XELB - Earnings call transcript Q3 2018

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Operator

Welcome to the Xcel Brands third quarter 2018 earnings conference call.

As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. reminder reproduction not call authorization permitted Brands, as that in whole of advised is and is call part without a be of in this or Xcel being Please recorded. conference this prior written conference like SM Berger Company. the and to Andrew I would turn over now to of Berger begin. you Thank you, may Andrew,

Andrew Berger

morning, Robert Officer, Good morning and for the Chairman to its company With should on report third Haran; quarter addition the company’s call and on the us you earnings Chief a this website interest. XXXX, XX-Q the will replay and Business Vice on in file today and We President are release being at and September webcast Financial available now, Investor www.xcelbrands.com. access the have us. Seth Commission Exchange which today. Development everyone joining and D’Loren; be website. Executive Executive plans and and went on for to quarterly Officer, everyone and available report the Jim later Burroughs. thank participation quarterly Relations appreciate will Chief call of be your Securities Form the earlier By release with ended is Treasury, company’s XX, out The the This in

from mind uncertainties could new or whether discussed that as expectations undertake risk any statements Before or forward-looking obligation result update the we SEC to in cause of to revise are These company’s and filings. Xcel in explained certain any information, risks begin, actual please does otherwise. not factors are will in that materially contain events detail forward-looking future a call differ statements publicly this to keep here statements. All subject results today. forward-looking

as today’s Finally, call, refer such and certain that non-GAAP please on non-GAAP net adjusted income, earnings financial EBITDA. share, measures management non-GAAP per to note will

basis and metrics the of in period related trends period to assist consistent to these comparing as operating identify of company’s uses to management on performance from non-GAAP business a Our measures results performance to operations.

measurements because supplemental and other business events financial provide are certain core management financial investors of evaluating share, measures presented or and performance these information Our assist thus in also non-GAAP performance results and company’s alternatives our measures with the income, per adjust for any to operating be results. to should not they calculated these These other financial useful believes in GAAP. isolation representative that are management believes not net of measures or in as earnings accordance cost considered

for X, the company’s X You may of Item attachments Part the measures. or earnings Form of the refer non-GAAP of release to XX-Q a reconciliation

to Now go and D’Loren, Chief I please ahead. am Bob, Executive pleased Officer. Chairman introduce Robert

Robert D’Loren

provide today. morning the us our Thank call of Haran discuss thoughts up then for thank opening will our will you, financial overview After by and year. Stan. everyone some I’ll performance you Good rest and in joining Q&A. and start we the with then conclude of recent more our detail, the on that, an for Jim results CFO

interactive the In before ecommerce start business few strong XXXX, the and jewelry show continued continue overview. we September of get the to with let from me highlights the of months nine into performance First business a and wholesale business. launch ended solid our I XX, our results television

the XX, September with total approximately income operating and for X% nine Our year ended months XXXX revenue third increased approximately by year. and XX% increased last operating and respectively. last quarter total and revenue over respectively our XX% X% income compared Also,

prior and the current for months and year $XX,XXX nine million million was income approximately $XXX,XXX $X.X quarter and $X net the respectively with Our compared in periods.

X% from $X.X EBITDA month nine million, current is up year. last Our

customers. a XXX We transition consumer more believe media company provides our retail wholesale products vertical to and technologies with fast-to-market integrated platform, compared that solution traditional companies. a technology-based advantages capabilities significant to operating competitive operating from production licensing us a as continue our to including provides our We for licensing and company degree and

remains media ubiquitous our wholesale sales including products. approach, expanding our brands and focus of direct-to-consumer and through our channel on Our of distribution

and are positioned We by to sustainable strides we continue believe and growth. long-term this encouraged platform, make developing are our current growth we well in for

be taking from our show the business strong. business our our a continue well Now channel, on-air and television performing as closer lifestyle distribution productivity rates look by at achievement interactive brands is to

Judith Retail with We launched counts increase look for brands to Last expansion customer on this month, our opportunities continue channel. Qurate to results. work and HSN excellent Group in closely and for Ripka with we productivity for

on excited to significant believe are the there opportunities We for We Group. Retail HSN. within both now us other Ripka and have Qurate QVC Judith are

to mortar months in bricks multiple moving nine business, business grow our wholesale the Now our XXXX wholesale continued and categories. of first across to

transitioned with we platform licensing private recording October We will from products, Beginning leverage fee label margin, a and store lieu our opportunities. sourcing the which production providing department continue to in XXXX, with model for branded fast-to-market improve fees. to ability in our our business result a sales, which licensing us model, platform of to this wholesale is income

model operating up working is set needs. to minimize Our and risk inventory capital

fees. We bottom and chain, licensing not believe incremental model to overhead. just include for line within efficiencies line operating over a change gain does only improve rationale and minimal top significant supply and revenue grow greater is our business our changes wholesale control when transition label to both The model Our compared require and the our will brands, to wholesale private branded this products.

retailers, remaining retail our existing across Finally, and we new to new partners brands additional internationally. explore continue both our opportunities growth selectively distribution domestically and platform and while leveraging focused on with and

we momentum continue nationwide. offer retail, increase the assortment channel to turning through retailers product we of Now to specialty specialty to gain this and in

concepts. Isaac exploring partnerships We Our retail well. opportunities, to specialty specialty opportunities beauty and committed Revlon seek with different Mizrahi bedding as retail are collaborations our programs products remain with new performing and we

exciting XXXX year. in that will to announce expect programs and launch we are We that some planned new in that

business. our discuss direct-to-consumer will I Finally

As and previously Ripka a in items XXXX we December jewelry launched platform fine in offering for silver. direct-to-consumer brand, our ecommerce mentioned, Judith gold

growth of drive accounts the a we’ve for business. increased and reported continue ecommerce the we sales our of to while and to right jewelry digital traffic jewelry channels distribution contribute to by expect I’m our transitioned site. encouraged to believe our as previously, with across and is our have momentum wholesale business to and As new our brands bricks our believe traditional followers. in and ecommerce all retail path a mortar grow forward relevance positive to into We and and jewelry business growth strategy from expand creating ecommerce will bricks this we the businesses. the ecommerce wholesale mortar license apparel We

shop. of year expansion achieved. and about next through a launch our To reach are channel step this in company We of this customers extent, ourselves the some expect logical everywhere businesses approach, In we we establish results our XXXX. the began so and our as earlier strategy, they model to ecommerce to in that business and are this made our diversification operating brands positioning distribution in can a early apparel ubiquitous represents which technology-based for presence all of our progress we enthusiastic forms conclusion,

our ability create company strategy in and the our shareholders. for to of value and our We are long-term confident prospects the

results to for the our like over Jim? the to I’d quarter. Now Jim call turn to financial review

James Haran

revenues increased briefly XXXX, the to from ended licensing morning selected Thanks are total revenue The million goods discuss results our both and overall financial increase results XX, financial September good $X.X quarterly decrease cost please $X.X total revenues the $X.X in the and the wholesale our prior expenses a on revenue jewelry more and quarter revenues, total toward note everybody. was million business of today. net later Form year quarter. contributed partially year will the by for operating by which current quarter sold. are Bob, million Sales in quarters. approximately to $X.X fully $X.X approximately million in I with our prior report in In be and described XX-Q in and in net less that of ecommerce offset which third compared filed the $X.X will million quarter XXXX, million Net million the $X.X SEC were current with revenue.

year were compensation. an $X.XX million increase This expense decrease compared year decreased of in stock-based salaries prior to by offset expenses. debt. expenses virtue and by our design by had primarily million operating prior and we was a the reducing flat in as $X.X total to Interest term the Although compared quarter, marketing quarter

average share, the the was in net $X which compares current $X.XX Our income weighted EBITDA $X.XX the $X.XX prior was on year or $X.X $X.XX income income the million diluted per quarter share for or EBITDA year diluted compared XX.X approximately the quarter per XX.X net Adjusted was million net year diluted $X.XX to of Non-GAAP outstanding current $X.X million current quarter. the approximately and million of adjusted based for quarter’s share million prior prior in per or respectively. quarter approximately to and million. million shares approximately quarter

ended million total now compared ecommerce and the current net Sales month months revenue contributed increased $X by in to million in nine period. to jewelry $X.XX with XX, in our nine million Moving overall total from months to revenues. for million increase September nine revenue X.X% the to wholesale $XX.X business XXXX the our prior approximately the results, $XX.X year

ongoing period associated QVC. the $X.XX During brand and business million from interactive termination revenue the year lower wholesale store decreased were current of C. transition the approximately nine months, the the as business licensing to net offset with higher $X.XX from of licensing revenue million by and revenue Wonder compared department prior

the offset of million partially Our year our was decrease operating operating $X.X a expenses. to expense The term of with period stock-based by approximately net with primarily by compared of This attributable reducing expenses approximately decreased total compared period. by million in in compensation. virtue $X.X a including decrease compensation, increase marketing $X.X by Interest prior $X.X decreased debt. year in million approximately million and decrease expenses an the was design prior

based prior and shares $X.XX on Non-GAAP prior per current net the Our $X.XX or $X.X compared was the on This X%. of or income year or shares weighted EBITDA the income increase of net million diluted $X.XX of XX.X in based diluted for nine million for an weighted net $X.X million average share million outstanding increase current to diluted average of net or EBITDA ended $X.XX months was outstanding Adjusted was share share. non-GAAP with approximately compared period. of months an income XXXX, per nine period, approximately XX, the income per for approximately $X.XX million diluted nine or months $X.X share per compares approximately representing to $X.XX year period’s $X.XX the adjusted million approximately year respectively. XX% the September in prior XX.X million million million, approximately X% $X.XX

in announced, the January differences the a company’s recognition quarter were revenue X, adopted previously adoption X, current did as guidance XXX under applying standard new policies material the adoption accounting January not effective XXXX, XXXX of completed not modified FASB months. As contracts prior codification by recognized and we from the guidance revenue revenue in current the retrospective new result that for nine method the and to

As adjusted a non-GAAP EBITDA EPS, reminder, are and diluted unaudited non-GAAP income, net non-GAAP terms.

report as Form Our comparable these present a with measures. directly quarterly our GAAP earnings press release items reconciliation of as the well most XX-Q on

attributable primarily was stock restricted million equivalents total $X.X for on by of cash offset by driven cash The was $X.X includes approximately position, debt, a million by $XX.X for non-cash million term expenses by business, cash income principal activities. the consist our $X.X capital provision, net our vesting cash increase inventory cash December total million by of million expenditures $X.X million million cash $X.X million. XX, of $X.X which at and department an in income million and activities September and million non-cash XX, stock-based of operating $X.X $X.X other had shares of net partially million, accounts approximately the XXXX, company liabilities, which offset accounts an for increase store repurchased $X.X $X.X approximately receivable to now of amortization. with in grants our operating and payable in repayments provided deferred The decrease and million million depreciation increase to equivalents as of $X.X cash compared tax in compensation, and partially of expenses cash of were provided $X.X of in and XXXX. the primarily Turning This in of

term in of were of approximately million debt, payable were approximately our stock of at term Looking portion tax current total and million which the inclusive $X $XX.X million September are the XX, liabilities $X.X September contingent million deferred of includes liability. at payable long-term obligations million our debt, of liabilities million debt debt XXXX at $X.X $XX.X and XX, of obligations, these contingent $X.X net in obligations million total Of $XX.X stock and or in option. amounts, company’s of of At million, XXXX, million at cash contingent $X option. current $X.X

at exclusive million capital XXXX. payable $XX.X September working of XX, Our was the December with stock with XX, obligations at million $XX.X contingent XXXX approximately compared

As With of $XX cash, of million. cash payable in million. $X.X $X.X was was September XX, XXXX, million term debt our our approximately net debt term

Our rolling time over adjusted manageable be EBITDA back would as I to XX-month net leverage. positioned turn continue was With call to on very that, the one with Bob. debt low like a to basis we approximately ratio and to

Robert D’Loren

Operator? Thank Ladies gentlemen, you, this Jim. remarks. our prepared and concludes

Operator

ahead. Please is from Kawamoto first with Davidson. go DA Our instructions] [Operator Michael question

Michael Kawamoto

going? Yes, hey it How’s guys.

Robert D’Loren

Good morning, Michael.

Michael Kawamoto

Thanks for my taking questions.

fast-to-market on launching store initial would time more private a have business, off department from more feedback make have schedule, think those how still discussions year. any it you which are the back half-weighted on last those or label programs revenue those? first you Are the do said of I you’d Just half, going? in back

Robert D’Loren

Fifth, QX. picked on Yes, new and ’XX, unforeseen we’re so few heading plan Off and and barring retailers programs, up additional for Lord schedule programs any with strong now and doing working for so a label Bay on they additional expect, are are Hudson’s private we Dillard, & we we’ve into circumstances, Taylor, a Saks

Michael Kawamoto

revenue to pretty growth acceleration XQ? I characterize see understood it that’s a that meaningful Got you’d think I in it. way Is in last time. the fair it it

Robert D’Loren

year. would you XXXX a get should I private but is further in as and expect we to is yes. I also ramp say ramp, as that, expect Michael, get next these into programs, what would particularly retailers see into we there so label

Michael Kawamoto

and in the just the down revenue is at going Okay, there that to is QVC in touch, sounds business the on a being of good. just licensing rest to away, quarter well Then business the channel? fair the characterize the that Wonder interactive due that C. doing it’s

Robert D’Loren

Yes.

Michael Kawamoto

Okay. department business the potential that in the seeing of to the the you Then are to your and carrying favorably to some wholesale your you in they’re terms pivoting partners, store store--sorry, inventory, changes department to operating benefits model of when responding talk structure?

Robert D’Loren

an a that capability, and need spent so we two as expect production Yes, set this in the I to for demand to would there, industry continue say is expect more half this, beginning there know. down. the significant--there companies significant see is last cycles a see to you we embrace and fast-to-market supply chain up and years building as I coming for to industry it, would

Michael Kawamoto

Got it.

well? some congrats putting Do You on on on HSN Ripka mentioned of that. plan other the - Judith on HSN as you brands

Robert D’Loren

HSN Ripka of tell, we’ll networks. I and think on but of have the and other I certainly of a don’t some early that, that. it’s to will of our explore on the performance putting was brands Qurate little possibility Judith with course both to happy visibility think drive into We everyone total continue

Seth Burroughs

Yes and we more new how we lot at as look and as think develop brands built leverage there’s that well. we’ve HSN, QVC design center of a I platform Michael, our opportunity, HSN I to around the discussions brands new for opportunity do for so think the

Michael Kawamoto

a down first back little Ripka, or bounced all, of Got guys seeing business year. I you you part Has the that jewelry what bit Judith the it. was are there? on Then at think just the for

Robert D’Loren

it Ripka performed QVC. Judith has. on has Actually, well

needed attribute make. was casual much shift of like ahead that and in and jewelry, to a more made we’ve design that to plan, that that has apparel would We adjustments are we become design I

We’re over that some pleased results, we’ve particularly with the months that early last introduced. see of the three new results product with we’ve

We We made customers’ more platform, to are line that we’ve begin and cleaner, very we’ll demands. optimistic. clearly where a lean us ecommerce adjustments seeing think design introduced that doing It’s we’re meet well so on we’ve is into right to for our collection, the casual. that

Michael Kawamoto

it’s hear, to encouraging. Good

a more. Just couple

feedback any to how and there of Lord to been but you sort last initial the for bit, are what’s reception a Taylor Walmart.com, little early now on I site? product the been the a was Just time get little there, orders trending & on doing it know it said you’ve and

Robert D’Loren

early. still Lord we’re in on Walmart. it’s traffic a ecommerce seeing think not & a little I because frankly, uptick they’re on Quite big Taylor

I think there’s phase a through need both customer at base with to bit that of a the Walmart. retailers discovery will go

Michael Kawamoto

launching you about on China think just then and it on Okay, last I the talked C. call. Wonder, in

Just looking there, have for an in update you addition. anything

Robert D’Loren

strong and half now had of distribution we at bricks perhaps For additional and year, of in looking the channels first we’re sales China. VIP.com, on the mortar in

on for our about so we’re with one other working a partnership some in and brands of potential optimistic China-based the for partners are a Wonder production of We China. our C. operation,

Michael Kawamoto

That’s all I for the the luck the for your have for it. good Got rest questions Thanks year. today. of time, and

Robert D’Loren

Michael. Thanks

Operator

For Please questions, question any please telephone. on go Jeffrey your is one Link star further Invemed. ahead. from next with The and press

Jeffrey Link

gentlemen. morning, Good

Robert D’Loren

Good morning, Jeffrey.

Jeffrey Link

that I’m to quarter? been in this First question what most was six C. what Jim. it C. is now, we newer had it for knew only months was comparison for so revenue that the Wonder--did recent you not now Wonder’s about story, it’s there, break what and Since been for the out

James Haran

the termination programs. with that up We we fairly was that we so which close out year QVC. broke break quarter in lost of revenue was I interactive think to the domestically, not generated out roughly the was where did We other Wonder picked we’ve the with that for revenue QVC, impact what our from was $XXX,XXX, licensing C. which on

Jeffrey Link

of me licensing to model. what to the wholesale switch explain Bob, I maybe disadvantages can advantages are the the see, from okay. the you or

Robert D’Loren

and design begins over a a made so the all day, first that product because and back direction that see, the back at the With with we’re foremost of benefit and sense the our end course, it licensee, taking it, the in not happening licensee. orders, decision, control DC, more design we’re to not I control at been distributing say handing more you because holding and design jewelry we inventory then win business, the advantage over are working purchase in we is want have--of we and off really it. with would more control in process. of and that over primary we the inventory, risk product. that’s a on the that’s buying actual The happy We’ve like on

Seth Burroughs

just Jeff, is would The than the you models as benefit. know, the significantly old a where more Seth. and I this license benefit with add licensing financial that’s sign a you overhead retailer collect check. strategic a we obviously, have

than teams, and full have start if us sourcing, more make for can to you margin between typical design would not rates product taking higher model, it’s of wholesale selling we is wholesale we’re under we significantly so which fabric not generally inventory taking know, We we development, margin, On product so royalty risk, between XX significantly of - license a X wholesale. significant XX in for development, can wholesale much XX%, really to full make X% and the a risk.

Robert D’Loren

and would a if fairly a platform, it’s a that for transition. a add we have the that, be didn’t to this traditional easy licensing transition But design us, I’d company difficult Jeff, were really sourcing we since capability, have

Jeffrey Link

there by? impacted the the the are IMNYC, in brands on and being other transition this is Halston, any And that

Robert D’Loren

them. All of

Jeffrey Link

hit going now in-house able new see when begin inventory you when can to the the designs doing you been What’s new--when to is lag? hadn’t the with the So be floor? those to we before,

Robert D’Loren

expect it you that to deliveries. say would see I will April-May

Jeffrey Link

Okay.

initiatives things that QVC that front, to can the there potential do HN going business. continue you that in curious on addition--I’m that other are if grow are to on Just are

Robert D’Loren

to to working customer casual overall, improve business of with looking can the to we then to now we’re we and how bring seeking of collectible, opportunities more to our to We Retail improve not bring are jewelry and programs team ways are them Group, on to just working of we at deliver brands. closely the them help can We on jewelry, course Qurate collectively with but Qurate they’re at the them kinds jewelry ways yet that and what considering. brands collaborate looking still customers we’re new that we’re new

Jeffrey Link

Okay. All thank right, you.

Operator

at are closing for time. no any this would questions remarks. turn back the registered There to I over management like conference further to

Robert D’Loren

stay thank appreciate this your fit, Operator. time all greatly and support well, your healthy. continued Xcel interest you, and gentlemen, you morning. in ladies and Brands, Thank Again, and always for be eat We as

Operator

today’s concludes call. This conference

pleasant for You Thank your you a may disconnect participating have day. lines. and

Xcel Brands (XELB) 14 Nov 182018 Q3 Earnings call transcript