Iconix Brand Group, Inc.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Iconix Brand Group First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Ms. Jaime Sheinheit, Vice President of Investor Relations. Please proceed.

[Jaime Sheinheit:]

Good morning, and welcome to the Iconix Brand Group first quarter 2017 conference call. On today's call, we have with us John Haugh, our President and Chief Executive Officer; and Dave Jones, our Chief Financial Officer. During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. 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 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 to not place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. I would now like to turn the call to John Haugh.

[John Haugh:]

Good morning, everyone, and thank you for joining us today. As you know over the past year we have been focused on two key priorities. One improving the balance sheet and two driving organic growth. Today we announced that we are selling the Peanuts and Strawberry Shortcake brands for $345 million in cash to DHX Media subject to a customary working capital adjustment. This strategic transaction enables us to continue to make significant progress and the first of these priorities. I would like to begin today's call by discussing this transaction and its effect on the balance sheet then we will review our Q1 results. Peanuts and Strawberry Shortcake our Iconic brands we are proud of the contributions we have made to these businesses. However, we believe we can generate the most value and growth for our company with a portfolio that is more focused on the businesses where we have a leadership position including fashion, active and home. With the significant resources required to stay competitive in the entertainment and a constant need for new content generating incremental profit and entertainment would have been challenging for us particularly in a segment which already run significantly lower margins as compared to the rest of our business. The sale of these brands allows us to monetize the value we have created with an original investment of $246 million the valuation we receive is compelling. In addition, with 100% of the net proceeds being used for debt reduction this improves our leverage and positions us better to refinance upcoming maturities. With the proceeds from the sale plus additional cash on our balance sheet we plan to reduce debt by $362 million which includes paying down the entire balance of an expensive and highly restrictive term loan. Including previous payments on our convertible notes, term loan and securitization we will have reduced our debt by approximately $615 million in the past year. Following this transaction we expect our gross leverage to be approximately 6.5 times and our net leverage to be in the high-5s. This represents an improvement of approximately two turns from the beginning of 2016 and brings us closer to our target of net leverage of under five times by 2019. We're making good progress on refinancing the 2018 convertible notes and [indiscernible] and Dave will provide an update later in the call. We are pleased with our progress and improving the balance sheet and believe our company is in a much stronger position today than a year-ago. Moving to our second priority organic growth there have been some challenges, but we are working on initiatives including the rollout of 2017 new licenses that we signed this year that should drive improved revenue performance in the back half of the year. Let me provide some specifics on the revenue performance. In the first quarter of 2017 total revenue excluding divested brands was down approximately 11%. However, the decline is not reflective of transit across the entire portfolio. While we expect similar revenue trends to continue in the second quarter organic growth remains a top priority for our company and we're confident in our full-year outlook which implies flat to down low single-digits in revenue and EPS within previous guidance. Now, let me turn to the segments. Revenue in the Women's segment was down 12% in the quarter, the largest drivers of a decline in women's for the Danskin, Mossimo and Ocean Pacific brands. For Danskin brand the decline was related to a recent contract renewal change in which the Danskin now the brand of Wal-Mart switched to a flat rate versus a tiered structure and Wal-Mart’s overall strategy to keep opening price point items in their house brands. With this 100 plus year of heritage, we continue to believe Danskin is one of the strongest brands in our portfolio and we are moving forward with our heritage upstairs business with key partners including Lord & Taylor, Costco and T.J. Maxx and we have launched the new lingerie license. We expect this to help counterbalance that declines in the Danskin Now business. Our Ocean Pacific brand which is known for its California lifestyle origins has been nearly positioned as a swim brand at Wal-Mart. We are working to transform OP back to the lifestyle brand it once was. We are having success with a capsule at Urban Outfitters, featuring graphic tees, board shorts, women's tops and dresses and more J Lo and Janet Tatum have been spotted recently in this collection. Mossimo target as expected was down in the quarter and it’s planned down for the year as target shifted some of its young contemporary collection to who, what, where. With a significant percentage of the Women segment tied to large brick and mortar retailers, we expect to see continued pressure in sales. However, we believe there are opportunities to capture incremental revenue through both new and improved services and partnerships. For example, Material Girl, Beauty has been place with two national retailers and some beauty vertical and a Candies kid line will have new distribution this fall as well. Revenue in the Men's section was down 20% in the quarter, the largest driver of the decline in the Men's segment was the Starter business which accounted for approximately half of the decline. As mentioned on previous calls, Starter has been downsized at Wal-Mart, but we are working on new strategies outside of Wal-Mart to offset declines. The Starter brand continues to show up on athletes and celebrities and we expect the Starter Black business to double in sales this year. Our Men’s Fashion business continues to struggle. However, we have initiatives that should deliver a flat annual performance including the PONY shoe relaunch, the launch of Ecko function and new active collection and approximately 30 mega Ecko stores going into J. C. Penney. Revenue in the Home segment was up 1% in the quarter. The home business remains healthy with Royal Velvet at J. C. Penney, Fieldcrest at Target and Charisma at Costco all delivering on budget. And we continue to see opportunities to expand the Waverly brand which is launching new categories including storage, housewares, beach, kitchen linens and guests. Revenue in the International segment was down 8% in the quarter. The results were mixed across geographies. We generated double-digit revenue growth in the key regions of China, Brazil, Europe, and India. However, this growth was more than offset by weakness in our joint venture businesses in Canada and Southeast Asia and tough prior year’s comps in Umbro and the Diamond Icon business. We have several territories that are gaining momentum and we expect international revenue to be flat for the year. I would now like to turn the call over to Dave Jones.

[David Jones:]

Thanks, John, and good morning, everybody. With today's results and the announced sale of Entertainment segment, we are updating our financial reporting and associated metrics and would like to note the following. Beginning this quarter, we are now reporting results from the Entertainment segment as a discontinued operation. With the planned reduction in debt, we expect to realize interest savings of approximately $30 million on an annualized basis. And today we also introduced a new adjusted non-GAAP metric to account for the significant cash tax advantages of our business model. Importantly, even with pressures from the retail environment and the elimination of approximately 30% of our revenue with the sale of the Entertainment business, we've been able to hold our bottom line for the full-year and we reported Q1 earnings in line with our expectations. The following discussions related to continuing operations unless otherwise noted. For the first quarter of 2017 revenue was $58.7 million and 11% decline as compared to comparable revenue of $66.1 million in the prior year quarter. While comparable revenue was down 11% in the quarter this was offset by SG&A which was down 22%. The largest driver of the SG&A decline was related to lower compensation expense. Special charges in the quarter were $2.2 million as compared to $5.5 million in the prior year quarter. Excluding special charges SG&A expenses were $23.3 million, a 14% decline as compared to $27.1 million in the prior year. Operating income was $33.6 million in the first quarter of 2017 as compared to $46.3 million in the first quarter of 2016. However, in the prior year operating income included $11 million from gains on sale of trademarks and $1.3 million from income related to divest brands. Excluding these items, operating income was down 2% in the first quarter. Based on these numbers, our operating margin in the first quarter of 2017 was approximately 57%, a five percentage point improvement as compared to approximately 52% in the first quarter of 2016. non-GAAP earnings per share from continuing ops was approximately $0.21 in the first quarter of 2017 and non-GAAP earnings per share from discontinued operations was approximately $0.02. This compares to non-GAAP earnings per share from continuing operations of approximately $0.47 in the first quarter of 2016 and non-GAAP earnings per share from discontinued operations of approximately $0.07. Continuing operations in the first quarter of 2016 includes approximately $0.14 from gains and sale of trademarks. Going forward, as I mentioned, the Company will also report non-GAAP net income and non-GAAP EPS adjusted for non-cash taxes related to the amortization of wholly-owned intangible assets that are amortizable for U.S. income tax purposes obviously a tax effective at 35%. So similar to adjusting for non-cash interest expense, we will now also adjust for the most significant component of our non-cash taxes. In the first quarter of 2017, the cash benefit from the tax amortization was $7.3 million or $0.13 per diluted share, as compared to $7.5 million or $0.15 per diluted share in the first quarter of 2016. Including this tax adjustment, non-GAAP earnings per share for the first quarter of 2017 was $0.34 compared to $0.62 in the first quarter of 2016. The cash benefit of amortizing our intangible assets for tax purposes is a unique attribute of our business model that we have found is often unknown or misunderstood, after presenting at multiple conferences and speaking with numerous and investors this year, we've determined that highlighting this advantage will be useful for investors in evaluating the business. For the remainder of this year, we will report non-GAAP metrics, so including and excluding the benefit. Moving on to the balance sheet, following the sale of the Entertainment segment and the planned reduction of debt, we expect our debt balance to be approximately $840 million, a $650 million reduction from less than a year-ago. We anticipate paying off our 11.5% term loan eliminating a number of restrictions that we have on cash and transactions. Following this transaction as John mentioned, we expect our gross leverage to be approximately 6.5 times and our net leverage to be in the high-5s. This represents a significant improvement of approximately two churns from the beginning of 2016, which brings us closer to our target net leverage of under five times by 2019. Historically, with significant restrictions on our cash, we had reported leverage on a gross basis. However, with the majority of our restrictions about to be listed, we believe net leverage is a more appropriate metric. As for the 2018 convertible notes, we are talking to multiple lenders and we have received indications of interest including one preliminary offer that gives us confidence that we will have a reasonable solution for the refinancing. Regarding the VFNs that mature in 2018, we have also received a great deal of interest from lenders. We have reached agreement in principle and are confident we can get this done shortly. Turning to guidance, we are resetting guidance to reflect the Entertainment segment as a discontinued operation and are providing guidance for an additional non-GAAP metric that I mentioned that accounts for a significant cash tax benefit of our business model. The following guidance refers to continuing operations. We expect 2017 revenue to be in a range of $235 million to $245 million as compared to $245 million in 2016 when adjusting for the divestitures of entertainment, Sharper Image and Badgley Mischka. For reference in 2016 the Entertainment segment generated $113 million of revenue and in the first quarter of 2017 revenue from the Entertainment segment was running up 2%. We're revising our 2017 GAAP earnings per share guidance to $0.29 to $0.44 from $0.43 to $0.58 to reflect an additional anticipated loss related to the early extinguishment of debt with existing cash on the balance sheet. We are maintaining our 2017 non-GAAP earnings per share guidance of $0.70 to $0.85. We expect as the elimination of earnings from the entertainment division will be offset by a reduction in interest expense. This compares to approximately $0.78 in 2016 when adjusted for the gain on sale of trademarks, the earnings associated with the Entertainment segment and the Sharper Image brand and interest savings related to portion of debt that was paid down with the proceeds from the asset sales. We estimate the tax savings in 2017 related to the amortization of intangible assets to be approximately $28 million for the year, which would equate to approximately $0.51 of earnings per share. This compares to approximately $28 million in 2016 or about $0.53 of earnings for share. Therefore we expect non-GAAP earnings per share adjusted for tax amortization to be in a range of $1.21 to $1.36. We are also maintaining our 2017 free cash flow guidance of $105 million to $125 million. I'll now turn the call back to John for some closing remarks.

[John Haugh:]

Thanks Dave. We have stated many times that the most important objectives we have to improve our balance sheet and drive organic growth. As we outline today I believe we have the balance sheet under control and we are well on our way to our goal of under five times net leverage by 2019. With respect to organic growth the environment is tough, but our team has been actively working to better manage our existing relationships with our partners and to execute new deals that will provide our company this growth. Our investors should know that although some of our growth initiatives are taking slightly longer than expected to gain traction we have a disciplined approach to expense management which will allow us to deliver our profit commitments. Given the early progress we've made in the first quarter of our three-year growth plan we believe we are on the right track and remain confident in our ability to drive long-term value for our shareholders. With that, I think we're open to questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Bob Drbul from Guggenheim. Your line is open.

[Robert Drbul:]

Hi, good morning, guys.

[John Haugh:]

Hi, Bob.

[Robert Drbul:]

I guess the two questions that I have, the first one is you know with a lot of the changes going on with started in Danskin at Wal-Mart. When you look at the end of 2016 versus the end of 2017 what do you think the Wal-Mart will be as a percentage of your total business when it's all said and done? And then the second question then I have is you know on the confidence level for the back half revenue initiatives to materialize. Can you just highlight maybe a few of the drivers that you know the organic drivers that you do expect to get some traction just sort of see a better organic revenue performance in the second half of the year?

[John Haugh:]

Yes, let me go to the second part of your question first, Bob, it's John. In November of Investor Day we said to get growth we identified some drivers if you remember. One of them was active. Active for us is PONY which will relaunch the Shoe business in the back of the year. We have very, very little PONY business in 2016. So as PONY relaunch is kind of late Q2 that will be all upside for us in 2017 against 2016 we are making progress on the Danskin upstairs business we were a strong partner in Moray and they continue to unveil more opportunities for us. I think we mentioned before when we called or we had a call last quarter we were actually in Vegas. We saw Danskin in the new the Danskin launch business at project in Las Vegas and we have a lot of interest. Obviously a lot of that shows have been 18, but we are getting some orders for 2017, so we feel good about that. And Starter Black, our relationship with G3 who managed Starter Black with us has gotten stronger and that business as I mentioned earlier should kind of 2x this year. We also said for drivers that we were after some new channels. We said we really didn't have presence in drug, dollar or pure-play e-com. We've had meetings with most of the major players there. We've had successful meetings with most of the major players there and we will have some things that will still hit in 2017, so we feel good about that. D2C is frankly taking a little longer to develop than we thought. We felt we'd have a little more e-commerce business. We think we'll get some in the back half of the year not quite as much as we hoped, but anything we get will be a positive comp against last year. And then finally international, we said we had opportunity international because of a couple glitches or some resets in Q1 was off 8% I think I said. And just again we projected the year and we are back to fight for the year, so we believe in some of the key markets like China and Brazil we will pick up business and we'll be flat in international. So we think that will get us – again we told you minus 11 in Q1, we told you Q2 would kind of look the same and so the logical question is what do we have to do in the back half to get to kind of flat to low negative single-digit numbers. We know we have to be positive and as we project we think we'll get there. The first question I think was what percent of our business is Wal-Mart, correct Bob?

[Robert Drbul:]

Yes. And just how it's going to shake out with a lot of the change in the royalty rates in the Starter business in the Danskin now?

[John Haugh:]

I think the right way to think about that is as we look at our overall business with Wal-Mart and some of the shakeout, in the DTR side they are about I think 19%-ish of our DTR business, but then obviously we have a lot of business that isn't DTR. We talked about Ocean Pacific before. We have a strong presence that I think we're in May hit stores a month or two ago. We think we'll have a good 2017 with them and we also think there's an opportunity to continue to build more Ocean Pacific overall like we mentioned with the Urban Outfitters collab. While Wal-Mart will always be one of our absolute strongest partners, we know full well that we have to continue to bring IDS to them, we've brought a new brand IDS to them, we see some good reception and obviously we also bring IDS down to the Sam's Club side of the house. And by the way we have a good Wal-Mart business in Canada and Mexico and Asda in the UK. So we continue to be a very, very – I think important player for Wal-Mart and obviously they are very important player for us. So I think there will be some ebbs and flows, but we feel like we've a good strong relationship with these guys.

[Robert Drbul:]

Got it. And then I guess just one last question is with the moves in entertainment, can you update us on your thoughts around – I think you had a 50% operating margin target, where that shakes out now with some of these changes?

[David Jones:]

Yes. Hey, Bob. It’s Dave. Our GAAP reported for Q1 is about 57% and actually if you look at that on non-GAAP basis where we add back our extra professional fees were at about 61%. So historically – or I think we're projecting for 2017 in a high 40’s, so it's a pretty significant improvement in the large, obviously we would expect mid-50’s probably for the full-year.

[Robert Drbul:]

Great. Thank you very much.

[Operator:]

Thank you. Our next question comes from Dave King from ROTH Capital. Your line is open.

[David King:]

Thanks. Good morning, everyone.

[David Jones:]

Hi, Dave.

[David King:]

I guess first off maybe following up on the line of questioning around the revenue outlook, so it sounds like some of the back half improvements going to come from PONY relaunch. I guess do you have the licensee already wind up for that? And then I guess just for that and then more broadly, what sort of visibility do you have and some of that revenue coming through that you are sort of guiding us to is, is there significant amount of overages sort of embedded in that or is there a good amount minimum coverage I guess what are sort of the thoughts around that? Thanks.

[David Jones:]

Sure. So on PONY we have in fact – we think very strong licensee who has developed product. We were playing around little bit with PONY. Last year we had presence in Medwell. We had presence in Barney's. We had some presence in Urban Outfitters, but we weren't really doing any volume that has now all been scoop together and that will frankly we're sideways with them a little bit. We had a disagreement on the contract. It took us a while to get that settled and then we became simpatico and – I think Q3 started putting things together, develop the line of product, have shown it to many people, most of the athletic guys would expect and then some of the fashion retail and we believe we will get. We know which orders we already have lined up for the years. We feel pretty confident that in something like Danskin that is more opportunistic. So we know the meetings we've had because oftentimes we will attend with more arrays as an example. And we know where they are picking up new pieces of business we green lighted today as some – today is Wednesday. On Monday, we green lighted a new account for more array that will be delivering product in July, August, and then we'll be in a position to reorder for Q4. We are doing the same thing on sort of black where we're actually working hand in hand. We also had Starter Black in Las Vegas and set down with Karl and G3 guys and we continue to build that business is a collegiate line that's coming. And then we have a couple more things personally and so we have I think pretty good visibility. We know where revenue is. We know what extra dollars we're trying to chase still in the calendar year. And every Monday we have a thermometer that shows exactly what we have landed and what we still have to land to make sure that we get to the number that we're talking about.

[David King:]

Okay .That's great color. Thanks John. And then maybe a few modeling questions for Dave, so that 61% I think you said core operating margins you have with that was in the sort of in the year ago period. I guess is first off on that front. And then I guess what was Peanuts contributing to EBITDA on us fully integrated basis. I think, if I look at your 2016 results, I think it’s somewhat $34 million, plus in operating from entertainment, but as I look at the DHX release out this morning, it looks like it was more like [20.5], I guess how should be would be thinking about that sort of falling off?

[David Jones:]

Yes so, on the entertainment business you've got a lugged minority interests as well. So I think it's under 30 is probably the right number to think about. On the first question, if I understood you correctly, I think you were asking about, what were those margins like in 2016? So, on a GAAP basis, we were 57% in Q1 of 2017. We were 52% in Q1 of 2016, obviously the pullback on SG&A in 2017 helps a little, and again kind of mid 50s we think is reasonable estimate for 2017 and that would have been a comparable number in 2016 on a continuing off spaces.

[David King:]

Okay. So what I was wondering as I think you said it was 61% of core operating margins in the first quarter of 2017?

[David Jones:]

No. I was saying the 61% is when you look at our non-GAAP metrics. We add back some professional fees. So it increases the margin. In the first quarter it was 57% to 61%. And then – I was going to say that then the same numbers in 2016 where I think about 50% to 58%.

[David King:]

Okay. And then to be clear then, in getting to the guidance for operating margin, is that a GAAP operating margin of the mid 50s or is that a non-GAAP operating margin?

[David Jones:]

Yes, mid 50s is non-GAAP.

[David King:]

Okay. And then I guess one more for you and then I’ll go back to the…

[David Jones:]

And just to be clear, the non-GAAP is always going to be a little bit higher than the GAAP because of the one year back we have an SG&A.

[David King:]

Right. Okay, understood. And then one more in terms of the interest expense for 2017, how should we be thinking about that now given the material savings, forgive me if I missed it. But what should we be assuming on a GAAP – I guess GAAP and non-GAAP I guess basis?

[David Jones:]

Yes, so we said about $30 million would come out in interest savings that’s an annualize number. Going forward let say on a non-GAAP basis I would say we’re probably look at about what $50 million.

[David King:]

Okay. Perfect. All right. Well thanks for taking all my questions and nice job and the sales and get addressed and good luck with the rest of year.

[John Haugh:]

Thank you.

[David Jones:]

Thank you.

[Operator:]

Thank you. Our next question comes from Steve Marotta from C.L. King and Associates. Your line is open.

[Steven Marotta:]

Good morning, everybody. Just another question on the topline revenue guidance for the current year of – from organic standpoint of flat to down low single-digits. How much of that is contingent upon licenses not yet signed.

[John Haugh:]

Yes, so I think – it’s John. So if you kind of picked up the midpoint number which we're seeing is $235 to $240 every point is $200 million right pretty easy to calculate. We are chasing somewhere in the range of $5, $6 million we think we have most of that identify not all of it. But as I mentioned a minute ago we know exactly which brands have some upside we're in discussions with licensees right now we're not sure everything will sign, but we do have a plan to bridge us back to that. And frankly we hope we might have a little bit of good news in our pocket, but we don't want to be optimistic at this point. So I would tell you it's kind of 50-ish from where we said we need to make up kind of $5, $6 million and we think we have about half that already banked and that we've got to find the extra two or three. And then we are right there.

[Steven Marotta:]

Just David I wanted to start be divesture of the half that's already banked are you referring to licenses signed since the beginning of the year that will launch in the back half of the year or you're referring to licenses still yet to be signed.

[David Jones:]

They have been signed.

[Steven Marotta:]

I gotcha.

[David Jones:]

Are ready to go have given a samples no where the price can be placed in the second half - I will cover the second bucket. In discussion looking for the right opportunities feel like we'll get there pretty sure we'll get there not there yet, but the first half is written down on the water moving forward.

[Steven Marotta:]

Great. That’s helpful. The second question is what inning do you think you are in regarding portfolio divestitures.

[David Jones:]

Yes, if you remember when we talked the Investor Day if you remember we said we got maintained driver and then we talked about incubate. I think realistically we're now at 28 years brands we think we can run 28. We think there are some good ones out there we will continue to look at them we have pursued some they just haven't come through. I think there's still a handful as we are really looking the portfolio we're not entirely sure it can be meaningful important to us. So if you said since the season is kicked off, if you said in what inning are we in I think we are short of the seventh inning stretch. We're probably in the third or fourth inning. But I think you know we suspected that the entertainment transaction disposition might happen as you can imagine we've been thinking about this working on this for a little while. Sharper Image as we told everybody at the end of the year made sense because it's a brilliant business, but it's Gadget business we're not kind of in that. At this point now most if not all of our brands are within our fashion or active or home. So now it's a question we've got we know what vertical we are in and we know we've got good strong leadership in those verticals and now we need to make sure that the brands that within those verticals are kind of earning their team and the ones that can we will move forward with and we will look for brands that will replace them or have more opportunities. So I would tell you we're happiest way through at this point.

[Steven Marotta:]

Okay. One more question that I suspect you'd be unlikely to answer but it would put some investors I think - it relates to the one preliminary offer that you had received on the converts. Did that include an equity component. Did it include an equity component?

[David Jones:]

No, we've been pretty clear that you know in the term loan situation we wouldn't be interested in equity component. So that was not part of the offer.

[Steven Marotta:]

Great. That's really helpful. And I appreciate your time. Thanks.

[John Haugh:]

Thanks Steve.

[Operator:]

Thank you. Our next question comes from Jim Chartier from Monness, Crespi, Hardt. Your line is open.

[James Chartier:]

Good morning. Thanks for taking my questions. First, I was wondering if you could kind of walk through the cash flow reconciliation post the closing of the entertainment transaction. You've got $345 million coming in and you're paying down $365 million of debt and then cash is going down by I think $100 million something plus.

[David Jones:]

Yes. Hey, Jim, it’s Dave. I think on the free cash flow, if you think about it in very simple terms, we said we probably eliminated about $30 million of EBITDA for operating income from the entertainment business and would have interest savings of about $30 million. So that's why it makes sense that we're maintaining the free cash flow guidance. And then when you look at the quarter, we had operating cash flow of about $12 million versus $16 million in the prior year again down mainly due to the incremental interest expense in 2017, but with the pay down of the term loan we expect that is sensible decrease in the second half.

[James Chartier:]

The question was on in the press release, you’ve provided the summary balance sheet and then you kind of tell us that after the transaction closes, you'll have $105 million of cash down from $208 million I think at the end of the quarter and the debt balance will be $840 million down $365 million, so cash was down over $100 million, that’s down $365 million and you’ve got $345 million of proceeds coming in. So why is cash down $100 million?

[David Jones:]

Well, I think there is – when you look at the term-loan there is a make whole provision. So we've got a decent amount of cash that goes towards the make whole. We also have – we're funding the taxes. We assume there's some cash for taxes and again on the transaction and transaction expenses.

[James Chartier:]

Okay. That’s helpful. And then and again kind of looking at the second half revenue assumptions from a different perspective. The drivers of the double-digit decline in organic revenues for the first half of the year does any of that get better in the second half of the year from kind of the existing business and it's so you know where do you see the improvement come from?

[John Haugh:]

Hey, Jim, it’s John. So if you remember I am going back to strippers I guess in women's we said we have some challenges on Danskin, Massimo. We said Danskin was a combination of a different royalty structure and Wal-Mart moving a couple of their own price point or OPP into their into the house brand. And we also said Massimo was a shift some of their racks to who what where young women can temporary. We think that's constant for the rest of the year we don't think that will blip one way or another at this point. We did though talk about some the other men's friends that we think will make progress in the back half of the year. We think Ecko will make progress in the back half of the year we talked about some megastars going into GCP we talked about the active brand went out the door. We talked about PONY which again last year was very, very modest and so we think we'll pick up a good amount in the back half of the year. So in a couple instances we might have had DTR because of the fact where calendar year January through December and most of our retail partners and retail calendar February through January. I said the right we're January through December retailers are February through January hope I said that right. There's obviously true up that happens in the month of January we got next on a couple brands slightly couple to calls brands those go back to their normal GMRs for the rest of the year. So we believe the DTRs are projected correctly for the rest of the year and in a couple that are down we don't think our are going to term one way or another and we think the business that will help us in the back up get to our guidance of kind of flat to down low single-digit will come from some of the newer incentives not necessary to existing DTRs.

[James Chartier:]

Great thank you. Best of luck.

[John Haugh:]

Thank you.

[Operator:]

Thank you. And our next question comes from Patrick Marshall from Cowen and Company. Your line is open.

[Patrick Marshall:]

Hi, guys, good morning.

[John Haugh:]

Hi, Patrick.

[Patrick Marshall:]

So I Just had a couple of questions on the deal I guess would you be willing to break out within the 345 how much of that was Peanuts, how much of that was Strawberry Shortcake?

[John Haugh:]

It's hard to tell and we sold it as a group. So we will have to do some allocations internally for tax purposes and things like that. But I don't think we would have any need or opportunity that to break it out.

[Patrick Marshall:]

Sure. Yes, I was just trying to think – it will helpful for us to get a sense of the multiple in the event that you guys look for further asset sale divestitures perhaps.

[John Haugh:]

Yes, well I guess what I would tell you is the entertainment may not be a great example because the multiples in the entertainment business is a pretty high right now. The big game that we will record on that transaction will be north of $100 million. And so I wouldn't expect those type of economics from non-entertainment brands going forward.

[Patrick Marshall:]

Got it, okay. And then I guess coming back to the prior question. I just want to – I was hoping to break out a couple of the items with the bridging from the $208 million to the $105 million pro forma cash number? How much is that for just term loan may cost about – is it by my math it's $26 million or $27 million. Is that sound about right?

[David Jones:]

It's a little bit higher than that it's about $30 million.

[Patrick Marshall:]

$30 million, okay. And then within that number you also have the April 25 amortization payments on the secure notes.

[David Jones:]

No, we don't. This is just focused on the transaction.

[Patrick Marshall:]

Okay. So those are incremental.

[David Jones:]

But at the same time, I would tell you have – I also excluded operating cash inflows. So I didn't really look at an operating stuff just wanted to show what the transaction results were.

[Patrick Marshall:]

Okay, understood. And then on your intangible tax amortization disclosure, so the tax rate provision was $5.9 million, the amortization was $7.3 million. Does that imply a net benefit of $1.4 million on a cash basis or am I thinking about the wrong way?

[David Jones:]

No, I would say the cash benefit is the $7.3 million at the rate at 35% right.

[Patrick Marshall:]

Right. But would you net – would that be netted against a $5.9 million provision?

[David Jones:]

It’s included in the $5 – well sorry, the provision on the income statement is our total tax provision. So piece of that that’s current and the piece that deferred and the piece that’s deferred the biggest component of it is tax amortization – intangible amortization.

[Patrick Marshall:]

I guess in other words, I'm trying to get out is like in terms of thinking about where your net is so you expect to be like a net cash recipient through like – you expect to receive a net cash benefit for the year?

[David Jones:]

No I think we would still be cash tax payer. It's just we're trying to show that we do have a pretty significant benefit from the amortization. So we’re not – it doesn't necessarily put us in a well position, it’s – but it’s a big help. So we do [patience on tax].

[Patrick Marshall:]

Okay, some but like – what would say like lows or mid single digits or is it like 10?

[David Jones:]

I don't know that number off top in my head, but we’ll get it.

[Patrick Marshall:]

Okay. Okay, I think that does it for me. I'll get back in queue. End of Q&A

[Operator:]

Thank you. And that does complete our question-and-answer session for today's conference. I would now like to turn the call over to John Haugh for any closing remarks.

[John Haugh:]

Thank you. What I'd like to do if I can, I just want to reiterate. We have said, we're trying to really focus on two priorities, the balance sheet and growth. On a balance sheet, I suspect if we told you a year-ago, we would be talking today and telling you that we were in the high-5s on net leverage, you would wonder. So I think we should feel very, very good about that and now with the balance sheet under control, we can get to the second priority, which I known of interest to our investors and that is to drive growth and we believe we have many pieces in place for that. We gave you a three-year plan, where one quarter into a three year plan or probably the first or second inning, and we feel like we're making some great strides. I also want to just take one moment if I can to thank our entertainment team. We are very, very proud of what Iconix has done in the time that we have owned Peanuts and Strawberry Shortcake. The team has been inspirational passionate has worked like crazy and you can see what we have done with that business in the sale today and also my acknowledge the team inside here with and work on it for a long on time and put countless hours in and they have been absolute – we would not have been able to make this transaction with them. But I think is a certainly a great win for Iconix and I think it's a great win for DHX Media. And finally recognize the Short’s family who has been is going to partners anybody could ever ask for as we have developed this through Iconix business together. And then finally thanks to our investors and thanks to everybody who is listening to us and supporting us and given its counsel. We believe we are on the right road and we look forward to talking to you again in a quarter. Thanks.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does concludes the program you may all disconnect. Everyone have a wonderful day.