NexCen Brands Reports First Quarter 2010 Results

NexCen Brands, Inc. (PINK SHEETS: NEXC) today reported unaudited financial results for the first quarter of 2010.

Kenneth J. Hall, Chief Executive Officer of NexCen Brands, stated, “While our revenues reflect continued weakness in the macro environment, we continued to generate positive cash flow from operations. Additionally, the cost reduction efforts that we implemented in 2009 resulted in our operating income being relatively flat as compared to the prior year. With that said, exploring alternatives to our capital and debt structure remained our priority throughout the quarter and we are pleased to have recently signed an agreement to sell our franchising business. The agreement allows us to address our current debt and capital structure in a manner we believe is most favorable for all of our stakeholders.”

First Quarter 2010 Operating Results and Financial Highlights

The operating results and financial highlights for the first quarter ended March 31, 2010 are as follows:

• Total revenues in the first quarter of 2010 decreased 16% to $10.0 million from $12.0 million in the first quarter of 2009. The decrease is primarily due to current economic conditions, including continued weak credit markets for franchisees and softness in consumer spending and retail traffic.
• Total operating expenses in the first quarter of 2010 decreased 18.6% to $8.3 million from $10.2 million in the first quarter of 2009. Total operating expenses in the first quarter of 2010 included $0.1 million in strategic initiative expenses associated with identifying and evaluating alternatives to the Company’s debt and capital structure. Operating income in the first quarter of 2010 of $1.7 million as compared to $1.8 million in the first quarter of 2009 was essentially flat. Net loss in the first quarter of 2010 was $0.7 million, or ($0.01) per diluted share compared to a loss of $0.9 million or ($0.02) per diluted share in the first quarter of 2009.
• Cash generated from operations was $1.2 million in the first quarter of 2010 compared to $0.4 million in the first quarter of 2009.
• The Company had cash and cash equivalents of $7.7 million as of March 31, 2010, compared to cash and cash equivalents of $7.8 million as of December 31, 2009.
• The Company’s outstanding debt balance was $136.5 million at March 31, 2010, compared to $138.2 million at December 31, 2009.
• The Company’s average effective interest rate for its credit facility was 6.4% in the first quarter of 2010, compared to 6.4% in the fourth quarter of 2009, and 6.8% in first quarter of 2009. The Company’s interest expense was $2.6 million in the first quarter of 2010, compared to $2.6 million in the fourth quarter of 2009, and $2.8 million in first quarter of 2009.
• Total franchised locations were 1,706 stores at March 31, 2010 versus 1,772 stores at March 31, 2009. The net decrease of 66 stores, or 3.7%, reflects closures, initiated either by the franchisee or the Company, of underperforming and non-compliant stores. Total franchised locations were 1,713 at December 31, 2009.
• The Company executed franchise agreements for 56 new franchise units during the first quarter of 2010, versus franchise agreements for 71 new franchise units in the fourth quarter of 2009.
• Deferred revenue related to the pipeline for franchise stores to be opened pursuant to executed letters of intent and franchise agreements was $2.4 million at March 31, 2010 as compared to $2.8 million at December 31, 2009. Total deferred revenue including vendor rebates remained constant at $3.2 million at March 31, 2010 and December 31, 2009.

Agreement to Sell Franchise Business

As previously announced on May 13, 2010, NexCen Brands entered into an agreement to sell its franchise business to an affiliate of Levine Leichtman Capital Partners (“LLCP”), an independent investment firm with significant franchise management experience. The transaction represents the culmination of a strategic review process that NexCen Brands undertook to identify and evaluate potential alternative approaches to addressing its current debt and capital structure.