John Haugh, CEO of Iconix, commented:

2016 was a year of transition for Iconix. Our operating performance was in-line with our guidance. I believe the changes we have made over the past year provide a strong foundation to drive long term growth and shareholder value.

Key initiatives and positive steps that we took in 2016:

  • We continued to build our team and hired new talent to augment our existing skills and capabilities.
  • We conducted an in-depth analysis of our brands, our partners and the market, and developed a long term strategic plan to drive growth, as we shared at our Investor Day in November.
  • We divested two brands, consistent with our portfolio management approach to brand ownership.
  • We improved our financial stability by retiring over $300 million of debt since the beginning of 2016.

With this work we are on a path to organic growth, improved earnings, an improved balance sheet and continued market leadership.

Fourth Quarter & Full Year 2016 Financial Results

Licensing Revenue

For the fourth quarter of 2016, licensing revenue was approximately $87.1 million, an 8 percent decline as compared to $94.7 million in the prior year quarter. Revenue in the prior year’s fourth quarter included approximately $1.3 million of licensing revenue from the Badgley Mischka brand, for which there was no comparable revenue in the fourth quarter of 2016, due to its sale in the first quarter of 2016. In the fourth quarter of 2016 there was a slight positive impact from foreign currency exchange rates primarily related to the Yen. Excluding Badgley Mischka and the currency impact, revenue was down approximately 7 percent for the quarter.

For the full year 2016, licensing revenue was approximately $368.5 million, a 3 percent decline as compared to $379.2 million in 2015. Revenue in 2015 included approximately $5 million from the Badgley Mischka brand for which there was no comparable revenue in 2016.  In 2016, the company benefitted from a $3 million favorable impact from foreign currency exchange rates primarily related to the Yen.  Excluding Badgley Mischka and the currency impact, revenue was down approximately 2 percent for the year.

Segment Data

($, 000’s)
Three Months Ended Dec. 31,  Year Ended Dec. 31, 
2016 2015 % Change 2016 2015 % Change
Licensing Revenue by Segment:
Women’s 18,773 22,564 -17% 106,527 118,038 -10%
Men’s 11,807 13,121 -10% 48,635 55,208 -12%
Home 10,542 9,646 9% 38,370 36,473 5%
Entertainment 28,341 35,484 -20% 113,318 107,606 5%
International 17,679 13,840 28% 61,611 61,872 0%
Total Licensing Revenue 87,142 94,654 -8% 368,461 379,197 -3%

SG&A Expenses

Total SG&A expenses in the fourth quarter of 2016 were $57.3 million, a 1 percent increase as compared to approximately $56.6 million in the fourth quarter of 2015.  In the fourth quarter of 2016, SG&A included approximately $3.9 million of special charges related to professional fees associated with continuing correspondence with the Staff of the SEC, the SEC investigation, the class action and derivative litigations, and costs related to the transition of Iconix management, as compared to approximately $1.6 million in the fourth quarter of 2015. These special charges are excluded from the company’s non-GAAP net income and EPS. Excluding special charges, SG&A expenses were down approximately 3% in the fourth quarter of 2016. Stock based compensation was approximately $2.1 million in the fourth quarter of 2016, as compared to approximately $1.6 million in the fourth quarter of 2015.

For the full year 2016, total SG&A expenses were $206.6 million, a 1 percent increase as compared to $204.9 million in 2015. In 2016, SG&A included approximately $14.3 million of special charges related to   professional fees associated with continuing correspondence with the Staff of the SEC, the SEC investigation, the class action and derivative litigations, and costs related to the transition of Iconix management, as compared to approximately $11.1 million in 2015. Excluding special charges, SG&A expenses were down approximately 1 percent for the full year 2016.  Stock based compensation was approximately $6.8 million in 2016, as compared to approximately $11.4 million in 2015.

Asset Impairment

In the fourth quarter of 2016, the company will recognize a non-cash impairment charge related to certain of the company’s trademarks and goodwill, which is currently estimated by management to be approximately $443 million. The amount of such impairment charge remains subject to review. As such, the amount of the impairment charge is subject to revision, which revision would also result in an adjustment to the company’s operating income, income before tax, income taxes, net income and earnings per share for the quarterly and annual periods ended December 31, 2016.

 Upon finalization of the impairment charge prior to filing the company’s Form 10-K for the year ended December 31, 2016, the company will record, if necessary, any resulting increase or decrease to the estimated charge in its financial results for 2016.
A significant portion of the trademark impairment was driven by the company’s continuing depressed market capitalization. Additionally, a portion of the impairment was caused by the revision to the company’s reported segments.
Operating Income

Operating Income for the fourth quarter of 2016 was a loss of approximately $385.8 million, as compared to a loss of $398.2 million in the fourth quarter of 2015. Operating Income for the full year 2016 was a loss of approximately $243.1 million, as compared to a loss of $262.7 million in 2015.Non-GAAP Operating Income (adjusted only to exclude expected impairment charges), for the fourth quarter of 2016 was approximately $57.4 million, a 46 percent increase as compared to $39.3 million in the fourth quarter of 2015. Operating income in the fourth quarter of 2016 includes a gain of approximately $28.1 million related to the sale of the Sharper Image brand.For the full year 2016, Non-GAAP Operating Income (adjusted only to exclude expected impairment charges), was approximately $200.1 million, a 14 percent increase as compared to approximately $174.9 million in 2015.  Operating Income in 2016 includes a gain of approximately $38.1 million, primarily related to the sale of the Sharper Image and Badgley Mischka brands.

Three Months Ended Dec. 31,  Year Ended Dec. 31, 
($, 000’s) 2016 2015 % Change 2016 2015 % Change
Operating Income*:
Women’s 15,118 20,062 -25% 94,043 103,289 -9%
Men’s 7,367 2,086 253% 30,322 25,623 18%
Home 8,419 7,761 8% 31,887 30,473 5%
Entertainment 7,439 11,619 -36% 34,281 35,583 -4%
International 8,053 6,876 17% 30,739 34,225 -10%
Corporate 11,013 (9,125) NA (21,178) (54,332) 61%
Total Operating Income 57,409 39,279 46% 200,094 174,860 14%
Three Months Ended Dec. 31,  Year Ended Dec. 31, 
2016 2015 percentage
point change		 2016 2015 percentage
point change
Operating Margin:
Women’s 81% 89% -8% 88% 88% 0%
Men’s 62% 16% 46% 62% 46% 16%
Home 80% 80% 0% 83% 84% -1%
Entertainment 26% 33% -7% 30% 33% -3%
International 46% 50% -4% 50% 55% -5%
Total Operating Income 66% 41% 24% 54% 46% 8%
*Note: Operating Income above excludes the impact of the impairment charges related to certain of the company’s trademarks and goodwill.  Please see reconciliation tables at the end of this press release.
Interest Expense
Interest expense in the fourth quarter of 2016 was approximately $23.1 million, as compared to interest expense of approximately $21.3 million in the fourth quarter of 2015. The company’s reported interest expense includes non-cash interest related to its outstanding convertible notes of approximately $4.1 million in the fourth quarter of 2016 and approximately $7.3 million in the fourth quarter of 2015.Interest expense for the full year 2016 was approximately $97.5 million, as compared to approximately $86.2 million of interest expense in 2015.  The company’s reported interest expense includes non-cash interest related to its outstanding convertible notes of approximately $22.4 million in 2016 and approximately $28.6 million in 2015.
Other Income
In the fourth quarter of 2016, the company recognized a $7.3 million gain, related to the recoupment and final settlement of unearned incentive compensation from the company’s former CEO in connection with previously announced financial restatements. In the fourth quarter of 2016, the company also recognized a $14.4 million loss related to the early extinguishment of debt and the write-down of deferred financing fees. Both of these items are excluded from the company’s non-GAAP results.  For the full year 2016, the company recognized $17.5 million of other income related to the recoupment of unearned incentive compensation from the company’s former CEO, and a gain related to the company’s sale of its minority interest in Complex Media, as compared to other income of $50.9 million in 2015, which was primarily related to a non-cash remeasurement gain associated with the company’s acquisition of 100 percent of Iconix China. The company also recognized a $5.9 million loss related to the early extinguishment of certain debt offset by a gain related to the repurchase of a portion of the Company’s 2018 convertible notes at a discount.
GAAP Net Income And GAAP Diluted EPS
GAAP net income for the fourth quarter of 2016 reflects a loss of approximately $297.5 million, as compared to a loss of approximately $263 million in the fourth quarter of 2015. GAAP diluted EPS for the fourth quarter of 2016 reflects a loss of approximately $5.30 as compared to a loss of approximately $5.44 in the fourth quarter of 2015.For the full year 2016, GAAP net income reflects a loss of approximately $252.1 million, as compared to a loss of approximately $189.3 million in 2015. GAAP diluted EPS for 2016 reflects a loss of approximately $4.82 as compared to a loss of $3.92 in 2015.
Non-GAAP Net Income And Non-GAAP Diluted EPS
Non-GAAP net income for the fourth quarter of 2016 was approximately $22 million, a 79 percent increase as compared to approximately $12.3 million in the fourth quarter of 2015. Non-GAAP diluted EPS for the fourth quarter of 2016 was approximately 38 cents as compared approximately 25 cents in the fourth quarter of 2015.Non GAAP net income for the full year 2016 was approximately $74.3 million, a 12 percent increase as compared to $66.4 million in 2015.  Non-GAAP diluted EPS for 2016 was approximately $1.37 as compared to $1.33 in 2015.
Balance Sheet And Liquidity

The  company ended 2016 with $326.7 million of total cash and $1.3 billion face value of debt.  In 2016, the company reduced its debt balance by approximately $202 million, and in January 2017, the company paid down an additional $102 million of debt. At the end of January 2017, the company’s cash and debt balances were approximately $219 million, which includes approximately $67.6 million of restricted cash, and $1.2 billion, respectively.

($, 000’s) Dec. 31, 2016 Dec 31, 2016
Cash Summary: Debt Summary:
Unrestricted Domestic Cash (wholly owned) 55,235 Senior Secured Notes 651,784
Unrestricted Domestic Cash (in consolidated JV’s) 25,665 1.50% Convertible Notes due 2018 295,050
Unrestricted International Cash 68,511 Variable Funding Note 100,000
Restricted Cash 177,269 Senior Secured Term Loan 263,720
Total Cash $326,680 Total Debt (Face Value) $1,310,554

Free Cash Flow

 The company generated approximately $139.9 million of free cash flow in the fourth quarter of 2016, a 144 percent increase as compared to approximately $57.3 million in the fourth quarter of 2015. In 2016, the company generated approximately $250.8 million of free cash flow, a 24 percent increase as compared to approximately $202.4 million in 2015.
Free Cash Flow Reconciliation:
($, 000’s)
Three Months Ended Dec. 31,  Year Ended Dec. 31, 
2016 2015 % Change 2016 2015 % Change
Net cash provided by operating activities $36,398 $55,227 -34% $115,326 $190,241 -39%
   Plus: Cash from sale of Sharper Image 98,250 – NA 98,250 – NA
   Plus: Cash from sale of Badgley
Mischka		 – – – 14,000 – NA
   Plus: Cash from sale of equity
interest in BBC Ice Cream		 – – – 3,500 – NA
   Plus: Cash from sale of equity
interest in China		 – – NA 15,415 – NA
   Plus: Cash received from sale of
trademarks		 8,458 6,319 34% 14,595 24,192 -40%
   Plus: Cash from notes receivable
from licensees		 4,112 2,416 70% 11,962 11,477 4%
   Less: Capital Expenditures (2,592) (299) 767% (3,636) (1,433) 154%
   Less: Distributions to non-controlling interests (4,696) (6,342) -26% (18,609) (22,080) -16%
Free Cash Flow $139,930 $57,321 144% $250,803 $202,397 24%

2017  Guidance

The company is providing guidance for 2017 as follows:

  • The company expects full year 2017 revenue to be in a range of approximately $350 million to $365 million. This compares to revenue of approximately $359 million in 2016, when excluding revenue from the Sharper Image brand.
  • The company expects 2017 GAAP EPS to be in a range of 43 cents to 58 cents.  GAAP EPS in 2017 is expected to include approximately 15 cents related to non-cash interest expense, 5 cents of estimated special charges, and a 7 cents loss related to the early extinguishment of debt.
  • The company expects 2017 non-GAAP EPS to be in a range 70 cents to 85 cents. This compares to an adjusted EPS of approximately 78 cents in 2016, when excluding gains from the sale of the Sharper Image and Badgley Mischka brands, earnings associated with those brands and using the company’s current diluted share count.
  • The company expects to generate free cash flow in 2017 of approximately $105 million to $125 million.

Iconix’s brands include Candie’s, Bongo, Joe Boxer, Rampage, Mudd, Mossimo, London Fog, Ocean Pacific, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter, Waverly, Zoo York, Umbro, Lee Cooper, Ecko Unltd., Marc Ecko, Artful Dodger and Strawberry Shortcake. In addition, Iconix owns interests in The Material Girl, Peanuts, Ed Hardy, Truth Or Dare, Modern Amusement, Buffalo, Nick Graham and Pony.

Photo courtesy Umbro