Icon Energy Corp (ICON) 2015 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Iconix third-quarter 2015 conference call. (Operator Instructions). As a reminder, today's call is being recorded.

This conference call will contain forward-looking statements 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 may be beyond the control of the Company. This may cause 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, confidence 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 upon which the statement was made.

I would now like to turn the call over to Peter Cuneo, Chairman of the Board and Interim Chief Executive Officer. You may begin, sir.

Thank you very much and good morning, everyone. Welcome to the Iconix Brand Group third-quarter 2015 earnings conference call. On today's call I have with me Dave Jones, our Chief Financial Officer; David Blumberg, our Head of Strategic Development; Jaime Sheinheit, our VP of Investor Relations; and Jason Schaefer, who is Executive Vice President and General Counsel.

I know that we have given you a lot of information to digest over the past few days. We would have preferred to have had this call and last week's announcement at the same time. However, due to regulatory requirements, we were required to file the 8-K no later than last Thursday. Given the resources we needed to devote to make the 8-K filing deadline we simply weren't prepared to talk further at that time and thus did not push up this scheduled earnings call which was previously set.

Our Board and the current Iconix management team share your disappointment in the restatement of some of our historical results and in the reduction of our guidance for 2015. After 90 days on the job, this is not what I had hoped to be talking to you about today.

Three months ago when I stepped into the role of interim CEO, the Board, our new CFO and I decided it was very important to conduct a broad in-depth review of the Company's operations. This included our existing license agreements, our relationships with business partners and the Company's overall processes and systems. These efforts were prompted by the announcement of an SEC review and by changes in management including changes in our CEO, our CFO and our COO.

In addition, a special Committee of the Board was already undertaking an accounting assessment with the assistance of independent forensic auditors and legal advisors. This internal review prove to be necessary and I believe that the improvements we are making as a result will ultimately represent a very positive step for the Company and put us on a much stronger footing.

I would like to emphasize that the underlying fundamentals of our business are strong. While we are going through a difficult transition period, I am confident we can be successful. Iconix continues to benefit from a diversified portfolio of consumer brands, a profitable business model and strong free cash flow generation.

The restatements made to our historical financial statements and the write-downs that were taken in the third quarter did not affect our ability to generate cash. For the first nine months of this year, we generated approximately $145 million of free cash flow and we have not lowered our annual estimate of free cash flow which is approximately $170 million to $175 million for the full-year 2015.

We believe this level of free cash flow is sustainable and in 2016, we expect to generate free cash flow in a range of $170 million to $185 million.

From a business standpoint, we continue to focus on building our brand management platform across the globe and believe we are on the right path toward supporting and evolving Iconix to capture the full potential from our next stage of growth.

With that as an introduction I would like to discuss the details of the restatements which were covered in our release on Thursday. I will follow with a discussion of business and brand highlights and then Dave Jones will take you through our financial results including our updated guidance for the full-year 2015 and our newly issued outlook for 2016.

Let's start with the restatement precipitated by the work that has been conducted by the special committee and by the current management team. This review has identified errors regarding the classification of certain expenses as well as an adequate support and estimation of certain revenues and of retail support for certain licenses. As such, we will restate our historical financial statements for the fourth quarter of 2013 through the second quarter of 2015.

A table detailing these adjustments was included in last Thursday's press release. What should be emphasized is that the amounts of the restatements have no impact to 2013 net income, they do result in a small reduction of approximately $3.9 million or 2.5% to 2014 net income, and they are slightly positive for 2015 net income.

Further, these changes do not impact cash and do not impact historical free cash flow and do not impact debt covenants or securitized net cash flow as defined in our securitized financing facility. In fact, gross collections for our securitized brands are up 3% for the first 10 months of the year which reflects the strength and stability of the assets in the securitization.

Still we are obviously disappointed to restate historical results and we are taking all appropriate steps to ensure that this is fully remedied. Starting with leadership as you know, we have begun a search for a new CEO. I do not have specific timing to share with you today but I can tell you that the search is proceeding as expected. Once the new CEO is in place, we intend to separate the roles of Chairman and CEO. Until then, we have implemented a lead director role.

We also have a new CFO as you know and I would like to reiterate how fortunate we have been to have Dave Jones on our team. His deep expertise in finance, accounting and capital structures within global companies has greatly elevated the skill set on the Iconix team. Dave is also in the process of selecting additional talent for the finance, accounting and IT functions.

With regard to processes, we are implementing additional procedures and controls relating to transactions and other business arrangements with licensees and in our joint ventures. As interim CEO, as you know I am now waiting to implement these important changes. We believe these and other plan changes will benefit the Company greatly.

Let me turn to the third quarter. Our results reflect mixed performance across our business segments and also reflect a number of special items. These special items include a $3.8 million adjustment related to the preparation of the Company's 2014 federal tax return and includes $7.1 million in expenses for professional fees. These were fees associated with continuing correspondence with staff of the SEC, with the special committee's review and with severance costs related to the transition of Iconix management.

This also includes a $12.2 million charge for an increase in reserves and a write-down of accounts receivable primarily related to the men's business segment. Revenue in the men's segment which is comprised of both men's fashion and men's sports brands was down 17% in the third quarter. Our Ecko and Rocawear brands were two of the largest causes of the decline. However, today Rocawear, Ecko and Ed Hardy only represent 4% of our total licensing revenue so that any further decline should not have a large impact on our overall business.

Unfortunately due to the decline in this segment in recent years and based on the Company's 2016 budgeting process, the Company believes that certain intangible assets related to our men's fashion brands may be impaired. This would result in a nonoperating charge. The Company will complete its annual impairment testing during the fourth quarter this year.

Turning to the women's segment, revenue was up 5% in the third quarter with strength across all of our major direct to retail programs including Mossimo at Target, Mudd and Candies at Kohl's and Danskin Now at Walmart. In the third quarter, we successfully renewed both our Joe Boxer and Bongo licenses with Kmart/Sears.

DTR renewals are a regular part of our business and they occur every year in the normal course. To date we have never had a nonrenewal of a material DTR license and we remain confident about our existing partnerships.

Revenue in the entertainment segment grew 8% in the third quarter driven by the acquisition of our Strawberry Shortcake brand. For the full-year, we expect the Peanuts brand to grow approximately 20% if you exclude $17.1 million of revenue related to the Company's license renewal with ABC in 2014. The Peanuts movie had a strong opening this past weekend generating $45 million in domestic box office revenues. The film also opened in 10 other countries including China.

Marketing efforts for the movie are in full force and according to Fox, Peanuts has had the largest domestic promotion partnership campaign in the studio's history with 12 national brand partners including McDonald's, Nestle, and Horizon Milk. The movie is also being supported by an original song from Meghan Trainor titled Better When I am Dancing, which was written exclusively for the movie.

With regard to retail merchandising, here are some highlights. We have launched a global collection with Gap Kids that is in stores now. The Happy Dance Snoopy doll has been named by multiple sources as a top gift for the holidays. Macy's will be unveiling its peanuts window display later this month and CVS will be launching holiday gift sets with six feet of seasonal space.

Other retail programs are being offered with Toys "R" Us, Pottery Barn, Hallmark Stores, QVC and Avon.

The home segment was down 17% in the third quarter. Sharper Image brand was the primary cause of the decline with Sharper Image licensing revenue down $2 million in the quarter. As discussed on our last call, we have transitioned out of one of the brands core licenses and do expect to make up a portion of those lost sales in the fourth quarter with new distribution for the holiday season. This includes placement at Walgreens, Target and Toys "R" Us. Excluding Sharper Image, the rest of the home business was up 5%.

Internationally we continue to see strong growth. In the third quarter on a gross basis, international revenue for our portfolio brands grew in the low single digits. If we exclude the impact of foreign exchange, we experienced double-digit growth driven primarily by strength in Europe, Japan, Southeast Asia and the Middle East. We remain very excited about building our global business and leveraging the Lee Cooper, Umbro, Peanuts and Strawberry Shortcake platforms which are all truly global iconic brands.

I am now going to turn the call over to Dave Jones, our CFO, who will take you through our financial results in more detail.

Thank you, Peter, and good morning, everyone. Reviewing results for the third-quarter of 2015, the Company generated $88.9 million of licensing revenue, a 3% decline as compared to $91.6 million in the third quarter of 2014. The third quarter included continued weakness in the men's fashion brands as Peter discussed earlier in the call. The Rocawear, Ecko and Ed Hardy brands represented just 4% of our third-quarter revenue.

Licensing revenue in the third quarter of 2015 also had a $2.7 million negative impact from foreign currency exchange related to the Peanuts, Umbro and Lee Cooper brands. Excluding FX, licensing revenue was flat year-over-year. I will also note that $3.3 million of acquisition revenue from Pony and Strawberry Shortcake was included in the quarter.

In the third quarter of 2015, the Company did not have any other revenue as compared to approximately $18.7 million in the prior year quarter which was related to a joint venture for the Umbro and Lee Cooper brands in China. The Company's adjusted EBITDA in the third quarter of 2015 was approximately $30.5 million, a 35% decline from approximately $46.7 million in the third quarter of 2014, which excludes the $18.7 million of other revenue in 2014. The primary driver of the decline was the $12.2 million charge for increases in reserves and write-downs of our accounts receivable.

Due in large part to there being no other revenue in the third quarter, non-GAAP net income was approximately $4.4 million, an 89% decline as compared to approximately $38 million in the prior year quarter. Diluted non-GAAP earnings per share was $0.09, an 88% decline as compared to approximately $0.72 in the prior year quarter.

Non-GAAP net income and non-GAAP diluted earnings per share in the third quarter include approximately $3.8 million or $0.08 related to adjustments from the preparation of the Company's 2014 tax return. Non-GAAP net income and non-GAAP earnings per share in the third quarter exclude approximately $7.1 million of charges related to the continuing correspondence with the staff of the SEC, the special committee's review and severance costs related to the transition of Iconix management.

Excluding the negative impacts from the increase in reserves and write-down of accounts receivable and the tax adjustment, non-GAAP diluted earnings per share for the third quarter would have been approximately $0.33.

The Company generated $39.1 million of free cash flow in the third quarter of 2015, an 11% decline from $43.9 million in the prior year quarter.

Reviewing results from the nine months ended September 30, 2015, licensing revenue was approximately $279 million, a 7% decline compared to $299.3 million in the prior period. Licensing revenue in the nine-month period had a $7.9 million negative impact from foreign currency exchange. It is also important to note that licensing revenue in the prior year benefited from approximately $17 million that was recognized related to the renewal of the Peanuts specials with ABC. Excluding FX and the ABC renewal, licensing revenue increased 2% in the first months of 2015. That includes $7.8 million of acquisition revenue from Pony and Strawberry.

The Company has not recognized any other revenue in the first three quarters of 2015 as compared to approximately $38.7 million related to the formation of joint ventures and the sale of the Sharper Image e-commerce business in the prior year period.

For the nine-month period, the Company's adjusted EBITDA was approximately $135.7 million, a 19% decline as compared to $168.1 million in the prior year period which excludes $38.7 million of other revenue. Due in large part to having no other revenue in the current period, non-GAAP net income was approximately $54.5 million, a 50% decline as compared to $108.4 million in the prior period. Diluted non-GAAP earnings per share was $1.10 for the nine-month period, a 46% decline compared to $2.05 in the prior year period.

The Company generated $144.5 million of free cash flow in the first nine months of 2015, a 13% increase as compared to $128 million in the prior year period. Adjusted EBITDA, free cash flow and non-GAAP net income and non-GAAP diluted earnings per share are all non-GAAP net measures and reconciliation tables for each can be found in the press release sent earlier this morning and on our website, Iconixbrand.com.

Moving on to the balance sheet, we ended the quarter with $188 million of cash of which $110 million is in the US and $78 million is international. Of the $110 million in the US, $52 million is restricted for the terms of our securitized notes. As many of you know, $300 million of our convertible notes mature in June of 2016. Addressing this convert is a top priority for the Company and we are confident that between our existing cash, our free cash flow generation over the next eight months and our ability to access financial markets, we will have the ability to satisfy this debt obligation.

Nonetheless, our goal is to have the refinancing solution in place by year-end. In that regard, we have recently retained Guggenheim Securities to assist us with financial planning matters and we are working closely with them to evaluate our refinancing options.

We would also like to note that following our announcements last Thursday, Standard & Poor's maintained the Company's ratings.

Moving on to guidance. The Company has revised its full-year 2015 guidance estimate to reflect the preliminary third-quarter results, revised expectations for the Peanuts brand, weak performance in men's fashion, reductions in revenue in the first nine months of 2015, and reductions in revenue assumptions for the fourth quarter of 2015 related to the accounting adjustments recorded as a result of the special committee and current management's reviews and the elimination of other revenue from its estimates.

For 2015, the Company now expects licensing revenue to be in the range of $370 million to $380 million from its previous guidance of $410 million to $425 million. The revenue revision includes an approximate $24 million reduction in the Peanuts revenue forecast. This is largely related to mass retailers opting to allocate more shelf space than we expected to Star Wars as well as underperforming licenses in China, negative foreign currency impacts and a shift in the timing of certain media revenue streams into 2016.

We obviously did not anticipate these late changes from the entertainment division. As part of the top-down review in the third quarter we paid particular attention to all revenue sources related to the movie and movie merchandising. Keep in mind the entertainment model is different than other areas of our business. There is much less visibility and it is more difficult to predict. The entertainment business is global with more than 1000 licensees. Our revenues are obviously tied to licensee performance and the entertainment market changes very quickly.

Having said that, the Peanuts brand has been one of the Company's strongest performing brands. With the movie, new promotional partnerships and new retail programs, the Company currently expects licensing revenue related to the Peanuts brand to grow approximately 20% in 2015 excluding the $17 million related to the renewal of ABC in 2014.

The overall revenue revision was also related to a $4 million reduction in the Rocawear, Ecko and Ed Hardy brands and approximately $8 million related to the accounting adjustments recorded as a result of the special committee and current management's reviews. As a result of recent management changes and corresponding change in culture, we feel it is appropriately conservative to now exclude other revenue from our guidance.

In prior guidance for 2015, we had assumed $5 million to $15 million of other revenue. That assumption is now zero for the balance of the year. This is similar to our approach of excluding acquisition assumptions from guidance. We will however continue to evaluate opportunities where it makes strategic sense.

The Company now expects non-GAAP earnings per share to be in a range of $1.35 to $1.40 as compared to its previous guidance of $2.00 to $2.15. The Company still expects to generate significant free cash flow and is narrowing its current guidance range to $170 million to $175 million of free cash flow for 2015.

As we look to 2016, we anticipate a year of restaging the business. We plan to make additional investments in the Company from marketing to people to licensee support. We expect organic growth to be flat to up low single digits driven by double-digit growth in our international business and US revenue down slightly. We are including no other revenue in our 2016 forecast but as I mentioned, we will continue to evaluate all potential opportunities that we believe are in the best interest of the Company.

With our increased investment in the business we expect we expect margins to be around 50%. We expect our cash interest expense to increase as we look to refinance our $300 million convert which has a current cash interest rate of 2.5%.

For 2016, we are currently forecasting an effective tax rate of 33% to 35%. Reflecting these expectations, our 2016 guidance is as follows.

We expect revenue to be in a range of $370 million to $390 million. We expect non-GAAP diluted earnings per share to be in a range of $1.35 to $1.50 and we expect free cash flow to be in a range of $170 million to $185 million.

I will now turn the call back over to Peter for some closing remarks.

Thank you, Dave. Before we turn the call over to Q&A, I would like to talk to you about why I continue to be confident in the Company despite the recent negative news.

First, over the past three months I have been meeting with our key licensing partners and I am encouraged by their continued commitment and desire to work collaboratively to grow our brands. What I am learning is that we can support them better. Stepping into this role, my expectations were that growth in the US was limited. Now I believe with the right investments in our brands and proper support to our licensees and partners there are significant opportunities to grow organically in the future in the US.

As Dave mentioned, we are looking at 2016 as a reset year. Our 2016 budget includes a 15% increase in advertising spending but more importantly, we plan to spend these dollars differently than in the past with a much greater focus on digital promotion.

The budget also includes a 15% increase in headcount with important additions to the financial function to international operations and to the marketing organization to better support our DTRs.

We are also considering investments in entertainment content which we were not willing to affect previously. All of us continue to be excited about the Company's opportunities on a global basis.

Please let me emphasize that despite our recent challenges, Iconix has significant business strengths again including its diversified portfolio of consumer brands, profitable business model and a strong free cash flow generation. All of us at the Company are focused on capitalizing on these strengths and addressing the issues that have impacted our recent performance. This to all improve our results and enhance value for shareholders.

With that I would like to thank you for listening this morning. We will now open the floor to Q&A. Operator?

(Operator Instructions). Eric Beder, Wunderlich.

Good morning. Could you give us a little bit of update on how the Peanuts flow is going to happen in terms of what was moved from 2015 into 2016 and how should we think about longer-term what the growth rate can be here given that the movie is not what -- I am not going to say it is a onetime thing but it is an event as opposed to steady-state growth going forward?

Sure, this is Peter. I will respond to that. Very briefly, the way that we earn revenue from the film is by participating in all of the revenue streams that Fox has that result from the film. These of course include worldwide box office but also include DVD sales, Pay Per View paper review, a sale to someone like HBO or Showtime, international syndication. There is quite a long list. These revenues as you know have different timing; box office being up front and it can take as much as a year for the film to actually be released in these other media forms. So there is a tail on these revenues and basically that is what is going on.

It is sometimes difficult particularly for an organization that is not in the motion picture business to estimate the timing on all of these revenues. I will say that regardless of whether the revenues fall in 2015 or 2016, we are very pleased with the results from the film and very optimistic about the exposure for Peanuts worldwide.

You asked about how we follow up with the film and we do that by participating in lots of other media forms such as television and online exposures as well and we try to build a media bridge between that film and the possibility of future sequels.

It is Dave Jones. Just to add to that and give you a little bit more color, I think as most of you know the Peanuts franchise in 2015 will generate about $100 million in revenue for us. We expect to be able to maintain that going into 2016 with all of the different revenue streams that Peter talked about. We are not expecting a drop off in the business by any means.

And other thing we mentioned, Eric, is that one of the goals of the film was to reintroduce the Peanuts characters to a younger generation. I would define that as people around the world who are under 20 years old. We have a very strong following as you know with older generations but this was a very important goal for the film and I think we are going to achieve it and that is going to of course provide lots of growth opportunities for this brand.

Okay and when you look at the future here for this Company, after the debt is paid down, where do you think -- where is the organic growth potential? Do your DTRs have continued growth potential to them that hasn't really been cultivated because the resources weren't put as much as in as what you are doing right now next year with ramping the marketing of other pieces?

Well, as part of the review that we had over the past three months, we have really looked at how we support our DTR partners and I think historically the philosophy has been that when we do these deals we largely leave the promotion of the brands to the DTR partners themselves to the retailers. And over a period of time I think it is safe to say that some of our brands are getting stale. The retail partners certainly support these brands in store and with local advertising but we think that we needed to if you will reinvigorate some of these brands with more intensive advertising and also with advertising that reaches the younger generation. So we are going to be doing a lot more in the digital world with regard to that.

Great. And congratulations and good luck for the rest of the year next year.

Thank you.

Dave King, ROTH Capital Partners.

Thanks. Good morning, everyone. I guess following up on the Peanuts business to be clear it sounds like you are not expecting a drop off by any means. I guess as you think about your guidance, does that then assume any acceleration or is that just flatlined? Then in terms of that guidance, what are you assuming in terms of box office versus wholesale royalties?

This is Peter again. I think we are basically flat in our revenue projection for Peanuts in 2016 versus 2015. Obviously we are losing much of the box office revenue but we feel that if you will, the kick, the spurt that we are getting from the film globally is helping our overall licensing business so that right now we are projecting that as flat and I hope we will do better than that. We think that is the appropriate forecast right now.

Understood. Probably prudent to be conservative. That helps. And then regarding your 2016 outlook in general, I guess can you walk us through the differences between the $1.35 to $1.50 I think you said in non-GAAP EPS versus the free cash flow outlook of $170 million to $185 million? Or I guess better yet, could you help us understand how with maybe some decline in earnings, free cash flow should still improve. Is that based on licensing renewals or advances on new deals? I guess some color there would be helpful.

Not sure I understand the question, Dave, but obviously the decline in earnings we have got some one-time items or what we consider one-time items in 2015. But you think about the free cash flow really a different calculation from just our earnings.

Understood. I guess what I'm trying to say is maybe just walk us through some of the major differentiating pieces. Obviously 2015 has some earnings, some one-time stuff, some of that is backed out in terms of the non-GAAP I think. But just maybe some of the big pieces that might be helping you to get to that cash flow guidance versus the EPS guidance just to give people comfort in terms of how to be thinking about the free cash flow and the visibility towards that?

Right. I would tell you I think the assumptions in 2016 are pretty straightforward. We are focused on core licensing revenue and because of that, we go through brand by brand. We look at the DTRs, we look at guaranteed minimums. As we mentioned, we have got some issues in the men's brands and the assumptions in 2016 obviously to the extent we have canceled licenses or taken back licenses, we've pulled out any revenue guidance related to those.

So the 2016, what I would tell you is a pretty straightforward year. We've got some investments as Peter mentioned in advertising, some investments in people but just the guidance we have given on free cash flow is really just that, exactly what we expected the business to generate in terms of cash just from our normal licensing business.

We've got no other income assumptions. We may have some transactions but we are certainly not forecasting those or putting those into our guidance.

Okay, that helps. Thanks for the color. And then lastly for me and I will step back. In terms of the refinancing based on your comments, it sounds like you are planning to address that through existing cash and free cash flow generation. I guess given the $58 million or so net balance domestically and $78 million internationally I guess do you have the ability to issue any debt overseas? And then beyond that, do you anticipate any asset sales at all to meet that obligation? If so, which of those would you be able to sell or which of those are you not currently using as collateral for your securitization? Any help there would be appreciated. Thanks.

So obviously the cash that is international, no current plans to repatriate any of that. We consider that to be permanently reinvested. I think we always consider that cash that we have offshore as cash that is available for international acquisitions. (technical difficulty) domestic cash as it relates to our refinancing opportunities again, we retained Guggenheim Securities and we are working closely with them on refinancing opportunities and different options that we have in the US.

I think any of the refinancing that we do will come from US sources. Like I said, there is no plans to bring cash back. We can pledge about 65% of our [LuxCo] stock to the extent we wanted to do an international financing but in terms of the existing converts, we think that refinancing effort will be US-based.

And no asset sales necessarily to do it?

Say that again.

No asset sales needed in order to do it?

I think the answer there is that we are looking at all of the brands right now to see which are forming and which our strategic. There is none that we will sell right now just to do the financing because we feel comfortable that the cash flow, the assets that we have not been pledged already both domestically as well as Dave said, the LuxCo stock will be sufficient to do the convert. (technical difficulty) We are talking about two non-core brands, very small that may be divested but it is part of its overall strategic review.

Okay, that is great color. Thanks everyone and good luck.

Liz Pierce, Brean Capital.

Thanks. Good morning. So Peter, I was wondering with regards to Peanuts and the shelf space, I mean is there a possibility if the movie continues to perform well that there would be an opportunity to get that product out there, what is happening to that product or is it shifting into next year? If you could just perhaps share some insight into that?

Sure, so the answer is we do expect to have an important holiday season for Peanuts. There is that possibility but I think for those of you that are not in the motion picture business, we might talk briefly about what happens at retail. Big mass retailers only really can make two to four bets per year on tentpole movies and that bet requires them to dedicate a lot of shelf space to the licensed products associated with those films.

Disney is of course the big player in the room. Star Wars has had tremendous promotion. The retailers have been very successful with Star Wars in the past. They are typically with a first film in a franchise as is the case in Peanuts. They tend to be conservative and if they have to make a choice between the new guy on the block, Peanuts and Star Wars, they are going to choose and they have chosen Star Wars. So our sense of how much licensing we could get done through retail this year was a little too optimistic. But it doesn't dim our optimism for the future.

To the extent that the product sells through and I think we will have a very good sellthrough, the retailers will come back to support the brand in the future. There is no question that timing on films particularly tentpole movies when they are going to be released and so on can affect everybody's business at retail.

I would love to tell you we have the power of a Disney at this point. We don't.

You said that it was released in 10 other countries, including China, which I think was up for grabs after the second quarter. Can you give us any insight how it performed and what those 10 other countries were?

The 10 other countries actually were very small with the exception of China. We are talking about very marginal places such as Italy and so on. I don't have any results that I can talk to at this point so I am afraid I just can't tell you. Most of the international openings are a little bit further into this year.

Right, I thought they were in December so --?

I think that is generally correct, Liz.

Okay. And then maybe just talking about the underperforming licenses that you mentioned in China with Peanuts if you can help us understand exactly what that is and perhaps what the plans are in place to address that?

Sure. We have had a number of licensees one in particular that is involved in e-commerce that got a very late start on all of this. So our expectation for the sales as you know in China as opposed to the retailing situation I described here where you are fighting for shelf space with mass retailers, in China it is very different. There are no basically national chains in China. China really consists of 12 different regions speaking 12 different languages. So it is very hard to have the equivalent of what we have here in the US. You are dealing with local retailers and you are also dealing with the fact that in many ways China is ahead of the United States from the standpoint of digital commerce.

Much of the business that is done is done digitally as well particularly with regard to entertainment. So in this case, we just had a one particular licensee involved in e-commerce that didn't get their work done as quickly as we had hoped.

But this does not suggest that Peanuts future in China isn't bright. I think it is very bright and I think that the film really again is launching we have so many young people that don't know Peanuts have never had exposure to Peanuts. This film is going to do that so we feel very good about Peanuts in China in the future.

So is this particular licensee ready for singles day which is coming up at the end of this week which is obviously one of the biggest selling days over there?

I don't think we have a report on that right now. We are assuming that they are not. If they are, great.

Okay, that is not in the forecast. That is helpful. Finally just one other question on China in terms of what is going on with Candies and just the possibility of further, is that part of your thinking in terms of refinancing on selling any of that or maybe that was what Dave was referring into the assets?

I'm sorry, when you talk about for Candies, obviously what we are looking at with the Hong Kong market, the Chinese market is they basically resetting as well. But we don't control Candies position so we can't affect the timing of the public offering. But then again as we look at China, what we are really excited about is our ability to reposition from a strategy that we thought was really successful five years ago of affecting joint ventures into one where we are now seeing some exciting licensing opportunities with some of our bigger brands like Umbro with long-term licenses and strategic partners in China.

All right. I will step back. Thanks and best of luck, guys.

Steve Marotta, CL King & Associates.

Good morning, everybody. When you think about EBITDA margins in fiscal 2016, can you talk a little bit about it given the increase in expected marketing spend, the increase in headcount? I am assuming the fact that Peanuts is expected to be flat year-over-year there shouldn't be a big delta from a brand mix standpoint. But can you discuss EBITDA margins a little bit directionally for fiscal 2016?

Steve, it is Dave. So when you look at 2015 in terms of EBITDA margins, I think we are projecting around 43% with all of the items that we mentioned. Going forward into 2016 even with the additional investments, we are still projecting about 50% EBITDA margins and I think we feel pretty comfortable with that. So we are still in that range that we said we wanted to be in of around low 50% margins.

Where would the extra be coming from because with roughly flattish sales and increased expenses in one area, where would the balance ballots come from?

I think as the mix of sales changes a little bit remember the Peanuts business is a little bit lower margin. And I think so the margins on the mix of the business get a little bit better and then we have got some savings in other SG&A areas although we are investing in people and advertising.

Okay, one other question. What was the reticence on your part to include free cash flow assumptions and guidance in the Thursday evening preannouncement?

Again as Peter said, I think the announcement or the restatement in the 8-K obviously took up an enormous amount of effort here at the Company and we just honestly weren't ready with our free cash flow estimates.

Okay. One last question on a run rate basis, what is the balance between domestic/international just as a percent of sales?

I don't have that right in front of me. We will get back to you on that if that is okay.

No trouble. Thank you.

John Kernan, Cowen and Company.

This is David Buckley on for John. Thanks for taking our questions this morning. Two quick questions. One, can you talk about the long-term sustainable operating margin, what your outlook is there? And then second question, just the home business, what is the outlook for next year and long-term there as well? Thank you.

David, it is Dave. Sitting here today I think long-term we would expect our operating margins to be in that 50% to 55% range. Obviously we've got a leveragable business to the extent we can get acquisitions that are accretive to us. We would expect those to add a lot of leverage to the business so that could go up over time. But right now I think our long-term plan is in the low to mid 50s.

And this is David Blumberg. On home, we are excited about obviously Charisma doing very well at Costco. Waverly Inspirations, a new DTR with Walmart which has just started, we see on a long-term basis is a wonderful way to grow. Wild Velvet as well. All the home brands deep relationships with retailers right now and what is exciting about Sharper Image as I think Peter talked about some of these new retail distribution opportunities -- but Walgreens, Toys "R" Us, Target and it is becoming a lifestyle. So we feel good about the long-term and when I say lifestyle for Sharper Image, it is more than just one-off toys, it is really becoming a category.

So we are excited about it. We are excited for all of them how we have been able to build these deeper retail relationships like the fashion apparel.

Thanks, David. We will entertain one more question.

Jim Chartier, Monness, Crespi, Hardt.

Thanks for taking my questions. On the free cash flow, what is the contribution from cash receipt from earlier, your joint venture formations that were done in the last couple of years in both 2015 and 2016?

Jim, that is about $20 million in 2016.

$20 million in 2016?

Correct.

And then on the men's business, it is great to see that it is such a small part of the business now but it looks like it is about one-third or so of what you initially projected for those three brands for 2015. So just wondering how they could do so much less than what you were initially projecting given that most of the deals have guaranteed minimums?

Jim, it is Dave. I think part of the review that we did in the quarter we sat down with our key licensees there and really reviewed their business. And like I said in some cases, we have actually terminated licenses due to nonperformance or nonpayment and we are searching for new licensees. We have signed a couple of new licensees. So there was a lot of change that went on there. Peter and myself sat with the management teams from quite a few of the licensees and talked about where their business was and where they were going in the future.

I would add to it. We brought in a new manager for the men's fashion division as part of that and as part of -- as Dave just -- Dave and Peter's top-down Rocawear now has a new licensee, new core licensee. Ecko is doing well but on a much smaller base in midtier. We are having the same kind of review on Ed Hardy. So I think this was the time for us to focus on who were the licensees, what is the opportunity and with the new management, the ability to really focus on what has become a very small part of our revenue but hopefully it can have good growth opportunities over the next few years.

Can you just quantify or give us a sense of how much of the revenue reduction in this year's forecast is the result of you canceling license agreements or exiting those agreements?

I think we said there was about $4 million related to the men's brand and then it was about $8 million relating to the accounting adjustments and that was the combination of a few different items but certainly where we've canceled some license agreements.

Okay. Dave, earlier you had said it sounded like adding some additional brands to the existing securitization facility was probably the best option for you to help finance the maturity of the convert. Is that still the best option and can you just talk about how easy it is to add the unencumbered brands to that facility?

Yes, Dave, the securitization is clearly our lowest cost of capital and mechanically I don't think it is difficult to get back into the securitization. It is obviously market dependent and like we said, we are going to work closely now with Guggenheim on different financing options and we will decide with them what the best one is for us at the time.

Is your ability to access the existing securitization with those brands impacted by the lower results you reported today?

In order to get back into the securitization, there is a leverage cap that we can't be above and so obviously as our EBITDA and projected EBITDA is lower than what we expected, that puts us at some risk for being able to access it because of that cap at least to the full amount.

Okay. And then Strawberry Shortcake and Pony, it looks like year to date it is only doing something like $8 million or $9 million versus an annual projection of $27 million for those brands. Are they still on track with where you thought they would be when you acquired those?

No, I think one, the numbers we have given you are not the full-year although it is almost the full year because they were acquired in the first quarter. We are looking at a little over $10 million I think for the full-year and probably a little more than that in the 2016 budget. So no, I think those are off to a slower start than we had originally anticipated. Pony in particular though we have got some good expectations for, we've got a great management team that works with the sports brands, and so I think there is a lot that works there.

Strawberry as you know is the global brand we are continuing to integrate that in our entertainment division and so we think there is a lot of work to do there but obviously a global iconic brand that we have a lot of confidence in.

And finally, the starter license I think is the last major license up for renewal this year. It sounds like you guys feel confident that you can get that done. Is that the case?

We are engaged and it is the normal course discussions with Walmart. We have never had a material DTR not renew. Walmart has been a good partner. We just redid Ocean Pacific with them. So it is just normal course of the discussions and we are talking about some exciting ways that we can be a better partner as Peter has talked in the marketing of the brands overall which we think will be part and parcel of the renewal.

Great. Thanks and best of luck.

Thank you very much. Appreciate everyone listening in and I thank you for your participation and hope to hear from you on our next call. Thank you.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines at this time. Everyone have a great day.