Sequential Brands Group, Inc.
Q4 2015 Earnings Call Transcript

Published: 24 Feb 2016

[Operator:]

Thank you and good morning. Before we begin, I would like to bring to your attention that statements that are not historical facts contained in this conference call are forward-looking statement that involve a number of risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which of are beyond the control of the company. This may cause the actual results performance or achievements of the company to materially different from the results performance or achievements expressed or implied by such forward-looking statements. The words belief, anticipate, expect, may, will, should, estimate, project, plan, confidence or similar expressions identify forward-looking statements. Listeners are cautious not to 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 statement, 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 table for each can be found in the press release distributed today and the investor relations portion of our website www.sequentialbrandsgroup.com. I will now turn the conference call over to Gary Klein, Chief Financial Officer of Sequential Brands Group. Mr. Klein, you may begin when ready.

[Gary Klein:]

Good morning and thank you for joining us for Sequential Brand fourth quarter and full year 2015 earnings conference call. I'll start by reviewing results for the fourth quarter and full year 2015 and then turn the call over to our CEO, Yehuda Shmidman, to provide an overall update of the business. For the fourth quarter 2015, Sequential earned revenue of $31.4 million representing an increase of 69% from the prior year's revenue of $18.6 million. Adjusted EBITDA for the fourth quarter increased 56% to $17.3 million compared to $11.1 million in the prior year quarter. For the full year 2015, total revenue increased 111% to $88.3 million compared to $41.8 million in the prior year. Adjusted EBITDA for the full year was $53.4 million, an increase of 122% over $24 million in the prior year. In addition to our strong financial results, our balance sheet remains well positioned for additional acquisition growth and or debt paid down. As we closed the year with almost $41.6 million in cash, up from $22.5 million in 2014. As we headed further into 2016, we have a strong cash profile and $100 million in guaranteed minimum royalties for the year from covering licensees. The company currently has approximately $508 million of net debt with the majority of our debt not maturing for the next five years. Furthermore, with the recent acquisition of Martha Stewart Living Omnimedia, we have an NOL balance and other tax deduction benefit that are expected to offset up to $466 million in aggregate future taxable income. As such, we do not anticipate paying any material taxes in the foreseeable future representing a significant positive shift in our free cash flow position. For the full year 2016, we are reiterating our guidance of $145 million to $150 million of revenue and adjusted EBITDA of $83 million to $87 million. Similar to our historical results, we expect revenue from 2016 to be weighted [ph] in to back half of the year given the natural seasonality of the businesses of many of our licensees. As a result, we expect that revenue for the first half of the year will be closely in line with our minimum guaranteed revenues with overages being recognized in the second half of the year. Following the completion of the MSLO merger integration, we expect a 12-month run rate to be $150 million to $155 million of revenue and $92.5 million to $95 million of adjusted EBITDA. With that, I'd like to turn the call over to Yehuda.

[Yehuda Shmidman:]

Thank you, Gary and good morning, everyone. 2015 was a strong year for Sequential marked by both robust, organic and acquisition in growth. Over the course of the year, we doubled our scale from $2 billion to $4 billion in global retail equivalent sales with the acquisition of four premier consumer brand Jessica Simpson, Joe's Jeans, Emeril Lagasse and Martha Stewart and we achieved 10% organic growth for the full year ahead of our plan at the start of the year and well ahead of the results estimated by the National Retail Federation for total retail sales growth last year. Through momentum in our business was strong across all of our verticals. In the lifestyles vertical, Heelys was a standout last year with double-digit increases in sales and royalties driven primarily by international expansion. For 2016, growth from the brand domestically remains a priority and we see material upside there. The REVO brand debut a new capsule collection of sunglasses in collaboration with U2 lead singer and activist Bono as part of the 'By Vision, Give Sight' campaign to prevent vision impairment and blindness. The partnership with Bono has raised awareness for the brand around the world and has had a positive impact with the brands existing and perspective account. In our active athletic vertical and AND1 and Avia were up nearly 15% year-over-year driven primarily by core category growth at Walmart. The brands continue to benefit from new category introductions and delivering what we call 'Shocking Value' to the Walmart customer a combination of a great brand and a quality product at an incredibly compelling price point. As an example, of this strategy. Just this past month. Walmart launched the high-quality AND1 basketball at the low retail price of $4.88 representing a substantial savings over comparable balls sold at higher tier sporting goods stores. Our fashion vertical anchored by the Jessica Simpson brand exceeded our expectations in all respect. We feel great about where we are, with our organic growth increasing by double-digit driven by Jessica Simpson's core apparel category and other areas including intimate apparel. During 2015, we also launched several new licensing partnerships for the Jessica Simpson brand including active wear and ecommerce. Jessica has been a terrific partner for our company and we look forward to working with her to further expand the brand footprint around the world. In the third quarter, we added Joe's Jeans to the fashion vertical. A leading premium denim brand that had operational challenges in prior years and is now licensed to one of the best operators in the business. GBG, Global Brands Group formerly known as Li & Fung. We've been hard at work, on executing our growth plans for the brand together with them and just before the New Year. We announced a new long-term licensing agreement for handbags and small leather goods. As we embark further into 2016, we're also focused on our two newest brands. Martha Stewart and Emeril Lagasse, which anchor our new home vertical. Since the merger with MSLO closed in December. We've been working on integrating the two brands into the Sequential brand management platform and we're pleased with the progress that we've made to-date. Our first phase of the integration was focused on converting the former MSLO business to our asset-like brand management model. To that end, we recently announced that we expanded the relationship with Meredith to include all aspects of the MLSO Publishing and Media business for the long-term. The new agreement enables us to remove the unprofitable publishing and media business unit from Sequential's P&L, while ensuring the continued publication of the award winning titles Martha Stewart Living and Martha Stewart Weddings for years to come. Meredith scaled expertise in the media world combined with our intellectual property is a true win-win all around. Most importantly, the media partnership allows us to focus on what we know best growing the merchandising business where we believe, we can unlock significant value. And on that note, we're on active dialog with all of our core retail partners for the home brands including Macy's, Home Depot, PetSmart, Michaels, QVC and Staples to focusing on driving mutually beneficial growth for the Martha Stewart and Emeril brand. And just this week, we announced that Martha's new line of office products has launched at Staples stores and online. We look forward to updating you more on these initiatives as the year progresses. In total, we believe our home division can more than double overtime to achieve over $2 billion in retail equivalent sales through growth with existing and new licensees. In closing, as we reflect on this past year. We feel great about where we've come and even more excited about where we're going. With over 150 licensees, strong brands driving $4 billion in annual sales. Four growing brand verticals, committed financial stakeholders, continued focus on strategic acquisition and an extraordinarily talented internal team. We believe that we're well positioned for continued growth in 2016 and beyond. Thank you for your time, this morning. And I'll now turn the call back over to the operator for Q&A.

[Operator:]

[Operator Instructions] thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Erinn Murphy with Piper Jaffray. Please proceed with your question.

[Erinn Murphy:]

Great, thanks. Good morning and congratulations on a very solid year. I guess, Yehuda I was hoping you could maybe speak about, how you in the quarter balancing, integrating some of acquisitions you've done and you did three in the last year versus how you're balancing looking at potential new acquisitions and then is there a doubt level that you would like to get down to before reconsidering a potential new acquisition?

[Yehuda Shmidman:]

Good morning, Erinn. Great question and one that we're certainly focused on, core to our playbook is our two chapters of growth. The first is consistent organic growth as you've seen in our last year 2015 and the years prior. Something we're committed to for 2016 and of course the future plan. And the second chapter is strategic acquisitions that make sense, that are priced right and that are accretive to our overall portfolio. So as we think about the future, we think about both chapters of the playbook. On the one hand for organic growth, you can be outpaced the industry last year. We outpaced our own internal goals and external goals. And so we were really pleased with hitting 10% organic growth and want to continue that through this year and beyond and for acquisitions. We'll continue to be strategic, number of opportunities out there. As it relates to debt level. I think if you look at, the free cash flow generation of this business and as it continues to grow, so significantly especially with the tax benefits that we have in this business model post integration. We got great optionality, in our three-year plan depending on when we consummate acquisitions. We can either pay down debt fairly easily or we could use capital towards further acquisition. So the strategy is really to look at both chapters of the playbook consistently and will always try to balance it to the best of our ability as it relates to leverage ratios.

[Erinn Murphy:]

Okay, that's helpful. I guess maybe can you flush out a little bit about how the integration of Martha Stewart is going in particular and when you see that, coming to an end in terms of the major build-in cost of that integration?

[Yehuda Shmidman:]

Yes, absolutely, so. The integration with Martha Stewart has been going really well. It's fully on track, we've said from the outset. When we were able to close the transaction in December that would take about six months to nine months to complete integration. The first big hurdle was Cross [ph] but we were able to license out the publishing business to Meredith, which was a real significant step in the integration. We went through a series of other cost cutting initiatives which have largely been completed and now our focus in the integration is fully surrounding the activation of all the growth areas of the business that we're so excited about. So really feel great about the integration of the Martha Stewart business. As you know, Erinn typically with our acquisition. The integrations are fairly quick, in fact many times we're able to complete the integrations ahead of closing. This case was slightly different. But as I mentioned fully on track and on schedule and we're excited to be in that new run rate what we see post integration of having close to $95 million of adjusted EBITDA going forward.

[Erinn Murphy:]

Got it. And then, if I could just ask one more just on your business with Amazon. I think, the Martha brand is been selling there for a little bit of time now. Could you just talk about how that's going and then, when you reflect on your overall portfolio, what are the biggest opportunities to further fuel the Amazon channel or maybe how big is, how much disclosure I guess you have for Amazon today you [indiscernible] multiple brands [indiscernible]?

[Yehuda Shmidman:]

And clearly Amazon is a huge opportunity for the future of Sequential. As you mentioned, we have a partnership today with the Martha Stewart brand and Amazon. They were selling some of our other brands on Amazon as well. If you take a look at our total ecommerce business for the company. It looks like, it about doubled than last year in 2015 over the prior year. We're hitting high single digits as a percentage of our total business being transacted in some form of ecommerce or mobile commerce business. We think that can clearly double again over time and Amazon will likely be a big part of that. So very excited about the Martha Stewart partnership with Amazon and in general, as it relates to Sequential Amazon going forward.

[Erinn Murphy:]

Got it. I'll let someone else, jump in. But congratulations again on a great year.

[Yehuda Shmidman:]

Thank you, Erinn.

[Operator:]

Thank you. Our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please proceed with your question.

[Camilo Lyon:]

Thanks, good morning guys. Nice job closing the year out in the strong fashion.

[Yehuda Shmidman:]

Good morning, thank you.

[Camilo Lyon:]

I wanted to get your thoughts on, how you rank order to brands that you think are going to contribute the most growth to business in 2016. It seems like you've got so many initiatives with brand you talked about Heelys, focusing on the domestic piece. REVO with partnership with Bono of AND1, and Walmart doing well, Jessica Simpson doing well, Martha doing well. More ramping up. It seems like there is a lot of opportunity to continue this path of accelerated growth relative to your high single-digit plan. I'm just curious to know, if there is someone. If there's a better way for us to think about those brands and which ones are going to be the ones that are going to contribute to that growth fast to 2016 [ph].

[Yehuda Shmidman:]

Yes, absolutely. It's a great question and of course one that we think a lot about. I would start with the number one biggest organic growth opportunity for this company, which is clearly the Martha Stewart brand. That's a brand and a business that we see potentially doubling, not just in 2016 but overtime and it's one that we get very excited about especially as we get further involved every day. I guess we're now approaching 90 days into fully being integrated with Martha. She's just an absolutely incredible. She's such a terrific partner. Chief Creative Officer, visionary. She's reaching over 100 million people a month. Through all of the different channels of the Martha Stewart Enterprise and that translates to real affinity and real conversion into consumer business. So the partners that we have with Macy's, with Home Depot, with Amazon are just with Staples are just outstanding and the new ideas that I think we have, I think will really bring material upside. So, if you look at the Martha Stewart business as it relates to organic opportunities clearly that's a leader. The Jessica Simpson brand has continued to exceed our expectations and perform really, really well and you can see that in the stores. Whether it's in Macy's, Dillards and Nordstroms. The online business ecommerce we just launched this past fall or the active wear we just launched which has been very well received. So that business is been doing well and Jessica as well has been terrific, terrific partner to this business. The Walmart business would be very important and you saw the performance of AND1 and Avia last year getting nearly 15% organic growth year-over-year from core categories. So those have been outstanding and then in our lifestyle vertical. REVO and Heelys are big drivers. So Camilo, the way just to sort of cap it off. The way we think about the business and the priorities, is really by vertical and Martha for home, Jessica Simpson in fashion, AND1 and Avia in active and REVO and Heelys in lifestyle, be the ways that we would communicate that to you, to think about as we work in our plan for this year.

[Camilo Lyon:]

Sounds great. Okay, so given all that positivity. And you mentioned a lot of the department store partners there. Could you just help us square, what we're hearing from the department stores and how difficult the quality period was and how that's playing with a lot of the other brands in the space. Relative to what seems to be very strong momentum and sell through in your business, how we marry the two because this seems to be some sort of disconnect between the performance that you guys are putting up versus what everyone to talking about now [ph].

[Yehuda Shmidman:]

There's a disconnect and we think that disconnect relates to the fact that our business is so nimble. The brands have stability and power and the ability to get the brands in the product into the consumers hand, is really the key. Whether that's in stores and whether that's online or in a mobile device. I think if you look at last year's NRF estimate of retail sales overall. Clearly sales grew last year. So sales are growing and people are buying things. The key is, perhaps where they're buying or when they're buying or how they're buying and so our goal is to continue to through our nimble business model, ensure that our brands and our products are where consumers are shopping. And I think that's what so special about this business and with the focus on brands like Martha Stewart and Jessica Simpson. I think what you've been able to see is, really an out index against the retail industry in order to see sales growth within this business. So we're very proud of the partners we have. We think, whether it's Macy's or Walmart or Home Depot. These are terrific, terrific partners and overall, we're just going to try to focus as best as possible and making sure that our brands are available wherever people are shopping.

[Camilo Lyon:]

Sounds, great. Yehuda, all the best in 2016. Thank you.

[Yehuda Shmidman:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Dave King with ROTH Capital Partners. Please proceed with your questions.

[Dave King:]

Thanks. Good morning guys.

[Yehuda Shmidman:]

Good morning.

[Dave King:]

Nice quarter and to first off and then I guess, I want to make sure I understood the comment earlier. I think it was in response to Erinn's question on the post-integration run rate of EBITDA 92.5, 95. So, Yehuda where are we in terms of getting towards that. Is that still expected at six months to nine months post the deal closing and then, what specifically still involves trying to make sure I understood correctly? What specifically still involved that you have to get done in order to get to that, new run rate?

[Yehuda Shmidman:]

Sure. So yes, still very much on track to achieving it, full completion of the integration within that six months to nine months’ time period. At which point the new run rate would fully tick in. What specifically is involved as I mentioned earlier, the biggest hurdle was licensing the publishing business out which took place contractually and we've been going through various steps to actually physically complete that turnover of the operations over to Meredith, so that just takes a couple of minute to take that done. The expense initiatives, cost initiatives those have all been largely completed. So those are, largely in place and then our real focus of course in terms of the business is on activation. So I think if you could think about in the following way to sort of two parallel initiatives in motion. One is just that tactical completion of the integration where the strategy is finalized, which is a great sort of step in the right direction or view. And then on the other side, of course ensuring that the teams are fully focused on developing the brand and the business long-term with Martha.

[Dave King:]

Okay, that helped. And then I guess in terms of activation, where are we in terms of the potential of our new licensees or categories or discussions there I think. Food has been discussed in the past, this maybe one of the bigger drivers. I guess maybe you can just update us on some of the bigger drivers for that, for Martha going forward and where you stand in terms of those discussions?

[Yehuda Shmidman:]

Everything fully in motion as you mentioned, the food is definitely one of the big categories that we think will give us an opportunity to unlock a lot of value in what Martha stands for. Martha has published 86 books in her career and many of them, if not most of them relate to food prep in some form or fashion and the idea of delivering whether it's prepared foods or ingredients or meals or packaged foods, to home and to our customers and to her fans seems real logical and we think could be a major, major opportunity. So that remains our key focus. Nothing too specifically and now at this moment, but of course as things are completed and launches are taking place to the consumer level, we will update you accordingly. So that's certainly a big part of the initiative, but certainly not the only initiatives. There are number of categories we're working on and the core partners that we have today we believe have a lot of run way for future growth as well.

[Dave King:]

Okay, that helps. Thanks for the color there and then maybe switching gears a bit. Did you guys provide, what you did in free cash flow for the quarter and then, I guess just as we think about both - I want to say $85 million to $87 million of EBITDA for 2016 and then the post-integration run rate approaching $95 million. Can you update us on, how you're thinking about free cash, your free cash flow framework? And then beyond that, what's sort of the interest expense, cash interest expense that you're anticipating.

[Gary Klein:]

Dave, it's Gary. So, yes the framework for calculating our free cash flow is starting with adjusted EBITDA, which is already adjusted for non-cash items. Taking out the cash interest, taking out the cash taxes, which is minimal we said about a $1 million, CapEx is about $1 million and I believe the interest we said it was about gross $44 million of which about $40 million is about cash interest. So if you take those out, you get to a good run rate. I'm doing that on the go forward EBITDA 95, it's a pretty strong number.

[Dave King:]

Okay, that helps. And then, maybe lastly from me and then I'll step back. In terms of the outlook for M&A going forward with leverage being where it is, but still the ability to generate a fair amount of cash. I guess, Yehuda how are you thinking about the opportunities at hand with where you sit and the ability to generate cash, but theoretically to following more opportunities out there. I guess, I would assume given the environment how are you weighing all those things given leverage, but then equity price etc. And is there a thought, maybe put in a hold for a little while, maybe pay down some of the debt or is it move forward with deals, if you see some good opportunities in near-term and then what sort of flexibility do you have to pursue those?

[Yehuda Shmidman:]

Sure. It's great question. We think we're kind of in the best of both worlds because you've got an environment where people are skittish, which means that there are opportunities for us to pursue great brands that we think, we can add a lot of value to and on the same time. We've got committed financial stakeholders, who are absolutely supportive of our strategy. I'm referring to Carlyle, I'm referring Tengram, I'm referring to Bank of America and GSO, Blackstone. Still while, the microenvironment is saying one thing, the internal environment here says, hey, we're supportive and are here to transact to the extent that there are opportunities that make sense. As it relates to leverage, Dave. What I would say to you is, of course we're always mindful, but we got a real strong pool of guaranteed minimum royalties that go against that leverage. So the comforts that our stakeholders have around the leverage is more than $350 million of guaranteed minimum royalties that this company has today going forward from existing contracts without any renewals included, that's the number we see growing as well. So when we think about the leverage and we think about the opportunities that and I think you mentioned this even in the question. We got real optionality on the one hand we could sort of continue to perform and post organic growth and then have the option of paying down debt or pursue acquisitions, if they make sense not just financially but of course strategically as well.

[Dave King:]

Okay, that helps us, great color. Thanks guys and good luck with 2016.

[Yehuda Shmidman:]

Thank you, so much.

[Operator:]

Thank you. Our next question comes from the line of Liz Pierce with Brean Capital. Please proceed with your question.

[Liz Pierce:]

Good morning and congratulations. You guys on a solid end to the year. So I was just curious about when you talk about what's happening at Walmart. Is this really coming from the shelf space that you're taking and pushing out some of the other tertiary brands? And is that playbook you see for next year, for this current year?

[Yehuda Shmidman:]

A lot of it is straight market share gains. But as well, it's additional productivity within the core categories whether that's footwear, whether that's apparel, whether that's socks and underwear sort of real core areas. There is some new growth in categories for example, when we spoke about this morning about the hard goods launching and ANDI with the physical basketballs. But to your point, a largely it is related to market share and core productivity and core categories.

[Liz Pierce:]

So just to clarify, are you actually I mean is your square footage growing, your real estate growing?

[Yehuda Shmidman:]

It is.

[Liz Pierce:]

It is, okay. And then Gary, would you just mind going over on the free cash flow. I don't know, that you actually answered for the fourth quarter or was that, just a projection?

[Gary Klein:]

Yes, that was using just an annual number. I mean, I did it on the run rate. If I was going to back it up to the 2015. So we did about $53 million of adjusted EBITDA. Our cash interest was about $19 million. Our cash tax was about $1 million and our CapEx for the year was about $1.5 million.

[Liz Pierce:]

Got it. Okay.

[Gary Klein:]

But again, as you think about debt pay down looking at the run rate is probably the best way to think about it.

[Liz Pierce:]

Okay and then in terms of just circling back also to on the acquisitions. Yehuda, I'm intrigued by your comment in terms of the disconnect between what you guys have been able to do, giving [indiscernible] well your biggest model is and what the major they're talking about and creating opportunity on the acquisitions. Are you seeing that across all your verticals or is it particularly in fashion? And then how do you think about the fashion? Because I notice when you talked about, you only mentioned Jessica nothing about Joe's or William Rast. Are these just brands that are still in that to nurture them, maybe just give us a little bit of color on that? Thank you.

[Yehuda Shmidman:]

Sure, first question I'll try to answer. First was, which is as we see the performance we really sort of cross the board and so when we think about the four verticals, the standouts for 2015 specific to the question about sort of outpacing the industry, if you will. First was Heelys for lifestyle, then we point to AND1 and Avia for active athletic and then certainly point to Jessica Simpson for fashion. That's not to lose any attention around Jose's or William Rast. Because you're absolutely right, those are important brands as well within fashion. Joe's is new relatively new and I believe, we completed that acquisitions in September and we've got an amazing license fee around the core business and Global Brands Group Aka Li & Fung, who has just been terrific and we're working very closely with them on issue to grow that brand. They've kept more stores than we thought they would keep on the retail side of that business and that's been, I think of some great step in the right direction for growth and the wholesale side has a lot of sort of specific plans around that as well to add sportswear around the denim and I'm sure, you saw we recently announced the new handbag partner. So that's been, that's off to a great start and hopefully, we'll more to talk about with Joe's Jeans as year progress. Then William Rast although, sort of numerically has become a smaller brand for us in terms of total size. Is still very important to us and now that the, you recall last year we had Lord & Taylor exclusive the new distribution will start really kicking in throughout this year, especially in the fall. We had a really nice showing at Project Magic just last week, with the fall collection and we had some good reception to that for the fall.

[Liz Pierce:]

So okay, all right that's helpful. I guess to that point, just the last question. Are there brands that you guys having a portfolio, the smaller ones that you might think that Tom [ph] that you would be willing to kind of share those brands?

[Yehuda Shmidman:]

Yes, as we continue to grow. There's certainly part of the long-term strategy is a prone to grow aspect. Last year, we divested a small immaterial brand. Peoples Liberation and overtime, as we grow and continue to put resources behind our properties and our organic growth aspects. While of course, all brands are important as long as they're with us. We'll continue to nurture them. Overtime, we could continue to look at ideas of pruning [ph] to grow strategies.

[Liz Pierce:]

Okay, great. Best of luck for the coming year. Thanks guys.

[Yehuda Shmidman:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Eric Beder with Wunderlich Securities. Please proceed with your question. Mr. Beder, your line is live. Perhaps you're muted.

[Eric Beder:]

Good morning, congratulations on great 2015.

[Yehuda Shmidman:]

Good morning.

[Eric Beder:]

Could you talk a little bit about Ellen Tracy? I know you've been trying to expand that brand outside a little bit more than Macy's and can we get a little bit of an update on the international infrastructure, once you're putting together to expand there going forward?

[Yehuda Shmidman:]

Yes, absolutely. So Ellen Tracy core brand within our portfolio and has been with us now for several years. Had a number of really sort of new initiatives and work last year, that we're already seeing into 2016. So first would be internationally as I think you were mentioning Eric. We launched House of Fraser in the UK with beautiful shops that have been well received and we think that will continue to expand. And then secondly, when you look at the sort of reboot over the last 12 months of the product in the core category, which is now expanded to new accounts in the sort of better department store and digital space, that success has been has really started to show, as I mention especially into this year. So early reads into Q1 of 2016 for Ellen Tracy have been very positive on the sportswear, north of double-digit increases. So really exciting to see that and that brand just a great heritage and loyal consumer base.

[Eric Beder:]

In terms of just the general international. I know last time, we talked it was about basically setting it up this year for next year. Is that still kind of the thought process going forward?

[Yehuda Shmidman:]

International in general is certainly a longer tail exploration. There are some real interest in certain brands that we own in different places, whether it's the European example I just gave that Ellen Tracy certain examples in parts of Asia, Latin America and the Mid East. We're now low double digits in terms of international penetration within our total business that metric should grow, if not double, overtime. So we're absolutely, committed to it. It just takes a little bit longer to actually execute but it is a good lever for us to pull as a long-term organic growth driver.

[Eric Beder:]

Okay and a final question. So you move to the Martha Stewart headquarters a much bigger building, has that led you have to more efficiencies and how your operation of [indiscernible] pretty much everyone [indiscernible] and leverage that building.

[Yehuda Shmidman:]

Yes, in fact our goal is to host a sort of Analyst/Investor day at some point, later this year. So that, you and everybody else can come see it because it really is tremendous. You obviously mentioned - are physically bigger as you mentioned, even more important than that what I would highlight is that, what Martha has built here, it's really an incredible resource pool of infrastructure to help support all of our brands, in terms of photography, studios and shell [ph] room space and just terrific, terrific resources that we're looking to synergistically use across the entire portfolio. We've already begun to do that. So very exciting to have those resources in the Sequential portfolio and definitely want to get a chance to show that to you and to your colleagues as soon as possible.

[Eric Beder:]

Great. Good luck for 2016.

[Yehuda Shmidman:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line Steve Marotta with C.L. King & Associates. Please proceed with your question.

[Steve Marotta:]

Good morning, Yehuda and Gary. I've two quick questions. The first is, Yehuda, are the organic growth expectations for 2016 high single-digit?

[Yehuda Shmidman:]

Yes.

[Steve Marotta:]

That's what I thought. And Gary, just to expand in your comment earlier about half the minimum royalties are expected in the first half of fiscal 2016, is that basically. Are they split evenly between the quarters? And does that basically mean that you would expect roughly $50 million in revenue through the first half of the year.

[Gary Klein:]

I would say approximately. There are some overages that take place in the first half of the year, but for the most part it's the minimum that drive the revenue that we record in the first two quarters of the year.

[Steve Marotta:]

And they're split roughly, evenly.

[Gary Klein:]

Correct. Again, we recognize them, our straight line basis over the year. Obviously some overages come in the first half then they're less minimum to recognize in the back half, but for the most part. If they're straight line basis and most of the overages will take place in Q3 and Q4.

[Steve Marotta:]

Excellent. Thank you very much. Congrats again on a great year.

[Yehuda Shmidman:]

Steve, thank you very much.

[Operator:]

Thank you. Our next question comes from the line John Kernan with Cowen and Company. Please proceed with your question.

[David Buckley:]

Good morning, this is David Buckley on for John Kernan. Thanks for taking our question and congrats on a great year, guys.

[Yehuda Shmidman:]

Thank you, David.

[David Buckley:]

Can you give us a sense of the health of your universe of licensee partners? Just given the high end consumer volatility or any of your licensee looking to restructure the terms of their royalty guarantees with you beyond 2016?

[Yehuda Shmidman:]

No, none of that and to answer your question, we've got a really diversified pool of licensees we've got over 150 partners today, that range from direct partnerships with the Home Depot and Macy's to leading class wholesalers such as Global Brand Group, Li & Fung, G3 and [indiscernible] and many others. I think the overall health of the industry. Again if you point to, what is actually happening in total in retail sales for 2015 and early predictions on was sort of written in the general world by the NRF or others into 2016, is that there is overall growth. Again to the questions early, there may be shifts in where that's taking place but it is taking place and so we see healthy consumer and our partners are diversified and we feel great about, who we have.

[David Buckley:]

Thanks, Yehuda and just one other question. I know you're really sincere with Amazon before, but could you guys just talk about your strategy to increase sales online and through mobile. Thank you.

[Yehuda Shmidman:]

Sure, yes and to your point as I mentioned earlier. Amazon is clearly a bit part of the future and we're thrilled to be working with them and there are others like Alibaba and others that we're working with these days. How we're pursuing mobile commerce and ecommerce is really simple, we want to make sure that our brands are available in those channels, whether to wholesalers or directly, just as we would do with any channel. And we want to make sure we're promoting our brands in the right way to drag traffic to those channels. So ecommerce and mobile commerce clearly a growing part of the industry and currently growing part and a real growth lever for us to pull in Sequential's future.

[David Buckley:]

Great. Thank you.

[Yehuda Shmidman:]

Thank you.

[Operator:]

Thank you. Mr. Shmidman there are no further questions. I'd like to turn the floor back to you, for final concluding remark.

[Yehuda Shmidman:]

Great, just want to thank everybody for their time this morning and we appreciate all your support and look forward to speaking with you in the next earnings call.

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.