Icon Energy Corp.

Total company revenue in Q3 2019 was down 23% year over year. The company reported an operating loss of $8 million versus $12 million of operating income last year, including a $17 million impairment charge on its investment in Marcy media, a $5.5 million SEC-related charge, and $4.6 million of contract asset impairments. Adjusted EBITDA increased 30% for the quarter, and adjusted EBITDA margin improved to 59% from 35%; for the first nine months, adjusted EBITDA margin increased to 56% from 44%. SG&A was $26.3 million, down 13% from $30.2 million. Cash at quarter end was $59.2 million, including $32.9 million in wholly owned subsidiaries and unrestricted cash; debt was $723 million, down about $12 million from the prior quarter. For 2019, Iconix kept adjusted EBITDA guidance at $74 million to $78 million and narrowed revenue guidance to $145 million to $149 million.

Bob Galvin said the quarter came in line with expectations and emphasized that the company is continuing to execute on its plan. He highlighted cost savings implemented at the end of 2018, a strong flow of new and renewed licensing agreements, and progress resolving long-running legal disputes. His tone was cautiously upbeat, with a clear focus on positioning the business better for 2020 and beyond.

John McClain emphasized that expense reductions were the main driver of the margin improvement, with SG&A at $26.3 million versus $30.2 million a year ago and adjusted EBITDA margin rising to 59%. He noted cash of $59.2 million at quarter end, $32.9 million of it unrestricted in wholly owned subsidiaries, and said the company collected a separate $15.9 million tax refund receivable after quarter end. He also discussed debt of $723 million, continued covenant compliance, and that the securitization facility is now in rapid amortization status, while stating management expects compliance through at least 2021.

Analysts focused on whether Iconix had more room for SG&A cuts, and Bob Galvin said there still is opportunity as the company continues to review domestic and international operations. Questions also centered on replacing lost DTRs, especially Massimo and other U.S. brands, and Galvin said Massimo has had less traction in the U.S. than hoped, while OP is seeing some progress and meaningful benefit from new deals is more likely in 2021. On Sears/Kmart-linked brands, management said Joe Boxer is being repositioned with Nick Graham back as creative director and Cannon is finding opportunities outside Sears, while China remains important with Starter gaining stores and Lee Cooper showing good momentum.