ICONIX BRAND GROUP INC NEW YORK, Aug. 10, 2015 /PRNewswire/ --
-- Q2 2015 licensing revenue of $98.5 million, a 1% increase over prior
year quarter
-- $105.4 million of free cash flow for first half of 2015 compared to
$84.1 million in prior year period
Iconix Brand Group, Inc. (NASDAQ: ICON) ("Iconix" or the "Company") today reported its financial results for the second quarter and six months ended June 30, 2015 and disclosed an ongoing periodic review of the Company's Form 10-K for the year ended December 31, 2014 with the Staff of the Securities and Exchange Commission.
Results for the Second Quarter Ended June 30, 2015
Licensing revenue for the second quarter of 2015 was approximately $98.5 million, a 1% increase as compared to approximately $97.5 million in the second quarter of 2014. Total licensing revenue was negatively affected by approximately $3.7 million due to foreign exchange rates. Excluding the effect of foreign exchange rates, licensing revenue increased 5%.
There was no "Other revenue" in the second quarter of 2015, as compared to approximately $21.4 million of Other revenue recorded in the second quarter of 2014 related to the sale of the Sharper Image e-commerce business and a transaction related to our Southeast Asia joint venture.
Due in large part to there being no Other revenue in the quarter, all metrics decreased. Adjusted EBITDA attributable to Iconix for the second quarter of 2015 was approximately $51.2 million, a 34% decrease as compared to approximately $78.2 million in the prior year quarter. On a non-GAAP basis, as defined in the tables below, net income attributable to Iconix was approximately $22.3 million, a 44% decrease as compared to the prior year quarter of approximately $39.6 million. Non-GAAP diluted EPS for the second quarter of 2015 was $0.45, a 40% decrease as compared to $0.75 in the prior year quarter. GAAP net income attributable to Iconix for the second quarter of 2015 was approximately $14.8 million, a 58% decrease as compared to $35.3 million in the prior year quarter, and GAAP diluted EPS for the second quarter of 2015 decreased approximately 51% to $0.30 compared to $0.60 in the prior year quarter.
Free cash flow attributable to Iconix for the second quarter of 2015 was approximately $75.4 million, a 117% increase as compared to the prior year quarter of approximately $34.7 million. Free cash flow for the second quarter of 2015 includes a $15.5 million tax refund of which there was no comparable refund in the prior year quarter and additionally benefited from the timing of approximately $11.4 million of tax withholding payments that will be paid in the third quarter. Excluding these items, free cash flow increased $13.8 million or 40% from the prior year quarter.
Results for the Six Months Ended June 30, 2015
Licensing revenue for the six months ended June 30, 2015 was approximately $193.8 million, an 8% decrease as compared to approximately $209.7 million for the prior year period. Total licensing revenue was negatively affected by approximately $6.5 million due to foreign exchange rates. In addition, licensing revenue in the 2014 period included $17.1 million of revenue related to the 5-year renewal of the Peanuts specials with ABC. After excluding the effect of foreign exchange rates and revenue related to the ABC renewal in the prior year, licensing revenue increased approximately 4%.
There was no Other revenue in the six month period, as compared to approximately $25.4 million of Other revenue recorded in the prior year period.
Due in large part to there being no Other revenue in the six month period, all metrics decreased. Adjusted EBITDA attributable to Iconix for the six month period was approximately $104.0 million, a 30% decrease as compared to approximately $147.9 million in the prior year period. On a non-GAAP basis, as defined in the tables below, net income attributable to Iconix for the six month period was approximately $49.3 million, a 38% decrease as compared to approximately $78.9 million in the prior year period, and non-GAAP diluted earnings per share was approximately $0.99 for the six month period, a 33% decrease versus $1.49 for the prior year period. GAAP net income attributable to Iconix for the six month period of 2015 was approximately $77.6 million, an 18% decrease as compared to $95.1 million in the prior year period and GAAP diluted EPS for the six month period of 2015 was $1.53, a 6% decrease as compared to $1.63 in the prior year period.
Free cash flow attributable to Iconix for the six month period was approximately $105.4 million, a 25% increase over the prior year period of approximately $84.1 million.
Adjusted EBITDA, free cash flow, non-GAAP net income and non-GAAP diluted EPS are all non-GAAP metrics and reconciliation tables for each are attached to this press release.
F. Peter Cuneo, Chairman and Interim Chief Executive Officer of Iconix, said, "In looking at today's results I believe the most important take-away is that Iconix' core underlying licensing business remains healthy and continues to generate significant free cash flow. I am genuinely optimistic about the future of our Company and believe that Iconix has significant strengths upon which to build, including its global portfolio of over 35 diversified consumer brands and its profitable business model. I believe the Company is well positioned to resume its growth trajectory both organically and through new acquisitions."
2015 Guidance for Iconix Brand Group, Inc.
The Company is revising its 2015 guidance as follows;
Starting today, the Company will provide separate revenue guidance in two components, licensing revenue and Other revenue. For the full year 2015, the Company expects licensing revenue to achieve low single digit growth, and to be in a range of $410 - $425 million. The Company will continue to look for strategic opportunities and is forecasting approximately $5 - $15 million of "Other revenue" in 2015. The Company is revising its 2015 non-GAAP diluted EPS guidance to a range of $2.00 - $2.15, and its 2015 GAAP diluted EPS to a range of $2.24 - $2.39. The Company still expects to achieve significant free cash flow for the full year and is revising its 2015 free cash flow guidance to a range of $170 - $190 million.
The guidance relates to our portfolio of existing brands and does not include any additional acquisitions.
Discussions with the Securities and Exchange Commission
Iconix also announced today that it is currently in a comment letter process with the Staff of the Securities and Exchange Commission relating to an ongoing periodic review of the Company's Form 10-K for the year ended December 31, 2014. The current correspondence relates to the accounting treatment for the formation of the Company's international joint ventures under U.S. Generally Accepted Accounting Principles and whether such joint ventures should potentially have been consolidated in the Company's historical results. The Company's Board of Directors also formed a Special Committee consisting of independent directors to review the accounting treatment related to certain of the Company's international joint venture transactions.
The material terms of the joint venture agreements have been fully disclosed in the Company's prior filings, and the Company's independent auditors have audited and reviewed such filings. In the past three years, the gains that the Company recognized related to the formation of joint ventures were approximately $46.5 million in 2014, $24.6 million in 2013, and $5.6 million in 2012. If consolidation of the joint ventures is required, these gains would be reversed and treated as non-controlling interests. We continue to believe that the structure of our joint venture transactions should not result in consolidation and have presented our views and supporting accounting literature to the Staff.
While the ultimate outcome of the Staff's comment letter process is unknown and may have a material effect on the Company's historical financial statements, the Company believes that the results of the comment letter process will not have a material impact on historical free cash flow, will not impact the Company's reported results for the first half of 2015, and will not impact the Company's overall business strategy of forming joint ventures with large, well-capitalized partners that have local market expertise to organically grow the existing portfolio of brands globally. The Company will continue to work closely with the Staff to resolve any remaining open comments.
The Company does not expect to comment further on the Special Committee's review until it deems disclosure necessary or appropriate.
About Iconix Brand Group, Inc.
Iconix Brand Group, Inc. owns, licenses and markets a growing portfolio of consumer brands including: CANDIE'S (R), BONGO (R), BADGLEY MISCHKA (R), JOE BOXER (R), RAMPAGE (R), MUDD (R), MOSSIMO (R), LONDON FOG (R), OCEAN PACIFIC (R), DANSKIN (R), ROCAWEAR (R), CANNON (R), ROYAL VELVET (R), FIELDCREST (R), CHARISMA (R), STARTER (R), WAVERLY (R), ZOO YORK (R), SHARPER IMAGE (R), UMBRO (R), LEE COOPER (R), ECKO UNLTD. (R), MARC ECKO (R), STRAWBERRY SHORTCAKE (R) and ARTFUL DODGER (R). In addition, Iconix owns interests in the MATERIAL GIRL (R), PEANUTS (R), ED HARDY (R), TRUTH OR DARE (R), BILLIONAIRE BOYS CLUB (R), ICE CREAM (R), MODERN AMUSEMENT (R), BUFFALO (R), NICK GRAHAM (R) and PONY (R) brands. The Company licenses its brands to a network of leading retailers and manufacturers that touch every major segment of retail distribution from the luxury market to the mass market in both the U.S. and worldwide. Through its in-house business development, merchandising, advertising and public relations departments, Iconix manages its brands to drive greater consumer awareness and equity.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this press release are forward-looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the Company, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, but are not limited to, uncertainty regarding the results of the Company's acquisition of additional licenses, continued market acceptance of current products and the ability to successfully develop and market new products particularly in light of rapidly changing fashion trends, the impact of supply and manufacturing constraints or difficulties relating to the Company's licensees' dependence on foreign manufacturers and suppliers, uncertainties relating to customer plans and commitments, the ability of licensees to successfully market and sell branded products, competition, uncertainties relating to economic conditions in the markets in which the Company operates, the ability to hire and retain key personnel, the ability to obtain capital if required, the risks of litigation and regulatory proceedings, the risks of uncertainty of trademark protection, the uncertainty of marketing and licensing acquired trademarks and other risks detailed in the Company's SEC filings. The words "believe", "anticipate", "estimate", "expect", "confident", "continue", "will", "project", "provide" "guidance" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date the statement was made. All forward-looking statements are qualified by these cautionary statements and apply only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Contact Information:
Jaime Sheinheit
Investor Relations
Iconix Brand Group
212.730.0030
Unaudited Condensed Consolidated Income Statements
(in thousands, except earnings per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Licensing
revenue $98,459 $97,542 $193,846 $209,709
Other
revenue - 21,401 - 25,372
--- ------ --- ------
Total
revenues 98,459 118,943 193,846 235,081
Selling,
general
and
administrative
expenses 49,087 44,293 93,242 92,495
------ ------ ------ ------
Operating
income 49,372 74,650 100,604 142,586
Interest
expense,
net 20,219 20,765 40,701 41,320
Other
income (790) - (48,155) (37,893)
Foreign
currency
translation
loss
(gain) 2,006 - (8,494) -
Equity
earnings
on
joint
ventures (3,618) (5,675) (6,820) (8,797)
------ ------ ------ ------
Other
expenses
(income)
-
net 17,817 15,090 (22,768) (5,370)
Income
before
income
taxes 31,555 59,560 123,372 147,956
Provision
for
income
taxes 12,184 20,778 38,094 46,332
------ ------ ------ ------
Net
income $19,371 $38,782 $85,278 $101,624
======= ======= ======= ========
Less:
Net
income
attributable
to
non-
controlling
interest $4,603 $3,463 $7,670 $6,537
====== ====== ====== ======
Net
income
attributable
to
Iconix
Brand
Group,
Inc. $14,768 $35,319 $77,608 $95,087
======= ======= ======= =======
Earnings per share:
Basic $0.31 $0.73 $1.61 $1.94
===== ===== ===== =====
Diluted $0.30 $0.60 $1.53 $1.63
===== ===== ===== =====
Weighted average number
of common shares
outstanding:
Basic 48,243 48,551 48,201 49,034
====== ====== ====== ======
Diluted 49,595 58,595 50,752 58,237
====== ====== ====== ======
Segment Data:
(in thousands)
(Unaudited) (Unaudited)
---------- ----------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2015 2014 2015 2014
---- ---- ---- ----
Revenue by Division
-------------------
Womens $40,062 $39,985 $80,151 $81,437
Home 9,068 11,242 19,014 22,221
Mens 24,828 27,213 46,383 51,105
Entertainment 24,501 19,102 48,298 54,946
Corporate - 21,401 - 25,372
Total Revenue $98,459 $118,943 $193,846 $235,081
======= ======== ======== ========
Operating Income (Loss) by Division
-----------------------------------
Womens $33,633 $34,595 $67,694 $70,148
Home 7,367 9,416 15,361 18,985
Mens 14,982 16,003 25,201 31,188
Entertainment 7,725 3,497 15,983 15,609
Corporate (14,335) 11,139 (23,635) 6,656
Total Operating Income $49,372 $74,650 $100,604 $142,586
======= ======= ======== ========
Selected Balance Sheet Items:
(in thousands)
(Unaudited)
----------
6/30/2015 12/31/2014
--------- ----------
Total Assets $3,067,994 $2,873,391
Total Liabilities $1,941,912 $1,804,630
Total Stockholders Equity and
Redeemable Non-Controlling
Interest $1,126,082 $1,068,761
The following tables detail unaudited reconciliations from non-GAAP amounts to U.S. GAAP and include reconciliations related to ASC Topic 470 as it relates to accounting for convertible debt, incremental dilutive shares related to our convertible debt that are covered by our existing convertible note hedges, non-cash gains related to the re-measurement of investments, foreign currency translation and charges related to professional fees incurred as a result of the continuing correspondence with the Staff and the Special Committee's review.
Note: All items in the following reconciliation tables are attributable to Iconix Brand Group, Inc. and exclude results related to non-controlling interests.
Non-GAAP net income reconciliation
----------------------------------
(in thousands)
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Non-GAAP net income attributable to Iconix (1) $22,341 $39,639 $49,260 $78,921
======= ======= ======= =======
GAAP net income attributable to Iconix $14,768 $35,319 $77,608 $95,087
Add: non-cash interest related to ASC 470 6,850 6,647 13,663 13,022
non-cash gain related to investment in joint venture - - (47,365) (37,893)
special charges 2,000 - 2,371 -
foreign currency translation 2,006 - (8,494) -
Deduct: Income taxes related to above (3,283) (2,327) 11,477 8,705
------ ------ ------ -----
Net 7,573 4,320 (28,348) (16,166)
Non-GAAP net income attributable to Iconix $22,341 $39,639 $49,260 $78,921
======= ======= ======= =======
Non-GAAP weighted average diluted shares reconciliation
-------------------------------------------------------
(in thousands)
(Unaudited) (Unaudited)
Three Months
Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Non-GAAP weighted average diluted shares 49,595 52,851 49,578 52,997
====== ====== ====== ======
GAAP weighted average diluted shares 49,595 58,595 50,752 58,237
Less: additional incremental dilutive shares covered by hedges for: (2)
2.50% Convertible Notes - (2,481) (513) (2,265)
1.50% Convertible Notes - (3,263) (661) (2,975)
--- ------ ---- ------
Subtotal - (5,744) (1,174) (5,240)
Non-GAAP weighted average diluted shares 49,595 52,851 49,578 52,997
====== ====== ====== ======
Non-GAAP Diluted EPS reconciliation
-----------------------------------
(Unaudited) (Unaudited)
Three MonthsEnded Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Non-GAAP diluted EPS (1) $0.45 $0.75 $0.99 $1.49
===== ===== ===== =====
GAAP diluted EPS 0.30 0.60 1.53 1.63
Add:
non-cash gain related to investment in joint venture - - (0.59) (0.42)
special charges 0.02 - 0.03 -
foreign currency translation 0.04 - (0.11) -
Adjustments for non-cash interest related to ASC 470, 0.09 0.15 0.13 0.28
net of tax, and incremental dilutive shares covered by hedges
Non-GAAP diluted EPS $0.45 $0.75 $0.99 $1.49
===== ===== ===== =====
Forecasted Diluted EPS Year Ending
Dec. 31, 2015
--- -------------
High Low
---- ---
Forecasted Non-GAAP diluted EPS (1) $2.15 $2.00
===== =====
Forecasted GAAP diluted EPS $2.39 $2.24
Non-cash gain related to investment in joint
ventures ($0.59) ($0.59)
Adjustments for non-cash interest related to ASC
470, net of tax, and incremental dilutive shares
covered by hedges $0.35 $0.35
----- -----
Forecasted Non-GAAP Diluted EPS $2.15 $2.00
===== =====
(1) Non-GAAP net income and non-GAAP
diluted EPS (along with non-GAAP
weighted average diluted shares) are
non-GAAP financial measures which
represent net income excluding any
non-cash interest related to ASC
Topic 470, non-cash non-recurring
gains and charges, foreign currency
translation gains and losses, and
charges related to professional fees
incurred as a result of the
continuing correspondence with the
Staff and the Special Committee's
review, all net of tax, and any
incremental dilutive shares related
to our convertible notes that are
covered by their respective hedges.
The Company believes these are useful
financial measures in evaluating its
financial condition because they are
representative of only actual cash
results.
(2) Based on the average closing stock
price for the three months ended June
30, 2015 there were no potential
dilutive shares related to our
convertible notes for GAAP purposes.
Based on the average closing stock
price for the three months ended June
30, 2014 there were potential
dilutive shares related to our
convertible notes for GAAP purposes;
however, the Company will not be
responsible for issuing a portion of
these shares as they are covered by
our convertible notes hedges.
Adjusted EBITDA Reconciliation from Net Income
----------------------------------------------
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Adjusted EBITDA (1) $51,238 $78,150 $103,960 $147,927
======= ======= ======== ========
Reconciliation of Adjusted EBITDA:
Net income attributable to Iconix $14,768 $35,319 $77,608 $95,087
Add: Provision for income taxes attributable to Iconix 12,184 20,778 38,094 46,332
------ ------ ------ ------
Net income attributable to Iconix before taxes 26,952 56,097 115,702 141,419
Add: Net interest expense, foreign currency translation and non-cash gain related to investment
in joint venture 21,320 20,650 (16,180) 3,194
Add: Special charges 2,000 - 2,371 -
Add: Depreciation and amortization attributable to Iconix 966 1,403 2,067 3,314
Adjusted EBITDA $51,238 $78,150 $103,960 $147,927
======= ======= ======== ========
Adjusted EBITDA Reconciliation from Cash Flow from Operations
-------------------------------------------------------------
(Unaudited)
----------
Six Months Ended
June 30,
--------
2015 2014
---- ----
Adjusted EBITDA (3) $103,960 $147,927
======== ========
Reconciliation of Adjusted EBITDA:
Net cash provided by operating activities $100,157 $84,231
Add/(Less):
Gain from sale of trademarks & formation of joint ventures - 25,372
Cash interest expense, net 23,174 24,181
Cash taxes 15,686 18,421
Special charges 2,371 -
Equity earnings on joint ventures, net of distributions 5,488 4,030
Other (1,254) (791)
Net income attributable to non-controlling interest (7,670) (6,537)
Stock compensation expense (5,899) (8,247)
Provision for doubtful accounts (4,726) (1,956)
Net change in balance sheet items (23,367) 9,223
Adjusted EBITDA $103,960 $147,927
======== ========
(3) Adjusted EBITDA, a non-GAAP
financial measure, represents net
income before income taxes, interest,
other non-operating gains and
losses, charges related to
professional fees incurred as a
result of the continuing
correspondence with the Staff and the
Special Committee's review,
depreciation and amortization
expenses. The Company believes
Adjusted EBITDA provides additional
information for determining its
ability to meet future debt service
requirements, investing and capital
expenditures, and is useful because
it provides supplemental information
to assist investors in evaluating the
Company's financial condition.
Free Cash Flow Reconciliation
-----------------------------
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Free Cash Flow (4) $75,351 $34,700 $105,434 $84,103
======= ======= ======== =======
Net cash provided by operating activities $67,091 $31,485 $100,157 $84,231
Less: Capital Expenditures 174 (536) (802) (851)
Add: Cash received from sale of trademarks and formation of joint ventures 12,377 8,173 13,372 9,168
Less: Distributions to non-controlling interests (4,291) (4,422) (7,293) (8,445)
------ ------ ------ ------
Free Cash Flow $75,351 $34,700 $105,434 $84,103
======= ======= ======== =======
(4) Free Cash Flow, a non-GAAP
financial measure, represents net
cash provided by operating
activities, plus cash received from
the sale of trademarks and
formation of joint ventures, less
distributions to non-controlling
interests and capital expenditures.
Free Cash Flow excludes notes
receivable from sale of trademarks
and the formation of joint
ventures, cash used to acquire the
membership interests of our joint
venture partners, mandatory debt
service requirements, and other
non-discretionary expenditures.
Free Cash Flow should not be
considered in isolation, as a
measure of residual cash flow
available for discretionary
purposes, or as an alternative to
operating results presented in
accordance with GAAP. The Company
believes Free Cash Flow is useful
because it provides information
regarding actual cash received in a
specific period from the Company's
comprehensive business strategy of
maximizing the value of its brands
through traditional licensing,
international joint ventures and
other arrangements. We have
excluded the cash used to buy back
our joint venture membership
interests from the above definition
because we believe that, like other
acquisitions, such actions are
capital transactions. It also
provides supplemental information
to assist investors in evaluating
the Company's financial condition
and ability to pursue opportunities
that enhance shareholder value.
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SOURCE Iconix Brand Group, Inc.
