Sequential Brands Group Announces First Quarter 2020 Results
“While the coronavirus pandemic has significantly impacted the
First Quarter 2020 Results from Continuing Operations:
Total revenue from continuing operations for the first quarter ended
Impact of COVID-19:
The COVID-19 pandemic has resulted in state-government mandated store closures and social distancing measures throughout most of the U.S. These actions have caused many retailers carrying the Company’s products to close in March, April and May, which has affected retailers, as well as Sequential’s licensees who sell to these retailers. As some (but not all) states relax restrictions, the Company is unsure when retailers will reopen, at what capacity, or if additional periods of store closures will be needed or mandated. Accordingly, the COVID-19 pandemic has adversely affected Sequential’s near-term and long-term revenues, earnings, liquidity and cash flows. However, the situation is dynamic, and the Company is not currently able to predict the full impact of COVID-19 on its results of operations and cash flows. Sequential ended the first quarter with
In response to COVID-19, the Company has taken several proactive actions to enhance liquidity including the following:
- Increasing available cash on hand including utilizing revolver borrowings under the Third Amendment to the Third Amended and Restated First Lien Credit Agreement with
Bank of America, N.A . as administrative and collateral agent (the “Amended BoA Credit Agreement”). The Company made net revolver borrowings of$14.1 million , excluding lender fees, under the Amended BoA Credit Agreement throughMay 15, 2020 ; - Implementing temporary salary reductions across the Company;
- Decreasing operating expenses through marketing spend reductions and deferral of non-essential spending; and
- Proactively partnering with our lender base to provide more flexibility.
Liquidity and Financing Update:
Sequential currently believes that cash from operations and our currently available cash (including available borrowings under our existing financing arrangements) will be sufficient to satisfy our anticipated working capital requirements for at least twelve months from today. However, Sequential is not currently able to predict the full impact of COVID-19 on our results of operations and cash flows. As of
Discontinued Operations:
On
Investor Call and Webcast:
Management will provide further commentary today,
Non-GAAP Financial Measures:
This press release contains historical and projected measures of Adjusted EBITDA from continuing operations, non-GAAP net loss from continuing operations and non-GAAP loss per diluted share from continuing operations. The Company defines Adjusted EBITDA from continuing operations as loss from continuing operations attributable to
About
Forward-Looking Statements
Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements ("forward-looking statements") within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made as of the date hereof and are based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The Company's actual results or actual events could differ materially from those stated or implied in forward-looking statements. Forward-looking statements include statements concerning estimates of GAAP net income, non-GAAP net income, Adjusted EBITDA, revenue (including guaranteed minimum royalties), and margins, guidance, plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying assumptions and other statements that are not historical in nature, including those that include the words "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "forecasts," "projects," "aims," "targets," "may," "will," "should," "can," "future," "seek," "could," "predict," the negatives thereof, variations thereon and similar expressions. Such forward-looking statements reflect the Company's current views with respect to future events, based on what the Company believes are reasonable assumptions. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including: (i) risks and uncertainties discussed in the reports that the Company has filed with the Securities and Exchange Commission (the "SEC"); (ii) general economic, market or business conditions; (iii) the Company's ability to identify suitable targets for acquisitions and to obtain financing for such acquisitions on commercially reasonable terms; (iv) the Company's ability to timely achieve the anticipated results of any potential future acquisitions; (v) the Company's ability to successfully integrate acquisitions into its ongoing business; (vi) the potential impact of the consummation any potential future acquisitions on the Company's relationships, including with employees, licensees, customers and competitors; (vii) the Company's ability to achieve and/or manage growth and to meet target metrics associated with such growth; (viii) the Company's ability to successfully attract new brands and to identify suitable licensees for its existing and newly acquired brands; (ix) the Company's substantial level of indebtedness, including the possibility that such indebtedness and related restrictive covenants may adversely affect the Company's future cash flows, results of operations and financial condition and decrease its operating flexibility; (x) the Company's ability to achieve its guidance; (xi) continued market acceptance of the Company's brands; (xii) changes in the Company's competitive position or competitive actions by other companies; (xiii) licensees' ability to fulfill their financial obligations to the Company; (xiv) concentrations of the Company's licensing revenues with a limited number of licensees and retail partners; (xv) risks related to the effects of the sale of the Martha Stewart brand; (xvi) uncertainties related to the timing, proposals or decisions arising from the Company’s strategic review, including the divestiture of one or more existing brands; (xvii) adverse effects on the Company and its licensees due to natural disasters, pandemic disease and other unexpected events; (xviii) uncertainties around the effects of the COVID-19 pandemic, including adverse effects on the Company's business, financial position, cash flows, ability to comply with its debt covenants and related uncertainty around the Company's ability to continue as a going concern; and (xix) other circumstances beyond the Company's control. Refer to the section entitled "Risk Factors" set forth in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for a discussion of important risks, uncertainties and other factors that may affect the Company's business, results of operations and financial condition. In addition, the global economic climate and additional or unforeseen effects from the COVID-19 pandemic amplify many of the foregoing risks. The Company's stockholders are urged to consider such risks, uncertainties and factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. The Company is not under any obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Readers should understand that it is not possible to predict or identify all risks and uncertainties to which the Company may be subject. Consequently, readers should not consider such disclosures to be a complete discussion of all potential risks or uncertainties.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
2020 | 2019 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Current Assets: | |||||||
Cash | $ | 11,293 | $ | 6,264 | |||
Restricted cash | 2,047 | 2,043 | |||||
Accounts receivable, net | 36,286 | 39,452 | |||||
Prepaid expenses and other current assets | 7,739 | 4,228 | |||||
Current assets from discontinued operations | 348 | 6,839 | |||||
Total current assets | 57,713 | 58,826 | |||||
Property and equipment, net | 2,042 | 5,349 | |||||
Intangible assets, net | 499,158 | 599,967 | |||||
Right-of-use assets - operating leases | 49,600 | 50,320 | |||||
Other assets | 17,676 | 8,782 | |||||
Total assets | $ | 626,189 | $ | 723,244 | |||
Liabilities and Equity | |||||||
Current Liabilities: | |||||||
Accounts payable and accrued expenses | $ | 15,678 | $ | 15,721 | |||
Current portion of long-term debt | 14,500 | 12,750 | |||||
Current portion of deferred revenue | 7,032 | 6,977 | |||||
Current portion of lease liabilities - operating leases | 3,040 | 3,035 | |||||
Current liabilities from discontinued operations | 775 | 1,959 | |||||
Total current liabilities | 41,025 | 40,442 | |||||
Long-term debt, net of current portion | 438,894 | 433,250 | |||||
Long-term deferred revenue, net of current portion | 3,699 | 4,604 | |||||
Deferred income taxes | 12,860 | 14,351 | |||||
Lease liabilities - operating leases | 53,401 | 54,168 | |||||
Other long-term liabilities | 4,431 | 3,389 | |||||
Total liabilities | 554,310 | 550,204 | |||||
Equity: | |||||||
Preferred stock | - | - | |||||
Common stock | 674 | 672 | |||||
Additional paid-in capital | 514,719 | 514,496 | |||||
Accumulated other comprehensive loss | (4,817 | ) | (4,096 | ) | |||
Accumulated deficit | (480,739 | ) | (394,126 | ) | |||
(3,260 | ) | (3,230 | ) | ||||
26,577 | 113,716 | ||||||
Noncontrolling interests | 45,302 | 59,324 | |||||
Total equity | 71,879 | 173,040 | |||||
Total liabilities and equity | $ | 626,189 | $ | 723,244 | |||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended |
|||||||
2020 | 2019 | ||||||
Net revenue | $ | 20,231 | $ | 25,524 | |||
Operating expenses | 17,707 | 15,546 | |||||
Impairment charges | 85,590 | - | |||||
(Loss) income from operations | (83,066 | ) | 9,978 | ||||
Other expense (income) | 2,879 | (402 | ) | ||||
Interest expense, net | 12,443 | 13,853 | |||||
Loss from continuing operations before income taxes | (98,388 | ) | (3,473 | ) | |||
Benefit from income taxes | (1,083 | ) | (241 | ) | |||
Loss from continuing operations | (97,305 | ) | (3,232 | ) | |||
Net loss (income) attributable to noncontrolling interest from continuing operations | 12,006 | (1,539 | ) | ||||
Loss from continuing operations attributable to |
(85,299 | ) | (4,771 | ) | |||
Loss from discontinued operations, net of income taxes | (1,314 | ) | (120,574 | ) | |||
Net loss attributable to |
$ | (86,613 | ) | $ | (125,345 | ) | |
Loss per share from continuing operations: | |||||||
Basic and diluted | $ | (1.30 | ) | $ | (0.07 | ) | |
Loss per share from discontinued operations: | |||||||
Basic and diluted | $ | (0.02 | ) | $ | (1.88 | ) | |
Loss per share attributable to |
|||||||
Basic and diluted | $ | (1.32 | ) | $ | (1.95 | ) | |
Weighted-average common shares outstanding: | |||||||
Basic and diluted | 65,424,308 | 64,221,687 | |||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended |
|||||||
2020 | 2019 | ||||||
Continuing Operations: | |||||||
Cash Used In Operating Activities | $ | (2,765 | ) | $ | (901 | ) | |
Cash Used In Investing Activities | (25 | ) | (37 | ) | |||
Cash Provided By (Used In) Financing Activities | 3,830 | (8,338 | ) | ||||
Discontinued Operations: | |||||||
Cash Provided By Operating Activities | $ | 3,993 | $ | 9,812 | |||
Cash Used In Investing Activities | - | (38 | ) | ||||
Cash Provided By Financing Activities | - | 325 | |||||
Net Increase In Cash and Restricted Cash | 5,033 | 823 | |||||
Balance — Beginning of period | 8,307 | 16,138 | |||||
Balance — End of period | $ | 13,340 | $ | 16,961 | |||
Non-GAAP Financial Measure Reconciliation
(in thousands, except earnings per share data)
(Unaudited) | |||||||
Three Months Ended |
|||||||
2020 | 2019 | ||||||
Reconciliation of GAAP net loss to non-GAAP net loss from continuing operations: | |||||||
GAAP net loss attributable to |
$ | (86,613 | ) | $ | (125,345 | ) | |
Discontinued operations, net of tax | (1,314 | ) | (120,574 | ) | |||
Loss from continuing operations | (85,299 | ) | (4,771 | ) | |||
Adjustments: | |||||||
Deal advisory costs (a) | 48 | 1,045 | |||||
Debt refinancing costs (b) | 50 | 2 | |||||
Non-cash mark-to-market adjustments to equity securities (c) | (84 | ) | (328 | ) | |||
Non-cash impairment of trademarks, net (d) | 73,136 | - | |||||
Non-cash mark-to-market adjustments on interest rate swaps (e) | 2,882 | - | |||||
Benefit from income taxes (f) | (1,083 | ) | (241 | ) | |||
Total non-GAAP adjustments | 74,949 | 478 | |||||
Non-GAAP net loss from continuing operations (1) | $ | (10,350 | ) | $ | (4,293 | ) | |
Non-GAAP weighted-average diluted shares (g) | 65,736 | 64,714 | |||||
(Unaudited) | |||||||
Three Months Ended |
|||||||
2020 | 2019 | ||||||
Reconciliation of GAAP Diluted EPS to non-GAAP Diluted EPS from continuing operations: | |||||||
GAAP loss per share attributable to |
$ | (1.32 | ) | $ | (1.93 | ) | |
GAAP loss per share from discontinued operations | (0.02 | ) | (1.86 | ) | |||
GAAP loss per share from continuing operations | $ | (1.30 | ) | $ | (0.07 | ) | |
Adjustments: | |||||||
Deal advisory costs (a) | 0.00 | 0.02 | |||||
Debt refinancing costs (b) | 0.00 | 0.00 | |||||
Non-cash mark-to-market adjustments to equity securities (c) | (0.00 | ) | (0.01 | ) | |||
Non-cash impairment of trademarks, net (d) | 1.11 | - | |||||
Non-cash mark-to-market adjustments on interest rate swaps (e) | 0.05 | - | |||||
Benefit from income taxes (f) | (0.02 | ) | (0.01 | ) | |||
Total non-GAAP adjustments | 1.14 | 0.00 | |||||
Non-GAAP loss per diluted share from continuing operations (1) | $ | (0.16 | ) | $ | (0.07 | ) | |
(Unaudited) | |||||||
Three Months Ended |
|||||||
2020 | 2019 | ||||||
Reconciliation of GAAP net loss to Adjusted EBITDA from continuing operations: | |||||||
GAAP net loss attributable to |
$ | (86,613 | ) | $ | (125,345 | ) | |
Discontinued operations, net of tax | (1,314 | ) | (120,574 | ) | |||
Loss from continuing operations | (85,299 | ) | (4,771 | ) | |||
Adjustments: | |||||||
Benefit from income taxes (f) | (1,083 | ) | (241 | ) | |||
Interest expense, net | 12,443 | 13,853 | |||||
Non-cash compensation | 232 | 659 | |||||
Depreciation and amortization | 7,281 | 896 | |||||
Deal advisory costs (a) | 48 | 1,045 | |||||
Debt refinancing costs (b) | 50 | 2 | |||||
Non-cash mark-to-market adjustments to equity securities (c) | (84 | ) | (328 | ) | |||
Non-cash impairment of trademarks, net (d) | 73,136 | - | |||||
Non-cash mark-to-market adjustments on interest rate swaps (e) | 2,882 | - | |||||
Severance (h) | 188 | 161 | |||||
Total Adjustments | 95,093 | 16,047 | |||||
Adjusted EBITDA from continuing operations (2) | $ | 9,794 | $ | 11,276 | |||
_______________
(1) Non-GAAP net loss from continuing operations and non-GAAP loss per diluted share from continuing operations are non-GAAP financial measures which represent net loss from continuing operations attributable to
(2) Adjusted EBITDA from continuing operations is defined as net loss from continuing operations attributable to
(a) Represents deal advisory costs including legal, financial and accounting services that are not representative of the Company's day-to-day licensing business.
(b) Represents expenses for professional fees associated with the Company's refinancing and amending its debt facilities.
(c) Represents the non-cash mark-to-market adjustments to equity securities.
(d) Represents non-cash impairment charges, net of minority interest, related to the Company's indefinite-lived intangible assets for certain brands.
(e) Represents the non-cash mark-to-market adjustment on interest rate swaps.
(f) Adjustment to remove GAAP benefit from income taxes. The Company does not expect to make material cash income tax payments related to continuing operations in 2020 or 2019 because the Company's net operating losses and other tax benefits are expected to reduce any additional tax obligation.
(g) Represents weighted-average diluted shares the Company reported or would have reported if the Company had GAAP net income in 2020 and 2019.
(h) Represents costs and adjustments to previously recorded costs associated with employee terminations not representative of the Company’s day-to-day compensation costs.
For Media and Investor Relations inquiries, contact:Sequential Brands Group, Inc. Katherine Nash T: +1 512-757-2566 E: knash@sbg-ny.com
Source: Sequential Brands Group, Inc.