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8-K
ICONIX BRAND GROUP, INC. filed this Form 8-K on 11/09/2018
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Exhibit 99.1

 

Iconix Reports Financial Results For The Third Quarter 2018

 

 

NEW YORK, Nov. 9, 2018 /PRNewswire/ --

  • Sears' bankruptcy adversely affecting Company's financial performance
  • International business continues to outperform expectations
  • Projecting stable cash position and debt covenant compliance

Iconix Brand Group, Inc. (Nasdaq: ICON) ("Iconix" or the "Company") today reported financial results for the third quarter ended September 30, 2018.

 

Bob Galvin, CEO commented, "Our results for the quarter were negatively impacted by the Sears bankruptcy filing which resulted in P&L charges, however, we continue to forecast debt covenant compliance. While the domestic business did not see the progress we had hoped for, our international business continued its profitable growth. We are critically evaluating our operational cost structure to ensure it is aligned with our current level of business and near term plans."

 

Unless otherwise noted, the following represents financial results for continuing operations only.

 

Third Quarter 2018 Financial Results

 

GAAP Revenue by Segment  Three months ended September 30,   Nine months ended September 30, 
($, 000's)  2018   2017   % Change   2018   2017   % Change 
                         
Womens   15,201    21,043    -28%   48,670    76,820    -37%
Mens   7,282    11,393    -36%   27,752    31,568    -12%
Home   7,060    7,515    -6%   20,533    22,676    -9%
International   16,681    13,214    26%   48,029    42,471    13%
Total Revenue   46,224    53,165    -13%   144,984    173,535    -16%

 

For the third quarter of 2018, total revenue was $46.2 million, a 13% decline as compared to $53.2 million in the prior year quarter. For the nine months ended September 30, 2018, total revenue was $145.0 million, a 16% decline as compared to $173.5 million in the nine months ended September 30, 2017.  Such decline was expected, principally as a result of the transition of our Danskin, OP and Mossimo DTR's in our Womens segment, as previously announced.

 

Our Mens segment declined in the third quarter of 2018 primarily from the Starter and Buffalo brands.  Our International segment provided organic growth primarily from the Umbro and Lee Cooper brands, specifically in the Europe, India and China territories.  The Home segment declined 6% and 9% for the third quarter of 2018 and nine months ended September 30, 2018, respectively. As previously discussed, revenue in the Home segment year-over-year is partially down due to the terms of a renewal of the Waverly Inspirations contract with Walmart.

 

In the first quarter of 2018, the Company adopted a new revenue recognition accounting standard (ASU No. 2014-09 Revenue from Contracts with Customers – Topic 606). Adoption of the standard increased Q3 2018 revenue by approximately $2.4 million and increased revenue for the nine months ended September 30, 2018 by approximately $0.6 million, and is expected to increase full-year 2018 revenue by approximately $2.5 to $3.0 million.

 

 

 

 

SG&A Expenses:

 

Total SG&A expenses in the third quarter of 2018 were $30.2 million, a 40% increase compared to $21.5 million in the third quarter of 2017. Included in these expenses was an $8.2 million bad debt expense as a result of the Sears bankruptcy filing.  Excluding this bad debt expense, SG&A expenses were up 2% in the third quarter of 2018 as compared to the third quarter of 2017.  In the third quarter of 2018, advertising expense increased 56% as compared to the third quarter of 2017 as result of increases in marketing spend for the Buffalo, Starter and Umbro brands.  Stock based compensation was a benefit of $1.6 million in the third quarter of 2018 as compared to a benefit of $0.9 million in the third quarter of 2017.

 

Trademark and Goodwill Impairment:

 

In the third quarter of 2018, the Company recorded a non-cash trademark impairment charge of $4.4 million in the Womens segment related to a write-down in the Joe Boxer trademark as compared to $521.7 million in the third quarter of 2017, comprised of $227.6 million in the Womens segment, $135.9 million in the Mens segment, $69.5 million in the Home segment and $88.7 million in the International segment, to reduce various trademarks in those segments to fair value.  The Company also recorded a non-cash goodwill impairment charge of $103.9 million in the third quarter of 2017 due to impairment of goodwill in the Womens segment, Mens segment and Home segment of $73.9 million, $1.5 million and $28.4 million, respectively, of which there was no comparable amount in the third quarter of 2018.

 

Operating Income:

  

Adjusted Operating Income by Segment (1)  Three months ended September 30,   Nine months ended September 30, 
($, 000's)  2018   2017   % Change   2018   2017   % Change 
                         
Womens   7,620    19,013    -60%   37,701    71,243    -47%
Mens   1,855    8,629    -79%   14,043    20,000    -30%
Home   3,555    6,675    -47%   15,887    20,161    -21%
International   9,188    6,183    49%   23,757    21,667    10%
Corporate   (3,927)   (6,551)   40%   (22,892)   (25,460)   10%
Adjusted Operating Income   18,291    33,949    -46%   68,496    107,611    -36%
                               
Adjusted Operating Margin by Segment   Three months ended September 30,    Nine months ended September 30, 
    2018    2017    Var    2018    2017    % Change 
                               
Womens   50%   90%   -40%   77%   93%   -15%
Mens   25%   76%   -50%   51%   63%   -13%
Home   50%   89%   -38%   77%   89%   -12%
International   55%   47%   8%   49%   51%   -2%
Adjusted Operating Margin   40%   64%   -24%   47%   62%   -15%

 

Operating income for the third quarter of 2018 was $12.1 million, as compared to operating loss of $595.9 million in the third quarter of 2017.  Operating income in the third quarter of 2018 included trademark impairments of $4.4 million and special charges of $1.8 million.  Operating loss in the third quarter of 2017 included trademark and goodwill impairments of $625.5 million, special charges of $2.4 million, a loss on termination of licenses of $2.8 million and gain on sale of trademarks of $0.9 million.  When excluding these items, adjusted operating income was $18.3 million and $33.9 million in the third quarter of 2018 and the third quarter of 2017, respectively, and adjusted operating margin was 40% and 64% in the third quarter of 2018 and the third quarter of 2017, respectively.  Operating loss in the third quarter of 2018 includes a $8.2 million bad debt expense as a result of the Sears bankruptcy filing.

 

Operating loss for the nine months ended September 30, 2018 was $66.9 million, as compared to operating loss of $546.4 million in the nine months ended September 30, 2017.  Operating loss in the nine months ended September 30, 2018 included goodwill and trademark impairments of $115.5 million, special charges of $7.2 million, costs associated with recent debt financings of $8.3 million, a loss on termination of licenses of $5.7 million and gain on sale of trademarks of $1.3 million.  Operating loss in the nine months ended September 30, 2017 included goodwill and trademark impairments of $625.5 million, special charges of $7.1 million, loss on termination of licenses of $26.0 million, a gain on sale of trademarks of $0.9 million, and a gain on deconsolidation of joint venture of $3.8 million.  When excluding these items, adjusted operating income was $68.5 million and $107.6 million in the nine months ended September 30, 2018 and the nine months ended September 30, 2017, respectively, and adjusted operating margin was 47% and 62%, respectively. 

 

 

 

 

Interest Expense, Other Income and Loss on extinguishment of debt:

 

Interest expense in the third quarter of 2018 was $14.9 million, as compared to interest expense of $16.9 million in the third quarter of 2017.

 

In the third quarter of 2018, the Company recognized a $17.2 million gain resulting from the Company's accounting for the 5.75% Convertible Notes which requires recording the fair value of this debt at the end of each period with any change from the prior period accounted for as other income or loss in the current period's income statement.  Additionally, in the third quarter of 2018, the Company acquired an additional 5% interest of its Iconix Australia joint venture and as a result, recognized a $8.4 million pre-tax non-cash gain on the remeasurement of the Company's initial investment.  In the third quarter of 2017, the Company recognized a $2.7 million gain related to a payment received from the sale of its minority interest in Complex Media in 2016 and recognized a $1.5 million expense related to the repurchase of a portion of the Company's 1.50% convertible notes, of which there was no comparable amount for the third quarter of 2018.  The Company has excluded these amounts from its non-GAAP results. 

 

Provision for Income Taxes:

 

The effective income tax rate for the third quarter of 2018 is approximately 4.5% which resulted in a $1.0 million income tax provision, as compared to an effective income tax rate of 4.9% in the prior year quarter which resulted in a $29.6 million income tax benefit.  Excluding any mark-to-market adjustments from the Company's 5.75% Convertible Notes, we expect the full year 2018 tax rate to be approximately (4)% and approximately 50% on a GAAP basis and non-GAAP basis, respectively.

 

GAAP Net Income and GAAP Diluted EPS:

 

GAAP net loss from continuing operations attributable to Iconix for the third quarter of 2018 reflects income of $20.2 million as compared to a loss of $550.6 million for the third quarter of 2017. GAAP diluted EPS from continuing operations for the third quarter of 2018 reflects a loss of $0.01 as compared to a loss of $9.64 for the third quarter of 2017.

 

GAAP net loss from continuing operations attributable to Iconix for the nine months ended September 30, 2018 reflects a loss of $31.4 million as compared to a loss of $559.7 million for the nine months ended September 30, 2017.  GAAP diluted EPS from continuing operations for the nine months ended September 30, 2018 reflects a loss of $0.81 as compared to a loss of $9.83 for the nine months ended September 30, 2017.

 

Non-GAAP Net Income and Non-GAAP Diluted EPS:

 

Non-GAAP net income from continuing operations for the third quarter of 2018 was $1.2 million as compared to $13.9 million for the third quarter of 2017. Non-GAAP diluted EPS from continuing operations for the third quarter of 2018 was $0.02 as compared to $0.24 for the third quarter of 2017.

 

Non-GAAP net income from continuing operations for the nine months ended September 30, 2018 was $15.0 million as compared to $41.7 million for the nine months ended September 30, 2017.  Non-GAAP diluted EPS from continuing operations for the nine months ended September 30, 2018 was $0.23 as compared to $0.73 for the nine months ended September 30, 2017.

 

 

 

 

2018 Guidance:

 

Primarily as a result of the Sears Holdings Corporation bankruptcy filing on October 15, 2018, the Company is lowering full year guidance as follows:

  • Full year revenue guidance lowered to $185 million - $195 million, down from $190 million to $220 million.
  • GAAP net income guidance lowered to a loss of approximately $105 million - $115 million, from $94.4 million to $104.4 million.
  • Full year non-GAAP net income guidance lowered to $5 million - $15 million, down from $20 million to $30 million
  • Full year free cash flow guidance lowered to $40 million - $50 million, down from $50 million to $70 million 

It should be noted that GAAP net income will be affected by non-cash adjustments to fair value from the Company's 5.75% Convertible Notes as discussed below. Such periodic adjustments to fair value cannot be estimated in advance and thus are not taken into account in guidance.

 

Non-GAAP net income and free cash flow are non-GAAP metrics, and reconciliation tables for each are included in this press release.

 

 

Non-GAAP Net Income (Loss) & Diluted EPS Reconciliation: (2)                 
($, 000's, except per share data)                        
   NET INCOME   EPS 
   Three Months Ended September 30,   Three Months Ended September 30, 
   2018   2017   % Change   2018   2017   % Change 
                         
GAAP net income (loss) & EPS from continuing operations attributable to Iconix (2)   20,224    (550,571)   -104%  $(0.01)  $(9.64)   -100%
                               
Add:                              
non-cash interest related to ASC 470   -    3,997        $-   $0.07      
gain on sale of investment   -    (2,728)       $-   $(0.05)     
(gain) / loss on extinguishment of debt   -    1,539        $-   $0.03      
loss on termination of licenses   -    2,750        $-   $0.05      
trademark and goodwill impairment   4,386    625,530        $0.03   $10.94      
mark to market gain on convertible debt   (17,250)   -        $(0.10)  $-      
special charges   1,799    2,402        $0.01   $0.04      
non-cash gain related to investment in joint venture   (8,411)   -        $(0.05)  $-      
foreign currency translation gain/(loss)   301    (1,091)       $-   $(0.02)     
Income taxes related to above   (246)   (205,882)       $-   $(3.60)     
Valuation Allowance & Foreign Tax Credit   363    170,981        $-   $2.99      
non-controlling interest   18    (33,054)       $-   $(0.58)     
Effect of potential dilution of 5.75% Convertible Notes   -    -        $0.10   $-      
Accretion of redeemable non-controlling interest   -    -        $0.03   $0.01      
    Net Adjustments   (19,040)   564,444        $0.02   $9.88      
                               
Non-GAAP net income & EPS from continuing operations attributable to Iconix   1,184    13,873    -91%  $0.02   $0.24    -93%

 

 

 

 

  

   NET INCOME   EPS 
   Nine Months Ended September 30,   Nine Months Ended September 30, 
   2018   2017   % Change   2018   2017   % Change 
                         
GAAP net income (loss) & EPS from continuing operations attributable to Iconix (2)   (31,446)   (559,707)   -94%  $(0.81)  $(9.83)   -94%
                               
Add:                              
non-cash interest related to ASC 470   2,998    12,325        $0.05   $0.22      
(gain) / loss on extinguishment of debt   (4,473)   20,939        $(0.07)  $0.37      
loss on termination of licenses   5,650    25,980        $0.09   $0.46      
trademark and goodwill impairment   115,534    625,530        $1.79   $10.96      
gain on sale of Complex Media   (958)   (2,728)       $(0.01)  $(0.05)     
mark to market gain on convertible debt   (74,802)   -        $(1.16)  $-      
special charges   7,181    7,117        $0.11   $0.12      
costs associated with recent debt financings   8,344    -        $0.13   $-      
non-cash gain related to investment in joint venture   (8,411)   -        $(0.13)  $-      
gain on deconsolidation of JV   -    (3,772)       $-   $(0.07)     
foreign currency translation gain/(loss)   453    2,755        $0.01   $0.05      
Income taxes related to above   (6,158)   (224,715)       $(0.10)  $(3.94)     
Valuation Allowance & Foreign Tax Credit   1,089    170,981        $0.02   $3.00      
non-controlling interest   8    (32,992)       $-   $(0.58)     
Effect of potential dilution of 5.75% Convertible Notes   -    -        $0.59   $-      
Accretion of redeemable non-controlling interest   -    -        $0.07   $0.03      
    Net Adjustments   46,455    601,420        $1.04   $10.57      
                               
Non-GAAP net income & EPS from continuing operations attributable to Iconix   15,009    41,713    -64%  $0.23   $0.73    -68%

 

 

 

Non-GAAP weighted average diluted shares reconciliation (2)                    
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2018   2017   % Change   2018   2017   % Change 
                         
GAAP weighted average diluted shares   175,910    57,189    204%   123,096    57,081    13%
Less: effect of potential dilution of 5.75% Convertible Notes   (104,066)   -     NA     (58,519)   -     NA  
Add: antidilutive shares resulting from net loss   -    214     NA     180    433     NA  
Non-GAAP weighted average diluted shares   71,844    57,403    25%   64,757    57,514    13%

 

 

 

 

Balance Sheet and Liquidity:

  

($, 000's)  September 30, 2018   December 31, 2017 
Cash Summary:          
Unrestricted Domestic Cash (wholly owned)   52,021    38,236 
Unrestricted Domestic Cash (in consolidated JV's)   5,945    14,943 
Unrestricted International Cash*   8,492    12,748 
Restricted Cash   21,174    48,766 
           
Total Cash  $87,632   $114,693 
           
Debt Summary:          
Senior Secured Notes due January 2020**   376,154    408,174 
1.50% Convertible Notes   -    236,183 
5.75% Convertible Notes due August 2023   111,015    - 
Variable Funding Note due January 2020   100,000    100,000 
2017 Senior Secured Term Loan due August 2022   190,385    82,837 
           
Total Debt (Face Value)  $777,554   $827,194 

 

*- During the second quarter of 2018, the Company elected to treat its Luxembourg top tier subsidiary ("Luxco") as a disregarded entity for US tax purposes. As of the election date, all the foreign operations under LuxCo will be treated as a branch for US tax purposes and subject to US taxation. As such, the Company will no longer have any earnings in foreign subsidiaries that are not currently subject to taxation for US purposes. Before the election, the Company was indefinitely reinvested in all earnings in its foreign subsidiaries.

 

**- The Company's Senior Secured Notes include a test that measures the amount of principal and interest required to be paid on the debt to the approximate cash flow available to pay such principal and interest; the test is referred to as the debt service coverage ratio ("DSCR"). As a result of a decline in royalty collections during the twelve months ended June 30, 2018, the DSCR fell below 1.45x as of June 30, 2018. Beginning July 1, 2018, we are required to allocate 25% of residual royalty collections (i.e. collections less debt service, management, servicing, administrative and other fees) to a restricted reserve account administered by the securitization program's trustee, which will result in cash remaining inside the securitization program. Beginning October 1, 2018, the Co-Issuers are required to allocate 50% of residual royalty collections (i.e. collections less debt service, management, servicing, administrative and other fees) to a restricted reserve account administered by the securitization program's trustee, which will result in cash remaining inside the securitization program and not being distributed to the Company. The cash required to be maintained inside the securitization program may be released to the Company if the DSCR is at least 1.45x for two consecutive quarters.

 

The Company currently projects compliance with all debt covenants.

 

 

 

 

Free Cash Flow:

 

The Company generated $6.6 million of free cash flow in the third quarter of 2018, a 361% increase as compared to $1.4 million in the third quarter of 2017.

 

The Company generated $38.0 million of free cash flow in the nine months ended September 30, 2018, a 18% decrease as compared to $46.3 million in the nine months ended September 30, 2017.

  

Free Cash Flow Reconciliation: (3)                        
($, 000's)                        
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2018   2017   % Change   2018   2017   % Change 
Net cash provided by operating activities  $10,349   $(16,918)   -161%  $49,697   $3,097    1505%
  Plus: Cash from sale of trademarks and related notes   receivable   -    -         195    6,927      
  Plus: Cash from notes receivable from licensees   -    -         1,409    1,250      
  Plus: Net cash from sale of Badgley Mischka &   Sharper Image in JVs   -    875         1,211    875      
  Plus: Cash from sale of Nick Graham   -    2,561         -    2,561      
  Plus: Cash related to Disc Ops sale   -    15,000         -    36,272      
  Less: Capital Expenditures   (205)   (74)        (776)   (829)     
  Less: Distributions to non-controlling interests   (3,525)   (7)        (13,693)   (3,850)     
                               
Free Cash Flow from operations  $6,619   $1,437    361%  $38,043   $46,303    -18%

 

Conference Call

 

The Company will host a conference call today at 10:00 AM ET. The call can be accessed on the Company's website at https://protect-us.mimecast.com/s/AlUlCG6wQRi14oQwF7w1b7 or by telephone at 844-286-1555 or 270-823-1180 (conference ID: 4589066). A written transcript will be posted online as soon as available.

 

About Iconix Brand Group, Inc.

 

Iconix Brand Group, Inc. owns, licenses and markets a portfolio of consumer brands including: CANDIE'S ®, BONGO ®, JOE BOXER ®, RAMPAGE ®, MUDD ®, MOSSIMO ®, LONDON FOG ®, OCEAN PACIFIC ®, DANSKIN ®, ROCAWEAR ®, CANNON ®, ROYAL VELVET ®, FIELDCREST ®, CHARISMA ®, STARTER ®, WAVERLY ®, ZOO YORK ®, UMBRO ®, LEE COOPER ®, ECKO UNLTD. ®, MARC ECKO ®, ARTFUL DODGER ®, and HYDRAULIC®. In addition, Iconix owns interests in the MATERIAL GIRL ®, ED HARDY ®, TRUTH OR DARE ®, MODERN AMUSEMENT ®, BUFFALO ® and PONY ® brands. The Company licenses its brands to a network of retailers and manufacturers. Through its in-house business development, merchandising, advertising and public relations departments, Iconix manages its brands to drive greater consumer awareness and brand loyalty.

 

Forward-Looking Statements

 

In addition to historical information, this press release contains forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements include projections regarding the Company's beliefs and expectations about future performance and, in some cases, may be identified by words like "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek" and similar terms or phrases. These statements are based on the Company's beliefs and assumptions, which in turn are based on information available as of the date of this press release. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement and could harm the Company's business, prospects, results of operations, liquidity and financial condition and cause its stock price to decline significantly. Many of these factors are beyond the Company's ability to control or predict. Important factors that could cause the Company's actual results to differ materially from those indicated in the forward-looking statements include, among others: the ability of the Company's licensees to maintain their license agreements or to produce and market products bearing the Company's brand names, the Company's ability to retain and negotiate favorable licenses, the Company's ability to meet its outstanding debt obligations and the events and risks referenced in the sections titled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and subsequent Quarterly Reports on Form 10-Q and in other documents filed or furnished with the Securities and Exchange Commission. Our forward-looking statements do not reflect the potential impact of any acquisitions, mergers, dispositions, business development transactions, joint ventures or investments we may enter into or make in the future. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements are made only as of the date hereof and the Company undertakes no obligation to update or revise publicly any forward-looking statements, except as required by law.

 

Media contact:
Jeffrey N. Wood  
Senior Vice President and Interim Chief Financial Officer  
Iconix Brand Group, Inc.  
jwood@iconixbrand.com   
212-730-0030

 

 

 

 

 

Unaudited Condensed Consolidated Income Statements                
($, 000's, except earnings per share data)                        
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2018   2017   %
Change
   2018   2017   %
Change
 
                         
Licensing revenue   46,224    53,165    -13%   144,984    173,535    -16%
                               
Selling, general and administrative expenses   30,197    21,509    40%   92,437    73,702    25%
Loss on termination of licenses   -    2,750         5,650    25,980      
Depreciation and amortization   502    592         1,788    1,814      
Equity loss (earnings) on joint ventures   (967)   (483)        (2,212)   (2,475)     
Gain on deconsolidation of joint venture   -    -         -    (3,772)     
Gain on sale of trademarks   -    (875)        (1,268)   (875)     
Goodwill impairment   -    103,877         37,812    103,877      
Trademark impairment   4,386    521,653         77,721    521,653      
                               
Operating income (loss)   12,106    (595,858)   -102%   (66,944)   (546,369)   -88%
                               
Other (income) expenses                              
         Interest expense   14,944    16,911         44,320    45,787      
         Interest income   (89)   (150)        (304)   (417)     
         Other income, net   (25,787)   (2,648)        (84,001)   (2,649)     
        (Gain) loss on extinguishment of debt   -    1,539         (4,473)   20,939      
         Foreign currency translation loss (gain)   301    (1,091)        453    2,755      
Other expenses - net   (10,631)   14,561    -173%   (44,005)   66,415    -166%
                               
Income (loss) before income taxes   22,737    (610,419)   -104%   (22,939)   (612,784)   -96%
                               
Provision (benefit) for income taxes   1,026    (29,606)   -103%   (128)   (29,220)   -100%
                               
Net income (loss)   21,711    (580,813)   -104%   (22,811)   (583,564)   -96%
                               
Less: Net income (loss) attributable to
non-controlling interest
   1,487    (30,242)   -105%   8,635    (23,857)   -136%
                               
Net income (loss) attributable to Iconix
Brand Group, Inc.
   20,224    (550,571)   -104%   (31,446)   (559,707)   -94%
                               
Income (loss) from discontinued operations,
before income taxes
   -    (2,308)   100%   -    (26,232)   100%
Gain on sale of Entertainment segment   -    (228)        -    104,099      
Provision for income taxes   -    (406)        -    28,555      
Net income from discontinued operations   -    (2,130)        -    49,312      
Less: Net income attributable to non-controlling
interest from discontinued operations
   -    -    NA    -    2,943    NA 
Net income (loss) from discontinued operations
attributable to Iconix Brand Group, Inc.
   -    (2,130)   100%   -    46,369    100%
                               
Net income (loss) attributable to Iconix Brand Group, Inc.   20,224    (552,701)   104%   (31,446)   (513,338)   94%
                               
Earnings (loss) per share - basic:                              
Continuing operations   0.20    (9.64)   -102%   (0.62)   (9.83)   -94%
Discontinued operations   -    (0.04)   100%   -    0.81    100%
Earnings (loss) per share - basic   0.20    (9.67)   102%   (0.62)   (9.02)   93%
                               
Earnings (loss) per share - diluted:                              
Continuing operations   (0.01)   (9.64)   -100%   (0.81)   (9.83)   -94%
Discontinued operations   -    (0.04)   100%   -    0.81    100%
Earnings (loss) per share - diluted   (0.01)   (9.67)   100%   (0.81)   (9.02)   93%
                               
Weighted average number of common shares outstanding:                              
Basic   71,844    57,189    26%   64,577    57,081    13%
                               
Diluted   175,910    57,189    204%   123,096    57,081    13%

 

 

 

 

Forecasted Reconciliation of Net Income: (2)        
($, 000's)  Year Ending 
   Dec. 31, 2018 
   Low   High 
         
Forecasted GAAP Net Income, excluding mark to market adjustment   (114,987)   (104,987)
           
Adjustment for non-cash interest related to ASC 470   3,000    3,000 
Trademark and goodwill impairment   115,534    115,534 
Gain on extinguishment of debt   (4,473)   (4,473)
Special charges   8,000    8,000 
Loss on termination of licenses   5,650    5,650 
Costs associated with recent debt financings   8,344    8,344 
Non-cash gain related to investment in joint venture   (8,411)   (8,411)
Gain on sale of Investment   (958)   (958)
Foreign currency translation   301    301 
Tax on non-GAAP items & valuation allowance/ foreign tax credit   (7,000)   (7,000)
Net Adjustments   119,987    119,987 
Forecasted Non-GAAP Net Income   5,000    15,000 

 

 

Forecasted Reconciliation of Free Cash Flow: (3)        
($, 000's)  Year Ending 
   Dec. 31, 2018 
   Low   High 
Net cash provided by operating activities  $52,380   $58,880 
  Plus: Cash from sale of trademarks and notes receivable   2,000    5,500 
  Plus: Cash from notes receivable from licensees   1,409    1,409 
  Plus: Net Cash related to Badgley and Sharper   1,211    1,211 
  Less: Capital Expenditures   (1,000)   (1,000)
  Less: Distributions to non-controlling interests   (16,000)   (16,000)
           
Free Cash Flow Guidance  $40,000   $50,000 

 

Footnotes

 

(1) Adjusted operating income is a non-GAAP financial measure which represents operating income excluding non-cash impairment charges, non-recurring gains and charges, and charges related to professional fees incurred as a result of the correspondence with the Staff of the SEC, the SEC investigation, internal investigations, the previously disclosed class action and derivative litigations, and costs related to the transition of Iconix management. The Company believes these are useful financial measures in evaluating its financial condition because they are more reflective of the Company's business purpose, operations and cash expenses.

 

 

 

 

Adjusted Operating Income Reconciliation for the Three Months Ended Sep 30:                            
  Gaap    Trademark and
Goodwill Impairment
  Special Charges   Debt Costs    Loss on Termination of
Licensees
  Gain on sale of
trademarks and JV
deconsolidation
  Adjusted Operating
Income
  2018 2017   2018 2017   2018 2017   2018 2017   2018 2017   2018 2017   2018 2017
Womens 3,234 (281,889)   4,386 301,502   - -   - -   - (600)   - -   7,620 19,013
Mens  1,855 (132,183)   - 137,462   - -   - -   - 3,350   - -   1,855 8,629
Home  3,555 (91,203)   - 97,878   - -   - -   - -   - -   3,555 6,675
International  9,188 (82,505)   - 88,688   - -   - -   - -   - -   9,188 6,183
Corporate  (5,726) (8,078)   - -   1,799 2,402   - -   - -   - (875)   (3,927) (6,551)
Total Income 12,106 (595,858)   4,386 625,530   1,799 2,402   - -   - 2,750   - (875)   18,291 33,949
                                         
                                         
Adjusted Operating Income Reconciliation for the Nine Months Ended Sep 30:                            
  Gaap    Trademark and
Goodwill Impairment
  Special Charges   Debt Costs    Loss on Termination of
Licensees
  Gain on sale of
trademarks and JV
deconsolidation
  Adjusted Operating
Income
  2018 2017   2018 2017   2018 2017   2018 2017   2018 2017   2018 2017   2018 2017
Womens (77,832) (232,259)   115,533 301,502   - -   - -   - 2,000   - -   37,701 71,243
Mens  8,393 (141,442)   - 137,462   - -   - -   5,650 23,980   - -   14,043 20,000
Home  15,887 (77,717)   - 97,878   - -   - -   - -   - -   15,887 20,161
International  23,757 (67,021)   - 88,688   - -   - -   - -   - -   23,757 21,667
Corporate  (37,149) (27,930)   - -   7,181 7,117   8,344 -   - -   (1,268) (4,647)   (22,892) (25,460)
Total Income (66,944) (546,369)   115,533 625,530   7,181 7,117   8,344 -   5,650 25,980   (1,268) (4,647)   68,496 107,611

  

(2) Non-GAAP net income and non-GAAP diluted EPS (along with non-GAAP weighted average diluted shares) are non-GAAP financial measures which represent net income excluding any non-cash interest related to ASC Topic 470, non-cash, non-recurring gains and charges, foreign currency translation gains and losses, and charges related to professional fees incurred as a result of the correspondence with the Staff of the SEC, the SEC investigation, internal investigations, the previously disclosed class action and derivative litigations, and costs related to the transition of Iconix management, all net of tax. The Company believes these are useful financial measures in evaluating its financial condition because they are more reflective of the Company's business purpose, operations and cash expenses.

 

(3) Free Cash Flow, a non-GAAP financial measure, represents net cash provided by operating activities, plus cash received from the sale of trademarks and formation of joint ventures, less distributions to non-controlling interests and capital expenditures.  Free Cash Flow excludes notes receivable from sale of trademarks and the formation of joint ventures, cash used to acquire the membership interests of our joint venture partners, mandatory debt service requirements, and other non-discretionary expenditures. Free Cash Flow should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. The Company believes Free Cash Flow is useful because it provides information regarding actual cash received in a specific period from the Company's comprehensive business strategy of maximizing the value of its brands through traditional licensing, international joint ventures and other arrangements. We have excluded the cash used to buy back our joint venture membership interests from the above definition because we believe that, like other acquisitions, such actions are capital transactions. It also provides supplemental information to assist investors in evaluating the Company's financial condition and ability to pursue opportunities that enhance shareholder value.

 

 

 

 

 

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