Jeff Sonnek - ICR Robert D'Loren - CEO Jim Haran - CFO Seth Burroughs - EVP of Business Development and Treasury.

Eric Beder - Wunderlich.

Please standby we are about to begin. Welcome to the Xcel Brands First Quarter 2017 Earnings Conference Call. Please be advised that reproduction of this call in whole or in part is not permitted without prior written authorization of Xcel Brands, and as a reminder, this conference is being recorded.

I would now like to turn the conference over to Jeff Sonnek of ICR. Thank you. Jeff, you may now begin..

Good evening, everyone, and thanks for joining us. We appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer, Robert D'Loren; Chief Financial Officer, Jim Haran; and Executive Vice President of Business Development and Treasury, Seth Burroughs.

By now, everyone should have access to the earnings release for the quarter ended March 31, 2017, which went out today at approximately 4.20 Eastern time. And in addition, the company will file with the Securities and Exchange Commission its Quarterly Report on Form 10-K by the end of the week.

The release and the Quarterly Report will be made available on the company’s Web site at www.xcelbrands.com. This call is being webcast and a replay will be available on the company’s Investor Relations Web site. 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 in the company’s SEC filings.

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. Finally, please note that on today’s call, management will refer to certain non-GAAP financial measures, such as non-GAAP net income, non-GAAP diluted EPS, and adjusted EBITDA.

Management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period-to-period on a consistent basis, and to identify business trends relating 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 the management believes are not representative of our core business operating results and this 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 alternative to net income, earnings per share, or any other measure 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 financial measures. Now, I’m pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob, please go ahead..

Thank you, Jeff. Good evening, everyone, and thank you for joining us. I'll start with an overview of our first quarter, and then provide some thoughts on the rest of the year. After that our CFO, Jim Haran will discuss our financial results in more detail. And then we will conclude by opening up the call for Q&A.

Our first quarter of 2017 showed improvement in top line revenue, and most importantly a 28% improvement in operating income, that despite the ongoing headwinds and challenges in the retail industry.

We remain focused on executing our long-term goals and vision for the company while at the same time continuing to be prudent and strategic in how, where and when we allocate resources for the growth of our business and manage our balance sheet.

We are especially pleased with the strong performance of our interactive television business during the quarter as well as the momentum building in our Department store business. We continue to adjust and fine tune our quick time response or short lead [ph] production platform to make this the best solution it can be for today's retail challenges.

Now taking a closer look at our businesses by channel. Our interactive television business saw a significant growth in revenue from the first quarter of 2016 as well as on a sequential basis from the fourth quarter of 2016.

This growth demonstrates our team's ability to adjust, strategies and collaborate with our retail partners in order to optimize our business and leverage the strengthen of our brand. We continue to work closely with QBC [ph] to engage its existing customers identifying new customers and look for opportunities for expansion in this channel.

In our quick time response Department store business we grew both our revenues and market share going in the first quarter of 2017, in Q1's 2017 the retail sales at our brands saw improved sell-thoughts and higher margins compared to the prior quarter of last year.

During the quarter we were excited to announce the successful launch of our H Halston brand at Dillard’s, while its early this launch is off to a great start.

As previously stated we continue to adjust and fine tune in quick time response platform to optimally position our business for growth alongside our retail partners for maximizing sales and growth margin for them.

In fact our investments and efforts to fine tune and optimize the business model going the latter portion of 2016 have begun to produce returns in the forms of improved margins and higher sell through at Lord & Taylor and Hudson's Bay during the first quarter of 2017.

From a production perspective, we are now able to achieve the desired speed and quality required to meet our customers' expectations. Finally, we continue to actively work on additional categories for our brands and are further enhancing our business capabilities through utilizing trend data analytics.

We plan to share more information on both of these initiatives as they developed. In our specialty retail business we continue to develop exciting opportunities in the new channels of distribution. This year we expect launch Isaac Mizrahi cosmetic tools with Leblon [ph] and bedding with Bed Bath & Beyond.

Now looking ahead to the rest of the year, we expect the retail environment will continue to be challenging throughout 2017, perhaps beyond. However, with that said, we see opportunities to capitalize on our strategic advantages by acquiring market share and pursuing new retail partners which we believe will deliver value to all of our stakeholders.

In our interactive television business, we expect solid performance and I have stated on previous calls, this is barring any unanticipated behavioral changes in our customers arms for seeing external or non-controllable events.

Our revenue growth for interactive television in the first quarter of 2017 is a solid indicator that we are off to a good start in this channel. We just reached an agreement with QBC to repulsion our C Wonder brand in Bricks & Mortar without some of the current restrictions placed on QBC. Therefore, we will exit the QBC business with QBC in 2018.

It is our belief that having C Wonder operating outside of QBC will enhance our growth potential with them and reduce potential cannibalization of our other brands on QBC. In our QTR department business, we expect strong double-digit sales growth in 2017 as well as improvements in profitability.

We anticipate continued momentum in retail sales of our brand and are excited and optimistic about the growing market share and expanding this business. Finally, we are aggressively pursuing new brand and meatier opportunities to develop this business with additional retailers and media partners.

Now I'd like to turn the call over to Jim to review our financial results for the quarter.

Jim?.

Thanks Bob. I will briefly discuss some of the financial results for the quarter ended March 31, 2017. Please note that our financial results are described more fully in our quarterly report on Form 10-Q which will be filed with the SEC later this week.

In the first quarter of 2017, revenues increased by approximately 1% to $8.43 million compared with $8.36 million in the prior year quarter. This was primarily attributable to the strong performance of our interactive television business and increase of the revenues from our quick time new response to [indiscernible] business.

These increases were partially offset by a $500,000 decrease in revenue associated with the discontinuance of the LCLI [ph] brand on QBC in 2016. As a reminder, we do not own the LCLI brand, it was licensed as part of the original Isaac Mizrahi program on QBC and the license was not planned for legal by J.C. Penney [ph] the brands owner.

Our GAAP net loss for the quarter is $400,000 or $0.02 per diluted share compared with a GAAP net loss of $35,000 or $0 per diluted share in the prior year quarter.

the net loss in the first quarter of 2017 was largely attributable to discrete item in our income tax revision as we had pre-tax income of approximately $100,000 for the quarter compared with the pre-tax loss of approximately $100,000 in prior year quarter.

This improvement in pre-tax income was driven by aforementioned mentioned higher revenues as well as a $100,000 decrease in interest and finance substantial.

Non-GAAP net income for the current quarter was 1.1 million or non-GAAP diluted EPS of $0.06 per diluted share compared with non-GAAP net income of 1.2 million or non-GAAP diluted EPS of $0.07 per diluted share in the prior year quarter.

Our adjusted EBITDA in the current quarter was approximately 1.9 million, compared with the prior year quarters adjusted EBITDA of 2 million.

These slight declining in our non-GAAP net income and adjusted EBITDA for the prior year quarter are mainly attributable to the increased staffing and investment than leaving [ph] our operations and infrastructure including QTR in order to support future growth in our business and enhance the value of our brand.

Overall our operating expenses in the current quarter were flat compared to last year, which include the $100,000 decrease in stock based compensation that there is no adjustments to non-GAAP results. Once again as a reminder non-GAAP net income, non-GAAP diluted EPS and adjusted EBITDA are non-GAAP [indiscernible] returns.

Our earnings press release as it was out quarter report on Form 10-Q present a reconciliation of these items with the most directly comparable GAAP measures. Now turning to our cash position.

As of March 31, 2017, the company had total cash and cash equivalents of approximately 10.2 million compared with total cash of approximately 14.1 million at December 31, 2016.

This $3 million decrease in cash and cash equivalents was primarily attributable to approximately $2 million in scheduled principal payments on our term debt, $1 million of cash used in operating activities and $800,000 with common shares re-purchases related to vested restricted stock in exchange for withholding taxes.

The $1 million use in operating activities include the increase of $2 million in account receivable and prepaid expenses and a decrease in accounts payable and differed revenue of approximately $800,000. These working capital adjustments during the quarter are timing based and typically incur in the first quarter of this year.

Looking at our debt, at March 31, 2017, combined debt was approximately $30 million our debt consisted of $23.5 million in senior bank term loan, 3.4 million of seller notes and 3.1 million of continued obligations.

Of these announced 2.9 million of continued obligations and $500,000 of seller notes are occurred in stock or cash at the company's auction. As of March 31, 2017, total current liabilities were 9.3 million, inclusive of 6.2 million of the current portion of long term debt.

Our working capital at March 31, 2017 calculated as our current assets including tax plus our current liabilities was 10.5 million compared with 11.5 million at December 31, 2016. With 10.1 million of cash and 26.4 million of term debt, our net debt and adjusted EBITDA ratio as of March 31, 2017 on a rolling 12-month basis was 1.9.

And we continue to be positioned with one of the lowest leverage ratios of any of our industry peers. We anticipate during the balance of 2017 we will further reduce our term debt at approximately $4.5 million or -- operating cash flow. And with that I would like to turn the call back over to Bob for his closing remarks.

Bob?.

Thank you, Jim. As we've stated on previous earnings call, our company vision is to reimagine shopping and entertainment and social at one while and our core we are working capital licensing company, we are truly much than that today.

We are a media and brand management company that is strongly positioned as an innovator in the industry in bringing scalable fast fashioned vertical production or as we called it quick time response model to the market.

Frankly, we are thrilled to provide solution to our retail department that address many of today's industry challenges, in fact I'm happy to report that Apparel magazine recently named us one of the most innovative apparel companies in America.

Finally, and looking ahead, we are positioned to continues to take market share and our channel of distribution achieved improved top-line growth across our brand expand profitability continue to please and delight our customers and bring long-term value to all of our shareholders or stakeholders including our shareholders and our retail partners.

That concludes our prepared remarks, Jim, Seth and I are now available to take questions.

operator?.

Thank you. [Operator Instructions]. And we'll go to Eric Beder with Wunderlich. .

Could you talk about C Wonder piece here? First of all, how much do you think that will impact your overall QBC sales giving that up? And what does this let you do or does this give you an opportunity, department store business as you have before?.

So first, no impact to any of the numbers, Eric that we've seen for accounting, because we've had this model out of our numbers.

And I would say in terms of some of the restrictions, that the current agreement placed on us [indiscernible] our flexibility and channel distributions and we see potential opportunities that we would hope to be announcing in the near future, and it was an amicable solution to what we start an opportunity for the brand..

Okay.

And in terms of dealers [ph] rollout, could you tell me kind of your initial impressions are, when did that exactly rollout and what do you seeing there going forward?.

So we started this spring with our Holten brand in approximately 150 doors and it is going well, although it's still early in, we've been in for just about 6 weeks. But sell throughs have been as expected, margin -- maintained margins aver very good surprisingly good quite frankly.

And we would hope to continue to grow and now we're in the process of exploring bringing additional brand power brand to doors [ph]..

And how do you -- when you look at the opportunities to expand outside of the core apparel with other licensees how is that been working and where do you see that going?.

Within HBC and [indiscernible] currently we are distributing four apparel one, sportswear, and footwear, sleep wear, eye wear and now we are looking at all categories including customer jewelry outerwear and other categories that's where we see opportunities.

So we had to walk quite frankly before we started to run within those retail partners and based on performance to date there is more sensitivity to launching these additional categories..

And what's the -- in terms of -- how was -- you said a little bit about international, how is that doing for you with QBC? And is there a potential to expand that with HBC properties also?.

Yes, QBC international is going well for us, in fact we're a little ahead of plans so we're excited about the potential international in interactive and the currently there has been focus both at QBC and within Xcel to grow our plans across their golden network.

I would say now with three seasons behind us at HBC and the amount of work that we've been able to put into product development and more specifically quality control that’s takes place today, we can begin to explore the opportunity and [indiscernible] gallery with HBC..

Eric this is Seth. I would just add to that, we also have television business in Canada and Korea, those businesses are actually going incredibly well. our brand and our expertise and intelligence that we developed in partnership with QBC over the past several years had really resulted in really understanding that channel in those country.

So we are excited about those, we are excited about the expansion opportunities that being said international today represent the small piece of our business, but I think it’s a big opportunity for us and one that we're looking at particularly as we get into this fall and next spring to really focus on to expand our brand globally..

And just to end with that, Eric, it was important for us to really -- to live by our production capabilities, so that it would position us to be able to enter the reputation deal and Brick and Mortar with our global expansion, and we are at a point now where we are ready to start to have those conversations with potential distribution partners..

And there are no further questions in the queue at this time. I would like to turn the conference back over Mr. D’Loren for any additional or closing remarks..

Thank you, ladies and gentlemen, thank you all for your time tonight. We really appreciate your continued interest and support in Xcel Brands. And as always, stay fit, eat well and be healthy..

Again that does conclude today's presentation. We thank you for your participation..