Sequential Brands Group, Inc.
Q1 2017 Earnings Call Transcript

Published: 4 May 2017

[Operator:]

Thank you and good morning. Before we begin I'd like to bring to 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 on which such statements 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. I'll now turn the conference call over to Gary Klein, Chief Financial Officer of Sequential Brands Group. Mr. Klein, you may begin when you're ready.

[Gary Klein:]

Good morning and thank you for joining Sequential's First Quarter 2017 Earnings Call. I'm joined this morning by our CEO, Karen Murray; and our President, Andrew Cooper. I'll start by reviewing the results for the first quarter and then turn the call over to Karen. Total revenue for the first quarter increased 16% to $39.4 million compared to $34 million in the prior year's quarter. On a GAAP basis, net loss for the first quarter 2017 was $1.2 million, or $0.02 per diluted share compared to a net loss for the first quarter of 2016 of $1.1 million or $0.02 per diluted share. Included in the first quarter of 2017 was a charge of $0.11 or $6.7 million related to the costs associated with the departure of our former CEO. The charge included $3.2 million in severance expense and $3.5 million in non-cash stock-based compensation expense which represents the accelerated investing of previously granted stock awards, and was calculated based on the fair value on the stocks grant date in April 2015 of $14.33 per share in accordance with GAAP. However, the fair value of the shares on the termination day was $3.95 per share or approximately $1.1 million. Taking this other small items into consideration, non-GAAP net income for the first quarter 2017 was $5.9 million or $0.09 per diluted share compared to $2.5 million or $0.04 per diluted share in the prior year period. Adjusted EBITDA in the first quarter 2017 was $23 million compared $16.7 million in the prior year's quarter. Adjusted EBITDA margin for Q1 was 58%, a significant increase over the prior year period, in part reflecting the continued focus on expense management. For the full year 2017 the company is reiterating guidance of $170 million to $175 million in revenue and $98 million to $102 million of adjusted EBITDA. The company's GAAP net income is now expected to be $15.5 million to $18.1 million, primarily due to the charge associated with the departure of our former CEO as previously mentioned. The company's contractual minimum guarantees for the 2017 are approximately $120 million. We ended the first quarter 2017 with approximately $23 million of cash including restricted cash. Our cash flow from operating activities as reflected on the GAAP cash flow statement increased to $13.4 million versus $6.8 million in the prior year. Approximately $3.5 million of this year-on-year increase was driven by changes in balance sheet items which improved from $1.5 million last year to $5 million this year. Changes in balance sheet items would fluctuate from year-to-year depending on the company's organic growth and acquisition related strategies. On our last call we highlighted that given the year-to-year variability in those items we also focus on our adjusted free cash flow which focuses on the cash flow profile of the underlying licensing business. Adjusted free cash flow is calculated as adjusted EBITDA minus cash interest, cash taxes and capital expenditures; and excludes both changes in balance sheet items and acquisition related and other costs not related to the core licensing business. For the first quarter our adjusted free cash flow increased from $6.1 million to $9.5 million. For the year we expected to increase from $34 million to a range of $41 million to $45 million. As we discussed on prior calls, we continue to be focused on working with our lending partners to identify solutions to reduce our cost of debt by early 2018. With that I would now like to turn the call over to Karen.

[Karen Murray:]

Thank you Gary, and good morning to everyone joining us on today's first quarter 2017 earnings call. Yesterday marked my first month as CEO of Sequential Brands Group and it has been quite a busy month. I have spent my time completely immersed in the business and am in the process of doing a full top down organizational assessment of the company's divisions. Needless to say, I am encouraged by all the opportunities at the company. I will spend some time later during the call to speak to my early observations and areas of focus going forward. First, let me review the highlights for the first quarter and touch on some of the growth initiatives that we have announced for our brands over the past few months. Results for the quarter 2017 were solid with revenue up 16% and adjusted EBITDA up 38% over the prior year's quarter. Key drivers to this growth in the quarter included the addition of Gaiam which closed in July 2016, as well as strong performance by Joe's, Jessica Simpson, Ellen Tracy, Avia and Heelys. As Gary mentioned, results also reflect our continued focus on managing costs across the company. Looking ahead to the full year while we are cognizant of the well-publicized headwinds in the retail sector, we continue to expect to drive low to mid-single digit organic growth through our existing partnerships and new licenses. Taking a look at the business by division, the home division which includes the Martha Stewart brand continues to be one of the largest growth opportunities for Sequential. We are seeing proof of this today with the announcement of a new multi-year agreement with QBC which reaches more than 360 million homes globally. Expected to launch in the second half of the year this exciting new collaboration will provide the Martha Stewart brand with not only a new channel of distribution but also expansion into several new categories including food and beverage, fashion apparel and skin care. We believe that QBC will be a terrific platform for the Martha Stewart brand and I look forward to sharing more information on the launch during future calls. In addition to QBC there is a robust pipeline of actionable near-term opportunities for new licenses with meaningful revenue potential. Continuing with the home division as we announced last quarter, we signed a long-term direct-to-retail agreement for the Martha Stewart brand with Michaels which will manufacture and distribute the Martha Stewart craft line through its premier wholesalers, Darice. The new product is expected to launch at the end of this year with the initial financial impact beginning in the first quarter of 2018. Last month we expanded the distribution of our meal-kit business, Martha & Marley Spoon by partnering with Amazon Fresh. We launched in four major regions and due to its initial success quickly expanded into four additional regions. We also launched Martha Stewart Wine Company, an online wine shop featuring a carefully curated collection of wines. This new e-commerce business complements our Martha & Marley Spoon offering by allowing for cross-promotion and is also a perfect example of one of the many untapped categories where the Martha Stewart brand has strong brand equity. Regarding the Martha Stewart media activities, the fifth season of the award winning Martha Stewart Cooking School began airing last month on PBS and is also being distributed in the Middle East by VVA Gate [ph]. This month Martha began filming the second season of the popular Martha & Snoop Show on VH1 which premieres this fall. In the active division, AND1 and Avia continue to perform well as a result of our strong partnership with Wal-Mart. We also continue to execute on our growth initiatives for the Gaiam brand. Just this past month we partnered with Lord & Taylor to host the two-day experiential health, wellness and shopping event at its flagship store in New York City. At the event the brand had its own 1,000 square foot pop-up store on the active wear floor offering free massages and juices. Shoppers also had the opportunity to attend wellness and yoga classes led by Gaiam experts. The event was a huge success driving significant sales on the active wear floor and millions of social media impressions. This event is meaningful for several reasons but mainly because it's the perfect example of how we work hard to provide solutions to our retail partners. Understanding the challenging retail landscape and the need to provide in-store experiences to customers, we came to the table with Lord & Taylor to create a truly unique experience around health and wellness. It was a win-win for Sequential and our partner, and will provide a blueprint to implement a retail concept for Gaiam as we move forward. In the fashion division there was strong momentum in the quarter across the majority of our brands, specifically we continue to see growth in the Joe's core business due to its partnership with global brands group and have launched a number of new categories including a collection of handbags, eye wear, and a new full line of men's and women's footwear and intimate apparel. The brand also recently unveiled its latest campaign starring New England Patriots wide receiver Julian Edelman marking the launch of Edelman's newest role as global brand ambassador for Joe's, a position he will hold through 2018. In tandem with Julian's ambassadorship; Joe's has also partnered with model Taylor Hill as the face of Joe's women's line and a collaborator on a series of capsules collection. We have been gearing up for a busy second half of the year for the Jessica Simpson brand. Last month we hosted a summit with all of the brands licensees to finalize plans for new distribution and product offerings in the pipeline. Jessica herself is particularly energized and has several in-store and national media appearances planned at the end of this month, in fact this Saturday she will be greeting customers at Dillard's in Waco, Texas. As I mentioned in my earlier remarks, yesterday marked my first full month as CEO of Sequential. While I was always impressed with Sequential's business model and portfolio of brands from afar, I am even more impressed after studying the business more closely. We have brands that connect with consumers and are coveted by retailers. We have a talented team driving a robust pipeline of organic growth opportunities, now we need a singular focus on execution. To that end, I'm working with our executive team to better align our resources internally to fully support each of our brands. My priority is to drive growth and financial performance throughout our portfolio which ultimately is the key for us to improve our capital structure and drive long-term shareholder value. Thank you all for joining us this morning. I appreciate your time and look forward to sharing more with you in the quarters ahead. I'll now turn the call back over to the operator for Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question is coming from the line of Camilo Lyon with Canaccord Genuity. Please proceed with your question.

[Camilo Lyon:]

Good morning, everyone. Karen, welcome. My first question I think relates to the quarter -- particular in the revenue line, you know, like there is a nice revenue left here; if you could describe what were the main contributors to that outperformance relative to what is stated about 90 days ago when -- I think that it spoke to really having the first half represents the GMR, not much more about -- not much more over that, it's certainly a good performance.

[Andrew Cooper:]

Thanks, Camilo. This is Andrew, how are you?

[Camilo Lyon:]

Good, thank you.

[Andrew Cooper:]

Good. So first of all, I think I want to just clarify one thing; we had a full year of -- we had a first quarter that included Gaiam which in 2016 it did not, so I just wanted to make sure I point that out. But we did have some broad-based strength across the portfolio, and couple of ones that Karen mentioned on the call that I can just reiterate; Joe's Jeans, we've got some really exciting stuff going on the marketing side and really an excellent partner in GBG that's helping drive that business. Actually that's the same real dynamic that's going on with Ellen Tracy where GBG is our core partner. The Jessica Simpson business; we've seen some strength in maternity, we've got some exciting new opportunities we're looking at going forward with Jessica, and so that continues to perform consistently. We've talked in the past about our active division, Avia; Avia was a solid performer and continues to benefit from the strong relationship with Wal-Mart. And Heelys, Heelys is worth mentioning, strong growth internationally, 185 countries and has really continued to show consistent growth. So you see there are some brands that are growing in addition to the Gaiam year-over-year comparison.

[Camilo Lyon:]

Got it, that's helpful. And then just moving to the expense line into the first quarter and quite some time when you've had some contraction on the expense line. If this is what we should expect -- you know, the new trend line going forward or were there some particular shifts within the quarter, some timing differences that led to actually compliance expense line?

[Andrew Cooper:]

Yes, I mean in general on the expenses we're excited about the traction we're getting on general expense management and efficiencies but really what you're going to see overtime is continued investment in the right parts of the business and continued discipline expense management, ultimately the line that we're looking at is the EBITDA margin and we're proud of the 58% margin in the first quarter. Our forecast and guidance for the remainder of the year plans for that to continue to be consistent throughout the year, and that's really where you'll see the discipline expense management showing up.

[Gary Klein:]

Camilo, it's Gary. I'd just also add that as we move forward in Q2, Q3, Q4 we're probably spending a slight amount more on advertising; so expect a small tick-up on an SG&A line but the margins again will remain strong.

[Camilo Lyon:]

So to have it correct, so the EBITDA margin of 58% [ph], that should be relatively consistent rate going forward, is that the right way to see it?

[Andrew Cooper:]

Yes, that's correct. It was 58% for the quarter and it's going to be about 58% for the years where we have it projected.

[Camilo Lyon:]

Okay, got it.

[Andrew Cooper:]

The revenue will increase and expense might slightly increase.

[Camilo Lyon:]

Got it, that's helpful. And then Karen, coming from a much larger company VF to Sequential -- with a host of brands that have great opportunity in front of them, now what do you take from your experience here [ph] and what do you think is applicable to growing the brands? And how do you view the opportunity at Sequential knowing what you -- you know, taking your experience and what you see in front of you? How do you view that -- the ripest opportunities in front of you?

[Karen Murray:]

Hi Camilo, thank you for the question. I have to say that I am encouraged and really excited about the strength of Sequential's brand portfolio and I just from -- you know, going back as far I've always admired the brands that they had and I'm really opportunistic about all the incredible partnership that we've have with the company. I'm very focused on maximizing the potential of the existing brands and driving organic growth, that is not just a short-term idea, it's really more about driving it on a sustainable measure; that's really what I did back at VF was figure out ways to look for growth opportunities that deliver quarter-on-quarter, year-on-year. So I bring some of the operating disciplines that I had at VF to this company which I think is unique and different. I have always focused very much on building international and digital portfolios and businesses that could be meaningful; I think we're underpenetrated in that area at Sequential and there's many different ways and tons of content that could really be exploited here to grow the businesses substantially. So I would just tell you that I'm really focused on maximizing the potential organic growth, making sure that the team is working together and that we're making -- ensuring that we have the resources internally to support our brand and to building a culture at Sequential which I think is a huge opportunity so that we can operate as one company.

[Camilo Lyon:]

That's great, thank you for the thoughts. Good luck in the second quarter.

[Karen Murray:]

Thank you.

[Operator:]

Thank you. Our next question is coming from the line of Eric Beder with Wunderlich. Please proceed with your question.

[Eric Beder:]

Good morning. Congratulations on a good start to the year. Could you talk a little bit about the international opportunity, a lot of these positive things are really nice position. I know you strive for more resources into international.

[Andrew Cooper:]

Absolutely Eric, right. And we talked about that on past calls as we've been sort of shifting our resources to focus on international. There are some brands that are showing restrain, Heelys I mentioned is a really important one for us internationally, 85 countries at this point. We've had some deals recently that further develop our opportunities there; the active division, we signed an important deal in Brazil, as well as Korea for the Martha Stewart brand, we've talked about that. So there really has been traction, I think where -- and as Karen just mentioned in her comments, I think we're -- what's really important is that we continue to align our resources at the company against this initiative. You know, there is real traction but I think there is a lot more work to do and Karen's experience coming from VF is going to be a major plus in pushing the organization further in that direction.

[Eric Beder:]

Great. And could we get an update on the real estate? I don't know what you're doing with your headquarters in terms of subleasing and shifting around the space there?

[Andrew Cooper:]

Yes, absolutely. On the last call I think you'll remember we talked about the fact that we signed a new lease to stay in our current location, it was taking the space down from over 150,000 square feet down t0 63,000 square feet. So that remains in place, nothing has changed. And the savings that we talked about -- annual savings of $4 million remains in our forecast going forward beginning in 2018.

[Eric Beder:]

And finally with Gaiam, where are you on expanding that beyond the hard goods and when should we start thinking about that having to get more deeper impact than it's been having already?

[Karen Murray:]

I think Gaiam is one of our most exciting brand initiative. We just recently launched experiential event, Lord & Taylor, which included not just the hard goods really bringing ideas such as apparel and yoga studios into Lord & Taylor which worked very, very well, was very successful. So what we'll be doing is looking at expanding category such as footwear, apparel, swim and yes there is many products but at the end of the day it's bringing the experience and helping these retailers drive traffic that really does make a difference. And as I said, we tested in Lord & Taylor, this will be expanded into many other doors and it is one of our biggest growth opportunities for Gaiam, outside of just hard goods into apparel.

[Eric Beder:]

Great, good luck for the rest of the year.

[Karen Murray:]

Thank you.

[Operator:]

Thank you. Our next question is coming from the line of Steve Marotta with CL King. Please proceed with your question.

[Steve Marotta:]

Good morning everybody and let me add my welcome aboard to Karen. As it relates specifically to the fiscal '17 guidance previously when it was initially offered, there were licenses that needed to be signed in order to hit those targets, clearly the QBC license I think gets you're part of the way there. But given the reiteration of EBITDA guidance today, are there additional license that are needed to be signed, necessary to be signed for you to hit those targets?

[Andrew Cooper:]

Steve, it's Andrew. I'll take that one. Yes, absolutely. There is a component of new business in our 2017 forecast but it's really a near-term actionable pipeline as we said that that is in front of us; we do need to execute a handful of those. QBC is a really good example of it. We had been working on that for a while, we had anticipated a very small impact in '17 but we had -- we got that deal done, it's going to be really important for the company, little bit of impact in '17, really much greater exciting opportunity in '18 but there is a handful of other opportunities that are built into our 2017 guidance that we believe are actionable.

[Steve Marotta:]

Okay. As it relates to the commentary surrounding improving the balance sheet within the press release besides refinancing the debt and the anticipated debt paydown associated with the free cash flow to be generated this year; is there anything else that's incorporated within that balance sheet improvement commentary?

[Gary Klein:]

Steve, it's Gary. So again, addressing our balance sheet is probably our biggest concern from the financial standpoint. What we've said in the past is that later this or throughout this year we're going to look at the opportunities to refine that debt to see if we can reduce the cost of that. We believe it's going to be actionable in the first quarter of 2018. But other than that at this point there is nothing concrete for us to convey that we're going to -- you know, there is nothing that we're going to do to delever at this point. If there was some amazing acquisition out there that could help delever us, that's something we would look at but obviously with the stock prices today, doing some sort of equity offering is something that we do discuss at board level but there is nothing eminent around that at this point.

[Andrew Cooper:]

The only thing I would add to Gary's comments is that there is a process is going -- it's an active process of working with our current partners and moving forward this year to develop the solution. I think as Gary said, the impact really would be in early '18.

[Steve Marotta:]

And just piggybacking on a question earlier, more specifically; how far was Q1 above the actual guaranteed minimums?

[Andrew Cooper:]

So if you look at it, we said our minimum is about $120 million for the year. If you take that by four that's basically where you can see the minimums were. If you look at it, again -- we were a little bit conservative in the way that we portray our quarterly guidance; if you look at it versus last year we were over by a similar amount and that's probably what you should expect. Going into Q2 if you look at prior year, Q1 and Q2 were pretty close to the same revenue, about $34 million; so you should expect similar results for this year as well.

[Steve Marotta:]

Okay, that's very helpful. And lastly, Karen you tangently [ph] commented on this earlier regarding e-commerce abilities; I know that that had been a very important project going forward, just wondering where you are on your ability to transact for each of the brands? And how far along you're on that road and where you see yourself in about six months?

[Karen Murray:]

As you know I've been here 30 days. I will tell you that the very, very first thing we have to do is really assess what we have today and I know we're under penetrated but I think until we do a full top-down assessment of what's going on in each of the businesses, that means all of our licenses, as well as our direct. We really don't know but I can tell you that we're focusing on -- already starting to build a road map to try to figure out what we could tackle within the first quarter, within six months, within a year; we're working with our partners, we will ensure that this road map is being utilized, we need to gear up with some investments in order to execute properly. But we have one thing that I have not seen in any of my prior businesses that I've been associated with; we have content like no other, whether that's Facebook Live, we have in-house studios and we have to find a way to get that content out to all of our partners and make the most of it. So that's a unique opportunity, but again I think I could report further in our next call but it is one of my top priorities within the next 60 days.

[Steve Marotta:]

Terrific, that's helpful. Thank you very much.

[Operator:]

Thank you. The next question is coming from the line of Dave King with ROTH Capital. Please proceed with your question.

[Dave King:]

Thanks, good morning everyone. I guess first, can you talk a little more about the QBC deal for Martha; it sounds like it's a small contribution this year but how much yield do you expect it to be on an annual basis? And then, does it change any of your existing agreements at all?

[Andrew Cooper:]

Good question. So as far as the expectation for QBC, you're right, we're ramping up in the second half of the year, expected to get on air. It's going to be a very strong strategic partnership as we head into '18. Some of the key categories that Karen mentioned, really get us out into new categories for the first time with Martha Stewart apparel, beauty; emphasis on the food category, and I think having Martha talk directly to her consumer is going to be very powerful. And the reason it's not a huge impact on '17 is just because we're getting started; but this is the partnership and we do expect it to have a significant contribution to the company and to the brand as we go forward. And then as far as the second part of the question related, I think it was related to our existing agreements or partnerships. And absolutely, I think this can be really a driver for the brand which I think will float all ships and help all of our partners and be complementary to the products that we're selling in other distribution channels. And of course, we're going to launch in categories that are not necessarily being sold in split with some of our other exclusive partners.

[Dave King:]

Okay, perfect. And if I assume Gaiam add I think $5 million or so to the revenue in the quarter, it looks like the organic growth was sort of flattish in the period. I guess is that the right way of looking at it? And with that mind, how do you see the organic growth sort of reaccelerating over the year to get to I think the low to mid-single digit guidance and what are the key sort of drivers that we should be expecting to get there?

[Gary Klein:]

David, it's Gary. Yes, great point. The quarter was in-line with our internal expectation, the full year organic growth is still expected to be low to single mid digit for the year growth, sorry about that. Now there are some of the new initiatives are launching in the back half of this year, so Michael is an example. Michael is going to launch in Q3 and Q4; so there wasn't a lot of revenue from that this quarter but last year there was a legacy licensee that was there. So that's what's getting some of the growth that Andrew spoke about on the first question; and then similarly, we will have QBC in the back half of this year to help us get to that organic growth target which we didn't have in Q1 and Q2 of this year. And as we've said on the other questions, there will be a couple of other initiatives that we believe will hit in the back half of this year and we feel good about that projection for the full year.

[Dave King:]

Okay, that helps. Then maybe switching gears a little bit and then Gary while you're on -- in terms of the free cash flow for the quarter and for what you're targeting for the year, do you have what the GAAP number was in the quarter? And then how should we be thinking about the GAAP number for the year? And the reason I ask is, you know, I realized that working capital adjustment sort of affect that but it helps in understanding sort of capacity to paydown debt which obviously is a key focus.

[Andrew Cooper:]

So again -- you know, in the quarter and the pre-recorded statements we did give the -- and also in the press release we did give the cash flow from operations which was approximate 13.5. We had minimal CapEx which I guess would be the GAAP way of giving free cash flow; so I would say it's probably about 13.2 or 13.3 is the GAAP free cash flow for the quarter. We're not prepared to give the GAAP free cash flow for the balance of the year again, because if there are initiatives that will go on throughout the year that will affect the timing of some our balance sheet items; so I don't want to give that at this time. And again, the best way to look at what is that $100 million EBIT we're going to contribute is the way that we give at which is $41 million to $45 million of free cash flow; that takes out the impact of the changes in balance sheet items.

[Dave King:]

Okay. And then on the capacity to paydown debt; can you guys remind us again in terms of -- is there -- what are the constraints if any paying down debt beyond the $28 million I think of principal amortization; I think there is a no call provision I want to say at one point but then prepayment penalties at one point and sort of -- obviously, then there is the GAAP free cash flow and how much you can generate; I guess what are the updated thoughts there and what are the plans around being able to pay it down beyond $28 million either this year or next year; and -- so what are the current thoughts?

[Andrew Cooper:]

So the plan as of now is that we will paydown the $28 million of mandatory prepayment. The timing of what you were discussing, there is a no call provision on our second lien agreement that ends on September 30. After that for the fourth quarter the prepayment penalty is 106 on the second lien debt, and then it drops to 103 in the first quarter of 2018; that's why we say Q1 is probably the most actionable period for us to rebuy, and that's how we're thinking about at this point.

[Dave King:]

Okay, that helps. And then lastly for Karen, welcome aboard; and then thanks for the early observations and some of those things. I guess as a follow-up to those comments, can you talk a bit about what attracted you to the role? And then you know how did you get comfortable with the company's balance sheet; was that a concern at all for you and how are you thinking about that as we move forward? Thanks.

[Karen Murray:]

Okay, hi Dave. I have always been interested in Sequential and companies that own, manage and license a portfolio of brands; and I always thought that the brands that Sequential had are major opportunities and I would say starting with is the Martha opportunity. From day one I just saw that as one of the largest growth opportunities, not just at Sequential but in general, for the whole industry, she has just got incredible momentum and there is just unlimited growth potential in all of our channels with Martha. So I was always interested in the model, I have to say that I've been with operating businesses for over 30 years and I love the fact that I don't have to worry about inventory receivables and all of the issues that I've had in my past; here we get to really take my background and work hard on trying to figure out a way to help the brand grow in a constructive way, and even more important than that, in a sustainable way. And I look forward to working with them closely and figuring out a way to maximize the full potential of driving the organic growth. So that's something I do, I feel like I do well; I understand the opportunities as I said with digital and with international. And really building the culture here and working with an executive team that I have found to be the best that I've worked with in my 30 years. So excited just about the opportunities, the brands that we have, and taking some of the operating disciplines that I have from my past, then applying onto the businesses here at Sequential. No doubt to answer your second question that -- of course I had concerns coming in with the debt and with the balance sheet but it's something that for sure needs to be addressed; but I can tell you that it's first and foremost what we discussed on a daily basis and it is a priority for us, and I have no doubt that we will be figuring this out shortly and dealing with all of the issues that we have in addressing it and it's a big priority for us from the day I joined the company. I knew about it before I joined but I think we have a pathway to resolving this; so I feel very positive about our direction.

[Dave King:]

Fantastic, that's great color. Again, welcome and good luck.

[Karen Murray:]

Thank you so much.

[Operator:]

Thank you. [Operator Instructions] It appears we have no additional questions at this time. And ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation; and you may disconnect your lines at this time.