Overview

Xcel Brands, Inc. is a media and consumer products company engaged in the design, licensing, marketing, live streaming, and social commerce sales of branded apparel, footwear, accessories, fine jewelry, home goods and other consumer products. The company’s brand portfolio includes the Halston Brand, Ripka Brand, C Wonder Brand, TowerHill by Christie Brinkley brand, the Longaberger Brand, and the Isaac Mizrahi Brand. Xcel also owns a 30% interest in ORME Live Inc., a short-form video and social commerce marketplace.

Xcel’s objective is to build a diversified portfolio of lifestyle consumer products brands through organic growth and strategic acquisitions. The company focuses on distribution and licensing of its brands through interactive television, licensing to retailers, direct-to-consumer e-commerce and live streaming, and acquiring additional consumer brands.

Summary of Operating Results

In the third quarter of 2024, Xcel’s revenues decreased $0.73 million to $1.91 million, primarily due to a $0.87 million reduction in licensing revenue from the divestiture of the Lori Goldstein Brand. The company also recognized $0.41 million in product sales from selling remaining Longaberger Brand inventory.

Direct operating costs and expenses decreased $2.79 million, largely due to the 2023 restructuring and cost reduction initiatives. Depreciation and amortization expense also decreased $0.77 million. However, Xcel recognized a $6.25 million non-cash charge related to its contingent obligation for the Isaac Mizrahi Brand transaction.

For the first nine months of 2024, revenues decreased $8.42 million to $7.05 million, driven by a $7.90 million decline in product sales from exiting the wholesale and direct-to-consumer operations. Licensing revenue also decreased $0.51 million, again due to the Lori Goldstein Brand divestiture.

Direct operating costs and expenses decreased $7.86 million, reflecting the 2023 restructuring efforts. Xcel also recognized a $3.80 million gain on the Lori Goldstein Brand divestiture, but took a $3.48 million asset impairment charge related to exiting its office lease.

Overall, Xcel reported a net loss of $9.21 million in Q3 2024 and $15.31 million for the first nine months of 2024. However, on a non-GAAP basis, the company had a net loss of $1.33 million in Q3 2024 and $3.44 million for the first nine months.

Liquidity and Capital Resources

As of September 30, 2024, Xcel had $0.24 million in unrestricted cash and $0.7 million in restricted cash. The company’s working capital was negative $0.4 million.

Xcel incurred a net loss and used $3.31 million in operating cash flow in the first nine months of 2024. To improve liquidity, the company took several actions:

• Implemented a restructuring plan in 2023 to shift to a “licensing plus” model and reduce costs by $15 million annually
• Divested the Lori Goldstein Brand, eliminating operating expenses and future obligations
• Issued $1.9 million in new equity in Q1 2024
• Entered into a new $10 million term loan in December 2024 to refinance existing debt and provide additional working capital

Management believes these actions have alleviated the going concern uncertainties that existed at September 30, 2024. The company expects existing cash and future cash flows will be adequate to meet operating needs and capital requirements for at least the next 12 months.

Other Factors

Xcel continues to seek opportunities to expand its brand portfolio and distribution channels to reduce reliance on any single brand or customer. The company restructured in 2023 to shift to a more capital-light “licensing plus” model, which has significantly reduced its operating costs.

However, Xcel still faces headwinds from the current macroeconomic environment, including inflation and potential recession, which could negatively impact consumer demand. The company’s long-term success will depend on maintaining brand awareness, attracting customers and licensees, and accurately predicting fashion trends.