Xcel Brands Inc (XELB) 2023 Q4 法說會逐字稿

Hello, everyone, and welcome to Xcel Brands Incorporated fourth quarter and fiscal year 2023 results earnings conference call. Please note that this call is being recorded. (Operator Instructions).

I'd now like to hand the call over to Craig Brelsford from Red Chip. You may now go ahead, please.

Good evening, everyone, and thank you for joining us. Welcome to the Xcel Brands fourth quarter and fiscal year 2023 earnings call. We greatly appreciate your participation and interest. With us on the call today, our Chairman and Chief Executive Officer, Robert D'Loren, Chief Financial Officer, Jim Haran and Executive Vice President of Business Development and Treasury, Seth Burroughs.

By now everyone should have had access to the earnings release for the fourth quarter and fiscal year ended December 31, 2023, which went out this evening. And in addition, the company has filed with the Securities and Exchange Commission, its annual report on Form 10-K. The release and the annual report will be available on the company's website at www.xcelbrands.com. This call is being webcast and a replay will be available on the company's Investor Relations website.

Before we begin, please keep in mind that this call will contain forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today. These risk factors are explained in detail in the company's most recent annual report filed with the SEC.

Xcel does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The dynamic nature of the current macro economic environment means that what is said on this call could change materially at any time.

Finally, please note that on today's call, management will refer to certain non-GAAP financial measures, including non-GAAP net income, non-GAAP diluted EPS and adjusted EBITDA. Our management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the company's results of operations.

Our management believes these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus they provide supplemental information to assist investors in evaluating the company's financial results.

These non-GAAP measures should not be considered in isolation or as alternatives to net income, earnings per share or any other measure of financial performance calculated and presented in accordance with GAAP. You may refer to the attachment to the company's earnings release or to Part one Item two of the Form 10-K for a reconciliation of non-GAAP measures.

And now I'm pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob, please go ahead.

Thank you, Craig. Good evening, everyone, and thank you for joining us. I would like to start today's call with an update on our strategic transformation efforts, a plan that we affectionately refer to internally as Project fundamentals remain unchanged. And I'll also talk a little bit about our core business and how it's performing under this plan. And after that, our CFO, Jim Haran, will discuss our financial results in more detail.

I am happy to report that we have fully completed our restructuring plan, which included discontinuing all wholesale operating activities and outsourcing these activities to industry leading licensing partners.

As I mentioned in our last earnings call, we are currently tracking annual operating cost reductions of approximately $14 million compared with 2022 and are working hard with all of our new production partners to drive our business. We plan to launch our new brand Tower Hill by Christie Brinkley on HSN next month, followed by the launch of additional categories of products outside of ages and starting this fall.

We have received strong interest from potential licensing partners for the brand across multiple categories. The recently launched Steve Wonder by Christian [Tiano] brand is also doing very well and generated [$12.5 million] of retail sales in its first nine months in 2023. Steve Wonder won the Rising Star brand award on HSN in 2023, and we expect to see sales volume ramp up to about [$20 million] to [$25 million] in 2024 with a goal of over [$50 million] in 2025, including HSN and other retailers.

Also, we expect to announce the launch of another celebrity designer brand on HSN before the end of this year. JTV, our partner for our Judith Ripka brand, launched its first Judith Ripka on air shows in the fourth quarter of 2023. Sales results were very strong.

In fact, we exceeded every business metric they planned. We are working with JTV to offer greater product assortment, including our Judith Ripka store jewelry products, both on air and on jtv.com. This has the potential to add over 50 million visitors to the Judith Ripka e-commerce business and allows for it e-mail marketing campaigns to an additional 2.1 million customers.

We look forward to seeing strong sales momentum carry forward through 2024 and beyond. G3 is on schedule to launch Houston for fall of 2024. We expect them to begin shipping shortly after the second quarter. I should note that this launch is a season later than we initially planned. They recently reiterated their three-year forecast for Houston at 500 million wholesale just in apparel, shoes and bags from their core production.

We expect revenues from this license to begin to pick up later this year, and we will hit our $8 million maximum royalty after they exceed approximately 160 million in annual wholesale sales. We have soft launched our video and social commerce marketplace for me with seven vendors 1,000 users download the app in the first week. As previously mentioned, this is a joint venture with a technology company in which Excel owns a 30% interest in this new video and social commerce marketplace. We believe this marketplace has the potential to transform video and social commerce in the US and its use and growth potential is virtually unlimited.

Based on all of our progress with Project fundamentals and the organic growth in our brands, we will return to profitability in 2024. I should note that the QVC and HSN business overall was softer than expected in Q1 of 2024. This was caused by continued scheduling conflicts with talent. We continue to work with all on air talent to get there on our schedules and the business is back on track for the remainder of 2024 and beyond.

As you know, we closed the credit facility in October of 2023 with Israel Discount Bank to improve our balance sheet liquidity and recently closed a $2.4 million common stock offering to improve stock liquidity and further improve our balance sheet. Jim will cover the fourth quarter and full year 2023 financial results in more detail. Finally, we are working hard at IR activity and thank our long-term and new shareholders for their support. Now I would like to turn the call over to Jim to discuss our financial highlights. Jim?

Thanks, Bob, and good evening, everyone. I will briefly discuss our financial results for the quarter and fiscal year ended December 31, 2023. Total revenue for the fourth quarter of 2023 was $2.3 million, representing a decrease of approximately $1.8 million from the fourth quarter 2022.

This decline was primarily driven by a $2.5 million decrease in net product sales due to the exit from licensing of the wholesale apparel and fine jewelry businesses. Partially offsetting the decline in net sales was an increase in net licensing revenue of $0.7 million, primarily driven by the combination of better performance during the quarter by the logo by Lori Goldstein brand on QVC and growth of the ceiling the brand on HSN.

For the full year, revenues decreased by approximately $8 million from the prior year to $17.8 million. This decline in revenue was driven by an approximate $5.5 million decrease in licensing revenue, primarily attributable to the May 2022 sale of a majority interest in our Mizrahi brand, partially offset by increased licensing revenue generated by the C, the brand.

Net production decreased by approximately $2.59 million to $8.6 million as we sold off all of our apparel and jewelry inventory during the first half of 2023 as part of the restructure and did not have any jewelry or wholesale apparel sales in the second half for 2023. Our direct operating costs and expenses were $5.5 million for the current quarter, down by $2.9 million were 34% from $8.4 million in the prior year quarter.

On a full year basis, our operating costs and expenses were $23.3 million in current year, down by $9.8 million was 30% from $33.1 million in the prior year. This decrease of operating expenses was primarily attributable to the restructuring of our business in 2023, as well as the elimination of costs associated with the eyes of the Mizrahi brands following the sale of a majority interest in the brand.

It should be noted that in the fourth quarter and for the full year, there are certain nonrecurring costs associated with restructuring the company. As a result of all of our efforts to transform our business model in 2023 and as we move into 2024, we expect our direct operating costs and expenses to reach an average run rate on the $4 million per quarter.

Overall, we had net loss, excluding noncontrolling interest for the current quarter of approximately $6.8 million or $0.34 per share compared with a net loss of $6 million or minus $0.3 per share in the prior-year quarter.

On a non-GAAP basis, we had a net loss for the current quarter of $4.7 million or minus $0.24 per share compared with a net loss of $6.2 million or minus $0.32 per share in the prior year quarter. Adjusted EBITDA was negative $1.2 million for the current quarter, an improvement of approximately $4.7 million compared with negative $5.9 million in the prior year quarter.

For the current year and a net loss, excluding noncontrolling interest, was approximately $21.1 million or minus $1.7 per share compared with a net loss of $1 million or minus $0.2 per share in the prior year, which included a $20.6 million gain on the sale of a majority interest in the eyes of Mizrahi brand.

On a non-GAAP basis, we had a net loss for the current year of $12.2 million or minus $0.62 per share, which represents an improvement from the net loss of $15 million or minus $0.77 per share for the prior year.

Also, it should be noted that the non-GAAP net loss for 2023 includes approximately $5.1 million of various nonrecurring restructuring related charges. And finally, adjusted EBITDA was negative $5.7 million for the current year representing a $6.8 million improvement over the negative $12.5 million EBITDA in the prior year.

I would like to take this opportunity to remind you of all the non-GAAP net income, non-GAAP diluted EPS and adjusted EBITDA, a non-GAAP or reported terms. Our earnings press release and Form 10-K presents reconciliations items with the most directly comparable GAAP measures.

Now turning to our balance sheet and liquidity, as of December 31, 2023, the company had cash and cash equivalents of approximately $3 million and positive net working capital of $2.1 million, excluding the current portion of our lease obligations. Since executing our restructuring and transformation program in 2023, our cash usage has decreased significantly as it is projected to continue to improve with the launch of hosted by G3 this fall, the launch of Tower Hill by Christie Brinkley and continued growth and actually was the Judith Ripka licensing businesses.

Cash used in operating activities during the current year was $6.5 million compared with cash used in operating activities of $14.2 million in the prior year. Over the past few months, we have taken additional steps to further solidify our balance sheet. First in October 2023, we entered into a new five-year term loan and $5 million, which quarterly payments beginning April 2024.

Second, in March 2024, we issued approximately $3.6 million shares of stock for net proceeds of approximately $2 million. We believe that the additional liquidity provided by the financing transactions, coupled with our expense cuts and working capital position, provides the company with adequate liquidity going forward.

And with that, I would like to turn the call back over to Bob. Bob?

Thank you, Jim. Ladies and gentlemen, this concludes our prepared remarks. Operator?

We are now opening the floor for question and answer session. (Operator Instructions)

My apologies, someone speaking in the background. Michael Kupinski, Noble Capital Markets.

Thank you, and good evening, everyone. A couple of questions, Bob, to what extent you had mentioned that HSN and QVC is a little soft. To what extent do you think that might affect that continues on? How that might affect the return to profitability that you expect. Can you give us some benchmarks of that? And then also, is there a way to quantify the impact on the revenues for what's going on there versus the talent and versus what might be the macro situation with the consumer and so forth? Is there a way to cut a gauge what that might what the impact might be for macro versus the talent?

So I don't think there's a systemic problem, Michael. I recently attended the QVC vendor summit and they seem to have everything back on track. I don't think there was a real appreciation of the the implications of their warehouse fire. How deep that cut into the organization and how difficult it was for them to recover from that. And most people don't realize that 100% of their returns were processed through that warehouse and hundreds of millions of dollars of inventory that burned and 30% of their distribution capability, and that's pretty devastating to any company.

And they've managed to work their way through that. And I think the business is really back on track based on everything that was presented at the vendor conference. So less of a systemic problem than business, on that said, there's general softness out there in the consumer world. I don't think that is being covered quite right by the media. People are making choices between fuel and energy costs and food cost and buying discretionary items.

Although you could argue that apparel is unnecessary items. People will delay those purchases. But I don't think that the real problem, the problem has been with getting talent in we have the Isaac Mizrahi and situation in a good place now with eyes at the backup guest. GVC has decided to give Jackie Stafford, our backup guest for primetime show, which is great, takes a little pressure off Isaac, and we're working on similar things for Lori Goldstein.

So I think it's a little that go for us to really forecast that and because we make our on-air requests on a monthly basis to our talent. And the assumption is they're going to do it, but it's been complicated since coming out of COVID. Talent became accustomed to doing roadshows from places where they were very comfortable to having to go back into studio, which requires travel.

Got it.

We're doing everything we can to get them back in studio or lean more into backup guests that have perhaps a little closer to QVC and HSN studios.

Got it. Thank you for that. In a couple of quick questions here, can you talk a little bit about I know that there were some startup costs to get on Christie Brinkley up and running. And was just wondering, how much of that cash do you think that will be allocated towards start-up for additional brands? Can you just kind of give us a sense of that and then maybe give us a sense of how much cash you currently have right now, because since we're already kind of closed on the next quarter. Just wondering if you can kind of give us an update on that as well.

Sure. So in terms of cash required for brands that are launching -- Christi launches next month, all of the startup costs there have been incurred. We have a small brand that we're launching on HSN and this year. They were really no start-up costs associated with that one. And because the designer himself is doing all of the lifting on design with a third party vendor that we assigned him to. So I know really uses there. I think Jim can give you a current position on cash and available working capital, which is all receivables from good components sources. Jim do you have that number handy?

I have a -- will be probably at approximately $3 million of cash. We have now our collections for the first quarter coming in now. So figure the debt, the balance of cash is pretty similar to what was at [1231].

Got you. And then can you -- just add another question on Christie. How should we benchmark the success for Christie's products. If you have any goals? I mean, can you outline those for us again, if you've already talked about this, I'm sorry, but maybe you can remind me what your plans for Christie and what your opportunity for revenue might be from that?

So the plan, if there were contractual guaranteed receipt minimums with HSN for both the Christians and Arianna and the Christie Brinkley brand. This year, we're forecasting in the $7 million range, maybe a little more for Christie, depending on distribution outside of HSN. Christie is not an exclusive to them, but then there's a significant bump up next year under the agreement for the minimum at HSN. And we do think that Christy has great potential both on HSN and outside of HSN. So we would expect that business to maybe double going into next year, if not more.

Great. And then just final question, how do we benchmark this success on [Armey]? Can you kind of give us like some parameters of what you might look for in terms whether it be subscribers or how should we benchmark the opportunity there going forward?

The key metrics are a number of vendors on board and number of users on the app. Those are the key metrics. That's how the company is going to be valued. And that's what I would look at from quarter to quarter.

And Bob, do you have certain benchmarks like by the end of the year, what you're anticipating in terms of the number of vendors or number of users, I mean anything that you can share with us at this point?

And no, I really need or me to give that to us. And there are company goals, we're being very selective about the types of brands that come on to Armey. We could load a lot of small vendors on and that's not really what for me is targeting. We're targeting bigger brands, household names, brands, better and better and premium department stores. And then, of course, with good brands and great product, the more people will participate.

Well, it looks like it's going to be an exciting year. Thanks. That's all I have.

Okay, Michael. Thank you.

Operator?

Anthony Lebiedzinski, sidoti & company.

Good afternoon, and thank you for taking the questions. Here's Anthony Lebiedzinski from Sidoti. So yeah, nice job with lowering your expenses certainly. Do you think there could be some additional expense efficiencies that you can gain or do you think you're pretty much tapped out as far as what you can do as far as expenses going forward here?

So we're looking for a little more, Anthony. I mean we have been saying 14 but now with the savings on the lease with the whole subleasing of the 30,000 feet we were and moving into 12,000 square feet, which is perfect. It's a really beautiful live streams. We have -- we cut some additional expenses beyond the 14 and we're looking for a little more. So we want to operate as lean as we can and we'll know in the next quarter or so, if we can take a little more out of it.

Understood. Yeah, thanks. And then in terms of the various different initiatives with the different licensing partners, you spoke about the Christie Brinkley, obviously, G3, you announce that of last year. I guess if you could just kind of like a gold we'd like as far as which ones you think will be the most impactful kind of go or go over that in terms of how you think that's going to contribute to your top and bottom line?

So clearly often will lead that with the G3 license. But as you know, they're just launching this fall and the only information we really have on how they're doing, it is what they've been saying on their on their earnings calls, and we're assuming that we will hit the maximum under that license over the next year or two. And that would be $8 million per year, most of which will drop to the bottom line. So that will be driving top and bottom line EBITDA.

And then C wonders is doing beautifully for us in its first nine months in the launch of [$23 million] to [$13.5 million] on HSN. Plan for this year is '25 approximately, the commitment for next year is 50 and we are now working on category extensions on C. Wonder. So that brand is doing well and has strong growth potential for us.

We do think that Christy will ramp up as fast. Christy is loved by everyone in America. She has a great social media following and almost ending women over 45, if you stop them on the street and Aspen to name top3 fashion models, that name would come up and she is trusted and loved. So we think it has similar potential. If not more outside of HSN in easy quarter and then perhaps you wonder.

Okay. That's very helpful. And then, Bob, you also mentioned that you expect to be profitable this year. Just wanted to see if you could clarify that did you expect to be profitable for the full year or just part of the year? And are you talking about EBITDA positive or net income, positive?

EBITDA positive and that will start Q2, Q3, Q4. And we expect a pickup from the Houston license as G3 begins shipping in Q3 and Q4.

That's very helpful. Thank you very much and best of luck.

Thank you.

Thanks, Anthony.

Howard Brous, Wellington Shields.

Thank you, Robert, first of all, congratulations on the transformation of the business. It's been a spectacular job and we do thank you. 2024 is a transitional year. Everybody has been talking about what's going to start and when it's going to start. But effectively, when you look at 2025, the estimates on the street of EBITDA are almost $10 million. The company stock is selling for less than one and three quarter times EBITDA. What are your thoughts?

Well, one, it's a very low EBITDA multiple. And particularly when you think of selling Isaac for eight times EBITDA contribution in the model. And from an asset value perspective, Howard, it's incredibly low given that we sold Isaac for six times royalties and that's the going rate for royalties. The going rate is anywhere, say from a low five to a high of eight. Six is a very common multiple with $15 million of top line royalties as a round number for '24 of growing. It implies $100 plus million value against $5 million of debt.

So it's I think we're undervalued.

I'm going to skip to promise with what's going on with Armey marketing and interest. Because you've mentioned it during the call, but I'd like to appreciate for more information.

Sure. So we onboarded our first vendors, premium denim company, actually two of them and some premium beauty brands as well as some of our own brands. And we've been doing beta testing right up through today, taking little bugs out of the technology and Armey is getting ready to launch a very significant PR campaign and digital marketing campaigns.

Armey begun hiring some influencer recruiters and they started this week and they're reaching out to influencers around the country to get them onboard. And then the goal is now to onboard some additional big vendors because each time we onboard a vendor, Howard, we want to debug it before they start the the email campaigns to their customers.

In week one, we had 1,000 new users, onboard the app with no email campaigns. It was just almost word of mouth and all of that is about to start. So we are excited about where we are with Armey, excited about where the tech is. It is almost completely bug free, which is amazing. We do a lot of beta testing before we put anymore on it obviously, but you always find things when a new set of eyes start start playing around and in technology, particularly in apps.

Congratulations, Robert. Thank you.

Thank you, Howarda.

As of right now it seems like we don't have any questions. I'd now like to hand back over to the management with your final remarks.

Ladies and gentlemen, thank you for your time this evening. We greatly appreciate your continued interest and support in Xcel Brands. As always, be fit, be well and be healthy. Good night.

Thank you for attending today's call. We hope you have a wonderful day.