ICON

Iconix Brand Group, Inc. (ICON)

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Iconix Brand Group (ICON)

Q2 2013 Earnings Call

July 24, 2013 10:00 am ET

Executives

Warren Clamen - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Neil Cole - Founder, Chairman, Chief Executive Officer, President and Treasurer

Analysts

Robert S. Drbul - Barclays Capital, Research Division

Steven Louis Marotta - CL King & Associates, Inc., Research Division

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

James Andrew Chartier - Monness, Crespi, Hardt & Co., Inc., Research Division

Kate McShane - Citigroup Inc, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Iconix Brand Group Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. On today's conference, today's speakers will be Mr. Neil Cole, Chief Executive Officer; and Mr. Warren Clamen, Chief Financial Officer.

Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical 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 or 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 the conference over to your host, Mr. Warren Clamen, Chief Financial Officer. Please proceed, sir.

Warren Clamen

Good morning, everyone, and welcome to the Iconix Brand Group Second Quarter 2013 Earnings Conference Call. On today's call, we will review our financial results, provide an update on our overall business and discuss our outlook.

Reviewing results for the second quarter ended June 30, 2013, it was a record quarter for our company with revenue of approximately $115.1 million, a 23% increase as compared to approximately $93.6 million in the second quarter of 2012. Our strong top line reflects healthy trends across the majority of our portfolio, our recent acquisitions and continued focus on international expansion, including the formation of a new joint venture in Canada.

EBITDA for the second quarter increased 24% to approximately $72.7 million as compared to approximately $58.4 million in the prior year quarter, and our EBITDA margin in the second quarter was approximately 63%.

Compensation expenses were approximately $3 million higher than expected this quarter as we began to expense noncash compensation related to performance-based bonuses that we anticipate to be earned this year.

In the second quarter, we generated $60.8 million of free cash flow or $1.03 per diluted share compared to $51.9 million or $0.72 per diluted share in the prior year quarter.

Non-GAAP net income, which excludes noncash interest related to our 2 convertible notes, increased 32% to approximately $42.7 million as compared to $32.4 million in the prior year quarter, and diluted non-GAAP earnings per share increased 60% to $0.72 as compared to $0.45 in the prior year quarter.

In the second quarter, the company monetized its previously written off auction rate securities and received $5.4 million in cash, which is included in the interest and other expense net line on the P&L.

On a full year basis, as it relates to our guidance, this onetime gain on the auction rate securities is more than offset by the incremental interest expense of approximately $7 million related to the $275 million of additional debt we pulled down on our securitization in this second quarter.

In addition, in the second quarter, the formation of our new joint venture in Canada contributed approximately $9.8 million to our revenue. Similarly, the second quarter of 2012 included the formation of our joint venture in India, which contributed approximately $5.6 million to revenue in the prior year quarter.

Reviewing the results for the 6 months ended June 30, 2013, our revenue increased 21% to approximately $220.2 million as compared to $182.1 million in the prior year period. We generated free cash flow of approximately $112.7 million or $1.79 per diluted share compared to $99.4 million or $1.35 per diluted share in the prior year period. Our EBITDA increased 19% to approximately $137.2 million as compared to $115.2 million in the prior year period.

Year-to-date, we incurred approximately $4.5 million of expenses related to completed acquisitions, as well as acquisition initiatives.

Our non-GAAP net income, as previously defined, increased 23% to approximately $78.9 million compared to $64.4 million in the prior year period, and fully diluted non-GAAP earnings per share increased 42% to $1.25 compared to $0.88 in the prior year period.

EBITDA, free cash flow, non-GAAP net income, 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.

We have continued to focus on share repurchases as one of the ways to create additional shareholder value. And in the second quarter, we bought back 5.2 million shares, bringing our total share repurchase for the first half of 2013 to 11.9 million shares, which represents 18% of our shares outstanding as of the beginning of the year at an average price of $25.42.

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