Icon Energy Corp (ICON) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Iconix Brand Group first quarter 2013 earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

Here on the call with us today we have Neil Cole, Chief Executive Officer, and Warren Clamen, Chief Financial Officer. Please be aware that under the Safe Harbor Statement under the Private Securities and Litigation Reform Act of 1995 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 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 cautions 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 turn it over to Warren Clamen, Chief Financial Officer. Please proceed.

Good morning, everyone, and welcome to the Iconix Brand Group first quarter 2013 earnings conference call. On today's call we will review our financial results, provide an update of our existing portfolio of brands, and discuss our out look for the full year.

Reviewing results for the first quarter ended March 31, 2013, it was a record first quarter for our Company, with revenue of approximately $105.1 million, an 19% increase as compared to approximately $88.5 million in the first quarter of 2012. In the first quarter we generated $51.8 million of free cash flow, or $0.78 per diluted share, compared to $47.4 million or $0.64 per diluted share in the prior-year quarter.

EBITDA in the first quarter increased 14% to approximately $64.6 million as compared to approximately $56.8 million in the prior-year quarter, and our EBITDA margin in the first quarter was approximately 61.5%. However, we would like to point out that the first quarter includes approximately $3.5 million of acquisition-related costs, including deal costs associated with the two acquisitions we closed as well as additional acquisition initiatives that we have been working on. Excluding these costs, our EBITDA margins were approximately 65%.

Non-GAAP net income, which excludes among cash interest related to our two convertible notes, increased 13% to approximately $36.2 million as compared to approximately $31.9 million in the prior-year quarter. And diluted non-GAAP earns per share increased 26% to $0.54 as compared to $0.43 in the prior-year quarter. EBITDA free cash flow, non-GAAP net income and non-GAAP diluted EPS are all non-GAAP metrics, and reconciliation tables for each can be found in the press release sent out earlier there morning and on our website iconixbrand.com.

In addition to our organic and acquisition initiatives, we have continued to focus on creating additional shareholder value through share repurchases. Our diluted weighted average shares outstanding in the first quarter of 2013 was 66.7 million shares, almost 8 million shares lower than the prior-year quarter. We have continued to actively buy back our stock, and since January 1 of this year through April 22 we have bought back $210 million at an average share price of $24.07.

More over, since we began our initial program, over the past year and a half we have repurchased a total of 17 million shares, or 23% of our shares outstanding, at and average costs of $20.78, and we plan to continue to evaluate share repurchases as a key use of our cash. As of today we have approximately $146 million remaining under the current $300 million program approved by our Board in February 2013.

In the first quarter we also took advantage of strong demand in the convertible markets and issued a $400 million convertible senior subordinated note due in 2018 at a 1.5% cash coupon and further hedged up the conversion price to $35.52. This attractive and low costs financing provides us with the financial flexibility, giving us the advantage to act quickly on acquisitions as well as opportunistically buying back our stock.

Our cash balance at the end of the quarter was $376 million. We also have $400 million of possible additional borrowings under our securitization facility, subject to certain conditions, as well as the potential to upsize the facility with the contribution of additional brands, and have yet to draw on our existing $100 million revolving credit facility. With that I will turn the call over to Neil Cole, Chief Executive Officer.

Good morning, Warren. Good morning, everybody. 2013 is off to a strong start for our Company, as we achieved double-digit revenue and earnings growth in the first quarter. Our recent acquisition pace has returned to levels last seen in 2007 with the acquisition of three iconic brand, including Umbro, Buffalo and Lee Cooper, all in the last five months. However, perhaps even more notable is that this is the first time in our Company's history that we have acquired two purely international brands, with close to 100% of the revenue coming from outside the US, which further diversifies our portfolio and allows us to take advantage of favorable tax rates.

The integration of these three brand has been smooth so far, and we are already involved in next steps for each. For Umbro we have found strong replacements in the territories that Nike has serviced directly and are working on a strategy to build out the brand in the US and other growth areas, including Brazil and parts of Europe. We are also getting ready to capitalize on the upcoming World Cup in 2014 and the Olympics in 2016.

For Buffalo we have been focused on leveraging our network of licensees to expand the assortment, and this year we'll be rolling out new categories, including girls' apparel, men's tailored products and neck wear. For Lee Cooper we are working with a strong group of international licensees to further build the brand in Europe, Asia and the Middle East.

We would like to highlight that between Umbro, Lee Cooper and Buffalo, our licensees operate approximately 550 freestanding stores, further diversifying our brand into new channels of distribution outside of solely big box retail. Across our total portfolio our licensees operate approximately 1,300 free-standing stores worldwide, and we see this component of our business growing as we further expand in international markets.

In addition to the successful completion of these three acquisitions, we remain energized about our pipeline and believe that our strong balance sheet, projected free cash flow of over $200 million, and availability left under our $1.1 billion securitization facility and the ability to upsize that, we are well-positioned to continue to execute on our acquisition strategy.

Moving on to the rest of our portfolio, our overall business remains healthy. Starting with the women's brands, we remain well entrenched across the major retailers, including Target, Walmart, Kohl's, Kmart, Sears and Macy's, and our women's direct to retail brand have accumulated significant market share in the US, representing approximately $5 billion in annual sales. Our brands remain core to their respective retailers apparel offerings and even our longest standing license Mossimo at Target continues to grow in its 13th year.

The success of our direct to retail strategy is also taking hold in international markets. Our two direct to retail deals with The Bay in Canada for London Fog and Material Girl as well as our Mossimo DTR deal with Falabella have been very strong, and we expect to see similar strengths of as we build our DTR programs across the globe.

On the men's side we are most excited about our athletic businesses. Umbro has been a great addition to our athletic platform, and we plan to leverage the new relationships we have gained through this acquisition. For Starter, as a halo to the strong basic business at Walmart, we have availed a new collaboration with the NFL, the NBA, MLB and NCAA for the return of the Starter jacket scheduled to launch at Foot Locker and the Sports Authority in the third quarter.

As for our young men's brands, including Ecko, Rocawear and Ed Hardy, the business remains challenging as anticipated. However, we are in the process of launching several new initiatives that we hope to execute on in the later half of this year. Overall, our home business performed well in the first quarter. Charisma has been a stand-out in both the business at Bloomingdale's and the basic business at Costco. Our Royal Velvet business at JCPenney also been holding strong and remains a key part of the store's overall relaunch, with Royal Velvet shops opening in May.

In our entertainment division we remain dedicated to bringing the Peanuts characters to a whole new generation of fans and believe we will achieve this and much more, leading up to the launch of a full length feature film in November 2015. In addition to the movie and incremental royalties that it will generates, we are involved in numerous new initiatives that include new content with additional story line development and an expanded mix with additional consumer categories and new creative collaborations.

On the international front we continue to make progress and expect international to represent approximately 33% of our business in 2013, compared to 24% in 2012 and just 6% four years ago. International expansion is a key focus of our Company, and in addition to leveraging our existing platform, we are exploring opportunities to find new joint venture partners in territories such as Canada, Australia and Israel as well as many others.

The JV model in which we have partners on the ground that have existing retail relationships in specific territories has proven to be beneficial to Iconix to dates. For instance, since forming our joint venture in Latin America, we have more than quadrupled royalties in that territory.

In addition, we are gaining traction in India through our newest joint venture with Reliance and recently signed our third licensee in the territory with Kapsons for the London Fog brand. Kapsons is a leading retail company that currently operates 150 stores across India.

In China we recently signed a deal for the Material Girl brand with Peacebird, which is one of the biggest casual brands in China with over 3,000 doors. The first Material Girl stores expect to open this fall with approximately 600 store and in-shop openings planned for the next five years. Between our seven brand, that we have contracts on in China, we have approximately 500 stores and shop-in-shops today, and our partners are projecting to have over 800 by the year-end of 2013.

Moving on to guidance we are maintaining our revenue guidance of $425 million to $435 million. We are raising our non-GAAP diluted EPS guidance by $0.05 to $2.10 to $2.20 to reflect our increased share purchase activity, which was partially offset by incremental interest and financing costs associated with the new convertible note and the additional acquisition-related costs that Warren mentioned earlier.

Our full year guidance now assumes a weighted average share count for 2013 of approximately 62 million to 63 million shares. We are maintaining our free cash flow guidance of between $203 million to $210 million.

In closing, as we execute on both our acquisition strategy and our organic initiatives, we are well-positioned to deliver growth in 2013 and beyond. We have a strong and diversified portfolio, with interest in over 33 iconic brand. We continue to build our global footprint and continue to feel positive about our acquisition pipeline. In addition, with our free cash flow, strong balance sheet and additional borrowing capability, we believe we can greatly increase shareholder value with additional acquisitions, opportunistic share repurchase and continued organic growth.

I would like to thank all of you for listening this morning and your continued support, and we would now like to turn it over to questions and answers. Operator?

(Operator Instructions). Your first question comes from the line of Bob Drbul with Barclays. Please proceed.

Thanks. Good morning.

Good morning, Bob.

I guess the first question is, on the Royal Velvet piece can you maybe just talk about any discussions you've had with them over the last few weeks. You said that it's been strong and the shop is opening. Just any updates specifically on the game plan there as it relates to Iconix?

Obviously, I haven't bothered Mike the last two weeks. I think he's been more focused on his cash flow, which appears to be going well. But in speaking to the home people they're excited about what's going to happen in May when all these shops are set up in the home area, because they've been so successful for those shops that have been on the apparel side.

So it's all been kinds of a strange business as usual, if you can say that, from the people that we've been dealing with. Obviously, we're going to engage with Mike and Liz as -- in a couple months when hopefully the smoke all clears and they've reset their business plan.

And then on the Umbro side, when -- in the US what do you think are the possibilities -- or what really could you do or the options around that business here in the US?

Well, we have a great direct to retail with Dick's, who's really one of the leaders in the space, and our first revelation was that Nike wasn't really focused on it. So we think we could double or triple it what it is today, and we're talking about fixturing programs and all sorts of expansion. We've had some great meetings with them.

They came to our summit in Manchester last months, and we're pretty excited about growing that business. Around Dick's, because Dick's has the -- we'll call it on the pitch functional product. We are going to do some fashion type -- actually I don't think fashion is the right word, but more basic apparel type in other types of distribution, which we hope to launch in the spring of 2014 along with the World Cup.

Okay. And then I guess the other question that I have -- the last one -- is on the men's business, Ed Hardy and Rocawear have they bottomed in terms of within your number and like the stabilization of those businesses? How should we think about where we are in the cycle for those brands specifically.

Well, I think they're all different. Ed Hardy has bottomed, because we have it pretty low in our projections. We have a really strong fragrance business and a strong international business. And we are working on a relaunch on the apparel side, so that's only going to be plus. Rocawear we've been working on something for about a year now, and I think it's going to happen, hoping in the back half of this year, which could really add some new excitement growth to the business. So I would say those businesses have only plus they could bring back to it our revenue.

Okay. Thanks very much. Good luck.

Thanks, Bob.

Your next question comes from the line of Jim Chartier with Monness, Crespi and Hardt. Please proceed.

Good morning.

Morning, Jim.

First, could you give us a sense of what the organic growth rate was in the quarter, or give us a sense of what the revenue from the new acquisitions was?

We don't really breakdown quarterly on that, but with that said, the majority or if not all the increases was from the acquisitions. Organic was probably around flat, and business has been pretty tough out there. I don't know if everyone's been seeing it, but really top to bottom in all stores. Have seen some good feelings the last week or two, and hopefully,, with the weather, if that's the reason things are going to start getting positive again.

But we're feeling still kind of bullish that we'll be able to hit our target of single growth on the organic growth. A lot of it is starting to take hold with the international business, but we're generally the portfolio is pretty strong in a tough environment.

Great. And then I know it's still early, but any sense of how the new Rocawear store is doing? And how that initiative is going.

Yes, they're getting better. Every month. So I think the kinks are getting out and the stores are really improving.

On Peanuts, is there any thought of doing a regular television series more than just the specials?

Yes, there have been a lot of discussions. Based around the excitement of the movie, which is going to -- we keep --Twentieth Century Fox did a preview for their -- I guess the distributors last week, and the CEO went up and did a whole unveil of it to incredible excitement and press. And the specials continue to be number one in their slot.

We are talking to studios about two different developments of new projects. And our goal is to keep momentum. We know 2015 is going to be a mega year for Peanuts because of the movie, but our goal is to keep it going in 2016 and 2017, so we are getting a lot of exciting feedback of new projects that we are developing around the Peanuts gang.

And then on the margins for Peanuts, did the new licenses that you signed, should those be at higher margins than kind of overall Peanuts structure?

A little bit higher but not much. The margins related to the movie are going to be higher than the old, but not significantly, so hopefully that will be just be plus for us.

Okay. And then for Warren, the minority interest line was up at $1.7 million I think. Was that just having Buffalo in there, or was there any of that from Marc Ecko?

The non-controlling interest. Yes, that was Buffalo, and it should grow a little bit more because Buffalo also now a full quarter starting in Q2.

Okay. And then what share counts are you using in the guidance?

62 million to 63 million full year, fully diluted.

Great. Best of luck.

Thanks, Jim.

Your next question comes from the line of Eric Beder with Brean Capital. Please proceed.

Good morning. Congrats on the quarter.

Thanks, Eric. Are you now French.

It's not that bad.

I like Eric Beder.

The assumption for the weighted average shares outstanding, does that assume no more share repurchases than you have done now?

That's correct. That assumes just up to what we have done so far.

Okay. And the flipside of that on the interest expense, how should we be thinking about the interest expense for the rest the year?

The total from expense for the year should be around $47 million. This one didn't have a full quarter of the new convertible, so the next three quarters should be slightly higher.

Okay. And you have done three significant acquisitions this year. What is -- I know you have the financial capacity to do a lot more. What about the people capacity and the infrastructure capacity for those kind of things?

Luckily the three deals we have done have come with incredible teams of people. In Umbro we today have a base of 30 some odd people in Manchester, England. Lee Cooper we kept -- it was a licensing company, and we kept the 10 or 11 people that were doing it based on London. And Buffalo is -- we have and incredible partner/licensee in Buffalo who we're working with.

That's way the model works, and the ability to do more acquisitions. We usually get a small team of core people that come with the deals, and we could easily leverage it onto what we have here in New York and now really around the world, which is what's so exciting about the acquisitions. We get to plug them into our JVs and our infrastructure that we've built around the world.

So we're very encouraged about the ability to do more acquisitions, both from our balance sheet and just the incredible deal activity that's out there, the amount of companies that are for sale and some really strong brands that we're hoping we can acquire over the next few quarters.

Okay. And in terms of the share count, what -- is there an ideal share counts here? I mean, you bought back 20% of your shares --

The ideal is about 20 million.

[You could buy yourself completely out.]

No, ideal -- we bought back 20 -- ideally it would be able to buy back -- to continue to shrink it dramatically as long as we have the capital structure and we feel comfortable, and I would love to continue to do 20% a year, if that's possible based on our free cash flow that we're generating. As long as the stocks is at what we think is an encouraging price point as it is today.

Okay. And when -- what are your thought processes on your guidance for the potential new joint venture partners? Are you assuming those partnerships come to fruition, or is that not in the numbers either?

Very conservative, and mostly it's not in the numbers. But most of those deals, a lot of them go down below when we buy them, and -- but we are expecting to continue to grow our international business and have it contribute.

And finally you have three -- the three Walmart licenses get renewed this year. Where are we in that process? I'm assuming most of those have been renewed.

Those were all renewed last month, so we have all renewals on all three deals, and everything is good there.

Great. Congratulations.

Thanks, Eric.

Your next question comes from the line of Steve Marotta with CL King. Please proceed.

Good morning, everybody. Neil, can you go into the Starter license? As I understand it, you were going to -- you're signing with NFL, NBA, NCAA, and this is going to be a different channel of distribution for you? Is that accurate?

Yes. Actually we did a deal with the guys at GIII, who making all the jackets, and simultaneously with the helpful Carl Banks and his team over there we signed up deals with the NFL -- all the different leagues. And we've great reaction, and Walmart was okay with it because it really is good for the brand, and it's a different level of distribution and the original Starter jackets. And we just -- we've had and incredible reception, so it's pretty exciting that the Starter brand is going to be back in all major sports stores for the fall, along with the launch of the football season.

And then rolling as different sports seasons progress?

Correct.

That's great.

A year or two.

Warren, I have a couple of quick questions housekeeping-wise. First of all, the tax rate for the quarter seemed to come in a little bit light. Was there a reason for that, and what are you expecting for the balance of the year?

Yes, that's Umbro's and Lee Cooper's favorable tax rate kicking in. So for the full year we're estimating about 32% for the year.

Okay. And the other point that I had was, so excluding the roughly $3 million-whatever in one-time costs associated with acquisitions in the quarter, is the run rate of the $35 million to $36 million in SG&A costs still valid?

Well, there's an increase -- I think it's better to look at the EBITDA margins, and we're saying it's about 60% EBITDA margins for the year. And also just to be clear that the run rate of about -- I think it was about $3.5 million was not all past acquisitions. It was some we are working on now.

Right.

Which required a lot of diligence, so it -- the past ones were I think around $1 million, $1.5 million.

Yes, that's what I was going to ask you to disassemble, but that's close enough. Thank you very much.

You're welcome.

Thanks, Steve.

There are no additional audio questions at this time. I would now like to turn the call back over to Mr. Neil Cole for closing remarks.

Okay. Well, thank you everyone for listening today. As usual our management team will be available all day for questions. Thanks for your interest and have a wonderful spring day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.