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NEW YORK, March 14, 2008 - NexCen Brands, Inc. (Nasdaq: NEXC) recorded revenue of $34.4 million in 2007, its first full year of brand-management operations. This compares to $1.9 million in 2006, which included less than two months of comparable operations with just one brand.
On a GAAP basis, the company recorded a net loss of $4.6 million, or $0.09 per share, for 2007.
On a non-GAAP basis, we earned $4.9 million, or $0.09 per diluted share. This excludes the non-cash expenses of depreciation and amortization, stock based compensation, and the provision for deferred income taxes; as well as the loss from discontinued operations. EBITDA, as adjusted, was $8.8 million, or 26 percent of revenue. Schedules that reconcile non-GAAP measures to the most comparable GAAP measures are attached.
For the fourth quarter of 2007, revenue was $10.3 million, up from $1.9 million in the fourth quarter of 2006. On a GAAP basis, the net loss for the quarter was $3.8 million, or $0.07 per share. On a non-GAAP basis, net income was $0.3 million.
“We have now completed the first year of our long-term plan to acquire and manage internationally-recognized franchise and consumer brands, and we have made dramatic progress,” said CEO Robert W. D’Loren. “We have acquired nine strong brands. We have assembled a first-class team of experienced professionals at NexCen – and partnered with industry-leading designers, manufacturers, and franchise operators worldwide.
“From a financial perspective, we earned $0.09 per share on a non-GAAP basis, two cents short of our goal for 2007. But we have an additional $0.07 per share of net deferred revenue on our balance sheet, reflecting $4.7 million of franchise sales that have already been made, but cannot be recognized as revenue until the stores are opened.
“Looking ahead, our emphasis will be on marketing, franchise sales, and operational excellence, which will drive cash flow and profitability. At the same time, we intend to continue to acquire complementary brands. We will maintain our disciplined approach to acquisitions, buying companies only if they immediately add to shareholder value. We are very excited about our business and the many opportunities that we are pursuing.”
Earnings Guidance
NexCen Brands is reaffirming the current expectations of earning $0.27 to $0.30 per diluted share on a non-GAAP basis in 2008.
Revenue Summary
In 2007, we earned revenue from three sources: fees from licensing our Bill Blass and Waverly brands; royalties from our franchisees’ sales to consumers; and franchise fees from the opening of new franchise stores.
Revenue for the quarter was about $2 million short of our expectations due to delays in store openings and franchise-unit sales.
Under GAAP, the timing of franchise fee revenue recognition is tied to the opening of stores. Even though franchise fees are paid up front and are typically non-refundable, accounting rules permit us to recognize franchisee fees only upon the opening of the relevant franchise unit.
In addition, delays in completing regulatory requirements necessary for us to sell newly acquired franchise brands reduced our sales of new franchises in 2007. We expect to reduce the time associated with store openings and regulatory compliance going forward.
Acquisition Financing
Our objective is to acquire from three to five brands per year in 2008 and 2009. Our acquisitions are financed with a combination of debt, cash on hand, and stock. We currently have borrowed the full amount under our $180 million credit facility with BTMU Capital Corporation. We are exploring opportunities to convert this credit facility into a long-term, fixed-rate security. Our management team has a successful track record of underwriting and placing securities of this nature in various economic environments. Therefore, we expect to continue to have access to capital.
Margins
During the past year, we have invested in building an experienced management team and the infrastructure at NexCen University to fully support our consumer-brand and franchise operations. This platform was designed with capacity for anticipated acquisitions over the next two years. Our brand operating margin for 2007 based on EBITDA, as adjusted, was 53 percent. We expect margins to improve as we add accretive acquisitions to this relatively fixed-cost base.
Taxes
As a result of our predecessor businesses, we have Net Operating Loss (NOL) carry forwards of approximately $766 million that can be used to offset federal income taxes through 2026. Therefore, we expect to pay minimal federal income taxes for the foreseeable future.
Nevertheless, GAAP accounting rules require us to book a non-cash deferred income tax expense even though we do not expect that we will ever be required to pay such tax. This expense amounted to $3.1 million in 2007. The actual cash tax paid for 2007 was $0.7 million and is reported in current tax expense in our financial statements. This consists primarily of state, local and foreign taxes.
Conference Call
Specific details regarding our financial results for 2007 are contained in the attached tables. In addition, we will host a conference call to discuss these results today at 8:30 a.m. ET. A live webcast of the conference call will be available to all investors at the NexCen website, www.nexcenbrands.com. You may participate on the call at the following telephone numbers: (800) 922-9655 (domestic); (973) 935-2407 (international); access code: 37307712.
A replay of the call will be available through March 28. To access the replay, please call (800) 642-1687 (domestic) or (706) 645-9291 (international); access code: 37307712. An online archive will also be available on the company’s website for at least 30 days.
About NexCen Brands
NexCen Brands, Inc. is a vertically integrated global brand management company focused on assembling a diversified portfolio of intellectual-property-centric companies operating in the consumer branded products and franchise industries. The company owns, licenses, franchises and markets a growing portfolio of consumer and franchise brands including The Athlete's Foot, Bill Blass, Great American Cookies, MaggieMoo's, Marble Slab Creamery, Pretzel Time, Pretzelmaker, Shoebox New York and Waverly.
The company licenses and franchises its brands to a network of leading retailers, manufacturers and franchisees that includes every major segment of retail distribution from the luxury market to the mass market in the U.S. and in over 50 countries around the world, and consists of approximately 1,900 franchised stores. NexCen, through its information technology, franchisee support systems and advertising, marketing and public relations team, markets its brands to continually drive greater consumer awareness and brand equity for each of its brands. NexCen touches nearly every aspect of a consumer's lifestyle from the food they eat to the furnishings in their homes and the clothes and footwear they purchase.
Forward-Looking Statement Disclosure
This press release contains "forward-looking statements," as such term is used in the Securities Exchange Act of 1934, as amended. Such forward-looking statements include those regarding expectations for the development of our business, plans to expand the offerings of our brands and businesses, expectations for the future performance of our brands and comments about estimated or anticipated future financial results. When used herein, the words "anticipate," "believe," "estimate," "intend," "may," "will," "expect" and similar expressions as they relate to the company or its management are intended to identify such forward-looking statements. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. They are not guarantees of future performance or results. The company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include: (1) our acquisitions may not be successful, may involve unanticipated costs or difficulties or delays in being integrated with our existing operations, or may disrupt our existing operations, (2) we may not be successful in operating or expanding our brands or integrating our acquisitions into our overall business strategy, (3) any failure to meet our debt obligations would adversely affect our business and financial conditions, (4) our marketing, licensing and franchising concepts and programs may not result in increased revenues, expansion of our franchise network or increased value for our trademarks and franchised brands, (5) we depend on the success of our licensees and franchisees for future growth, (6) our ability to increase profitability may depend on our ability to identify and acquire suitable acquisitions on favorable terms, so that we can increase our revenues and our operating income, (7) our ability to grow through acquisitions will depend on the availability of capital to complete acquisitions, (8) volatility in the price of our common stock may cause prospective sellers to be less willing to accept shares of our common stock as consideration for a portion of future acquisitions and may make such acquisitions more dilutive (if price of our common stock declines), (9) we may be not able to use our tax loss carry forwards because we may not generate taxable income, and (10) other factors discussed in our filings with the Securities and Exchange Commission. NexCen undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Contact:
William A. Walkowiak, CFA
Senior Vice President, Investor Relations
(212) 277-1150
ir@nexcenbrands.com
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