Sequential Brands Group, Inc.
Q2 2020 Earnings Call Transcript

Published: 14 Aug 2020

[Operator:]

Thank you, and good morning. Before we begin, I'd like to bring your attention that 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 materially differ from the results, performance or achievements expressed or implied by such forward-looking statements. We refer you to our public filings and the press release we issued this morning for a summary of such factors. The words believe, anticipate, expect, may, will, should, estimate, project, plan, confident or similar expressions identify forward-looking statements. Listeners are cautioned to not place undue reliance on these forward-looking statements, which may speak only as of the date the statement was made. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, whether as a result of information, future events or otherwise. Additionally, the terms adjusted EBITDA and non-GAAP net income are all non-GAAP metrics, and reconciliation tables for each can be found in the press release distributed today in the Investor Relations portion of our website, www.sequentialbrandsgroup.com. On today's call are Sequential Brands Group's CEO, David Conn; and Interim CFO, Dan Hanbridge. I will now turn the conference call over to Mr. Conn. You may begin when you're ready.

[David Conn:]

Thank you for joining our second quarter 2020 earnings call. Since we last spoke in May, we've had a few more months to understand how the COVID-19 pandemic has impacted our business. The impact on our industry has been significant, and we have not been immune. However, we have also experienced some bright spots in our business, particularly with our active brands, where sales have been resilient. We continue to stay highly connected with our licensees and have seen many cases where the pandemic has strengthened our existing partnerships. Since March, we have enacted broad expenditure control measures across our businesses, which are additive to the SG&A reduction that we had already planned for 2020. I'll now provide some specific updates on our progress. First, the management team remains focused on implementing growth strategies for our core brands, which includes renewals of existing licensees. As mentioned previously, we entered into a long-term renewal with our anchor partner for Gaiam and SPRI, Fit for Life. Fit for Life is a great company and a partner that we believe can guide Gaiam and SPRI to their fullest potential. We are pleased to have solidified this long-term alliance. In addition to the Fit for Life renewal, we also renewed the license for the AND1 brand's premium footwear business, covering specialty sporting goods and athletic footwear stores. In our Jessica Simpson business, we recently signed two new endorsement deals as well as new licensees in active, kids and home categories. For Joe's, we finalized a three-year renewal for kids' denim. In addition to these, we are actively working on a pipeline of new deals for the balance of the year, with an emphasis on the beauty, wellness and activewear categories. Second, the pandemic has reinforced the power of our core brands. Our active brands AND1, Avia, Gaiam and SPRI, which are sold at mass retailers, including Walmart and Target as well as grocery and drugstores nationwide, have seen strong retail sales during the pandemic. These brands are aligned with the way consumers are behaving and living their lives today as they practice at-home health and wellness. Categories such as underwear, socks, shorts, sweats, fitness equipment and workout gear have been in demand. Third, our team continues to closely manage costs and take steps to maximize our liquidity. Specifically, we implemented significant compensation reduction that remain in place today. We are scrutinizing all material nonessential expenses and eliminating costs, where appropriate, and we are fully drawn on our revolving credit facility. We also recently divested three of our non-core brands, namely Nevados, Linens 'N Things and the Franklin Mint. We frequently review our portfolio and consider divesting certain smaller brands when the right opportunity arises. While these divestitures were not material transactions, they reinforced our cash position and are consistent with our strategy to focus management's efforts on our core growth brands. As we look ahead to the second half of the year, we remain cautiously optimistic as we continue to navigate macroeconomic uncertainties. While the pandemic has presented challenges for our business, it has also demonstrated its durability; the demand for our core brands, particularly our active brands; the power of the mass channels, such as Walmart; and the strength of our relationships with our licensees. I'm proud of the work our team has done to navigate through the early stages of the pandemic and the work we continue to do to position ourselves for long-term success. I look forward to keeping you updated on our progress. With that, let me turn the call over to Dan to take you through the financials for the second quarter.

[Dan Hanbridge:]

Thank you, David. Before taking you through our quarterly financial results, I wanted to note that on July 27, 2020, our previously announced one-share-for-40-shares reverse stock split of our outstanding common stock, par value $0.01 per share, became effective. As a result of the reverse stock split, we are now in compliance with NASDAQ listing requirements. All share and per share amounts in today's earnings release and in my remarks have been adjusted to reflect the reverse stock split. Total revenue from continuing operations for the second quarter ended June 30, 2020, was $22.6 million compared to $26.4 million in the prior year quarter. On a GAAP basis, loss from continuing operations for the second quarter 2020 was $2.9 million or $1.78 per diluted share compared to loss from continuing operations for the second quarter 2019 of $3.3 million or $2.03 per diluted share. Non-GAAP net loss from continuing operations for the second quarter 2020 was $1.8 million or $1.10 per diluted share compared to $2.6 million or $1.57 per diluted share in the prior year quarter. Adjusted EBITDA from continuing operations for the second quarter of 2020 was $15.1 million compared to $13.3 million in the prior year quarter. Total revenue from continuing operations for the six months ended June 30, 2020, was $42.8 million compared to $51.9 million in the prior year period. On a GAAP basis, net loss from continuing operations for the six months ended June 30, 2020, was $88.2 million or $53.80 per diluted share compared to net loss from continuing operations for the six months ended June 30, 2019, of $8.1 million or $5 per diluted share. Included in the net loss from continuing operations were non-cash impairment charges of $85.6 million for indefinite-lived intangible assets related to the trademarks for the Jessica Simpson, Gaiam, Joe's and Ellen Tracy brands, reflecting the financial impacts of COVID-19, which were recognized in the first quarter 2020. Non-GAAP net loss from continuing operations for the six months ended June 30, 2020, was $12.2 million or $7.40 per diluted share compared to $6.9 million or $4.21 per diluted share in the prior year period. Adjusted EBITDA from continuing operations for the six months ended June 30, 2020, was $24.9 million compared to $24.6 million in the prior year period, which reflects the company's implementation of significant expense reductions. We closed the second quarter 2020 with $16.8 million of cash, including restricted cash, and $461.8 million of debt, net of cash. Looking ahead, as David mentioned, we believe the COVID-19 pandemic will continue to impact our operating results, cash flows and financial condition. We continue to monitor it closely and are actively managing relationships and expenses to best position ourselves for the short and long term as the economy recovers. Thank you for joining us for our call today. I will now turn the call back over to the operator.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, this concludes our call for today. Thank you for your participation and interest. You may now disconnect your lines. Have a wonderful day.