Xcel Brands, Inc

Ladies and gentlemen, thank you for patiently waiting. Welcome to the Axel Brands Q4 2024 and Q1 2025 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the call over to Seth Burrows, AVP. Seth, you may begin.

Good afternoon, everyone, and thank you for joining us. Welcome to Excel Brands combined fourth quarter of 2024 and first quarter of 2025 earnings call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer Robert DeLoren and Chief Financial Officer Jim Herron. By now, everyone should have access to the earnings releases for the quarter and fiscal year ended December 31st, 2024, and the quarter ended March 31st, 2025. which went out last Wednesday and yesterday, respectively. In addition, the company filed with the Securities and Exchange Commission with its annual report on Form 10-K last Wednesday and will file a quarterly report on Form 10-Q for the quarter ended March 31, 2025, tomorrow. The releases, the annual report, 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 can 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 reports 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 related to our company's results of operations. Our management believes these financial performance measurements are also useful because these measurements adjust for certain costs and other events that management believes are not representative of our core business 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 attached to the company's earnings leases for the Form 10-K and 10-Q for 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, Seth. Good afternoon, everyone, and thank you for joining us today. I would like to start today's call with a brief update on our performance over the two most recent quarters and our outlook for 2025 and beyond. After that, our CFO, Jim Herron, will discuss our financial results in more detail. But first, I'm happy to report that we have closed a strategic transaction with United Trademark Group in April. This transaction brings together two industry leaders in brand management, supply chain management, licensing, and video and social commerce to create a global powerhouse. The UTG alliance significantly enhances Excel's goal of achieving global distribution of our existing and new creator-driven brands and our ability to deliver great products with a high quality-to-value ratio across multiple product categories and through UTG's supply chain capabilities. The initial transaction provided the company with $3 million of liquidity and saves us over $1 million per year in interest and principal payments through March of 2027. Also, UTG puts us in a great position to more aggressively pursue acquisitions, some of which may be transformative to the company. We have been working hard and fast with UTG to present the strength of the combined platforms to retailers across multiple channels of distribution and conducting due diligence for potential acquisitions. Also, we believe that this partnership will accelerate our formation of additional creator influencer brands on our platform. We continue to work hard with all of our production partners to drive our business. We announced our new creator influencer brands with Cesar Millan, Gemma Stafford, and Jenny Martinez in Q2 of 2025. We have identified key category license opportunities for all of these new creator influencer brands. Our social media reach across our brand portfolio has grown from 5 million followers in January of 2025 to 45 million to date. We believe this is an extremely important and valuable media currency going forward, given the recent dramatic growth in video commerce and creator-led brands. Sea Wonder and Christie Brinkley remain the two fastest-growing brands on HSM. We have a strong pipeline of additional new creator-influencer brands that we hope to announce in the near future. All that said... We are approaching Q3 and Q4 of this year with caution, given the impacts of the tariffs on QVC and HSN's business and our licensees, including G3, for our Halston brand and the coming consolidation of HSN's operations into QVC's headquarters in Pennsylvania. Judith Ripka continues to operate on-plan at JTV. In fact, our most recent on-air rotation was most was our most successful to date. Our Longaberger brand launches on QVC this fall. The Army team has onboarded 25 premium beauty brands as it focuses its efforts on the beauty category. User downloads have reached 50,000, and the influencer base now reaches over 10 million followers. As previously mentioned, this is a joint venture with a technology company in which Excel owns a 19% interest in this new marketplace. We believe that our goal of building a portfolio of creator-influencer brands that reaches 100 million followers has the potential to accelerate the growth of Ormi. We generated an adjusted EBITDA loss of $792,000 in Q4. That is a $361,000 improvement over Q4-23. I should note The 2024 loss is approximately 150,000 more than we expected, which was caused by the impacts of the Florida hurricanes in Q4 of 2024. While we forecast a range of one to two and a half million of adjusted EBITDA for 2025, much of it was weighted on the results of the back half of this year. We are assessing the impact of the tariffs and the HSN Tampa studio closure on our businesses, and working on potential solutions, including short-term domestic production for some of our brands. Jim will more fully cover Q4 2024 and the full year of 24 results and Q1 25 results. Jim?

Thanks, Bob, and good afternoon, everyone. I will now briefly discuss our financial results for the quarter and fiscal year-ended December 31st, 2024, and the quarter ended March 31st, 2025. Total revenues were $1.2 million for the fourth quarter of 2024 and $8.3 million for the full fiscal year. For both the quarter and full fiscal year period, our revenues were roughly half of what was reported in the prior year comparable period due to the sale of the Lori Goldstein brand in the second quarter of 2024 and the exit from all wholesale operating businesses as part of our project fundamentals that began in 2023. Total revenues for the first quarter of 2025 were $1.3 million, up slightly from the fourth quarter. As we restructured and transformed our business operating model over the past two years, starting in 2023 and continuing through 2024, we have taken numerous actions to reduce our payroll, operating and overhead costs. As a result, our direct operating costs and expenses decreased by nearly 50% year over year from fiscal year 2023 to fiscal year 2024. And similarly from the fourth quarter of 2023 to the fourth quarter of 2024. Management has continued to implement additional cost cutting measures throughout the first quarter of 2025 to further optimize the company's cost structure. And as a result, our direct operating expenses for the first quarter were approximately $2.3 million, which was approximately 40% lower than the prior year period. As of the end of the first quarter, we have reduced our operating costs to a run rate of approximately $9 million on a go-forward basis. Looking at our other operating cost expenses, which are predominantly non-cash in nature, our depreciation amortization expense had declined significantly year-over-year for both the fourth quarter of 2024, the full fiscal year 2024, and the first quarter of 2025, all primarily as a result of the sale of the Lurie Goldstein brand. During fiscal 2024 and to a lesser extent in Q1 2025, we recognized some significant charges related to our equity method investment, including $1.9 million for our proportional share of losses, a $10 million of other charges related to the valuation of our investment in IM Topco and our contingent contractual obligations to transfer a portion of our equity ownership interest in IM Topco. Similar charges for the current quarter were approximately $0.3 million. And I'd like to reiterate that these charges are non-cash in nature and are excluded from our non-GAAP measures of performance. Further, with the subsequent resolution of the contractual obligation related to the IOM top goal in April of 2025, the resulting reduction of our ownership interest in IOM top goal from 30% to 17.5% and the implications under the public accounting rules. Overall, we had a net loss for the first quarter of 2024 of approximately $7.1 million, or minus $3 per share on a GAAP basis, and $1.6 million loss, and minus 69 cents per share on a non-GAAP basis. This represents a 53% improvement over last year. Fourth quarter adjusted EBITDA was negative $0.8 million, and also a 31% improvement over last year. For the full fiscal year 2024, we had a net loss of approximately $22.4 million or $9.84 per share on a GAAP basis, although this does include $16.5 million of various non-cash charges, as mentioned earlier. On a non-GAAP basis, we had a net loss of $5.1 million or minus $2.23 per share, which represents a 58% improvement over 2023. Our fiscal year 2024 adjusted EBITDA was negative $3.5 million, a 40% improvement over the prior fiscal year. For the current quarter, we had a net loss of approximately $2.8 million or minus $1.18 per share compared with a loss of $6.3 million or minus $3.09 in the prior year quarter. On a non-GAAP basis, our first quarter net loss is $1.4 million or minus $0.58 per share compared with $1.8 million loss or minus 88 cents per share in the prior year quarter. This represents a 56% improvement on a GAAP basis and a 24% improvement on a non-GAAP basis. Our adjusted EBITDA was negative 0.7 million, a 56% improvement over the negative $1.6 million reported in the prior year quarter. These bottom line results exhibit the significant strides we have taken in right-sizing our business and cost structure and moving towards profitability. And once again, as a reminder, our earnings crush releases in Form 10-K and Form 10-Q present a full reconciliation of our non-GAAP measures with the most directly comparable GAAP measures. Turning now to our balance sheet and our liquidity. As of March 31st, 2025, the company's balance sheet reflected stockholders equity of approximately 26 million and unrestricted cash in approximately 0.3 million and also reflected 8.7 million of long-term debt of which the first payment of 250,000 is due on March 31st, 2026. In April, 2025, we financed our term debt resulting in a net increase of approximately $3 million in the company's liquidity and working capital. Currently, our term debt is $13.6 million, and we do not have any principal repayments under the amended term loan until March 31, 2026. And for the majority of the term loan, approximately $9.1 million, the interest will be paid in kind, meaning that it will accrue and not require cash payments until 2027. And with that, I would like to turn the call back over to Bob. Bob?

Thank you, Jim. This concludes our prepared remarks. Operator?

At this time, I would like to remind everyone in order to ask a question, to press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. And your first question comes from the line of Michael Kopinski with Noble Capital Markets. Michael, please go ahead.

Thank you, and thanks for taking my questions. I just have a couple. First of all, I just have a couple of clarifications. Robert, you indicated that you thought adjusted EBITDA for full year 2025 would be one to maybe two and a half million. Did I get that right? And does that include the impact of tariffs or not?

So it includes potential impacts and tariffs, and also... Any disruption that may occur with the move of HSN from Tampa to Westchester, PA, Michael? We just don't know. We don't have enough visibility to know if that move will disrupt the business and cause disruptions in airtime, which would push sales of products potentially into next year. And of course, we just don't know yet what the potential impacts from tariffs would be. We've been working very hard on mitigating measures, including entering into a short-term license with a group that can produce our apparel domestically to provide products if we need them.

Gotcha. And then, Jim, you indicated that the run rate of $1 million, I assume that's per month. Is that correct? The cost?

Are you talking about run rate of our overhead? Because I think we indicated that.

Yeah, you mentioned.

It's going to be $1 million. So it would be less than $2.5 million per quarter would be our overhead.

Gotcha. It's about $9 million for the year.

Okay. And then can you remind us what are the guarantees from G3 on Halston and when did those royalty revenues start to kick in? I believe that Halston was featured in Neiman Marcus and Saks for the spring, but I was just wondering, so does that royalty revenue start kicking in in Q2? And maybe if you can kind of give us some thoughts about how Q2 is shaping up in terms of revenue? Sure.

So the guaranteed minimum under the license is $1.7 million per year. And we plan the business on the minimums with very little pickup on the actuals over the minimums in Q2. So minimums Q1, a little bit of pickup in Q2, and then as they shift for fall, we anticipated that they would come in over the minimums.

Okay, gotcha. I was just wondering if you could talk a little bit about the liquidity. I know that you brought in another $3 million in liquidity in this quarter, but you also have some needs, I guess, in terms of the launch and recently announced brands that you plan to introduce this year and into 2026. I was just wondering if you can just talk a little bit about your liquidity needs going into this year, and is the $3 million in liquidity enough to kind of get you through to 2026 and your other product launches or how do you how do you look at your liquidity at this point?

So our liquidity is good now and we do have more transactions in the pipeline and we've issued LLIs on additional transactions that are beyond what I would call pipeline pipeline It's something where we've signed an LOI. We're drafting licenses. But we have more in the pipeline. If we see that we're going to have additional needs for capital, we'll address it when that time comes. But at the moment, we believe we're okay.

Gotcha. And then while all of your recent planned brand launches appear extremely compelling, I'm I'm sure that some of them offer more revenue and cashflow potential than others. And, you know, just given the specific market target markets and so forth, I was wondering maybe if you can score for us some of your thoughts on the revenue potential of your recently launched or anticipated launch brands. You know, I'm personally excited about the Cesar Millan pet products, but I'd like to hear your thoughts on what are the prospects of some of the recently launched brands?

So, um, All of them are very exciting to us, Michael. Cesar, of course, is by far the biggest voice in the pet world. And we anticipate that that business will be stronger than we initially thought, just based upon the feedback we're getting from potential licensees. and hopefully we'll start to see some income from the CSER program this year and then it will really pick up going into next year. We also believe that Gemma Stafford, besides her launching on QVC, which we anticipate will happen late this year, We see a lot of opportunities for her in bricks and mortar retail and in e-commerce with food products, kitchen and baking gadgets, and similarly for Jenny Martinez. So we're excited about all three of them. Between the three of them, they reach over 30 million social media followers. And we do believe that influencer brands are the new currency in media, particularly when those brands have credible voices in a category as opposed to, say, a pop star that wants to get into a particular category. And we will continue to do deals like this going forward.

Gotcha. And in terms of the Isaac Mizrahi brand, Given the number of brand initiatives that you have and that seemingly offers significant growth prospects, is there a reason that the company would want to own a minority interest in this brand, or are you considering monetizing this interest? Just your thoughts.

You know, Isaac Mizrahi has been a brand that has been great for us over the years. We had a tremendous... 14-year run with Isaac, we will continue to support the brand in any way that we can. We currently oversee the QDC business. We are not really involved in the third-party licensing that's handled by WHP partners. And to the extent that WHP wants us to continue to coordinate the business at QDC, we will do that.

And you mentioned the prospect of acquisitions and maybe possibly even transformative acquisitions. I was just wondering if you can just kind of give us some thoughts on those types of acquisitions that you're mostly interested in.

We are interested in brands that have significant social media followings. and we've been looking at many of those, and we are looking at media companies that could extend our reach. So those are the kinds of acquisitions we're focused on.

Gotcha. All right, that's all I have. Good luck to you guys.

Thank you.

Again, if you would like to ask a question, simply press star, followed by the number one on your telephone keypad. And your next question comes from the line of Anthony Lebedinsky with Sidoti & Company. Anthony, please go ahead.

Good afternoon, and thank you for taking the questions. So first, just a couple of housekeeping items as far as the impact of Lori Goldstein. So I think it was about $1.1 million in the fourth quarter. Can you go over what that was in the first quarter? And can you also remind us how much Did Laurie Goldstein contribute to your second quarter revenue last year?

Jim, can you take the- Hello? Yes? Is it the second quarter or the first quarter from last year?

So my, well, I'm asking for the first quarter, how much that was. And then if you could just remind us how much Laurie Goldstein contributed to your second quarter revenue a year ago.

So it was $1.1 million was the top line in the first quarter of 2024. Second quarter was a little bit more than that. I think it was $1.1 million. And there were significant expenses we had against that brand. And with that and on a cash flow basis, it wasn't that significant that we gave up in divesting ourselves of the brand.

Thank you, Jim. Okay. And then if I could just follow up on the question that Mike had before as far as looking at the number of social media followers. So obviously you've seen that growth from 5 million to 45 million. How do we think about the revenue growth associated with that? And obviously you have a goal to get to 100 million followers. So how does that translate to revenue growth? Can you expand on that? I don't know if you're willing to quantify that, but just curious to get your take on that, Bob.

So I think you can look at each of these opportunities where they have the potential to generate anywhere from $5 million to $10 million of revenue.

Absolutely. Yeah. So as far as the number of social media followers, obviously, as you pointed out in your press release and your prepared remarks, it has grown from 5 million to 45 million. And you have a goal to get to 100 million. So how do we think about the revenue growth? I know you started answering the questions, Bob, before we got cut off. So maybe if you could just finish your thoughts, that would be great.

Yes. So the way I think you can think about the potential of these kinds of transactions, particularly when it comes to Caesar, Milan, and Gemma, and Jenny, they have the potential to generate between $5 and $10 million of royalty income per year. Of course, it'll take some time to ramp up to that, but that's the potential. that we believe they have. And we won't know exactly where they will come out until we really get into the market and sign all of the agreements across the various different categories for each of these brands. But Caesar, by way of example, we're in discussions with 50 different, literally 50 different companies in various categories. uh, to build the world at Caesar. And, you know, we, we certainly think, you know, Caesar has the top end of that range as, as potential.

That's very helpful. And then, so I know you guys have done a tremendous job of cutting costs and you're at an annual run rate of about 9 million, uh, for operating expenses. So as that business pivots to growth, uh, How do we think about then operating expenses? Just wondering about the fixed nature versus the variable nature of your expenses.

So I'll answer that. Our structure is designed to scale. The only real incremental cost we're going to have where we pay our co-brand partners, we'll pay them additional commissions on revenue that's generated with those brands. So The only real cost we're going to incur as we scale a business is going to be incremental. That's going to correlate with our revenue growth. In terms of fixed costs and what our platform and structure is, that cost isn't going to be impacted. We've developed it to the point where we can scale a business without incurring additional costs outside of the variable costs I just mentioned.

Gotcha. Okay. That's very helpful. I guess as we look to update our models, given that you are now more than two months into the second quarter, how should we think about the second quarter, either compared to last year or compared to the first quarter that you just reported? Any sort of high-level thoughts as far as revenue and profitability?

I think we're good with where you are, Anthony, and certainly if we become aware of anything that will impact the numbers, we'll report on that.

Okay.

That sounds good. All right. That's all I had, and thank you very much, and best of luck.

Thank you, Anthony. Thank you. Thanks, Anthony. There's no further question at this time. I will now turn the call back over to Robert for closing remarks.

Robert?

Thank you. 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.

This concludes today's conference call. You may now disconnect.