Xcel Brands XELB Q1 2025 Earnings Call Transcript

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DATE

• Wednesday, June 4, 2025, at 5 p.m. EDT

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Robert D'Loren
• Chief Financial Officer — James Haran
• Chief Operating Officer — Seth Burroughs

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TAKEAWAYS

• Strategic Transaction: The company completed a strategic transaction with United Trademark Group in April 2025, providing $3 million in liquidity and eliminating over $1 million per year in interest and principal payments through March 2027.
• Revenue: Total revenue was $1.3 million for Q1 2025, up from $1.2 million in Q4 2024. Both figures reflect approximately a 50% decline year-over-year due to the sale of the Lori Goldstein brand in June 2024 and the exit from wholesale operations.
• Operating Expenses: Direct operating expenses fell 40% year-over-year to approximately $2.3 million in Q1 2025, driven by ongoing cost reductions.
• Adjusted EBITDA: Adjusted EBITDA loss was $0.7 million in Q1 2025, marking a 56% improvement from the prior-year quarter.
• Net Loss (GAAP/Non-GAAP): GAAP net loss was $2.8 million in Q1 2025. Non-GAAP net loss was $1.4 million in Q1 FY2025, representing a 24% year-over-year improvement.
• Long-term Debt: Refinancing in April 2025 increased term debt to $13.6 million, but deferred principal repayments until March 31, 2026, with $9.1 million of interest paid in kind until 2027.
• Operating Cost Run Rate: The annual operating cost run rate is now approximately $9 million on a go-forward basis as of the end of Q1 2025.
• Social Media Reach: Portfolio-wide social media reach expanded from 5 million followers in January 2025 to 45 million as of June 2025.
• Brand Developments: New creator influencer brands were announced with Cesar Millan, Gemma Stafford, and Jenny Martinez; each is projected to generate $5 million to $10 million in potential annual royalty income as participation ramps up.
• Halston Brand Royalties: Guaranteed annual royalty minimums from G-III for Halston are $1.7 million annually, with incremental pickups expected in Q2 and potential for additional royalties as shipments scale in the fall.
• Judith Ripka and Longaberger: Judith Ripka achieved its most successful on-air rotation to date at JTV, while Longaberger is scheduled to launch on QVC this fall.
• Orme Marketplace: Orme, a marketplace joint venture in which Xcel Brands owns a 19% interest, has onboarded 25 beauty brands, reached 50,000 user downloads, and its influencer base now reaches over 10 million followers.
• Guidance: Management projects full-year FY2025 adjusted EBITDA in the $1 million to $2.5 million range, incorporating expected impacts from tariffs and operational changes at HSN.

SUMMARY

Xcel Brands (NASDAQ:XELB) highlighted substantial year-over-year cost reductions driven by business model restructuring and divestitures, with direct operating costs and expenses decreasing by nearly 50% from FY2023 to FY2024. The company reported a significant liquidity improvement from its United Trademark Group alliance, which also created new opportunities for both acquisitions and operational efficiency. Large-scale expansion of social media reach, alongside the formal unveiling of new creator-driven brands, was positioned as a future revenue driver through anticipated licensing and royalty streams. Recent refinancing delayed all principal repayments and most cash interest obligations until 2026 or later, supporting near-term flexibility for further strategic initiatives. The Orme marketplace joint venture's momentum in premium beauty onboarding and audience reach may contribute supplemental growth upside over time.

• Management said, "believe that influencer brands are the new currency in media, particularly when those brands have credible voices in a category"
• CEO D'Loren stated, "If we see that we're going to have additional need for capital, we'll address it when that time comes. But at the moment, we believe we're okay."
• The company aims to scale brands anchored by large social audiences, identifying $5 million to $10 million in annual royalty potential for new initiatives, though full ramp-up timelines remain unspecified. (Royalty potential figure is not specified as GAAP or non-GAAP.)
• Xcel Brands management noted that C. Wonder and Christie Brinkley remain the 2 fastest-growing brands on HSN, supporting the view that the company's focus on creator and influencer partnerships is gaining retail traction.

INDUSTRY GLOSSARY

• Creator Influencer Brand: A product or brand developed and marketed in direct partnership with a prominent social media personality or category expert, leveraging their existing audience for product demand and distribution.
• Paid in Kind (PIK) Interest: Interest on debt that accrues to principal rather than being paid in cash, typically deferring outflows until maturity or a specified future date.
• JTV: Jewelry Television, a major television network focused on fine jewelry retailing.
• HSN: Home Shopping Network, a televised and digital retail platform known for on-air product presentations and direct-to-consumer sales.
• QVC: Quality Value Convenience, a leading televised shopping network and digital retail company.
• LOI (Letter of Intent): A non-binding document outlining key terms and intent prior to finalizing a definitive agreement, often used in M&A and strategic partnerships.

Full Conference Call Transcript

Robert D'Loren; and Chief Financial Officer, Jim Haran. By now, everyone should have access to the earnings releases for the quarter and fiscal year ended December 31, 2024, and the quarter ended March 31, 2025, which went out last Wednesday and yesterday, respectively. In addition, the company filed with the Securities and Exchange Commission with its annual report on Form 10-K last Wednesday and will file our quarterly report on Form 10-Q for the quarter ended March 31, 2025, tomorrow. The releases, the annual report and the quarterly report will be available on the company's website at www.xcelbrands.com. This call is being webcast, and a replay will be available on the company's Investor Relations website.

Before we begin, please keep in mind that this call will contain forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today. These risk factors are explained in detail in the company's most recent annual reports filed with the SEC. Xcel does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The dynamic nature of the current macroeconomic environment means that what is said on this call could change materially at any time.

Finally, please note that on today's call, management will refer to certain non-GAAP financial measures, including non-GAAP net income, non-GAAP diluted EPS and adjusted EBITDA. Our management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends related to our company's results of operations. Our management believes these financial performance measurements are also useful because these measurements adjust for certain costs and other events that management believes are not representative of our core business results, and thus, they provide supplemental information to assist investors in evaluating the company's financial results.

These non-GAAP measures 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. You may refer to the attached to the company's earnings releases for the Form 10-K and 10-Q for a reconciliation of non-GAAP measures. And now I'm pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob, please go ahead.

Robert D'Loren: Thank you, Seth. Good afternoon, everyone, and thank you for joining us today. I would like to start today's call with a brief update on our performance over the 2 most recent quarters and our outlook for 2025 and beyond. After that, our CFO, Jim Haran, will discuss our financial results in more detail. But first, I'm happy to report that we have closed a strategic transaction with United Trademark Group in April. This transaction brings together 2 industry leaders in brand management, supply chain management, licensing and video and social commerce to create a global powerhouse.

The UTG alliance significantly enhances Xcel's goal of achieving global distribution of our existing and new creator-driven brands and our ability to deliver great products with a high-quality-to-value ratio across multiple product categories through UTG's supply chain capabilities. The initial transaction provided the company with $3 million of liquidity and saves us over $1 million per year in interest and principal payments through March of 2027. Also, UTG puts us in a great position to more aggressively pursue acquisitions, some of which may be transformative to the company. We have been working hard and fast with UTG to present the strength of the combined platforms to retailers across multiple channels of distribution and conducting due diligence for potential acquisitions.

Also, we believe that this partnership will accelerate our formation of additional creator-influencer brands on our platform. We continue to work hard with all of our production partners to drive our business. We announced our new creator influencer brands with Cesar Millan, Gemma Stafford and Jenny Martinez in Q2 of 2025. We have identified key category license opportunities for all of these new creator influencer brands. Our social media reach across our brand portfolio has grown from 5 million followers in January of 2025 to 45 million to date. We believe this is an extremely important and valuable media currency going forward given the recent dramatic growth in video commerce and creator-led brands. C.

Wonder and Christie Brinkley remain the 2 fastest-growing brands on HSN. We have a strong pipeline of additional new creator influencer brands that we hope to announce in the near future. All that said, we are approaching Q3 and Q4 of this year with caution given the impacts of the tariffs on QVC and HSN's business and our licensees, including G-III for our Halston brand and the coming consolidation of HSN's operations into QVC's headquarters in Pennsylvania. Judith Ripka continues to operate on plan at JTV. In fact, our most recent on-air rotation was most was our most successful to date. Our Longaberger brand launches on QVC this fall.

The Orme team has onboarded 25 premium beauty brands as it focuses its efforts on the beauty category. User downloads have reached 50,000 and the influencer base now reaches over 10 million followers. As previously mentioned, this is a joint venture with a technology company in which Xcel owns a 19% interest in this new marketplace. We believe that our goal of building a portfolio of creator influencer brands that reaches 100 million followers has the potential to accelerate the growth of Orme. We generated an adjusted EBITDA loss of $792,000 in Q4. That is a $361,000 improvement over Q4 2023.

I should note that the 2024 loss is approximately $150,000 more than we expected, which was caused by the impacts of the Florida hurricanes in Q4 of 2024. While we forecast a range of $1 million to $2.5 million of adjusted EBITDA for 2025, much of it was weighted on the results of the back half of this year. We are assessing the impact of the tariffs and the HSN Tampa studio closure on our businesses and working on potential solutions, including short-term domestic production for some of our brands. Jim will more fully cover Q4 2024 and the full year '24 results and Q1 '25 results. Jim?

James Haran: Thanks, Bob, and good afternoon, everyone. I will now briefly discuss our financial results for the quarter and fiscal year ended December 31, 2024, and the quarter ended March 31, 2025. Total revenues were $1.2 million for the fourth quarter of 2024 and $8.3 million for the full fiscal year. For both the quarter and full fiscal year period, our revenues were roughly half of what we reported in the prior year comparable period due to the sale of the Lori Goldstein brand in the second quarter of 2024 and the exit from our wholesale operating businesses as part of our project fundamentals that began in 2023.

Total revenues for the first quarter of 2025 were $1.3 million, up slightly from the fourth quarter. As we restructured and transformed our business operating model over the past 2 years, starting in 2023 and continuing through 2024, we have taken numerous actions to reduce our payroll, operating and overhead costs. As a result, our direct operating costs and expenses decreased by nearly 50% year-over-year from fiscal year 2023 to fiscal year 2024 and similarly from the fourth quarter of 2023 to the fourth quarter of 2024. Management has continued to implement additional cost-cutting measures throughout the first quarter of 2025 to further optimize the company's cost structure.

And as a result, our direct operating expenses for the first quarter were approximately $2.3 million, which was approximately 40% lower than the prior year period. As of the end of the first quarter, we have reduced our operating cost to a run rate of approximately $9 million on a go-forward basis. Looking at our other operating cost and expenses, which are predominantly non-cash in nature, our depreciation and amortization expense have declined significantly year-over-year for both the fourth quarter of 2024, the full fiscal year 2024 and the first quarter of 2025, all primarily as a result of the sale of the Lori Goldstein brand.

During fiscal 2024 and to a lesser extent, in Q1 2025, we recognized some significant charges related to our equity method investments, including $1.9 million for our proportional share of losses, a $10 million of other charges related to the valuation of our investment in IM Topco and our contingent contractual obligations to transfer a portion of our equity ownership interest in IM Topco. Similar charges for the current quarter were approximately $0.3 million. And I'd like to reiterate that these charges are non-cash in nature and are excluded from our non-GAAP measures of performance.

Further, with the subsequent resolution of the contractual obligation related to the IM Topco in April of 2025, the resulting reduction of our ownership interest in IM Topco from 30% to 17.5% and the implications under applicable accounting rules. Overall, we had a net loss for the first quarter of 2024 of approximately $7.1 million or minus $3 per share on a GAAP basis and $1.6 million loss and minus $0.69 per share on a non-GAAP basis. This represents a 53% improvement over last year. Fourth quarter adjusted EBITDA was negative $0.8 million and also a 31% improvement over last year.

For the full fiscal year 2024, we had a net loss of approximately $22.4 million or $9.84 per share on a GAAP basis, although this does include $16.5 million of various noncash charges, as mentioned earlier. On a non-GAAP basis, we had a net loss of $5.1 million or minus $2.23 per share, which represents a 58% improvement over 2023. Our fiscal year 2024 adjusted EBITDA was negative $3.5 million, a 40% improvement over the prior fiscal year. For the current quarter, we had a net loss of approximately $2.8 million or minus $1.18 per share compared with a loss of $6.3 million or minus $3.09 in the prior year quarter.

On a non-GAAP basis, our first quarter net loss was $1.4 million or minus $0.58 per share compared with 18 million loss or minus $0.88 per share in the prior year quarter. This represents a 56% improvement on a GAAP basis and a 24% improvement on a non-GAAP basis. Our adjusted EBITDA was negative $0.7 million, a 56% improvement over the negative $1.6 million reported in the prior year quarter. These bottom-line results exhibit the significant strides we have taken in rightsizing our business and cost structure and moving towards profitability.

And once again, as a reminder, our earnings press releases and Form 10-K and Form 10-Q present a full reconciliation of our non-GAAP measures with the most directly comparable GAAP measures. Turning now to our balance sheet and our liquidity. As of March 31, 2025, the company's balance sheet reflected stockholders' equity of approximately $26 million and unrestricted cash of approximately $0.3 million and also reflected $8.7 million of long-term debt, of which the first payment of $250,000 is due on March 31, 2026. In April 2025, we refinanced our term debt, resulting in a net increase of approximately $3 million in the company's liquidity and working capital.

Currently, our term debt is $13.6 million, and we do not have any principal repayments under the amended term loan until March 31, 2026. And for the majority of the term loan, approximately $9.1 million, the interest will be paid in kind, meaning that it will accrue and not require cash payments until 2027. And with that, I would like to turn the call back over to Bob. Bob?

Robert D'Loren: Thank you, Jim. This concludes our prepared remarks. Operator?

Operator: [Operator Instructions] And your first question comes from the line of Michael Kupinski with NOBLE Capital Markets.

Michael Kupinski: I just have a couple. First of all, I just had a couple of clarifications. Robert, you indicated that you thought adjusted EBITDA for full year 2025 would be $1 million to maybe $2.5 million. Did I get that right? And does that include the impact of tariffs or not?

Robert D'Loren: So it includes potential impacts from tariffs and also -- and any disruption that may occur with the move of HSN from Tampa to West Chester, PA, Michael. We just don't know. We don't have enough visibility to know if that move will disrupt the business and cause disruptions in airtime, which would push sales of products potentially into next year. And of course, we just don't know yet what the potential impacts from tariffs would be. We've been working very hard on mitigating measures, including entering into a short-term license with a group that can produce our apparel domestically to provide products if we need them.

Michael Kupinski: Got you. And then, Jim, you indicated that the run rate of $1 million, I assume that's per month. Is that correct, the cost.

James Haran: Are you talking about run rate of overhead because I think we indicated...

Michael Kupinski: You mentioned that it's going to be $1 million.

James Haran: So it would be less than $2.5 million per quarter would be our overhead.

Robert D'Loren: It's about $9 million for the year.

Michael Kupinski: Okay. And then can you remind us what are the guarantees from G-III on Halston? And when did those royalties revenue start to kick in? I believe that Halston was featured in Neiman Marcus and Saks for the spring. But I was just wondering, so does that royalty revenue start kicking in, in Q2? And maybe if you can kind of give us some thoughts about how Q2 is shaping up in terms of revenue?

Robert D'Loren: Sure. So the guaranteed minimum under the license is $1.7 million per year. And we plan the business on the minimums with very little pickup on actuals over the minimums in Q2. So minimums Q1, a little bit of pickup in Q2. And then as they ship for fall, we anticipated that they would come in over the minimums.

Michael Kupinski: Okay. Got you. And then I was just wondering if you could talk a little bit about the liquidity. I know that you got -- you brought in another $3 million of liquidity in this quarter, but you also have some needs, I guess, in terms of the launch and recently announced brands that you plan to introduce this year and into 2026. I was just wondering if you can just talk a little bit about your liquidity needs going into this year? And is the $3 million of liquidity enough to kind of get you through to 2026 and your other product launches? Or how do you look at your liquidity at this point?

Robert D'Loren: So our liquidity is good now. We do have more transactions in the pipeline, and we've issued LOIs on additional transactions that are beyond what I would call pipeline is something where we've signed an LOI, we're drafting licenses, but we have more in the pipeline. If we see that we're going to have additional need for capital, we'll address it when that time comes. But at the moment, we believe we're okay.

Michael Kupinski: Got you. And then while all your recent planned brand launches appear extremely compelling, I'm sure that some of them offer more revenue and cash flow potential than others. And just given the specific market -- target markets and so forth. I was wondering maybe if you can score for us some of your thoughts on the revenue potential of your recently launched or anticipated launch brands. I'm personally excited about the Cesar Millan pet products, but I'd like to hear your thoughts on what are the prospects of some of the recently launched brands.

Robert D'Loren: So all of them are very exciting to us, Michael. Cesar, of course, is by far, the biggest voice in the pet world. And we anticipate that, that business will be stronger than we initially thought just based upon the feedback we're getting from potential licensees. And hopefully, we'll start to see some income from the Cesar program this year, and then it will really pick up going into next year. We also believe that Gemma Stafford, besides her launching on QVC, which we anticipate will happen late this year. We see a lot of opportunities for her in bricks-and-mortar retail and in e-commerce with food products, kitchen and baking gadgets and similarly for Jenny Martinez.

So we're excited about all 3 of them. Between the 3 of them, they reach over 30 million social media followers. And we do believe that influencer brands are the new currency in media, particularly when those brands have credible voices in a category as opposed to, say, a pop star that wants to get into a particular category and that we will continue to do deals like this going forward.

Michael Kupinski: Got you. And in terms of the Isaac Mizrahi brand, given the number of brand initiatives that you have that seemingly offers significant growth prospects, is there a reason that the company would want to own a minority interest in this brand? Or are you considering monetizing this interest? Just your thoughts.

Robert D'Loren: Isaac Mizrahi has been a brand that has been great for us over the years. We had a tremendous 14-year run with Isaac. We will continue to support the brand in any way that we can. We currently oversee the QVC business. We are not really involved in the third-party licensing. That's handled by WHP partners. And to the extent that WHP wants us to continue to coordinate the business at QVC, we will do that.

Michael Kupinski: And you mentioned the prospect of acquisitions and maybe possibly even transformative acquisitions. I was just wondering if you can just kind of give us some thoughts on those types of acquisitions that you're mostly interested in.

Robert D'Loren: We are interested in brands that have significant social media followings. And we've been looking at many of those. And we are looking at media companies that could extend our reach. So those are the kinds of acquisitions we're focused on.

Operator: [Operator Instructions] And your next question comes from the line of Anthony Lebiedzinski with Sidoti & Company.

Anthony Lebiedzinski: So first, just a couple of housekeeping items. As far as the impact of Lori Goldstein. So I think it was about $1.1 million in the fourth quarter. Can you go over what that was in the first quarter? And can you also remind us how much did Lori Goldstein contribute to your second quarter revenue last year?

Robert D'Loren: Jim, can you take this one?

James Haran: Yes. Is it the second quarter or the first quarter from last year?

Anthony Lebiedzinski: So my -- well, I'm asking for the first quarter, how much that was? And then if you could just remind us how much Lori Goldstein contributed to your second quarter revenue a year ago.

James Haran: So it was $1.1 million with top line in the first quarter of 2024. Second quarter was a little bit more than that. I think it was $1.4 million. And there were significant expenses we had against that brand. So -- and with that and what the -- on a cash flow basis, it wasn't that significant that we gave up in divesting ourselves of the brand.

Anthony Lebiedzinski: Okay. And then if I could just follow up on the question that Mike had before as far as looking at the number of social media followers. So obviously, you've seen that growth from $5 million to $45 million. How do we think about the revenue growth associated with that? And obviously, you have a goal to get to 100 million followers. So how does that translate to revenue growth? Can you expand on that? I don't know if you're willing to quantify that, but just curious to get your take on that, Bob.

Robert D'Loren: So I think you can look at each of these opportunities where they have the potential to generate anywhere from $5 million to $10 million of...

Operator: Robert?

Anthony Lebiedzinski: I cannot hear Robert.

Operator: Alright, we're having a technical difficulty, everyone. [Technical Difficulty]

Robert D'Loren: Anthony, can you hear me?

Anthony Lebiedzinski: Yes, I can hear you. Yes.

Seth Burroughs: Anthony, can you repeat the question so we can answer again?

Anthony Lebiedzinski: Absolutely. Yes. So as far as the number of social media followers, obviously, as you pointed out in your press release and your prepared remarks, it has grown from $5 million to $45 million, and you have a goal to get to $100 million. So how do we think about the revenue growth? I know you started answering the questions, Bob, before we got cut off. So maybe if you could just finish your thoughts, that would be great.

Robert D'Loren: Yes. So the way I think you can think about the potential of these kinds of transactions, particularly when it comes to Cesar Millan and Gemma and Jenny, they have the potential to generate between $5 million and $10 million of royalty income per year. Of course, it will take some time to ramp up to that. But that's the potential that we believe they have. And we won't know exactly where they will come out until we really get into the market and sign all of the agreements across the various different categories for each of these brands.

But Cesar, by way of example, we're in discussions with 50 different -- literally 50 different companies in various categories to build the world of Cesar. And we certainly think Cesar has the top end of that range as potential.

Anthony Lebiedzinski: That's very helpful. And then -- so I know you guys have done a tremendous job of cutting costs and you're at an annual run rate of about $9 million for operating expenses. So as that business pivots to growth, how do we think about then operating expenses? Just wondering about the fixed nature versus the variable nature of your expenses.

James Haran: Our structure is designed to scale. The only real incremental cost we're going to have where we pay our co-brand partners, we'll pay them additional commissions on revenue that's generated with those brands. So the only real cost we're going to incur as we scale the business is going to be incremental that's going to be correlated with our revenue growth. But in terms of fixed costs and with our platform and structure is, that cost is going to be an impact. We've developed it to the point where we can scale the business without incurring additional costs outside of the variable costs I just mentioned.

Anthony Lebiedzinski: Got you. Okay. That's very helpful. And I guess, as we look to update our models, given that you're now more than 2 months into the second quarter, how should we think about the second quarter either compared to last year or compared to the first quarter that you just reported? Any sort of high-level thoughts as far as revenue and profitability.

Robert D'Loren: I think we're good with where you are, Anthony. And certainly, if we become aware of anything that will impact the numbers, we'll report on that.

Operator: There is no further questions at this time. I will now turn the call back over to Robert for closing remarks. Robert?

Robert D'Loren: Thank you. Ladies and gentlemen, thank you for your time this evening. We greatly appreciate your continued interest and support in Xcel Brands. As always, stay fit, eat well and be healthy.

Operator: This concludes today's conference call. You may now disconnect.

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