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Situations
Kevin Starke, CFA
(203) 569-6421 kstarke@crtllc.com
Managing Director
Patrick Marshall, CFA
(203) 569-4373 pmarshall@crtllc.com
Research Associate
August
August
27,27,
2015
2015
Iconix Brand Group Inc. (ICON or the Company) is an intellectual property portfolio company that has struggled
in 2015 as financial performance has slowed and questions around the Companys accounting practices
including inquiries from the SEC -- have begun to surface. The common equity is down roughly 60% YTD (~30%
short interest) while the convertible notes have fallen from around 120 to the mid-90s. Recent news of the
departure of Neil Cole, founder and CEO of ICON, renewed investor fears as the stock traded down from around
$20/share and the longer-dated converts cracked, falling from par down to around 80. We think the stock
might be worth a look for event-driven special situations investors as a play not only on turnaround but also on
the upcoming Peanuts movie. The converts have less upside, with the longer-dated 1.5s somewhat exposed to
whatever capital structure change happens at maturity of the shorter-dated 2.5s in mid-2016.
Company Note
Issue
2.5% Convertible Sr. Sub. Note due 2016
1.5% Convertible Sr. Sub. Note due 2018
Amount
Out. ($MM)
300.0
400.0
Issue
Common Stock (ICON)
Shrs.
Out. (MM)
48.3
Exercise
Price ($)
30.75
30.86
Parity
41.0
40.8
Price
Bid
94.50
79.50
Maturity
6/1/2016
3/15/2018
YTM (%)
at Mid Px
9.9%
10.8%
52 Week
100 Day Avg.
Low/ High ($)
Vol. (MM)
11.32/42.25
1,450.0
3 Month
Change (%)
(51.7)
Ask
95.00
80.25
Equity
Issuer
Iconix Brand Group Inc.
Market
Cap. ($MM)
608.1
CRT
Rating
NR
Price
($)
12.60
Source: Bloomberg
Company Overview
To fully understand ICONs recent issues, a brief explanation of the Companys rather unique business model is
necessary. Iconix Brand Group is a brand management company that owns a portfolio of consumer-related brands
and intellectual property. In a nutshell, the Company acquires a brand and then attempts to monetize it by licensing
out the rights to the name to retailers and wholesalers. Iconix then supports its brand portfolio through marketing
and advertising campaigns. In this way, the Company attempts to reap the benefits of a strong brand name while
avoiding the fixed costs traditionally associated with a retail consumer company. A number of the brands were
fairly upscale in decades past, but have since faded. Big retailers like Wal-Mart, Target and Kohls see some wisdom
in licensing these as essentially house brands. Good examples are Ocean Pacific (OP) and Danskin.
Since the Companys founding, Iconix has managed to build a portfolio of roughly 35 brands with a book value of
approximately $2.2 billion, many of which are known on a national or even global scale. Iconix has stated in investor
presentations that it seeks to pay around 5x licensing revenues for a brand. Iconix attempts to leverage its expertise in
brand management and distribution to enhance brand awareness and cultivate brand loyalty. In monetizing its portfolio
of intellectual property, Iconix can either license their brands or sell the IP (or interests in the IP) outright. Licensing is
preferable as it is an ongoing revenue stream while a sale is a one-time source of income.
Since 2004, ICON has acquired ownership interests in the following brands:
Exhibit 2. ICON Brand Portfolio
Brand
Badgley Mischka
Joe Boxer
Rampage
Mudd
London Fog
Mossimo
Ocean Pacific/ OP
Danskin/ Danskin Now
Rocawear/ Roc Nation
Official- Pillowtex brands
Artful Dodger
Starter
Waverly
Ed Hardy
Zoo York
Ecko Unltd/ Marc Ecko Cut & Sew
Material Girl and Truth or Dare
Peanuts
Sharper Image
Ice Cream, Billionaire Boys Club
Umbro
Modern Amusement
Buffalo
Lee Cooper
Nick Graham
Hydraulic
Strawberry Shortcake
Date Invested
Oct-04
Jul-05
Sep-05
Apr-06
Aug-06
Oct-06
Nov-06
Mar-07
Mar-07
Oct-07
Nov-07
Dec-07
Oct-08
May-09
Oct-09
Oct-09
Mar-10
Jun-10
Oct-11
May-12
Nov-12
Dec-12
Feb-13
Feb-13
Oct-14
Dec-14
Mar-15
Page 2
Capital Structure
Iconix has $1.5 billion in debt that is comprised of two tiers, senior secured and senior subordinated. In the secured
tranche, the Companys co-issuer subsidiaries just drew $100 million on its variable funding facility this past February
and has another $730 million outstanding in senior secured notes due 2043. The secured debt is all co-issued by
bankruptcy-remote indirect subsidiaries Icon Brand Holdings LLC, Icon DE Holdings LLC and Icon NY Holdings LLC. The
parent is not an obligor on this debt. The tranches pay cash interest in the 4.2-4.3% range and amortize at 7% per year.
While listed maturity is January of 2043, the Company acknowledges that it will attempt to repay the debt by January of
2020 due a mandatory step up in coupon of at least 5% if they are not repaid at that point in time. The secured debt is
all secured on a pari passu basis by interests in much of the Companys IP portfolio. There are some unencumbered
brands.
There are two convertible senior subordinated notes that mature in 2016 and 2018. The nearer-dated notes have a
$30.75 conversion price and the longer-dated $30.86. The Company also bought hedges on its own stock to lock in the
amount that would be due at maturity. One major concern with these notes is that it appears that neither the converts
nor the secured notes have any incurrence covenants, allowing for the distinct possibility that the converts get primed
by a subsequent capital raise, as we discuss in the appendix.
Exhibit 3. Iconix Capital Structure
LTM Figures as of
LTM EBITDA
6/30/2015
219.8
Settlement Date
8/31/2015
($ in millions)
Restricted cash
Unrestricted cash
Secured
$100MM Variable Funding Facility due 2043
2012-1 Sr. Secured Notes due 2043
2013-1 Sr. Secured Notes due 2043
Balance
64.9
117.9
182.8
Cum.
Cap.
Face
Net Cap.
Face
LTM
EBITDA
219.8
Mult. (x)
Net
Cum.
Cap.
Face
Net Cap.
Market
LTM
EBITDA
219.8
Mult. (x)
608.1
LTM
EBITDA
219.8
Mult. (x)
100.0
495.0
234.7
829.7
3.8x
646.9
2.9x
829.7
646.9
1,529.7
7.0x
1,346.9
2,137.8
9.7x
1,955.0
Price
-100.0
YTM
(%)
Interest Exp.
Analysis
Mat.
Rate/
Coup.
(%)
Est.
Int. Exp.
100.00
100.00
100.00
4.14% 01/25/43
4.23% 01/25/43
4.35% 01/25/43
4.14%
4.23%
4.35%
4.1
20.9
10.2
94.50
80.00
10.30% 06/01/16
10.70% 03/15/18
2.50%
1.50%
7.5
6.0
Int Exp
48.8
2.9x
283.5
320.0
6.1x
603.5
1,346.9
6.1x
8.9x
608.1
1,955.0
8.9x
Equity
Common Stock (ICON)
Net
Cum.
Cap.
Mkt
Price / YTM
Analysis
(182.8)
300.0
400.0
700.0
Cap.
Mkt
(182.8)
100.0
495.0
234.7
829.7
Senior Unsecured
2.5% Convertible Sr. Sub. Note due 2016
1.5% Convertible Sr. Sub. Note due 2018
Cap.
Face
12.60
48.3 MM Shrs
Recent Problems
C-Level Departures. Founder Neil Coles recent retirement sparked some panic among investors recently as ICONs
founder has been on the only CEO the Company has ever known. The departure also continues a somewhat disturbing
trend of C-level departures over the past couple of years, as COO Seth Horowitz and CFO Jeff Lupinacci both departed
within weeks of each other this past spring. This came after the resignation of CFO Warren Clamen a year earlier. Like
Mr. Cole, Mr. Clamen had been with the firm since 2005. While the reasons for these departures are unclear, it is still an
unsettling trend that is likely prominent in the mind of the investing community.
Mr. Coles employment contract was up for renewal in December 2015. He had received a $3 million extension bonus
when he renewed in June 2011. When amortized, this represents a cost of $750,000 per year for the ensuing four years,
Page 3
or 50% of his annual base salary. Over and above all this, his annual bonus was determined one-third each by growth in
EBITDA, net income and free cash flow. As we point out elsewhere in this report, the Companys adjusted EBITDA figure
differs from our own take in some quarters though we generally agree with free cash flow (with some qualifications).
However, the net income figure differs even more meaningfully that EBITDA. Thats because of treatment of gains from
dispositions and non-cash gains on remeasurements. So what we worry most about in response to C-level departures is
whether the compensation model going forward no longer entices rainmakers like Mr. Cole to remain on board. This
cuts both ways: Was the compensation model appropriate to begin with, or should it change going forward and attract
someone whose incentives are better in line with other stake holders?
The change at the helm leaves Peter Cuneo in charge as interim CEO. He is a known quantity in the restructuring world,
and in this we take some comfort. He is credited with leading turnarounds at Black & Decker, Clairol, and Remington
Products. But most notable from an IP management standpoint was his role at Marvel Entertainment coming out of
bankruptcy in 1999. Mr. Cuneo has said publicly that he favors active boards, and one wonders if that led to conflict with
Mr. Cole. In any case, it should inspire some confidence that Mr. Cuneo by implication has expressed that he wants the
board to exercise an active oversight role as he takes the reins at ICON, even if only temporarily.
Questions About Accounting Practices. As one can imagine, running a company whose assets are primarily intangible
leaves some room for management discretion in accounting practices. This issue has been highlighted by the Companys
decision to restate its cash flow statement not once, but twice, in the past two years (two periods that saw a CFO
resignation, it should be noted). Due to these revisions, we will focus on the last three years as they are most easily
compared. The impact of the revisions was most obvious in 2013 where $30 million of operating cash flow was
transferred to investing activities. This reclassification was related the sale of trademarks that the Company had
previously deemed operating cash flows when they should have, in fact, been investing cash flows.
The Company also began breaking out Other Revenue from Licensing Revenue at the end of 2014 on its income
statements. It turns out that other revenue and trademark sales are one in the same. Separating Other Revenue we
can now see that overall revenue growth has been bolstered by sales and that licensing sales growth has been slowing.
It seems to us that Other Revenue should be removed from in the income statement altogether and left on the cash
flow statement.
More troubling, however, is the fact that operating cash flows have been trending down while revenues and net income
have been growing. It is here that potential impact of managements latitude in accounting decisions could be most
obvious. We believe the answer to these divergent trends may lie in non-cash gains related to sales of interests in ICONs
portfolio book. For instance, how should ICON value the rights to sell Ed Hardy t-shirts in France? In accounting, the gain
should be the sale price of these rights less the cost basis, but where the cost basis is highly nebulous and subject to
estimates, there is great potential for management to take advantage of the latitude allowed.
To take an example from the most recent 10-Q, Iconix China is a JV that Iconix formed in 2008 with Novel Fashion
Brands Ltd., a unit of Hong Kong fashion mogul Silas Chous empire, to market Iconixs brands in China. Novel was
chosen as a partner to leverage its own experience and connections to launch Iconixs brands. As part of the deal, Iconix
contributed the rights to all of its brands in China and $2 million while Novel contributed $17 million. In March 2015,
management decided to buy Novel out of the JV, ostensibly because Novel had done its part, successfully launching
ICONs brands in China. We have several factual observations that we feel might be useful in assessing the nature of this
transaction.
Page 4
The price paid for the 50% stake was $57.4 million ($40.4 million cash), implying a $114.7 million value for the
entire business.
The Company recognized a $47.4 million non-cash gain on the transaction for its own 50% stake in Iconix China.
In other words, the price paid for the 50% it did not own boosted the valuation of the 50% that ICON did own.
Backing out the $47.4 million gain and the $2 million in cash that ICON initially contributed, we arrive at an
implied valuation of $8 million for Iconixs contribution of the rights to its brand portfolio.
ICONs 2014 10-K provides a geographic breakdown of revenues with the United States and Japan being broken
out as contributing $293 and $30 million, respectively, to 2014 revenues. The remaining $138 million is
categorized as Other and no single country contained in the Other category contributed 10% to ICONs 2014
revenues.
The core issue here is whether an investor relying on public information can have confidence that management paid a
fair price for the transaction. On the one hand, assuming China contributed no more than $46 million to ICONs sales
(10% of consolidated) and backing out $20 million in cash from the implied $114.7 million value, we arrive at a price to
sales multiple of at least 2x. At the time, this was lower than the multiple at which ICON itself traded, but is now in
excess of it (1.6x). It is arguably a high multiple for retail, but ICON is not truly retail. It is a relatively low multiple when
compared to other similarly situated brand management companies (see our valuation comparison table toward the
back of this report). One could also argue that China is a growth market that deserves a premium, but recent economic
developments in China suggest some potential weakness going forward in consumer discretionary spending. Of course,
the man behind Novel, Silas Chou is a major figure in the fashion industry worldwide and may have driven a hard bargain
on the asking price. The entire transaction could be arms length, and the valuations at inception and buyout could be
above board. But one can see the room for considerable discretion. The SECs apparent interest in this creates some
discomfort for investors, probably because they create the perception of roundtrip transactions. Well discuss below
another more potentially benign explanation.
If EBITDA is supposed to be a proxy for operating cash flow, some of the usual relationships between line items seem to
break down in ICONs financial statements. Other revenues seem to have at times overstated EBITDA. It is interesting
that in the 2014 10-K the Company restated 2013 cash flows to move gain on sale of trademarks from operating cash
flows to investing cash flows. This is a tacit admission that gains on sales of trademarks were artificially inflating net
income in prior years. Actual cash proceeds from trademark sales remain in the investing cash flows section. But so too
do all opening investments in new brands. It may be better to think of the true cash flows from this business as the sum
of both operating and investing cash flows, especially since investment in PP&E is quite small. One could make the case
that selling and buying brands and trademarks is an operating activity for an IP portfolio company as managing the
portfolio is part of operating the Company. So while operating cash flow as reported for the 2010-2014 period was
$919.7 million, combined operating and investing cash flows were just $167.3 million. While were on the topic of the
cash flow statement, we would further note that net borrowings in the five-year period of $583.7 million seem to have
helped subsidize share buybacks of $774.3 million. The Company likely has around $500 million in remaining authorized
buyback capacity.
We have created our own adjusted P&L and EBITDA reconciliation for the last three years to illustrate the impact of
these accounting practices on the income statement. We have included the Companys own reported net income and
EBITDA figures for comparisons sake. As previously stated, most of the variance between our estimate and ICONs is in
net income while the EBITDA differential is mostly accounted for by the other revenue line item.
Page 5
2012
2013
2014
1Q15
2Q15
Total Revenue
Less: Other Revenue
353,818
(12,133)
432,626
(34,579)
461,243
(54,303)
95,387
-
98,459
-
Licensing Revenue
341,685
398,047
406,940
95,387
98,459
SG&A
Operating Income
138,368
203,317
175,215
222,832
205,410
201,530
44,155
51,232
49,087
49,372
Interest Expense
Interest & Other Income
Less: Non-cash gain on remeasurement
Less: Gain on sale of securities
Equity Earnings on JVs
Forex Loss (Gain)
(46,576)
2,711
10,887
-
(76,321)
7,443
(5,395)
12,129
-
(84,523)
40,826
(37,893)
(342)
17,030
-
(21,296)
48,179
(47,365)
3,202
10,500
(20,219)
790
3,618
(2,006)
Pretax Income
Provision for Taxes
170,339
(58,963)
160,688
(58,075)
136,628
(61,737)
44,452
(25,910)
31,555
(12,184)
Net Income
Less: Noncontrolling interest
111,376
(14,101)
102,613
(14,539)
74,891
(14,693)
18,542
(3,067)
19,371
(4,603)
97,275
109,408
88,074
128,048
60,198
152,736
15,475
62,840
14,768
14,768
15,475
25,910
21,296
(814)
(10,500)
371
1,101
14,768
12,184
20,219
(790)
2,006
2,000
966
52,839
52,722
51,353
51,238
EBITDA Reconciliation
Net Income
Provision for taxes
Interest Expense
Interest Income
Forex
Special Charges
DD&A
EBITDA
Company reported EBITDA
97,275
58,963
46,576
(2,711)
6,766
206,869
216,963
88,074
58,075
76,321
(2,048)
8,825
229,247
262,943
60,198
61,737
84,523
(2,591)
6,076
209,943
263,783
It should be noted, finally, that the SEC inquiry is just a comment letter process. Section 408 of the Sarbanes-Oxley Act
requires the SEC Division of Corporation Finance to review an issuers periodic filings at least once every three years. So
one should not perceive this as an investigation and it is certainly far from being a Wells notice. Per its website, the
division views the comment process as a dialogue with the company about its disclosure. This can sometimes lead to
disclosure changes. Based on our foregoing comments, that might be a welcome outcome here, and it could spell the
end of this saga. Unlike formal investigations, where there is often no definitive end to the process, a comment letter
process does end with a letter from the SEC to that effect.
If cash flows are what they seem to be, with about $122 million in excess cash generation before $13.5 million in annual
convertible note interest, it appears that the Company is in no immediate liquidity danger, especially with nearly $183
million in cash on the balance sheet (though $65 million of this is restricted for servicing the secured debt). The 2016
maturity of $300 million in convertible bonds would not be a concern were it not for the accounting questions. If it
should transpire that the Company becomes delinquent in its SEC filings, refinancing will likely become more
complicated and expensive.
This presents two issues for the convertibles maturing in 2018.
Exhibit 5. Sources and Uses of Cash
Neither convertible issues covenant package has any limitations
on indebtedness, leaving open the possibility that the longerdated issue is primed by senior secured debt put in place to
refinance the nearer-dated issue (see the appendix for further
analysis). Also, there is the risk that the core business
deteriorates by 2018, a very real concern considering the often
transitory nature of brand popularity, especially in fashion, where
most of ICONs portfolio is focused. The business model requires
constant investment in the brand portfolio. As the existing brands
age and become less popular and profitable, new brands must be
acquired. This requires significant investment. For instance, Iconix
acquired Ed Hardy for $62 million in 2011, Umbro for $225 million
in 2012, and Strawberry Shortcake for $105 million earlier this
year. While capital raising can fuel these activities to an extent, the business must continue to generate free cash flow to
ensure that ICON remains strong enough to have the ability to continue to tap capital markets.
Exhibit 6. 20th Century Television Series Reborn as 21st Century Feature Films
Title
The Adventures of Rocky & Bullwinkle
Alvin and the Chipmunks
Alvin and the Chipmunks: The Squeakquel
Alvin and the Chipmunks: Chipwrecked
Garfield: The Movie
Garfield: A Tale of Two Kitties
Mr. Peab ody & Sherman
The Smurfs
The Smurfs 2
Source: BoxOfficeMojo.com and imdb .com.
Year of
Release
2000
2007
2009
2011
2004
2006
2014
2011
2013
TV Run
1959-1961
1983-1990
1983-1990
1983-1990
1988-1995
1988-1995
1959
1981-89
1981-89
One can see that some arguably less memorable properties from the 1960s to 1980s were quite successful at the box
office. With the exception of Garfield, the table does not include comic strip/book properties that went to the big screen
since 2000. This would obviously include some of the Marvel characters that Mr. Cuneo helped shepherd to recent
renewed popularity. Moreover, the Peanuts brand remains active in recent years both in terms of new content and
merchandising. A 2011 video release entitled Happiness is a Warm Blanket, as well as the continued airing of seasonal
specials on prime time TV, have kept the brand active. When Iconix made the purchase in 2010, it said that retail sales of
Peanuts-related merchandise was running at $2 billion per year.
The November 6 release puts together Fox and animation house Blue Sky Studios. The latter has a very good recent
track record, including film franchises such as Epic, Ice Age, Robots, Rio, and Horton Hears a Who. Media reports say that
Blue Skys work on The Peanuts Movie is both a fresh take on an old classic and yet very faithful to the vision of Charles
Schulz. All in all, we are directionally very optimistic about the impact this could have in terms of rejuvenating Peanuts
merchandise sales and ICONs licensing revenues.
a disclosure perspective, the performance of brands sold into JVs is not discussed in any detail in the MD&A section of
the quarterly reports. Neither did we detect much discussion of this on the quarterly conference call.
For the full year 2015, the Company expects licensing revenue to achieve low single-digit growth, and to be in a range of
$410-$425 million. The forecast for other revenue is $5 - $15 million. Thus, the high end of the combined revenue
guidance was well below what was provided in the 1Q15 release of $490-$510 million. Adjusted EPS guidance was
lowered a full dollar to $2.00-$2.15. GAAP guidance was lowered to $2.24-$2.39 from $3.65-$3.79. The Company still
expects to achieve significant free cash flow for the full year and revised its 2015 free cash flow guidance to a range of
$170-$190 million from $208-$218 million. Consensus EBITDA for 2015 has since adjusted to about $220 million from
$275 million.
Valuation
First, the fundamental bull and bear cases:
Bull Case. Management puts the recent accounting questions behind it, and ICONs current brand portfolio
maintains its current performance while growing sales in emerging markets like Latin America and China,
justifying the recent prices paid for the 50% JV stakes that the Company acquired. The Peanuts film is a
resounding success that invigorates merchandising and advertising licensing revenues, bolstering Iconixs
balance sheet for its next acquisition and for further (re)financing activity.
Bear Case. Accounting issues persist and deepen into an investigation. Licensing revenues for the current brand
portfolio deteriorate as consumer retail spending declines. Consumer spending in emerging markets, especially
China, is especially hard hit, making the recent prices paid for 50% stakes in EM JVs appear inflated. The Peanuts
release flops, and Iconix does not enjoy the bump in revenues that the market has been expecting. ICONs deal
pipeline begins to dry up, increasing the Companys reliance on its current brand portfolio which begins to lose
relevance with consumers as it ages.
Our take:
Security-specific comments:
The common stock seems like the best vehicle for a long position in this capital structure. Even just a $20 stock
price would put the stock at only 9.7x consensus PE and 1.0x book value, still far lower than any of the comps.
The 2.5% convertible senior subordinated notes due June 1, 2016 are quoted 94-95 for a 10.3% yield to
maturity. Well assume the $30.75 conversion price is not a thing to be grasped at by next June. At a 45% vol and
50 bps borrow cost on the stock, the option-adjusted spread is just under 1000 bps. Should ICONs situation
worsen dramatically by next year, something we think is unlikely, two things could happen: either the 2.5s could
drop in price and converge with the longer-dated 1.5s, or they could negotiate a refinancing in which they swap
Page 9
into secured paper. But we still think the most likely outcome is that they are taken out by a new debt issue. If
one can bear the risk of the widowmaker scenario, these might be attractive. Alternatively, if they could be
borrowed at a reasonable rate, they could be used as a hedge on a long stock position.
The 1.5% convertible senior subordinated notes due March 15, 2018 have less to recommend them, in our
view. They traded yesterday in institutional amounts at levels straddling 80, for a yield to maturity of 10.6%.
They run risks of being primed as outlined elsewhere in this report. Convertible at $30.86, the option-adjusted
spread is about 1160 bps. For some perspective, they traded at 142.5 vs $41.87 and parity of 135.7 on
September 2, 2014, nearly a year ago and before the recent troubles emerged. Shorting them thus involves risks
stemming from equity sensitivity over their remaining life of about 2.5 years.
One thing to note on the convertible bonds is that, despite the fact that they sit behind $829.7 million in secured debt,
they are not necessarily a zero in an insolvency situation, most notably for structural reasons if not for valuation. This
could be a reason why some investors might favor a traditional long bond/short stock hedged position rather than the
opposite. The securitization debt is at bankruptcy-remote entities. The indentures do not appear to deem a bankruptcy
filing by the ICON parent as an event of default on the securitizations. These could thus continue to perform and ICON
would continue to own its equity stake in them. As the only other debt in the structure currently, the convertibles would
be in line to get paid out from the value of these equity stakes after a DIP loan if there were one, and whatever opcolevel payables there might be. It would seem to require a default on the securitizations themselves to produce an
outcome where the convertibles and the stock both trade down to zero. It should be noted that this commentary is
merely theoretical, and we in no way envision a bankruptcy scenario for ICON.
Exhibit 7. ICON Three-Year Stock Price Performance
Source: Bloomberg.
Page 10
Sequential Brands
Group Inc
SQBG
Cherokee Inc
CHKE
6/30/2015
5/2/2015
6/30/2015
Perry Ellis
International Inc
PERY
Martha Stewart
Living Omnimedi
MSO
05/02/15
Median
6/30/2015
Revenue
LTM
2015E
2016E
420.0
421.0
424.0
35.2
35.0
36.3
62.4
81.4
96.5
899.1
890.0
933.0
106.3
90.9
94.0
Adj. EBITDA
LTM
2015E
2016E
219.6
217.5
228.0
17.5
17.2
18.3
23.7
50.6
59.7
37.7
38.5
55.9
3.2
12.5
15.0
EPS
LTM
2015E
2016E
2.28
2.07
2.19
1.14
1.14
1.16
0.28
0.39
0.52
1.01
0.52
1.85
0.02
0.13
0.19
EBITDA margin
LTM
2015E
2016E
52%
52%
54%
50%
49%
50%
38%
62%
62%
4%
4%
6%
3%
14%
16%
21%
31%
33%
Share Price
Book Value per Share
P/B Ratio
13.75
19.98
0.7x
25.94
4.01
6.5x
15.89
6.59
2.4x
24.00
20.09
1.2x
6.02
1.11
5.4x
3.9x
48.3
663.6
8.7
224.9
40.0
636.0
15.6
374.7
1,529.7
0.0
-182.8
2,010.5
28.8
0.0
-4.1
249.6
172.5
0.0
-25.3
783.2
172.5
0.0
-49.2
498.0
0.0
0.0
-49.2
146.3
TEV / EBITDA
LTM
2015E
2016E
9.2x
9.2x
8.8x
14.3x
14.5x
13.7x
33.1x
15.5x
13.1x
13.2x
12.9x
8.9x
45.6x
11.7x
9.8x
23.7x
13.7x
11.4x
P/E Ratio
LTM
2015E
2016E
6.0x
6.7x
6.3x
22.8x
22.9x
22.5x
56.8x
41.3x
30.4x
23.8x
46.2x
12.9x
254.0x
46.3x
31.7x
40.3x
43.7x
26.4x
P/S Ratio
LTM
2015E
2016E
1.6x
1.6x
1.6x
6.4x
6.4x
6.2x
10.2x
7.8x
6.6x
0.4x
0.4x
0.4x
1.8x
2.2x
2.1x
4.1x
4.3x
4.1x
1.6x
1.4x
7.3x
6.2x
4.6x
3.3x
0.0x
-15.3x
3.1x
2.3x
32.5
195.6
Page 11
simply by virtue of being unsecured. Whats interesting about this is that per the definition of Secured Senior
Indebtedness, to qualify for that definition, debt does have to be secured, and that makes the notes subordinated to it.
The Companys senior secured debt is currently held at SPEs. But we see no limitation on the incurrence of new secured
debt at the parent company and certain other subsidiaries. This means that at the time of refinancing the near-dated
convertibles, they could be replaced by senior secured debt that would prime the longer-dated convertibles. However it
does seem that any new unsecured debt would not rank senior to the longer-dated notes. The health of the business
and its SEC reporting status will likely play a role in deciding whether the unsecured debt markets remain open for ICON.
Page 13
2010
332,559
3,326
335,885
2011
369,845
5,803
375,648
2012
341,685
12,133
353,818
2013
398,047
34,579
432,626
2014
406,940
54,303
461,243
1Q15
95,387
95,387
2Q15
98,459
98,459
(15,688)
138,532
94
140,985
138,368
175,215
205,410
44,155
49,087
Reported EBITDA
Operating Income
209,567
213,041
229,558
234,569
216,963
215,450
262,943
257,411
263,783
255,833
52,722
51,232
51,238
49,372
43,155
(3,837)
(5,492)
13,000
46,826
50,754
(24,162)
(10,353)
16,239
46,576
(2,711)
(10,887)
32,978
76,321
(7,443)
(12,129)
56,749
84,523
(40,826)
(17,030)
26,667
21,296
(48,179)
(3,202)
(10,500)
(40,585)
20,219
(790)
(3,618)
2,006
17,817
166,215
52,409
32%
218,330
71,286
33%
182,472
58,963
32%
200,662
58,075
29%
229,166
61,737
27%
91,817
25,910
28%
31,555
12,184
39%
113,806
11,633
102,173
147,044
15,136
131,908
123,509
14,101
109,408
142,587
14,539
128,048
167,429
14,693
152,736
65,907
3,067
62,840
19,371
4,603
14,768
Interest Expense
Interest and Other Income
Equity Earnings on JVs
Forex loss (gain)
Loss on Marketable Securities
Other expenses - net
Income before taxes
Provision for taxes
Tax rate
Net income
Less: noncontrolling interest
Net income attributable to Iconix
EPS
Basic
Diluted
1.42
1.37
1.80
1.75
1.57
1.52
2.28
2.11
3.15
2.66
1.30
1.21
0.31
0.30
Basic
Diluted
72,151
74,713
73,111
75,495
69,689
71,957
56,281
60,734
48,431
57,366
48,158
51,909
48,243
49,595
62%
41%
61%
38%
61%
39%
61%
41%
57%
45%
55%
46%
52%
50%
EBITDA Margin
SG&A
Page 14
Cash
Restricted cash
Accounts receivable
Deferred income tax assets
Other assets - current
Total Current Assets
PP&E
Less: Accumulated depreciation
Net PP&E
Restricted Cash
Other assets
Trademarks and other intangibles,
Deferred financing costs, net
Investments and JVs
Goodwill
Total Assets
Accounts payable and accrued expenses
Deferred revenue
Current portion of long- term debt
Other liabilities - current
Total current liabilities
Deferred income tax liability
Long- term debt, less current
Deferred revenue
Other liabilities
Total Liabilities
Redeemable non-controlling interest
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Less: Treasury stock
Stockholders' Equity
Non- controlling interest
Total Liabilities & Equity
Total debt
Net debt
Cash/share
Book value/share
2010
2011
2012
2013
2014
1Q15
2Q15
118,635
3,300
65,707
1,743
36,681
226,066
167,717
14,071
79,669
2,114
20,934
284,505
238,672
16,362
85,249
3,497
22,571
366,351
278,789
58,858
90,777
4,160
38,424
471,008
128,019
59,560
118,774
10,328
68,587
385,268
86,751
43,550
124,591
10,326
62,227
327,445
117,874
64,923
129,024
21,436
50,032
383,289
21,197
(12,360)
8,837
22,704
(14,946)
7,758
23,658
(15,439)
8,219
23,435
(15,839)
7,596
14,894
(4,410)
10,484
18,136
(6,860)
11,276
19,734
(9,644)
10,090
15,866
43,128
1,400,550
3,119
59,677
192,780
1,951,670
7,220
34,186
1,550,996
3,573
46,278
223,269
2,161,303
24,082
1,769,508
21,250
64,770
225,687
2,481,738
33,214
1,955,644
25,103
139,376
230,976
2,864,158
63,334
2,024,541
19,842
140,910
231,738
2,873,391
63,814
2,182,708
18,601
181,917
239,198
3,021,902
52,516
2,186,263
17,383
182,760
238,187
3,067,994
43,275
16,305
36,380
4,000
99,960
22,940
11,801
322,423
5,619
362,783
33,405
9,055
52,000
6,150
100,610
30,482
29,126
61,250
10,964
131,822
38,286
24,978
61,123
12,741
137,128
45,223
22,470
61,123
15,895
144,711
46,518
29,439
347,918
15,447
439,322
138,577
548,007
11,561
14,451
812,556
174,238
310,966
5,897
13,843
867,727
206,912
859,718
4,898
9,760
1,181,898
260,605
1,366,069
724
2,996
1,762,216
322,888
1,332,954
11,660
1,804,630
334,176
1,425,189
361,353
1,130,667
10,715
1,914,791
10,570
1,941,912
14,224
14,403
14,582
74
752,803
294,316
(10,831)
1,036,362
76
802,193
420,421
(483)
(33,154)
1,189,053
77
815,935
529,829
(159,690)
1,186,151
77
910,145
657,877
16,486
(599,816)
984,769
79
948,714
809,420
(24,186)
(812,429)
921,598
80
966,865
872,260
(62,425)
(829,409)
947,371
80
970,002
887,028
(55,003)
(836,256)
965,851
102,552
104,523
113,689
117,173
132,939
145,337
145,649
1,951,470
2,161,303
2,481,738
2,864,158
2,873,391
3,021,902
3,067,994
584,387
446,586
633,389
444,381
911,718
656,684
1,427,319
1,089,672
1,394,077
1,206,498
1,486,312
1,356,011
1,478,585
1,295,788
1.84
13.87
2.50
15.75
3.54
16.48
5.56
16.21
3.27
16.07
2.51
18.25
3.69
19.47
Page 15
2010
110,480
2011
141,241
2012
123,509
2013
142,587
2014
167,429
1Q15
65,907
2Q15
19,371
1,800
8,307
2,276
15,021
11,444
13,000
87
2,253
(5,492)
13,448
-
2,450
6,988
4,309
23,057
11,742
(21,465)
1,948
(10,353)
3,779
27,737
-
2,784
5,528
3,263
20,098
11,492
5,362
(10,887)
2,265
(12,133)
24,385
-
2,702
7,428
4,816
24,838
20,018
9,718
(12,129)
13,116
(5,395)
(34,579)
31,416
-
2,605
4,530
5,263
29,616
18,492
(37,893)
11,127
(17,030)
7,145
(342)
(54,303)
45,573
-
435
902
1,241
7,516
2,573
(47,365)
1,263
(3,202)
545
8,411
(10,500)
374
822
1,218
7,553
3,326
3,463
(3,618)
788
(225)
13,987
2,006
3,638
(16,002)
(14,872)
(13,515)
33,850
165,723
(17,252)
16,868
12,298
(10,168)
(11,791)
181,388
(10,942)
20,513
11,889
(3,745)
13,543
206,924
3,730
(2,491)
(9,132)
6,102
407
203,152
(28,031)
(10,892)
(5,719)
(7,414)
32,365
162,521
(9,192)
10,930
3,783
(1,954)
1,773
33,066
(6,364)
8,863
(5,623)
6,890
14,260
67,091
(3,190)
(172,054)
(4,000)
(1,177)
2,154
(799)
(88)
(179,154)
(3,242)
(65,600)
(62,000)
(568)
(131,410)
(1,595)
(4,000)
(225,000)
(5,000)
(6,870)
(3,771)
2,000
(633)
(244,869)
(1,209)
(76,500)
(66,667)
(25,120)
(32,000)
5,395
(744)
41,866
(8,372)
(163,351)
(1,505)
(42,000)
(6,000)
(6,000)
(2,500)
6,341
(5,998)
24,915
(915)
(33,662)
(976)
(20,400)
(37,000)
(105,000)
995
(96)
(162,477)
174
223
12,377
(12)
12,762
(81,418)
14,826
1,301
(2,970)
2,083
2,863
(63,315)
(19,138)
292,500
28,800
(58,740)
(211,784)
(3,381)
(11,895)
(4,000)
(18,000)
1,800
4,940
(3,185)
3,312
(2,125)
(896)
(125,341)
750,000
(491,765)
(20,941)
(9,039)
1,495
(1,195)
757
4,929
108,900
(436,419)
392,000
57,707
(84,106)
(95,113)
(3,838)
(8,290)
(3,000)
(45,000)
1,193
(3,707)
353
270,188
(42,496)
(528)
(193,434)
(62,856)
(11,648)
10,706
(16,024)
10,088
(9,163)
(272,331)
(6,290)
100,000
(15,281)
(3,002)
54
(3,156)
16,010
88,335
(6,101)
(15,281)
(4,291)
(2,000)
(10)
(21,372)
(49,055)
844
(7,298)
(192)
325
(76,746)
195,381
118,635
49,082
118,635
167,717
70,955
167,717
238,672
40,117
238,672
278,789
(150,770)
278,789
128,019
(41,268)
128,019
86,751
31,123
86,751
117,874
162,533
178,146
205,329
201,943
161,016
32,090
67,265
Page 16
Rating
Buy
Fair Value
Sell
Meaning
Expected rate of return on investment at current prices levels is above that rate required,
in CRT's view, to undertake the attendant risks perceived- positive risk/reward investment
balance.
Expected rate of return on investment at current prices levels is in line with that rate
required, in CRT's view, to undertake the attendant risks perceived- equitable/reward
investment balance.
Expected rate of return on investment at current prices levels is below that rate required,
in CRT's view, to undertake the attendant risks perceived- negative risk/reward investment
balance.
Ratings Percentages
As of August 27, 2015
Buy 58.97%
6.96%
Fair Value* 39.74%
3.87%
Sell 1.28%
0.00%
*FINRA Rule 2711 (H)(5)(A)- Regardless of the rating system that a member employs, a member must disclose in each research report the
percentage of all securities rated by the member to which the member would assign a "buy,""hold/neutral," or "sell" rating. For purposes of
this Rule, Fair Value would be assigned as "hold/neutral".
Valuations are based on estimates using traditional industry methods including, inter alia, analysis of earnings multiples, discounted cash flow calculations
and net asset value assessments. Price targets should be considered in the context of all prior CRT research published in connection with the subject
issuer, which may or may not have included price targets, as well as developments relating to the company, its industry and financial markets. Risks that
may impede achievement of the stated price target, if any, include, but are not limited to, broad market and macroeconomic fluctuations and unforeseen
changes in the subject companys fundamentals or business trends.
OTHER DISCLOSURES
This communication is directed at, and for use by, institutional investors only and is not intended for use by retail investors.
This report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This report is published
solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The
securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This report is based on information obtained
from sources believed to be reliable but is neither guaranteed to be accurate nor intended to be a complete statement or summary of the securities,
markets or developments referred to in the report. Recipients should not use this report as a substitute for the prudent exercise of their own judgment.
Any opinions expressed in this report are subject to change without notice and CRT is under no obligation to update or keep current the information
Page 17
Page 18
William Jump
Jon Schenk
Robert Hoehn
Kirk Ludtke
404.814.3960
212.763.8221
212.338.4731
203.569.4361
CONSUMER
Auto Parts Retailers
Ali Faghri
| afaghri@sterneageecrt.com
HEALTHCARE
646.376.5304
646.376.5373
646.376.5317
646.376.5315
Health Insurance
Brian Wright
| bwright@sterneageecrt.com
Medical Technology
Gregory P. Chodaczek
Caitlin Howard
| gchodaczek@sterneageecrt.com 610.260.9560
| choward@sterneageecrt.com
610.260.9552
Medical Technology
Shagun Singh Chadha
| ssingh@crtllc.com
646.376.5350
203.569.4345
646.293.6760
INDUSTRIALS
Discretionary/Retail
Lee J. Giordano, CFA
Michael Gunther
| lgiordano@sterneageecrt.com
| mgunther@sterneageecrt.com
| sposer@sterneageecrt.com
212.763.8226
| bshamsian@sterneageecrt.com 212.338.4721
| ebean@sterneageecrt.com
646.376.5346
203.569.4350
203.569.4322
949.721.6651
| parment@sterneageecrt.com
| jsullivan@sterneageecrt.com
| acarey@sterneageecrt.com
646.376.5336
646.376.5337
646.218.4825
646.376.5375
646.376.5304
Automotive
Kirk Ludtke
203.569.4361
| kludtke@crtllc.com
| lvitanza@crtllc.com
| btesoriero@crtllc.com
203.569.4337
203.569.4376
| lcollier@sterneageecrt.com
214.702.4045
Restaurants
Lynne Collier
646.376.5329
646.376.5357
646.376.5358
804.282.7385
804.916.1568
Homebuilding
Jay McCanless
Metals & Mining, Coal
Brett M. Levy
| blevy@crtllc.com
203.569.4336
804.282.4506
804.344.3811
TECHNOLOGY
ENERGY
Exploration & Production
Tim Rezvan, CFA
| trezvan@sterneageecrt.com
212.338.4736
646.376.5331
212.338.4723
FINANCIAL SERVICES
Specialty/Real Estate Finance
Henry J. Coffey, Jr., CFA | hcoffey@sterneageecrt.com
Jason P. Weaver, CFA
| jweaver@sterneageecrt.com
| jmccanless@sterneageecrt.com 615.760.1475
415.762.4881
415.762.4880
214.702.4001
214.702.4009
615.760.1472
615.760.1479
Internet
Robert Coolbrith
| rcoolbrith@crtllc.com
415.762.4890
| mderchin@crtllc.com
| ahackel@crtllc.com
203.569.4354
203.569.4378
Page 19