 | |
| Restricted cash | | | 1,521 | | | | 1,521 | |
| Accounts receivable, net | | | 49,231 | | | | 53,195 | |
| Available-for-sale securities | | | - | | | | 7,673 | |
| Prepaid expenses and other current assets | | | 4,223 | | | | 4,366 | |
| Total current assets | | | 74,709 | | | | 85,888 | |
| | | | | | | | | |
| Property and equipment, net | | | 6,579 | | | | 7,674 | |
| Intangible assets, net | | | 1,033,503 | | | | 1,030,212 | |
| Goodwill | | | 304,123 | | | | 307,744 | |
| Other assets | | | 3,328 | | | | 3,345 | |
| Total assets | | $ | 1,422,242 | | | $ | 1,434,863 | |
| | | | | | | | | |
| Liabilities and Equity | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 15,014 | | | $ | 18,915 | |
| Current portion of long-term debt | | | 28,300 | | | | 28,300 | |
| Current portion of deferred revenue | | | 7,933 | | | | 10,374 | |
| Total current liabilities | | | 51,247 | | | | 57,589 | |
| | | | | | | | | |
| Long-term debt, net of current portion | | | 604,559 | | | | 616,735 | |
| Long-term deferred revenue, net of current portion | | | 12,083 | | | | 13,909 | |
| Deferred tax liability | | | 203,967 | | | | 200,357 | |
| Other long-term liabilities | | | 8,098 | | | | 8,705 | |
| Total liabilities | | | 879,954 | | | | 897,295 | |
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| Equity: | | | | | | | | |
Preferred stock Series A, $0.01 par value; 10,000,000 shares authorized; none issued and
outstanding at June 30, 2017 and December 31, 2016 | | | - | | | | - | |
Common stock, $0.01 par value; 150,000,000 shares authorized; 63,492,719 and 62,602,041
shares issued at June 30, 2017 and December 31, 2016, respectively, and 63,107,392 and
62,504,355 shares outstanding at June 30, 2017 and December 31, 2016, respectively | | | 633 | | | | 624 | |
| Additional paid-in capital | | | 507,555 | | | | 502,564 | |
| Accumulated other comprehensive loss | | | (555 | ) | | | (144 | ) |
| Accumulated deficit | | | (38,301 | ) | | | (39,651 | ) |
Treasury stock, at cost; 385,327 and 97,686 shares at June 30, 2017 and December 31, 2016,
respectively | | | (1,702 | ) | | | (638 | ) |
| Total Sequential Brands Group, Inc. and Subsidiaries stockholders’ equity | | | 467,630 | | | | 462,755 | |
| Noncontrolling interests | | | 74,658 | | | | 74,813 | |
| Total equity | | | 542,288 | | | | 537,568 | |
| Total liabilities and equity | | $ | 1,422,242 | | | $ | 1,434,863 | |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | | | | | |
| Net revenue | | $ | 42,144 | | | $ | 34,154 | | | $ | 81,544 | | | $ | 68,162 | |
| Operating expenses | | | 17,900 | | | | 20,920 | | | | 41,308 | | | | 42,897 | |
| Income from operations | | | 24,244 | | | | 13,234 | | | | 40,236 | | | | 25,265 | |
| | | | | | | | | | | | | | | | | |
| Other expense (income) | | | 1,801 | | | | - | | | | 1,767 | | | | (93 | ) |
| Interest expense, net | | | 14,877 | | | | 10,599 | | | | 29,363 | | | | 21,289 | |
| Income before income taxes | | | 7,566 | | | | 2,635 | | | | 9,106 | | | | 4,069 | |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | 3,115 | | | | 1,019 | | | | 3,700 | | | | 1,418 | |
| Net income | | | 4,451 | | | | 1,616 | | | | 5,406 | | | | 2,651 | |
| | | | | | | | | | | | | | | | | |
| Net income attributable to noncontrolling interests | | | (1,921 | ) | | | (1,681 | ) | | | (4,056 | ) | | | (3,792 | ) |
| Net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries | | $ | 2,530 | | | $ | (65 | ) | | $ | 1,350 | | | $ | (1,141 | ) |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per share attributable to Sequential Brands Group, Inc. and Subsidiaries: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.04 | | | $ | (0.00 | ) | | $ | 0.02 | | | $ | (0.02 | ) |
| Diluted | | $ | 0.04 | | | $ | (0.00 | ) | | $ | 0.02 | | | $ | (0.02 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted-average common shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 62,926 | | | | 62,063 | | | | 62,694 | | | | 61,636 | |
| Diluted | | | 62,981 | | | | 62,063 | | | | 62,911 | | | | 61,636 | |
SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | Six Months Ended June 30, | |
| | | 2017 | | | 2016 | |
| | | (Unaudited) | |
| | | | | | | |
| Cash Provided By Operating Activities | | $ | 16,044 | | | $ | 11,599 | |
| Cash Provided By (Used In) Investing Activities | | | 5,302 | | | | (2,443 | ) |
| Cash Used In Financing Activities | | | (20,745 | ) | | | (14,065 | ) |
| | | | | | | | | |
| Net Increase (Decrease) In Cash | | | 601 | | | | (4,909 | ) |
| Cash — Beginning of period | | | 19,133 | | | | 41,560 | |
| Cash — End of period | | $ | 19,734 | | | $ | 36,651 | |
Non-GAAP Financial Measure Reconciliation
(in thousands, except earnings per share data)
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | (Unaudited) | | | (Unaudited) | |
| Reconciliation of GAAP net income (loss) to non-GAAP net income: | | | | | | | | | | | | | | | | |
| GAAP net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries | | $ | 2,530 | | | $ | (65 | ) | | $ | 1,350 | | | $ | (1,141 | ) |
| | | | | | | | (4,701 | ) | | | | | | | (4,701 | ) |
| Adjustments: | | | | | | | | | | | | | | | | |
| Deal advisory costs (a) | | | 450 | | | | 2,238 | | | | 482 | | | | 3,549 | |
| Non-cash mark-to-market adjustments to stock-based compensation (b) | | | (86 | ) | | | (4 | ) | | | (374 | ) | | | (337 | ) |
| Restructuring costs (c) | | | - | | | | 281 | | | | - | | | | 2,777 | |
| Costs incurred in connection with CEO transition (d) | | | - | | | | - | | | | 6,713 | | | | - | |
| MSLO shareholder and pre-acquisition litigation (e) | | | 97 | | | | 408 | | | | 210 | | | | 408 | |
| Realized loss on the sale of available-for-sale securities (f) | | | 1,916 | | | | - | | | | 1,916 | | | | - | |
| MSLO pre-acquisition sales tax refunds (g) | | | (115 | ) | | | - | | | | (115 | ) | | | - | |
| Adjustment to taxes (h) | | | 2,990 | | | | 769 | | | | 3,450 | | | | 918 | |
| Total non-GAAP adjustments | | | 5,252 | | | | 3,692 | | | | 12,282 | | | | 7,315 | |
| | | | | | | | | | | | | | | | | |
| Non-GAAP net income (1) | | $ | 7,782 | | | $ | 3,627 | | | $ | 13,632 | | | $ | 6,174 | |
| | | | | | | | | | | | | | | | | |
| Non-GAAP weighted-average diluted shares (i) | | | 62,981 | | | | 62,965 | | | | 62,911 | | | | 62,854 | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | (Unaudited) | | | (Unaudited) | |
| Reconciliation of GAAP Diluted EPS to non-GAAP Diluted EPS: | | | | | | | | | | | | |
| GAAP earnings (loss) per share attributable to Sequential Brands Group, Inc. and Subsidiaries | | $ | 0.04 | | | $ | (0.00 | ) | | $ | 0.02 | | | $ | (0.02 | ) |
| | | | | | | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | | | | | |
| Deal advisory costs (a) | | | 0.01 | | | | 0.04 | | | | 0.01 | | | | 0.06 | |
| Non-cash mark-to-market adjustments to stock-based compensation (b) | | | (0.00 | ) | | | (0.00 | ) | | | (0.01 | ) | | | (0.00 | ) |
| Restructuring costs (c) | | | - | | | | 0.00 | | | | - | | | | 0.04 | |
| Costs incurred in connection with CEO transition (d) | | | - | | | | - | | | | 0.11 | | | | - | |
| MSLO shareholder and pre-acquisition litigation (e) | | | 0.00 | | | | 0.01 | | | | 0.00 | | | | 0.01 | |
| Realized loss on the sale of available-for-sale securities (f) | | | 0.03 | | | | - | | | | 0.03 | | | | - | |
| MSLO pre-acquisition sales tax refunds (g) | | | (0.00 | ) | | | - | | | | (0.00 | ) | | | - | |
| Adjustment to taxes (h) | | | 0.04 | | | | 0.01 | | | | 0.05 | | | | 0.01 | |
| Total non-GAAP adjustments | | | 0.08 | | | | 0.06 | | | | 0.19 | | | | 0.12 | |
| | | | | | | | | | | | | | | | | |
| Non-GAAP earnings per share (1) | | $ | 0.12 | | | $ | 0.06 | | | $ | 0.21 | | | $ | 0.10 | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | (Unaudited) | | | (Unaudited) | |
| Reconciliation of GAAP net income (loss) to Adjusted EBITDA: | | | | | | | | | | | | | | | | |
| GAAP net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries | | $ | 2,530 | | | $ | (65 | ) | | $ | 1,350 | | | $ | (1,141 | ) |
| | | | | | | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | 3,115 | | | | 1,019 | | | | 3,700 | | | | 1,418 | |
| Interest expense, net | | | 14,877 | | | | 10,599 | | | | 29,363 | | | | 21,289 | |
| Non-cash compensation | | | 471 | | | | 1,713 | | | | 1,462 | | | | 3,493 | |
| Depreciation and amortization | | | 1,122 | | | | 1,066 | | | | 2,415 | | | | 2,209 | |
| Deal advisory costs (a) | | | 450 | | | | 2,238 | | | | 482 | | | | 3,549 | |
| Restructuring costs (c) | | | - | | | | 281 | | | | - | | | | 2,777 | |
| Costs incurred in connection with CEO transition (d) | | | - | | | | - | | | | 6,713 | | | | - | |
| MSLO shareholder and pre-acquisition litigation (e) | | | 97 | | | | 408 | | | | 210 | | | | 408 | |
| Realized loss on the sale of available-for-sale securities (f) | | | 1,916 | | | | - | | | | 1,916 | | | | - | |
| MSLO pre-acquisition sales tax refunds (g) | | | (115 | ) | | | - | | | | (115 | ) | | | - | |
| Severance (j) | | | 214 | | | | - | | | | 214 | | | | - | |
| Total Adjustments | | | 22,147 | | | | 17,324 | | | | 46,360 | | | | 35,143 | |
| | | | | | | | | | | | | | | | | |
| Adjusted EBITDA (2) | | $ | 24,677 | | | $ | 17,259 | | | $ | 47,710 | | | $ | 34,002 | |
| (1) | Non-GAAP net income and non-GAAP earnings per share are non-GAAP financial measures which represent net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries, excluding acquisition-related costs, mark-to-market adjustments to non-cash stock-based compensation provided to non-employees, restructuring costs, costs incurred in connection with CEO transition, MSLO shareholder and pre-acquisition litigation costs, realized loss on the sale of available-for-sale securities, MSLO pre-acquisition sales tax refunds and adjustment to taxes. Management uses this information to measure performance over time on a consistent basis and to identify business trends relating to the Company's financial condition and results of operations. Management believes that these non-GAAP measures provide investors with information regarding the underlying performance of the Company's core business operating results. |
| (2) | Adjusted EBITDA is defined as net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries, excluding interest income or expense, income taxes, depreciation and amortization, acquisition-related costs, non-cash compensation, MSLO shareholder and pre-acquisition litigation costs, restructuring costs, costs incurred in connection with CEO transition, realized loss on the sale of available-for-sale securities, MSLO pre-acquisition sales tax refunds and severance. Management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the Company's financial condition and results of operations. |
| (a) | Represents deal advisory costs including legal, financial and accounting services that are not representative of the Company's day-to-day licensing business. |
| (b) | Represents the non-cash mark-to-market adjustments to stock-based compensation provided to non-employees. |
| (c) | Represents restructuring charges associated with the Martha Stewart Living Omnimedia, Inc. acquisition and other cost savings initiatives. |
| (d) | Represents $3.2 million in severance expense and $3.5 million in non-cash stock-based compensation expense in connection with the CEO transition. The non-cash stock based compensation expense represents the accelerated vesting of previously granted stock awards, and was calculated based on the stock’s April 2015 grant-date fair value of $14.33 per share in accordance with GAAP. The fair value of the shares on the termination date was $3.95 per share, or approximately $1.1 million total. |
| (e) | Represents legal costs related to shareholder and pre-acquisition litigation matters associated with the Martha Stewart Living Omnimedia, Inc. acquisition. |
| (f) | Represents the realized loss recognized in connection with the sale of the Company’s available-for-sale securities. |
| (g) | Represents sales tax refund received related to years prior to the acquisition of Martha Stewart Living Omnimedia, Inc. |
| (h) | Adjustments in 2017 and 2016 reflect that the Company expects to pay annual cash income taxes of $0.5 million and $1.0 million, respectively, as the Company's net operating losses and other tax benefits are expected to reduce any additional tax obligation. |
| (i) | Represents weighted-average diluted shares the Company reported or would have reported if the Company reported GAAP net income in 2016. |
| (j) | Represents costs associated with employee terminations not representative of the Company’s day-to-day compensation costs. |
Non-GAAP Financial Measure Reconciliation - Projected Fiscal Year 2017
(in thousands, except earnings per share data)
| | | Projected Fiscal Year 2017 | |
| | | High | | | Low | |
| | | (Unaudited) |
| | | | | | | |
| GAAP net income attributable to Sequential Brands Group, Inc. | | $ | 16,231 | | | $ | 13,631 | |
| | | | | | | | | |
| Adjustments: | | | | | | | | |
| Provision for income taxes | | | 8,739 | | | | 7,339 | |
| Interest expense, net | | | 60,000 | | | | 60,000 | |
| Non-cash compensation | | | 2,320 | | | | 2,320 | |
| Depreciation and amortization | | | 4,500 | | | | 4,500 | |
| MSLO shareholder and pre-acquisition litigation costs (a) | | | 550 | | | | 550 | |
| Deal advisory costs (b) | | | 932 | | | | 932 | |
| Costs incurred in connection with CEO transition (c) | | | 6,713 | | | | 6,713 | |
| Realized loss on the sale of available-for-sale securities (d) | | | 1,916 | | | | 1,916 | |
| MSLO pre-acquisition sales tax refunds (e) | | | (115 | ) | | | (115 | ) |
| Severance (f) | | | 214 | | | | 214 | |
| Total Adjustments | | | 85,769 | | | | 84,369 | |
| | | | | | | | | |
| Adjusted EBITDA (1) | | $ | 102,000 | | | $ | 98,000 | |
| | | Projected Fiscal Year 2017 | |
| | | High | | | Low | |
| | | (Unaudited) | |
| | | | | | | |
| GAAP net income attributable to Sequential Brands Group, Inc. | | $ | 16,231 | | | $ | 13,631 | |
| | | | | | | | | |
| Adjustments: | | | | | | | | |
| MSLO shareholder and pre-acquisition litigation costs (a) | | | 550 | | | | 550 | |
| Deal advisory costs (b) | | | 932 | | | | 932 | |
| Costs incurred in connection with CEO transition (c) | | | 6,713 | | | | 6,713 | |
| Realized loss on the sale of available-for-sale securities (d) | | | 1,916 | | | | 1,916 | |
| MSLO pre-acquisition sales tax refunds (e) | | | (115 | ) | | | (115 | ) |
| Non-cash mark-to-market adjustments to stock-based compensation (g) | | | (374 | ) | | | (374 | ) |
| Net adjustment for non-cash taxes (h) | | | 8,239 | | | | 6,839 | |
| Total non-GAAP adjustments | | | 17,861 | | | | 16,461 | |
| | | | | | | | | |
| Non-GAAP net income (2) | | $ | 34,092 | | | $ | 30,092 | |
| | | | | | | | | |
| Non-GAAP weighted average diluted shares | | | 63,200 | | | | 63,200 | |
| | | Projected Fiscal Year 2017 | |
| | | High | | | Low | |
| | | (Unaudited) | |
| | | | | | | |
| GAAP earnings per share attributable to Sequential Brands Group, Inc. | | $ | 0.26 | | | $ | 0.22 | |
| | | | | | | | | |
| Adjustments: | | | | | | | | |
| MSLO shareholder and pre-acquisition litigation costs (a) | | | 0.01 | | | | 0.01 | |
| Deal advisory costs (b) | | | 0.01 | | | | 0.01 | |
| Costs incurred in connection with CEO transition (c) | | | 0.11 | | | | 0.11 | |
| Realized loss on the sale of available-for-sale securities (d) | | | 0.03 | | | | 0.03 | |
| MSLO pre-acquisition sales tax refunds (e) | | | (0.00 | ) | | | (0.00 | ) |
| Non-cash mark-to-market adjustments to stock-based compensation (g) | | | (0.01 | ) | | | (0.01 | ) |
| Net adjustment for non-cash taxes (h) | | | 0.14 | | | | 0.12 | |
| Total non-GAAP adjustments | | | 0.29 | | | | 0.27 | |
| | | | | | | | | |
| Non-GAAP earnings per share (2) | | $ | 0.55 | | | $ | 0.49 | |
| (1) | Adjusted EBITDA is defined as net income attributable to Sequential Brands Group, Inc. and Subsidiaries, excluding interest income or expense, income taxes, depreciation and amortization, non-cash compensation, MSLO shareholder and pre-acquisition litigation costs, acquisition-related costs, costs incurred in connection with CEO transition, realized loss on the sale of available-for-sale securities, MSLO pre-acquisition sales tax refunds and severance. Management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the Company's financial condition and results of operations. |
| (2) | Non-GAAP net income and non-GAAP earnings per share are non-GAAP financial measures which represent net income attributable to Sequential Brands Group, Inc. and Subsidiaries, excluding acquisition-related costs, non-cash mark-to-market adjustments to stock-based compensation provided to non-employees, costs incurred in connection with CEO transition, MSLO shareholder and pre-acquisition litigation costs, realized loss on the sale of available-for-sale securities, MSLO pre-acquisition sales tax refunds and adjustments for non-cash income taxes. Management uses this information to measure performance over time on a consistent basis and to identify business trends relating to the Company's financial condition and results of operations. Management believes that these non-GAAP measures provide investors with information regarding the underlying performance of the Company's core business operating results. |
| (a) | Represents legal costs related to shareholder and pre-acquisition litigation matters associated with the Martha Stewart Living Omnimedia, Inc. acquisition. |
| (b) | Represents deal advisory costs including legal, financial and accounting services that are not representative of the Company's day-to-day licensing business. |
| (c) | Represents $3.2 million in severance expense and $3.5 million in non-cash stock-based compensation expense in connection with the CEO transition. The non-cash stock based compensation expense represents the accelerated vesting of previously granted stock awards, and was calculated based on the stock’s April 2015 grant-date fair value of $14.33 per share in accordance with GAAP. The fair value of the shares on the termination date was $3.95 per share, or approximately $1.1 million total. |
| (d) | Represents the realized loss recognized in connection with the sale of the Company’s available-for-sale securities. |
| (e) | Represents sales tax refund received related to years prior to the acquisition of Martha Stewart Living Omnimedia, Inc. |
| (f) | Represents costs associated with employee terminations not representative of the Company’s day-to-day compensation costs. |
| (g) | Represents the non-cash mark-to-market adjustments to stock-based compensation provided to non-employees. |
| (h) | Adjustment reflects that the Company expects to pay annual cash income taxes of approximately $0.5 million per year as the Company's net operating losses and other income tax benefits are expected to reduce any additional income tax obligation. |
