Xcel Brands sees 38% EBITDA improvement year-over-year, yet remains cautious for Q4 amid tariff impacts and revenue challenges.

OPERATOR - (00:02:08)

Ladies and gentlemen, thank you for standing by. Today's conference call is scheduled to begin momentarily. You will be placed back on music hold until then. Thank you for your patience. Foreign. Hello and thank you for standing by. My name is John and I will be your conference operator today. At this time I would like to welcome everyone to the Xcel Brands third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. To withdraw your question, simply press Star one again. Please be advised that reproduction of this call, in whole or in part is not permitted without prior written authorization of Xcel Brands and and as a reminder, this conference call is being recorded. I would now like to turn the call over to Seth Burroughs from the Company. Seth, you may begin.

Seth Burroughs - (00:05:00)

Good afternoon everyone and thank you for joining us. Welcome to the Xcel Brands' third quarter of 2025 earnings call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief executive officer Robert DeLoren and chief financial Officer Jim Herron. By now, everyone should have had access to the earnings release for the quarter ended September 30, 2025, which went out this afternoon. In addition, the Company will file with the securities and Exchange Commission with this quarterly report on Form 10Q for the quarter ended September 30, 2025. 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 in the Company's most recent annual report filed with the sec. Excel 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 metrics 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 and thus 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 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 the 10Q for a reconciliation of non GAAP measures and now I'm pleased to introduce Robert DeLorean, chairman and chief Executive Officer. Bob, please go ahead.

Robert DeLorean - Chairman and Chief Executive Officer - (00:07:42)

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 recent developments from the most recent quarter and our outlook moving forward. After that. Our CFO Jim Herron will discuss our financial results in more detail. As you know, we closed a $2 million net equity offering in Q3, of which one of our directors, UTG and I together invested $935,000. This brings the total investment in financing over the past 18 months by management and other insiders. Other insiders to approximately $2.25 million. Cash proceeds of the aforementioned equity offering were used to pay down our loan with First Eagle, with the balance being used for general working capital purposes. We have been working with UTG on new business opportunities which includes leveraging UTG's sourcing platform to supply products to our retail partners, leveraging their retail distribution in China, and conducting continued due diligence on potential acquisitions. We believe some of these transactions have the potential to be transformative for Excel. Change is coming fast in our core business of video content distribution over at Linear TV as it moves to digital streaming and social commerce. In fact, just last week TikTok Shops announced that their quarterly volume now exceeds that of ebay. We believe that we are positioned well to capitalize on this change given our investments in social commerce technology and our portfolio of Influencer led brands. We continue to work hard with our production partners to drive our business. Earlier in the year we announced our new Influencer brands with Cesar Millan, Gemma. Stafford, Jenny Martinez, Coco Rocha, and we expect. To announce a new influencer transaction for our Longer Burger brand shortly. These new Influencer LED brands have diversified our product categories into food, kitchen, home. And pet products and transitioned our supply. Chains to be more reliant on domestic production, especially in the human food and pet food and supplements categories. Also, we have identified key category license opportunities for all of these new influencer brands. Our social media reach across our brand portfolio is now 46 million people. With a strong pipeline of new influencer. Led brands, we are on Track to. Reach 100 million followers across our brand portfolio in 2026. C. Wonder and Christie Brinkley remain amongst the fastest growing brands on hsn. We expect category and distribution expansion in both of these brands in 2026. Our pipeline of licensing activities is strong for all of our brands, especially the influencer led brands. All that said, we are approaching Q4 of this year with caution given the impacts of the tariffs and on QVC, HSN and our licensees, including G3 for our Holston brand. I should note that HSN's move to QVC's Pennsylvania studios did disrupt our sales in both Tower Hill By Christie Brinkley. And C. Wonder. Judith Ripka continues to Operate on plan and is up 6% over last year in retail sales on JTV. Our Longaberger brand launches on QVC this fall and will be guested and promoted by a strong, very talented influencer in the home and crafting space. With over 3 million highly engaged followers, we believe she's perfect for our Longaberger brand. We generated an adjusted EBITDA loss of $653,000 in Q3 that is 400,000, or approximately a 38% improvement over Q3 2024. While we forecasted a range of 1 million to 2.5 million of adjusted EBITDA for 2025, much of it was weighted in the second half results of this year driven by the Holston business, which has not materialized as we had hoped. G3 remains committed to the Holston brand and is adjusting merchandising and design to get the brand back on plan. We believe that this is a timing. Issue and that we'll see further growth in 2026. Finally, given the softness in the Holston. Business, we have entered into an amendment. To our credit facility with our lender that provides, amongst other things, certain modifications to our loan covenants. Elimination of certain early payment fees, a release of a $1 million loan liquidity reserve as partial payment on the gross $3.2 million First Eagle term loan balance and in exchange for repayment, the net First Eagle term loan balance of $2.2 million on or before February 2026. It is our intent to refinance this net first eagle term a 2.2 million portion of the loan as a standalone financing or in connection with another transaction we are considering. With that, I would like to turn the call over to our CFO Jim Herron to cover our financial results for the third quarter.

Jim Herron - Chief Financial Officer - (00:13:37)

Jim thanks Bob and good afternoon everyone. I will now briefly discuss our financial results for the quarter and nine months ended September 30, 2025. Net licensing revenues were $1.$1 million for the current quarter compared with $$1.5 million in the third quarter of 2024. This decline was primarily attributable to the more cautious consumer spending in the current economic environment and the lower than expected performance in our wholesome license as well as lower revenue recognized from a service agreement with Imtopco which has since ended. On a year to date basis, net licensing revenues were $3.$8 million for the current nine month period compared with 6.5 million for the comparable period in the prior year. The decrease in licensing revenue was primarily attributable to the 2024 divestiture of the Lori Goldstein brand. Direct operating cost expenses were $2.2 million for the current quarter down 23% from the prior year. Quarter for the current nine month period, direct operating costs were 6.3 million, a decrease of 36% from the prior year comparable period for both the quarter and year to date periods. The decrease in direct operating costs was primarily attributable to the business transformation and cost reduction actions taken by the company over the past two years as well as expenses related to the Lori Goldstein brand in the first half of 2024. As a result of the restructuring of our business model, we have reduced our payroll operating no debt costs to run rate of under $$8 million on a per annum basis. Looking at our other operating cost expenses which are predominantly non cash in nature, our depreciation and amortization expense was relatively flat from the prior year quarter. On a year to date basis, depreciation amortization expense declined from 4 million in the prior year to $$2.7 million million in the current nine month period, a result of the sale of the Lori Goldstein brand. We recognized noncash losses related to our equity method investment the past two years. These amounts were related to our non controlling interest in the Isaac Missouri brand and were based upon a combination of our proportionate share of operating losses, recognizing payment charges to write down the value of our investment and recorded similar noncash charges as we reduced our interest in the brand over time. As a result, we have fully written down our investment in the Nizrari brand and going forward we will not have to incur these charges and losses anymore. During the prior year nine month period. We also recognized a $$3.$8 million gain on the divestiture of the Lori Goldstein brand and slightly offsetting that were impairment charges of $$3.5 million related to the exit and suddenly from our prior office location. I'd like to reiterate however that all these charges I described within the other operating costs and expenses are predominantly non cash in nature and are not recurring and are excluded from our non GAAP measures of performance. Turning to our interest and finance expense, our interest and Finance expense was $$0.5 million for the current quarter compared with $0.$1 million for the third quarter of last year. On a year to date basis, interest and Finance expense was $$3.4 million for the current nine months versus 0.4 million in the prior year comparable period. These year over year increases primarily reflect higher interest expense as a result of higher interest rates and high average debt balance and in addition, during the current nine month period we recognize a $$1.9 million loss on the early extinguisher of debt from the April 2025 refinancing of our term loan. Keep in mind under our term loan agreement a majority of the interest due under our current debt will be paid in kind, meaning that it will accrue and not require cash payments until starting in 2027. Overall, we had a net loss for the current quarter of approximately $7.9 million or minus $2.02 per share compared with a net loss of $9.2 million or minus $3.92 per share in the prior year quarter. After adjusting for certain cash and noncash items. Results on a non GAAP basis were a net loss of approximately $1.3 million or minus $0.34 per share for the current quarter and a net loss of approximately $1.3 million or minus $0.57 per share for the prior year quarter. Adjusted EBITDA for the current quarter was approximately negative $650,000 compared to negative $1 million in the third quarter of 2024. This represents a 38% year over year improvement in EBITDA which is roughly comparable to the year over year EBITDA improvements we have been showing over the past few quarters. For the current nine months we had a net loss of approximately $14.7 million or minus $5.06 per share on a GAAP basis compared with a net loss of $15.3 million or minus $6.82 per share in the prior year nine months. On a non GAAP basis we had Net loss of $3.6 million or minus $$1.24 per share, roughly comparable to a non GAAP net loss in the prior year period of $$3.4 million or minus $$1.53 per share. Our year to date EBITDA for the current quarter was negative $1.65 million, a 38% improvement from EBITDA of negative $2.7 million for the prior year comparable period. Once again, as a reminder, our earnings press Release and Form 10-Q present a full reconciliation of our non GAAP measures with the most directly comparable GAAP measures. Now turning to our balance sheet and our liquidity during the current quarter, in August 2025 the company closed on a public equity offering and concurrent management led private placement equity transaction for combined net proceeds of approximately $2 million. And as of September 30, 2025, the Company's balance sheet reflected stockholders equity of approximately $$17 million and unrestricted cash of approximately $$1.5 million and also reflected $$12.5 million of long term debt. And with that I would like to turn the call back over to Bob.

Robert DeLorean - Chairman and Chief Executive Officer - (00:20:14)

Bob thank you Jim. This concludes our prepared remarks. Operator.

OPERATOR - (00:20:24)

Thank you ladies and gentlemen. We will now begin the question and answer session. At this time I would like to remind everyone, in order to ask a question please press STAR followed by the number one on your telephone keypad and if you would like to withdraw your question, simply press star one again. We will pause for a moment to compile the Q and A roster. You will be on music hold until then. Please stay on the line. Thank you Sam. Thank you for patiently waiting. We will now begin the question and answer session. Our first question comes from the line of Thomas Forte with the Maxim Group. Please go ahead.

Thomas Forte - Analyst - (00:21:30)

Great. So Bob and Jim, congrats on the quarter. I have one question and one follow up. I'll go one at a time. Bob, in September you announced what we thought was a pretty significant hire and addition to the company with the addition of Olin Lancaster's Chief Revenue Officer. Can you talk about the importance of that move and how you're able to attract him to Xcel Brands?

Robert DeLorean - Chairman and Chief Executive Officer - (00:21:51)

Sure. Olin and I. Have a long standing relationship. It took over two years for the. Stars to line up for him to come to Excel. I'm very happy that he has joined us. He brings over 25 years of experience to Excel, having run very big divisions within Ralph Lauren and other companies. We have been working closely together, traveling a great deal the last couple of months to various different trade shows to get all of these new influencer brands. Launched with good licensing partners and I. look forward to working hard in 2026 with Olin.

Thomas Forte - Analyst - (00:22:48)

Great. And then for my follow up, Bob, last quarter you talked about having influencer brand products focused on domestic items such as food. Can you talk about things you've done in that area as a way to mitigate some of the tariff impact?

Robert DeLorean - Chairman and Chief Executive Officer - (00:23:06)

Yes. It's interesting that our timing was perfect. In. Signing Caesar, Gemma and Jenny, particularly. Gemma and Jenny, because QVC and other. Retailers are eager to make room for products that are sourced domestically, which the. Majority of food is. So we're very excited about the prospects with Jenny and Gemma. We have begun signing licenses with various different licensees and the same is true with Caesar for dog food. And a majority of pet supplements are made here domestically. So timing was good with those and. To some extent it mitigates tariff risk with a lot of the concentrations that. We have in apparel and goods that are made in other countries. That said, most of our licensees have. Been shifting out of China to other. Places that are a little more tower friendly. QVC is still working on that transition in some of their categories, but we're excited for Gemma and for Jenny and Cesar. They're all launching on QVC coming up in Q1, so timing was good for us.

Thomas Forte - Analyst - (00:24:45)

Great. Thanks for taking my questions, Bob, and best of luck in the fourth quarter.

Robert DeLorean - Chairman and Chief Executive Officer - (00:24:48)

Thank you.

OPERATOR - (00:24:50)

Your next question comes from the line of Michael Kupinski with Noble Capital Markets. Please go ahead.

Michael Kupinski - Analyst - (00:24:56)

Thank you for taking the questions and sorry for the background noise. Just a couple quick questions in terms of the disruption with the Cwonder and Christy in the fourth quarter was just wondering, have those issues been resolved? Are they still lingering? I was just wondering if it's a temporary situation or is it something that still needs to be resolved.

Robert DeLorean - Chairman and Chief Executive Officer - (00:25:18)

No, it has been resolved, Mike. It was. It was really related to the vendor that was supplying qvc. They just couldn't get the costing to work with the tariffs. And we since then replaced that vendor and they're sourcing from different countries where the economics work for qvc. So that was part of it. And the other part of it was. There was disruption when hsn, which Christy. And Cwonder are HSN brands, moved from Tampa to Westchester, Pennsylvania. It just caused delays in shows, but all of that has been resolved. It was actually remarkably. Good in terms of how QVC did the transition, but. There was some programming challenges.

Michael Kupinski - Analyst - (00:26:26)

Great. And then in terms of G3, you mentioned that they're tweaking some merchandising. Is that tweak going to be able to be done for the spring line or is that going to be more of a fall line.

Robert DeLorean - Chairman and Chief Executive Officer - (00:26:43)

I think there will be some adjustments for spring because they've been making them all along. But I think it's really more fall adjustment for them. And Olin and Joe Falco have been working very closely with the G3 team.

Michael Kupinski - Analyst - (00:27:02)

Gotcha. And then obviously you have a lot of new brands that are coming out. I was just wondering if you have any updates on the product roadmap, like maybe when the rollouts for these brands any updates on when they are going to start hitting the market.

Robert DeLorean - Chairman and Chief Executive Officer - (00:27:22)

All of them will start hitting the market. Start beginning Q1 of 26. So it will start with all the. Food products, some small electronics devices that. Were vendor was able to source competitively despite the the tariff situation and then they'll continue to roll out into different categories. Caesar. We had a big pet accessories program. That we signed last year and there were delays. We thought that could get out for this holiday season but because of tariffs. They had to move to different factories and we shifted. But that all should really be in the market by fall next year.

Michael Kupinski - Analyst - (00:28:18)

Gotcha. Bob, I don't want you to say anything you can't, you know, obviously can't say, but you did allude to an acquisition that you're contemplating. It might be kind of good to remind investors what types of acquisitions you've been kind of contemplating in the past and what those acquisitions might bring to the table that you might be more most excited about.

Robert DeLorean - Chairman and Chief Executive Officer - (00:28:42)

So over the last three years or. So we've been looking for brand acquisitions. And transformative transactions and we continue to look at opportunities. I would say in the general course of our business, we're looking at opportunities. There are a few that we are very interested in and we're working very. Hard to try to make them happen.

Michael Kupinski - Analyst - (00:29:22)

Thank you very much. Good luck to you guys.

Robert DeLorean - Chairman and Chief Executive Officer - (00:29:25)

Thank you.

OPERATOR - (00:29:27)

Your next question comes from the line of Walter Schenker with Maz Partners. Please go ahead.

Walter Schenker - Analyst - (00:29:33)

Hi Bob. It is admirable to cut costs. However you can cut costs to profitability if you don't have revenues. The questions that were asked sort of address some of the issue, which is you need to get your revenues meaningfully higher than they are now to break even, even on a cash flow basis. Can you sort of lay out how you look at the next 12 months and the revenue ramp without specific. You can get specific as you feel comfortable but you know, sort of give us some sense of what we should be looking to as a roadmap to get the revenues, you know, to a few million dollars a quarter.

Robert DeLorean - Chairman and Chief Executive Officer - (00:30:22)

Yes, so the roadmap is we're launching five new influencer led brands that we. Think will drive the revenue going into 26. And also. We now believe that some of the difficulties we experienced with both Christie Brinkley and our Sea Wonder brand because of tariffs and the move are. Behind us and we think we have great upside. We also plan this going into 26 to expand new categories, particularly with the. Christie brand into home and garden and beverage. And with Cwonder, we believe that 26 will be the year that we can. Also diversify into new sales channels. So that's the roadmap and that's what. Olin and I are working on on. A day to day basis to maximize. The opportunity with all of the brands in the portfolio. And then of course we do have. A pipeline of additional brands that we. Are working on with influencers to bring to the market, hopefully as soon as fall next year.

Walter Schenker - Analyst - (00:32:02)

So that's the roadmap and therefore, and. Again you addressed some of this already. As we get into next year, each quarter should sequentially show higher revenues. I realize there's some seasonality, but each quarter should, given the ramp in the five new influences, additional people and straightening out some of the issues you've had with your existing lines would pretty much sequentially show growth, correct?

Robert DeLorean - Chairman and Chief Executive Officer - (00:32:31)

Correct. Because they're all coming online and hopefully. We can work with the team that. Is running the Halston brand and we can help them to really accelerate growth in that brand as well.

Walter Schenker - Analyst - (00:32:54)

Okay, thanks a lot, Bob.

Robert DeLorean - Chairman and Chief Executive Officer - (00:32:57)

Thank you.

OPERATOR - (00:33:00)

Once again, if you would like to ask a question that is to press Star one on your telephone keypad. Thank you. Your next question comes from the line of Howard Breaux with Wellington Shields. Please go ahead.

Howard Breaux - Analyst - (00:33:11)

Just to follow up Walter's question, can you give us a sense of how we can look at 2026 in terms of potential revenue?

Robert DeLorean - Chairman and Chief Executive Officer - (00:33:21)

So Howard, there's, you know, we haven't given guidance but there are two analysts reports out there. One that I think is a conservative view and the other that is consistent. I believe, with our internal goals for. What we think we can do with the brands. I would look to those two reports to get a sense of where we think that can be. For us, the important metric for us is top line royalty revenue. Royalties in the marketplace, Howard, they've been. Trading at higher values recently, particularly in the PE world. They're trading today for between 7 and 8 times royalty, top line royalty, 15 times EBITDA. And with royalties trading at that level, there's a massive disconnect. Even with where we are today with the market cap of the company. Because if you take the worst case base of $6 million times seven or eight times, that would imply we have 45 to $50 million of asset value in the IP. And I've been saying this for years. There's always this disconnect. And certainly we proved that with the. Sale of our Isaac Mizrahi brand in 2022. So if you look at where the analysts have us, if we are successful in achieving our goal in getting all these categories for the new brands launched, it would imply $100 million of value on the royalty flows. And that's an important metric for us to look.

Howard Breaux - Analyst - (00:35:29)

That's all I have. Thank you.

OPERATOR - (00:35:34)

Another question from Walter Schenker with Maz Partners. Please go ahead.

Walter Schenker - Analyst - (00:35:39)

Probably to end on a high note, Bob, you have previously in talking to investors indicated over a multi year timeframe that the opportunities that you have lined up now could potentially get 50 million of royalty income. Half of again my numbers, half of that to you so that you could have 25 million. We look at your share count and earn a lot of money. That is still a potential target out a few years.

Robert DeLorean - Chairman and Chief Executive Officer - (00:36:09)

Yes, yes. These brands are very powerful, particularly Cesar Millan. Cesar is the biggest voice in the pet world. There is a lot of interest in him. With 20 million followers in syndicated TV shows in 80 countries. There's a global opportunity with him. So we're very excited about that. And Jenny Martinez, she could be the Latin Martha Stewart. And Gemma. When you think about the magnitude of. 500 million people having downloaded her recipes. The potential with them is enormous.

Walter Schenker - Analyst - (00:37:08)

Okay, just again want to reaffirm that, you know, a few years out, you're still looking for, especially relative to where we're now, very big numbers, at least on a per share basis.

Robert DeLorean - Chairman and Chief Executive Officer - (00:37:20)

That's the goal.

Walter Schenker - Analyst - (00:37:22)

Good. Well, hopefully we'll all achieve it. Thank you, Bob.

Robert DeLorean - Chairman and Chief Executive Officer - (00:37:26)

Thank you.

OPERATOR - (00:37:30)

At this time, there are no further questions. I would now like to turn the call back over to Mr. DeLorean for closing remarks.

Robert DeLorean - Chairman and Chief Executive Officer - (00:37:37)

Okay, guys, before I give you my. Closing remarks, I do want to extend a special thanks to Seth Burroughs for joining us on this call at midnight his time. And with that, ladies and gentlemen, thank you all for your time this evening. We greatly appreciate your continued interest and support in Xcel Brands. As always, please stay fit, eat well and be healthy.

OPERATOR - (00:38:08)

Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect your lines. And we would like to thank you for participating.