XCel Brands Inc

Previous wording

We also own a 30% interest in ORME Live Inc., a short-form video and social commerce marketplace that launched in the first quarter of 2024.

Current wording

The Company also currently owns a 30% interest in ORME Live Inc., a short-form video and social commerce marketplace that launched in April 2024.

Previous wording

Current quarter net revenue decreased approximately $3.9 million to $2.2 million from $6.1 million for the prior year quarter. This decline was almost entirely attributable to the decrease in net product sales to zero, due to the exit from our wholesale apparel and fine jewelry sales operations and outsourcing of our Longaberger business as part of the restructuring and transformation of our business operating model in 2023. Net licensing revenue was approximately $2.2 million in both the current quarter and prior year quarter, and with a decrease of less than 2% was essentially flat year-over-year.

Current wording

This decline was primarily attributable to the $4.2 million decrease in net product sales from $4.4 million in the prior year quarter to $0.1 million in the current quarter, due to the exit from our wholesale apparel and fine jewelry sales operations and outsourcing of our Longaberger business as part of the restructuring and transformation of our business operating model in 2023. The only net product sales in the current quarter were related to the final sale of certain residual jewelry inventories; as of June 30, 2024, the Company has no remaining jewelry inventory.

Previous wording

Current quarter cost of goods sold was zero, compared with $2.7 million for the prior year quarter. This was driven by the aforementioned exit from our wholesale and direct-to-consumer operations as part of the 2023 business model restructuring.

Current wording

Current quarter cost of goods sold was less than $0.1 million, compared with $3.8 million for the prior year quarter. This was driven by the aforementioned exit from our wholesale and direct-to-consumer operations as part of the 2023 business model restructuring.

Previous wording

Direct operating costs and expenses decreased approximately $3.0 million from $7.0 million in the prior year quarter to $4.0 million in the current quarter. This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, which included reductions in staffing levels as well as related reductions in other overhead costs.

Current wording

Direct operating costs and expenses decreased approximately $2.1 million from $5.2 million in the prior year quarter to $3.1 million in the current quarter. This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, which included reductions in staffing levels as well as related reductions in other overhead costs.

Previous wording

Depreciation and amortization expense was approximately $1.6 million and $1.8 million in the current quarter and prior year quarter, respectively.

Current wording

Depreciation and amortization expense was approximately $1.5 million and $1.8 million in the current quarter and prior year quarter, respectively.

Previous wording

We recognized equity method losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and Orme Live Inc.) of $0.53 million and $0.52 million for the current quarter and prior year quarter, respectively, due to the operations of those businesses and the distribution provisions applicable to each.

Current wording

We recognized equity method losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and Orme Live Inc.) of $0.56 million and $0.52 million for the current quarter and prior year quarter, respectively, due to the operations of those businesses and the distribution provisions applicable to each. The equity method losses for each quarter related to IM Topco, LLC consisted of $0.52 million of amortization expense of the Isaac Mizrahi intellectual property assets.

Previous wording

We had a net loss of $6.3 million for the current quarter, compared with a net loss of $5.6 million for the prior year quarter, due to the combination of the factors outlined above.

Current wording

We had net income of $0.2 million for the current quarter, compared with a net loss of $3.5 million for the prior year quarter, due to the combination of the factors outlined above.

Previous wording

We had a non-GAAP net loss of approximately $1.8 million, or $0.09 per diluted share (“non-GAAP diluted EPS”), for the current quarter and a non-GAAP net loss of $3.6 million, or $0.18 per diluted share, for the prior year quarter. Non-GAAP net (loss) income is a non-GAAP unaudited term, which we define as net (loss) income attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, our proportional share of trademark amortization of equity method investees, stock-based compensation and cost of licensee warrants, asset impairment charges, and 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 Company’s tax strategy.

Current wording

We had a non-GAAP net loss of approximately $0.3 million, or $0.01 per diluted share (“non-GAAP diluted EPS”), for the current quarter and a non-GAAP net loss of $2.1 million, or $0.10 per diluted share, for the prior year quarter. Non-GAAP net income (loss) is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, income (loss) from equity method investments, stock-based compensation and cost of licensee warrants, gains on sales of assets and investments, gain on lease termination, asset impairment charges, and income taxes (if any). 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 Company’s tax strategy.

Previous wording

We had Adjusted EBITDA of approximately $(1.6) million for the current quarter, compared with approximately $(3.2) million for the prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net (loss) income attributable to Xcel Brands, Inc. stockholders before depreciation and amortization, our proportional share of trademark amortization of equity method investees, interest and finance expenses (including loss on extinguishment of debt, if any), income taxes, other state and local franchise taxes, stock-based compensation and cost of licensee warrants, gains on sales of assets and investments, gain on lease termination, asset impairment charges, and costs associated with restructuring of operations.

Current wording

We had Adjusted EBITDA of approximately $(0.04) million for the current quarter, compared with approximately $(1.3) million for the prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net (loss) income attributable to Xcel Brands, Inc. stockholders before asset impairment charges, depreciation and amortization, income (loss) from equity method investments, interest and finance expenses (including loss on extinguishment of debt, if any), accretion of lease liability for exited lease, income taxes (if any), other state and local franchise taxes, stock-based compensation and cost of licensee warrants, gains on sales of assets and investments, gain on lease termination, asset impairment charges, and losses from discontinued businesses.

Previous wording

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 report. 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

Current wording

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 report. 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 other 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.

Previous wording

During the current quarter, we recognized asset impairment charges of $2.3 million related to our exit from and sublease of our offices at 1333 Broadway, of which $1.9 million related to the operating lease right-of-use asset and $0.4 million related to leasehold improvements at that location.

Current wording

During the current six months, we recognized asset impairment charges of approximately $3.5 million related to our exit from and sublease of our offices at 1333 Broadway, of which approximately $3.1 million related to the operating lease right-of-use asset and approximately $0.4 million related to leasehold improvements at that location.

Previous wording

The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately 0% for both periods, resulting in an income tax benefit of $0 for both periods.

Current wording

The estimated annual effective income tax rate for the current six months and the prior year six months was approximately 0% for both periods, resulting in an income tax benefit of $0 for both periods.

Previous wording

For both the current quarter and the prior year quarter, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

Current wording

For both the periods, the effective tax rate differed from the federal statutory rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.

Previous wording

The following table is a reconciliation of diluted net loss per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:

Current wording

The following table is a reconciliation of diluted loss per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:

Previous wording

As of March 31, 2024 and December 31, 2023, our unrestricted cash and cash equivalents were $1.6 million and $3.0 million, respectively. Restricted cash at March 31, 2024 (included within other assets in the condensed consolidated balance sheet) consisted of $0.7 million of cash deposited with Israel Discount Bank of New York as collateral for a standby letter of credit associated with a real estate lease; there was no restricted cash as of December 31, 2023.

Current wording

As of June 30, 2024 and December 31, 2023, our unrestricted cash and cash equivalents were $0.9 million and $3.0 million, respectively. Restricted cash at June 30, 2024 (included within other assets in the condensed consolidated balance sheet) consisted of $0.7 million of cash deposited with Israel Discount Bank of New York as collateral for a standby letter of credit associated with a real estate lease; there was no restricted cash as of December 31, 2023.

Previous wording

Our working capital (current assets less current liabilities, excluding the current portion of operating lease obligations, deferred revenue, and any contingent obligations payable in common stock) was $2.1 million and $2.9 million as of March 31, 2024 and December 31, 2023, respectively.

Current wording

Our working capital (current assets less current liabilities, excluding the current portion of operating lease obligations, deferred revenue, and any contingent obligations payable in common stock) was $1.1 million and $2.9 million as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

We incurred a net loss attributable to Company stockholders of approximately $6.3 million during the three months ended March 31, 2024 (which included non-cash expenses of approximately $4.6 million), and had an accumulated deficit of approximately $60.1 million as of March 31, 2024. Net cash used in operating activities was approximately $2.6 million for the three months ended March 31, 2024. These factors, along with our current levels of cash and working capital, raise uncertainties about the Company’s ability to continue as a going concern.

Current wording

We incurred a net loss attributable to Company stockholders of approximately $6.1 million during the six months ended June 30, 2024 (which included non-cash expenses of approximately $7.7 million), and had an accumulated deficit of approximately $59.9 million as of June 30, 2024. Net cash used in operating activities was approximately $2.9 million for the six months ended June 30, 2024. These factors, along with our current levels of cash and working capital, raise uncertainties about the Company’s ability to continue as a going concern.

Previous wording

During the year ended December 31, 2023, management implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting its business from a wholesale/licensing hybrid model into a “licensing plus” model. To affect this transition, the Company entered into various new licensing agreements and joint venture arrangements with best-in-class business partners. These restructuring initiatives were substantially completed as of June 30, 2023. Management believes that this evolution of the Company’s operating model will provide the Company with significant cost savings and allow the Company to reduce and better manage its exposure to operating risks. As of December 31, 2023, the Company had reduced payroll costs by approximately $6 million and operating expenses (excluding non-recurring charges related to the restructuring) by approximately $9 million, on an annualized basis when compared to the corresponding periods in the prior year.

Current wording

During the year ended December 31, 2023, management implemented a plan to mitigate an expected shortfall of capital and to support future operations by shifting its business from a wholesale/licensing hybrid model into a “licensing plus” model. To affect this transition, the Company entered into various new licensing agreements and joint venture arrangements with best-in-class business partners. These restructuring initiatives were substantially completed as of June 30, 2023. Management believes that this evolution of the Company’s operating model will provide the Company with significant cost savings and allow the Company to reduce and better manage its exposure to operating risks. As of December 31, 2023, the Company had reduced payroll costs by approximately $6 million and operating expenses

Previous wording

Further, in March 2024, the Company issued new shares of common stock for net proceeds of approximately $1.9 million, which provided the Company with additional liquidity.

Current wording

During the six months ended June 30, 2024, the Company issued new shares of common stock for net proceeds of approximately $1.9 million, which provided the Company with additional liquidity. Additionally, the Company entered into a divestiture transaction which relieved the Company of its contractual obligations to make future cash payments of approximately $1.0 million, and also relieved the Company of a potential future contingent obligation to make future cash payments of up to $11.3 million.

Previous wording

Commentary on the components of our cash flows for the current quarter as compared with the prior year quarter is set forth below.

Current wording

Commentary on the components of our cash flows for the current six months as compared with the prior year six months is set forth below.

Previous wording

The current quarter net cash used in operating activities was primarily attributable to the combination of the net loss of $(6.35) million plus non-cash items of approximately $4.59 million and the net change in operating assets and liabilities of approximately $(0.85) million. Non-cash items were primarily comprised of asset impairment charges of approximately $2.30 million, $1.59 million of depreciation and amortization, and the $0.53 million undistributed proportional share of net loss of equity method investees. The net change in operating assets and liabilities was primarily comprised of (i) a

Current wording

The current six months net cash used in operating activities was primarily attributable to the combination of the net loss of $(6.18) million plus non-cash items of approximately $4.10 million and the net change in operating assets and liabilities of approximately $(0.80) million. Non-cash items were primarily comprised of approximately $3.48 million of asset impairment charges, $3.13 million of depreciation and amortization, and our $1.09 million undistributed proportional share of net losses from equity method investees, partially offset by a $(3.80) million gain on the divestiture of the Lori Goldstein Brand. The net change in operating assets and liabilities was primarily comprised of (i) a decrease in various operating liabilities of $(0.56) million, (ii) a decrease in lease-related assets and liabilities of $(0.63) million, and (iii) an increase in other long-term liabilities of $0.39 million.

Previous wording

The prior year quarter net cash used in operating activities was primarily attributable to the combination of the net loss of $(5.94) million plus non-cash items of approximately $2.37 million and the net change in operating assets and liabilities of approximately $0.65 million. Non-cash items were primarily comprised of $1.80 million of depreciation and amortization and the $0.52 million undistributed proportional share of net loss of an equity method investee. The net change in operating assets and liabilities was primarily comprised of increases in various operating liabilities (including deferred revenue) of approximately $1.40 million, partially offset by an increase in accounts receivable of $(0.86) million.

Current wording

The prior year six months cash used in operating activities was primarily attributable to the combination of the net loss of $(9.64) million plus non-cash items of approximately $4.04 million and the net change in operating assets and liabilities of approximately $4.13 million. Non-cash items were primarily comprised of $3.58 million of depreciation and amortization and the $1.03 million undistributed proportional share of net loss of equity method investee, partially offset by a $(0.35) gain on the sale of a financial asset and a $(0.44) gain on the settlement of a lease liability. The net change in operating assets and liabilities was primarily comprised of (i) an increase in deferred revenue of approximately $5.04 million, which was mainly attributable to the upfront payment received for the Halston Master License agreement entered into during the current six months, (ii) a decrease in inventory of approximately $2.05 million, driven by the sale of all of our C Wonder apparel inventory to HSN and the sale of all of our Judith Ripka fine jewelry inventory to JTV, as part of the restructuring and transformation of our business operating model. Partially offsetting these net changes in operating assets and liabilities were increases in accounts receivable of approximately $(1.77) million and deceases in various operating liabilities of approximately $(1.64) million.

Previous wording

There was no net cash used in or provided by financing activities in the prior year quarter.

Current wording

There was no net cash used in or provided by financing activities in the prior year six months.

Previous wording

In connection with the May 31, 2022 transaction related to the sale of a majority interest in the Isaac Mizrahi brand, we agreed with WHP (the buyer) that, in the event that IM Topco, LLC receives less than $13.3 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on May 31, 2025, WHP would be entitled to receive from us up to $16 million, less all amounts of net cash flow distributed to WHP on an accumulated basis, as an adjustment to the purchase price previously paid by WHP. Such amount would be payable by us in either cash or equity interests in IM Topco, LLC held by us.

Current wording

In connection with the May 31, 2022 transaction related to the sale of a majority interest in the Isaac Mizrahi brand, we agreed with WHP (the buyer) that, in the event that IM Topco, LLC receives less than $13.3 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on May 31, 2025, WHP would be entitled to receive from us up to $16 million, less all amounts of net cash flow distributed to WHP on an accumulated basis, as an

Previous wording

Based on the performance of the Lori Goldstein through December 31, 2023, approximately $1.0 million of incremental additional consideration was earned by the seller, which will be paid out in 2024. During the current quarter, the Company paid approximately $0.3 million of the $1.0 million earned, and as of March 31, 2024, $0.7 million of the remaining balance was recorded as a current liability and $5.4 million was recorded as a long-term liability.

Current wording

As of December 31, 2022, based on the performance of the Lori Goldstein Brand to date, approximately $0.2 million of additional consideration was earned by the seller, and this $0.2 million of additional consideration was paid to the seller during 2023. Based on the performance of the Lori Goldstein Brand through December 31, 2023, approximately $1.0 million of incremental additional consideration was earned by the seller, which would have been paid out in 2024. During the first quarter of 2024, the Company paid approximately $0.3 million of the $1.0 million earned.

Previous wording

We continue to seek to expand and diversify the types of licensed products being produced under our brands. We plan to continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands. The Halston brand, C Wonder brand, Lori Goldstein brand, and TowerHill by Christie Brinkley brand have a core business in fashion apparel and accessories. The Ripka brand is a fine jewelry business, and the Longaberger brand focuses on home good products, which we believe helps diversify our industry focus while at the same time complements our business operations and relationships.

Current wording

We continue to seek to expand and diversify the types of licensed products being produced under our brands. We plan to continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands. The Halston brand, C Wonder brand, and TowerHill by Christie Brinkley brand have a core business in fashion apparel and accessories. The Ripka brand is a fine jewelry business, and the Longaberger brand focuses on home good products, which we believe helps diversify our industry focus while at the same time complements our business operations and relationships.

Previous wording

While the 2022 sale of a majority interest in the Isaac Mizrahi brand resulted in a decrease in our revenues, as that brand represented a significant portion of our historical revenues, we are taking actions to replace those revenues in the long-term with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships. We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, launching the C Wonder by Christian Siriano business on HSN, and the planned May 2024 launch of the TowerHill by Christie Brinkley brand.

Current wording

While the 2022 sale of a majority interest in the Isaac Mizrahi brand resulted in a decrease in our licensing revenues, as that brand represented a significant portion of our historical licensing revenues, we are taking actions to replace those revenues in the long-term with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships. We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, including the C Wonder by Christian Siriano business on HSN, and the recently-launched TowerHill by Christie Brinkley brand.

Previous wording

During 2023, we restructured our business operations by shifting our business from a wholesale/licensing hybrid model into a “licensing plus” business model. These efforts included entering into new structured contractual arrangements with best-in-class business partners in order to more efficiently operate our wholesale and e-commerce businesses and reduce and better manage our exposure to operating risks. These restructuring initiatives, on a go-forward basis, are expected to provide us with approximately $15 million of cost savings on an annualized basis compared to our previous operating model.

Current wording

During 2023, we restructured our business operations by shifting our business from a wholesale/licensing hybrid model into a “licensing plus” business model. These efforts included entering into new structured contractual arrangements with best-in-class business partners in order to more efficiently operate our wholesale and e-commerce businesses and reduce and better manage our exposure to operating risks. These restructuring initiatives were originally expected to provide us with approximately $15 million of cost savings on an annualized basis compared to our previous operating model. Based on additional actions taken by management during the first six months of 2024 and the recent divestiture of the Lori Goldstein brand, the Company’s direct operating costs on an annualized basis will have been reduced from approximately $8 million per quarter under our previous operating model to approximately $2.5 million per quarter on a going-forward basis. This represents approximately $22 million of cost savings on an annualized basis compared to our cost structure in 2022.

Previous wording

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 19, 2024, for a discussion of our critical accounting policies and estimates. During the three months ended March 31, 2024, there were no material changes to our accounting policies.

Current wording

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 19, 2024, for a discussion of our critical accounting policies and estimates. During the three and six months ended June 30, 2024, there were no material changes to our critical accounting policies or estimates.