Operator
Thank you for standing by. I'd like to welcome everyone to the XELB's Q2 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Paul Kuntz. Please go ahead.
Paul Kuntz
Good afternoon, everyone, and thank you for joining us. Welcome to the Excel Brands second quarter of 2024 earnings call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer Robert DeLoren, Chief Financial Officer Jim Aaron, and EVP of Business Development and Treasury, Seth Burrows. By now, everyone should have had access to the earnings release for the quarter ended June 30th, 2024, which went out last evening. And in addition, the company is filing with the Securities and Exchange Commission its quarterly report on Form 10Q today. The release and the quarterly report will be available on the company's website at www.excelbrands.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. Excel 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 macroeconomic 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 other measures 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 1, Item 2 of the Form 10-Q for reconciliation of non-GAAP measures. And now, I am pleased to introduce Robert DeLorean, Chairman and Chief Executive Officer. Bob, please go ahead.
Robert DeLorean
Thank you, Paul. Good morning, everyone, and thank you for joining us today. I'd like to start today's call with a brief update on our performance for the second quarter and our outlook for the remainder of the year. After that, our CFO, Jim Herron, will discuss our financial results in more detail. Before I cover the second quarter highlights, I would like to cover the sale and divestiture of the Lori Goldstein brand for a variety of reasons. it was determined that it would be in the best interest of the company to sell the brand back to its namesake and allow us to focus on our growing brands and potential new opportunities. In doing so, we recognized a net gain of $3.8 million and reduced liabilities by $6 million. Turning to the second quarter, we made continued progress on executing our project fundamentals plan to transition fully to a core working capital licensing business, growing our top line licensing revenues while also improving our bottom line results for the quarter and going forward. Our net licensing revenues grew 16% year over year and 29% for the first quarter. While looking at our bottom line, our non-GAAP earnings for the quarter improved by approximately 85% from last year and our adjusted EBITDA approach break even during the second quarter. As we continue to gain traction and accelerate growth in future quarters, we expect our licensing revenues to continue to grow and our bottom line operating results to continue to improve. Based on all of our progress with project fundamentals, our strategic plan to get back to what made us successful in our core business over the years and the organic growth in our brands. We expect to grow strongly going forward. The Sea Wonder brand is performing well on HSN with second quarter sales exceeding HSN's plan by 6%. The second half of 2024 is planned up from the first half with expectations of achieving an excess of a 60% year-over-year growth rate. We expect to see retail sales volumes continue to grow strongly beyond 2024 on HSN. and at other retailers. We are on track to launch additional new categories of footwear and handbags in spring of 2025. Our new brand, Tower Hill by Christie Brinkley, launched on HSN during the second quarter, exceeding plan by 40%. Additional airtime has been scheduled for the remainder of the year with significant growth planned for 2025. Separately, the brand will introduce additional categories of products outside of HSN starting in spring of 2025. In addition, we have received strong interest from potential licensing partners for the brand across multiple categories, including footwear, bags, beauty, and skincare. One last note on HSN, we expect to announce the launch of another celebrity designer brand on HSN before the end of this year. and another food and kitchen products brand in Q1 of 2025. Looking at our Judith Ripka business, second quarter royalties increased from first quarter by 45%. This is the result of greater product assortments. We look forward to seeing strong sales momentum carry forward throughout 2024 and 2025. As previously discussed, G3 launched Halston Apparel this fall. In addition, they expect to begin shipping footwear and bags later this year for spring 2025. We expect revenues from this license to begin to pick up later this year and grow strongly in 2025 and beyond. As previously mentioned, Ormi soft-launched its video and social commerce marketplace during the second quarter. For Excel, Ormi represents a natural extension of our expertise in video commerce over television. The Ormi team is doing a great job building awareness for the app and onboarding premier brands. They are pleased with the results to date. We believe this marketplace has the potential to transform video and social commerce in the US, and it will achieve its goal to democratize the influencer and creator economy. We are very excited about the potential of Ormi. And now, I'd like to turn the call over to Jim to discuss our financial results. Jim?
Jim
Thanks, Bob, and good morning, everyone.
Bob
I will now briefly discuss our financial results for the quarter and six months ended June 30, 2024. Total revenue for the second quarter of 2024 was $3 million, representing a decrease of approximately $3.8 million from the second quarter of 2023. This decline was driven by the decrease in net product sales to effectively zero due to our exit from all wholesale operating businesses as part of our project fundamentals plan that began in 2023. The only product sales during the current quarter were approximately $100,000 related to the final sale of some residual jewelry inventory, which have now been fully liquidated. Partially offsetting the year-over-year decrease in net product sales was an increase of approximately $0.4 million, or approximately 16% in net licensing revenue, mainly attributable to the combination of the Halston Master License with G3 Apparel. Significantly increased revenues generated by the C1 business on HSN and the launch of Tower Hill by Christie Brinkley in May 2024. On a year-to-date basis, revenue for the current six months decreased by approximately $7.7 million to $5.1 million, again driven by net product sales to effectively zero following the discontinuance of our hosted operations. The decrease in net product sales was partially offset by an increase of $0.4 million or 8% in net licensing revenue due to the combination of new licensing agreements and brand launches previously mentioned. Our direct operating costs and expenses was 3.1 million for the current quarter, down by 2.1 million, or 40%, from 5.2 million in the prior year quarter. On a year-to-date basis, the direct operating costs and expenses decreased from 12.1 million for the prior year quarter to 7.1 million for the current quarter, representing a decline of approximately $5 million, or 42%. These decreases for both the quarterly and year-to-date comparator periods were attributable to the discontinuance of wholesale business in the prior year, which included reductions in staffing levels as well as related reductions in other overhead costs. With the project fundamental initiatives substantially completed, going forward we expect our average direct operating costs to be approximately 2.5 million per quarter. Aside from direct operating cost expenses, our operating results in 2024 notably included a $3.8 million gain on the divestiture of the Lurie Goldstein brand, as well as asset impairment charges of $1.2 million and $3.5 million for the current quarter and current six months, respectively. We sold the Lurie Goldstein brand on June 30, 2024 in exchange for approximately $6.1 million of non-cash proceeds, including relief from certain earn-out payments and release of contingent obligations under contractual agreements with the buyer and recognized the net gain on the sale of $3.8 million and lowered our balance sheet liabilities by $6 million. The aforementioned impairment charges, recognized in the first and second quarters of this year, were all related to the exit from and sublease of our prior office space. Overall, we had net income for the second quarter of 2024 of approximately $0.2 million, or one cent per share, compared with a net loss of $3.5 million, or minus 18 cents per share, in the prior year quarter. On a non-GAAP basis, we have a net loss for the current quarter of $0.3 million, or minus $0.01 per share, which represents an 85% improvement from the non-GAAP net loss of $2.1 million, or minus $0.10 per share, in the second quarter of 2023. Finally, Adjust EBITDA was negative $40,000 or approaching break-even for the current quarter, representing a year-over-year improvement of approximately $1.3 million or over 95% from the negative $1.3 million of Adjust EBITDA in the prior year quarter. With a new core structure in place and projected revenue growth, management anticipates achieving positive quarterly EBITDA in the back half of the year. Now that we have right-sized our core structure, our non-GAAP measurements should continue to improve in future periods as licensing revenues are projected to grow. On a year-to-date basis, we had a net loss excluding non-controlling interest for the current six months of approximately $6.1 million, or minus 28 cents per share, compared with a net loss of $9.1 million, or minus 46 cents per share, in the prior year six months. On a non-GAAP basis, we had a net loss for the current six months of $2.1 million, or minus $0.10 per share, which represents an approximately 60% improvement from the non-GAAP net loss of $5.6 million, or minus $0.28 per share, in the prior six months. Adjusted EBITDA on a year-to-date basis was negative $1.6 million, representing a year-over-year improvement of approximately 50% from the negative $3.3 million of adjusted EBITDA in the prior year comparable period. Once again, I would like to take this opportunity to remind everyone that non-GAAP net income, non-GAAP diluted EPS, and adjusted EBITDA are non-GAAP unordered terms. Our earnings press release and Form 10Q present a reconciliation of these items with the most directly comparable gap measures. Now turning to our balance sheet more clearly, as of June 30, 2024, the company had total cash and cash equivalents of approximately $1.7 million, of which $0.7 million was restricted. Our net working capital, excluding the current portion of lease obligations and deferred revenue, was approximately $1.1 million, which we believe is adequate and appropriate under our current licensing plus working capital light visit model. Since executing our project fundamental plan, our cash usage has decreased significantly and is projected to continue to improve with the launch of Awesome by G3 this fall and continued growth in our other brands. And with that, I'd like to turn the call back over to Bob. Bob?
Robert DeLorean
Thank you, Jim. This concludes our prepared remarks. Operator?
Operator
Thank you. As a reminder, if you'd like to ask a question, press star and the number one on your telephone keypad. We will begin the question and answer session. And your first question comes from the line of Michael Kapinski from Noble Capital. The line's open.
Michael Kapinski
Thank you so much. Good morning. Congratulations on you achieving expectations and delivering on your transformation. A couple of things. Yeah, it's a good job. A couple of things. Can you give me a sense of how well the Christie Brinkley brand of Tower Hill is performing heading into Q3? And in Q3, are you anticipating that there will be some licensing revenue from Halston? And I just have a couple of other additional questions. Sure.
Robert DeLorean
Tower Hill exceeded... plan on the launch, Michael, by 40%. And we had contractual minimums there. The actual forecast for the year is twice the minimums. And we anticipate going into 25, we'll double the business from where we are this year. We're having great traction with Christie outside of HSN as well. There are a lot of significant retailers very interested in what we're doing with Christie and Christie's potential, not only in apparel but in home and other categories. So we're excited about the prospects with Christie.
Michael Kapinski
And then in terms of licensing revenue from Halston, are you anticipating licensing revenue in the third quarter from Halston or D3?
Robert DeLorean
Well, just as a reminder, there are minimum guaranteed royalties under that license. So we expect, depending on whether or not they shift shoes and bags this year. They should to get in for spring. There's the potential of just coming up over those minimums and that we expect as G3 moves forward, increasing royalties from all activities with G3, including all the third party licenses that are currently in place for the brand.
Michael Kapinski
And Bob, can you kind of give us a sense of what products are being rolled out on the Halston brand and the timeline that you're anticipating at this point?
Robert DeLorean
so it's apparel across multiple categories and classifications which is typical of what g3 does that's what we would expect would happen and then they they went to market with handbags and shoes during august and we don't know the results of how that market went for them. We'll get that later in the quarter. Those are the core drivers of licensing, and then there are multiple categories with third-party licensees, including the Halston Premium line that is distributed in best positioned retailers that we think will be able to draft off of G3's success.
Michael Kapinski
At this point, since we're halfway in the quarter, can you give us a sense of whether or not you believe that you will see year-over-year increases in licensing revenue in the third quarter?
Robert DeLorean
Yes, we're on a steady ramp up with all the brands. We entered into all the licenses with these significant players like G3 and Jewelry TV and Premier Brands with one jeanswear group and launched new brands on HSN and we're just getting started with these businesses and they're all off to a great start.
Michael Kapinski
And then on the designer that you plan to announce in the fourth quarter can you kind of give us a sense of will that be on HSN or will there be other retail partners and things like that if you can give us a sense of that and then I assume that there will be some cost associated with launching that brand if you can kind of give us a sense of what you're anticipating at this point so that brand will launch just on HSN initially and
Robert DeLorean
there wasn't very much startup cost on that one because of the way we structured the deal. But that said, we've already, you know, product has been ordered, all the product development is done, that's launching, and whatever cost we had has already been expensed. We do believe that the brand that we plan to launch for kitchen and food products in Q1 has tremendous potential both on HSN and outside of HSN. That celebrity chef that we are doing this with has close to 5 million TikTok followers. She has a tremendous following.
Michael Kapinski
Gotcha. That sounds very exciting. Can you give us a sense of what the Isaac Mizrahi brand is doing at this point and what your expectations are for that brand going forward?
Robert DeLorean
So Isaac is on plan for what was forecasted for the year. That said, it's down from last year. And part of that relates to a reduction to zero in Isaac's remote shows. QVC, coming out of COVID, changed its position on remote shows and has mandated that all talent return to studio. So we are working on bringing in another backup guest for Isaac to make up for that actual in-studio time that we've lost because of the of the elimination of remote shows.
Michael Kapinski
Gotcha. That's all I have. Thank you. And congratulations on your turnaround here.
spk14
Thank you, Michael.
Operator
Thank you. Our next question comes from the line of Anthony Lebedzinski from Sudoti.
Anthony Lebedzinski
The line's open. Good morning.
Longaberger
Yeah, good morning. Thank you for taking the question. Hey, good morning. Thanks for taking the questions. And then, yeah, nice to see the, uh, improved, uh, performance. So, um, so, so now that you divested Lori Goldstein, um, you know, how should we think about the, uh, just overall, uh, the brand portfolio? Are you happy with, uh, where those brands are? I think you talked about all of them except for longer burger. Uh, but, uh, I guess, you know, uh, In terms of just looking out, which brands are you most excited about, Bob, as far as growth opportunities going forward?
Robert DeLorean
So I think SeaWonder has tremendous growth potential, as does Christie Brinkley. And we are focused there. We think Isaac is a good opportunity, assuming that we can get the right backup guests. to help with some of the time we've lost to the remote shows. Longaberger is doing well. It is now an e-commerce only business. We have onboarded it onto Ormi and we are now re-engaging with all the former Longaberger sellers. We're excited about the potential of Longaberger. We also think there are licensing opportunities for us with Longaberger. And we are continuing to look for new brands and new opportunities across our portfolio that we think can grow core business and add the kinds of brands that we're seeking today for the portfolio that will do well in traditional distribution, linear TV distribution, as well as distribution through streaming platforms, including, of course, Ormi.
Longaberger
Gotcha. Okay. And then, actually, as far as Ormi, can you guys maybe just touch base as far as what's been the number of downloads for the app? Are you actually seeing sales coming through that? Maybe if you could just give us some more details about what you've seen so far with Army.
Robert DeLorean
Sure. As you know, we are 30% owner of Army. I can give you what the Army team has reported to us. First, the thing that I think we all need to know about Army and what it's doing is There has been very dramatic activity in this new market with the recent announcement of the alliance between TikTok and Amazon. The implications of social commerce have become very, very far reaching with this alliance. There are only three marketplaces for short-form video and social commerce, and those are TikTok, Flip, and Ormi today. And the difference in Ormi and perhaps TikTok and Flip is Ormi is focused on better brands with higher average order values than both of those platforms. So that's the segment of the market that we're focused on. Ormi began implementing its app distribution strategies on July 23rd. In less than three weeks, the team generated 20,000 downloads and we've been very selective on the platform about the kinds of brands that are going to be present on the Ormi platform. Very, very high standards on selection value. There are 13 major brands on the site to date, and they are continuing to ramp up the platform, both from the user perspective and onboarding brands.
Longaberger
Gotcha. Okay. Thanks for that, Culler. That's definitely very helpful. And then just thinking about the... profitability going forward here. So, obviously, you know, you're happy with the brand's trajectory, you know, both Sea Wonder and Christie Brinkley and Halston should be coming up in the fall as well. So, and you've right-sized the cost structure there. So, you think you can be consistently profitable you know, earnings positive here going forward every quarter? And is that just, you know, earnings or just EBITDA? If you could just kind of maybe help us out with that.
Robert DeLorean
I think for the rest of the year, worst case will be breakeven. Best case will be EBITDA positive heading into 25 with all brands, including Halston, ramping up. That's how we see. the balance of the year. We just don't have enough visibility into exactly what the Halston brand will do for the balance of the year.
Longaberger
Gotcha. Okay. So in terms of, you know, just to follow up as far as Halston, so is the timing of that, I know it's out of your hands, but as far as what's the latest that you think you'll start to see, I guess, revenue coming from the Halston brand?
Robert DeLorean
Well, there is revenue coming from it now. There are contractual minimums.
spk08
Right, right, okay.
Robert DeLorean
We expect the ramp to really begin next year. It's a little delayed in terms of what we had initially anticipated, but we think that... it's on the right track and we'll move forward nicely going into next year.
Longaberger
Gotcha. But you have some other well-performing brands that seem like they're offsetting some of that delay. Is that fair to say?