GlobeNewswire Inc | Aug 19, 2020 04:05PM EDT

August 19, 2020

-- Maintained strong balance sheet and continued expense reduction actions -- Digital sales accelerated -- Second Quarter total revenues of $5.1 million, reflecting adverse impact from COVID-19 pandemic -- GAAP Net loss of $1.3 million, ($0.07) per share -- Adjusted EBITDA of $1.7 million -- Non-GAAP diluted EPS of $0.06 -- Positive operating cash flow of $2.0 million for the three months ended June 30, 2020

NEW YORK, Aug. 19, 2020 (GLOBE NEWSWIRE) -- Xcel Brands, Inc. (NASDAQ: XELB) (Xcel or the Company), a media and consumer products company, today announced its financial results for the second quarter ended June 30, 2020.

Robert W. D'Loren, Chairman and Chief Executive Officer of Xcel, commented, We are living through an extraordinary period of business and social change. The past five months have presented a period of unprecedented challenge, but also has proven Xcels agility, resilience, and the dedication of our employees, supply chain and retail partners. While our financial performance this quarter reflects the impact of the global COVID-19 worldwide crisis, we have taken this opportunity to accelerate our core strategic focus to leverage our technology platform to drivefuture growth and value creation as we move forward out of this crisis.

Second Quarter 2020 Financial Results

Total revenuewas $5.1 million, a decrease of $4.1 million compared to the prior year period, primarily driven by lower licensing revenues and lower net sales of $2.3 million and $1.8 million, respectively. Gross profit decreased by $2.6 million to $4.8 million from $7.4 million in the prior year quarter. Our revenues were impacted by the COVID-19 pandemic which included the government mandated stay-at-home policy and the closing of retail across the country.

GAAP net loss was approximately $1.3 million, or ($0.07), per diluted share, compared with a GAAP net income of $1.9 million, or $0.10 per diluted share, for the prior year quarter. The prior year quarters GAAP net income included a $2.9 million gain on the reduction of contingent obligations. After adjusting for certain cash and non-cash items, non-GAAP net income for the quarters ended June 30, 2020 and June 30, 2019, was approximately $1.2 million, or $0.06 per diluted share and approximately $1.0 million, or $0.07 per diluted share, respectively. Adjusted EBITDA was approximately $1.7 million and $1.6 million for the current quarter and the prior year quarter, respectively.

Six Month 2020 Financial Results

Total revenuewas $14.6 million, a decrease of $4.8 million, primarily driven by lower licensing revenues and lower net sales of $4.5 million and $0.3 million, respectively. Gross profit decreased by $3.9 million to $11.9 million from $15.8 million in the prior year six months. As with the quarter's results, the decrease in our revenues was caused by the COVID-19 pandemic which included the government mandated stay-at-home policy and the closing of retail across the country.

GAAP net loss was approximately $2.2 million, or ($0.11), per diluted share, compared with GAAP net income of $2.0 million, or $0.11 per diluted share, for the prior year six months. The prior year six months GAAP net income included a $2.9 million gain on the reduction of contingent obligations. After adjusting for certain cash and non-cash items, non-GAAP net income for the six months ended June 30, 2020 and June 30, 2019, was approximately $1.4 million, or $0.07 per diluted share and approximately $2.5 million, or $0.13 per diluted share, respectively. Adjusted EBITDA was approximately $2.5 million and $3.7 million for the current six months and the prior year six months, respectively.

See reconciliation tables below for non-GAAP metrics. These non-GAAP metrics may be inconsistent with similar measures presented by other companies and should only be used in conjunction with our results reported according to U.S. generally accepted accounting principles. Any financial measure other than those prepared in accordance with GAAP should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

The Company's balance sheet at June 30, 2020 remained strong, with stockholders' equity of approximately $97 million, cash and cash equivalents of approximately $5.5 million, and working capital, exclusive of the current portion of lease obligations, of approximately $8.5 million.

Conference Call and WebcastThe Company will host a conference call with members of the executive management team to discuss these results with additional comments and details at 5:00 p.m. Eastern Time on Thursday, August 20, 2020. A webcast of the conference call will be available live on the Investor Relations section of Xcel's website at www.xcelbrands.com. Interested parties unable to access the conference call via the webcast may dial 1-877-407-3982. A replay of the conference call will be available on the Company website for 30 days following the event and can be accessed at 844-512-2921 using replay pin number 13706577.

About Xcel BrandsXcel Brands, Inc. (NASDAQ:XELB) is a media and consumer products company engaged in the design, production, marketing, wholesale, and direct-to-consumer sales of branded apparel, footwear, accessories, jewelry, home goods and other consumer products, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded by Robert W. DLoren in 2011 with a vision to reimagine shopping, entertainment, and social as one. Xcel owns the Isaac Mizrahi, Judith Ripka, Halston, and C. Wonder brands, and it owns and manages the Longaberger brand through its controlling interest in Longaberger Licensing LLC, pioneering a ubiquitous sales strategy which includes the promotion and sale of products under its brands through interactive television, brick-and-mortar retail, e-commerce and peer to peer channels. Headquartered in New York City, Xcel Brands is led by an executive team with significant production, merchandising, design, marketing, retailing, and licensing experience, and a proven track record of success in elevating branded consumer products companies. With an experienced team of professionals focused on design, production, and digital marketing, Xcel maintains control of product quality and promotion across all of its product categories and distribution channels. Xcel differentiates by design. www.xcelbrands.com

Forward Looking StatementsThis press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "ongoing," "could," "estimates," "expects," "intends," "may," "appears," "suggests," "future," "likely," "goal," "plans," "potential," "projects," "predicts," "seeks," "should," "would," "guidance," "confident" or "will" or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding our anticipated revenue, expenses, profitability, strategic plans and capital needs. These statements are based on information available to us on the date hereof and our current expectations, estimates and projections and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including, without limitation, the risks discussed in the "Risk Factors" section and elsewhere in the Company's Annual Report on form 10-K for the year ended December 31, 2019 and its other filings with the SEC, which may cause our or our industry's actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. You should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

For further information please contact:

Andrew BergerSM Berger & Company, Inc. 216-464-6400andrew@smberger.com

Xcel Brands, Inc. and SubsidiariesUnaudited Condensed Consolidated Balance Sheets(in thousands, except share and per share data) June 30, 2020 December 31, 2019 (Unaudited) Assets Current Assets: Cash and cash equivalents $ 5,461 $ 4,641 Accounts receivable, net 6,543 10,622 Inventory 866 899 Prepaid expenses and other current assets 1,775 1,404 Total current assets 14,645 17,566 Property and equipment, net 3,866 3,666 Operating lease right-of-use assets 8,569 9,250 Trademarks and other intangibles, net 108,815 111,095 Restricted cash 1,109 1,109 Other assets 494 505 Total non-current assets 122,853 125,625 Total Assets $ 137,498 $ 143,191 Liabilities and Equity Current Liabilities: Accounts payable, accrued expenses and $ 2,722 $ 4,391 other current liabilitiesAccrued payroll 527 1,444 Current portion of operating lease 1,873 1,752 obligationCurrent portion of long-term debt 2,900 2,250 Total current liabilities 8,022 9,837 Long-Term Liabilities: Long-term portion of operating lease 8,789 9,773 obligationLong-term debt, less current portion 15,231 16,571 Contingent obligation 900 900 Deferred tax liabilities, net 7,310 7,434 Other long-term liabilities 224 224 Total long-term liabilities 32,454 34,902 Total Liabilities 40,476 44,739 Commitments and Contingencies Equity: Preferred stock, $.001 par value,1,000,000 shares authorized, none issued - - and outstandingCommon stock, $.001 par value, 50,000,000shares authorized at June 30, 2020 andDecember 31, 2019, respectively, and 19 19 19,231,040 and 18,866,417 issued andoutstanding at June 30, 2020 and December31, 2019, respectivelyPaid-in capital 102,180 101,736 Accumulated deficit (5,764 ) (3,659 )Total Xcel Brands, Inc. stockholders' 96,435 98,096 equityNoncontrolling interest 587 356 Total Equity 97,022 98,452 Total Liabilities and Equity $ 137,498 $ 143,191

Xcel Brands, Inc. and SubsidiariesUnaudited Condensed Consolidated Statements of Operations(in thousands, except share and per share data) For the Three Months Ended For the Six Months Ended June 30, June 30, 2020 2019 2020 2019Revenues Net licensing $ 4,501 $ 6,803 $ 10,142 $ 14,666revenueNet sales 549 2,335 4,435 4,773Net revenue 5,050 9,138 14,577 19,439Cost of goods 253 1,767 2,653 3,599sold (sales)Gross profit 4,797 7,371 11,924 15,840 Operatingcosts and expensesSalaries,benefits and 2,882 3,848 6,830 7,993employmenttaxesOther designand marketing 638 797 1,630 1,555costsOther selling,general and 1,627 1,173 3,364 2,763administrativeexpensesStock-based 488 135 731 482compensationDepreciationand 1,329 1,000 2,632 1,948amortizationGovernmentassistance -Paycheck (1,640 ) - (1,640 ) -ProtectionProgramProperty andequipment 82 - 82 -impairmentTotaloperating 5,406 6,953 13,629 14,741costs andexpenses Other Income Gain onreduction of - 2,850 - 2,850contingentobligationTotal other - 2,850 - 2,850income Operating (609 ) 3,268 (1,705 ) 3,949(loss) income Interest andfinance expenseInterestexpense and 299 348 593 638other financechargesLoss onextinguishment - - - 189of debtTotal interestand finance 299 348 593 827expense (Loss) incomebefore income (908 ) 2,920 (2,298 ) 3,122taxes Income taxprovision 428 1,068 (124 ) 1,143(benefit) Net (loss) (1,336 ) 1,852 (2,174 ) 1,979incomeLess: Net lossattributableto (36 ) - (69 ) -noncontrollinginterestNet (loss)incomeattributable $ (1,300 ) $ 1,852 $ (2,105 ) $ 1,979to XcelBrands, Inc.stockholders (Loss) earnings pershare attributed to Xcel Brands, Inc.common stockholders:Basic net(loss) income $ (0.07 ) $ 0.10 $ (0.11 ) $ 0.11per share:Diluted net(loss) income $ (0.07 ) $ 0.10 $ (0.11 ) $ 0.11per share: Weightedaverage numberof common sharesoutstanding:Basic weightedaverage common 19,132,244 18,976,394 19,001,321 18,770,378sharesoutstandingDilutedweightedaverage common 19,132,244 18,977,051 19,001,321 18,771,053sharesoutstanding

Xcel Brands, Inc. and SubsidiariesUnaudited Condensed Consolidated Statements of Cash Flows(in thousands) For the Six Months Ended June 30, 2020 2019 Cash flows from operating activities Net (loss) income $ (2,174 ) $ 1,979 Adjustments to reconcile net (loss) incometo net cash provided by operating activities:Depreciation and amortization expense 2,632 1,948 Property and equipment impairment 82 - Amortization of deferred finance costs 50 79 Stock-based compensation 731 482 Amortization of note discount - 16 Allowance for doubtful accounts 683 (144 )Loss on extinguishment of debt - 189 Deferred income tax (benefit) provision (124 ) 1,143 Gain on reduction of contingent obligation - (2,850 )Changes in operating assets and liabilities: Accounts receivable 3,396 2,289 Inventory 33 1,113 Prepaid expenses and other assets (59 ) (293 )Accounts payable, accrued expenses and other (2,688 ) (3,532 )current liabilitiesCash paid in excess of rent expense (181 ) (244 )Other liabilities - (196 )Net cash provided by operating activities 2,381 1,979 Cash flows from investing activities Cash consideration for asset acquisition of - (8,830 )the Halston Heritage assetsPurchase of property and equipment (634 ) (557 )Net cash used in investing activities (634 ) (9,387 ) Cash flows from financing activities Shares repurchased including vestedrestricted stock in exchange for withholding (187 ) - taxesPayment of deferred finance costs - (289 )Proceeds from long-term debt 10 7,500 Payment of long-term debt (750 ) (2,742 )Net cash (used in) provided by financing (927 ) 4,469 activities Net increase (decrease) in cash, cash 820 (2,939 )equivalents, and restricted cash Cash, cash equivalents, and restricted cash 5,750 10,319 at beginning of period Cash, cash equivalents, and restricted cash $ 6,570 $ 7,380 at end of period Reconciliation to amounts on consolidated balance sheets:Cash and cash equivalents $ 5,461 $ 6,271 Restricted cash 1,109 1,109 Total cash, cash equivalents, and restricted $ 6,570 $ 7,380 cash Supplemental disclosure of non-cash activities:Operating lease right-of-use asset $ - $ 10,409 Operating lease obligation $ - $ 13,210 Accrued rent offset to operating lease $ - $ 2,801 right-of-use assetsSettlement of seller note through offset to $ - $ 600 receivableSettlement of contingent obligation through $ - $ 100 offset to note receivableIssuance of common stock in connection with $ - $ 1,058 Halston Heritage assets acquisitionContingent obligation related to acquisition $ - $ 900 of Halston Heritage assets at fair valueLiability for equity-based bonuses $ 100 $ - Amount due from non-controlling interest for $ 300 $ - capital contribution Supplemental disclosure of cash flow information:Cash paid during the period for income taxes $ 47 $ 18 Cash paid during the period for interest $ 811 $ 784

Three Months Ended Six Months Ended($ in June 30, June 30, June 30, June 30,thousands) 2020 2019 2020 2019 (Unaudited) (Unaudited) (Unaudited) (Unaudited)Net (loss)incomeattributed to $ (1,300 ) $ 1,852 $ (2,105 ) $ 1,979 Xcel Brands,Inc.stockholdersAmortization 1,108 786 2,216 1,523 of trademarksNon-cashinterest and - - - 16 financeexpenseStock-based 488 135 731 482 compensationLoss onextinguishment - - - 189 of debtCosts inconnection (101 ) - (21 ) - with potentialacquisitionCertainadjustments toallowance for 472 - 586 - doubtfulaccountsProperty andequipment 82 - 82 - impairmentGain onreduction of - (2,850 ) - (2,850 )contingentobligationDeferredincome tax 428 1,068 (124 ) 1,143 provision(benefit)Non-GAAP net $ 1,177 $ 991 $ 1,365 $ 2,482 income Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) (Unaudited) (Unaudited)Diluted (loss)earnings per $ (0.07 ) $ 0.10 $ (0.11 ) $ 0.11 shareAmortization 0.06 0.04 0.11 0.08 of trademarksNon-cashinterest and - - - - financeexpenseStock-based 0.03 0.01 0.04 0.02 compensationLoss onextinguishment - - - 0.01 of debtCosts inconnection (0.01 ) - - - with potentialacquisitionCertainadjustments toallowance for 0.02 - 0.03 - doubtfulaccountsProperty andequipment 0.01 - 0.01 - impairmentGain onreduction of - (0.15 ) - (0.15 )contingentobligationDeferredincome tax 0.02 0.05 (0.01 ) 0.06 provision(benefit)Non-GAAP $ 0.06 $ 0.05 $ 0.07 $ 0.13 diluted EPSNon-GAAPweighted 19,192,353 18,977,051 19,001,842 18,771,053 averagediluted shares Three Months Ended Six Months Ended($ in June 30, June 30, June 30, June 30,thousands) 2020 2019 2020 2019 (Unaudited) (Unaudited) (Unaudited) (Unaudited)Net (loss)incomeattributed to $ (1,300 ) $ 1,852 $ (2,105 ) $ 1,979 Xcel Brands,Inc.stockholdersDepreciationand 1,329 1,000 2,632 1,948 amortizationInterest andfinance 299 348 593 827 expenseIncome taxprovision 428 1,068 (124 ) 1,143 (benefit)State andlocal 45 83 83 121 franchisetaxesStock-based 488 135 731 482 compensationCosts inconnection (101 ) - (21 ) - with potentialacquisitionCertainadjustments toallowance for 472 - 586 - doubtfulaccountsProperty andequipment 82 - 82 - impairmentGain onreduction of - (2,850 ) - (2,850 )contingentobligationAdjusted $ 1,742 $ 1,636 $ 2,457 $ 3,650 EBITDA

Non-GAAP net income and non-GAAP diluted EPS are non-GAAP unaudited terms. We define non-GAAP net income as net income (loss), amortization of trademarks, stock-based compensation, non-cash interest and finance expense from discounted debt related to acquired assets, loss on extinguishment of debt, costs in connection with potential acquisitions, certain adjustments to allowances for doubtful accounts, property and equipment impairment, gain on the reduction of contingent obligation and deferred income taxes. Non-GAAP net income and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Companys tax strategy.

Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) before depreciation and amortization, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation and costs in connection with potential acquisitions, certain adjustments to allowances for doubtful accounts, property and equipment impairment, and gain on the reduction of contingent obligation.

Adjusted EBITDA adds back to net (loss) income certain adjustments to allowances for doubtful accounts for account debtors that have filed for bankruptcy protection triggered by the impact of COVID-19. The related accounts receivables were primarily for sales that occurred in the year ended December 31, 2019. In addition, included in net income was $1.6 million of government assistance received through the Paycheck Protection Program under the CARES Act, which was recognized as a reduction to current six months expenses for which the program was intended to compensate.Both non-GAAP net income and Adjusted EBITDA for the current quarter and current six months include certain adjustments to net loss including allowances for doubtful accounts for account debtors that have filed for bankruptcy protection triggered by the impact of COVID-19. In addition, net loss for the current quarter and current six months includes $1.6 million of government assistance received through the Paycheck Protection Program under the CARES Act, which was recognized as a reduction to current quarter and current six months expenses for which the program was intended to compensate, as such amount is included in net loss in accordance with GAAP. The expense reduction from the PPP is not considered a reconciling item for purposes of the computation of non-GAAP net income and Adjusted EBITDA due to the fact that the PPP represents a cash benefit and is directly related to the Companys operating expenses incurred. Such treatment is also consistent with the calculation of EBITDA for financial covenant compliance purposes under the Companys term debt.

Management uses non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to our results of operations. Management believes non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, and thus these non-GAAP measures provide supplemental information to assist investors in evaluating our financial results. The Company has incurred certain costs which it could have eliminated but elected not to do so in light of government assistance received through the Paycheck Protection Program under the CARES Act (the PPP Benefit), which represents a cash benefit directly related to the Companys operating expenses incurred. Accordingly, the PPP Benefit is not considered a reconciling item for purposes of the computation of non-GAAP net income and Adjusted EBITDA.Adjusted EBITDA is the measure used to calculate compliance with the EBITDA covenant under the Xcel Term Loan. Non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. Given that non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate these measures in a different manner than we do. In evaluating non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this document. Our presentation of non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income, non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.