XCel Brands, Inc. Q2 FY2024 earnings call

• Divested Lori Goldstein brand, recognizing a $3.8 million net gain and reducing liabilities by $6 million.
• Q2 net licensing revenues grew 16% YOY; C. Wonder on HSN exceeded plan by 6% with H2 2024 expected to have over 60% YOY growth; Tower Hill by Christie Brinkley launched on HSN exceeding plan by 40%.
• Judith Ripka royalties increased 45% Q2 due to greater product assortments. G-III to launch Halston apparel and footwear later in 2024 and spring 2025.
• Orme soft launched video/social commerce marketplace, with 20,000 downloads in less than three weeks of app distribution start.
• Direct operating costs decreased significantly from prior year due to discontinuance of wholesale operations.

In Q2 2024, total revenue was $3 million, a decrease from Q2 2023 due to exit from wholesale operations. Net licensing revenue increased by ~$0.4 million or 16% YOY, driven by Halston license, C. Wonder on HSN, and Tower Hill launch. Product sales were effectively zero except for residual inventory sales. Year-to-date, revenue decreased to $5.1 million, with licensing revenue up $0.4 million or 8% offsetting product sales decline. Direct operating costs decreased significantly from prior year, with expectation of ~$2.5 million per quarter average going forward. The divestiture of Lori Goldstein brand resulted in a $3.8 million net gain.

• Expect average direct operating costs to be approximately $2.5 million per quarter going forward.
• Anticipate licensing revenue to continue growing with steady ramp up of brands.
• Halston royalty revenues expected to ramp up next year as G-III moves forward with product rollouts.
• Orme to do its own capital raise and drive full commercialization of its video/social commerce marketplace, with plan to do the raise before year-end.

• Macro-economic environment risks that could cause actual results to differ materially from expectations discussed.
• Risks associated with forward-looking statements as they are subject to uncertainties.
• Impact of changes in retail show formats, such as Isaac Mizrahi's reduction in remote shows affecting the brand's performance.

Q: Give a sense of how well the Christie Brinkley brand, Tower Hill is performing heading into Q3 and about licensing revenue from Halston in Q3?

A: Tower Hill exceeded plan on launch by 40%, with contractual minimums and forecast for year twice the minimum; anticipate doubling business in 2025. Regarding Halston, there are minimum guaranteed royalties, and expect royalties to increase as G-III moves forward with product rollouts.

Q: Sense of whether licensing revenue will increase YOY in Q3?

A: Yes, on a steady ramp up with all brands, having entered into significant licenses and launched new brands on HSN, just getting started with strong momentum.

Q: Details on the designer brand to announce in fourth quarter, its launch platform and costs?

A: The brand will launch initially on HSN with minimal start-up costs as product development is done and product ordered. The kitchen/food products brand for Q1 has potential on HSN and outside.

Q: Isaac Mizrahi brand performance and expectations?

A: Isaac is on plan for the year but down from last year due to reduction of zero in remote shows; working on bringing backup guests for studio shows to make up for lost time.

Q: Thoughts on brand portfolio after divesting Lori Goldstein, and most excited brands?

A: C. Wonder and Christie Brinkley have great growth potential; Longaberger is doing well as e-commerce-only with Orme integration; excited about licensing opportunities with Longaberger and new brand launches.

Q: Orme app downloads, sales, and full commercialization timeline?

A: Orme had 20,000 downloads in less than three weeks of app distribution start, focused on better brands with higher average order values; plan to do its own capital raise and drive full commercialization, expecting to do the raise before year-end.

Q: Reason for compensation agreements in stock; thoughts on share price and Orme timeline?

A: Share price is undervalued, trading below potential earnings; making stock investments as believing in the company's growth. Orme to do capital raise and drive full commercialization after funding.

Q: Comfort with next year's numbers; major brands on Orme; comment on stock purchases?

A: Comfortable with numbers assuming continued growth; Orme has robust pipeline with brands like [indiscernible], DL1961; making stock investments because believing in the company's direction.

Q: Christie Brinkley brand products and distribution outside HSN?

A: Categories include apparel, accessories, home, pet, beauty; focus on major big box retailers, aiming for spring 2025 launch, potentially pushing to fall if needed.