NexCen Brands Reports Fourth Consecutive Quarter of Operating Income and Positive Cash Flow

Date AddedMay 25, 2010 04:24:10 PM

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NEW YORK, Mar 26, 2010 (BUSINESS WIRE) -- --Cash Generated from Operations of $0.9 Million in Fourth Quarter 2009 vs. Cash Used in Operations of $1.0 million in Fourth Quarter 2008

--Loss from Continuing Operations of ($0.02) Per Diluted Share in Fourth Quarter 2009 vs. ($0.04) Per Diluted Share in Fourth Quarter 2008

--Provides Update on Debt and Capital Structure

NexCen Brands, Inc. (PINK SHEETS: NEXC.PK) today reported unaudited financial results for the fourth quarter of 2009 and audited financial results for the full year of 2009.

Kenneth J. Hall, Chief Executive Officer of NexCen Brands, stated, "We are pleased with the milestones we reached in 2009 in our efforts to improve and stabilize the business. As we closed out the year, we recorded our fourth consecutive quarter of operating income and positive cash flow from operations; we right-sized our expense structure; we remediated all material weaknesses in internal controls; and we made investments in our business for future organic revenue growth. I believe that we have demonstrated that our multi-concept, vertically-integrated franchise model is sound, even in a challenging economic environment. We recognize, however, that the Company's current debt and capital structure does not support the Company's long-term growth, viability and shareholder value. Addressing this issue continues to be our priority for the near future."

Fourth Quarter 2009 Operating Results and Financial Highlights

The operating results and financial highlights for the fourth quarter ended December 31, 2009 are as follows:

-- Total revenues in the fourth quarter of 2009 decreased 17% to $10.6 million from $12.6 million in the fourth quarter of 2008. The decrease is primarily due to current economic conditions, including continued weak credit markets for franchisees and softness in consumer spending and retail traffic. Additionally, total revenues in this period reflect the elimination of approximately $0.2 million of royalty revenue as a result of the TAF licensing transaction for Australia and New Zealand whereby the Company received a one-time, non-refundable payment of $6.2 million in August 2009 in lieu of recurring royalties.

-- Total operating expenses in the fourth quarter of 2009 decreased 37% to $9.4 million from $15.0 million in the fourth quarter of 2008. Operating income in the fourth quarter of 2009 increased to $1.1 million from an operating loss of $2.4 million in the fourth quarter of 2008. Loss from continuing operations in the fourth quarter of 2009 narrowed to $0.8 million, or ($0.02) per diluted share, from $2.1 million, or ($0.04) per diluted share, in the fourth quarter of 2008.

-- Cash generated from operations was $0.9 million in the fourth quarter of 2009 compared to cash used in operations of $1.0 million in the fourth quarter of 2008.

-- The Company had cash and cash equivalents of $7.8 million as of December 31, 2009, compared to cash and cash equivalents of $8.3 million at September 30, 2009. The Company also had short-term restricted cash of $1.4 million and long-term restricted cash of $1.0 million at December 31, 2009.

-- The Company's outstanding debt balance was $138.2 million at December 31, 2009, compared to $137.9 million at September 30, 2009 and $142.3 million at December 31, 2008. The Company used $5.0 million of the net proceeds from the TAF licensing transaction (discussed above) to pay down a portion of its debt in August 2009.

-- The Company's average effective interest rate for its credit facility was 6.4% in the fourth quarter of 2009, compared to 6.5% in the third quarter of 2009 and 8.7% in fourth quarter of 2008. The Company's interest expense was $2.6 million in the fourth quarter of 2009, compared to $2.7 million in the third quarter of 2009 and $3.1 million in fourth quarter of 2008.

-- Total franchised locations were 1,713 stores at December 31, 2009 versus 1,826 stores at December 31, 2008. The net decrease of 113 stores, or 6%, reflects closures, initiated either by the franchisee or the Company, of underperforming and non-compliant stores.

-- The Company executed franchise agreements for 71 new franchise units during the fourth quarter of 2009, versus franchise agreements for 65 new franchise units in the third quarter of 2009.

-- Deferred revenue related to the pipeline for franchise stores to be opened pursuant to executed letters of intent and franchise agreements remained constant at approximately $2.9 million at December 31, 2009 and September 30, 2009. Total deferred revenue related to vendor rebates also remained constant at $0.3 million at December 31, 2009 and September 30, 2009.

Full Year Operating Results

The operating results for the full year ended December 31, 2009 are as follows:

-- Total revenues for the full year ended December 31, 2009 decreased 4% to $45.1 million from $47.0 million in 2008. The decrease in revenues is primarily the result of reduced royalty revenues related to lower year-over-year store count, reduced consumer spending as well as a decline in TAF revenue due to the TAF licensing transaction (discussed above). This was partly offset by the additional revenues from the Great American Cookies brand and manufacturing facility acquired on January 29, 2008. Total operating expenses for the full year ended December 31, 2009 decreased 80% to $38.9 million from $194.2 million in 2008.

-- Operating income for the full year ended December 31, 2009 increased to $6.2 million from an operating loss of $147.2 million in 2008. Loss from continuing operations for the full year ended December 31, 2009 narrowed to $3.3 million, or ($0.06) per diluted share, from $153.6 million, or ($2.71) per diluted share, in 2008.

-- The results for the full year ended December 31, 2009 included $0.1 million of professional fees related to special investigations and $0.5 million of restructuring costs. The results for the full year ended December 31, 2008 included $137.9 million of impairment charges related to intangible assets, $3.9 million of professional fees related to special investigations, and $1.1 million of restructuring costs.

-- Excluding these special items, adjusted operating expenses for the full year ended December 31, 2009 decreased 25%, or $13.0 million, to $38.3 million from adjusted operating expenses of $51.3 million in 2008. See Table 4 for details regarding these non-GAAP adjustments.

-- Adjusted operating income for the full year ended December 31, 2009 increased 257%, or $11.1 million, to $6.8 million from an adjusted operating loss of $4.3 million in 2008. Adjusted loss from continuing operations for the full year ended December 31, 2009 narrowed to $2.7 million, or ($0.05) per diluted share, from an adjusted loss from continuing operations of $17.0 million, or ($0.30) per diluted share in 2008. See Table 4 for details regarding these non-GAAP adjustments.

-- Cash flow from operations for the full year ended December 31, 2009 improved by $12.5 million to $2.1 million of cash generated from operations, compared to cash used in operations of $10.4 million for the full year ended December 31, 2008.

Debt Structure

As of December 31, 2009, the Company has classified all of the debt outstanding under its credit facility with BTMU Capital Corporation as a current liability. As previously reported, the Company is in the process of evaluating alternatives to its debt and capital structure. NexCen has retained an investment bank to assist it with identifying and evaluating various strategic alternatives, and the Company continues to be in discussions with its lender as the Company needs the lender's consent to proceed with any strategic transaction or debt restructuring.

Mr. Hall concluded, "We have made significant progress in our turnaround strategy, refining our business to one that generates positive cash flow and operating profits. At the same time, we are exploring alternatives to our current capital and debt structure with the goal of maximizing long-term value for all of the Company's stakeholders. Importantly, we also remain focused on growing and enhancing our franchise business. We are committed to prudently managing our business, maintaining a lean operational structure and driving further improvements in our operating profit over time."

Conference Call Information

The Company will be holding a conference call today at 9:00 am EDT to review its financial results for the fourth quarter and the full year of 2009. The conference call may be accessed by dialing 800-944-8766 or 317-713-0002, access code: 27689. A replay of the call will be available through April 2, 2010, by dialing 1-866-281-6782, access code: 154227. The broadcast will be available through the 'Investor Relations' link at http://www.nexcenbrands.com/ and will be archived online shortly after the conference call until April 26, 2010.

The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 is available on the Company's website at http://www.nexcenbrands.com, under the "Investor Relations" tab, or through the SEC's website at http://www.sec.gov.

About NexCen Brands, Inc.

NexCen Brands, Inc. is a strategic brand management company with a focus on franchising. It owns a portfolio of franchise brands that includes two retail franchise concepts: TAF(TM) and Shoebox New York(R), as well as five quick service restaurant (QSR) franchise concepts: Great American Cookies(R), MaggieMoo's(R), Marble Slab Creamery(R), Pretzelmaker(R) and Pretzel Time(R). The brands are managed by NexCen Franchise Management, Inc., a subsidiary of NexCen Brands.

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 the expectations for the future performance of the Company's brands and expectations regarding the impact of recent developments on its business. 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) the Company's lender may not agree to any strategic transaction or debt restructuring, and certain transactions may result in dilution of existing shareholders and may trigger an ownership change under the tax laws that would limit the Company's ability to utilize its tax loss carry-forwards; (2) absent waivers, a strategic transaction or further restructuring of the Company's debt, the Company likely will breach certain covenants of its bank credit facility in 2010 and likely will fail to make a required principal payment in July 2011, which could trigger among other things the lender's right to accelerate principal payment obligations, foreclose on virtually all of the assets of the Company and take control of all of the Company's cash flow from operations; (3) the terms of the Company's credit facility limit the amount of cash flow from operations that may be used for operating expenses, capital expenditures, and other general corporate purposes, and the Company may not have sufficient working capital, which could materially and adversely impact our business, financial condition and result of operations; (4) economic conditions may deteriorate or fail to materially improve in international and domestic markets, which could negatively impact the Company's business and financial performance; and (5) other factors discussed in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.