Xcel Brands, Inc

Ladies and gentlemen, thank you for standing by. Today's conference call is scheduled to begin momentarily. You will be placed back on music hold until then. Thank you for your patience. Hello and thank you for standing by. My name is John and I will be your conference operator today. At this time, I would like to welcome everyone to the Excel Branch 3rd Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker 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 1 on your telephone keypad. To withdraw your question, simply press star 1 again. 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 Seth Burrows from the company.

Seth, you may begin.

Good afternoon, everyone, and thank you for joining us.

Welcome to the Excel Brands third quarter of 2025 earnings call. We greatly appreciate your participation and interest. are Chairman and Chief Executive Officer Robert DeLoren and Chief Financial Officer Jim Herron. By now, everyone should have had access to the earnings release for the quarter ended September 30, 2025, which went out this afternoon. In addition, the company will file with the Securities and Exchange Commission with its quarterly report on Form 10-Q for the quarter ended September 30, 2025. 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 related to the company's results of operations. Our management believes these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results. And thus, they provide supplemental information to assist investors in evaluating the company's financial results. These non-GAAP measures should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. You may refer to the attachment to the company's earnings release or to the 10-Q for a 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 recent developments from the most recent quarter and our outlook moving forward. After that, Our CFO, Jim Herron, will discuss our financial results in more detail. As you know, we closed a $2 million net equity offering in Q3, of which one of our directors, UTG, and I together invested $935,000. This brings the total investment in financing the past 18 months by management and other insiders to approximately $2 million. 250,000 of the cash proceeds of the aforementioned equity offering were used to pay down our loan with First Eagle with the balance being used for general working capital purposes. We have been working with UTG on new business opportunities, which includes leveraging UTG's sourcing platform to supply products to our retail partners, leveraging their retail distribution in China, and conducting continued due diligence on potential acquisitions. We believe some of these transactions have the potential to be transformative for Excel. Change is coming fast in our core business of video content distribution over linear TV as it moves to digital streaming and social commerce. In fact, just last week, TikTok shops announced that their quarterly volume now exceeds that of eBay. We believe that we are positioned well to capitalize on this change given our investments in social commerce technology and our portfolio of influencer-led brands. We continue to work hard with our production partners to drive our business. Earlier in the year, we announced our new influencer brands with Cesar Millan, Gemma Stafford, Jenny Martinez, Coco Rocha, and expect to announce a new influencer transaction for our longer burger brand shortly. These new influencer-led brands have diversified our product categories into food, kitchen, home, and pet products, and transitioned our supply chains to be more reliant on domestic production, especially in the human food and pet food and supplements categories. We have identified key category license opportunities for all of these new influencer brands. Our social media reach across our brand portfolio is now 46 million people with a strong pipeline of new influencer-led brands. We are on track to reach 100 million followers across our brand portfolio in 2026. Sea Wonder and Christie Brinkley remain amongst the fastest-growing brands on HSN. We expect category and distribution expansion in both of these brands in 2026. Our pipeline of licensing activities is strong for all of our brands, especially the influencer-led brands. All that said, we are approaching Q4 of this year with caution given the impacts of the tariffs, on QVC, HSN, and our licensees, including G3 for our Halston brand. I should note that HSN's move to QVC's Pennsylvania studios did disrupt our sales in both Tower Hill by Christie Brinkley and Sea Wonder. Judith Ripka continues to operate on plan and is up 6% over last year in retail sales on JTV, our Longaberger brand, launches on QVC this fall and will be guested and promoted by a strong, very talented influencer in the home and crafting space with over 3 million highly engaged followers. We believe she's perfect for our Longaberger brand. We generated an adjusted EBITDA loss of $653,000 in Q3. That is 400,000 or approximately a 38% improvement over Q3 2024. While we forecasted a range of $1 million to $2.5 million of adjusted EBITDA for 2025, much of it was weighted in the second half results of this year, driven by the Halston business, which has not materialized as we had hoped. G3 remains committed to the Halston brand and is adjusting merchandising and design to get the brand back on plan. We believe that this is a timing issue and that we'll see further growth in 2026. Finally, given the softness in the Halston business, we have entered into an amendment to our credit facility with our lender that provides, amongst other things, certain modifications to our loan covenant, elimination of certain early payment fees, a release of a $1 million loan liquidity reserve as partial payment on the gross $3.2 million First Eagle Term A loan balance, and in exchange for repayment, of the net First Eagle Term A balance of $2.2 million on or before February 2026. It is our intent to refinance this net First Eagle Term A $2.2 million portion of the loan as a standalone financing or in connection with another transaction we are considering. With that, I would like to turn the call over to our CFO, Jim Herron. to cover our financial results for the third quarter. Jim?

Thanks, Bob, and good afternoon, everyone. I will now briefly discuss our financial results for the quarter and nine months ended September 30th, 2025. Net licensing revenues were $1.1 million for the current quarter compared with $1.5 million in the third quarter of 2024. This decline was primarily attributable to the more cautious consumer spending in the current economic environment and the lower-than-expected performance in a wholesome license, as well as lower revenue recognized from a service agreement with IOMTAPIO, which is suspended. On a year-to-date basis, net licensing revenues were $3.89 million for the current nine-month period, compared with $6.59 million for the comparable period in the prior year. The decrease in licensing revenue was primarily attributable to the 2024 divestiture of the Lowy Goldstein brand. Direct operating cost expenses were $2.2 million for the current quarter, down 23% from the prior year quarter. For the current nine-month period, direct operating costs were $6.3 million, a decrease of 36% from the prior year comparable period. For both the quarter and year-to-date periods, the decrease in direct operating costs was primarily attributable to the business transformation and cost reduction actions taken by the company over the past two years, as well as expenses related to the Lori Goldstein brand in the first half of 2024. As a result of the restructuring of our business model, we have reduced our payroll operating no-bend costs to a run rate of under $8 million on a per-annum basis. Looking at our other operating cost expenses, which are predominantly non-cash in nature, our depreciation and amortization expense was relatively flat from the prior year quarter. On a year-to-date basis, depreciation and amortization expense declined from $4 million in the prior year to $2.7 million in the current nine-month period, a result of the sale of the Lori Goldstein brand. We recognized non-cash losses related to our equity method investment the past two years. These amounts were related to our non-controlling interest in the Isaac Mizrahi brand and were based upon a combination of our proportionate share of operating losses, recognizing payment charges to write down the value of our investment, and recording similar non-cast charges as we reduced our interest in the brand over time. As a result, we have fully written down our investment in the Isaac Mizrahi brand, and going forward, we will not have to incur these charges and losses anymore. During the prior year 9 period, we also recognized a $3.8 million gain on the divestiture of the Lori Goldstein brand, and slightly offsetting that were impairment charges of $3.5 million related to the exit and the sudden lease from our prior office location. I'd like to reiterate, however, that all these charges I've described within the other operating costs and expenses are predominantly non-cash in nature and are not recurring and are excluded from our non-GAAP measures of performance. Turning to our interest and finance expense, our interest and finance expense was .5 million for the current quarter compared with .1 million for the third quarter of last year. On a year-to-date basis, interest and finance expense was 3.4 million for the current nine months versus .4 million in the prior year comparable period. These year-over-year increases primarily reflect higher interest expense as a result of higher interest rates and higher average debt balance. And in addition, during the current nine-month period, we recognize a $1.9 million loss on the early extinguishing of debt from the April 2025 refinancing of our term loan. And keep in mind, under our term loan agreement, a majority of the interest due under our current debt will be paid in kind, meaning that it will be true and not required cash payments until starting in 2027. Overall, we had a net loss for the current quarter of approximately $7.9 million or minus $2.02 per share compared with a net loss of $9.2 million or minus $3.92 per share in the prior year quarter. After adjusting for certain cash and non-cash items, results on a non-GAAP basis were a net loss of approximately $1.3 million or minus $0.34 per share for the current quarter and a net loss of approximately $1.3 million or minus $0.57 per share for the prior year quarter. Adjusted EBITDA for the current quarter was approximately negative $650,000 compared to negative $1 million in the third quarter of 2024. This represents a 38% year-over-year improvement in EBITDA, which is roughly comparable to the year-over-year EBITDA improvements we have been showing over the past few quarters. For the current nine months, we had a net loss of approximately $14.7 million or minus $5.06 per share on a GAAP basis compared with a net loss of $15.3 million or minus $6.82 per share in the prior year nine months. On a non-GAAP basis, we had a net loss of $3.6 million or minus $1.24 per share roughly comparable to a non-GAAP net loss in the prior year period of $3.4 million, or minus $1.53 per share. Our year-to-date EBITDA for the current quarter was negative $1.65 million, a 38% improvement from EBITDA of negative 2.7 for the prior year comparable period. Once again, as a reminder, our earnings press release and Form 10Q present a full reconciliation of our non-GAAP measures with the most directly comparable GAAP measures. Now turn to our balance sheet and our liquidity. During the current quarter, in August 2025, the company closed on a public equity offering and concurrent management-led private placement equity transaction for a combined net proceeds of approximately $2 million. And as of September 30, 2025, the company's balance sheet reflected stockholders' equity of approximately $17 million and unrestricted cash of approximately $1.5 million and also reflected $12.5 million of long-term debt. And with that, I would like to turn the call back over to Bob.

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

Thank you. Ladies and gentlemen, we will now begin the question and answer session. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, simply press star one again. We will pause for a moment to compile the Q&A roster. You will be on music hold until then. Please stay on the line. Thank you. Thank you for patiently waiting. We will now begin the question and answer session. Our first question comes from the line of Thomas Forte with the Maxim Group. Please go ahead.

Great. So, Bob and Jim, congrats on the quarter. I have one question and one follow-up. I'll go one at a time. Bob, in September, you announced what we thought was a pretty significant hire in addition to the company with the addition of Olin Lancaster's Chief Revenue Officer. Can you talk about the importance of that move and how you're able to attract him to Excel Brands?

Sure. Olin and I have a long-standing relationship that took over two years for the stars to line up for him to come to Excel. I'm very happy that he has joined us. He brings over 25 years of experience to Excel, having run very big divisions within Ralph Lauren and other companies. and we have been working closely together, traveling a great deal the last couple of months to various different trade shows to get all of these new influencer brands launched with good licensing partners, and I look forward to working hard in 26 with Olin.

Great. And then for my follow-up, Bob, last quarter you talked about having influencer brand products focused on domestic items such as food. Can you talk about things you've done in that area as a way to mitigate some of the tariff impact?

Yes. It's interesting that our timing was perfect in signing CESAR. Gemma and Jenny, particularly Gemma and Jenny, because QVC and other retailers are eager to make room for products that are sourced domestically, which the majority of food is. So we're very excited about the prospects with Jenny and Gemma. We have begun signing licenses with various different licensees. And the same is true with Caesar for dog food. And a majority of pet supplements are made here domestically. So timing was good with those. And to some extent, it mitigates tariff risk with dogs. a lot of the concentrations that we have in apparel and goods that are made in other countries. That said, most of our licensees have been shifting out of China to other places that are a little more tower-friendly. QVC is still working on that transition in some of their categories, but we're excited for Gemma, And for Jenny and Cesar, they're all launching on QVC coming up in Q1. So timing was good for us.

Great. Thanks for taking my questions, Bob. Best of luck in the fourth quarter. Thank you.

Your next question comes from the line of Michael Kupinski with Noble Capital Markets. Please go ahead.

Thank you for taking the questions. I'm sorry for the background noise. Just a couple quick questions. In terms of the disruption with the and Christy in the fourth quarter was just wondering, have those issues been resolved? Are they still lingering? I was just wondering if it's a temporary situation or is it something that still needs to be resolved?

No, it has been resolved, Mike. It was really related to the vendor that was supplying QVC. They just couldn't get the costing to work. with the tariffs, and we since then replaced that vendor, and they're sourcing from different countries where the economics work for QVC. So that was part of it. And the other part of it was there was disruption when HSN, which Christie and C1 are HSN, brands moved from Tampa to Westchester, PA. It just caused delays and shows, but all of that has been resolved. It was actually remarkably good in terms of how QVC did the transition, but there was some programming challenges.

Great. And then in terms of G3, you mentioned that they're tweaking some merchandising. Is that tweak going to be able to be done for the spring line or is that going to be more of a fall line?

I think there will be some adjustments for spring because they've been making them all along. But I think it's really more fall adjustments. for them, and Olin and Joe Falco have been working very closely with the G3 team.

Gotcha. And then, obviously, you have a lot of new brands that are coming out. I was just wondering if you have any updates on the product roadmap, like maybe when the rollout for these brands, you know, any updates on when they are going to start hitting the market?

All of them will start hitting the market at start beginning Q1 of 26. So it'll start with all the food products, some small electronics devices that our vendor was able to source competitively despite the tariff situation. And then they'll continue to roll out into different categories. Caesar, we had... A big pet accessories program that we signed last year, and there were delays. We thought that could get out for this holiday season, but because of tariffs, they had to move to different factories, and we shifted. But that all should really be in the market by fall next year.

Bob, I don't want you to say anything you obviously can't say, but you did allude to an acquisition that you're contemplating. It might be kind of good to remind investors what types of acquisitions you've been kind of contemplating in the past and what those acquisitions might bring to the table that you might be most excited about.

So over the last three years or so, we've been looking for acquisitions brand acquisitions and transformative transactions. And we continue to look at opportunities, I would say, in the general course of our business. We're looking at opportunities. There are a few that we are very interested in. And and we're working very hard to try to make them happen.

Thank you very much. Good luck to you guys. Thank you.

Your next question comes from the line of Walter Schenker with MAZ Partners.

Please go ahead.

Hi, Bob. Hi, Bob.

It is admirable to cut costs. However, you can cut costs to profitability if you don't have revenues. the questions that were asked sort of address some of the issue, which is you need to get your revenues meaningfully higher than they are now to break even, even on a cash flow basis. Can you sort of lay out how you look at the next 12 months and the revenue ramp without specific, you can be as specific as you feel comfortable, but without, you know, to sort of give us some sense of what we should be looking to as a roadmap to get the revenues to a few million dollars a quarter?

Yes. So the roadmap is we're launching five new influencer-led brands that we think will drive the revenue going into 26. And also... we now believe that some of the difficulties we experienced with both Christie Brinkley and our C Wonder brand because of tariffs and the move are behind us and we think we have great upside. We also plan this going into 26 to expand new categories, particularly with the Christie brand, into home and garden and beverage. And with Sea Wonder, we believe that 26 will be the year that we can also diversify into new sales channels. So that's the roadmap, and that's what Olin and I are working on. on a day-to-day basis to maximize the opportunity with all of the brands in the portfolio. And then, of course, we do have a pipeline of additional brands that we are working on with influencers to bring to the market, hopefully, as soon as fall of next year. So that's the roadmap.

And therefore, and again, you addressed some of this already, As we get into next year, each quarter should sequentially show higher revenues. I realize there's some seasonality. But each quarter should, given the ramp and the five new influences, additional people and straightening out some of the issues you've had with your existing lines, would pretty much sequentially show growth?

Correct, correct, because they're all coming online. And hopefully, you know, we can – we can work with the team that is running the Halston brand, and we can help them to really accelerate growth in that brand as well.

Okay. Thanks a lot, Bob.

Thank you.

Once again, if you would like to ask a question, that is to press star 1 on your telephone keypad. Thank you. Your next question comes from the line of Howard Bro with Wellington Shields. Please go ahead.

Just to follow up Walter's question, can you give us a sense of how we can look at 2026 in terms of potential revenue?

So, Howard, we haven't given guidance, but there are two analyst reports out there, one that I think is a conservative view, and the other that is consistent, I believe, with our internal goals for what we think we can do with the brands. And I would look to those two reports to get a sense of where we think that can be. For us, the important... metric for us is top-line royalty revenue. Royalties in the marketplace, Howard, they've been trading at higher values recently, particularly in the PE world. They're trading today for between seven and eight times royalty, top-line royalty, 15 times EBITDA. And with royalties trading at that level, There's a massive disconnect, even with where we are today with the market cap of the company, because if you take the worst case base at $6 million times seven or eight times, that would imply we have $45 to $50 million of asset value in the IP. And I've been saying this for years, there's always this disconnect. And certainly we proved that with the sale of our Isaac Mizrahi brand in 2019. So if you look at where the analysts have us, if we are successful in achieving our goal in getting all these categories for the new brands launched, it would imply $100 million of value on the royalty flows. And that's an important metric for us to look at.

That's all I have. Thank you.

Another question from Walter Schenker with MAZ Partners. Please go ahead.

Probably to end on a high note. Bob, you have previously, in talking to investors, indicated over a multi-year time frame that the opportunities that you have lined up now could potentially get $50 million of royalty income, again, my numbers, half of that to you so that you could have $25 million. We look at your share count. you know, and earn a lot of money. That is still a potential target out a few years?

Yes. Yes. These brands are very powerful, particularly Cesar Millan. Cesar is the biggest voice in the pet world. There is a lot of interest in And him with 20 million followers and syndicated TV shows in 80 countries, there's a global opportunity with him. So we're very excited about that. And Jenny Martinez, she could be the Latin Martha Stewart. And Gemma, when you think about the magnitude of five... 100 million people having downloaded her recipes, the potential with them is enormous.

Okay.

Just, again, want to reaffirm that, you know, a few years out, you're still looking for, especially relative to where we're now, very big numbers, at least on a per share basis.

That's the goal. Good. Well, hopefully we'll all achieve it. Thank you, Bob.

Thank you. At this time, there are no further questions.

I would now like to turn the call back over to Mr. DeLauren for closing remarks.

Okay. Guys, before I give you my closing remarks, I do want to extend a special thanks to Seth Burrows for joining us on this call at midnight his time. And with that, ladies and gentlemen, Thank you all for your time this evening. We greatly appreciate your continued interest and support in XL Grounds. As always, please stay fit, eat well, and be healthy.

Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect your lines, and we would like to thank you for participating.