Icon Energy Corp (ICON) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 Iconix Brand Group earnings conference call. My name is Lauren and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session today at the end of the conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

Management would like me to read the 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 "believes," "anticipates," "expects," "confident" and other 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.

Joining us on the call today are Mr. Warren Clamen, Chief Financial Officer; Mr. Neil Cole, CEO; and Mr. David Conn, Executive Vice President. I would now like to turn the presentation over to your host for today's conference, Mr. Warren Clamen, Chief Financial Officer. Please proceed, sir.

Good morning, everyone, and welcome to the Iconix Brand Group's second-quarter 2007 earnings conference call. In reviewing the Company's financial results for the second quarter ended June 30, 2007, licensing revenue increased to approximately $39.1 million as compared to approximately $18.4 million in the prior-year quarter for 2006.

EBITDA for the quarter increased to approximately $31.2 million as compared to approximately $11.4 million in the prior year, and free cash flow for the quarter increased to approximately $25.8 million as compared to $9.3 million in the prior-year quarter.

Net income and fully diluted earnings per share, as reported on the Company's income statement, were approximately $14.8 million versus $8.3 million, and $0.24 versus $0.19, respectively. However, it's important to note that the Company was recognizing non-cash tax benefits through its income statement in the prior-year period, and therefore, in comparing net income and fully-diluted EPS on a more apples-to-apples basis, the Company had net income of approximately $14.8 million in the current quarter versus approximately $5.2 million in tax-affected net income for the comparable quarter in 2006, and fully diluted EPS of $0.24 in the current quarter versus a $0.12 tax-affected EPS in 2006.

For the six months ended June 30, 2007, net income and fully-diluted EPS, as reported on the Company's income statement, was approximately $27.5 million as compared to approximately $15.7 million last year. And fully-diluted EPS for the current quarter was $0.45 versus $0.37 in the prior-year six months. Tax-affected net income and fully-diluted EPS for the six-month comparables was $27.5 million versus $9.2 million for net income, and $0.45 versus $0.21 for fully-diluted EPS.

EBITDA, free cash flow and tax-affected EPS are all non-GAAP measures, and reconciliation tables for all three can be found on iconixbrand.com and in our earnings release sent out early this morning.

We are pleased that we have continued to execute our growth strategy and doubled second-quarter revenue year-over-year. We were also able to achieve EBITDA margins of 80% for the quarter, up from 62% a year ago. The 80% EBITDA margins for the quarter will most likely end up being slightly higher than our overall margins for 2007, which we anticipate to be approximately 77% for the full year, based on the timing of certain advertising expenses that we will incur in the second half.

Special charges related to the Unzipped litigation, in which the Company was awarded a jury verdict of approximately $50 million in April, decreased to $331,000 from $712,000 in the prior-year quarter. Once the post-trial motions have been decided and judgment is entered. we will move into the collection phase of this process, during which we expect these charges to continue to decrease.

In the second quarter, we continued to execute on our strategy of improving our capital structure, and in doing so, lowering our overall cost of debt. Within this period, we completed a convertible bond offering, raising capital of $287.5 million through the issuance of a senior subordinated unsecured note with a coupon interest cost of 1 7/8 and a conversion premium of 30%.

We simultaneously entered into a hedge instrument, which effectively gives the Company an increased conversion premium of 100%. We view this convertible bond as a source of low-cost capital, given the low fixed coupon cost and a high effective conversion premium of 100%. These transactions have improved and diversified our capital structure, provided the Company with the financial flexibility for our growth plans and lowered our overall weighted average cost of debt to approximately 5.3%.

Although the capital markets have been challenged in recent weeks, our proactive approach has provided us with $277 million of cash on our balance sheet and the flexibility to continue to execute on our acquisition strategy. We further believe that our unique business model and the ability to securitize assets will enable us to continue to tap into these capital markets in the future.

We are very comfortable with our pro forma leveraged ratio of two times net debt to EBITDA -- 2.9 times net debt to EBITDA.

I would like to now introduce David Conn, Executive Vice President of Iconix Brand Group, and he will give us an update on our brands.

Thank you, Warren, and good morning, everyone. I'll now walk you through each of our portfolio brands and their highlights from the quarter.

Our direct-to-retail brands, Candie's, Mossimo and Joe Boxer, are all seeing double-digit sales increases year-to-date at their respective retail partners, Kohl's, Target and Kmart, and we're pleased with their performance.

Candie's is now in its second season with our current advertising spokesperson, the recording artist, Fergie, and we're very excited about our new television commercial, which was shot on the set of her latest music video and is currently in heavy rotation on the major networks.

The Mossimo business at Target is strong, and the Mossimo international business continues to gain momentum, as we recently restructured our license in Japan, bringing a new master licensee on board who has an aggressive growth plan that includes expansion into accessories categories and rolling out freestanding stores. Our new master license agreement provides for more than double the minimum guaranteed royalty revenue than we were previously receiving, and we believe has substantially more upside.

In addition to nice year-over-year increases in the Joe Boxer business at Kmart, Joe Boxer will begin selling at Sears stores later this month. We are also discussing Joe Boxer shop-in-shops that would go into Sears stores in 2008, when the brand is scheduled to be in all doors of the chain. Joe Boxer also continues to grow nicely today in five key markets around the world.

After a difficult year in 2006, our Bongo brand has stabilized, and we have confidence in our new denim licensee. The Bongo footwear business is doing very well and growing nicely, and we have a number of new accessory licensees that we are optimistic about.

The Mudd footwear business continues to show amazing growth, and is again exceeding our expectations. And our Mudd intimate apparel and sleepwear license is also performing extremely well. Our Mudd denim business is challenging at the moment, and we are working with our licensee on several initiatives to grow the business.

Our Rampage brand continues to grow and is exceeding expectations in its core better department store distribution. We are working on new license agreements for categories like denim and dresses that we believe could provide substantial growth. And we are continuing to invest in elevating the brand through our advertising spokesperson, the supermodel Petra Nemcova, who we have signed to a long-term deal to represent the brand.

Badgley Mischka continues to grow, with licenses now in 20 different product categories. We're pleased with the performance of Badgley Mischka sportswear following its launch earlier this year, and believe that it can grow to be a very meaningful business in the next two years. We recently launched swimwear, and the product was very well received. Badgley Mischka bed and bath products will also be launching soon through a new home license that we recently signed.

We're extremely excited about our London Fog launch this fall. The products been placed much more broadly than we had anticipated in chains like Macy's, Dillard's and other better department stores. London Fog product is already available at nordstrom.com, and the early selling has been very good. To support the launch, we have developed a cause-related multi-celebrity advertising campaign featuring Teri Hatcher, Kevin Bacon and Cheryl Hines. Our direct-to-retail license in candidate with Hudson Bay is set to launch this fall, and we're optimistic that we will sign a license agreement in China for London Fog later this year.

I will now turn the call over to Iconix's CEO, Neil Cole, who will talk about our most recent acquisitions and give an update on the overall business.

Thank you, David and Warren. Good morning, everybody. I'll begin today by briefly discussing our most recent acquisitions, OP, Danskin and Rocawear. We are close to completing a direct-to-retail license agreement for the core apparel category of our Ocean Pacific, or OP, brand. We are excited about our partner, and hope to be able to announce the details soon.

Our revenue guidance for OP this year assumes no contribution from a new apparel license agreement. So while the timing has taken a little bit longer than we had anticipated, it will not have an impact on our revenue this year, and we are confident that we are making the best long-term decision for the brand and are on track to launch the brand in 2008.

With respect to Danskin, first let me address the direct-to-retail license with Wal-Mart for Danskin Now. We have been highly engaged with the new team at Wal-Mart and are looking forward to working with John Fleming and Dottie Mattison to grow the Danskin Now business at Wal-Mart and be a partner for them to help reinvigorate their entire apparel business.

We also believe that there is significant opportunity to grow to the Danskin department store business, as the women's activewear and yoga categories are seeing tremendous growth today, and we believe Danskin, with its 125-year heritage and authenticity is well positioned to capitalize on this trend.

The Rocawear business continues to be strong and growing. Jay-Z is more involved than ever, and we are close to contemplating a new license agreement for men's outerwear and are also negotiating a very exciting fragrance license for Rocawear. We are excited about the new advertising campaign for fall called "I will not lose," featuring a number of different celebrities that have overcome adversity. We have also created a cause-related tie-in to this campaign that we believe will elevate it even further.

When we purchased Rocawear, we also entered into an agreement with Jay-Z to form a 50-50 joint venture brand management company that will purchase and develop different types of brands that would not fit into Iconix's criteria. I'm pleased to say that we have officially formed the company, which is now called [Scion LLC], and we have identified a handful of attractive opportunities that could be purchased and licensed in a manner similar to the way we have built the Iconix model. And we anticipate announcing the first brand acquisition through Scion very soon.

Overall, we are pleased with our results in what was a very challenging quarter for the overall retail environment. I believe that the fact that we were able to double our revenue in a quarter where two of the three months at retail were so difficult is a testament to the strength of our business model.

Having the majority of our revenues base contractually guaranteed from a diverse base of 11 brands and over 150 licensees buffers us from the weakness in the overall market. Besides, our lack of inventory, the gross margin risk traditional in a fashion business and the low expense structure insulates us from the quick downturns in financial performance that are so prevalent in the fashion industry.

In terms of acquisitions, we have been aggressively looking at many different properties, but have passed on a few opportunities recently, declining to chase deals that were outside of our investment criteria. The recent crunch in the capital markets will present even more opportunities for acquisition growth, and with almost $300 million in cash on hand, we are well positioned to take advantage of these opportunities.

We are continuing to build our infrastructure to support our aggressive growth plan and I am very, very pleased [that] the talent we have recently added to the Company, as we have grown from approximately 40 employees to approximately 65 today. We will continue to build infrastructure to support the brands that we acquire, while continuing to be mindful of our EBITDA margins.

In summary, our management team is pleased with where our business is today, and more confident than ever about many exciting growth opportunities that lie ahead. We have a business model and strategy that enables rapid growth, an infrastructure that can be highly leveraged to drive profitability, and a substantial and diverse base of contractually-guaranteed revenue that mitigates our downside if retail is weak.

It has now been over two years since we changed the name of our Company to Iconix, and since that time we have acquired eight new brands and experienced dramatic growth. Despite this, I can assure all of you that everyone on our management team believes that we have only just begun to show the potential of this 21st-century business model and our growth strategy.

We are reaffirming our previously stated guidance of between $150 million and $160 million in royalty revenue, and fully-diluted earnings per share of between $0.96 and $1 a share, excluding any acquisitions.

With that, I would like to turn it over to your questions. Thank you very much for listening, and, operator, we are ready for questions.

(OPERATOR INSTRUCTIONS) Todd Slater with Lazard Capital.

Thanks very much and congratulations. I just wanted to start with Scion for a second. I'm just wondering if you can give us a little bit more color on what types of brands or models that would not meet Iconix's criteria, without obviously naming names. But give us a sense of what types of businesses Scion might look at that you think would not be favorable for Iconix.

Hi, Todd. It's David. The brands that will be appropriate for Scion, it's really going to be about leveraging Jay-Z, both in terms of his access to bring us brands and categories that Iconix wouldn't necessarily get to, and also just the power of his celebrity to develop brands. So I think more developmental and different categories is really how I would characterize it.

I would also add that I definitely see them smaller in scale than Iconix would be looking at these days.

Got it. And just with OP, when do you think you could have the first shipment to whomever your new licensing partner turns out to be? I mean, what is sort of the earliest you could get product into the stores at this point?

We are still working towards spring/summer -- probably first deliveries 3/25, 4/25 in-store.

So really impacting more the second quarter; there might be very little on the first quarter?

Yes, but the way the agreements work with the guarantees and the first year, I think it will be balanced throughout.

0h, got it. Okay, sure -- that makes sense. And then just wondering if you could provide a little bit more color on the revenue contributions for new businesses like Rocawear and Danskin, and any seasonality issues. I think it will help us more accurately gauge third- and fourth-quarter revenues.

Yes. When we purchased Rocawear, we did think we'd get a little more contribution in Q2, which we're seeing is more heavy into Q3 and Q4, being more of the higher price points that happen in the fall. So we do see a little heavier into the second half of the year. Danskin is definitely a little higher probably in Q4 and Q1, being more Spring and more activewear. But we are on track for this year on our revenue projection, although those brands definitely caused a little shift from Q2 into Q3.

Okay, and one last question, just sort of on the whole credit environment. Is there any impact on the demand side of the equation, given the tighter credit? Is that benefiting or improving the sort of amount of companies looking to make -- that are in the deals? Are any of them pulling out? Is there any benefit on the demand side of the equation?

I think it's too early to actually see it. But our personal opinion what is happening is it's going to create tremendous opportunity for Iconix, because of the amount of cash we have on hand and because of how we traditionally bought companies through securitizations. We do believe that this new credit crunch is a wonderfully opportunistic time for us, and we will be seeing a lot more deal flow than we have. But we still are going to stay disciplined and continue the criteria we have. But we do expect to see some wonderful opportunities in the last half of this year for acquisitions.

Okay, thanks, and best of luck.

Bob Drbul with Lehman Brothers.

Good morning. Some questions on London Fog, first. Can you tell us how many doors it's going to launch into on the Macy's side and Dillard's side? And in terms of the advertising campaigns for both Rocawear and London Fog, can you just maybe put some numbers around how heavy an investment in the third quarter versus the fourth quarter?

As far as the door count on London Fog, we will be getting old doors on the outerwear portion, and I believe the luggage portion at Macy's. And I believe it's about half the doors at Dillard's on London Fog.

And on the investment side, I think the color that we had given is the overall EBITDA margins for the year are going to be around 77%. They came in at 80 this quarter; they were about 75 in the first. Definitely Q3 will be heavier and there will be a lower EBITDA margin, and then it will bounce back up in Q4. Because those two campaigns you'd sort of drop in Q3. So it will average out to 77, a little bit lower in the third quarter, a little bit higher in the fourth.

Okay, great. And a quick question for David. Is there any progress on international with the European retailers or anything close to happening there or anything you are looking at?

Yes, we have interesting deals that we are working on for Ocean Pacific and for Danskin in Europe. And I think that's all I can tell you at this point, Bob.

Okay, thank you very much.

Virginia Genereux with Merrill Lynch.

Thank you. If I can just look at some of the EBITDA margins a little bit, guys. If the year is going to be 77, then that says to me that you're going to come in at the -- that you've got to sort of hit the high end of your revenue range to deliver the EPS. Is that fair to say?

Yes, I think we believe we're going to be at the high end of the revenue end.

Okay. And then how about going forward, how should we think about sort of the upside opportunity to those EBITDA margins? Or Neil, as you do bigger deals, are they more likely to be --like Rocawear, if you include the amortization -- I guess before the amortization -- is the model more likely to be sort of a 77% type?

Yes, Virginia, I think it is really tough to tell, because in each of the deals we look at, they have different levels of overhead and advertising commitment. For instance, although Rocawear had a higher revenue side, it definitely had a higher advertising commitment that we were obligated to do. And some of the international deals that we are looking to purchase would require us to put more people on the ground.

So we are pretty encouraged by the growth of our EBITDA this year from the 60s into the high 70s. We believe we can at least maintain it. But to tell specifically, I think it all depends on the type of brands that we purchase in the future.

Right. And Neil, on Rocawear for a moment -- you've remarked on the tough retail environment generally, and you guys did a great job executing through that. Can you comment on their business specifically, because that is your biggest sort of standalone brand now.

The business, I think, has been pretty similar to department stores the last couple of months, I believe. We've had a slower back-to-school, although last week was a good week across the board with all our brands. But I think it has trended to the high level of how department stores are doing, but definitely not a standout as far as I think it's basically going with the tide.

We are excited about the fall collection, and there are a couple of pieces like the women's outerwear and a lot of the products that are strong. And we're also pretty encouraged about this wonderful opportunity we have with fragrance, and we have two or three bidders and we're pretty excited about launching a fragrance in '08 with Rocawear, probably in the fall. And also men's outerwear category, which could be a pretty big number.

So I think Rocawear continues to the premier brand in the category, and we see the category hanging in there, doing well.

That's great. And so as we think about Rocawear, it is really more -- it's not, again, less sort of correlated with the urban market and urban retailers specifically than with more of a Macy's? Right? I mean, that is their biggest -- the traditional department store channel is the biggest distribution channel.

Yes, Macy's is our biggest customer. They are -- no, it's definitely youth and it is definitely -- wouldn't necessarily be equated with urban; it definitely crosses over. It is number one in the urban category.

Right, right. Okay. And on the SG&A for the year, Warren, in the margins. We were modeling SG&A up more in the quarter, more in June, because we knew you had Rocawear and Danskin, and looking at the sequential run rate. And it sounds like you said you deferred -- that Q3 is the big advertising quarter for those brands, that more of, say, the Rocawear SG&A is going to hit Q3 effectively. Is that right?

Yes, that is correct. The first ad campaign that we're actually doing for Rocawear hits in the second half, in Q3. And the same thing for London Fog. There wasn't an ad campaign for either of those in the first half.

Okay, great. That is helpful. And then just, I'm sorry, lastly -- Neil, for you, if I may. You said that you were declining to chase deals outside your criteria. Can you give some examples when -- how are some of these prospective deals you have passed on outside your criteria?

I guess it goes back to dollars and cents. We were hoping to execute on a deal in the last week or two, and something very exciting, but the sellers, I think, just got -- the prices got high and we're going to stay disciplined and not overpay. And I think we're in a great position today with what's happening in the credit markets, having the amount of cash we have on hand and have the profitability that we have as a company.

So we are going to stay disciplined and not let people take advantage of our desire to do deals. I look at this as a marathon, not a sprint. Although it is wonderful having done eight deals in the last eight quarters, we are not going to overpay and we're going to stay disciplined and not be abused by sellers.

That's great. And the higher prices, may I ask us, is that a function of a more competitive bidding environment or is it sellers just have expectations that are too high? Can you comment?

I think it's been on an individual basis. But actually, what's happening in the world in the last three or four weeks, we see our ability to get our matrix better than ever. So we don't see any problems in continuing to execute on our acquisition strategy on how we've done it, and we just have to make sure that we stay disciplined.

Well, the convert was very smart money. Thanks very much, guys.

Jeff Klinefelter with Piper Jaffray.

Just a couple questions about your larger brands and your channel to distribution. Neil, could you comment, or David, on the growth of those businesses? I think you mentioned at the beginning up at least low double digits across the board. Can you comment on how much of that is coming from category extensions, category expansions? We've noticed some floorspace gains, for example, at Mossimo at Target. How much is coming from space gains versus kind of organic growth, and what do you expect out of those Big Three brands going forward?

And then also, Neil, if you could just comment on the environment. A lot of anxiety about retail right now. You have great visibility into a number of channels. Can you give us a sense for kind of seasonality, what you are seeing, and do you anticipate the acceleration that everyone is expecting or hoping for for back-to-school?

Okay, that is a big, broad one. Going back specifically to some of our bigger brands like Mossimo, we're seeing it in a lot of different places. One is just more racks and expansion of the kids' area of Mossimo and a big expansion of the Mossimo Supply Company, which is the denim side of Target. One of the advantages we have is having such great partners like Target and Kohl's, specifically, as far as the amount of stores they are opening.

So I think we're getting it both ways. I think we're getting expansion within the stores, but we're also getting new store openings on those two. What we're pretty excited about the last two or three months is Kmart. They've done just a wonderful job with Joe Boxer, and it looks great in the store and we are seeing double-digit increases this year. So we're lucky enough to have three good partners that are executing, and to look forward to have the Sears launches.

As far as general consumer trends, we are very hopeful. One of the beauties of Iconix is that we are diversified, having luxury brands and better brands and all the way down into mass. So we do have a little bit of each and some diversification. Last week was encouraging sign; we saw a lot of good back-to-school business kick in, thank God, and the numbers look good. But once again, it was only a week.

But we are hopeful that the consumer is strong and they don't necessarily understand the Fed and the debt market. But we're hoping that everyone needs a new pair of shoes and some new clothing for back-to-school and we see that trend -- we see that happening.

Okay. Great. Thank you very much.

John Rouleau from Wachovia Securities.

Hey, guys, another solid quarter. I realize that you don't really give quarterly type guidance, but if you just look at revenue and expenses for this quarter, the quarter you just reported, and had to comment maybe versus plan, it sounds like Rocawear was a little bit more back-half weighted, and then obviously the marketing campaign behind Rocawear and London Fog is a third-quarter issue. But was there any particular area where maybe revenues were a little bit better or a little bit worse? And maybe the same on the expense side for the quarter.

John, I think we kind of said it -- it was basically some of the Rocawear business and maybe a tiny bit of deterioration based on the overall market. But we see third quarter growing the revenue base, as I think most of you guys have predicted -- have us down for. And with it is going to be proportionate growth on SG&A and hopefully a slight increase in EPS. So I think you guys have it.

You touched on a good point, where you said maybe a slight impact from the overall market. I mean, if the overall market does continue to be somewhat sluggish in the back half, the fall, and maybe even the holiday, dare I say holiday, I mean, is that something that would cause you to kind of revisit the assumptions for this year? Or -- I know it's too early to tell, but if the environment that we saw in June and July continues, what are your thoughts on how that might impact the top line?

One of the beauties of this business model is -- let's say the market is not good, I think, like last quarter, we could still deliver, because of our strong guaranteed minimum and the deals we have. But we see the second half, if we do miss, we miss by very little. If the economy stays soft, we still think we will hit our range and be over $150 million of revenue. Let alone it doesn't have any acquisitions in there.

And I think you guys follow the Company, understand how acquisitive we are and that there will be, hopefully, some deals in the last half of the year, which will more than compensate for any small weakness in the economy or in the retail sales.

Great, thanks. And then regarding the potential deal -- the potential for a Mossimo deal in Japan. Any way to quantify that, maybe in terms of what that license is now, what that represents and what the opportunity is there? That certainly sounds like it could be interesting and maybe meaningful.

Sure, John. It's not just potential. We actually completed the deal, I think, about a month ago. And what we did is we granted a new master license to a company called IPGI. They are a trading company, similar business model to ITOCHU or Mitsubishi. And they have an aggressive growth plan for the brand that is going to include rolling out stores, launching it in accessories. Today, the Mossimo business in Japan is done through one retailer, a denim-based retailer called MacHouse.

And IPGI is going to expand it, bring it to department stores, freestanding stores, accessories. And the numbers behind that deal roughly -- it's a five-year deal where the royalties to Iconix over the five years will average close to $1 million a year.

Wow, that is terrific. And the positioning is going to be pretty similar as to what it is here, kind of a lifestyle type brand, similar, or is it different?

It's different, actually, and it's more similar to what Mossimo is in other parts of the world, like our licensees in Australia and South America and Mexico, where it is really more of an upmarket positioning, with better quality product, higher price points. Really more analogous to what Mossimo was in the '90s when it was a department store brand.

Let me just correct -- Target has got wonderful quality with Mossimo. So not necessarily a better-quality product, but higher price points.

Yes.

Good point. Regarding we're hearing some good things about the new design direction -- or maybe I shouldn't say new, but the new designer over at Rocawear. Any changes that you can talk about from a design standpoint or what he brings to the team as far as Rocawear is concerned?

Yes, Jay has a great group of people working there and they continue to upgrade and add, and there is a lot of excitement about the new collection. The retailers that have seen it over the last few weeks really think it is going to help take the brand to another level. So we are excited both about -- actually it's in both men's and women's, there's been some new energy, and so we're pretty excited about opportunities there to grow the business.

Great. And then last, Warren, any guidance or help on the interest expense in the back half? And is it fairly even split between the two quarters, given what we know now?

Yes, it is fairly even split between the two quarters. It should be approximately about $6 million a quarter, the net interest expense.

Right. Great. Thanks, guys.

Eric Beder with Brean Murray.

Good morning, guys. I know you've talked before about the next acquisitions or acquisitions being in hardgoods. And curious what your thinking is on that. Has that changed, that you want to kind of get that kind of expansion there?

You know, we've looked -- we're looking at various different great Iconix brands in different industries. And I don't necessarily think it's going to be in hardgoods or don't know. I mean, we are going to go with the best brand with the best guaranteed revenue flow that we think is Iconix -- that Iconix could add some marketing value to.

So I won't commit to what the next acquisition will be, but we're looking at some really exciting opportunities that will continue to diversify our brands.

And in terms of -- what do you think now is kind of the minimum that you need in terms of the size for revenue for an acquisition to really make sense for you, now that you have 11 brands? And I guess what is the capacity of your 65 people in terms of additional brands --?

I think it is tough to pinpoint. There are some opportunities we are looking at that are substantial, that are a lot higher than we even do as a whole company. However, those would require a lot more -- there are a lot of people working at those companies or that company, that we are looking at and others. So they are all very different. And a lot of it depends on what the brand brings with it.

And we don't necessarily feel we have to be limited by what we can do internally, similar to Rocawear, where Jay had a whole design team and a marketing team that we took with us. So, I don't think we're limited about it. We know to move the Iconix needle from an EPS point of view, the deals have to be substantial, similar to Rocawear. But we're also not going to pass on great Iconix brands like we did on Danskin and OP.

So, every time we try to make rules on acquisitions, we realize that the best thing is to stay open-minded and to stay nimble and flexible, and we will continue to do so.

Finally, London Fog, you're rolling out this year pretty much what you consider the historic kind of categories for London Fog. I've heard comments about expanding it beyond that, taking it to a lifestyle brand. When do you kind of make that sort of decision, when do you start kind of thinking about where the next step is within terms of London Fog?

That is our ultimate goal, similar to what we've done with Candie's and other brands, like Joe Boxer and Badgley Mischka, is to build lifestyle brands. Because it increases the revenue and we think that each category helps the other category.

So with London Fog, I'd say for the first 12 to 24 months we're going to re-establish all the core categories, like outerwear, rainwear and footwear. And Phase 2 will be to bring in sportswear and sweaters and make it more of the larger sportswear category. So it is part of a three- to five-year plan. And I'd say in Year 3 you'll start seeing a big push into the sportswear category.

In terms of Danskin, when are we going to start to see advertising to revive that brand?

Spring '08 will be our first participation in a launch with Danskin.

Great, thank you.

Virginia Genereux with Merrill Lynch.

Thanks. So, David and Neil, listening to you guys talk about the initiatives for next year, can you give us a sense of what you think those are going to contribute? And I guess I'm not talking about the organic growth of Candie's or Mossimo, but some of these new situations, like Japan, Mossimo in Japan -- can you quantify that for us?

Virginia, as I said a moment ago, Mossimo, it is a five-year deal and it will contribute about $1 million a year in royalty revenue to Japan.

No, but I think on a big picture, Virginia, one of the wonderful things we have is so much diversity here and so many wonderful opportunities, and we're looking at a lot of deal flow, both internationally in domestically. So it is tough to quantify the new opportunities and how they are going to flow into '08. So --

I hear you, Neil. I guess I'm asking the work that you've done. I'm not talking about new acquisitions, but I'm talking about new license deals for brands that you already own.

Right. I think we've said we hope to continue to grow organically at around 10%. And a lot of it is all the seeds that we have been planting over the last 12 to 18 months -- I think hat you are referring to. So which we hope continues to make the whole Company organically grow over 10%, and we hope higher.

Okay, thank you.

Jim Chartier with Monness, Crespi & Hardt.

Good morning. Warren, could you just give us the end of quarter cash and debt balance?

The end of quarter cash is $277 million. And the gross debt balance is about $645 million.

Thanks. And then just going back to some of the earlier questions about acquisitions. Are you seeing more competition for larger brands and higher prices for those brands? And if so, does it make more sense to start looking at smaller opportunities?

Jim, it's awfully tough when you're working on a deal to know what the competition is, and usually the seller doesn't tell you what is happening. But quite honestly, we haven't seen a lot out there. It's very tricky market and there's not a lot of growth companies, but we haven't seen a lot.

But as I mentioned before, we will look at great brands, no matter what size. The ones that are the larger ones have intrigued us more as far as moving the needle, and you could argue they are more Iconix with the more sales they do. And so we're looking at all types, but are definitely concentrating more on the bigger royalty revenues.

Great, thanks. Congratulations.

[Mark Kaufman] with [MLK Investment Management].

Hi, gentlemen. Nice job. Warren, is there any additional availability on the bank line, in addition to the $277 million in cash after the books?

We do have in the term facility what is called an accordion, that we could pull another $100 million from that without redoing the documents. So we do have the ability to draw $100 million more in the term facility.

And that would be -- or I should say in addition to that, there is of course securitization of a brand in an acquisition?

That is correct. We have two unencumbered brands right now, and any acquisition would obviously -- we would use if need be.

Thank you.

Matthew Farkas with Paradigm Capital.

Good morning. I was just curious, assuming that the Ocean Pacific deal closes in the fairly near-term, is that something that could be accretive to '08 earnings?

Yes, it could -- there could be some upside there for '08.

Okay, thanks very much.

(OPERATOR INSTRUCTIONS) This concludes our Q&A session. I'll now turn the call back over to Mr. Neil Cole for closing remarks.

Thank you very much. Once again, I want to think everyone for listening and watching our Company as we continue to grow. As I said in my script, we're very confident as a management team that what you've seen from us over the last year or two will continue, and hopefully continue to get better. We think our business model is unique and it gives us great opportunities for growth, and we truly believe it is a 21st-century business model, and we look forward to sharing the future with all of you. Thank you very much. Have a good day.

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