Thank you for standing by today. My name is Celine and I will be your conference operator today. At this time I would like to welcome everyone to the XELB's Q3 2024 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Burroughs. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Welcome to the Xcel Brands third quarter of 2024 earnings call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer, Robert D'Loren; and Chief Financial Officer, Jim Haran. By now, everyone should have had access to the earnings release for the quarter ended September 30, 2024, which went out last Friday. And in addition, the company's filing with the Securities and Exchange Commission its quarterly report on Form 10-Q last Friday. The release 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 on the company's most recent annual report 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 measures 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 the company's results of operations. Our management believes these financial performance measurements are also useful, because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results, unless 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 measures of financial performance calculated and presented in accordance with GAAP. You may refer to the attachment to the company's earnings release or to Part 1, Item 2 of the Form 10-Q for a reconciliation of non-GAAP measures. And now, I am pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob, please go ahead.

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 for the third quarter and our outlook for the remainder of the year, after that our CFO Jim Haran will discuss our financial results in more detail. During the third quarter we made continued progress on executing and concluding our project fundamentals plan to transition fully to a core working capital licensing business live streaming over TV and in social media. Although our top line licensing revenues declined as a result of the sale of the Lori Goldstein brand at the end of last quarter, we nonetheless improved our bottom line operating results as a result of our strategic cost reductions, actions and increased revenues from our brand portfolio. Our non-GAAP earnings for the quarter improved by approximately 56% from last year and our adjusted EBITDA improved by approximately 26% from the third quarter of 2023. The C. Wonder brand is performing well on HSN, remaining on plan and up in retail sales 60% over last year despite September's disruptions caused by two hurricanes. These hurricanes caused shows to be canceled and fulfillments to be disrupted, although the impact of them continued into October, we expect to make up lost sales with increased fourth quarter programming. We expect to see retail sales volume continue to grow very strongly into 2025 on HSN and with other retailers. And as previously mentioned, we are on track to launch additional new categories in footwear and handbags in spring of 2025. Tower Hill by Christie Brinkley successfully launched on HSN during the second quarter. We believe based upon third quarter results, we are on track to exceed the launch plan by 90%. Strong sales growth is expected…

Thanks Bob, and good afternoon everyone. I will now briefly discuss our financial results for the quarter and nine months ended September 30, 2024. Total revenue for the current quarter was $1.9 million, representing a decrease of approximately $0.7 million from the third quarter of 2023. This decline was primarily driven by a $0.9 million decline in net licensing revenues, mainly attributable to the sale of the Lori Goldstein brand in the second quarter of 2Q '24 and partly offset by increased licensing revenues generated by our other brands, most notably the C. Wonder brand and the new Tower Hill by Christie Brinkley brand, both on HSN. This, despite the disruptions to our HSN business caused by two hurricanes in the third quarter that impacted their studio location and fulfillment facility. Also, during the current quarter we recognized approximately $0.4 million of revenue from the sale of all of our remaining inventory of the Longaberger brand to a third party at cost. Following this sale, we no longer have any inventory on our books. On a year to date basis, our total revenue for the current nine months decreased by approximately $8.4 million, primarily due to our exit from all wholesale operating businesses as part of our Project Fundamentals plan that began in '23. The only product sales during the current year were approximately $100,000 related to the final sale of some jewelry inventory and the aforementioned sale of $400,000 of the remaining Longaberger brand inventory. Year-to-date licensing revenue also declined by approximately $0.5 million to $6.5 million for the current year period, mainly due to the previously mentioned sale of the Lori Goldstein brand. Our direct operating costs and expenses were $2.8 million for the current quarter, down by $2.8 million or 50% from the prior year quarter. On…

Thank you, Jim. This concludes our prepared remarks. Operator?

Thank you. We will now open the line for questions. [Operator Instructions]. Your first question comes from the line of Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Good evening everyone, and thanks for taking my questions. I appreciate it. I was wondering, Rob, if you can give us a little bit more color on how Halston is performing. I know that you're indicating that there's some new product kind of being shipped and that sort of thing. I was wondering if you can kind of give us some insights on how that's looking as we go into the balance of this year and into the first quarter of next year?

So, hi Michael, We've looked at the product. We think they've done a nice job with this collection, and we don't have sales reports on shoes and bags, so we won't know until 45 days after the quarter. But we hear that it is off to a good start and they're comfortable with where they are and what their expectations are for next year in sportswear, outerwear, handbags and footwear.

Do you seem to be as sanguine as you were about the prospects of 2025 with Halston at this point? I mean, your opinion hasn't really changed at this point?

No, we expect that they will do what they have said, and we're happy with the product and some of the adjustments that they made, particularly in the apparel, and we're comfortable with where they are.

I know that the 10-Q explains the situation with Isaac Mizrahi, and I was wondering if maybe you can give us the background story and the structure there. And how you anticipate your interest in Isaac is going to continue going forward?

Yes, we took a conservative approach on the asset value with Isaac. Because given where things have been going, Michael, and it's not a systemic issue with QVC. Our challenge has been getting Isaac back in person, in studio, and his hours are down significantly. We are introducing someone to pick up a lot of Isaac's airtime in studio next year and that will be starting in January. So we're optimistic, but we thought it would be best to stay conservative as the asset value is concerned. And Jim can walk you through the mechanics of that adjustment.

Is there anything specifically answered? I mean, essentially what it is we're going to. We put a reserve against the value, we met it against the asset on the balance sheet and we took a non-cash charge for it in the quarter. I mean, it's pretty straightforward and that'll work itself out when the measurement period arrives early next year. And we think then the adjustment that we made now will fulfill what we think that adjustment will be at that time. So there'll be very little impact in 2025.

All right, thanks for the color. And my last question, Jim, you were indicating that Q4 is going to show improvement. Do you still anticipate that Q4 will show adjusted EBITDA positive in Q4 or where do you think that you might swing towards profit, profits going forward?

I don't know if it'll return positive. It'll certainly be an improvement from the third quarter. There was still some impact in October with our HSN business from the residual of the two hurricanes. And again, without having the benefit of having the reporting and we're just doing the best we can to forecast it, but we do know there'll be an improvement. We don't know if it'll be to the extent where it'll turn back to profitability.

Is there any way to monitor or provide some monetary, whether how much revenues might have been impacted by the hurricanes? Is there any way to quantify that?

Well, I can tell you what that was, Michael. It was about 450, 500,000 and we were able to secure more airtime. TS or TSD was moved because of the hurricane to last week. And it was a great show. We did 98% realization on the show. And it was a great TS day for us on HSN. So we're hopeful that the returns will be normal and we can swing to profitability in the fourth quarter. But we won't know until everything ships and the reporting period ends.

And if I may just squeeze one more in, I know that you were anticipating launching additional brands going into the quarter. And I was just wondering where do you stand on the timeline of additional brands that you kind of indicated in the last quarter?

So we did say that there would be a new brand launch in March of next year that will be a home category brand. We have several others in the home and kitchen category that we will be launching next year. Two are under LOI 1 [ph], and we're wrapping up definitive agreements and working on prototypes for that March launch. We have several other potential new transactions that we're hoping that will launch next year as well in apparel and one in home hard goods.

Great. Thank you for the update. Good luck to you guys.

Thank you, Michael.

Thank you.

Your next question comes from the line of Anthony Lebiedzinski with Sidoti. Please go ahead.

Good evening everyone and yeah, thank you for taking the question. So just to follow-up as far as the fourth quarter expectations, I guess kind of given the, the timing of today's call, I mean, any sense as to like where you think revenue might come in? It sounds like it should be better than the third quarter, but is there any other additional color that you can provide as far as what you think will happen here?

I think if everything that we did in the last two weeks of December ships this year, it should hold, Anthony. But as I said, we won't know unless these shipments get out by year end.

Got you. So when you say it should hold, you mean relative to the third quarter or fourth quarter of last year. I'm not -- just if you could just clarify that?

We've been forecasting for fourth quarter.

Okay, got you. Okay. That's very helpful. And then just curious, I mean, what is your sense as far as inventory levels at retailers, just overall as far as what you're seeing from the macro perspective? I know, Bob, you referenced a little bit of that in your press release. But just, just overall, when you look at the, the macro picture, look at inventory levels at retailers, how could any of that impact the competitively your business?

Well, obviously if retailers are over inventoried, if sales aren't what they thought, they'll aggressively mark down and push sales. And could that impact our interactive television business? Maybe generally we haven't seen that, but there could be some impact and there could be an impact on Halston, but I don't think G-III has enough inventory out there with Halston at this time that there would be a material impact there.

That's very helpful. And then as far as Orme, I know you gave us an update on a number of brands. How do you think about the trajectory of additional brand launches for next year? What are you expecting? Just curious in regards to that.

So Orme is being very selective about the kinds of brands that they bring on, Anthony. They're looking for luxury aspirational brands that have higher average order values than say, what you would typically find on TikTok shops or on Flip. Our goal with Orme is to keep the average order values above 100. And today, TikTok Shop and Flip are at around 20. Those are the two competing marketplaces. So it's -- and we believe the universe of brands for Orme will be 5 to 600 brands. It will be that better zone marketplace in live streaming. So with 30 onboarded now, there's no reason that Orme couldn't add another couple of hundred brands and begin that ramp up.

That's very helpful. And then, as far as your operating costs, certainly you guys have done a nice job of reducing your costs. And it sounds like based on what Jim said, there are some opportunities to perhaps take out additional expenses. Can you provide us with any more color as to what you're looking to do perhaps?

Yes. We've been looking very carefully at overhead. And we think that without disrupting operations, there's another 500 to 750,000 in operating expenses that we can cut and we are going to move to do that going into Q1 of next year.

Got you. Okay. And then lastly, so you guys have improved your liquidity with the new term loans. Just going forward, do you guys see perhaps a need for another capital raise or do you think you'll be in good shape? How should we think about that?

I think it depends upon all of the transactions that we have in our pipeline. As I said earlier, some of these are in LOI and converting to definitive agreements and only one of them would require capital. It would be a purchase of an existing revenue stream and brand. The others are more influencer and personality driven JVs which have some startup cost. So if we -- and they're all accretive to us based on conversations that we've had with retailers, particularly our interactive TV partners in QVC and HSN, and if we see that we need to do that, we would to conclude all of these transactions.

Understood. All right, well, thank you very much and best of luck and happy holidays to all.

Thank you, Anthony, you too.

[Operator Instructions] Your next question comes from the line of Howard Brous with Wellington Shields. Please go ahead.

Robert. Congratulations on the tremendous progress you've been making. When I start looking at some of the numbers out there, say for 2025, how comfortable are you with an EBITDA number of 7 million?

So there's a, there's a range out there, Howard, and we're comfortable in that range between the -- call it 44 number and the 86 numbers that are out there. Of course, that will be driven by G-III's performance, because it drops a significant amount of EBITDA and to some extent, some of the new transactions that we're working on, if we can get those signed early and start to generate revenue, it will drive both top and bottom line.

How significant could that be when you talk about top line, bottom line for say, the second part -- second half of 2025 -- by that time you'll basically know?

We're good where the analyst numbers are, Howard.

Taking the mean between the two, you're talking about a company that's selling at 1.1 times EBITDA? Well, any thoughts about?

It's an attractive multiple, as you know, but also we have significant asset value. We believe that just the Halston contract alone is worth 5x our market cap.

How'd you know that was my next question in terms of balance sheet?

We look at it the same way you do, Howard. And that EBITDA multiple and just given the embedded value of our intangibles, it's incredible to see the stock price where it is.

Robert, best of luck. Merry Christmas and a Happy New Year. Thank you.

Thank you, Howard.

Thank you.

That concludes our question-and-answer session. I will now turn the call over back to the speakers for any closing remarks.

Thank you, operator, and ladies and gentlemen, thank you all for your time this afternoon. We greatly appreciate your continued interest and support in Xcel Brands. I wish all of you the very best in this holiday season and a Happy and Healthy and Prosperous New Year. As always, stay fit, eat well and be healthy.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.