Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this report are forward-looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks are detailed in the Risk Factors section of our Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC on May 28, 2025. The words “believe,” “anticipate,” “expect,” “continue,” “estimate,” “appear,” “suggest,” “goal,” “potential,” “predicts,” “seek,” “will,” “confident,” “project,” “provide,” “plan,” “likely,” “future,” “ongoing,” “intend,” “may,” “should,” “would,” “could,” “guidance,” and similar expressions identify forward-looking statements.
Overview
Xcel Brands, Inc. (“Xcel,” the “Company,” “we,” “us,” or “our”) 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, and the acquisition of dynamic consumer lifestyle brands. Xcel was founded in 2011 with a vision to reimagine shopping, entertainment, and social media as social commerce.
Xcel owns the Halston, Judith Ripka, and C Wonder brands, as well as the co-branded collaboration brands TowerHill by Christie Brinkley, LB70 by Lloyd Boston, Trust. Respect. Love. by Cesar Millan, and GemmaMade by Gemma Stafford, and also holds noncontrolling interests or long-term license agreements in the Isaac Mizrahi, Orme Live, and Jenny Martinez Live brands. Xcel also owns and manages the Longaberger brand through its controlling interest in Longaberger Licensing, LLC.
Xcel is pioneering a true modern consumer products sales strategy sales strategy which includes the promotion and sale of products under its brands through interactive television, digital live-stream shopping, social commerce, brick-and-mortar retailers, and e-commerce channels to be everywhere its customers shop. Our brands have generated over $5 billion in retail sales via live streaming in interactive television and digital channels alone and over 20,000 hours of content production time in live-stream and social commerce. Our portfolio reaches in excess of 40 million social media followers and 200 million households.
Our objective is to build a diversified portfolio of lifestyle consumer products brands through organic growth and the strategic acquisition of new brands. To grow our brands, we are focused on the following primary strategies:
● distribution and/or licensing of our brands for sale through interactive television (e.g., QVC, HSN, America’s Collectible Network, Inc. d/b/a JTV (“JTV”), etc.);
● licensing of our brands to retailers that sell to the end consumer;
● licensing our brands to manufacturers and retailers for promotion and distribution through e-commerce, social commerce, and traditional brick-and-mortar retail channels; and
● acquiring additional consumer brands and integrating them into our operating platform, and leveraging our operating infrastructure and distribution relationships.
We believe that Xcel offers a unique value proposition to our retail and direct-to-consumer customers and our licensees for the following reasons:
● our management team, including our officers’ and directors’ experience in, and relationships within the industry;
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● our deep knowledge, expertise, and proprietary technology in live streaming and social commerce;
● our design, sales, marketing, and technology platform that enables us to design trend-right product; and
● our significant media and internet presence.
Summary of Operating Results
Three months ended March 31, 2025 (the “current quarter”) compared with the three months ended March 31, 2024 (the “prior year quarter”)
Revenues
Current quarter net revenue decreased $0.85 million to $1.33 million from $2.18 million for the prior year quarter. This decrease was primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein brand and the loss of the licensing revenues associated with that brand, partially offset by increased licensing revenues generated by our other brands, particularly for the C Wonder brand and the TowerHill by Christie Brinkley brand.
Direct Operating Costs and Expenses
Direct operating costs and expenses decreased approximately $1.68 million, from $3.96 million in the prior year quarter to $2.28 million in the current quarter. This decrease was primarily attributable to the 2023 restructuring and transformation of our business operating model, along with additional cost reduction actions taken by management in 2024, which have significantly reduced the Company’s payroll, operating, and overhead costs. Management has continued to implement additional cost cutting measures throughout the first quarter of 2025 to further optimize the Company’s cost structure. As of the end of the first quarter of 2025, the Company has reduced its direct operating expenses to an expected run rate of less than $10 million per annum.
Other Operating Costs and Expenses (Income)
Depreciation and amortization expense decreased approximately $0.69 million, from $1.59 million in the prior year quarter to $0.90 million in the current quarter. This decrease is primarily attributable to the June 30, 2024 divestiture of the Lori Goldstein brand, which included trademarks related to that brand with a net book value of approximately $1.93 million at the time of the divestiture.
We recognized losses related to our equity investments in unconsolidated affiliates (IM Topco, LLC and ORME Live Inc.) of $0.58 million and $0.53 million for the current quarter and prior year quarter, respectively, due to the operations of those businesses, the distribution provisions applicable to each, and (in the current quarter) changes in estimated fair value. However, effective January 2025, the Company no longer applies the equity method of accounting to its investment in ORME, and effective April 2025, the Company will no longer apply the equity method of accounting to its investment in IM Topco. Going forward, the Company’s investments in these unconsolidated affiliates will be valued at adjusted cost basis, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer.
We also recognized other income of $(0.24) million related to the change in the estimated value of a contractual contingent obligation (related to our investment in IM Topco, LLC) during the current quarter.
During the prior year quarter we recognized asset impairment charges of $2.30 million related to our exit from and sublease of our offices at 1333 Broadway, of which approximately $1.9 million related to the operating lease right-of-use asset and approximately $0.4 million related to leasehold improvements at that location. There were no similar asset impairment charges recognized during the current quarter.
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Income Taxes
The estimated annual effective income tax rate for the current quarter and the prior year quarter was approximately -1.8% and 0%, respectively, resulting in an income tax provision (benefit) of $0.05 million and $0, respectively.
For both the current quarter and the prior year quarter, the federal statutory rate differed from the effective tax rate due to the recording of a valuation allowance against the benefit that would have otherwise been recognized, as it was considered not more likely than not that the net operating losses generated during each period will be utilized in future periods.
Net Loss Attributable to Xcel Brands, Inc. Stockholders
We had a net loss of $2.80 million for the current quarter, compared with a net loss of $6.29 million for the prior year quarter, due to the combination of the factors outlined above.
Non-GAAP Net Income (Loss), Non-GAAP Diluted EPS, and Adjusted EBITDA
We had a non-GAAP net loss of approximately $1.37 million, or $0.58 per diluted share (“non-GAAP diluted EPS”), for the current quarter and a non-GAAP net loss of $1.80 million, or $0.88 per diluted share, for the prior year quarter. Non-GAAP net income (loss) is a non-GAAP unaudited term, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders, exclusive of amortization of trademarks, income (loss) from equity method investments, change in contingent reduction in equity ownership of IM Topco, LLC, stock-based compensation and cost of licensee warrants, asset impairment charges, and income taxes (if any). Non-GAAP net income (loss) and non-GAAP diluted EPS measures do not include the tax effect of the aforementioned adjusting items, due to the nature of these items and the Company’s tax strategy.
We had Adjusted EBITDA of approximately $(0.70) million for the current quarter, compared with approximately $(1.57) million for the prior year quarter. Adjusted EBITDA is a non-GAAP unaudited measure, which we define as net income (loss) attributable to Xcel Brands, Inc. stockholders before interest and finance expenses (including loss on extinguishment of debt, if any), accretion of lease liability for exited leases, income taxes, other state and local franchise taxes, depreciation and amortization, income (loss) from equity method investments, change in contingent reduction in equity ownership of IM Topco, LLC, asset impairment charges, stock-based compensation and cost of licensee warrants, and costs associated with restructuring of operations.
Management uses non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA 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. Management believes non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA 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, these non-GAAP measures provide supplemental information to assist investors in evaluating the Company’s financial results.
Non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA 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. Given that non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA are financial measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA in a different manner than we calculate these measures.
In evaluating non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA, you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this report. Our presentation of non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA does not imply that our future results will be unaffected by these expenses or any other unusual or non-recurring items. When evaluating our performance, you should consider non-GAAP net income (loss), non-GAAP diluted EPS, and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results, and not rely on any single financial measure.
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The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP net loss:
Three Months Ended
March 31,
($ in thousands)
2025
2024
Net loss attributable to Xcel Brands, Inc. stockholders
$
(2,797)
$
(6,294)
Amortization of trademarks
875
1,519
Loss from equity method investments
576
533
Change in contingent reduction in equity ownership of IM Topco, LLC
(240)
—
Stock-based compensation and cost of licensee warrants
166
144
Asset impairment charges
—
2,295
Income tax provision (benefit)
50
—
Non-GAAP net loss
$
(1,370)
$
(1,803)
The following table is a reconciliation of diluted loss per share (our most directly comparable financial measure presented in accordance with GAAP) to non-GAAP diluted EPS:
Three Months Ended
March 31,
2025
2024
Diluted loss per share
$
(1.18)
$
(3.09)
Amortization of trademarks
0.37
0.75
Loss from equity method investments
0.24
0.26
Change in contingent reduction in equity ownership of IM Topco, LLC
(0.10)
—
Stock-based compensation and cost of licensee warrants
0.07
0.07
Asset impairment charges
—
1.13
Income tax provision (benefit)
0.02
—
Non-GAAP diluted EPS
$
(0.58)
$
(0.88)
Non-GAAP weighted average diluted shares
2,373,583
2,037,397
The following table is a reconciliation of net loss attributable to Xcel Brands, Inc. stockholders (our most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA:
Three Months Ended
March 31,
($ in thousands)
2025
2024
Net loss attributable to Xcel Brands, Inc. stockholders
$
(2,797)
$
(6,294)
Interest and finance expense
560
150
Accretion of lease liability for exited lease
61
—
Income tax provision (benefit)
50
—
State and local franchise taxes
8
12
Depreciation and amortization
900
1,589
Loss from equity method investments
576
533
Change in contingent reduction in equity ownership of IM Topco, LLC
(240)
—
Asset impairment charges
—
2,295
Stock-based compensation and cost of licensee warrants
166
144
Costs associated with restructuring of operations
17
—
Adjusted EBITDA
$
(699)
$
(1,571)
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Liquidity and Capital Resources
General
As of March 31, 2025 and December 31, 2024, our unrestricted cash and cash equivalents were $0.3 million and $1.3 million, respectively.
Restricted cash at March 31, 2025 consisted of $0.7 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease and $1.5 million of cash deposited in a bank account to satisfy a liquidity covenant in the Company’s term loan debt agreement.
Restricted cash at December 31, 2024 consisted of $0.7 million of cash deposited as collateral for a standby letter of credit associated with a real estate lease.
Our principal capital requirements have generally been to fund working capital needs and acquire new brands. Our current “licensing plus” operating model is a working capital light business model, and generally does not require material capital expenditures. As of March 31, 2025, we have no significant commitments for future capital expenditures.
Working Capital
We had a working capital (current assets less current liabilities, excluding the current portions of lease obligations, deferred revenue, and any contingent obligations payable in shares or via other non-cash means) deficit of approximately $0.6 million as of March 31, 2025. We had working capital of $0.8 million as of December 31, 2024.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As of March 31, 2025, we have incurred recurring losses, a history of cash flows used in operating activities, and an accumulated deficit. While we have undertaken significant restructuring efforts during 2023 and 2024, and have implemented additional measures during the first quarter of 2025 to further optimize its cost structure, management has determined that, absent additional funding, there is substantial doubt about the Company’s ability to meet its financial obligations as they become due within twelve months from the date these accompanying unaudited condensed consolidated financial statements are issued.
Subsequent to March 31, 2025, we restructured our outstanding debt and received net proceeds from financing activities. However, these proceeds may still be insufficient to fully address our liquidity needs. We are actively pursuing an equity offering to secure additional capital; however, there can be no assurance that such efforts will be successful or that sufficient funds will be obtained to meet our obligations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management intends to continue exploring strategic financing alternatives and operational efficiencies to improve liquidity. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Commentary on the components of our cash flows for the current quarter as compared with the prior year quarter is set forth below.
Operating Activities
Net cash used in operating activities was approximately $1.43 million in the current quarter, compared with approximately $2.61 million in the prior year quarter.
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The current quarter net cash used in operating activities was primarily attributable to the combination of the net loss of $(2.80) million plus non-cash items of approximately $1.45 million and the net change in operating assets and liabilities of approximately $(0.08) million. Non-cash items were comprised of approximately $0.90 million of depreciation and amortization expense, $0.34 million of non-cash expenses related to our equity method investees, $0.11 million of stock-based compensation and cost of licensee warrants, and $0.10 of amortization of deferred finance costs. The net change in operating assets and liabilities was primarily comprised of a decrease in deferred revenue of $(0.21) million and a decrease in lease-related assets and liabilities of $(0.08) million, partially offset by a decrease in accounts receivable of approximately $0.16 million.
The prior year quarter cash used in operating activities was primarily attributable to the combination of the net loss of $(6.35) million plus non-cash items of approximately $4.59 million and the net change in operating assets and liabilities of approximately $(0.85) million. Non-cash items were primarily comprised of asset impairment charges of approximately $2.30 million, $1.59 million of depreciation and amortization, and the $0.53 million undistributed proportional share of net loss of equity method investees. The net change in operating assets and liabilities was primarily comprised of (i) a decrease in deferred revenue of approximately $(0.22) million, mainly related to the Halston Master License agreement, (ii) a decrease in various operating liabilities of $(0.56) million, and (iii) a decrease in lease-related assets and liabilities of $(0.24) million.
Investing Activities
Net cash used in investing activities in the current quarter was comprised of purchases of equipment totaling approximately $0.01 million.
There was no net cash used in or provided by investing activities for the prior year quarter.
Financing Activities
Net cash provided by financing activities in the current quarter was primarily attributable to $2.05 million of proceeds received from the delayed draw portion of the Company’s December 2024 term loan agreement.
Net cash provided by financing activities in the prior year quarter was $1.90 million, attributable to the net proceeds received from the March 2024 public offering and private placement transactions in which the Company issued an aggregate of 357,889 shares of common stock along with warrants exercisable for an additional 18,293 shares of common stock.
April 2025 Debt Refinancing
On April 21, 2025, the Company and its lenders and FEAC Agent, LLC entered into an amendment of the December 12, 2024 loan and security agreement, which provided for $1.5 million repayment of the $3.95 million Term Loan A and an additional Term Loan B in the amount of $5.12 million. The term loans outstanding after giving effect to the April 21, 2025 amendment and the application of the proceeds of the additional Term Loan B are as follows: (1) Term Loan A in the amount of $2.45 million, (2) Term Loan B in the amount of $9.12 million, and (3) Delayed Draw Term Loan in the amount of $2.05 million. The proceeds from the additional Term Loan B were used to repay a portion of Term Loan A, as well as to pay fees, costs, and expenses incurred in connection with entering into the April 21, 2025 amendment, and the balance will be used for working capital purposes.
Within 30 days after April 21, 2025, the outstanding principal amount of the Term Loan A was repaid, on a pro rata basis in an aggregate amount equal to $500,000. Also in connection with this refinancing transaction, IPX’s participation in Term Loan B was repaid and IPX purchased a $500,000 undivided, last-out, subordinated participation interest in Term Loan A.
Principal on the Term Loan A is payable on a pro rata basis in quarterly installments of $250,000 on each of March 31, June 30, September 30, and December 31 of each year, commencing on March 31, 2026, with the unpaid balance due on
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the maturity date of December 12, 2028. Principal on the Term Loan B is payable on the maturity date of December 12, 2028.
From and after April 21, 2025, interest on each Term Loan A accrues at an annual rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to three months, subject to a 2.0% floor, plus 8.5%. From and after April 21, 2025, interest on each Term Loan B accrues at an annual rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for an interest period equal to three months, subject to a 2.0% floor, plus 6.5%. From and after April 21, 2025 through March 31, 2027, interest on the Term Loan B will be paid in-kind by being capitalized and added to the principal amount of the Term Loan B at the end of each calendar month.
The Term Loans are guaranteed by certain direct and indirect subsidiaries of the Company, and are secured by all of the assets of the Company and such subsidiaries. The April 21, 2025 amendment contains various customary financial covenants and reporting requirements, as specified and defined therein; the Company is currently in compliance with all applicable covenants.
Also in connection with this refinancing transaction, UTG Capital, Inc., a Delaware corporation (“UTG”), purchased a 100% undivided, participation interest in Term Loan B for a purchase price of $9.12 million and received warrants entitling it to purchase 1,107,457 warrants shares of the Company. Such warrants are exercisable for a period of seven years from the date of issuance, at specified exercise prices ranging from $6.60 per share to $17.50 per share. Further, the Company also issued warrants to purchase 30,000 shares of common stock to Restore Capital (EQ-W), LLC (“Restore”), another of the lenders, and amended warrants to purchase an aggregate of 107,333 shares of common stock held by Restore and warrants previously issued to warrants of FEAC Agent, LLC.
Other Factors
We continue to seek to expand and diversify the types of licensed products being produced under our brands. We plan to continue to diversify the distribution channels within which licensed products are sold, in an effort to reduce dependence on any particular retailer, consumer, or market sector within each of our brands. The Halston brand, C Wonder brand, TowerHill by Christie Brinkley brand, and the LB70 by Lloyd Boston brand have a core business in fashion apparel and accessories. The Ripka brand is a fine jewelry business, and the Longaberger brand focuses on home good products, which we believe helps diversify our industry focus while at the same time complements our business operations and relationships.
While the 2022 sale of a majority interest in the Isaac Mizrahi brand and the 2024 divestiture of the LOGO by Lori Goldstein brand resulted in significant decreases in our licensing revenues, we have taken and continue to take actions to replace those revenues with new strategic business initiatives, as we concentrate our resources on growing our brands, launching new brands, and entering into new business partnerships. We continue to seek new opportunities, including expansion through interactive television, live streaming, and additional domestic and international licensing arrangements, and acquiring and collaborating with additional brands, including the TowerHill by Christie Brinkley brand and LB70 by Lloyd Boston brand, both of which launched in 2024. We recently announced two new co-branded collaborations, which are planned to launch in Spring 2026.
During 2023 and throughout 2024, we have restructured our business operations into a leaner, more focused “licensing plus” business model. We have entered into structured contractual arrangements with best-in-class business partners in order to more efficiently operate our former wholesale and e-commerce businesses while reducing and better managing our exposure to operating risks, and taken additional actions to generate cost savings. Based on all of these actions taken to date, plus additional measures implemented during the first quarter of 2025 to further optimize the Company’s cost structure, the Company’s direct operating costs on an annualized basis have been reduced from approximately $8 million per quarter under our previous operating model to less than $2.5 million per quarter on a going-forward basis. This represents more than $22 million of cost savings on an annualized basis compared to our cost structure in 2022.
Nonetheless, we continue to face a number of headwinds in the current macroeconomic environment. Poor economic and market conditions, including the impacts of inflation and rising consumer debt levels, may negatively impact market
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sentiment, decreasing the demand for apparel, footwear, accessories, fine jewelry, home goods, and other consumer products, which would adversely affect our operating income and results of operations. If we are unable to take effective measures in a timely manner to mitigate the impact of inflation and/or a potential recession, our business, financial condition, and results of operations could be adversely affected.
Our long-term success, however, will still remain largely dependent on our ability to build and maintain our brands’ awareness and continue to attract wholesale and direct-to-consumer customers, and contract with and retain key licensees and business partners, as well as our and our licensees’ ability to accurately predict upcoming fashion and design trends within their respective customer bases and fulfill the product requirements of the particular retail channels within the global marketplace. Unanticipated changes in consumer fashion preferences and purchasing patterns, slowdowns in the U.S. economy, changes in the prices of supplies, consolidation of retail establishments, and other factors noted in Item 1A of our most recent Annual Report on Form 10-K could adversely affect our licensees’ ability to meet and/or exceed their contractual commitments to us and thereby adversely affect our future operating results.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, or liquidity.
Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires management to exercise judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of our business and industry, and current and expected economic conditions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Because the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 28, 2025, for a discussion of our critical accounting policies and estimates. During the three months ended March 31, 2025, there were no material changes to our critical accounting policies or estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
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