Iconix Brand Group Inc. reported a big miss on its second quarter results and disclosed an ongoing periodic review of its fiscal 2014 results with the Staff of the Securities and Exchange Commission days after its CEO and founder stepped down from the chairman's post and resigned from the board.

The brand licensing and management company whose portfolio includes the Danskin and Umbro brands, reported total revenue fell 17.2 percent year over year to $98.5 million for the quarter, missing analysts' estimates of $113.0  million. Licensing revenue for the second quarter of 2015 was approximately $98.5 million, a 1 percent increase as compared to approximately $97.5 million in the second quarter of 2014. Total licensing revenue was negatively affected by approximately $3.7 million due to foreign exchange rates. Excluding the effect of foreign exchange rates, licensing revenue increased 5 percent.

There was no “Other revenue” in the second quarter of 2015, as compared to approximately $21.4 million of Other revenue recorded in the second quarter of 2014 related to the sale of the Sharper Image e-commerce business and a transaction related to our Southeast Asia joint venture.

Due in large part to there being no Other revenue in the quarter, all metrics decreased. Adjusted EBITDA attributable to Iconix for the second quarter of 2015 was approximately $51.2 million, a 34 percent decrease as compared to approximately $78.2 million in the prior year quarter. On a non-GAAP basis, net income attributable to Iconix was approximately $22.3 million, a 44 percent decrease as compared to the prior year quarter of approximately $39.6 million.

Non-GAAP diluted EPS for the second quarter of 2015 was 45 cents, a 40 percent decrease as compared to 75 cents in the prior year quarter. Analysts had expected 70 cent per share. GAAP net income attributable to Iconix for the second quarter of 2015 was approximately $14.8 million, a 58 percent decrease as compared to $35.3 million in the prior year quarter, and GAAP diluted EPS for the second quarter of 2015 decreased approximately 51 percent to 30 cents compared to 60 cents in the prior year quarter.

Free cash flow attributable to Iconix for the second quarter of 2015 was approximately $75.4 million, a 117 percent increase as compared to the prior year quarter of approximately $34.7 million. Free cash flow for the second quarter of 2015 includes a $15.5 million tax refund of which there was no comparable refund in the prior year quarter and additionally benefited from the timing of approximately $11.4 million of tax withholding payments that will be paid in the third quarter. Excluding these items, free cash flow increased $13.8 million or 40 percent from the prior year quarter.

Results for the Six Months Ended June 30, 2015
Licensing revenue for the six months ended June 30, 2015 was approximately $193.8 million, an 8 percent decrease as compared to approximately $209.7 million for the prior year period. Total licensing revenue was negatively affected by approximately $6.5 million due to foreign exchange rates. In addition, licensing revenue in the 2014 period included $17.1 million of revenue related to the 5-year renewal of the Peanuts specials with ABC. After excluding the effect of foreign exchange rates and revenue related to the ABC renewal in the prior year, licensing revenue increased approximately 4 percent.

There was no Other revenue in the six month period, as compared to approximately $25.4 million of Other revenue recorded in the prior year period.

Due in large part to there being no Other revenue in the six month period, all metrics decreased. Adjusted EBITDA attributable to Iconix for the six month period was approximately $104.0 million, a 30 percent decrease as compared to approximately $147.9 million in the prior year period. On a non-GAAP basis, as defined in the tables below, net income attributable to Iconix for the six month period was approximately $49.3 million, a 38 percent decrease as compared to approximately $78.9 million in the prior year period, and non-GAAP diluted earnings per share was approximately $0.99 for the six month period, a 33 percent decrease versus $1.49 for the prior year period. GAAP net income attributable to Iconix for the six month period of 2015 was approximately $77.6 million, an 18 percent decrease as compared to $95.1 million in the prior year period and GAAP diluted EPS for the six month period of 2015 was $1.53, a 6 percent decrease as compared to $1.63 in the prior year period.

Free cash flow attributable to Iconix for the six month period was approximately $105.4 million, a 25 percent increase over the prior year period of approximately $84.1 million.

Adjusted EBITDA, free cash flow, non-GAAP net income and non-GAAP diluted EPS are all non-GAAP metrics and reconciliation tables for each are attached to this press release.

F. Peter Cuneo, Chairman and Interim Chief Executive Officer of Iconix, said, “In looking at today's results I believe the most important take-away is that Iconix' core underlying licensing business remains healthy and continues to generate significant free cash flow. I am genuinely optimistic about the future of our company and believe that Iconix has significant strengths upon which to build, including its global portfolio of over 35 diversified consumer brands and its profitable business model. I believe the company is well positioned to resume its growth trajectory both organically and through new acquisitions.”

2015 Guidance for Iconix Brand Group, Inc.
For the full year 2015, the company expects licensing revenue to achieve low single digit growth, and to be in a range of $410 million to $425 million.  The company will continue to look for strategic opportunities and is forecasting approximately $5 million to $15 million of “Other revenue” in 2015.  The company is revising its 2015 non-GAAP diluted EPS guidance to a range of $2.00 – $2.15, and its 2015 GAAP diluted EPS to a range of $2.24 – $2.39.  The company still expects to achieve significant free cash flow for the full year and is revising its 2015 free cash flow guidance to a range of $170 million to $190 million.

The guidance relates to ICON's portfolio of existing brands and does not include any additional acquisitions.

Discussions with the Securities and Exchange Commission
Iconix is currently in a comment letter process with the Staff of the Securities and Exchange Commission relating to an ongoing periodic review of the company's Form 10-K for the year ended December 31, 2014. The current correspondence relates to the accounting treatment for the formation of the company's international joint ventures under U.S. Generally Accepted Accounting Principles and whether such joint ventures should potentially have been consolidated in the company's historical results. The company's Board of Directors also formed a Special Committee consisting of independent directors to review the accounting treatment related to certain of the company's international joint venture transactions.

The material terms of the joint venture agreements have been fully disclosed in the company's prior filings, and the company's independent auditors have audited and reviewed such filings. In the past three years, the gains that the company recognized related to the formation of joint ventures were approximately $46.5 million in 2014, $24.6 million in 2013, and $5.6 million in 2012. If consolidation of the joint ventures is required, these gains would be reversed and treated as non-controlling interests. We continue to believe that the structure of our joint venture transactions should not result in consolidation and have presented our views and supporting accounting literature to the Staff.

While the ultimate outcome of the Staff's comment letter process is unknown and may have a material effect on the company's historical financial statements, the company believes that the results of the comment letter process will not have a material impact on historical free cash flow, will not impact the company's reported results for the first half of 2015, and will not impact the company's overall business strategy of forming joint ventures with large, well-capitalized partners that have local market expertise to organically grow the existing portfolio of brands globally. The company will continue to work closely with the Staff to resolve any remaining open comments.

The company does not expect to comment further on the Special Committee's review until it deems disclosure necessary or appropriate.