Xcel Brands Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 8 speakers on the call.

Operator

Hello, and welcome to Xcel's Second Quarter 2023 Earnings Conference Call. My name is Christa, and I'll be the conference operator today. We will have a question and answer session at the end of the call. I will now turn the call over to Andrew Berger, Investor Relations. Please go ahead.

Speaker 1

Good evening, everyone, and thank you for joining us. Welcome to the XL Brands' Q2 2023 earnings call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer, Robert D'Loren Chief Financial Officer, Jim Haran and Executive Vice President of Business Development and Treasury, Seth Burrows. By now, everyone should have had access to the earnings release for the Q2 ended June 30, 2023, which went out this evening.

Speaker 1

And in addition, the company plans to file with the Securities and Exchange Commission its quarterly report on Form 10 Q tomorrow. The release and quarterly report will be available on the company's website at www.xlbrands.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.

Speaker 1

These risk factors are explained in detail in the company's most recent annual report filed with the SEC. Xcel does not 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 earnings per share and adjusted EBITDA. Our management uses these non GAAP metrics as measures of operating performance to assist in comparing performance 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.

Speaker 1

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 Part 1, Item 2 And now, I'm pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob,

Speaker 2

would like to start today's call with an update on our strategic transformation efforts and how our business is performing under The new operating model. After that, our CFO, Jim Haran will discuss our financial results in more detail. Starting in the Q1 of 2023, we began to restructure our business operations shifting from a working capital intensive Wholesale business model to a business model that is working capital light, highly profitable and focused on high touch Licensing, Livestream Shopping and Social Commerce Growth Strategies. During the Q2 of 2023, We continue to execute on this plan and I'm pleased to report that we have substantially completed this transition of our operating businesses. As a result of all of our restructuring efforts going forward, we expect to save approximately $13,000,000 in operating on an annualized basis as compared to 2022 expense levels, Including approximately $6,000,000 of reduced payroll costs $7,000,000 in lower operating costs.

Speaker 2

These cost savings began In the Q1 of 2023 and are expected to be fully realized by the end of the Q3 of 2023. Our current financial forecast indicates that we will return to profitability by the end of this year, driven by these cost Savings combined with revenue from our new licenses and brand launches in 2023 that will continue to ramp and grow In 2024, to effectuate this transformation, we have engaged with best in class business partners and entered into multiple new licensing agreements, some of which I spoke about on last quarter's call And some of which are new this quarter. We believe that the evolution of our operating model through these new arrangements powered by Extraordinary live stream and social commerce technology that solves many of today's challenges in e commerce will provide Our company with a competitive advantage and significant cost savings going forward, while offering our customers exceptional quality We also believe our live streaming technology will enable us to fully engage with And entertain our customers in ways that were not possible in the past. In May, we signed a master licensing agreement G3 Apparel Group for the Halston brand under which G3 has taken over and assumed all of the existing licensing contracts For the brand together with apparel, wholesale operations and distribution in department stores, e commerce and other retailers.

Speaker 2

This is a 25 year license agreement, which includes a market rate royalty, certain royalty advances, escalating guaranteed minimum sales requirements, certain guaranteed minimum payments and a right for G III to acquire the brand at the end of the license term. We started To realize revenues from this agreement in the Q2 of 2023, but expect that more meaningful growth will come In fall 2024 when G III plans to launch their Halston line at better department stores. Our partnership With G III, given their extensive production and distribution capabilities, provides us with a tremendous opportunity To grow the brand and take Holsten to the next level, G III Management has publicly stated that they Have assigned some of their premier talent to develop the brand and they are targeting to grow the Halston brand globally to 250,000,000 Annual wholesale sales by year 4 of the license agreement. We are excited about our long term partnership with G III, who we believe One of the best wholesale companies in our industry. For our Judith Ripka brand, we entered into a new licensing agreement In the first and second quarters to move all segments of our Judith Ripka business to Jewelry TV.

Speaker 2

JTV, as it is known, has rapidly become one of the largest jewelry retailers in the U. S. The brand launched on jtv.com on July 1 and is scheduled to launch on air on JTV in October with a surprise celebrity appearance planned for the launch. We expect the brand will have dramatically increased airtime compared to QVC with significant on air presence for the JTV network in the first Also JTV launched the wholesale and judithripka.com businesses under their management last month. We believe This presents a fantastic and exciting opportunity to grow the brand on TV on jusripka.com and in wholesale This license agreement provides for royalties on net retail sales generated through JTV's Television, e Commerce and other direct to consumer outlets and royalties on wholesale sales as well as a profit share On the wholesale and judifripke.com businesses, in connection with executing the JTV licenses, We sold JTV all of our remaining jewelry inventory in April of 2023.

Speaker 2

For our Sea Wonder brand, we launched on HSN at At the end of March, with the first show achieving over 200% of planned sales and sales continued to gain strong momentum during Q2. During the Q2, HSN reported it had its best week of 2023 and noted Christian Siriano's appearances in Qurate's earnings call. The wholesale production for our HSN business has been licensed to 1 Jeanswear Group or OJG. OJG is an industry leading supplier of apparel across multiple points of distribution. This license commenced During the Q2 and we are working on some exciting license extensions in other categories for the C Wonder brand.

Speaker 2

Finally, we expect to be announcing sometime in September a new brand launch on HSN with an iconic American supermodel. This continues our push into building a brand portfolio of influencers and creators to drive our TV And direct to consumer live stream and social commerce platform. With respect to the Longaberger brand,

Speaker 3

We

Speaker 2

are in the process of launching our latest version of our social commerce technology that we believe will revolutionize social commerce And e commerce in general and plan to incorporate Longaberger into a home product social commerce marketplace. Finally, regarding our QVC Interactive Television Business, the logo by Lori Goldstein brand is performing well on QVC with sales in the second quarter of 2023 exceeding quarterly sales for the last three sequential quarters. The Isaac Mizrahi brand was below plan For the quarter in net sales during the Q2 of 2023 due to a one time increase in return rate on certain items and schedule in conflicts with Isaac. In this connection, we worked with QVC and Isaac to coordinate on air scheduling and are making improvements to Isaac's remote studio and expect sales to rebound in the latter half of twenty twenty three and return to plan level. And now, I'd like to turn the call over to Jim to discuss our results

Speaker 4

Thanks, Bob, and good evening, everyone. I will briefly discuss our financial results for the quarter 6 months ended June 30, 2023. Total revenue for the Q2 of 2023 was $6,800,000 representing a decrease of approximately 1,700,000 From the Q2 of 2022, there was an increase of approximately $700,000 or approximately 11% from the Q1 of 2020. This year over year revenue decline from the prior year quarter compared with the current quarter was driven by a $2,700,000 decrease in licensing revenue, Primarily attributable to the sale of a majority interest in the Isaac Mizrahi brand in May 2022 And partially offset by an increase of approximately $1,100,000 in net sales, largely due The sale of our Judith Ripka Fine Jewelry inventory to JTV in connection with the entrance into our new contractual arrangements with JTV. On a year to date basis, revenue for the current 6 months decreased by approximately $4,400,000 from the prior year 6 months to $12,800,000 This decline in revenue was driven by the $6,400,000 decrease in licensing revenue, primarily attributable to the sale of the majority interest in the Isaac Mizari brand And partially offset by the increase of approximately $2,100,000 in net product sales, largely due to the sale of our Judith Ripka fine jewelry inventory And C Wonder apparel inventory to HSN as part of the restructuring and transformation of our business operations and the launch of the C Wonder brand.

Speaker 4

Gross profit margin from product sales decreased from approximately 22% in the prior year quarter to approximately 13% in the current quarter And also decreased on a year to date basis from 30% in the prior year 6 months to 21% in the current year 6 month period. These decreases in gross margin were the result of exiting the wholesale operations portion of our business, which included the sale of our inventory at discounted prices. The only inventory the company had at June 30 was Longaberger inventory. Our operating cost expenses were $5,200,000 for the current quarter, down by $4,300,000 or 45 percent From $9,500,000 in the prior year quarter. On a year to date basis, our operating costs and expenses were $12,100,000 in the current year period, Down by $5,700,000 or 32 percent from $17,800,000 in the prior year 6 months.

Speaker 4

For both the quarter year to date periods, this decrease in operating expenses was primarily attributable to the restructuring And transformation of our business and costs associated with the Isaac and Missouri brand. We expect that our operating costs and expenses will continue to decrease To reach a run rate of approximately $4,000,000 per quarter by the end of 2023. We did not have any significant amount of interest in finance expense In the current quarter or the current 6 months as we fully repaid all of our outstanding term loan debt in the Q2 of 2022. Overall, we had a net loss excluding non controlling interest for the current quarter of approximately $3,500,000 or minus $0.18 per share compared with net income of $9,500,000 or $0.48 per share in the prior year quarter. The prior year quarter included a $20,600,000 gain on the sale of the majority interest of the Isaac Mizrahi brand.

Speaker 4

The current quarter's results also represent an improvement for the Q1 of 2023 net loss of $5,600,000 or $0.28 per share. On a non GAAP basis, we had a net loss for the current quarter of $1,700,000 or minus $0.09 per share, Compared with a net loss of $3,600,000 or minus $0.18 per share in the prior year quarter. Adjusted EBITDA was negative $900,000 for the current quarter compared with negative $2,800,000 in the prior year quarter. The current quarter's adjusted EBITDA of $900,000 compares favorably with adjusted EBITDA of negative $2,000,000 negative $5,900,000 in immediately preceding 2 quarters ended March 31, 2023 December 31, 2022 respectively. For the balance of 2023, We expect our adjusted EBITDA to continue to improve throughout the year and we currently project that as a result of the restructuring and transformation plan, We will achieve positive monthly EBITDA by the end of 2023.

Speaker 4

It should be noted that the reported current EBITDA includes an adjustment for certain costs And operating losses related to the wholesale apparel and jewelry operations as these businesses have been transitioned to 3rd parties. On a year to date basis, our net loss excluding non controlling interest for the current 6 months was approximately 9,100,000 Well, minus $0.46 per share compared with net income of $6,000,000 or $0.30 per share in the prior year comparable period. On a non GAAP basis, we had a net loss for the current 6 months of $5,300,000 or minus $0.27 per share, compared with a net loss 5,500,000 or minus $0.28 per share in the prior year 6 month period. And finally, adjusted EBITDA was negative $2,900,000 current 6 months representing a $800,000 improvement over negative $3,700,000 EBITDA in the prior year 6 months. And once again, as a reminder, non GAAP net income, non GAAP diluted EPS and adjusted EBITDA are non GAAP unaudited terms.

Speaker 4

Our earnings press release and Form 10 Q present a reconciliation of these items with the most directly comparable GAAP measures. Now turning to our balance sheet. As of June 30, 2023, the company had cash and cash equivalents of approximately 3,500,000 And positive net working capital of $6,000,000 excluding the current portion of our lease obligations. The new strategic master license Under our current financial projections, we believe this coupled with our expense cuts and working capital position provides the company with adequate liquidity going forward. And with that, I would like to turn the call back over to Bob.

Speaker 4

Bob? Thank you, Jim.

Speaker 2

This concludes our prepared remarks. Operator?

Operator

We'll pause for a moment to compile that Q and A roster. Your first question comes from the line of Anthony Lebiedzinski from Sidoti. Please go ahead. Your line is open.

Speaker 3

Sales and the bottom line better than expectations here. So first, I guess, starting in the Q3, We will have clean comparisons for the licensing part of your revenue, as we're now past the 1 year anniversary of the sale of Isaac Mizrahi. So Bob, you mentioned the challenging retail environment, but you certainly have done a lot of work. You've been busy signing new licensing agreements. Yes.

Speaker 3

How should we think about just overall the licensing revenue piece of your business now going forward?

Speaker 2

When you say how should we look at it Anthony, Can you be specific?

Speaker 3

Yes. In terms of 3rd for the balance of the year as far as how should we think about far as the revenue, do you expect that to grow Even with this challenging retail environment, just wanted to get a better sense So what you expect from here?

Speaker 2

Sure. Overall at QVC, while they We're down for the year. We're trending better than QVC overall. So we Back that our royalties coming from our Interactive Television businesses will be as forecasted. We were a little below plan on Isaac.

Speaker 2

It was really There were some high returns and we've looked very carefully at what the Items were that we're returning. We didn't see anything from a product perspective. So we're still trying to understand what drove that and Is it likely that that will be the case going into Q3 and Q4? We don't think so, but We'll know better as the months go by here. I would say as it relates to All of the new licenses, we've modeled in only the minimums under those contracts.

Speaker 2

G III launches in fall of 'twenty four. So we'll be Continuing to collect the minimums under that agreement until they launch. And JTV, they have launched Online and they have begun shipments both for geothripka.com and for the wholesale business. The On Air launch is scheduled for mid October, assuming that, That happens on schedule. Then we're anticipating that We'll be off to a very strong start there given the number of hours and the big event that's planned around the launch and All the marketing that JTV is doing for the launch.

Speaker 2

So we're fairly comfortable with Where we are in terms of our forecast and then going into next year as all of these outsourced programs Really begin to kick in. We're going to see a big pickup in the royalty revenues in 2024, 2025, 26 As all of them ramp up. As I said on the call, these are the best In class partners that we could be in business with JTV has become one of the largest Jewelers in the country, 1 Jeanswear is a very significant wholesaler of apparel across almost every Point of distribution and GE3, I think speaks for itself. So we're very bullish on Where we think royalties will go on the core brands.

Speaker 3

Absolutely. That's great to hear. And then, Jim, you mentioned that the only inventory left on the balance sheet is from Longaberger. I know you guys have Discussed previously about potentially divesting DeLonga Burger or maybe doing Some other things with it. So do you have any updated thoughts on that brand?

Speaker 5

I can address that, Seth. We're still working on that, but I would say we should expect to have an update on that In the next quarter, that would be favorable to the company.

Speaker 3

Okay. That's good to hear. And then, do you guys have any updated thoughts on the launch of your social marketplace and app in terms of Timing or anything else that you can share with us or is it more or less kind of consistent with what you said previously?

Speaker 2

So, it's fairly consistent. The technology is done. We're testing And the Longaberger community now, of course, it will turn into a broader marketplace approach. But That we're anticipating that, that will be for holiday of this year.

Speaker 3

All right. That's good to hear. All right. Well, thanks. Best luck and I'll pass it on to the next caller.

Speaker 2

Thank you, Anthony.

Operator

Your next question comes from the line of Aaron Warwick from Breakout Investors. Please go ahead. Your line is open.

Speaker 6

Hey, good evening. Thanks for taking the call and congratulations on this Several things that I wanted to ask about. I guess I'll begin with You have in your latest investor presentation on your website showing $19,000,000 revenue For next year and $5,000,000 for EBITDA. My understanding is that that's based upon the contract minimums That you have right now for royalties, is that an accurate understanding?

Speaker 2

So there's 2 components to it. One is the contractual minimums and the new agreements that we Executed and then to historical licensing revenues coming out of our Interactive Television businesses. And to help you to compare 23 forecasted Top line of $18,000,000 to $19,000,000 in $24,000,000 you need to back $3,200,000 out of $23,000,000 because those are wholesale sales that occurred in Q1 and there were a few small sales in Q2. So to get apples to apples, It's $15,000,000 of royalties in $23,000,000 $19,000,000 of royalties in $24,000,000

Speaker 6

Sounds like though there's some upside potential that's not really built into that model and then from what you said previously

Speaker 2

No doubt, particularly as it relates to the G3 Royalties, this is not our guidance. It was a statement made in their earnings call. They expect That the business will be at $250,000,000 wholesale by the 4th year. And if you just Do some quick math on average royalty rates. You'll see that there should be very significant growth Coming out of that license and quite frankly, I couldn't think of a better partner for us to be in business with for Our Judith O'Goo brand at JTV.

Speaker 2

We're expecting big things there. We're going from 1 hour of on air time last year with QVC Over 120 hours on the launch here and as QVC has exited the jewelry business for the most part over the last 5 or 6 years, JTV has picked up a lot of that market share. So we're very excited about the potential there too. And we have a very robust pipeline of new brands going into interactive TV. Our Seawonder Christian Siriano brand is doing incredibly well.

Speaker 2

In fact, we are live as we speak with a TS Today, shooting here from our studio in New York and we are going to launch A brand with it's a household name, everyone knows her. I can't say who it is until we get a little closer to the launch, but We think we have great potential with the brand we've created with the super model, both on TV and outside of Interactive Television. So we are excited about The core business.

Speaker 6

Fantastic. So G III, they made a one time upfront payment. It Sounds like they're going to be making annual minimum payments plus potentially more than that. And then at the end of the 25 years, they have the option to Purchase the brand, is that correct from

Speaker 2

you? Correct.

Speaker 6

And I mean, what can you give us a ballpark number? What expected royalties would be from that and what the payment was?

Speaker 2

Yes. I've given this on some of the conference calls. We think stabilized royalties, if You run a model at about $8,000,000 per year over the 25 years, it's $170,000,000 plus in royalties The license will generate and I think that It's a great place for us to land with that asset.

Speaker 6

Yes. I mean given the fact that it's higher than your Current market cap and so if you look at the net present value or any sort of discounted cash flow on that, that's extremely positive contract for you guys.

Speaker 2

Thanks.

Speaker 6

I wanted to ask a little bit more about the social commerce side of things. It sounds like you said you should be ready to have that out The holiday season, is that what you said at the previous caller?

Speaker 2

Yes. We haven't modeled any assumptions About the launch of the marketplace into our model, the investments have been made in the tech, so no We are working with some industry friends, Certain cases industry competitors that are interested in joining the marketplace because the technology solved A very serious problem in the industry today. Return on ad spend since the privacy rules have changed This becoming something that just is intolerable within the industry. A lot of E commerce platforms are suddenly losing money. And with this The return on ad spend is infinite because brand doesn't pay until there's a sale.

Speaker 2

And for us, it's a marketplace model, not a lot of risk In terms of operations, it's 30% of sales. We pay the influencers and then whatever our operating overhead is. And then of course it provides another channel as the audience grows in that platform for our brands and our celebrities. So we're taking a read and react approach. We will get it launched.

Speaker 2

We will see how it begins to scale. Like anything else in social media, we think we'll have a good start with the customer base from the brands that have signed with us and with our own And then we'll use what we learn over the Q1 after the launch Forecast revenues going forward.

Speaker 6

How many brands have signed with you and What's the nature of these types of brands? Are some of them household names? What should we expect there?

Speaker 2

Most of them are big brands, Household names, big customer bases and we'll be announcing Those are in connection with the launch and We're very excited about it. It's been 2 years, little more 2.5 years in the works And we're happy that we'll be launching for holiday.

Speaker 6

And so I guess You could speak maybe just a little bit about what how this is going to be differentiated from the current social media platforms and the way

Speaker 2

So To really cut to the chase, it's democratizing marketing dollars. It's shifting Add dollars from advertisers to the people. The technology There's a desktop application as well as an app application and for the user and what we're really Striving to do here is to turn the everyday shopper into a paid influencer. So The app is really easy to use. It's as easy as creating a TikTok piece of content.

Speaker 2

And if The shopper or the influencer shares it with a friend or a follower and they buy, they get paid. So in many ways, it's shifting ad dollars from the advertisers to the people.

Speaker 6

Yes. And I like how you highlighted, really hadn't thought of it before. I guess how The brands don't have to pay until something is sold. So I guess they're paying the influencer once an item is actually sold, but nothing that they're paying them in advance of that. Is that Correct.

Speaker 2

Correct. And the problem is the models the way it works now. Digital advertising is a bit like throwing darts and paying influencers in Advance. You just don't know how they're going to convert. So again, it's a bit of a blind shot in many cases.

Speaker 6

Well, thank you guys so much. I appreciate your time. We look forward to

Operator

Your next question comes from the line of Deborah Faiakas from Crystal Equity Research. Please go ahead. Your line is open.

Speaker 2

Hi, Deborah.

Speaker 7

Thank you, operator. Good evening. Thank you for taking my questions. I really appreciated in your opening remarks the sort of Chronological rundown on your restructuring effort and I'm pleased to hear that things are going as you had hoped. Until we got to the part where you gave us a little tease, and of course, I can't just let that go.

Speaker 7

We've got to ask a question about The celebrity that you're looking forward to help with your launch of Judith Ripka on JTV. And I wondered, you probably can't tell the name, but you could perhaps A little bit more about the relationship. Is it expected to be permanent or just sort of a one time And then also maybe you could tell us a little bit more about the compensation that is How do you go about luring these celebrities, including the supermodel that comes along a little later this fall? How do you craft your relationship with them? So

Speaker 2

Those are a couple of questions. I'll try to answer them and see why. So We expect that celebrity will make multiple appearances for the brand During 2024, through the big kickoff show, And she will be on air for a couple of hours with our new superstar guest who is Heidi who is the daughter-in-law of Judith Repka. And if you're not familiar with the rest of the family, I was through the Thunder study for close to 15 years and has been really great over the years with In bringing products to the market and it's going to do really, really well on JTV. The second part of your question, how do we attract talent?

Speaker 2

1, I would say after doing as many hours on HSN and QVC as we have, Xcel has developed a reputation for working with talent and operating On their behalf to make great product to sell over television, as we've said many times this year, we passed $4,000,000,000 in sales On GVC, by every measure, we're one of the largest players. We have over 10000 hours of programming time. Talent tends to come to us When they're thinking about doing something like this, we think that will accelerate as we launch our marketplace. And then of course, We do a lot of outreach to the different talent management agencies And managers of celebrities have built this pipeline and conversation with Celebrities at various different levels coming from different sectors, whether they're designers or Television celebrities or film celebrities, we've talked to a lot of interesting people over the years. Some A level talent has come through the doors.

Speaker 2

It's been an interesting

Speaker 5

But Deborah, I think and this is Seth. I think in terms of what we look for and how we like To compensate celebrities or spokespeople, we've been doing this for 12 years. We've done over $4,000,000,000 On television, we have a good sense of what works and what doesn't work. A lot of celebrities don't work. So we have a good sense of who does.

Speaker 5

And so we really look for those qualities and characteristics that from our experience work really well on QVC or HSN or direct response television and social commerce. And then the second piece of it is somebody who's looking to partner with us. We're not looking to make huge payments, big upfront We want people who are open to partnering, to grow the business together and to earning money together.

Speaker 2

So we have found if alignment is there. It works. It works. And the only thing I would add to that is There's a very big difference in doing something scripted as opposed to doing something live Unscripted. And you can tell whether someone is going to work or not In a 1 hour meeting, so we think I'm good at it.

Speaker 2

We do have the number 1 and number 3 fashion shows On QVC, we've learned what works.

Speaker 7

Excellent. Thank you. That was very helpful. And I also wanted to bring up, of course, a big announcement that was made this morning in your industry, Tapestry agreeing to acquire The Michael Kors Group, it's now Capri Holdings, big numbers being tossed around. And I wondered What kind of impact do you think that might big deals like that and all the consolidation we see at the luxury level, What impact, if any, does it have on your aspirations to acquire additional brands?

Speaker 7

Is there any impact on valuation In the groups where you're looking or does it actually increase the number of targets that Are showing up and saying, hey, we want to find somebody to talk to.

Speaker 2

So it's It's an interesting question. As these companies begin to consolidate, It takes another very big transaction for them to move the needle. So in some ways, it's good for us because We're not looking for $1,000,000,000 transactions. We're looking for brands that Fit into our economic profile, if you will. And quite frankly, New social media brands are not something that At least for the moment, our high focus for Capri We're companies like that.

Speaker 2

So we think we're uniquely positioned as a company to attract Mid tier companies and or smaller players to come to a platform that is very forward thinking and understand And where everything is going at the moment with streaming and particularly social commerce. So we're excited. Today's acquisition was certainly big within the industry.

Speaker 5

Deborah, I would also add, when you look at the environment, there's a lot of brands that are either direct to consumer or Traditional brands in our industry, as Bob mentioned on the call, it's a challenging time in retail in our industry, especially as interest rates have come up. A lot of these brands that went through COVID and survived COVID in the era of cheap financing no longer have that option. So we're seeing a lot of brands, A lot of businesses that in the M and A world, we feel like it's our opinion that M and A in the Apparel industry is going to actually skyrocket over the next 12 months. As always, as Bob mentioned, we are very careful terms of what we look at and the types of brands and what we look at, but we do see a lot of deal flow right now and I really think it's only going to increase over

Speaker 2

the next 12

Speaker 7

Excellent. Thank you. And then if I could just squeeze in one question that probably has a very simple answer For Jim, I just want to clarify the $4,000,000 run rate quarterly run rate for operating expenses. Jim, I think you said this was to be achieved by the end of 2023. And might that then be Suggestive of us seeing the $4,000,000 for the first time In, say, the Q1 of this next year.

Speaker 4

Yes. So Deborah, if you look at our last two quarters that we filed, we had I believe we had $1,000,000 plus pickup, I should say reduction in expenses in the Q2 compared to the Q1, I believe our operating expenses $5,100,000 So we're continuing to see those cuts come into play and in the 3rd quarter we'll We'll be down somewhere another $600,000 and by the Q4, we'll be at $4,000,000 run rate on an annualized basis I'm sorry, on a quarterly basis going forward. And I would like to add, we are still looking at ways to even cut costs further for 2024. So we'll get down to $4,000,000 this year And hopefully, we'll get even below that outside of any other expansions that could arise that would change that.

Speaker 7

Excellent. Thank you very much for your responses to my questions.

Speaker 2

Thank you, Deborah.

Operator

And we currently have no questions in our queue at this time. I will turn the call back over to the presenters.

Speaker 2

Thank you, Kristen. Ladies and gentlemen, thank you for your time this evening. We greatly appreciate your continued interest and support in

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Key Takeaways

  • XL Brands has completed its transformation from a working-capital-intensive wholesale model to a licensing, livestream shopping and social commerce platform and expects to save approximately $13 million in annual operating costs, return to profitability and achieve positive monthly EBITDA by year-end 2023.
  • The company signed a 25-year master license for the Halston brand with G-III Apparel targeting $250 million in annual wholesale sales by year four (generating an estimated $8 million in annual royalties), moved its Judith Ripka business to Jewelry TV with an October on-air launch featuring a celebrity host, and expanded C Wonder on HSN with 1 Jeanswear.
  • In Q2, revenue totaled $6.8 million (down year-over-year due to a prior brand sale) while operating expenses fell 45% to $5.2 million, driving a GAAP net loss of $3.5 million (compared to prior-year income), a non-GAAP loss of $1.7 million and an improved adjusted EBITDA of –$0.9 million.
  • As of June 30, XL Brands held $3.5 million in cash, $6 million of positive net working capital, has repaid its term debt and expects to reduce quarterly operating expenses to a $4 million run rate by Q4 2023, supporting adequate liquidity.
  • The company’s proprietary social commerce marketplace technology, which shifts marketing spend to a pay-per-sale influencer model and addresses poor return on ad spend, is completed and in testing with Longaberger, with a full holiday-season launch planned.
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Earnings Conference Call
Xcel Brands Q2 2023
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