UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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Item 2.02 | Results of Operations and Financial Conditions |
On August 10, 2023, the Registrant issued a press release announcing its financial results for the three and six months ended June 30, 2023. As noted in the press release, the Registrant has provided certain non-U.S. generally accepted accounting principles (“GAAP”) financial measures, the reasons it provided such measures and a reconciliation of the non-U.S. GAAP measures to U.S. GAAP measures. Readers should consider non-GAAP measures in addition to, and not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP. A copy of the Registrant’s press release is being furnished hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 7.01 | Results of Operations and Financial Conditions |
A copy of an investor presentation is furnished herewith as Exhibit 99.2.
The information furnished pursuant to Item 7.01, including Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.
The furnishing of the information under Item 7.01 in this Current Report on Form 8-K is not intended to, and does not, constitute a determination or admission by the Company (i) that the furnishing of the information in this Item 7.01 is required by Regulation FD, (ii) that the information under Item 7.01 in this Current Report on Form 8-K is material or complete, or (iii) that the investors should consider this information before making an investment decision with respect to any security of the Company.
This Form 8-K contains “forward-looking statements’ within the meaning of the safe harbor provisions of the federal securities laws. It should be read in conjunction with the “Safe Harbor” statement contained in the presentation material and the risk factors included in the Company’s periodic reports filed with the Securities and Exchange Commission that discuss important factors that could cause the Company’s results to differ materially from those anticipated in such forward-looking statements.
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits. |
99.1 | . | |
99.2 | ||
104 | Cover Page Interactive Data File (embedded within the inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
XCEL BRANDS, INC. | |||
(Registrant) | |||
By: | /s/ James F. Haran | ||
Name: | James F. Haran | ||
Title: | Chief Financial Officer | ||
Date: August 15, 2023
Exhibit 99.1
FOR IMMEDIATE RELEASE
XCEL BRANDS, INC. ANNOUNCES SECOND QUARTER 2023 RESULTS
| ● | Successful restructuring plan transforms Xcel Brands into a modern, asset light consumer products and livestream/social commerce platform, realizing $13 million in annualized cost savings. |
| ● | Executed Master licenses for Judith Ripka, Halston and C Wonder brands with Jewelry TV (JTV), G-III Apparel Group and One Jeanswear Group, respectively. |
| ● | Revenues of $6.8 million for the quarter, an increase of $0.7 million (+12.1%) and $2.7 million (+66.8%) as compared to the quarters ended March 31, 2023, and December 31, 2022, respectively. |
| ● | GAAP net loss of $3.5 million for the quarter, compared with GAAP net loss of $5.6 million and $6.0 million in the quarters ended March 31, 2023, and December 31, 2022, respectively. |
| ● | Adjusted EBITDA of ($0.9) million for the quarter, compared with Adjusted EBITDA of ($2.0) million and ($5.9) million in the quarters ended March 31, 2023, and December 31, 2022, respectively. |
NEW YORK, NY (August 10, 2023) – Xcel Brands, Inc. (NASDAQ: XELB) (“Xcel” or the “Company”), a media and consumer products company with significant expertise in livestream shopping and social commerce, today announced its financial results for the quarter ended June 30, 2023.
Robert W. D’Loren, Chairman and Chief Executive Officer of Xcel commented, “Our second quarter financial results reflect the initial success of our restructuring efforts. As a result of these near-term actions, we have transformed Xcel Brands into a modern, asset-light, and highly profitable social commerce media and consumer products company. During the second quarter, we announced exciting, new master licensing agreements with Jewelry TV for our Judith Ripka brand, G-III Apparel Group for our Halston brand, and One Jeanswear Group for our C Wonder brand. These licenses are a tremendous opportunity to grow our brands in the future, and will allow us to focus on developing, acquiring, and growing brands that have dedicated social audiences, as well as the upcoming roll-out of our groundbreaking social commerce marketplace.”
Mr. D’Loren continued, “We have created a powerful platform supported by compelling brands and partners that will elevate our brands and drive highly profitable licensing revenue for the Company. During the 2023 second quarter, we significantly improved our operating results. In addition, we believe we are well positioned to achieve positive monthly EBITDA in the fourth quarter, while we have also de-risked the business in a challenging retail environment and ended the second quarter with no debt, $3.5 million in cash. This provides us with significant flexibility to invest in our brands, support new growth initiatives, including the upcoming release of our social commerce marketplace, and drive meaningful value for our shareholders in 2023 and beyond.”
Second Quarter 2023 Financial Results
Total revenue for the second quarter of 2023 was $6.8 million, representing a decrease of approximately $1.7 million (-20%) from the second quarter of 2022, but an increase of approximately $0.7 million (+12.1%) from the first quarter of 2023. The year-over-year revenue decline in the second quarter of 2023 was driven by a $2.7 million decrease in licensing revenue, primarily attributable to the sale of a majority interest in the Isaac Mizrahi brand in May 2022, partially offset by an increase of approximately $1.1 million in net sales, largely due to the sale of the Company’s Judith Ripka fine jewelry inventory to JTV in connection with new contractual arrangements with JTV.
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
Page 2
Net loss attributable to Xcel Brands for the quarter was approximately $3.5 million, or ($0.18) per share, compared with net income of $9.5 million, or $0.48 per diluted share, for the prior year quarter, which included a $20.6 million gain on the sale of a majority interest in the Isaac Mizrahi brand.
After adjusting for certain cash and non-cash items, results on a non-GAAP basis were a net loss of approximately $1.7 million, or ($0.09) per share for the quarter ended June 30, 2023, and a net loss of approximately $3.6 million, or ($0.18) per share, for the prior year quarter. Adjusted EBITDA improved significantly on a year-over-year basis to negative $0.9 million for the current quarter as compared with negative $2.8 million for the prior year quarter. Adjusted EBITDA also improved by $1.1 million and $5.0 million as compared with the quarters ending March 31, 2023, and December 31, 2022, respectively, primarily as a result of the restructuring of our business and entry into the new long-term license agreements for our Judith Ripka, Halston, and C Wonder brands.
Six Month 2023 Financial Results
Total revenue for the current six-month period was $12.8 million, representing a decrease of approximately $4.4 million from the prior year period of 2022. The year-over-year revenue decline from the prior six-month period compared with the current six-month period was driven by a $6.5 million decrease in licensing revenue, primarily attributable to the sale of a majority interest in the Isaac Mizrahi brand in May 2022, partially offset by an increase of approximately $2.1 million in net sales.
Net loss attributable to Xcel Brands for the current six-month period was approximately $9.1 million, or ($0.46) per share, compared with net income of $6.0 million, or $0.31 per diluted share, for the prior year six months, which included a $20.6 million gain on the sale of a majority interest in the Isaac Mizrahi brand.
After adjusting for certain cash and non-cash items, results on a non-GAAP basis were a net loss of approximately $5.3 million, or $(0.27) per share for the six months ended June 30, 2023, compared with a net loss of approximately $5.5 million, or $(0.28) per share, for the six months ended June 30, 2022. Adjusted EBITDA was negative $2.9 million, as compared with approximately $3.7 million for the current year six months and prior year comparable period, respectively, and represents an increase of $5.9 million as compared with Adjusted EBITDA for the prior six-month period ending December 31, 2022.
Balance Sheet
The Company’s balance sheet at June 30, 2023, reflected stockholders’ equity of approximately $61 million, cash and cash equivalents of approximately $3.5 million, and working capital, exclusive of the current portion of lease obligations, of approximately $6.0 million. The Company did not have any short-term or long-term debt as of June 30, 2023.
Conference Call and Webcast
The Company will host a conference call with members of the executive management team to discuss these results with additional comments and details at 5:00 p.m. Eastern Time on August 10, 2023. A webcast of the conference call will be available live on the Investor Relations section of Xcel’s website at www.xcelbrands.com. Interested parties unable to access the conference call via the webcast may dial 800-715-9871 or 646-307-1963 and use the passcode 1869992 and pin 2453. A replay of the webcast will be available on Xcel’s website.
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
Page 3
About Xcel Brands
Xcel Brands, Inc. (NASDAQ: XELB) is a media and consumer products company engaged in the design, production, marketing, live streaming, social commerce and direct-to-consumer sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as one thing. Xcel owns the Judith Ripka, Halston, LOGO by Lori Goldstein, and C. Wonder brands and a minority stake in the Isaac Mizrahi brand. It also owns and manages the Longaberger brand through its controlling interest in Longaberger Licensing LLC. Xcel is pioneering a true modern consumer products sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, brick-and-mortar retail, and e-commerce channels to be everywhere its customers shop. The company’s brands have generated in excess of $4 billion in retail sales via livestreaming in interactive television and digital channels alone. Headquartered in New York City, Xcel Brands is led by an executive team with significant live streaming, production, merchandising, design, marketing, retailing, and licensing experience, and a proven track record of success in elevating branded consumer products companies. www.xcelbrands.com
Forward Looking Statements
This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,” “seeks,” “should,” “would,” “guidance,” “confident” or “will” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding our anticipated revenue, expenses, profitability, strategic plans and capital needs. These statements are based on information available to us on the date hereof and our current expectations, estimates and projections and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including, without limitation, the risks discussed in the “Risk Factors” section and elsewhere in the Company’s Annual Report on form 10-K for the year ended December 31, 2021 and its other filings with the SEC, which may cause our or our industry’s actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
For further information please contact:
Andrew Berger
SM Berger & Company, Inc.
216-464-6400
andrew@smberger.com
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
Page 4
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
| | For the Three Months Ended | | For the Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Revenues | | | | | | | | | | | | |
Net licensing revenue | | $ | 2,428 | | $ | 5,175 | | $ | 4,650 | | $ | 11,136 |
Net sales | | | 4,353 | | | 3,292 | | | 8,181 | | | 6,078 |
Net revenue | | | 6,781 | | | 8,467 | | | 12,831 | | | 17,214 |
Cost of goods sold | | | 3,800 | | | 2,570 | | | 6,493 | | | 4,250 |
Gross profit | | | 2,981 | | | 5,897 | | | 6,338 | | | 12,964 |
| | | | | | | | | | | | |
Operating costs and expenses | | | | | | | | | | | | |
Salaries, benefits and employment taxes | | | 2,241 | | | 5,236 | | | 5,706 | | | 10,089 |
Other selling, general and administrative expenses | | | 2,943 | | | 4,288 | | | 6,436 | | | 7,712 |
Total operating costs and expenses | | | 5,184 | | | 9,524 | | | 12,142 | | | 17,801 |
| | | | | | | | | | | | |
Operating loss before other expenses, including non-cash expenses | | | (2,203) | | | (3,627) | | | (5,804) | | | (4,837) |
| | | | | | | | | | | | |
Other expense, including non-cash expenses | | | | | | | | | | | | |
Depreciation and amortization | | | 1,786 | | | 1,812 | | | 3,583 | | | 3,632 |
Gain on sale of assets | | | - | | | (20,608) | | | | | | (20,608) |
Loss from equity method investment | | | 515 | | | - | | | 1,030 | | | - |
Gain on sale of limited partner ownership | | | (351) | | | - | | | (351) | | | - |
Loss on Lease Liability | | | (445) | | | - | | | (445) | | | - |
Other expense, including non-cash expenses | | | 1,505 | | | (18,796) | | | 3,817 | | | (16,976) |
| | | | | | | | | | | | |
Operating (loss) income | | | (3,708) | | | 15,169 | | | (9,621) | | | 12,139 |
| | | | | | | | | | | | |
Interest and finance expense | | | | | | | | | | | | |
Interest expense - term loan debt | | | - | | | 479 | | | - | | | 1,187 |
Other interest and finance charges (income), net | | | (7) | | | (1) | | | 18 | | | - |
Loss on early extinguishment of debt | | | - | | | 2,324 | | | - | | | 2,324 |
Total interest and finance expense | | | (7) | | | 2,802 | | | 18 | | | 3,511 |
| | | | | | | | | | | | |
(loss) income before income taxes | | | (3,701) | | | 12,367 | | | (9,639) | | | 8,628 |
| | | | | | | | | | | | |
Income tax benefit | | | - | | | 3,178 | | | - | | | 3,178 |
| | | | | | | | | | | | |
Net (loss) income | | | (3,701) | | | 9,189 | | | (9,639) | | | 5,450 |
Less: Net loss attributable to noncontrolling interest | | | (233) | | | (301) | | | (528) | | | (553) |
Net (loss) income attributable to Xcel Brands, Inc. stockholders | | $ | (3,468) | | $ | 9,490 | | $ | (9,111) | | $ | 6,003 |
| | | | | | | | | | | | |
(Loss) earnings per share attributed to Xcel Brands, Inc. common stockholders: | | | | | | | | | | | | |
Diluted net (loss) income per share | | $ | (0.18) | | $ | 0.48 | | $ | (0.46) | | $ | 0.31 |
Basic net (loss) income per share | | $ | (0.18) | | $ | 0.48 | | $ | (0.46) | | $ | 0.31 |
| | | | | | | | | | | | |
Basic weighted average common shares outstanding | | | 19,735,500 | | | 19,677,243 | | | 19,684,630 | | | 19,624,474 |
Diluted weighted average common shares outstanding | | | 19,735,500 | | | 19,814,448 | | | 19,684,630 | | | 19,756,775 |
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
Page 5
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
|
| June 30, 2023 |
| December 31, 2022 | ||
| | (Unaudited) | | | ||
Assets | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 3,507 | | $ | 4,608 |
Accounts receivable, net | | | 6,878 | | | 5,110 |
Inventory | | | 798 | | | 2,845 |
Prepaid expenses and other current assets | | | 554 | | | 1,457 |
Total current assets | | | 11,737 | | | 14,020 |
| | | | | | |
Non-Current Assets: | | | | | | |
Property and equipment, net | | | 916 | | | 1,418 |
Operating lease right-of-use assets | | | 4,946 | | | 5,420 |
Trademarks and other intangibles, net | | | 44,590 | | | 47,665 |
Equity method investment | | | 18,165 | | | 19,195 |
Deferred tax assets, net | | | 1,107 | | | 1,107 |
Other assets | | | 25 | | | 110 |
Total non-current assets | | | 69,749 | | | 74,915 |
Total Assets | | $ | 81,486 | | $ | 88,935 |
| | | | | | |
Liabilities and Equity | | | | | | |
Current Liabilities: | | | | | | |
Accounts payable, accrued expenses and other current liabilities | | $ | 2,750 | | $ | 3,870 |
Deferred revenue | | | 922 | | | 88 |
Accrued income taxes payable | | | 555 | | | 568 |
Accrued payroll | | | 154 | | | 416 |
Current portion of operating lease obligations | | | 1,219 | | | 1,376 |
Current portion of contingent obligations | | | 1,400 | | | 243 |
Total current liabilities | | | 7,000 | | | 6,561 |
Long-Term Liabilities: | | | | | | |
Long-term portion of operating lease obligations | | | 4,660 | | | 5,839 |
Long-term Deferred revenue | | | 4,207 | | | - |
Contingent obligations | | | 4,996 | | | 6,396 |
Total long-term liabilities | | | 13,863 | | | 12,235 |
Total Liabilities | | | 20,863 | | | 18,796 |
| | | | | | |
Commitments and Contingencies | | | | | | |
| | | | | | |
Equity: | | | | | | |
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued and outstanding | | | - | | | - |
Common stock, $.001 par value, 50,000,000 shares authorized, and 19,700,656 and 19,624,860 shares issued and outstanding at June 30, 2023 and December 31, 2022. | | | 20 | | | 20 |
Paid-in capital | | | 103,715 | | | 103,592 |
Accumulated deficit | | | (41,908) | | | (32,797) |
Total Xcel Brands, Inc. stockholders' equity | | | 61,827 | | | 70,815 |
Noncontrolling interest | | | (1,204) | | | (676) |
Total Equity | | | 60,623 | | | 70,139 |
| | | | | | |
Total Liabilities and Equity | | $ | 81,486 | | $ | 88,935 |
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
Page 6
Xcel Brands, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| | For the Six Months Ended | ||||
| | June 30, | ||||
|
| 2023 |
| 2022 | ||
| | | | | ||
Cash flows from operating activities | | | | | | |
Net (loss) income | | $ | (9,639) | | $ | 5,450 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization expense | | | 3,583 | | | 3,632 |
Asset impairment charges | | | 100 | | | - |
Amortization of deferred finance costs | | | - | | | 156 |
Stock-based compensation | | | 122 | | | 517 |
Allowance for doubtful accounts | | | - | | | 90 |
Proportional share of trademark amortization of equity method investee | | | 1,030 | | | - |
Loss on extinguishment of debt | | | | | | 2,324 |
Deferred income tax benefit | | | - | | | 1,384 |
Net gain on sale of assets | | | | | | (20,608) |
Gain on sale of limited partner ownership interest | | | (351) | | | |
Gain on settlement of lease liability | | | (445) | | | |
| | | | | | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | | (1,768) | | | (1,741) |
Inventory | | | 2,047 | | | (100) |
Prepaid expenses and other assets | | | 863 | | | 8 |
Deferred revenue | | | 5,041 | | | 347 |
Accounts payable, accrued expenses and other current liabilities | | | (1,637) | | | 205 |
Lease-related assets and liabilities | | | (417) | | | (159) |
Other Liabilities | | | - | | | (224) |
Net cash used in by operating activities | | | (1,471) | | | (8,719) |
| | | | | | |
Cash flows from investing activities | | | | | | |
Net proceeds from sale of majority interest in Isaac Mizrahi brand | | | - | | | 45,408 |
Net proceeds from sale of assets | | | 451 | | | - |
Purchase of property and equipment | | | (81) | | | (85) |
Net cash provided by investing activities | | | 370 | | | 45,323 |
| | | | | | |
Cash flows from financing activities | | | | | | |
Shares repurchased including vested restricted stock in exchange for withholding taxes | | | - | | | (442) |
Payment of long-term debt | | | - | | | (29,000) |
Payment of breakage fees associated with extinguishment of long-term debt | | | - | | | (1,511) |
Net cash used in financing activities | | | - | | | (30,953) |
| | | | | | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | | (1,101) | | | 5,651 |
| | | | | | |
Cash, cash equivalents, and restricted cash at beginning of period | | | 4,608 | | | 5,222 |
| | | | | | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 3,507 | | $ | 10,873 |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest | | $ | - | | $ | 1,032 |
Cash paid during the period for income taxes | | $ | 16 | | $ | - |
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
Page 7
Non-GAAP net income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, proportional share of trademark amortization of equity method investee, stock-based compensation, loss on extinguishment of debt, gain on the sale of assets, gain on lease termination, asset impairment and income taxes. Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy.
Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, before depreciation and amortization, interest and finance expenses (including loss on extinguishment of debt, if any), proportional share of trademark amortization of equity method investee, stock-based compensation, gain on the sale of assets, gain on lease termination, asset impairment, losses from discontinued businesses and income taxes income taxes, other state and local franchise taxes.
Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to our results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA 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 these non-GAAP measures provide supplemental information to assist investors in evaluating our financial results. Adjusted EBITDA is the measure used to calculate compliance with the EBITDA covenant under our term loan agreement.
Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA 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. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate these measures in a different manner than we do. In evaluating non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this document. Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
Page 8
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
($ in thousands) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | ||||
Net (loss) income attributable to Xcel Brands, Inc. stockholders | | $ | (3,468) | | | 9,490 | | $ | (9,111) | | | 6,003 |
Amortization of trademarks | | | 1,525 | | | 1,525 | | | 3,045 | | | 3,039 |
Proportional share of trademark amortization of equity method investee | | | 515 | | | - | | | 1,030 | | | - |
Stock-based compensation | | | 65 | | | 485 | | | 122 | | | 517 |
Loss on extinguishment of debt | | | - | | | 2,324 | | | - | | | 2,324 |
Gain on the sale of assets | | | - | | | (20,608) | | | - | | | (20,608) |
Gain on lease termination | | | (445) | | | - | | | (445) | | | - |
Asset impairment | | | 100 | | | - | | | 100 | | | - |
Income tax benefit | | | - | | | 3,178 | | | - | | | 3,178 |
Non-GAAP net loss | | $ | (1,708) | | $ | (3,606) | | $ | (5,259) | | $ | (5,547) |
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | ||||
Diluted loss per share | | $ | (0.18) | | $ | 0.48 | | $ | (0.46) | | $ | 0.30 |
Amortization of trademarks | | | 0.08 | | | 0.08 | | | 0.15 | | | 0.16 |
Proportional share of trademark amortization of equity method investee | | | 0.03 | | | - | | | 0.05 | | | |
Stock-based compensation | | | - | | | 0.03 | | | 0.01 | | | 0.03 |
Loss on extinguishment of debt | | | - | | | 0.12 | | | - | | | 0.12 |
Gain on the sale of assets | | | - | | | (1.05) | | | - | | | (1.05) |
Gain on lease termination | | | (0.02) | | | - | | | (0.02) | | | - |
Asset Impairment | | | - | | | - | | | - | | | - |
Income tax benefit | | | - | | | 0.16 | | | - | | | 0.16 |
Non-GAAP diluted EPS | | $ | (0.09) | | $ | (0.18) | | $ | (0.27) | | $ | (0.28) |
Non-GAAP weighted average diluted shares | | | 19,735,500 | | | 19,677,243 | | | 19,684,630 | | | 19,624,474 |
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
($ in thousands) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | ||||
Net loss attributable to Xcel Brands, Inc. stockholders | | $ | (3,468) | | $ | 9,490 | | $ | (9,111) | | $ | 6,003 |
Depreciation and amortization | | | 1,786 | | | 1,812 | | | 3,583 | | | 3,632 |
Proportional share of trademark amortization of equity method investee | | | 515 | | | - | | | 1,030 | | | - |
Interest and finance expense | | | (7) | | | 2,802 | | | 18 | | | 3,511 |
Income tax provision | | | - | | | 3,178 | | | - | | | 3,178 |
State and local franchise taxes | | | 23 | | | - | | | 44 | | | 36 |
Stock-based compensation | | | 65 | | | 485 | | | 122 | | | 517 |
Gain on the sale of assets | | | - | | | (20,608) | | | - | | | (20,608) |
Gain on lease termination | | | (445) | | | - | | | (445) | | | - |
Asset impairment | | | 100 | | | - | | | 100 | | | - |
Losses from discontinued businesses | | | 495 | | | - | | | 1,728 | | | - |
Adjusted EBITDA | | $ | (936) | | $ | (2,841) | | $ | (2,931) | | $ | (3,731) |
1333 BROADWAY, 10TH FLOOR • NEW YORK, NEW YORK • 10018
PHONE: 347-727-2474 • INFO@XCELBRANDS.COM
| NASDAQ: XELB XCEL BRANDS (08/15/23)2 INVESTOR PRESENTATION |
| 4 2 FORWARD LOOKING STATEMENTS Certain statements in this presentation, as well as certain oral statements made by management during the presentation, constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements expressed or implied regarding our plans and milestones, plans to fund our current activities, statements concerning our strategic relationships and activities, strategy, future operations and expansion, future financial position, future sales and revenues, projected costs, and market penetration. In some cases, forward-looking statements can be identified by terminology such as “may, “will”, “should”, “expects”, “seeks”, “plans”, “goals”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “projects”, “continue”, “intends”, “could”, “opportunity”, or negative of such terms or other comparable terminology. These forward looking statements include, but are not limited to statements regarding estimates and forecasts of financial and other performance metrics and market opportunities. These statements are based on the current expectations and forecasts of Xcel Brands, Inc’s management and are not predictions or guarantees of future performance. You should not place undue reliance on our forward-looking statements, which are subject to a multitude of known and unknown risks and uncertainties that could cause actual results, future circumstance or events to differ materially from those stated in or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the ability of our licensees to produce, market and sell quality products bearing our brand names, continued market acceptance of our brands and any future brands we acquire, our ability to service our significant debt obligations, our ability to raise capital for any future acquisitions, concentration of a substantial portion of our licensing revenue from a limited number licensees, our dependence on QVC, restrictions in our agreements with QVC and other licensees on our ability to sell products with certain retailers, our dependence on promotional services of our spokesperson, limitations on our ownership of the H Halston brands, our ability to manage expected future growth, our ability to identify and acquire additional trademarks, competition for licensees, competition in our licensee’s markets, our ability to protect our intellectual property, our dependence on our CEO and other key executive officers, the success of our e- commerce strategy, supply chain disruptions, operating in high inflation environment and potential recession and other risks and uncertainties detailed from time to time in our public disclosure documents or other filings with the Securities and Exchange Commission. Additional risks and uncertainties relating to us, and our business can be found in the “Risk Factors” section of our latest annual report on Form 10-K as well as in our other public filings. The forward- looking statements are made as of the date hereof, and we disclaim any intention and have no obligation or responsibility, except as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This Presentation contains projected financial information and goals with respect to Xcel Brands, Inc. Such projected financial information and goals constitute forward-looking information and is for illustrative purposes only and should not be relied upon as necessarily being indicative of future results. The assumptions and estimates underlying such financial forecast information are inherently uncertain and are subject to a wide variety of significant business, economic, competitive, and other risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information. See “Forward-Looking Statements” above. Actual results may differ materially from the results contemplat-ed by the financial forecast information contained in this Presentation, and the inclusion of such information in this Presentation should not be regarded as a representation by any per-son that the results reflected in such forecasts will be achieved. NON-GAAP FINANCIAL MEASURES In addition to financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures in this presentation. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders before depreciation and amortization, proportional share of trademark amortization of equity method investee, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation and costs in connection with potential acquisitions certain adjustments to allowances for doubtful accounts, for account debtors that have filed for bankruptcy, property and equipment impairment, gain on sale of assets, loss on wholesale apparel, jewelry and Longaberger operations and gain on the reduction of contingent obligation. We use Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to Xcel’s results of operations. We believe Adjusted EBITDA is also useful because it provides supplemental information to assist investors in evaluating Xcel’s financial results. Adjusted EBITDA should not be considered in isolation or as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Given that Adjusted EBITDA is a financial measure not deemed to be in accordance with GAAP and is susceptible to varying calculations, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate Adjusted EBITDA in a different manner than we calculate this measure. In evaluating Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this report. Our presentation of Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net income (loss) and other GAAP results, and not rely on any single financial measure. |
| 6 TABLE OF CONTENTS I OUR OVERVIEW II THE BUSINESS MODEL III GROWTH OPPORTUNITIES 3 |
| 8 “I always start with color when I’m designing things.” ISAAC MIZRAHI OUR OVERVIEW 4 |
| 10 XCEL IS A CONSUMER PRODUCTS AND SOCIAL COMMERCE COMPANY GENERATING APPROXIMATELY $600 MILLION ANNUAL RETAIL SALES ROBERT D’LOREN, CEO 5 |
| 12 “I always start with color when I’m designing things.” ISAAC MIZRAHI “We imagine shopping, entertainment and social media as one thing” – ROBERT D’LOREN, CEO 6 |
| 14 P R O P R I E TA R Y TECHNOLOGY I n d u s t r y - l e a d i n g p r o p r i e t a r y S o c i a l C o m m e r c e t e c h n o l o g y d e s i g n e d t o d r i v e a u d i e n c e , engagement and sales of products CREATIVE POWERHOUSE H i g h l y e x p e r i e n c e d c r e a t i v e s e r v i c e s t e a m w i t h e x p e r t i s e i n C o n c e p t D e v e l o p m e n t , D e s i g n , M e r c h a n d i s i n g , M a r k e t i n g , a n d L i v e S t r e a m a n d Social Media content production EXECUTIVE SUMMARY L E ADER I N S O CIAL C O M M E RCE $ 4 B B in cumulative r e t ail s a les in L ive -Streami ng and S o cial Commerce, approximatel y $60 0 millio n i n a n n u a l r e t a i l s a l e s i n 202 2 a cros s o u r brands , and o ver 1 0 ,00 0 h o u r s o f L ive S t ream p r o g r amming 7 |
| 168 F I NANCIAL S T R ENGT H W orking capital light business mode l, and a h istorical track record of re v e nue and Adjusted EBITDA growth,which has enabled investments in our brands and technology PROFI T A BL E B USI NESS MODEL S t r ong c a s h flow g ener ation b e g inning 2 H’23 a n d b e y o n d SIG N IFIC ANT O PPO R TUN ITIES S i g n ific ant g rowt h op portuni ties a c r o s s e xis ting b r and p ort f olio f uele d by new part ner s hips w i t h d ominant m a r ket p layer s, n ew b usiness es d r iven b y L i v e S t rea m an d S o cial C o mmer ce, a n d f u t ure a cquisiti o n s t o f u r t h e r o u r p rominen c e i n t h e q uic k l y g row ing S o cial C ommer c e c h a nnel |
| 18 9 OUR EVOLUTION 2011 2015 2020 2011 - 2016 BUILDING THE FOUNDATION Acquired Isaac Mizrahi, Judith Ripka, Halston and C. Wonder Significant growth across our brands in Direct-Response Television and licensing Over $1BB of Live Stream Shopping sales at retail 2012 2014 2016 2017 2018 2019 2021 2022 2017 - 2022 EXPANDING INFRASTRUCTURE Acquired Longaberger, Lori Goldstein Winner QVC Apparel Vendor of the year Over $5MM of infrastructure investments for wholesale, direct-to-consumer, and Social Commerce Par tial divestiture of Isaac Mizrahi at a $70MM valuation and 99%+ annual Return on Equity Approaching $4BB of cumulative Social Commerce sales at retail CONTINUED |
| 20 OUR EVOLUTION 2023 - FORWARD 2023 - FORWARD LEADING SOCIAL COMMERCE PLATFORM Planned launch of Social Commerce marketplace adding new brands to our platform through incubation, partnerships and future acquisitions Development and expansion of new and existing brands across all channels of distribution through Live Stream and Social Commerce 2023 - FORWARD 10 |
| 22 11 “I always start with color when I’m designing things.” ISAAC MIZRAHI OUR CORE BRANDS Note: All brands are fully owned by Xcel Brands Inc. other than (i) Isaac Mizrahi which represents a minority interest retained ownership and (ii) Longaberger which represents a 50% ownership position in the business by Xcel. |
| 24 12 2016 2017 2018 2019 2020 2021 2022 2023 - FORCAST SALES AT RETAIL (COVID-19) WE OWN STRONG BRANDS THAT RESONATE WITH CONSUMERS Retail Sales include actual retail sales where reported, as well as estimates based on a combination of our net wholesales and reported net wholesales of our licensees, converted to estimated retail sales applying a reasonable mark-up rate. Estimated retail sales of our brands does not reflect the Company’s revenues and Adjusted EBITDA for these periods. However we believe it represents a consumer demand indicator for our brands. Refer to Slide 13 for detail on the Company’s revenues and Adjusted EBITDA. |
| 13 REVENUE AND ADJUSTED EBITDA (1)Launched wholesale divisions in jewelry and apparel to enhance brands (2)Invested over $5MM in technology and systems from 2020-2022 (3)Sold Isaac Mizrahi in May 2022, resulted in revenue reduction of $16MM and EBITDA reduction of approximately $6.8MM, reduced debt from $25MM to $0. (4)Restructure resulted in $13MM annual decrease in operating expenses. For 2023 year end forecast, there is an adjustment to add back to Adjusted EBITDA operating contribution deficits from the wholesale apparel and jewelry businesses, and the costs associated with the transition of these businesses to our new licensing partners. There were no adjustments presented for periods prior to 2023, and 2024 forecast. |
| 14 BALANCE SHEET HIGHLIGHTS |
| “I always start with color when I’m designing things.” ISAAC MIZRAHI THE BUSINESS MODEL 15 |
| 28 BRAND DEVELOPMENT LICENSING DESIGN AND CREATIVE MARKETING AND CONTENT PRODUCTION SOCIAL COMMERCE TECHNOLOGY PLATFORM XCEL has built a working capital light operating and technology platform designed to build brands and drive sales through Live Streaming and Social Commerce BUSINESS MODEL OVERVIEW OUR PROCESS 16 |
| 30 1 7 THE RISE OF SOCIAL COMMERCE Billions are now up for grabs as ecommerce, live streaming, and social media are evolving into Social Commerce marketplaces powered by short form video content, with an estimated 20% of all online sales expected to be driven by social commerce by 2026(1) As compared with traditional digital marketing where customer acquisition has become increasingly expensive, companies who have successfully implemented Social Commerce have reported an increase in conversion rates of 10X 84% of consumers report being convinced to buy a product or service by watching a brand’s video, and 93% of brands report they’ve acquired new users via video on social media(2) Coresight Research estimates the U.S. Live Stream and Social Commerce market will reach $35 billion in sales by next year (2024), representing 3.3% of all ecommerce and a CAGR of 78%(2) (1) Source: eMarketer, E-Commerce Strategy (2) Source: Coresight |
| 1388 SOCIAL COMMERCE TECHNOLOGY We have created a multi-brand short-form video content platform with the ability for shoppers, creators, and influencers to earn fees based on conversions It combines live streaming, e-commerce and social media in one seamless social commerce platform which drives brand discovery A complete in-app experience strengthens the purchase intent and overall shopping journey 66% OF USERS ARE MORE LIKELY TO BUY FROM A BRAND IF THEY CAN ACCESS A COMMUNITY BUILT AROUND IT 43% OF USERS ARE MORE LIKELY TO TRY SOMETHING NEW AFTER SEEING IT DEMONSTRATED LIVE AT LEAST ONCE ON A PLATFORM Source: Essence, Social Commerce Report, Nov 2021 |
| 3 4 “I always start with color when I’m designing things.” GROWTH OPPORTUNITIES 19 |
| 36 KEY GROWTH STRATEGIES 20 GROW EXISTING BRANDS SOCIAL COMMERCE OPPORTUNITIES PURSUE AQUISITIONS |
| 3 8 21 June 2023, new partnership announced with GIII Apparel Group An industry-leading public company with sales over $2BB annually, is expected to grow the brand over the next several years with substantial investments and brand marketing Ken Downing as Creative Director, relaunching the brand in premium distribution(i.e., Neiman Marcus, Saks) for Spring 2024 Men’s collection planned for 2025 Significant expansion in DTC and Social Commerce |
| 4 0 22 New partnership with JTV , an industry leader in jewelry Live Stream commerce with over $500MM of annual retail sales who will take over the Live Stream, wholesale, and D2C channels - 900% growth in revenues from 2019-2021 driven by continued growth of independent jeweler distribution and Live Streaming sales Growing licensing categories including fragrance and home fragrance which will bring in additional royalty revenue |
| 4 2 23 QVC business back on a strong growth trajectory for 2023 with regular shows in primetime New collection for better retailers in development Expansion through licensing, DTC and Social Commerce Raising brand awareness through collaborations, most recently with AnaOno and Smiley |
| 24 Announced Christian Siriano as new Creative Director in 1Q’23 Launched a new collection on HSN in 2Q’23 with extremely high engagement and aggressive growth planned New categories planned to launch in 2024 including handbags, footwear, jewelry, seasonal accessories and travel |
| 25 New D2C website launched in 2022 boasts high engagement New sportswear license signed in 4Q’22 for distribution outside of QVC and through DTC website International partners and new categories in discussion Remains top performing designer apparel brand in Direct Direct-Response Television channel Xcel owns 30% interest in a joint venture which owns and operates the Isaac Mizrahi brand |
| 26 Premium social commerce and Live Streaming home products company with over 5,000 nano influencers as stylists and 300,000 customers Significant growth potential through digital marketing efforts, stylist recruiting, and expansion of vendors Additional growth opportunities through licensing and international expansion Xcel owns 50% interest in a joint venture that owns and operates the Longaberger brand. |
| SOCIAL COMMERCE OPPORTUNITIES 27 NEW SOCIAL-COMMERCE DRIVEN BRANDS We are currently developing new brands in collaboration with designers and other social media influencers who have millions of followers and are positioned to succeed in Live Stream and Social Commerce. We plan to launch 2-4 new brands within the next 12 to 18 months SOCIAL COMMERCE MARKETPLACE We expect to launch a social commerce driven marketplace and app in 1Q’24, which will feature well known designer brands as well as Xcel’s brands. This marketplace will harness the power of our unique social commerce technology, creating a dynamic and engaging platform for shoppers and brands alike |
| 28 AQUISITIONS SEPTEMBER 2011 APRIL 2014 JUNE 2015 SALE - MAY 2022 DECEMBER 2014 APRIL 2022 Since 2011 we have sought the acquisition of brands and businesses that we believe we can grow through Social Commerce, with an average of one acquisition every two years We seek to divest and/or harvest our brands where we can generate significant returns for our shareholders, with our 2022 sale of a majority stake in Isaac Mizrahi generating an excess of 99% Return on Equity FEBRUARY 2019 |
| NASDAQ: XELB INVESTOR RELATIONS CONTACT: IR@XCELBRANDS.COM 29 |
| 30 EXHIBIT A RECONCILIATION OF ADJUSTED EBITDA |
