Iconix Brand Group, Inc.
Q1 2015 Earnings Call Transcript

Published: 3 May 2015

[Operator:]

Good day, ladies and gentlemen and welcome to Iconix’s first quarter 2015 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 be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. Before we begin I would like to state 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 and involve a number of risks and 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. At this I would like to introduce your host for today’s conference, Neil Cole, Chief Executive Officer; and David Blumberg, EVP, Head of Strategic Development and Interim CFO. Mr. Cole, you may begin.

[Neil Cole:]

Okay, good morning everyone, and welcome to the Iconix Brand Group first quarter 2015 earnings call. Our first quarter 2015 performance was broadly in line with our expectations with the exclusion of our investment in Candies China, which we had originally planned to monetize in Q1 prior to our buyout of our China joint venture but have since determined we should achieve greater value by continuing to hold for the time being. With that said, we remain confident in our overall business and are still on track to deliver on the 2015 guidance we provided to you earlier this year. In the first quarter we continued to execute on our global strategy, which is focused on maintaining our market share in the US, growing organically through international expansion and continuing to develop our entertainment and sports platform including our most recent acquisitions of Strawberry Shortcake and Pony. I would like to make a few observations before I turn the call over to David Blumberg, our interim CFO. While our revenues and earnings for the quarter were down year-over-year, our core licensing business remained healthy with revenue approximately flat to the prior year. When excluding the five-year ABC renewal for the popular Peanuts special in the first quarter of 2014, which the present value of the contract was recognized upon signing. And the Lee Cooper joint venture, which was also signed in the first quarter of 2014. During the quarter we saw great progress in our in our Peanuts brand and we are very excited about the opportunities we will pursue around the global release of the Peanuts movie in the fourth quarter of this year. We see our Strawberry Shortcake and Pony acquisitions generating increasing value throughout the year for our entertainment and our sports platforms. Internationally we continue to make solid strides executing on our strategy and in the first quarter, we acquired full ownership and control of our China joint venture. We view China as a major growth opportunity and are excited to develop new business opportunities through traditional licensing, as well as monetizing our existing brand partnership. Partnerships that have successfully rolled out over 900 stores and shop and shops throughout the China mainland. And lastly we remain actively engaged in identifying new acquisitions and are seeing numerous opportunities, especially global. But as we have said in the past, we will continue to remain disciplined. I will give more color on the business in a few minutes, but will now turn the call over to David, who will take you through our financial results.

[David Blumberg:]

Thank you, Neil, and good morning, everyone. Reviewing results for the first quarter ended March 31, 2015, total revenue in the first quarter of 2015 was approximately $95.4 million an 18% decline as compared to approximately $116.1 million, in the first quarter of 2014. It is important to note that revenue in the prior year quarter benefited from both the $17 million we recognized related to the renewal of the Peanuts specials with ABC and $4 million related to the formation of a joint venture for Lee Cooper. We had no revenue from joint venture from nations in the first quarter of 2015. Excluding these items, revenue was approximately flat. GAAP net income in the first quarter of 2015 was approximately $62.8 million. A 5% increase over $59.8 million in the prior year quarter. GAAP diluted earnings per share was $1.21. A 17% increase when compared to $1.03 in the prior year quarter. In the first quarter of 2015, we acquired the remaining 50% of our Iconix China joint venture and as a result we recognized a $47.4 million pre-tax non-cash gain related to the re-measurement of our initial investment in Iconix China. Similarly in the first quarter of 2014, we acquired the remaining 50% of our Latin America joint venture and as a result we recognized a $37.9 million pre-tax non-cash gain. Both of these gains are excluded from our non-GAAP metrics. In addition, in the first quarter of 2015 the Company recognized a $10.5 million pre-tax foreign currency translation gain. This gain is also excluded from the Company from the Company’s non-GAAP metrics. Non-GAAP net income was approximately $26.7 million, a 32% decline as compared to $39.3 million in the prior year quarter. Diluted non-GAAP earnings per share in the first quarter was $0.54, a 27% decline as compared to $0.74 in the prior year quarter. EBITDA in the first quarter of 2015 was approximately $52.4 million, a 25% decline as compared to $69.8 million in the prior year quarter. And our EBITDA margin in the first quarter of 2015 was approximately 55% as compared to 60% in the prior year quarter. This was expected as the Company anticipated lower margins reflecting increased investment in marking of our brand. In the first quarter, we generated $30.1 million of free cash flow, a 29% decline as compared to $49.4 million in the prior year quarter. The decline was partly related to timing of payment. As well, this year in the first 10 days of April we received approximately $19 million more in cash than we received in the same period last year. We expect free cash flow to be up for the balance of the year. 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 earlier this morning and on our website Iconixbrand.com. Moving on to the balance sheet we continue to be in a very strong position and ended the quarter with approximately $130 million of cash. We have continued to opportunistically buy back our stock and year-to-date have repurchased 360,000 shares. Moving on to guidance. We are maintaining our full year 2015 revenues guidance of $490 million to $510 million. We are maintaining our 215 non-GAAP diluted EPS guidance of $3.00 to $3.15 and we are maintaining our 2015 free cash flow guidance of $208 million to $2018 million. With the Peanuts movie launching in the fourth quarter, and other strategic initiatives anticipated later in the year, we expect revenue and earnings to be more back half weighted with fourth quarter being our latest quarter. With that, I return the call back over to Neil.

[Neil Cole:]

Thank you, David. And looking at our overall portfolio, two key areas of growth in the first quarter were international and entertainment. Our international business, some of which does not reflected in our top line revenues, was up mid single digits in the first quarter with our joint ventures in Australia, Korea, India, Southeast Asia, and the Middle East. And our Latin America business each experienced double digit growth for the full year. We expect our international business for the full year to achieve double digit growth. We continue to make progress on our international development strategy and in the first quarter, we acquired full ownership and control of our China joint venture business. We view China as a major growth opportunity and believe by regaining control we can build upon our existing business and leverage our licensing and brand management expertise to begin generating significant royalty in the region. When Iconix China was formed in September of 2008, it was run under a different operating model with the goal of monetizing equity stakes in the fast-growing local Chinese companies that build out stores for our brands across China. To date, the brands that Iconix China has placed successfully that have over 900 operating units are Candies, Marc Ecko, Cut & Show, London Fog, Material Girl, Ed Hardy, Ecko Unlimited, Badgley Mischka, Joe Boxer and Royal Velvet. Of these brands, Candies is the most developed in China with over 700 stores to date and plans for continued growth. In the first quarter we had planned to monetize our stake in the Candies brand in China following the IPO of our partner on the brand Shanghai la Chappell. However, given the strong prospects for the future we in fact doubled our stake in the JV and we have decided to hold our equity stake in the business as we believe it will have significantly more value in the future. In our entertainment division our Peanuts brand was up 20% for the quarter when excluding the ABC deal made in the first quarter of 2014. The Peanuts movie is already generating tremendous momentum. The movie will open in more than 100 countries and it will hit theaters in the U.S. on November 6, 2015. The Peanuts movie opened at 20th Century Fox Cinemacon presentation on April 23 to great fanfare. The trailer was received enthusiastically and dozens of press outlets covered the news extensively across both print and social media. Merchandising efforts around the movie include retail partnerships with major mass and specialty retail chains in the US, Japan, Europe and Asia. This spring we will be launching some of the largest U.S. footprints ever including seasonal collections in all Target stores an exciting marketing and merchandising presentation with Macy’s. Prior to the movie release we will launching a new TV movie in Japan, one of the strongest markets for Peanuts. For the Strawberry Shortcake brand, the newest addition to our entertainment business, we have brought a strategic focus and are leveraging our Peanuts structure with further character development and new brand initiatives. Strawberry Shortcake has been one of the top girl kid shows on Netflix in the U.S. and in June we will launch the fourth season of the franchise on Discovery Family. This year we will also be launching eight new Strawberry Shortcake apps as well as the new iTunes and voodoo brand rooms for shows. In our women’s division, Danskin Now remains one of the top performing brands benefiting from a strong active wear trend in the opening price point athletic brand at Wal-Mart. Our OP brand has also performed well at Wal-Mart with particular strength in the swim category as we approach the summer season. Our Mossimo brand had a strong quarter with retail sales up at Target. At Sears/Kmart our Bongo and Joe Boxer brands were down in the quarter reflecting overall trends of the retailer which has been closing stores. However, we are encouraged by Kmart’s development of the Joe Boxer brand to include of the Joe Boxer brand to include more sportswear and denim for the key back to school selling period. In our home division, Royal Velvet remains a key brand in JC Penney Home initiative and was featured on the cover of the newly relaunched JC Penney Home catalog. Waiverly had a positive quarter as the brand launched its DTR program at Wal-Mart. Cannon, similar to our other Sears/Kmart brands, was down for the quarter. Our Sharper Image brand was down year-over-year, however, we are developing a distribution strategy that will begin to roll out in the second half of the year. The decline in licensing revenue for our men’s division was primarily due to the Ecko brand and its transition to a new licensee as well as the shift for Lee Cooper in the Middle East from top line revenue in 2014 to the equity earnings on the joint venture line in 2015. Overall, the Lee Cooper brand had a strong first quarter with substantial gains in both Australia and the Middle East. Our Umbro sports brand also had a strong first quarter with revenue up 20% against last year. In the first quarter, we announced a new five-year partnership with the newly crowned Dutch champion PSV Eindhoven, which means Umbro will be part of next season’s prestigious Champion League Tournament. The Company is also working on new initiatives in the men’s division. We have plans to further license out the Rock Nation brand and have signed a new deal to own 50% of Pharrell Williams’ Billionaire Boys Club and Ice Cream Brand. Before we go into the question and answer, I would like to briefly address the recent departure of our CFO and COO who were both in their roles for about one year. As a matter of policy we do not comment on personnel matters but would like to tell you that these departures were completely unrelated to one another and while they took place in close proximity each executive left the organization for their own reasons. As we disclosed in our 8-K filing we do not intend to search for a new COO and the responsibilities of our former COO are now being assumed by the broader Iconix team. As you know we have successfully operated without a COO for most times in our past and we are confident in our ability to perform well under this structure moving forward. Regarding our search for a new CFO, we are making good progress and are working diligently to ensure we get the right person in this position as soon as possible. In the meantime, we are pleased that David has stepped in and is serving as interim CFO. David has been with the Company for over eight years. He is a long-term highly skilled and experienced Iconix executive with deep knowledge of all facets of our business and the capital market. Looking ahead to the remainder of 2015, we are confident in the health of our overall business and believe our Company is positioned for continued success. We have a diversified portfolio of over 35 consumer brands that represent more than $13 billion in annual retail sales and a growing global platform that includes over 15 direct to retail partnerships and over 1100 licensees worldwide. As we said earlier in our presentation, we remain on track to be in the guidance range we provided earlier for 2015 as we expect to benefit from the accelerated growth in the back half of the year from the expansion of our global footprint in our growing entertainment and sports platforms. I would like to thank you all for listening this morning and your continued support and we will now open up the call to question and answers.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from Bob Drbul from Nomura. Your line is open, please go ahead.

[Karen OBrien:]

Hi, good morning, this is Karen OBrien filling in for Bob. You mentioned you touched upon the free cash flow with it being down this quarter around 40% according to you calculations. Can you just walk us through how you continue to plan for over $200 million for 2015? Is it just the $19 million that you commented on for April or what else goes into that? Thanks?

[David Blumberg:]

Sure, Karen. There is a few things. One is that the year-over-year, in our mind, is a timing issue and so we think we are going to see, we know we are going to see the positive impact in Q2. In the first week of April we received $19 million and when you also compare March of this year to March of last year there was some DTR payments made last year early that were for Q2 through Q4. That is why in our minds we are comfortable that we are going to be able to achieve the guidance for the year.

[Karen OBrien:]

Okay, great. And then, regarding the CFO search you mentioned that finding someone as soon as possible. Is there any way you could give us some kind of further update or time frame around that?

[David Blumberg:]

I wish I could, but this is really important for our Company. We had a CFO who was with us for almost I believe nine years and we had our last CFO was less than a year. So, it is really important we get the right candidate and the right person rather than rushing. So, we have been interviewing and pretty hopeful. We have a couple of really strong candidates and hoping to have someone onboard in the near future.

[Karen OBrien:]

Great, okay. And then lastly quick one, can you give us any update on your plans to address the $300 million convert maturity in June next year and how you see the capitalization of the Company going forward given this upcoming event?

[David Blumberg:]

Sure, we see right now there is a lot of money in the marketplace and the way the securities seamed to be priced for comparable companies we will wait until the right time to look at the converts not due until the end of June of next year so we will look at the different options we have. We have a strong balance sheet right now, strong cash flow with the Company, and so when you look at the balance sheet and how we are going to be able to finance things we feel very good about the cash flow, the cash we have, and the capital markets in general.

[Karen OBrien:]

Okay, thank you.

[David Blumberg:]

Thanks, Karen.

[Operator:]

Thank you. Our next question comes from Eric Beder from Wunderlich. Your line is open, please go ahead.

[Eric Beder:]

Good morning.

[David Blumberg:]

Good morning, Eric.

[Eric Beder:]

Hi. Could you talk a little more in depth about the changeover in China to I guess a more traditional licensing model? How can that be done within the contracts you have set up and how should we start thinking about that going forward?

[Neil Cole:]

I think it is probably going to end up being a hybrid. In that we have eight really strong partners today and we own equity in these companies, I believe some of them will be willing to convert to a license. And some of them we might monetize or have some sort of a hybrid solution. We have been talking to all of them. Great companies, it’s very exciting what is happening over there. But it will be a hybrid. It is also important to point out, today Peanuts has a very strong I think it is our is second strongest country and it is a traditional licensing royalty today. We do have an agent over there. It is traditional royalty. So China will be a hybrid because of how we started and a combination of both traditional licensing and equity ownerships that we will one day monetize in the near future.

[Eric Beder:]

Okay. An accounting question. In Q1 was there any revenue from Pony or Strawberry Shortcake in the quarter?

[Neil Cole:]

Very little. And it was offset by the deal costs. Deal costs were almost equal, royalty might have been a few hundred thousand dollars more, but I think they were pretty much offset deal costs versus [indiscernible]

[Eric Beder:]

And it looks like you are assuming more of the non-cash gain related to investments to the rest of the year. Is there something as large as China on the horizon or are these much smaller deals coming down the pipe for that area?

[Neil Cole:]

I think they are smaller. There are a few more places that we will joint venture. But it will be smaller. We are, a lot of our present joint ventures we plan on taking control of based on agreements that will bring another $10 million or $15 million back up to the top line in the back half of the year.

[Eric Beder:]

Okay. Thank you.

[Neil Cole:]

Thanks Eric.

[Operator:]

Thank you. Our next question comes from Kate McShane from Citi Research. Your line is open, please go ahead.

[Jeff Small:]

This is Jeff Small on behalf of Kate McShane. A quick question on the other revenue opportunities and on that last question. Can you talk about the potential formation of joint ventures in Japan and south Africa and whether that is built into current year revenue guidance? And, can you quantify the current value of the China Candies joint venture what that would look like if you were to monetize it today? Thank you.

[Neil Cole:]

I will answer the first question first, I’m sorry the last part of the question first and then try to remember what you said first. China we purchased for I believe roughly $56 million valuing the entity about $112million. Important to remember we started in 2008 each side put in, you know, we put in our IP and Silas put in $15 million. So we’ve created tremendous value in that and it really drives back to our total international strategy which, in reading some of the things out there over the last month or two and being frustrated in some what of a quiet period couldn’t really talk to it, our total joint venture strategy is a little misunderstood in my opinion. We find best in class partners who will probably only be our partner if they got equity and make these joint ventures not to realize short term gain when they buy the IP, but because they are so connected in the markets that we build a pretty big footprint. And if you look at what happened in both China and in Latin America, we have had phenomenal success where in Latin America our royalty has more than tripled since we started and then we rebought back the JV’s. So we will continue to monetize. We will continue to work this strategy. We are seeing our international business this year we believe it could be probably around double digit growth, which is around 10%. So we will continue to try to monetize the world and look for great partners who have better retail connections in each of the markets than if we were going to start from scratch and come in and hire somebody. So I do believe our strategy is working both long-term and short-term and we have been able to build this pretty strong footprint going forward. As far as other geographies, big opportunity in Japan. Japan our brands are not strongly monetized there. Also have a strong Peanuts business in that region. Other opportunities in parts of the world, you mentioned South Africa, and there’s also other JV opportunities on brands like we have done in the past whether it be with Buffalo, whether it be with Peanuts and the Schulz family. We like having strong partners who bring us strong retail connections and access to the marketplace.

[Jeff Small:]

Thank you for that. That is helpful. Does 2015 revenue guidance include formation of joint ventures in both Japan and South Africa?

[Neil Cole:]

Our thinking today it is probably about half of last year. Last year we recognized some where around $50 million from other sales gain of trademark joint ventures. This year we have that number in about half.

[Jeff Small:]

Thank you very much.

[Neil Cole:]

Thank you.

[Operator:]

Thank you. Our next question comes from John Kernan from Cowen. Your line is open. Please go ahead.

[John Kernan:]

Hi, good morning everyone. Just wanted to guidance does seem to assume a pretty significant acceleration in revenues and margins into the back half of the year. Can you help us understand the cadence of revenue growth and EPS growth for the remainder of the year? You did mention that the fourth quarter is going to be the best quarter and you also mentioned the quarter licensing business was flat. What do you see as a sustainable growth rate in the licensing business? Thank you.

[Neil Cole:]

There is a few different drivers which are going to drive the next nine months and more specifically, you know, in the back half even in the fourth quarter. The big one is the Peanuts movie. We get a piece of the box office and merch business and we are going see significant growth in Peanuts in the back half of the year which we’ve already started to see it. The first quarter which is kind of hidden underneath the ABC renewal where we get a five year renewal as Peanuts was up 20% in the first quarter, but we see Peanuts ramping up substantially especially when we start getting a piece of the box office that is happening around the world. Other revenue growths in the back half are the two new acquisitions which we made in the end of this quarter are going to start kicking in, in both Strawberry Shortcake and Pony. The third big driver is international. We are seeing that to be around double digits. That base is somewhere, I don’t know if we have given specifically, I think we said some where between 30% and 40% of the business. But we see that business continuing to grow double digits. And the US/DTR business is up slightly for the year but kind of planned flat to up one on domestic. So, when you take all of those drivers year’s base let’s say of around 410, and add in the acquisitions and add in the Peanuts box office and add in the international growth, and some of the what we call joint venture initiatives, you will see how we got to our guidance.

[John Kernan:]

Okay. And just on the core licensing business lack this quarter, what do you see as a sustainable growth not just for the next nine months, but over the next several years?

[Neil Cole:]

Hopefully we will be able to grow it. The U.S. market has been a very difficult market in that some of our big partners are not opening stores like they used to. We have this wonderful more than I think close to $7 billion of our business is in the best big box retailers in America and those businesses are solid and strong. And most of them are showing growth. But, it is balanced by some other retailers we have we have that are closing some stores. So I think we are conservative and estimating that business somewhat around flat going forward. But we are trying to continue to add to it like we have done recently. We did the Waiverly DTR and Target’s business has been coming back pretty strong and our sports businesses is having good with Danskin and Umbro. So you’re seeing that, It is kind of a mix when you have a portfolio of 35 brands and which gives us a pretty stable business but not growing fast. Our big growth is going to come from around the world.

[John Kernan:]

And then just one more kind of housekeeping question. In the second quarter of last year you sold the rights to the Sharper Image, I think eCommerce and catalog business and had a $7.8 million gain. Is that going to affect any of the comparisons in Q2 for revenue?

[Neil Cole:]

No, as I mentioned that other line of $15 million we do see that down to about half this year. But fortunately we have a lot of great organic initiatives whether it be the Peanuts movies and the international growth that will make the organic business pretty strong over the next nine months.

[John Kernan:]

Okay. One last question. Any share buy back plans down here given the valuation on the stock is a lot cheaper than it has been in a long time, and is there any ways you can take advantage of that with share buy back?

[Neil Cole:]

We always look and try to balance the capital structure. The Company had $200 million in the first quarter on our acquisitions in both buying back our China JV and also purchasing Strawberry Shortcake and Pony. If you look over the history of the Company the last three or four years we were lucky enough to buy back about 40% of the shares. But it has always been a balance between acquisition and buy back and the board will continue to evaluate the best use of capital as we move forward.

[John Kernan:]

Okay. Great. Thanks. Best of luck.

[Operator:]

Thank you. Our next question comes from Liz Pierce from Brean Capital. Your line is open, please go ahead.

[Liz Pierce:]

Thanks. Good morning. Just a couple of follow-up questions. Neil, did you say when you were talking about the international platform, you said Latin America was up double digits? Did you say what China was up and I just missed that?

[Neil Cole:]

No, I didn’t say China because China as we mentioned has this unique equity ownership. We did recognize from a GAAP nature $15 million in the first quarter in the buy back. We kind of forestalled, some of the – I don’t know if forestalled is a good word, but we pushed back some of the opportunities to recognize revenue. We were initially going to sell our stake in our biggest JV over there or our biggest equity ownership in La Chappell Shanghai, a really great company, but we decided instead, we bought the JV so we have not monetized them. We don’t really have a lot of that in our short-term guidance because we have to decide the best strategy to work with our partners over there whether we convert the business to traditional licensing, or we sell our equity ownerships or monetize it and keep the stock. So I think it is going to be a balance. We have a really strong new executive over the last year and a half, Willy Burkhart is our international business and spending a lot of time over in China, and we have a nice office and team over there that we acquired from Silas and Veronica. So we are going to continue to analyze the best opportunities. We see China as an amazing growth market for us. Peanuts is really exploding over there. I believe we have a few hundred point of purchases with Peanuts. Exciting opportunity with Umbro over in China. So, China will be a big part of our future and our growth over the next few years and we are excited about the opportunities over there.

[Liz Pierce:]

Okay. That is helpful. And in terms of the men’s business perhaps just a little bit of a deeper dive into? I guess I was under the impression some of the progress we saw in Q4 would kind of flow through, carry through in Q1. Is it just a little bit of a reset or is it something else going on?

[Neil Cole:]

I think it was just what we saw in Q1, hopefully was just what happened in the retail market. First quarter was a tough quarter for a lot of our partners because of the dock strikes, because of weather, April has been pretty good. And hopefully you will see the men’s business show the trends that we saw in the fourth quarter. A couple of new initiatives I’m excited about, we will start off small but grow working with Jay-Z on the new brand called Rock Nation which we are unveiling and he has incredible athletes and opportunities to fill that brand. We also purchased another 25% of Pharrell’s businesses. Pharrell has become a bigger star with everything happening with the boys and everything and now we own 50% of Billionaire Boys Club and Ice Cream. So, I do think the men’s businesses, what we saw in the first quarter hopefully we will see balancing out at end of the year and see it starting to trend like trend like it did last year.

[Liz Pierce:]

Okay. And then the last question really related to Sears/Kmart. Do you feel like this will continue to be a pressure point if they continue to struggle or, I guess just your take on that?

[Neil Cole:]

Ironically our brands are doing well. It is where we have gotten hurt is some of the door closing.

[Liz Pierce:]

Okay.

[Neil Cole:]

I think maybe you would know better about the future of Sears and Kmart than myself that follow the market. It has been an anomaly for us the last five years. But we kind of can’t figure it out but it is really amazing how well our brands do there. Joe Boxer has such a huge share of the marketplace and they are expanding the business. And through all of the multiple changes in management and everything that is there we do have a strong Kmart business for both Joe Boxer, Bongo, and Cannon. As far as particularly in the future, I can’t do that.

[Liz Pierce:]

Okay. Perfect. Thank you and best of luck for the rest of the quarter, next quarter and year.

[Neil Cole:]

Thanks, Liz. Appreciate it.

[Operator:]

Thank you. Our next question comes from Steve Marotta from CLK Associates. Your line is open please go ahead.

[Steve Marotta:]

Good morning, Neil. Just for absolute clarification the potential monetization of the China Candies investment in the first quarter that was bypassed was not included in your either previous annual guidance or current annual guidance. Is that accurate?

[Neil Cole:]

I wouldn’t say it wasn’t necessarily included. Honestly, I thought it would be in the first quarter. But, you know, our guidance has a pretty big range. It has $20 million hedge. So, there is a lot of things that aren’t specific. But going forward, we don’t have monetizing it our back half. we do think we are going to some sort of what we put in the other line of trademark or equity sales of half of last year. But initially, when we put the budget together in October, I thought we were going to do it in the first quarter which would have made our first quarter look a little more respectable than it did.

[Steve Marotta:]

That is helpful. How many new partners do you expect to sign this year in China?

[Neil Cole:]

That’s a good question. I’m not sure. More importantly, we have to work with our, you know, eight equity partnerships and all of the great things happening with Umbro, Lee Cooper and Peanuts. We do have another 15 to 20 brands which we can monetize and we are negotiating with people to do it. Usually, as people that know our business, once you sign people it takes a year or two to really kick in. So you won’t see the benefit of that until 2016, 2017, 2018 as we sign up new deals within China.

[Steve Marotta:]

Terrific. Thank you.

[Neil Cole:]

Thanks Steve.

[Operator:]

Thank you. Our next question comes from David King from ROTH Capital Partners. Your line is open, please go ahead.

[David King:]

Thanks. Good morning, guys. Just a follow-up to some of the earlier questions. First on international in that 10% sort of number or double digit that you characterized, Neil, how much of that is China driving that? And then, I guess along those lines with China, how much of that is brands that were previously generating JV equity income and then now flowing through top line and then beyond that and besides what you’re doing with Peanuts, what do you see as kind of the biggest opportunities for international growth for your brands, for brands that maybe don’t already have a large international presence like Umbro et cetera, do you have other opportunities? Thanks.

[Neil Cole:]

Those were a lot of questions.

[David King:]

Sorry.

[Neil Cole:]

I will try to remember them as we go. And if I miss them we can circle back. In our present guidance there is nothing for China and we do think it could represent some of that other $25 million if we do decide to take some equity and monetize some of our stakes. However, none of that is planned. As far as I mentioned some of the JVs that we might take further ownership and control that could hit the backline. That could add about $10 million to our top line, but very little to the bottom different because today we are 50/50 partners and we do get the EBITDA benefit at the bottom. So you are really not seeing a lot of benefits from China today in our numbers except for Peanuts. Peanuts is treated differently. When I say double digit growth internationally, Peanuts is part of that, probably about half of it. But we do see the big opportunity of international is today when you look around the world when you look at Latin America and you look at Asia, and you look at Europe, we have significant businesses in all of those continents, somewhere, and I’m giving the big range here between $30 million and $50 million of royalty or potential royalty in those regions. Those businesses we believe when he would plan out our next three to five years that those could double and triple and that is the future of Iconix. And in what, you know, I think as being a first mover in this model, we plan on being the first mover around the world and we have these great footprints that we built with our partners that we plan on continue to grow over the next couple of years. So we are pretty excited about what is happening to our brands globally which offsets our stable America business or continues to grow our stable America business. Not sure I answered all of the questions but happy to.

[David King:]

I think that covers it, so thanks. And then just for clarification to better understand in terms of thinking about the next two quarters, so obviously, there is that $50 million over the rest of the year including this quarter that going to be cut by half this terms of the other revenue line but in terms of thinking of the next with quarters anything similar to the ABC renewal gain that you had in the year ago period, this time that would we need to be aware of over the next two quarters? I think the 13.6 on the trademarks and 7.8 that someone else talked about in terms of Sharper Image, both will be in the other line. Is there anything else we need to be aware of that you will be comping against over the next two quarters as we think about revenue?

[Neil Cole:]

Not even over the next year or two. ABC is a unique situation in our business model. The Charles Schulz classics that run on holidays were written 65 years ago and they are not changed. The accounting says when we renew them for five years we have to take all five years up front. We don’t have anything like that in our business model and it is unique so you won’t see anything more like that over the next couple of years until four years from now, when ABC renews news it again.

[David King:]

Okay. Great. That helps. And then I guess two last quick ones. Receivables, can you tell us where those ended the period and how you are feeling about the quality? And then, updated thoughts on deal environment and opportunities there?

[Neil Cole:]

I will let David, we were going over this the last couple of days, I believe receivables are pretty flat to chime in?

[David Blumberg:]

Yes. The receivables are up to December a little bit. We feel good about the reserves that we placed against them, obviously working with BDO. And on the deal front, the pipeline, we feel good about, obviously we’re going to continue to be disciplined. What was good about the pipeline is that it is consistent with where last year we said we wanted to be focused in terms of international entertainment and sports.

[David King:]

Okay. All right. Thanks very much, and good luck for the rest of the year.

[David Blumberg:]

Thank you.

[Operator:]

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

[Jim Chartier:]

Good morning. Thanks for taking my questions. Good morning. The first question just on China, if you guys make a new equity investment in the Chinese company will there be any revenue recognition related to that transaction?

[Neil Cole:]

The only revenue recognition would be if we sell our equity ownership. And even if we sell convert it into stock, we recognize the gain even if we hold the stock.

[Jim Chartier:]

Okay.

[Neil Cole:]

So that would be the only time that we would get revenue recognition.

[Jim Chartier:]

Okay. And then on the international I think you mentioned you were likely to buy back one or more of your joint ventures and then receive some revenue. The double digit growth in international revenue does that include the $10 million to $15 million benefit from moving the revenue from the equity income to revenue line?

[Neil Cole:]

No. It includes the organic business of the actual business whether the JV is above the line or below the line. Let me also clarify, we don’t see in the back half buying back any more JVs. We do have an opportunity to buy control of some of them, but we don’t see buying back any of the other JVs that would substantially affect our EBITDA sales or organic.

[Jim Chartier:]

Okay. If you buy back control then there will be a revenue benefit even though the EBITDA benefit is not that meaningful, is that correct?

[Neil Cole:]

Correct.

[Jim Chartier:]

And then the Billionaire Boys Club, how big is that and a benefit from moving from the JV to the revenue line there?

[Neil Cole:]

I think it could be. Pharrell has been doing his signature line for about 10 years. It is not a big but we do believe it could be a big business. Because each really blown up as one of the best music producers in the world, and he is a great guy and very energized to monetize. We are hoping we can make that a real substantial brand. Today it’s a 50/50. So it will be below the line.

[Jim Chartier:]

Okay. Okay. On Umbro, last year you guys got hurt because you lost out on some transition licensing revenue from Nike. How do you feel about the business going forward, and how are the kind of new territories performing?

[Neil Cole:]

Really good. Now that we are about a year away from Nike and we’ve put in most of our licensees are sourcing substantially lower price points than Nike and Adidas and I believe for the first quarter Umbro was up about 20%. I don’t know if it’s going to hold throughout year, but very encouraged what is happening with Umbro and how our licensees around the world are really doing with the brand.

[Jim Chartier:]

Great. And then last question, what share count are you assuming for your EPS guidance for this year?

[Neil Cole:]

Approximately 50 million shares.

[Jim Chartier:]

Great. Thanks and best of luck.

[Neil Cole:]

Thanks, Jim.

[Operator:]

Thank you.

[Neil Cole:]

Thank you all for listening today and joining us and as always, you know, management will be available for questions throughout the day. I know having a little depleted staff which we will fix. I don’t know how I can speak to everybody but I will do the best I can over the next day or two or three to answer all of your questions and take you through our business. But, once again, thanks for your interest and we will talk soon. Bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program. You may all disconnect.