Icon Energy Corp (ICON) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Q2 2005, Iconix Brand Group earnings conference call. My name is Candice, and I'll be your operator today. [OPERATOR INSTRUCTIONS.]

Before we begin, the Company has asked me to read the following statement. Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this conference call are forward-looking statements that involve a number of risks, uncertainties, and other factors, all of which are difficult or impossible to predict, and many of which are beyond the control of the Company. This may cause the actual results, performance, or achievements of the Company to be materially different from the results, performance, or achievements expressed or implied by such forward-looking statements. The words believe, anticipate, expect, confident, and similar expressions identify forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

I would now like to hand the call over to your host for today's call, Mr. Warren Clamen, Chief Financial Officer. Please proceed, sir.

Good morning, everybody. Iconix Brand Group, Inc., formerly Candie's, Inc., today announced financial results for the second quarter 2005. Licensing and commission income for the period increased 62%, to approximately 4.3 million, compared to approximately 2.6 million in the comparable period for the prior year, driven primarily by the new Candie's licence with Kohl's Department store and the new Bongo jeanswear license. The Company reported fully-diluted earnings per share of $0.08 versus $0.02 in the comparable quarter for the prior year. Net income for the quarter was approximately 2.5 million, compared to approximately $0.5 million for the quarter last year. Second quarter 2005 results were inclusive of a non-cash tax benefit of approximately 1.8 million.

For the six month ended June 30th, 2005, licensing and commission income increased 70%, to approximately 8.6 million, compared to approximately 5.1 million in the comparable period for the prior year. Fully-diluted earnings per share were $0.11, inclusive of a non-cash tax benefit of $0.06, compared to $0.02 in the comparable period for the prior year. Net income for the six months increased to approximately $3.3 million, including a non-cash tax benefit of approximately $1.8 million as compared to approximately 600,000 in the six-month period last year.

I would like now to turn the call over to Neil Cole, Iconix's President and Chief Executive Officer.

Thank you, Warren. Good morning. Our second quarter results begin to show the potential of our exciting new business model, as a brand of management, licensing and marketing Company. We have changed our name to the Iconix Brand Group, which we believe better reflects our business of owning a diversified portfolio of iconic brands. We are currently evaluating many growth opportunities within our existing portfolio and through the addition of new brands.

In July, the Candie's brand successfully launched at Kohl's Department store, and the initial sales have exceeded expectations. Kohl's has made a substantial commitment to Candie's and they have proven to be an outstanding partner, collaborating with us every step of the way. Iconix was able to develop an exciting advertising campaign featuring Hilary Duff, and Kohl's put the full force of their vast media behind it. We are confident that the Kohl's partnership will dramatically increase Candie's brand awareness and market share. And we are currently evaluating opportunities with a structure similar to Kohl's in other markets around the world.

The royalty revenue generated by our Bongo brand has increased dramatically year-over-year, due largely to the transition of our operating jeanswear business to a license. Overall market conditions have impacted the rate of growth in the core denim category, but our new licensee is committed to building existing accounts and expanding into new doors. As a lifestyle brand, Bongo continues to grow, with 14 licensees, including an international agreement for South and Central America. We see Bongo royalty income continuing to grow, as many of these new licensees further penetrate their segments and build market share.

Our luxury brand, Badgley Mischka, now has eight strong licensees, with three new additions in the last few months. Through a license agreement, we will be opening the flagship Badgley Mischka's retail store on prestigious Rodeo Drive later this month, and a new Palm Springs store will open in November. We are also premiering a new bridge collection of apparel to retailers this month, which we are very excited about, and believe it will expand customer base and distribution for the brand significantly. We see '06 as the year Badgley Mischka will begin to show its great potential, when the new licensed product comes to market.

The Joe Boxer acquisition was the continuation of our strategy to strengthen our portfolio through acquisitions that are accretive to net income and earnings per share. The Joe Boxer brand is an extremely powerful name, with over 90% awareness among consumers. It has an irreverent and playful image that entertains customers and adds excitement to the retail floor. The brand is currently licensed to Kmart in the United States, which is now owned by Sears Holding, and is licensed internationally to wholesalers in both Canada and Europe. The Joe Boxer brand gives us a strong presence in the young men's market, and an entry into some basic products like underwear and hosiery.

We believe Joe Boxer has great growth potential, both in the U.S. and internationally, and also to expand beyond its core categories and become a true lifestyle brand. With this acquisition, we were able to strengthen our management team, through the addition of Bill Sweedler and Andy Tarshis, who bring licensing and brand management expertise to Iconix, and share our vision of building a strong and diversified brand management, licensing, and marketing Company. We believe our business model and growth strategy of acquiring a diversified portfolio of consumer brands is aligned with the challenging trends in the fashion industry and positions us for sustained, profitable growth.

Within our portfolio today, we have two brands licensed directly to retailers and two brands licensed to multiple manufacturers. Our current portfolio spans the distribution pyramid from luxury retailers like Neiman-Marcus to mass chains like Kmart and encompass products as diverse as evening gowns to casual men's wear. Because we do not assume the traditional risk of operating the businesses, this diversification helps us to insulate us from the softness in any particular sector and provide stability. Additionally, as we build relationships with leading retailers and manufacturers around the world, we are finding synergies and benefits to having a larger portfolio of brands.

We consider this business model and our growth strategy as analogous to the way that an entertainment company adds new artists or a real estate developer adds buildings, to leverage an existing infrastructure, rather than the traditional operating acquisitions. We plan to finance this growth through additional trademark securitizations, similar to the manner in which we just financed the acquisition of Joe Boxer. Brands like Joe Boxer with guaranteed royalty income streams are placed in trusts that issue debt, and the royalties are used to pay the holders. Using this unique financing vehicle, in combination with Iconix stock, this positions us to make additional acquisitions that will be accretive to net income and earnings per share.

As shown in our press release this morning, the Company has updated its full-year guidance to a range of $0.32 to $0.35 per share, inclusive of a non-cash tax benefit of $0.15 to $0.17 per share. This compares to the Company's previous guidance of $0.25 to $0.30 per share. The Company is also issuing a preliminary projection for '06 of earnings in the range of $0.50 to $0.55 per share, inclusive of a non-cash tax benefit of approximately $0.03 per share. This preliminary '06 projection is relative only to the current brand portfolio and does not include any additional acquisitions that the Company may make.

Looking ahead, we see an exciting future. We are evaluating a diverse array of intellectual property that would complement our existing portfolio and permit expansion into new market opportunities. We have an experienced team of professionals that has embraced our new business model and will continue to add value through our expertise in marketing, branding, and fashion. We are currently building relationships with many of the largest retailers and manufacturers in the world, all eager for exciting new brands and marketing that will differentiate them in this increasingly and competitive marketplace. This is the essence of our opportunity, and we are committed at Iconix to realizing our full potential under this model.

I'd like to thank you for listening and your interest. And I'm going to open it up to a question and answer. Joining me for the question and answer, along with Warren Clamen, our CFO, is Dave Conn, the Executive Vice President of Iconix; and Bill Sweedler, our President of Joe Boxer and EVP of Iconix. Candice, can you open it up for question and answer?

Sure.

All right. Thank you, everybody.

Sir, our first question comes from Thomas McCarthy of Raymond James. Please proceed.

I have two questions, actually. The first is -- Could you elaborate on your phrase, expansion into new business opportunities? What might that entail in terms of examples, and how much of a thrust and what kind of time line there might be? The second question is -- What efforts are underway to publicize your stock to the investment community? Are there any brokerage firms that currently have research coverage? Are there any efforts underway for that? Also newsletter writer recommendations? Thank you.

Well, as for as new opportunities, we're looking at purchasing other valuable trademarks that have strong -- that we could monetize. A good example is Joe Boxer. We see that there are some great brands out there that we believe that we can take into our portfolio, do licence -- only run as a licensee business, not acquire the operation, and do similar type of arrangements that we did with Candie's in Kohl's or with Joe Boxer in Kmart. So we see great opportunities, and we're currently evaluating a pretty large array of intellectual property that's for sale.

And we're focusing -- our criteria is we want it to be a wonderful, or an iconic brand, something that the -- America knows. We want to -- obviously, we expect it to be accretive, and the way we're purchasing these trademarks, we believe they can be very accretive, and further diversifying our portfolio to -- market risk, in case, down the road, one of our many brands hits a rough spell in a certain segment of the market. This gives us diversification.

And the second question is, traditionally, over the last year, we've been primarily focusing our -- on our business and we've had a lot of -- a lot going on here as far as changing to this business model. We hope to get out a little more and tell our story probably around the end of third, fourth quarter when people see who we are, and more understanding of our business model, and, I think, the exciting future this Company has. But the answer is no, we do not have coverage at the moment, nor are we -- there've been a few newsletters. But we've had opportunities, but we're kind of waiting for the right opportunity to tell our story.

Thank you.

Candice, you there?

Our next question comes from George of Karud of Karud Capital. Please proceed.

Good morning, Neil.

Good morning, George.

I wanted to ask you, how can you expand and extend the Joe Boxer line? And in your press release, when you purchased it, you said it had 20 million in royalties. Has that been relatively flat the last few years, or has it -- ?

I'm going to turn that over to Bill Sweedler.

Okay.

Hi, George. Good morning, Bill Sweedler.

Good morning, Bill.

We really look at many different opportunities with the Joe Boxer brand. There's domestic opportunities, obviously, and there are international opportunities. We're on the way right now, discussing many new things internationally, as well as additional product branding.

Are you going to benefit any from the Kmart, Sears combination as far as getting in more stores? Or is that a neutral thing or how would you -- ?

Well, it's our intention to continue and build on our relationship that we formed in 2001 with Kmart, which is now Sears Holding. So, we'll move forward.

I mean, should you do more volume? You'll be in Sears, also. Will the net effect be greater volume?

Again, Sears -- Sears Holding is going through many changes right now as they merge their infrastructure. We think they're going to be a better -- it's going to be a better company moving forward, and we'll see where it goes.

Okay. Another question for Neil. Neil, I know that one of Bongo's big customers was Kohl's. Has the Candie's deal cannibalized the jeans sales into Kohl's?

Actually, Bongo business at Kohl's is almost more than double what it was last year. And when everyone, hopefully, gets into stores and sees the Candie's presentation, which is pretty amazing, right behind it is Bongo in both juniors and in kids' area. So we think our stronger relationship with Kohl's is only going to help our other businesses down the road, and it hasn't hurt us in Kohl's Department store.

Well, if your Bongo jeans business is twice as much as it was, or are you talking about the total Bongo?

I'm talking about the Kohl's business at Bongo.

Right. So where's the softness in the jeans? If Kohl's is doing so much more, where is the softness other places?

In the transition we lost momentum with JCPenney, and also some of the May Company stores that are in the middle of a transformation. But we've kind of gotten all those customers back. Bongo, today, is selling everyone who they want to sell, and I think we're on the road to recovering some of the market share we lost.

Okay. And I guess this is a question for the CFO. Prior to this guidance of $0.32 to $0.35 for '05, with a non-cash tax benefit of $0.15 to $0.17, you'd given guidance of $0.25 to $0.30. How much of the $0.25 to $0.30 had a non-cash tax benefit? And when you compare operating incomes, is it a little bit short, even though the guidance is higher, is operating income a little less?

Tom, it's actually a little bit tricky because you continuously evaluate on what the non-cash tax benefit is going to be. So it's fairly relative to what we're doing now, but it may be slight -- it was slightly different because you re-evaluate that every period on what you're going to take in.

Right. But how about operating income, actual money that you're making from the -- from operations?

I mean, EBITDA for the period, for the Q was approximately 1.6 million. And for the first half of this year was 3.3 million.

Okay. Thank you.

You're welcome.

Thanks, George.

Our next question comes from Dennis Rosenberg of D&R Consulting. Please proceed.

Good morning. Could you give us some detail on the projections for '05 and '06 by product line and Candie's, Joe Boxer, Bongo, and Badgley Mischka? And are the projections based on minimums or are they based on what you really expect to be doing?

Our projections are based on minimums, except in a few instances where we have developed businesses that far exceeding the minimums and we might go to the previous year. So the projections for '05 and '06 are based on minimums. As far as breaking down the categories, in '05 we were basically, on the last call, I said, roughly, Candie's and Bongo were each about 8 to $9 million of royalty, Badgley Mischka was 1 million, and our Brightstar Footwear commission business was roughly $2 million. Joe Boxer is going to add, roughly, because we only get the benefit of somewhere around five months of it, we'll be adding somewhere, let's say, between 8 and $9 million to the top line for this year.

Moving forward into '06, top line we see somewhere between 40 and 43. Boxer will be roughly 20. Candie's is, roughly, about 9 -- 8 to 9 again. Bongo is roughly 8 to 9 again. And Badgley will be going up to 2. And Brightstar will be about 2. In '07 is when we see Candie's really take off, because Kohl's -- we get a full year of Kohl's, where in '05 and '06 it was a partial year. It was a one-year -- '05 and '06 comprised the one-year guarantee. And these are -- once again, I'll stress these are minimums. We think in '06, especially, we see some, possibly, very good upside, especially, in the Kohl's deal based on the great success we've been having the last few weeks.

You also seeing significant upside on the Boxer in '06?

Boxer right now, we're going to -- there definitely could be upside, especially internationally. We have some great opportunities there that we're down the road on working on. And, so, we do see some upside there, too. And, hopefully, in all our brands we see upside. It depends on how far these companies exceed the minimums and how well we grow.

Also, could you work through the financing of Joe Boxer in some more detail, please?

The financing that we've been doing, Warren, do you want to tick through the -- how long the financing of Boxer and how it works?

I mean, essentially, the Boxer deal was financed through a similar trust securitization, which, essentially, takes the intellectual property and puts it in the trust. The rate on the securitization is about 8.45%. And the guaranteed income streams, essentially, pay off the debt. That's, essentially, the way it was financed. Plus we paid 4.35 million shares, and we assumed approximately 10.7 million in debt.

Okay. And does the full 8.5% flow to the income statement?

Yes. As interest expense. Yes.

And as we do more deals, we're hoping to bring that rate down. As our trust gets bigger and the risks continue as we diversify our portfolio, we believe we can bring the risk down.

Thank you.

Or the rates down.

Our next question comes from Peter Cyrus of Parilla Capital. Please proceed.

Hi, Neil.

Hi, Peter.

Must be nice not to have inventory to worry about.

Yes. Or dilution chargebacks, either.

I'm curious. This is -- this is a really -- I mean Cherokee's done this, but a lot of ways this is a very new business model -- buying the great brands and then putting them into the stores. And I'm curious, sort of, in general, as you've talked to a lot of stores, what kind of reception are you getting? Not specifically to the to Candie's or Boxer, but to the model? And where do you see -- whose business is it going to take the place of? Is it going to take the place of the store's private label business or the, sort of, the dumb but unnamed brands that companies like Kellwood have? I'm not picking on Kellwood, but --

Be careful, Kellwood's a great manufacturer of the Candie's apparel.

Oh, no. I know that. That's why I'm, like, I'm not trying to pick on them in any way.

I'm only kidding.

But what I'm say is, this sort of -- is it the, sort of, meaningless brands that are around now? Or is it the house brands? And what kind of response are you getting? I mean, are companies coming to you saying gee, why don't you get this?

Right. Peter, first of all, in the beginning when you correctly analyzed a little bit what we're doing to Cherokee, I think the difference between us and Cherokee is the way we're diversifying. Not just having one relationship, or one or two, it's really a -- the concept is a diversified portfolio, where we spread our risk out and are not at the whim of one retailer. But I think the second question, as far as where's this business coming from? I think the retailers are looking at Iconix as a valuable partner that can help give them excitement to the floor, similar to what we -- the way we marketed Hilary Duff and the way we're -- we build brand. I think it's going to come from a lot of places, whether they cut back on some of their brands that they're eking out 40% on, or it's coming from their private label business.

This gives them the best of both worlds. It gives them a brand that they can make at a private label margin. They can go in and make 70-some-odd points by not having to buy from a manufacturer, and they get a great brand that has a marketing team with it to work with them. So I think it's a little of both. I think where the business comes from could be different in each of our partners as we go forward. But it just gives the store a higher margin and a branded product that differentiates them from their competitors and gives them exclusivity.

And if I could just follow up on one thing. There must be a lot of brands around, really, sort of, great names around that -- I'm not trying to make a joke about this -- that are waiting for somebody who's a great marketer to pick them up and do something with them. You must -- you must -- would you have a big -- could you have a big acquisition pipeline if you wanted?

Yes. There's -- right now, there's a tremendous amount of opportunities that are coming our way. And we just have to be careful. We can't make mistakes. And we've got to choose -- we want to make sure every deal we do is monetized, and we -- the Board puts some criteria in place that each brand has to have certain types of credentials for us to consider, and we just have to go slowly and -- and make sure that we acquire really great iconic brands.

Thanks, Neil.

Thanks, Peter.

Our next question comes from Michael Needleman of Ridgecrest Partners. Please proceed.

Good morning, how are you?

Hi, Michael.

Just a question to come back. I want to be somewhat clear or help clear up the numbers that you gave from Kohl's next year. You said that you thought that they could do between, I think it was, $8 million is what you came out with?

Yes, our minimum with them is roughly about that. But it's spread out over '05 and '06. And the way the business -- once again, it's still early in the -- and it's just been a few weeks. But the business has been really wonderful. And we see a nice upside in '06.

What that, just, is suggesting is -- in other words, that number that you are giving is just minimum. Clearly, any upside above $200 million of what we could perceive to be that, of course, over the 15 months is not in that number?

I'd rather not -- in our agreement with Kohl's, the numbers are confidential, and I'd rather not specifically, but there is some nice upside if we continue to perform. Second question is -- On Joe Boxer, the $20 million of royalty, I don't know how Joe Boxer typically runs, so is there a pattern of how that royalty stream comes in? Is there -- geared more towards the second half, the first half, as far as the stream or is it somewhat even throughout the year?

Hi it's Bill Sweedler. It's evenly spread out throughout the year.

Okay. Thank you very much.

All right. Thanks, Michael.

[OPERATOR INSTRUCTIONS.] Our next question comes from Kevin Foley of Constitution Research. Please proceed.

Good morning.

Good morning, Kevin.

Just want to clarify my understanding on the revenues and the assumption. Twenty -- I've got a 27 to 30 million for '05, and 40 to 43 for '06?

Correct.

Okay. And I just want to make sure I'm clear on this. The Candie's assumption for '06, that's just the minimum?

Correct.

There's no upside in that 8 to 9?

Yes.

Okay. Secondly, when you mentioned 2007 could be the breakout year for Candie's, what do you mean by that? Why -- because upside can come sooner than that.

I mean it's our first full year where the Kohl's minimum is not spread out over '05 and '06. And we see a lot of opportunities, where our minimum will be substantially higher by then.

Okay. The minimum is raised in '07?

Correct.

But, certainly, upside can come sooner?

Yes.

So we can see upside in the next two quarters, potentially?

I don't think you'd see it in the next two quarters from -- you won't see it in the next two quarters from Kohl's because the full year of '05 was planned over four quarters, but you will see it in '06.

Okay. And, then, can you just elaborate a little bit for me on the Joe's deal with Kmart in terms of the timing on that? How long is that deal?

Hi, Kevin, Bill Sweedler.

Hi.

We -- typically, we don't really mention anything about our contract, but the contract ends -- the current contract, or current term, is a 5.5 year deal that ends at the beginning of 2008, with a 5-year renewal at the end.

At each party's option or mutual agreement or -- ?

It's at each -- it's -- again, we don't typically go into the renewal details because we have confidentiality, but there is a renewal option.

They've got the renewal option?

Assuming they meet a certain criteria of revenues for us.

Okay.

Right. There's criteria associated with it.

Okay. And, I assume, obviously, you can't go too much into detail, it's -- if I heard it correctly, there's no assumption that this gets into Sears or anything like that, it's just an opportunity to maybe develop that relationship?

Correct.

Okay. Thank you.

Thanks.

[OPERATOR INSTRUCTIONS.] Sir, there are no further questions at this time. Please proceed to your closing remarks.

Okay. Once again, I'd like to thank everybody for listening to our call today and the interest in our -- the Iconix Brand Group. We're, obviously, very excited here about our new business model. I think it fits the criteria, or the core competencies of management and where we're going. And we think we have a -- the beginning of some really great things. And I look forward to the future of helping -- of delivering great earnings. And I'll talk to you all soon next quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.