Xcel Brands, Inc

Welcome to Excel Brand's first quarter 2024 earnings conference call. Please be advised that reproduction of this call in whole or in part is not permitted without prior written authorization of Excel Brands and as a reminder, this conference call is being recorded. I would now like to turn the call over to Paul Kunz from Redchip. Paul you may begin.

Good evening everyone and thank you for joining us. Welcome to the Excel Brand's first 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 Herron and Executive Vice President of Business Development and Treasury Seth Burrows. By now everyone should have had access to the earnings release for the quarter ended March 31, 2024 which went out this 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 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 of 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 returns 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 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 Reconciliation of Non-GAAP Measures. And now I'm pleased to introduce Robert DeLoren, Chairman and Chief Executive Officer. Bob, please go ahead.

Thank you, Paul. Good evening, 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 first quarter and then our outlook for the remainder of the year. After that, our CFO Jim Herron will discuss our financial results in more detail. As I have previously mentioned, with the discontinuance of all wholesale operations behind us, we have returned to a working capital life core licensing business. We have made significant headway toward improving our financial performance and operating results. Our total revenues for the first quarter declined year over year given that this was our first quarter in several years with zero product sales from wholesale activities. Our licensing revenues were up across our brands except for our logo, Lori Goldstein brand, which caused royalties to be flat. And our bottom line on a non-GAAP basis showed significant improvement. Our adjusted EBITDA for the quarter improved by almost 50% from the prior year quarter. As we continue to gain traction and accelerate in future quarters, we expect our licensing revenues to grow and our bottom line results to continue to improve. We plan to launch our new brand Tower Hill by Christie Brinkley on HSN later this month, followed by the launch of additional categories of products outside of HSN starting this fall. To date, we have received strong interest from potential licensing partners for the brand across multiple categories, including footwear, handbags, beauty, and skin care. The Sea Wonder by Christian Siriano brand is performing well. We expect to see retail sales volume up to about 20 to 25 million annually in 2024. That's up 100% from last year's retail sales with a goal of over 50 million in 2025, including HSN and other retailers. We will launch additional new core categories in footwear and handbags in spring of 2025. We also expect to announce the launch of another celebrity designer brand on HSN before the end of this year. We are working with JTV to offer greater product assortments, including our Judith Repka Couture jewelry products, both on air and on JTV.com. This has the potential to add over 50 million visitors to the Judith Repka e-commerce business and allows for email marketing campaigns to an additional 2.1 million customers. We look forward to seeing strong sales momentum carry forward through 2024 and 2025. As previously discussed, G3 is on schedule to launch Halston this fall. We expect them to begin shipping shortly after the second quarter. We expect revenues from this license to begin to pick up later this year and grow strongly in 2025 and beyond. OrmiSoft launched its video and social commerce marketplace approximately three weeks ago. 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. As I 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 the video and social commerce markets in the U.S. and its growth potential potentially is virtually unlimited. Based on all of the progress with Project Fundamentals, our strategic plan to get Excel back to what made us successful over the years and the organic growth in our brands, we expect a return to profitability in 2024. I should note that our logo Lori Goldstein business was softer than expected in Q1 of 2024 caused by continued scheduling conflicts with talent. We continue to work with QVC and our on-air talent to reach a resolution for this. This includes identifying additional on-air guests to support the business

or

a satisfactory disposition of the brand. Also, we are working on launching a robust pipeline of new brands on QVC and HSN and other potential business opportunities as we seek to ensure continued growth in our core live stream interactive TV business. And now I'd like to turn the call over to Jim to discuss our family products. Jim?

Thanks Bob and good evening everyone. I will now briefly discuss our financial results for the quarter ended March 31, 2024. Total revenue for the first quarter of 2024 was $2.2 million representing a decrease of approximately $3.9 million from the first quarter of 2023. This decline was almost entirely driven by the decrease in net product sales to zero resulting from our exit from all wholesale operating businesses as part of our Project Fundamentals Plan 2023 and 2024. Licensing revenue was approximately $2.2 million in both the current quarter and the prior year quarter. Licensing revenue was up across our brands except for the Lori Goldstein brand which caused royalties to be flat. Our direct operating costs and expenses were $4 million for the current quarter down by $3 million or 43% from $7 million in the prior year quarter. This decrease was mainly attributable to the discontinuance of all wholesale and e-commerce activities in 2023 which included reductions in staffing levels as well as related reductions in other overhead costs. With the Project Fundamental Initiative substantially completed last year, going forward we expect our average direct operating costs to be less than $4 million per quarter. Overall, we had a net loss excluding non-controlling interest for the current quarter of approximately $6.3 million or minus 31 cents per share compared with a net loss of $5.6 million or minus 29 cents per share in the prior year quarter. The current quarter's net loss includes a non-cash operating cost of $2.3 million due to asset impairment charges relating to our successful exit and subleason of our prior office space as part of Project Fundamentals. On a non-GAP basis we had a net loss for the quarter of $1.8 million or minus 9 cents per share which represents a roughly 50% improvement from the non-GAP net loss of $3.6 million or minus 18 cents per share in the first quarter of 2023. Now that we have right-sized our cost structure, our non-GAP net income should continue to improve in future periods as licensing revenues are projected to grow. Finally, adjusted EBITDA was negative $1.6 million for the current quarter representing a -over-year improvement of $1.6 million or approximately 50% from the negative $3.2 million EBITDA in the prior year quarter. With our new cost structure in place and projected revenue growth, management anticipates achieving positive EBITDA later this year. Once again, I would like to take this opportunity to remind everyone that non-GAP net income, non-GAP diluted EPS, and adjusted EBITDA are non-GAP 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 and liquidity. As of March 31, 2024, the company had total cash and cash equivalents of approximately $2.3 million of which $0.7 million was restricted. Our net working capital excluding the current portion of lease obligations and deferred revenue was approximately $2.1 million which we believe is adequate and appropriate under our current licensing plus working capital light business model. Since executing our project fundamentals plan, our cash usage has decreased significantly and is projected to continue to improve with the launch of Halston by G3 this fall, the launch of Tower Hill by Christie Brinkley later this month, and continued growth in our C1 and Jusripta licensing businesses. In March 2024, we did a small common stock offering for net proceeds of approximately $2 million. This recent capital raise combined with our current working capital position, lower operating costs, and balance sheet borrowing capacity provides us with adequate liquidity to meet our obligations as we become due while growing our business. 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 will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening by a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Michael Kopinski with Noble Capital Markets.

Thank you for my questions and good afternoon. First of all, can you talk a little bit about Lori Goldstein and how much does that brand account for your total licensing revenue, maybe in the latest quarter and for the full year 2023? And then finally, can you talk a little bit about what you mean by options for a satisfactory disposition of the brand as a prospect there? What do you mean by that?

Okay. So the Lori Goldstein brand, Michael, generates about $5 million in top-line royalties. And because there's an earn-out there with contingent obligation that's put on the balance sheet of about $5 million, the way the deal works is there's a sweep. It doesn't contribute a lot of cash flow to us. And we've been concerned about trends in the business and some of the complications of logistics for Lori herself now having moved to Palm Springs and being able to get to Westchester, Pennsylvania to give us the time that we need to really drive the sales. We've been challenged by that. Everyone is working through it. We are all doing whatever is necessary under the circumstances to keep the flow in the business as good as we can because no one wants to create any issues for QBC with the business. And part of the negotiations are perhaps we would sell the brand back to Lori under satisfactory terms and conditions. And we're exploring all of that now in good faith on both sides.

Thank you. And then in terms of the launch of a Halston, obviously a big event for the company and a key factor to your swing toward profitability, you indicated that the shipping of the product would be after the second quarter. Was there a little slippage in that timing of that?

No, I don't think so. We anticipated initially when we signed the license with G3 that they would be launching in spring, but they pushed it out to fall because they were simultaneously launching apparel, footwear, and handbags and they just couldn't get it all together for the spring launch. They may have already begun shipping some goods. We haven't received any shipping reports from them yet.

Gotcha. And then can you talk a little bit about Christie Brinkley, the brand there, in terms of the number of SKUs that you'd be launching initially, that sort of thing?

So the Christie launch is a full apparel collection and that launch is next week. We have a big press event that will hit simultaneously with the launch of the show. Christie was fantastic in the photo shoot for it and it will be tops, bottoms, sweaters, full collection in apparel. And we are working now across multiple categories for bag shoes, accessories, skin care, beauty, and possibly fragrance.

Gotcha. Final question. I'm sorry for so many. Can you give us an update on the number of vendors for ARMY at this point and any particular update on when you might move towards a full-scale launch? So

as far as we know from ARMY, the pipeline of vendors now is between three to five per week coming on. We just onboarded Anklein. That will be the first of the WHP brands and we're working with them to analyze which of their brands really works. Given their model as a licensing company, they don't operate most of the e-com sites. And then we expect other major brands to come on as well over the next 30 days.

Perfect. That's all I have for now. Thank you.

Thank you, Michael. Your next question comes from the line of Anthony Libidinsky with Sidoti.

Good afternoon and thank you for taking the questions. So first, I just wanted to follow up on Lori Goldstein. So, Bob, I know you talked about the continued scheduling conflicts. It sounds like it was meaningful for the quarter as the other brands were up. So any way you could quantify, take a stab at trying to share how much you think this was, how much this impacted your top line?

So we won't know for this year until and unless we reach a settlement agreement with Lori. We are close. I think it's in good shape. Everyone's been acting in good faith. Obviously, we'll have the first half of the year just because of timing to get anything done with Lori. But I think based on where we are in the discussions, it'll be good for us and the shareholders and good for Lori. That's

where we are. Got you. All right. So it sounds like from a cash flow perspective, it's not overly meaningful. So it doesn't really

take

away from your goals? No,

it's not. And with all the things that we have coming on, with the business doubling and C-Wonder and Holston getting launched, Kirstie getting launched, other things we have in the pipeline because this wasn't a big cash flow contributor, we're happy with where we are in the negotiations with Lori.

Got you. Okay. And then in terms of profitability for this year, I think you said that you expect to be positive EBITDA later this year. So do you mean for one of the quarters later this year or do you think you'll be positive EBITDA for the full year? I just wanted to get a little bit more clarification in terms of that.

I think it will depend quarter by quarter and quite frankly how fast we see the ramp up in the G3 license. But we expect for the full year we'll be positive and coming into Q3 and Q4, that's when we're going to see that pick up because that's really when G3 starts to ramp.

So G3, will it start already in July or are we talking about later in the quarter? What's the timing so we just have a better understanding as to how the business will flow as the quarter, as the year progresses, I'm sorry?

Yeah, they should be shipping now. So we're going to wait for them to send to us their shipping reports. But to get in for fall, shipping is starting now.

Okay, gotcha. So it sounds like as the year progresses, each quarter should be better from both a top line and bottom line perspective. Is that fair to say?

That's how we see it. Unless there's an adjustment for Lori, top line may change but we believe bottom line and cash flow will be better.

Okay, that's very encouraging. And then in terms of ORBME, you talked about onboarding three to five per week. Do you think that perhaps could maybe accelerate as the year progresses as well or do you think that's the pace that you'll be happy with if you could continue with that?

No, I think it will accelerate. ORBME has been hiring staff, busy people, and we're helping them with the bigger brands making contacts for them. But they're staffing up and beginning to really operate.

Gotcha, okay. So you did a small capital raise during the quarter. Do you think given the state of business that you should be all set or do you project any other capital raises?

I think we're good for now given where we are. And unless there's some kind of transaction that we have a need for cash, I don't foresee us doing another equity deal unless there's a need for the capital to affect the transaction.

Got it, very good. All right, well thank you gentlemen and best of luck.

Okay,

thank

you Anthony.

Again, if you would like to ask a question, press star then the number one on your telephone keypad. And your next question comes from the line of Howard Browse, Sweet Wellington Shield.

So a couple of questions that I have been asked but not in the depths I'd like them ORBME. How many companies have you signed up and can you give us some sense of names that have signed up?

So Howard, one, we don't have daily reports of ORBME. Remember we own 30% of that company. We've invested in it. ORBME is a private company and they share some information but not all information with us. What I can see coming through is they're adding three to five brands per week now to their pipeline. And of course as brands come on then they email those customer databases and recruit users for the app. And at some point ORBME will do its own capital raise and then report accordingly so that we all have a little more visibility into the ORBME business. But there are some things that they're just not reporting on.

Do you know how many brands have signed up already?

Nine are on and there's about another nine in the pipeline. The biggest one that was just put on is NCLINE.

Looking at G3 and the minimum they've basically guaranteed to you, I'm looking

at, if you will, next year's numbers. Is it fair to say that

the EBITDA number certainly and directionally is increasing significantly? And can you comment on what people are looking for in terms of EBITDA for next year? And the estimate out there is call it 11 million.

Well, the catalyst for Topline and EBITDA are Holston, CWonder, and Christie, going into next year. CWonder is doing incredibly well. It did 12.9 million in 23. It's planned at approximately 25 for this year. We believe it could hit 50 next year based on the trend that it's on and the release now of handbags and footwear and some other licensed categories. And Christie, we believe, just has tremendous potential. There is another transaction that we will be executing on with HSN this year. It will come in the latter part of Q3, possibly the beginning of Q4 for holiday season. And those will be the catalyst for revenue. And of course, Judith Repka continues to do well with JTV. They have decided to move all of the full-price product to JTV.com, which exposes that product to another 50 million unique visitors per year on Jewelry TV and gives us access to millions of customers for the Judith Repka e-commerce business that they're running. So we're excited about what JTV is doing with Judith Repka. And those will be the catalyst for growth. We do have other brands that we anticipate that we will be launching going into next year that could be immediate drivers of revenue. We look forward to announcing those

as we get closer to finalizing.

So is it fair to say the estimate for EBITDA for next year is how conservative? Let me ask it that way.

Well, we're standing behind the estimates that are out there, Howard, based on what we see in the pipeline and the business.

So effectively you're selling a one and a half times EBITDA for next year. Is that a fair comment? It

seems

reasonable

when you think about where that EBITDA can be, yes.

That's all I have. Thank you. Good luck, Bob. Thank

you.

Your last question comes from the line of Michael Popinski with Dobel Capital Markets.

Hi, thanks. I'm sorry. Just one quick follow-up, Bob. In terms of the new brand you hope to launch, you said that I believe this might be featured on HSN. Will this be an – can you give us any additional color on that, whether or not it's an apparel brand, or will it also be streaming? Can you just kind of give us a little additional color there? Sure. And maybe even some thoughts about how much revenue it might generate this year?

So it is an apparel brand, and it is with a celebrity designer. We don't think it'll contribute much this year, Michael, just because of when it's launching, but it will be a contributor coming into 25. Just based on timing where we are now, it does look like holiday is when it will get out. But we're excited. It's a great opportunity, great designer, great product. We're not making that product a licensee who's doing it. And our goal is to do more of these at HSN, where each of these brands could be 30 to 50 million in volume on HSN. That's the goal.

Perfect. Well, good luck with that. Thank you. That's all I have. Thank you.

There are no further questions at this time. I will now turn the call back over to Mr. DeLoren for closing remarks.

Bob, before you begin,

I

just want to let everyone know that we had some technical difficulties getting our earnings release out. I was just informed that they fixed them and the release should be going out momentarily. We did file our 10-Q earlier this afternoon, so apologies for having that release not issued prior to the call. So I just want to let everyone know we had technical issues with the release, and at least now it's fixed. So sorry about that.

Okay. So thank you, Jim. Ladies and gentlemen, thank you for your time this evening. We greatly appreciate your continued interest and support in XL Brands. As always, stay fit, eat well, and be healthy.

Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect, and thank you for participating.