Iconix Brand Group Reports Financial Results For The Fourth Quarter & Full Year 2016

NEW YORK, Feb. 22, 2017 /PRNewswire/ --

• Q4 & FY 2016 licensing revenue of $87.1 million and $368.5 million, respectively
• $28.1 million gain related to the sale of the Sharper Image brand
• Estimated non-cash trademark and goodwill impairment charge of approximately $443 million

Iconix Brand Group, Inc. (NASDAQ: ICON) ("Iconix" or the "Company") today reported its financial results for the fourth quarter and full year ended December 31, 2016. 

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 2 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% 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% for the quarter.  

For the full year 2016, licensing revenue was approximately $368.5 million, a 3% decline as compared to $379.2 million in 2015. Revenue in 2015 included approximately $5.0 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% for the year.

Segment Data:

The Company is providing revised segment data that breaks out international as a separate segment, consistent with how the business is run. Historical segment data can be found on the Company's website www.iconixbrand.com.

SG&A Expenses:  

Total SG&A expenses in the fourth quarter of 2016 were $57.3 million, a 1% 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% 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% 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 (1):

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% 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% 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.  

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% 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 (1):  

GAAP net income for the fourth quarter of 2016 reflects a loss of approximately $297.5 million, as compared to a loss of approximately $263.0 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 $22.0 million, a 79% 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 $0.38 as compared approximately $0.25 in the fourth quarter of 2015.

Non GAAP net income for the full year 2016 was approximately $74.3 million, a 12% 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. 

Free Cash Flow (3)

The Company generated approximately $139.9 million of free cash flow in the fourth quarter of 2016, a 144% 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% increase as compared to approximately $202.4 million in 2015.

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 $0.43 to $0.58.  GAAP EPS in 2017 is expected to include approximately $0.15 related to non-cash interest expense, $0.05 of estimated special charges, and a $0.07 loss related to the early extinguishment of debt.
• The Company expects 2017 non-GAAP EPS to be in a range $0.70 to $0.85. This compares to an adjusted EPS of approximately $0.78 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.

Non-GAAP net income, non-GAAP diluted EPS and Free Cash Flow are non-GAAP metrics, and reconciliation tables for each are included in this press release.

Conference Call

The Company will host a conference call today at 5:00PM ET. The call can be accessed on the Company's website at www.iconixbrand.com.

About Iconix Brand Group, Inc.

Iconix Brand Group, Inc. owns, licenses and markets a growing portfolio of consumer brands including: CANDIE'S (R), BONGO (R), JOE BOXER (R), RAMPAGE (R), MUDD (R), MOSSIMO (R), LONDON FOG (R), OCEAN PACIFIC (R), DANSKIN (R), ROCAWEAR (R), CANNON (R), ROYAL VELVET (R), FIELDCREST (R), CHARISMA (R), STARTER (R), WAVERLY (R), ZOO YORK (R), UMBRO (R), LEE COOPER (R), ECKO UNLTD. (R), MARC ECKO (R) ARTFUL DODGER (R) and STRAWBERRY SHORTCAKE (R). In addition, Iconix owns interests in the MATERIAL GIRL (R), PEANUTS (R), ED HARDY (R), TRUTH OR DARE (R), MODERN AMUSEMENT (R), BUFFALO (R), NICK GRAHAM (R), HYDRAULIC (R), and PONY (R) brands. The Company licenses its brands to a network of leading retailers and manufacturers that touch every major segment of retail distribution from the luxury market to the mass market in both the U.S. and worldwide. Through its in-house business development, merchandising, advertising and public relations departments, Iconix manages its brands to drive greater consumer awareness and equity.

Forward Looking Statements

In addition to historical information, this press release contains forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements include projections regarding the Company's beliefs and expectations about future performance and, in some cases, may be identified by words like "anticipate," "assume," "confident," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek" and similar terms or phrases. These statements include, among others, statements relating to additional information that may require the Company to restate further the financial statements and other financial data in the periods impacted by the restatement and/or additional historical periods. These statements are based on the Company's beliefs and assumptions, which in turn are based on currently available information. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement and could harm the Company's business, prospects, results of operations, liquidity and financial condition and cause its stock price to decline significantly. Many of these factors are beyond the Company's ability to control or predict. Important factors that could cause the Company's actual results to differ materially from those indicated in the forward-looking statements include, among others: the ability of the Company's licensees to maintain their license agreements or to produce and market products bearing the Company's brand names, the Company's ability to retain and negotiate favorable licenses, the Company's ability to meet its outstanding debt obligations and the events and risks referenced in the sections titled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as amended, subsequent Quarterly Reports on Form 10-Q and in other documents filed or furnished with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and, except as required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements.

Contact Information:

    Jaime Sheinheit
    Iconix Brand Group 
    VP, Investor Relations
    [email protected]
    212.730.0030

SOURCE Iconix Brand Group, Inc.

Related Links

http://www.iconixbrand.com