Sequential Brands Group Inc. reported a loss in the fourth quarter in part due to a charge tied to exiting a lease on its headquarters. Revenues were down 4.1 percent. The company said it continues to evaluate strategic alternatives, including the divestiture of one or more existing brands or a sale of the company and seeks an extension of waivers to cover financial covenant defaults.
Total revenue from continuing operations for the fourth quarter ended December 31, 2020 was $23.0 million, compared to $24.2 million in the prior-year quarter. On a GAAP basis, loss from continuing operations for the fourth quarter 2020 was $4.4 million or $2.65 per diluted share, compared to a loss from continuing operations for the fourth quarter 2019 of $7.9 million or $4.87 per diluted share.
For both GAAP and non-GAAP financial measures, including a loss from continuing operations for the fourth quarter 2020 was a $2.9 million loss resulting from the company’s entry into an agreement to exit its remaining lease obligation from its former office headquarters. Non-GAAP net loss from continuing operations for the fourth quarter 2020 was $4.5 million, or $2.73 per diluted share, compared to a non-GAAP net loss of $8.9 million, or $5.48 per diluted share, in the prior-year quarter.
Adjusted EBITDA from continuing operations for the fourth quarter of 2020 was $13.2 million, compared to $8.0 million in the prior-year quarter.
Full Year 2020 Results From Continuing Operations
Total revenue from continuing operations for the year ended December 31, 2020 was $89.8 million, compared to $101.6 million in the prior-year period. On a GAAP basis, loss from continuing operations for the year ended December 31, 2020 was $88.1 million or $53.54 per diluted share, compared to a loss from continuing operations of $34.3 million or $21.21 per diluted share for the year ended December 31, 2019. For both GAAP and non-GAAP financial measures, included in the loss from continuing operations for the year ended December 31, 2020, were non-cash impairment charges of $85.6 million for indefinite-lived intangible assets related to the trademarks for the Jessica Simpson, Gaiam, Joe’s, and Ellen Tracy brands reflecting the financial impacts of COVID-19 and a $2.9 million loss resulting from the company’s entry into an agreement to exit its remaining lease obligation from its former office headquarters. Non-GAAP net loss from continuing operations for the year ended December 31, 2020 was $14.5 million, or $8.79 per diluted share, compared to a non-GAAP net loss of $16.0 million, or $9.82 per diluted share, in the prior-year period. Adjusted EBITDA from continuing operations for the year ended December 31, 2020 was $56.9 million, compared to $45.8 million in the prior-year period.
COVID-19 Update
The impact of the COVID-19 pandemic and the pace at which there are new developments has created significant uncertainty in the current economic environment. As states continue to relax and then tighten restrictions, the company is unsure when retail stores will be ordered to close, at what capacity, or how long such periods of store closures will be needed or mandated. For the year ended December 31, 2020, COVID-19 caused a significant reduction in retail stores that remained open and a change in consumer purchasing behavior for specific types of products. Both have led to a reduction in orders from retailers for certain types of products bearing some of its brands. Even as the vaccines are widely administered, the company cannot predict when government restrictions and mandates will be imposed or lifted, or how quickly, if at all, retail stores and customers will return to their pre-COVID-19 purchasing behaviors, so we cannot predict how long our results of operations and financial performance will be impacted. Accordingly, the COVID-19 pandemic has adversely affected its fiscal year 2020 and its projected long-term revenues, earnings, liquidity, and cash flows. The company is not currently able to predict the full impact of COVID-19 on its results of operations and cash flows. For additional information, see the company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Liquidity and Financing Update
Sequential ended the year with $15.5 million in cash. The company is a party to the Third Amendment to the Third Amended and Restated First Lien Credit Agreement (the “Amended BoA Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent and the lender’s party and the Third Amended and Restated Credit Agreement with Wilmington Trust, National Association as administrative agent and collateral agent and the lender’s party thereto, referred to as its loan agreements. At December 31, 2020, the company is in compliance with the covenants included in the Amended BoA Credit Agreement. On November 16, 2020, due to the occurrence of certain events, the company entered into the Fifth Amendment to the Third Amended and Restated Credit Agreement and Limited Waiver with the Wilmington Facility Loan Parties. The Fifth Amendment modified certain of the covenants in, and provided a waiver through December 31, 2020 of defaults under, the Amended Wilmington Credit Agreement. The company received several extensions of the waiver in the first quarter of 2021.
The current extension of the waiver expires on April 19, 2021, and the company is negotiating to further extend the waiver. The company is not currently forecasted to be able to comply, in the next twelve months, with certain of the financial covenants under the Amended Wilmington Credit Agreement. If the company fails to comply with such financial covenants, or further extend the waiver, an event of default under the loan agreements would be triggered and its obligations under the Loan Agreements may be accelerated. The company continues to evaluate strategic alternatives, including the divestiture of one or more existing brands or a sale of the company. The risk of non-compliance creates a material uncertainty that casts substantial doubt with respect to the ability of the company to continue as a going concern. As disclosed in the company’s Form 8-K filed on March 31, 2021, since the Wilmington Facility Loan Parties under the Credit Agreement continued to be lenders as of April 1, 2021, the Wilmington Facility Loan Parties have the right to appoint an independent majority of the company’s Board of Directors, inclusive of Mazzucchelli and Dionne, who currently serve as directors of the company.
Discontinued Operations
On June 10, 2019, Sequential completed its previously announced sale of 100 percent of the issued and outstanding equity interests of Martha Stewart Living Omnimedia, Inc. (MSLO), a Delaware corporation and a wholly-owned subsidiary of Sequential. The company had after-tax net loss from discontinued operations of less than $0.1 million for the fourth quarter ended December 31, 2020 compared to after-tax net loss of $2.9 million in the prior-year quarter. The company’s after-tax net loss from discontinued operations was $1.3 million for the year ended December 31, 2020, compared to an after-tax net loss of $125.1 million in the prior-year period.
The company’s active brands include AND1, Gaiam, SPRI, and Avia. Other brands owned by Sequential Brands include Joe’s, Ellen Tracy, Jessica Simpson, William Rast, Heely’s, Caribbean Joe, DVS, and The Franklin Mint.
Photo courtesy Sequential Brands, Avia