Icon Energy Corp (ICON) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Iconix Brand Group fourth-quarter 2015 earnings conference call.

(Operator Instructions)

Please note: Today's conference is being recorded.

Before we begin, I'll read the following 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 which are 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, confident and similar expressions identify forward-looking statements. Listeners are cautioned to not place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

I will now turn the conference over to Mr. Peter Cuneo, Chairman and Interim CEO for Iconix. Please go ahead, sir.

Thank you very much, Karen, and good afternoon, everyone. Welcome to the Iconix Brand Group fourth-quarter and full-year 2015 earnings conference call.

On today's call we have with us John Haugh, who is our new President, and who will be taking over the role of CEO on April 1. We also have, here at Iconix, Dave Jones, our Chief Financial Officer; Willy Burkhardt, our President of International; and Jaime Sheinheit, who is our VP of Investor Relations.

The agenda for today's call includes some brief comments from John, then an update on our balance sheet and recent financing. This will be followed by financial perspective on the fourth-quarter and full-year 2015 results, then we will have highlights on our core licensing business, and finally we will update our outlook for 2016.

Let me start by welcoming John Haugh to the Iconix team. I believe this is a very exciting period of transition for our Company. John joins Iconix with more than 30 years of experience, and he has had particular success in branding, marketing and retailing. We believe John's acumen and leadership will help drive accelerated organic growth for our portfolio of brands, both domestically and internationally, as well as improve our relations with current and new partners, and with our shareholders.

When I took over as interim CEO about eight months ago, there were three key areas of immediate concern. These were the need to refinance the $300 million convertible bond issue that we had due in June of this year; the need for the Company to reach conclusions on the continuing dialogue with the staff of the US Securities and Exchange Commission regarding historical accounting matters; and finally, the requirement to bring a new CEO into the Company, with the right experience and leadership qualities to take us into the future.

We have met each of these challenges. We signed a new $300 million term loan, without giving up any equity, in order to address the Company's convertible notes that come due this year. The Company reached conclusions on the accounting treatment of certain of the matters that were the subject of our Comment Letter Process with the staff of the SEC, and we brought John Haugh to the Company.

I would really be remiss if I didn't personally acknowledge the tremendous effort that our finance, legal and strategic development teams have expended to meet these issues. We've made significant progress against these challenges during my tenure, but these individuals deserve the lion's share of the credit. Looking forward, we hope that investors will turn their focus back to our core licensing business, which continues to generate significant free cash flow, as demonstrated by our 2015 results and 2016 projections.

Before we go into more detail about our Business, I'd like to turn the call over to John Haugh, our President and next CEO, for some brief remarks.

Thank you, Peter, and good afternoon, everyone. I am thrilled to be here today. I would like to thank all of our employees and partners for the great work they have done in building Iconix Brand Group into the preeminent global brand management company that it is today. The Iconix Brand Group has been a leader in the licensing business, and my expectation is that we will continue to own the space.

I've only been with the Company for a few weeks, so it would be premature to present a vision for the future. But what I am confident saying today is that Iconix Brand Group has a talented team of people, a strong portfolio of brands, and a dominant licensing platform from which I believe we can grow both in the US and internationally. With that said, I understand the need to create a balance between driving growth and improving the balance sheet, which will be the focus for me and for the Iconix Brand Group management team in the years to come.

Before I turn the call to Dave, I would like to thank Peter for stepping in as active interim CEO. His commitment and dedication to moving the Company forward has allowed me to start with Iconix Brand Group in a more stable place, and hit the ground running and focus on driving our core business.

I will now turn the call over to Dave Jones, our Chief Financial Officer.

Thank you, John.

As Peter mentioned, we're pleased to be able to discuss the resolution of certain overhangs that have been weighing on the Company. The first one I would like to talk about is the recent financing.

We're very pleased to announce we have successfully secured a new $300 million term loan credit facility with Fortress, which we expect to be funded sometime next week. The capital raised from this term loan will provide us with the ability to repay our convertible notes that come due in June of this year. This should alleviate a great amount of investor concern that has been mounting over the past several months regarding our ability to refinance this debt.

Following a lengthy process in the face of credit markets that were not in our favor, we are satisfied with the outcome, in particular our ability to raise this capital without an equity component. After deducting financing, investment banking and legal fees, the net proceeds from the term loan will be about $270 million, and the new loan will bear interest at a rate of LIBOR plus 10%, with a 150-basis-point floor on LIBOR.

Going forward, we will be focused on delevering the balance sheet, including the indebtedness represented by our 2018 convertible notes. As John said, we're also working to find the right balance between optimizing our balance sheet and on making investments to drive future growth. The Company ended the year with approximately $220 million of cash on its balance sheet, of which approximately $80 million is domestic unrestricted cash, and approximately $90 million is unrestricted cash held internationally.

Now let me talk about our financial results, which incorporate the conclusions that we reached as a result of the Comment Letter Process with the staff of the SEC. The restatement, which was announced in February, relates to the consolidation of certain joint ventures that were previously accounted for as equity method investments; the elimination of the gains associated with those joint venture transactions; a recalculation of the cost basis of trademarks contributed to other joint ventures that continue to be accounted for on the equity method; and certain other non-cash investments, primarily related to historical licensing revenue.

With this restatement, we believe that all significant historical transactions have been reviewed, and will be -- and are properly accounted for. As previously disclosed, the Company has responded to the staff with a confirming letter on all questions that the staff raised.

The fourth quarter and full year of 2015 results include some items that we are excluding from our non-GAAP metrics. As we previously anticipated, in the fourth quarter we recorded a non-cash impairment charge of approximately $438 million related to certain of the Company's trademarks and goodwill. Over 90% of the impairment charge was related to the men's fashion brands, including Rocawear, Ecko and Ed Hardy. The balance was related primarily to the Royal Velvet brand, which continues to have a healthy business at JCPenney, but has not regained the royalty revenue it lost since transitioning licenses in 2012.

The Company's adjusted EBITDA, non-GAAP net income, and non-GAAP earnings per share also exclude professional fees associated with the previously disclosed correspondence with the staff of the SEC and special committee review, as well as costs related to the transition of the Iconix management team. These fees totaled approximately $11.1 million for the full-year 2015, and $1.6 million in the fourth quarter of 2015.

Reviewing results for the fourth quarter of 2015, the Company generated $94.7 million of licensing revenue, a 1% decline as compared to $96 million in the prior year quarter. Licensing revenue in the fourth quarter of 2015 included approximately $2 million of revenue related to new acquisitions, and had a $1.4 million negative impact related to foreign currency exchange rates. Excluding these two items, licensing revenue declined approximately 2% in the fourth quarter.

Adjusted EBITDA attributable to Iconix for the fourth quarter of 2015 was approximately $38 million, a 14% decline as compared to $44.3 million in the prior year quarter. EBITDA margin in the fourth quarter was approximately 40%, as compared to 46% in the prior year quarter.

The EBITDA margin decline was partially related to the Peanuts business, which was a larger percentage of the mix in the fourth quarter of 2015 as a result of the launch of the Peanuts movie, and which has a substantially lower margin as compared to the rest of our portfolio. In addition, in the fourth quarter the Company took a charge of approximately $3.8 million included in SG&A related to the buyout of our partner from our Scion joint venture, and the sale of the BBC and Ice Cream brands.

On a non-GAAP basis, as defined in today's press release, net income attributable to Iconix was approximately $12.3 million, a 46% decrease as compared to the prior year quarter of approximately $22.7 million. Non-GAAP diluted earnings per share for the fourth quarter of 2015 was $0.25, a 45% decrease as compared to $0.45 in the prior year quarter.

Turning to the full year of 2015, the Company generated $379.2 million of licensing revenue, a 3% decline compared to $391.5 million in 2014. 2015 licensing revenue included approximately $11.9 million attributable to the Company's 2015 acquisitions, which included Strawberry Shortcake and PONY. It also had a $10.1 million negative impact related to foreign currency. 2014 included approximately $17.1 million of revenue related to ABC's renewal of its license for Peanuts programming. Excluding these three items, licensing revenue for our portfolio produced overall organic growth of approximately 1% for the year.

Adjusted EBITDA attributable to Iconix for the full-year 2015 was approximately $172.7 million, an 18% decline as compared to approximately $211.1 million in the prior year. In 2015, the Company incurred approximately $16 million of incremental expenses related to accounts receivable reserves and write-offs as a result of the Company's comprehensive review of its license agreements and relationships with its licensees, which is included in the Company's non-GAAP metrics.

In addition, in 2015 the Company did not have any gains on sale of trademarks, as compared to approximately $6.4 million in 2014. The $6.4 million related to the sale of the Sharper Image eCommerce and US catalog rights in the second quarter of 2014. Adjusting for the incremental write-off in 2015 and the gain on sale of trademark in 2014, EBITDA declined approximately 8%.

On a non-GAAP basis, net income attributable to Iconix for 2015 was approximately $66.4 million, a 36% decline as compared to approximately $103.6 million in the prior year. And non-GAAP diluted earnings per share was approximately $1.33, a 33% decline versus $1.98 for the prior year. Free cash flow attributable to Iconix for 2015 was approximately $188.9 million, a 14% increase over the prior year of approximately $165.4 million. In 2015, the Company received a tax refund of approximately $15.5 million, which is included in the total cash flow of $188.9 million.

I will now turn the call back over to Peter to provide some highlights on the core licensing business.

Thank you, Dave.

Despite a challenging year in 2015, as Dave just highlighted, we continued to generate significant free cash flow, which I believe speaks to the overall resilience of our business model, and to the ongoing strength of a diversified portfolio of over 30 consumer brands that are licensed to best-in-class partners around the world. Strength in the portfolio has come from our global businesses, which include Peanuts, Umbro and Lee Cooper. Our international platform also includes our international joint ventures, plus China and Latin America, which we fully own.

As we think about organic growth, America has been the most difficult area, reflecting challenges across the apparel marketplace; however, we believe can outperform the market by building deeper relationships with our partners, and by enhancing our marketing support. In the US direct-to-retail relationships, our relationships remain strong, as demonstrated by the six large DTR renewals we signed in 2015 with retailers, including Wal-Mart, Target, Kohl's, and Kmart/Sears.

Most recently, Wal-Mart renewed its license for Starter. Between our Starter and Danskin brands, we continue to be well represented in both core basic and core fashion athletic products at Wal-Mart. In total, we now have four DTR licenses with Wal-Mart, and have over 60 DTRs globally. We look forward to continuing to work closely with Wal-Mart and our other retail partners, and remain focused on actively supporting all of our brands through our brand management and marketing expertise.

Revitalizing our relationships with big box apparel retailers in America is a key focus for us this year. We have been enhancing our marketing efforts in social and digital media, as well as in traditional advertising. We are currently in dialogue with our licensees to explore how we can provide further support. For example, for certain brands we're working to improve the overall eCommerce experience, while driving traffic to our licensees' product websites through digital and socially driven campaigns.

Let's now talk about our business segments as we report them. In the fourth quarter, our entertainment business was up 42%, and for the full year it was up 4%. This growth was driven by the successful launch of the Peanuts Movie in the fourth quarter of 2015, and the acquisition of Strawberry Shortcake in the first quarter of 2015.

When excluding approximately $17 million in 2014 related to ABC's renewal of its license for the Peanuts specials, the Peanuts business achieved double-digit growth in 2015, with the US business up over 50%. The Peanuts Movie generated $250 million in global box office sales, and was supported by 25 national promotional and marketing partnerships, also by eight halo collaborations with fashion, lifestyle and sports brands, and by multiple national retail partnerships. We expect to see a continued lift from the movie in 2016, and feel the Peanuts brand can sustain this level of royalty income, reflecting increased brand exposure and awareness.

Performance of our Strawberry Shortcake brand has been below our expectations, as we are having some issues with inherited licensees. Longer term, we're very excited about revitalizing this brand, and we are currently working on new content production and distribution arrangement that should provide this brand with the boost that it needs.

Revenue in our women's, men's and home segments were down in the fourth quarter and for the full year. In the women's segment, the largest component of the decline was in the wholesale business, with some pressure on the Rampage brand. In general, the majority of our DTR businesses remain stable, and we feel confident in our relationships with retailers. But with a changing retail landscape and shifting consumer spending habits, we believe providing that next level of marketing and brand support will be critical to driving these businesses forward.

In the men's segment, consistent with our previous disclosures, and as evidenced by the impairment charge that Dave just discussed, there was continued weakness across the overall men's portfolio in 2015. However, having restructured the licensing program, and with new licensees in place for two of our most challenged brands, Ecko and Rocawear, we are projecting some growth from our men's business in 2016.

In the home segment, our overall business remained healthy, and we are excited about our recently launched DTR with Wal-Mart for the Waverly brand, which should foster growth in 2016. The decline in 2015 was primarily related to the Sharper Image brand, which stabilized in the fourth quarter with new distribution. As previously discussed, we are increasing investments in marketing and advertising for most of our brands. Specifically, we are focused on targeting digital and social audiences through global campaigns that leverage our current spokespeople, and we are already seeing positive results at both wholesale and retail.

As I also mentioned earlier, international is a large growth opportunity for Iconix; and in 2015, on a constant-currency basis, our international business grew 8%. For 2016, we are projecting high single-digit to low double-digit revenue gains for our international business. We believe this will be driven by both maximizing existing partnerships and by new business potential.

In the first quarter of 2015, we've bought back our JV partner's interest in Iconix China, and we are very excited about the opportunities in that market. With this shift in our China strategy, and a team on the ground that is now focused on building our licensing business, we have found a new partner for the Umbro brand in China. We recently signed a long-term license that will bring in a minimum of $30 million over the next 10 years.

With the Company focused on supporting our key DTR and licensee relationships, and on driving international expansion, we have made the strategic decision to divest certain non-core smaller brands. This included the Badgley Mischka brand, and our 50% ownership in BBC and Ice Cream brands, both of which were sold back to the original founders and their partners. The time and resources required to properly support these brands were not in line with the rest of the Iconix portfolio.

Looking ahead, I am much more optimistic about organic growth than I was when I stepped in the role. And with John leading the team, my confidence has grown even stronger.

As we stated on our last conference call, 2016 will be a year of re-staging the Business. As such, we are projecting our base business to be approximately flat for the year. However, with the investments we are making in our marketing and in our Organization, and with the time we're spending working with our licensees and partners to identify where we can provide additional support to drive sales, we believe we are creating new long-term value and growth for our portfolio of brands.

With that, I would like to turn the call back over to Dave to talk about our 2016 guidance.

Thanks, Peter.

We are maintaining our licensing revenue guidance of $370 million to $390 million. This accounts for the consolidation of certain joint ventures, the loss of Badgley Mischka royalties, as well as the current trends in our portfolio, and the timing and the development, as discussed by Peter, of the recently acquired Strawberry Shortcake and PONY brands.

We are revising down our non-EPS -- our non-GAAP EPS guidance for 2016 by $0.20 to $1.15 to $1.30. This is due primarily to higher expenses associated with the new term loan, transition costs related to our hiring of our new CEO, adjustments related to certain license revenue recognition identified in the restatement, and the net impact of the sale of Badgley Mischka brand.

In the first quarter of 2016, we expect to record a gain on the sale of trademarks of approximately $10 million related to the sale of Badgley. We're revising down our 2016 free cash flow guidance by $15 million to $155 million to $170 million to reflect the cash impact of the adjustments I just discussed.

Our 2016 free cash flow includes both positive and negative one-time items, including the cash received from the sale of Badgley Mischka, as well as special charges anticipated for professional fees and management transition costs. As we look beyond 2016, we believe a free cash flow base of approximately $160 million annually is sustainable, with the expectation that we will drive organic growth for our portfolio of brands in the future.

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

Just to wrap up, 2015 was a challenging year for our Company, but many of the key issues were non-operational, and we believe are not indicative of the health of our underlying Business. We had significant turnover in our senior management team, which I believe has ultimately led to a positive change for the Company from an operational, cultural and shareholder perspective. We were in a lengthy Comment Letter Process with the SEC, and we had an upcoming debt maturity in a tough credit market environment, for which we have signed a new term loan agreement to successfully address.

Going forward, we can clearly focus on strengthening our revenues and free cash flow by investing in our brands and our Organization, on sustaining and supporting large core licensee relationships, on expanding our international business platform, and on regaining our reputation as the world's preeminent brand management platform. With that, I'd like to thank you all for participating today.

We will now open the call to questions and answers. Operator?

(Operator Instructions)

Our first question comes from the line of Steve Marotta from CL King & Associates.

Good evening, everybody. Thank you for taking my question. The first question is: As it pertains specifically to the guidance, you mentioned a couple of items, and one of them that it reflects the current trends in the portfolio. Have there been any changes in the current trends in the portfolio, since the last time you updated guidance?

Yes, there have been some very small adjustments on some of our brands. The overall impact is it was quite small on that -- on the recalculation of our 2016 guidance. But there have been, net, some small changes that represent a very small percentage of our overall revenue budget.

Okay. And then, from a marketing spend standpoint, you intimated that will be increasing in 2016. Can you disclose from what to what?

We don't normally do that. I can tell you that the budget calls for a double-digit increase in advertising and marketing expense versus 2015.

Okay. And, David, you mentioned that there is expected to be a $10 million gain on the sale of Badgley Mischka in the first quarter. Will that be non-GAAP'd when you call out non-GAAP EPS?

Yes.

No, we typically include the gains on sales of trademarks and brands in our results. But it's certainly something that we'll disclose, and you'll be easily able to figure it out.

Okay. I guess my question would be: The non-GAAP EPS guidance that's been provided for FY16 does or does not include that $10 million?

Sorry. Yes, it does include the $10 million.

It does. Okay, that's fine.

And you broke up a little bit on what you mentioned -- what you felt was sustainable free cash flow beyond 2016?

We think a base of $160 million annually is a good place to start -- sustainable free cash flow.

Great. My last question is: Based on the write-down primarily in the menswear brands, what does then the carrying book value of those aggregate brands go from and to, based again on the charge you disclosed today?

You know what, Steve? I don't have it separated by segment. It's certainly something I can get to you though.

Okay. That's all I had. Thank you.

Okay.

Thank you. And our next question comes from the line of Dave King from ROTH Capital Partners.

Thanks. Good evening, everyone. Maybe just starting out, following up on Steve's question, in terms of the $0.20 to $0.33 of EPS guidance reduction, how much of that was interest expense? I think it was probably $0.12 or so, if I did my math correctly.

But how much was interest expense versus changes in -- based on current trends in the portfolio? I think something you called out was transition of management -- just looking for what are the different pieces? Are you able to quantify those for us?

Yes, I can give you some of that. And you're right on the interest. We've got $0.11 calculated.

I would say the net Badgley Mischka is about $0.10. We had the restatements that we talked about; that was about $0.05. And we've got transition costs related to the management team of about $0.03.

Okay, that helps. Thank you.

And then, in terms of the revenue guidance for 2016 -- in terms of the moving parts, I think you guys sort of called out how you're thinking about the various businesses. But in summary, I guess, how should we be thinking about entertainment versus men's versus women's versus home? I think, if I heard you correctly, it was entertainment kind of flattish to down, maybe Peanuts flat, with Strawberry Shortcake, et cetera, down. But maybe you can just talk about some of the other segments to make sure I'm thinking about this correctly?

Well, I think very, very broadly -- this is very broad. I think that you would need to consider is that, in the US, basically we're projecting right now flat organic growth in total. And we're projecting growth internationally -- organic growth of around 10%, and broadly speaking.

I would tell you that we think -- and I know we've said this before -- that our men's business has finally, if you will, bottomed out. So, we have basically reset the whole licensing community for the men's business. We have all new players, and we have some new distribution which we're very excited about actually. So, we actually think we have turned the corner on men's, and we may actually see some growth -- some modest growth in 2016.

(Multiple speakers) Broadly speaking, on entertainment, I think the Peanuts will be roughly flat to last year. We had a very big year because of the movie, as you probably know, with licensing in particular.

And Strawberry Shortcake will continue to be a challenge for us. Now this is a very small brand for us. But we -- Strawberry Shortcake basically needs new content, and we're on the verge of, we hope, announcing a major new production and distribution agreement with a best-in-class partner for new television content for Strawberry.

Okay, that helps. And then, so then taking that all into account, then does it sound like the women's business will be down a little bit as well, if I'm understanding that right?

I would, if I were going to, model it at flat.

Okay. And then, switching gears, in terms of the free cash flow sustainable level on the $160 million or so, in terms of what -- I think you alluded to it a little bit already in your comments, but maybe you can talk about what gives you that comfort of $160 million being the sustainable level? It sounds like maybe some of that's the men's business, in terms of some of the new relationships you have there. But I guess, just what can you give us in terms of -- to give us comfort to be thinking about $160 million as sort of the right run rate, as we look out to 2017 and beyond -- $160 million or better, frankly?

Yes. We kind of -- as you can imagine, when we went through the process, we really broke it down. We've got -- included in the 2015 free cash flow is about $24 million of JV installment payments. That number goes to about $17.5 million in 2016.

Another big piece of it, too, is a lot of the one-time items that we've had over the past 12 months or more go away. So, that helps us a lot with continuing free cash flow.

We've got some assumptions in there for -- we've got some continuing transition issues and professional fees related to the SEC review and things like that. So, we've thought about that in the free cash flow. But generally, I think there's a real positive attitude that we can drive some organic growth, and we felt very comfortable with $160 million going forward.

Great, that's good color. And then, I guess lastly for me, in terms of the new debt, it looks like the premium amortization there is tied to an asset coverage ratio. Where does that ratio stand currently? And then, how should we be thinking about the amount of premium amortization for this year, and over the next couple of years? Thank you.

Yes. We're at about 2 times today on that. The floor -- the default floor is about 1.25 -- not about, it's 1.25. So, we've got some room there.

There's some in-between there. Obviously, as we get closer to the 1.25, there's provisions for some additional amortization, which is kind of a normal feature in an event that we've got a declining ratio. But today we're about 2, so we're pretty comfortable with that.

Okay. That's great. Thanks for all the color, and taking all my questions, and good luck with 2016.

Thanks, Dave.

Thank you. Our next question comes from the line of Eric Beder from Wunderlich.

Good afternoon.

Hi, Eric.

Hi. Could you talk a little bit about what you view as some of your best opportunities for organic growth going forward, in terms of the brand?

Sure. So, I think the first and maybe biggest area for us, at least domestically, is our DTR relationships. We are actually very pleased with the relationships that we have with our partners. They are getting better by the moment. I think one of the reasons for that is we are really showing them much greater attention and support, both financially and with creative ideas than we have in the past.

This is actually a cultural change for us. In the past, we tended to be a little more passive. We did do some advertising, but we really haven't, in all cases, kept up with current trends. This is the reason that we're putting a great deal of emphasis this year on digital networks, digital promotion, and so on.

We are actually very pleased with the reaction we're getting from these big retailers initially, who I think have been looking for this for a while, from both us and other people they deal with. So, while I don't have specifics to give you today, we really feel a renewed sense of kinship, if you will, with our DTRs, and we're looking forward to enhancing the DNA of our brands through these efforts.

I think internationally, all -- maybe the five big brands that we would look to for growth would be Umbro, Lee Cooper, Ecko, Danskin and Starter. I'm going to ask Willy Burkhardt, who's here, to comment on these.

Yes. So, as Peter just said, those five are our areas of sort of greatest growth, as we see over the course of the next 12 to 18 months. But overall, actually as I think we've said a couple of times, both in this call and in the past, really the international growth is across the full portfolio. We have opportunities to expand our footprint pretty much across the board. But the big five, as Peter just rattled off, certainly contribute the highest dollar amount year-on-year change.

Great. And okay, so I just want to be clear. Is the SEC -- where are we with the SEC investigation? Is that completed, or is that still ongoing?

Hey, Eric, it's Dave Jones. You've got to remember, there's two pieces to the SEC review. The first one was basically the normal Comment Letter Process that we had on our 2014 10-K.

We have -- we believe we've addressed all of the SEC's concerns with this restatement that we recently announced, and that's included in the results that we gave you today. We've sent a confirming letter to the SEC, which they didn't object to, and acknowledged.

My presumption is that they'll review this restatement. And then I'm hopeful they'll give us the official sign-off.

But we think the relationship with the SEC is good. We've had good dialogue with them in the past. And again, we think we've addressed all their concerns.

The other piece of it, the legal piece of it, we still have the open letter order from the SEC. And that one is still open, so we'll have to wait and see what happens with that.

Okay. And finally, is -- you have all of that cash overseas. Is there any thought to bringing that back in the US?

And I guess, the other question -- you talked about a significant increase in marketing spend. Is that going to be ongoing past 2015, in terms of that being incremental spend into 2016 and 2017 also?

Eric, I'll take the first piece, it's Dave. No, we don't have any plans to repatriate any of that cash. It would be expensive; it would be tax inefficient. And it would cause us some accounting issues, in that you'd have to accrue for US taxes, potentially, on foreign earnings if you make a habit of repatriating cash.

The other piece to know is, that's really what we consider the fuel for international acquisitions. I mentioned earlier we've got about $90 million of unrestricted international cash. So, we've got some great opportunities there, and Willy and David Blumberg and the team are pursuing those, as always.

And on the second half of the question on marketing, I'll let Peter take.

Yes, I think that you can absolutely assume that there will be increases in each year going forward, assuming we're getting a pay-off for these spends. I think that these spends actually can drive our sales substantially. And I think we have a lot of openings actually with our customers, in terms of, as I mentioned, wanting to hear from us about new ideas and new concepts, new spokespeople. We're doing more with non-celebrity spokespeople, particularly in women's apparel.

So, for example, with bloggers -- people who are well known as bloggers. I think the consumers today, particularly in something like apparel, really actually trust bloggers -- people who they view are just like them, rather -- more so than they trust celebrities, who they know are just getting a paycheck.

So, we are planning to partner with a number of bloggers in the near future. We're in discussions with quite a few now, as one of the new things that we're going to be doing to support our brands. But, yes, if you're modeling out to the future, I think you should project some amount of increased advertising every year.

Great. Good luck in 2016.

Thanks, Eric.

Thank you. Our next question comes from the line of John Kernan from Cowen and Company.

Good afternoon, everybody. Thanks for taking my question. John, congrats on joining the Organization.

So, just wanted to go back to the prior point on investments in marketing. You did talk in the press release about re-staging the Business, and making more investments in the brands and the Organization. So, as you make these investments, what do you think is sustainable operating margin structure for this -- and EBITDA margin structure for this license business is, and balancing the needs to drive organic growth, and investing in marketing and behind the brands? Do you think that there needs to be a meaningful step-up in marketing, beyond just what you're doing in 2016, but beyond that, to really drive organic growth within your license brands?

Hey, John, it's Dave Jones. Our target is 50% margin, and I'm just searching my papers to see what it is in the projection for 2016. I'll let you know if I find it.

But we think that we can get there with the increased spend. We've historically been around that level and higher.

The good thing with this Business, too, is you've got leverage. So, to the extent we can add to the Business -- we've talked about the international growth before, and we talked about the fact we've got cash available internationally for acquisitions.

It's a leverage model. So, those will typically come on at a much higher margin than the existing business because we've got the existing platform. So, I think in the guidance we're assuming about 49%, and the target is 50% to 55% is where we'd love to be. (Multiple speakers)

Hey, John. You were asking John about the step-up in advertising. I want to make, I think, a point that is sometimes missed on these calls. The increase -- the organic growth of our Business with regard to advertising is not only based on just pure dollars -- increasing the amount of money we spend. It's really just as much -- in fact, I have to say more so -- dependent on the effectiveness of the advertising that we do.

You know that I've been involved in a number of turnarounds in the past. And many times, we were actually able to reduce our marketing spend because the way we were spending the money was much more effective than before. And here, we are really planning on a double whammy.

We think that our dollars will be much better spent, much greater impact on consumers, and on our licensee relations and their sales. We also think that the (technical difficulty) [additionally it's] going to give us even further boost.

So, I will be very disappointed and I think -- I don't want to speak for John, but I think he would say that he also would like to see that the advertising spend be more effective creatively than it has been in the past. And I think by moving to a new approach, particularly with regards to online promotions (technical difficulty).

Okay, thank you for that color. You talked about a sustainable level of free cash flow. What are your plans for that free cash flow? Is there going to be a focus on deleveraging the balance sheet?

The prior management team obviously had a big focus on share repurchases. But how will shareholders begin to see this free cash flow make its way back to shareholders, rather than debtholders?

Hey, John. It's Dave Jones. Yes, absolutely, our domestic free cash flow -- we are anticipating that we will use a majority of that to delever the balance sheet. In fact, with existing cash and the assumed future cash flow, we're hopeful that we can take care of 40% to 50% of the 2018 converts on our own. And then, we'll just have the balance to deal with, and we've got a couple of alternatives on that.

But no question, domestic cash flow -- we're dedicated to delevering. We've said before, our target leverage is [5 to 6] times. It will take us a while to get there, but that's still the target. That hasn't changed, and we'll be driving that in 2016.

Okay. Just to go back to the international business one more time, what -- let me say this seems like a bigger growth opportunity than the domestic business. So, as you look several years out, what do you think international can look like, as a percent of the total mix? And what will be the organic growth drivers in the international business? Thank you.

Hey, John, it's Willy. So, yes, I mean, we're looking to bring the percentage of international up from roughly where it is now, 33%, 34%, 35%, up to roughly 50/50 in the next, say, four or five years. And that, obviously, will depend on both the growth rates that we achieve here organically domestically, as well as what we are able to do internationally.

But right now, we still have a lot of runway. It's not something you can sort of make happen in 12 months, and we still have a lot of runway of just basic expansion of our footprint internationally. So, there's a lot of growth there.

We've already talked about the four or five brands that are likely to drive the largest dollar amount. But on a percentage basis, you're watching a pretty substantial [leap] year after year across the majority of our portfolio. So, it's a lot of small pieces that add up to a pretty substantial business.

Okay. And then just -- that's helpful. One final question on the international business: What percentage of your free cash flow is being driven by international at this point?

John, I don't have that off the top of my head, but I can certainly get it to you.

Okay. Thank you. Best of luck.

Thank you.

Thank you. Our next question comes from the line of Liz Pierce from Brean Capital.

Thanks. Good afternoon. In terms of Peanuts, when you talk about it being flat for next year, what are going to be the drivers of that, particularly since you obviously won't have the film, but I know you guys have talked in the past about perhaps some additional programming, and then just the plans at retail? And maybe also related to that, if you could break apart how the retail did, both domestically and internationally, and also just the movie? Thanks.

Well, Liz, let me try to talk to you about entertainment a little bit, and you probably know a lot of this. But basically, if you're in the entertainment business, the way you drive royalties is by having content. Content can be a motion picture, it can be a television series, it can be digital content. In some businesses, it can be print content. But without a steady flow of those kinds of things, brands typically have a difficult time growing.

So, we've just come through a Peanuts movie. We had a tremendous growth in licensing because of the film in 2016. This is a, if you will, a peak in our revenue because of the film.

I only wish we could have a film every year. I think everybody in the business would wish that. But between films -- and, of course, we would like to have a sequel at some point in the future -- between films, we need other forms of media to fill in to help to sustain licensing revenues from licensees.

In Peanuts, we currently have about 1,000 licenses around the world. So, we are heavily, if you will, invested in many, many countries around the world. And it's all about content going forward.

So, we are working on a number of areas to expand Peanuts, both in terms of character expansion, as well as other forms of media besides film. But we don't think -- as we said, we see Peanuts as flat year to year because of that big bubble that we had last year because of the film. But over time, of course, we'd want to continually grow Peanuts on a global basis.

So, I guess, in another way of asking it, that you really expect merchandising and other things to kick in, to kind of make up or compensate for -- that you won't have the movie revenue?

Yes. We expect that the licensing from the film will decline, as it would naturally after the film fades -- that happens for everybody, even the biggest franchises. But we do expect to fill in with what we call classic licensing, as more and more people around the world get to know the brand. So, while 2015 was very strong in movie-related licensing, as that movie-related licensing declines, we expect to make it up with new growth in what we call classic licensing.

Okay. And then, switching over to the men's business, you mentioned that you've -- I think you said you have all new partners, new licensees partners for the men's business, or is it just particularly for the Ecko, Rocawear brands? And then just how are these licensees thinking about that segment, since that segment has -- as a whole is not -- it's kind of over, in terms of hip hop or whatever. Are they reinventing the brands?

Exactly, Liz. So, what's happened is we have new leadership in the men's area who we feel very, very good about. And as those people have looked at the business, basically they have re-imagined the entire what I'll call licensing community for our urban brands, and in fact, have gone out, and not just re-imagined, but actually executed on that. So, we have a number of new exciting licensees, and the potential for some DTRs as well here in the US.

The urban business is -- still exists, by the way, but it is very different in style from what you might remember. It's much more classical, rather than the hip hop culture that you might recall.

So, these brands have been completely re-staged. And, yes, it comes down to design as well, and having the proper product. The initial sales in these new locations have been very good, and we're coming from a very small base.

So, basically, we still have a way to go. But we have new spokespeople, by the way, for a number of our brands, and so on. And we're feeling pretty good right now.

Okay. And then, finally just to clarify, you mentioned on the DTR renewals, so, I presume that the Mossimo was renewed with Target?

Mossimo?

Yes. (Multiple speakers)

Yes, Mossimo -- I think we read that out. Mossimo was renewed.

Okay, great. Thanks. Best of luck, guys.

Yes, I think we have time for one more question, operator.

Thank you. Our final question for today comes from the line of Jim Chartier from Monness, Crespi and Hardt.

Hi, good afternoon. Thanks for fitting me in.

Just wanted to kind of go back to the guidance, and the $0.20 reduction to the EPS for this year. So, you mentioned $0.11 for interest expense, $0.05 for the restatement charges, $0.03 for the management transition, and then a net positive of $0.10 from the Badgley Mischka transaction? So, that leaves $0.11 negative impact. Is that just from current business trends that have changed since November?

It's about $0.09, Jim, for Badgley. And then, I think the $0.11 sounds high, but as Peter mentioned, we do have -- we factored in some assumptions for the current trends. In particular, as I think we mentioned, Strawberry and PONY have not performed as well as we had hoped, and Peter had quite a bit of comment on Strawberry.

Okay, thanks. And then, you talked a year ago about -- you had the option to monetize the Candie's investment in China, and that you guys had delayed that because you thought it would be more valuable today. So, do you plan to monetize that this year, and what would be the expected cash benefit of that if you do?

Hi, Jim. This is Willy.

We continue to evaluate that. I think as we discussed even on the last call, the Candie's business in China is doing remarkably well -- very strong growth.

So, right now, we don't have any plans to seek a monetization event. But it's something that we evaluate, frankly, on a quarter-by-quarter basis.

So, we don't have any expectation of such an event, but we'll see how things go. I think given what's happened in China, and with what's happened in terms of just [XB] multiples, it's probably prudent for us to wait, but we'll just have to evaluate quarter by quarter.

Great. And then finally, you guys sold some small brands the last few months. Are you considering selling other larger brands to help pay down additional debt?

Jim, it's Dave Jones. No, certainly not to pay down additional debt.

I think we continuously review the portfolio. There's no -- we don't have currently anything that we're anticipating getting rid of. As the Business matures, and we implement a lot of the initiatives, we'll continue to re-look at it every quarter. But that is not part of the plan for paying down debt, no.

Okay. Thanks for taking my questions. Best of luck.

Thanks, Jim.

Well, thank you all very much for calling in. We really appreciate it.

We know that this has been a difficult time. We know that much of what we're reporting today is very complex, and we appreciate very much your interest in figuring that all out. It's taken us quite a while, as you might imagine.

It's been a very complex time for us. But we are, at this point, very pleased that we're through it, and looking very much forward to the future with John, and with a little more clear sailing than we've had in the past year. So, again, thank you all very much, and we'll talk to you next quarter.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.