Iconix Brand Group, Inc. (ICON)

Q2 2012 Earnings Call

July 25, 2012 10:00 am ET


Neil Cole - President & CEO

Yehuda Shmidman - COO

Warren Clamen - EVP & CFO


Susan Anderson - Citi

Jessica Schoen - Barclays

Eric Beder - Brean Murray, Carret

Jim Chartier - Monness, Crespi, Hardt

Diana Katz - Lazard Capital Markets

Steve Marotta - CL King

Ronald Bookbinder - The Benchmark Company



Good day ladies and gentlemen, and welcome to the second quarter 2012 Iconix Brand Group, earnings conference call. My name is Ann and I’ll be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. (Operator Instructions) We will be facilitating a question-and-answer session following the presentation.

Our speakers for today will be Mr. Neil Cole, Chief Executive Officer, Mr. Yehuda Shmidman, Chief Operating Officer and Mr. Warren Clamen, Chief Financial Officer.

Before we begin, the company has asked me to read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this conference call are forward-looking statements that involve a number of risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the company.

This may cause the actual results, performance or achievements of the company to be materially different from the results, performance or achievements expressed or implied by such forward-looking statements.

The words believe, anticipate, expect, confident and similar expressions identify forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

And now I would like to turn the call over to Mr. Warren Clamen.

Warren Clamen

Good morning everyone and welcome to the Iconix Brand Group second quarter 2012 earnings conference call. On today’s call, we will review our second quarter financial results, provide an update on brand initiatives and discuss our overall outlook for the company.

Reviewing results for the second quarter ended June 30, 2012. Revenue was $93.6 million, up 5% increase as compared to $89.3 million in the second quarter of 2011. The anticipated transition of the Royal Velvet license and the year-over-year declines in our Men’s businesses were offset by the strengths across the remainder of our portfolio and the completion of our new joint venture in India, which contributed approximately $5.6 million to the topline.

In the second quarter, we generated $51.9 million of free cash flow or $0.72 per diluted share, a 16% increase over the prior year quarter. We have a reoccurring annual tax benefit of approximately $30 million, which combined with our non-cash compensation and depreciation and amortization, create a reoccurring annual delta of approximately $50 million to $60 million between our non-GAAP net income and our free cash flow.

EBITDA in the first quarter was approximately $58.4 million as compared to approximately $58.1 million in the prior year quarter. Our EBITDA margin in the second quarter was approximately 62%. The margin decline versus the prior year quarter primarily reflects a stronger PEANUTS business this year, which have lower margin. Although expenses are slightly up year-to-date, we are still on-track to be down approximately $9 million to $10 million for the full-year.

Non-GAAP net income which excludes non-cash interest related to our convertible notes was $32.4 million compared to $32.3 million in the prior year quarter and diluted non-GAAP earnings per share was $0.45 compared to $0.43 in the prior year quarter.

GAAP net income and diluted EPS in the second quarter of 2011 included a non-cash, non-re-occurring gain of approximately $21.5 million related to the company’s acquisition of the global master license of the Ed Hardy brand in April 2011.

GAAP net income in the second quarter was approximately $28.6 million as compared to $41.5 million in the prior year quarter and GAAP diluted EPS was $0.40 compared to $0.55 in the prior year quarter.

Reviewing our results for the six months ended June 30, 2012, our revenue increased to approximately $182.1 million. We generated free cash flow of $99.4 million. Our EBITDA was approximately $115.2 million. Our non-GAAP net income, as previously defined, was approximately $64.4 million and our diluted non-GAAP earnings per share was $0.88.

In terms of seasonality, we expect revenue and earnings in the second half to be lower than the first half reflecting the royalty structures for our larger direct to retail licenses and the completion of the India joint venture in this second quarter which contributed approximately $0.05 to the diluted EPS.

EBITDA, free cash flow, non-GAAP net income and non-GAAP diluted EPS are all non-GAAP metrics and reconciliation tables for each can be found in the press release sent out this morning or on our website iconixbrand.com.

Moving on to our balance sheet, we believe that we continue to be in an extremely strong position with our net debt to EBITDA under two times and the majority of our portfolio essentially unencumbered, we have significant borrowing capacity. We believe there are a variety of financial options available to the company including always a securitization and the term loan market which will allow us to continue to execute against our acquisition strategy as well as share repurchases.

At the end of the second quarter, we paid off our $287.5 million convertible notes through a combination of existing cash and borrowings under our $150 million revolving credit facility. Following this payment, we ended the quarter with approximately $50 million in cash and $490 million in long-term debt.

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