Iconix Brand Group, Inc. reported operating income slid 8 percent in the second quarter, while licensing revenue dipped 2 percent.
John Haugh, CEO of Iconix, commented, “I am pleased that for the second quarter, our company has delivered solid results. Our primary goal is to position ourselves to achieve growth while at the same time improving the balance sheet, and we are making progress on both of those fronts.”
John continued, “Over the past few months, we have conducted a broad strategic review of our company, our brands and the overall market. We have identified a number of opportunities that we believe will drive long-term growth that we look forward to sharing with you this fall. In addition, today our balance sheet is in a better position than it was a few months ago, following the refinancing of our 2016 convertible notes and the opportunistic repurchase of a portion of our 2018 convertible notes.”
Second Quarter 2016 Financial Results Licensing Revenue: For the second quarter of 2016, licensing revenue was approximately $95.7 million, a 2 percent decline as compared to approximately $97.4 million in the second quarter of 2015. In the second quarter of 2015, revenue included approximately $1.5 million of licensing revenue from the Badgley Mischka brand, for which there was no comparable revenue in the second quarter of 2016 due to its sale in the first quarter. The second quarter of 2016 benefited from a $0.9 million favorable impact from foreign currency exchange rates, primarily related to the Yen. Excluding Badgley Mischka’s licensing revenue and the currency impact, revenue for the second quarter was down approximately 1 percent.
SG&A Expenses: Total SG&A expenses were $47.1 million in the second quarter of 2016, a 3 percent increase as compared to $45.8 million in the second quarter of 2015. The largest component of the increase is related to the higher expenses associated with the strong entertainment business, which has a higher cost structure as compared to the company’s other segments. In the second quarter of 2016, SG&A included approximately $1.9 million of special charges related to professional fees associated with the continuing correspondence with the staff of the SEC, the SEC investigation and the previously disclosed class action and derivative litigation, as compared to approximately $2.0 million in the second quarter of 2015. These special charges are excluded from the company’s non-GAAP results. Stock-based compensation was approximately $1.5 million in the second quarter of 2016 as compared to $3.3 million in the second quarter of 2015. Gain (Loss) on Sales of Trademarks: In the second quarter of 2016, the company recognized a net pre-tax loss of approximately $1.1 million, primarily related to the sale of the company’s equity stake in the Ed Hardy brand in China, which was sold for $11.4 million in cash. Operating Income: Operating income in the second quarter of 2016 was approximately $47.8 million, an 8 percent decline as compared to $51.8 million in the second quarter of 2015. $1.1 million of the decline was related to a net loss on sale of trademarks, and $0.9 million of the decline was related to the absence of the Badgley Mischka brand, which was sold in the first quarter of 2016.
Interest Expense: Interest expense in the second quarter of 2016 was approximately $28.4 million, as compared to interest expense of approximately $21.4 million in the second quarter of 2015. The increase is related to the new $300 million senior secured term loan that the company consummated in April. The company’s reported interest expense includes non-cash interest related to outstanding convertible notes and amortization of deferred financing costs. Cash interest paid in the second quarter of 2016 was approximately $20.4 million as compared to approximately $12.5 million in the prior-year quarter. GAAP Net Income and GAAP Diluted EPS: GAAP net income was approximately $11.6 million in the second quarter of 2016, a 16 percent decline as compared to approximately $13.7 million in the second quarter of 2015. GAAP diluted EPS in the second quarter of 2016 was approximately 23 cents as compared to 28 cents in the second quarter of 2015. In the second quarter of 2016, the company’s GAAP net income and EPS include a net gain of approximately $4.3 million in other income, primarily related to the repurchase of a portion of the company’s 2018 convertible notes at a discount. Non-GAAP Net Income and Non-GAAP Diluted EPS: Non-GAAP net income was approximately $13.9 million in the second quarter of 2016, a 35 percent decline as compared to $21.3 million in the second quarter of 2015. Non-GAAP diluted EPS was approximately 27 cents as compared to 43 cents in the second quarter of 2015. The largest component of the decline is related to approximately $9 million of incremental interest expense associated with the company’s new senior secured term loan. Balance Sheet and Liquidity: The company ended the quarter with $214.8 million of total cash (including restricted cash of approximately $85 million) and $1.43 billion face value of debt. As of today, the company’s total cash is approximately $245 million, and its face value of debt is approximately $1.36 billion. In April 2016, the company closed on a new $300 million senior-secured term loan credit facility to refinance the company’s previously outstanding convertible notes due June 2016. In June 2016, the company began repurchasing approximately $105 million of its 2018 convertible notes at a discount for approximately $35 million of cash and 7,408,334 shares. The 2018 convertible note transactions were completed in July 2016.
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