Iconix Brand Group, Inc. (ICON)

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Iconix Brand Group, Inc. (ICON)

Q1 2013 Earnings Call

April 24, 2013 10:00 AM ET


Warren Clamen – EVP and CFO

Neil Cole – CEO and President


Bob Drbul – Barclays

Jim Chartier – Monness, Crespi & Hardt

Eric Beder – Brean Capital

Steve Marotta – CL King



Good day, ladies and gentlemen. Welcome to the Iconix Brand Group First Quarter 2013 Earnings Conference Call. At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. Here on the call with us today we have Neil Cole, Chief Executive Officer, and Warren Clamen, Chief Financial Officer.

Please be aware of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995, statements that are not historically facts contained in this conference call are forward-looking statements that involve a number of risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the company.

This may cause the actual results, performance or achievements of the company to be materially different from the results, performance or achievements expressed or implied by such forward-looking statements. The words believe, anticipate, expect, confident, and similar expressions identify forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

I would now like to turn it over to Warren Clamen, Chief Financial Officer. Please proceed.

Warren Clamen

Good morning, everyone, and welcome to the Iconix Brand Group First Quarter 2013 Earnings Conference Call. On today’s call, we will review our financial results, provide an update of our existing portfolio of brands, and discuss our outlook for the full year.

Reviewing results for the first quarter ended March 31, 2013, it was a record first quarter for our company with revenue of approximately $105.1 million, a 19% increase as compared to approximately $88.5 million in the first quarter of 2012.

In the first quarter, we generated $51.8 million of free cash flow or $0.78 per diluted share compared to $47.4 million or $0.64 per diluted share in the prior year quarter. EBITDA in the first quarter increased 14% to approximately $64.6 million, as compared to approximately $56.8 million in the prior year quarter and our EBITDA margin in the first quarter was approximately 61.5%. However we’d like to point out that the first quarter includes approximately $3.5 million of acquisition-related costs, including deal costs associated with the two acquisitions we closed, as well as additional acquisition initiatives that we’ve been working on. Excluding these costs, our EBITDA margins were approximately 65%.

Non-GAAP net income, which excludes non-cash interest related to our two convertible notes, increased 13% to approximately $36.2 million as compared to approximately $31.9 million in the prior-year quarter and diluted non-GAAP earnings per share increased 26% to $0.54 as compared to $0.43 in the prior-year quarter. EBITDA, free cash flow, non-GAAP net income and non-GAAP diluted EPS are all non-GAAP metrics and reconciliation tables for each can be found in the press release sent out earlier this morning and on our website, iconixbrand.com.

In addition to our organic and acquisition initiatives, we have continued to focus on creating additional shareholder value through share repurchases. Our diluted weighted average shares outstanding in the first quarter of 2013 was 66.7 million shares, almost 8 million shares lower than the prior year quarter. We have continued to actively buy back our stock, and since January 1 of this year through April 22, we have bought back $210 million at an average share price of $24.07.

Moreover, since we began our initial program over the past year and a half, we have repurchased a total of 17 million shares or 23% of our shares outstanding at an average cost of $20.78, and we plan to continue to evaluate share repurchases as a key use of our cash. As of today, we have approximately $146 million remaining under the current $300 million program approved by our board in February 2013.

In the first quarter, we also took advantage of strong demand in the convertible markets and issued a $400 million convertible senior subordinated note due in 2018 at a 1.5% cash coupon and further hedged up the conversion price to $35.52. This attractive and low-cost financing provides us with a financial flexibility is giving us the advantage to act quickly on acquisitions as well as opportunistically buying back our stock.

Our cash balance at the end of the quarter was $376 million. We also have $400 million of possible additional borrowings under our securitization facility, subject to certain conditions, as well as the potential to upsize the facility with the contribution of additional brands and have yet to draw on our existing $100 million revolving credit facility.

With that, I will turn the call over to Neil Cole, Chief Executive Officer.

Neil Cole

Good morning, Warren. Morning, everybody. 2013 is off to a strong start for our company, as we achieved double-digit revenue in earnings growth in the first quarter. Our recent acquisition pace has returned to levels last seen in 2007, with the acquisition of three iconic brands, including Umbro, Buffalo and Lee Cooper, all in the last five months.

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