ICON

Iconix Brand Group, Inc. (ICON)

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Iconix Brand Group (ICON)

Q3 2013 Earnings Call

October 29, 2013 10:00 am ET

Executives

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

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

Analysts

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

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Bruce Howard Geller - Dalton, Greiner, Hartman, Maher & Co., LLC

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the Iconix Brand Group Third Quarter Earnings Conference Call. [Operator Instructions]

Management has asked me to read the following statement, 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 hard or 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 hand the conference over to your hosts for today, Neil Cole, CEO; and Warren Clamen, Chief Financial Officer.

Neil Cole

Good morning, everyone, and welcome to the Iconix Brand Group third quarter 2013 earnings conference call. On today's call, we will review our financial results, discuss the brand highlights, provide an updated guidance for 2013 and initiate 2014 guidance.

Reviewing results for the third quarter ended September 30, 2013, it was a record third quarter for our company with a revenue of approximately $107.2 million, a 24% increase as compared to approximately $86.6 million in the third quarter of 2012. Our strong top line reflects healthy trends across the majority of our portfolio, our acquisitions of Umbro, Buffalo and Lee Cooper and continued focus on international expansion, including the formation of a new joint venture in Australia, which contributed approximately $5 million to our revenue in the quarter.

EBITDA in the third quarter increased 27% to approximately $65.6 million as compared to approximately $51.8 million in the prior year quarter. And our EBITDA margin in the third quarter was approximately 61%.

In the third quarter, we generated $54.3 million of free cash flow or $0.97 per non-GAAP diluted share compared to $43.2 million or $0.61 per non-GAAP diluted share in the prior year quarter.

Non-GAAP net income increased 15% to approximately $33.1 million as compared to approximately $28.7 million in the prior year quarter. And diluted non-GAAP earnings per share increased approximately 44% to $0.59 compared to $0.41 in the prior year quarter.

Our non-GAAP net income and non-GAAP diluted EPS exclude noncash interests related to our 2 convertible notes. And new for this quarter, they also exclude the incremental diluted shares we recorded this quarter related to both the convertible notes. Based on our closing stock price on September 30, 2013, which is the first quarter that there were potential diluted convertible shares for GAAP purposes. However, we will not be responsible for issuing these shares as they are covered by both the convertible notes hedges.

Reviewing results for the 9 months ended September 30, 2013, our revenue increased 22% to approximately $327.4 million as compared to $268.7 million in the prior year period. We generated free cash flow of approximately $167 million or $2.76 per non-GAAP diluted share compared to $142.6 million or $1.97 per non-GAAP diluted share in the prior year period. Our EBITDA increased 21% to approximately $202.8 million as compared to $167 million in the prior year period.

Our non-GAAP net income, as previously defined, increased 20% to approximately $112 million as compared to $93.1 million in the prior year period, and our diluted non-GAAP earnings per share increased approximately 45% to $1.85 versus $1.28 in the prior year period.

EBITDA, free cash flow, non-GAAP net income and non-GAAP diluted shares and EPS are all non-GAAP metrics, and reconciliation tables for each can be found in the press release sent out earlier this morning or on our website, iconixbrand.com.

In the third quarter, we also contributed to create shareholder value -- continued to create shareholder value through share repurchases, having bought back 3.1 million shares in the period, bringing our total share repurchases for the 9 months ending September 30, 2013, to 50 million shares or 23% of our shares outstanding as of the beginning of the year at an average price of $27.07.

Since initiating our share repurchase program in October 2011, we have repurchased approximately $551 million of our stock or approximately 32% of our shares outstanding as of the beginning of the program at an average price of $23.59. We plan to continue to remain opportunistic with share repurchases and have approximately $250 million left under our current authorization program.

Moving on to our balance sheet. We continue to be in a very strong position. We ended the quarter with $326 million of cash on hand, have an undrawn revolver, and we're projecting to generate over $200 million of free cash flow next year. We also have additional capacity under our securitization facility and the ability to upsize the facility with additional brands. With these resources, we plan to continue to create shareholder value through a combination of new acquisitions and continued share repurchases.

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