Iconix Brand Group (ICON) John N. Haugh on Q2 2016 Results - Earnings Call Transcript

| About: Iconix Brand (ICON)

Iconix Brand Group, Inc. (NASDAQ:ICON)

Q2 2016 Earnings Call

August 04, 2016 4:30 pm ET

Executives

Jaime Sheinheit - VP, Investor Relations

John N. Haugh - President & Chief Executive Officer

David K. Jones - Chief Financial Officer & Executive Vice President

Analysts

David Michael King - ROTH Capital Partners LLC

Eric M. Beder - Wunderlich Securities, Inc.

Steven L. Marotta - C.L. King & Associates, Inc.

Patrick Marshall - Cowen & Co. LLC

Operator

Good day, ladies and gentlemen, and welcome to the Iconix Brand Group Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Jaime Sheinheit, VP, Investor Relations. Ma'am, you may begin.

Jaime Sheinheit - VP, Investor Relations

Good afternoon and welcome to the Iconix Brand Group second quarter 2016 earnings conference call. On today's call, we have with us John Haugh, our President and CEO; Dave Jones, our Chief Financial Officer; and Peter Cuneo, our Executive Chairman.

During today's call, we will be making some forward-looking statements within the meaning of the Federal securities laws. The statements that are not historical facts contained in this conference call are forward-looking statements that involve a number of risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the company. This may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or achievements expressed or implied by such forward-looking statements.

The words believe, anticipate, expect, confident, and similar expressions identify forward-looking statements. Listeners are cautioned to not place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

I would now like to turn the call over to John.

John N. Haugh - President & Chief Executive Officer

Thank you, Jamie, and good afternoon to everyone. I am pleased to announce today that for the second quarter our company has delivered solid results. Our primary goal is to position ourselves to achieve growth while at the same time improving the balance sheet, and we are making progress on both of those fronts.

Since our last call, we have conducted a broad strategic review of our company, our brands and the overall market. As a result of this review, we have identified a number of opportunities that we believe will drive long-term growth, both in the U.S. and around the world; this will include creating new revenue opportunities as well as building on our existing partnerships.

Strong relationships are critical to our success and I have been having productive conversations with our key partners on how our brands and brand management can drive their success. We are committed to being active brand managers and supporting our brands with the necessary tools to drive growth. You can expect to hear much more detail about these plans at our Investor Day in the fall.

Today, our balance sheet is also in a better position than it was a few months ago. We have paid off our 2016 convertible notes that were due in June and we opportunistically repurchased $100 million plus of 2018 convertible notes at a discount, both de-levering our balance sheet and generating an attractive return for the company.

Moving on to some highlights from the second quarter. As we anticipated, our results were mixed across the portfolio in the second quarter with solid performance in the Womens and Home segments, a growing Entertainment business, and continued transition in the Mens brands. In the Womens segment comparable revenue excluding Badgley Mischka was up 1% in the quarter. Danskin has been a standout for us with a strong activewear business at Walmart across all categories including women's, girls, footwear and intimates.

Material Girl has a strong and growing activewear business at Macy's that will be expanding its offering to include plus size in this fall. To support this brand, we launched our new campaign featuring Pia Mia, the brand's first ever Fashion Director. In connection with the campaign, Pia is also starring in an original StyleHaul docu-series. Each episode will be shoppable and includes a link to Pia's Picks, a curated collection of Pia's favorite Material Girl items available on macys.com and in stores. Material Girl, Pia Mia, and StyleHaul will use their combined social media reach of over 50 million plus to support the series and showcase the brand's designs.

We are also very happy with our Candie's business with Kohl's. We recently unveiled the fall floor set featuring new modernized packaging and branding as well as additional lifestyle imagery showcasing Sarah Hyland, the brand's first ever Creative Director. The consumer is already responding well with strong sales trends over the past few weeks. The majority of our Women's brands are linked exclusively to major retailers and we are committed to supporting these partnerships with the most relevant and exciting marketing campaigns to drive consumers to shop our brands in-store and online.

In Mens, we continue to work on our turnaround and while we delivered some highlights, we still have much work to do. Our revenue for Q2 was down 16%. Highlights include new partnerships with relevant influencers that have significant digital and social reach, improvement in Ecko sales and new distribution for Ed Hardy. For the Ecko brand, we have partnered with popstar Prince Royce to be the ambassador for the brand. Prince has a cumulative social reach of over 44 million. He has close to 2 billion views on Vevo and a strong hold on young audiences. His partnership with Ecko includes Facebook Live sessions, Snapchat posts of unseen tour footage, in-store appearances and VIP sweepstakes to his shows. He will also collaborate on a signature collection to debut at major department stores next spring.

The new Men's core Ecko License is expected to achieve a 30% year-over-year increase in U.S. net sales for 2016 and is poised for significant growth in 2017. This would have a positive impact on all of Ecko licensee partners as the business should buoy with the successful restoration of a healthy core.

Ed Hardy, while down in the second quarter, is projected to achieve growth year-over-year for 2016 with a strong fourth quarter fragrance business on the horizon. The brand's recent entry into the grocery retail channel through a consumable business should begin to make a positive impact on revenue growth over the next six months to nine months.

Rocawear was down in the second quarter. Comps for Rocawear get easier in Q3 and we expect the brand to start comping positively in Q4. We are working to re-establish the brand and we recently partnered with DJ Khaled, a record producer and social media phenomena with a following of 19 million. We are excited to have him as the new face of the brand and believe that culturally he speaks to who our brand is targeted on a daily basis through social media.

Finally, in Starter, as we mentioned last quarter, we have seen softness at Walmart as they have shifted some categories from Starter to house brands. However, we are actively developing an upstairs business in major specialty and department stores and exploring additional distribution options for the brand.

The Home business remains solid with revenues for the overall Home portfolio flat in the second quarter. Our Home business is anchored by strong direct-to-retail partnerships. Some highlights from Q2 include for Fieldcrest at Target, we recently re-launched the collection with a new look including new packaging that is consistent with the brand's elevated affordable luxury positioning. For our Royal Velvet brand, we launched a new content-rich website driving sales to jcpenney.com.

The Entertainment segment revenue was up 15% in the second quarter. The Peanuts brand continues to be strong on the heels of the movie year, particularly in Japan, the brand's largest territory. And this July, we resigned with Sony Creative, our agent for Japan, for an additional five-year term.

The Snoopy Museum Tokyo opened its doors in Q2 in Roppongi, Tokyo. This museum, which will be open for 2.5 years is the first outside of the United States dedicated to the art of Charles M. Schulz with its founding museum located in Santa Rosa, California. The museum features a gift shop and cafe and has often been sold-out since its grand opening in April.

In the second quarter new Peanuts shorts debuted on Boomerang and Cartoon Network which are already airing in 20 territories internationally including Japan, France and Korea. And in the U.S. they are airing daily at 11:30 a.m. and there are already plans to expand to additional time slots.

For Strawberry Shortcake, as we previously announced, we have partnered with DHX to develop new content which will support the reinvention of this classic brand. We will begin selling against this in 2017.

Internationally, several things to note. As part of our broader strategy in China we monetized our equity interest in Ed Hardy China, selling our stake in the brand for $11.4 million in cash. Following this transaction, the company still has a minority stake in five other Chinese operating partners which were created through our brands. As for the rest of the portfolio, we view China as a major growth opportunity and will continue to evaluate the best path for each of our brands. Following on our success in finding a strong partner for the development of Umbro in China, we are active in discussions to secure similar deals for both Danskin and Starter.

Several additional positives on the international front include strength in our global Lee Cooper brand, the launch of Umbro brand in China, and the growth of Danskin, Starter and Op at Walmart in Mexico and Central America. We are very well-positioned internationally, but as you know, international is inherently a more volatile market than the U.S.

I will now turn the call over to Dave Jones, our Chief Financial Officer.

David K. Jones - Chief Financial Officer & Executive Vice President

Thank you, John. Reviewing the results for the second quarter of 2016, the company generated $95.7 million of revenue, a 2% decline as compared to approximately $97.4 million in the second quarter of 2015. In the second quarter of 2015, revenue included approximately $1.5 million of licensing revenue from Badgley for which there was no comparable revenue in the second quarter this year. In addition, the second quarter of 2016 benefited from a $900,000 favorable impact from foreign currency exchange rates, primarily related to the yen. Excluding Badgley licensing revenue and the currency impact, revenue for the second quarter was down approximately 1%.

SG&A expenses were $47.1 million in the second quarter of 2016, a 3% increase as compared to $45.8 million in the prior-year quarter. The increase primarily reflects higher expenses associated with the strong Peanuts business which has a higher cost structure as compared to the company's other brands.

Operating income in the second quarter of 2016 was $47.8 million, an 8% decline as compared to the $51.8 million in the second quarter of 2015. Operating margin in the second quarter of 2016 was approximately 50% as compared to approximately 53% in the prior-year quarter. This primarily reflected the higher mix of Peanuts as a percentage of the overall revenue.

For the full year, we expect operating margins to be approximately 50%. That's excluding special charges and gains on sales of trademarks, with operating margins in the back half of the year in the mid to upper 40%s. We expect to accelerate our marketing spend in the second half as we focus on strengthening the core business.

Interest expense in the second quarter was $28.4 million as compared to $21.4 million in the second quarter of 2015. The increase is related to the new $300 million senior secured term loan that we entered into in April. Interest expense in the third quarter will step down to approximately $25 million reflecting the pay down of the company's 2016 convertible notes and the repurchase of a portion of the 2018 convertible notes.

The company's reported interest expense includes non-cash interest related to our outstanding convertible notes and amortization of deferred financing costs. Cash interests paid in the second quarter of 2016 was approximately $20.4 million as compared to approximately $12.5 million in the prior year quarter. The company's effective tax rate was 31.1% in the second quarter of 2016. After accounting for the tax benefit related to the amortization of the company's intangible assets for tax purposes, the company paid cash taxes in the second quarter of 2016 of approximately $1.8 million. I would expect that the rates for the full year to be between 32% and 33%.

Non-GAAP net income was approximately $13.9 million in the second quarter of 2016, a 35% decline as compared to $21.3 million in the prior year quarter. Non-GAAP diluted earnings per share was approximately $0.27 as compared to $0.43 in the second quarter of 2015. The largest component of this decline is related to approximately $9 million of incremental interest expense associated with the company's new senior secured term loan. The company generated approximately $34.4 million of free cash flow in the second quarter of 2016 and approximately $86 million of free cash flow for the first half of 2016.

Moving on to the balance sheet, we ended the quarter with approximately $215 million of cash which includes $38 million of wholly-owned domestic unrestricted cash, $29 million of domestic unrestricted cash in consolidated joint ventures, $63 million of unrestricted cash held internationally, and $85 million of restricted cash. A portion of the company's restricted cash can be used for acquisitions.

In addition, last week the company completed the sale of its equity interest in Complex Media for $38.5 million. $35 million of that was received in cash with the additional $3.5 million going into escrow as is common for these types of transactions. This cash will be included in restricted cash as per the terms of our term loan agreement and can also be used for acquisitions. As of today, following the Complex Media transaction, the company has total cash of approximately $245 million. The company ended the quarter with $1.43 billion face value of debt. De-levering the balance sheet remains a top priority for the company. During June and July the company opportunistically bought back $105 million principal value of its 2018 convertible notes for approximately $35 million in cash and 7.4 million shares. Following the convertible note transaction, today the company's total debt face value is $1.36 billion.

Moving on to guidance. The company is updating its 2016 guidance to reflect certain recent transactions that were not included in previously provided guidance. We are increasing our 2016 free cash flow guidance by $14 million to a range of $169 million to $184 million. The increase is primarily to reflect the sale of the company's stake in the Ed Hardy brand in China. The company is also increasing its 2016 GAAP diluted earnings per share guidance by $0.22 to a range of $0.93 to $1.08 to reflect an estimated $8.5 million gain related to the repurchase of the portion of our 2018 convertible notes at a discount, part of which was recognized in the second quarter, and part of which will be recognized in the third quarter, and a $10 million gain related to the sale of our interest in Complex.

The $35 million of cash received from the sale of Complex Media is not included in the company's free cash flow guidance. The transactions I mentioned do not have an impact on revenue. The company is maintaining its revenue guidance for 2016 of $370 million to $390 million. However, we're trending towards the low end of that range. The company is maintaining our 2016 non-GAAP diluted earnings per share guidance of $1.06 to $1.21. The gains related to the repurchase of the convertible notes and the Complex Media sale are excluded from the company's non-GAAP metrics.

I'll now turn the call back to John for some closing remarks.

John N. Haugh - President & Chief Executive Officer

Thanks, Dave. 2016 has been about steadying the ship, but be assured we are actively working towards strengthening the core business and driving long-term growth. We will share these strategies at our upcoming Investor Day. We understand that rebuilding confident will take time, but we are optimistic about the future of Iconix and believe through organic growth in the current portfolio and the strong free cash flow that we continue to generate, we will be able to create significant value for our company and for our shareholders.

I would like to thank you all for participating in this afternoon. We would now like to open the call to questions and answers.

Question-and-Answer Session

Operator

Thank you. And our first question comes from Dave King from ROTH Capital. Your line is open.

David Michael King - ROTH Capital Partners LLC

Thanks. Good afternoon, everyone. I guess, first off, on the Mens business and the growth in Ecko, to what extent did that contribute the new partnerships there? Did that contribute in the quarter? And I guess, more importantly, how different is that than I think the 30% sort of core growth you outlined for the year? And then, one more on the Mens business, when do you expect the upstairs business for Starter to begin to take hold?

John N. Haugh - President & Chief Executive Officer

So, David, it's John. On Ecko, with Ecko, we had – we mentioned this last time, we had a brand summit a couple of months ago, we had 20 plus licensees in that covered apparel and covered watches and covered several different categories. And I think all licensees left feeling like the brand, while not nearly where it was some years ago, is on the right track back. And we have not only Prince Royce, we have some strong ambassadors in the boxing world and in the skateboard world.

So I think everybody walked away feeling good. That's nice. But what really matters is what is the sell-in and the sell-out of our products. And we have had a lot of success this year with some of our key retailers, J. C. Penney, as an example, is a good retailer. We continued to strengthen our orders, strengthen our distribution and strengthen our position in Ecko. Again, it's going to take us a little while to get it all the way back, but net-net Ecko has been a shining light in the Mens business, which is we – as you well know has been troubled for a little while. So I'll pause there on Mens.

With respect to Starter, Starter is an interesting business. As you know, retro is very, very big right now, and Starter is a great retro brand. And if you see a lot of Instagram activity out there, you'll see many very, very famous athletes wearing our jackets, you'll see a lot of social buzz on our brand. And what that has done is – I can't, at this point, give you exactly who the – I'm not in a position where I can tell you who the retailers are, but we have two retailers or three retailers that I think are very impressive, who have said they want to cash (21:12) this retro trend and want to get into it quickly. And the nice thing about this is we have an excellent partner who does our upstairs business, one of the strongest guys in the apparel business.

And the other thing that happens in this business, Dave, is these upstairs jackets go out the door at $100, $125. So it's a really, really strong business. And we think, given everything we've heard so far, that we should start to have presence on the floor probably not Q4, probably really Q1 of next year. But that strengthens Starter as an overall brand and gives us a good halo effect on all aspects of the brand.

David Michael King - ROTH Capital Partners LLC

Okay. That's good color. And then maybe switching gears a bit. In terms of the mid to high 40%s operating margins sort of in the back half, what are the drivers there? I guess it would seem to me with you anniversarying Peanuts that that wouldn't necessarily be the case. But also I know you've got the marketing investments, the digital stuff you're doing, the bonus accrual sort of issues with I think two different plants in place. So I guess what are the puts and takes to kind of have operating margins decline in the back half versus where they are, where they've been running for the first half?

David K. Jones - Chief Financial Officer & Executive Vice President

Yeah. Dave, it's Dave Jones. Regarding the Peanuts business, that business will hold when you think about the whole year. So while the comps in Q3 and Q4, for Peanuts will be difficult, we kind of outperformed year-over-year in Q1 and Q2. So we're expecting a stability there.

The marketing and advertising will kick up in Q3 and Q4, so that's kind of one of the biggest drivers, I think, of the decrease in margin compared to Q1 and Q2. And that's really – you're right, we've got a little bit in comp, but that's kind of been consistent through the year as the – like I said as the Peanuts business is stronger, we've got a little bit more in agent and talent fees, that'll drop off in Q3 and Q4. So those are really the drivers.

David Michael King - ROTH Capital Partners LLC

Okay. That's helpful. And then lastly for me and I'll step back. So with the change in free cash flow guidance, but then also the $35 million in cash that you're getting from or got from Complex, ongoing principal amortization, what have you – where do you see cash ending the year at this point versus the $245 million I think is where you're at as we sit today?

David K. Jones - Chief Financial Officer & Executive Vice President

Well, I would tell you – I don't think there is any significant changes that we're expecting between now and the end of the year. The $245 million includes Complex. We'll have some natural growth in cash just from cash from operations, but I don't think we're calling out any big transactions at this point. So I would expect it to be somewhat consistent.

David Michael King - ROTH Capital Partners LLC

Okay. Thanks for the color. Good luck with the rest of the year.

John N. Haugh - President & Chief Executive Officer

Thank you.

David K. Jones - Chief Financial Officer & Executive Vice President

Thank you.

Operator

And our next question comes from Eric Beder from Wunderlich Securities. Your line is open.

Eric M. Beder - Wunderlich Securities, Inc.

Good afternoon.

John N. Haugh - President & Chief Executive Officer

Hi, Eric.

Eric M. Beder - Wunderlich Securities, Inc.

Hi. Well, congratulations on the – being able to settle the convertible debt and the buyback of the $105 million. What is your appetite to buy back more of that debt at those terms if some came (24:46) to you? What – how is your thought process on where do you want the convertible debt to be maybe at the end of this year or any other (24:52)?

David K. Jones - Chief Financial Officer & Executive Vice President

Eric, I think we'll look at all alternatives for redeeming the debt opportunistically. After we did the last round, we had some interest from additional holders, but we were comfortable where we were with the last round. We continue to believe we can redeem the 40% to 50% of the original $400 million that we've talked about before by maturity. So I think there's a lot of levers to pull. We feel better now that we've gotten 25% of it taken care of. So I think at this point, we'll see how we progress during the year, but kind of everything's on the table.

Eric M. Beder - Wunderlich Securities, Inc.

And when you look at the $86 million or so at international, what is the thought process there? Would you undertake an acquisition on the international side? And if you would, what would you be looking at, what kind of context makes sense for you?

John N. Haugh - President & Chief Executive Officer

So, Eric, John. I think it's a great question. We, as you know, have a pretty sizable amount of money over there and you can't (26:10) repatriate it – you can, but you would do it at a pretty significant tax rate.

So we are looking to say, how do we grow our international business. In the meantime, our leadership over there continues to strengthen. Our overall leader of international is very, very talented. We now have a team on the ground in China. We now have more players on the ground in Europe. We now have more players on the ground in LatAm. So we feel we're positioned well to kind of maximize or leverage the players that we have throughout the world and we have some available capital. So our M&A team is taking a look at how best to deploy that money.

Again, first thing we've talked about and we've had this conversation, is making sure that the core business is steady and make sure that we are rebuilding confidence with our investors, our shareholders. So we want to be thoughtful in everything we do. But we are acutely aware of the fact that we have money sitting not getting a great return on investments, and we have a talented team that could take our brands and use our models throughout the world. And so it's something that's on the horizon. No definitive plan right now, but it's something that we're actively working on.

Eric M. Beder - Wunderlich Securities, Inc.

Okay. And you know it's so exciting that you guys are bringing more money into marketing and advertising and I – just listening to the different people you have here as Creative Directors and such, I would assume that's part of the ramp. What is the goal eventually with this? Obviously, it's to drive better sales. But is it to become a better partner to your licensees? Is it to become a more important partner? How do you look upon your goal of all this marketing spend and this advertising spend going forward?

John N. Haugh - President & Chief Executive Officer

Our goal is actually really simple, Eric; it is we want our partners to sell more of our brands. We don't gain unless they gain. We want Danskin to continue to grow as it's doing at Walmart. We want Mossimo to grow at Target. We want Material Girl to grow at Macy's, et cetera, et cetera.

So our goal as brand owners and active brand managers is to work with our partners. In some cases it's very, very collaborative. In some cases they certainly steer more. But we want to make sure that our brands resonate with the core demo. We want to make sure that the consumer is seeing our brand, relating to our brand. This whole business has evolved from where we started years ago with probably a simpler celebrity and take some good photography and that was enough. We're much more active. Pia Mia is out there blogging, texting, Instagraming, and developing and working with Macy's; Prince Royce doing the same thing; DJ, the same thing. There's another announcement we will have soon.

Eric, we feel very good. I'll be off a little bit on the number here, but we feel very good that in the last three months, four months we've had somewhere in the range of a dozen strong lead cover or other stories just in WWD talking about how we're much more actively managing the brand. We hadn't had good coverage like that in the industry in probably for a couple years. So I think our partners are taking note. I think the industry is taking note. And ultimately, we own these brands and the stronger the brand is, the more our partners benefit, and the more our shareholders benefit. So that's how we look at this.

Eric M. Beder - Wunderlich Securities, Inc.

Great. Good luck on the back half.

John N. Haugh - President & Chief Executive Officer

Thanks.

Operator

And our next question comes from Steven Marotta from C.L. King & Associates. Your line is open.

Steven L. Marotta - C.L. King & Associates, Inc.

Good evening, everybody. David, as it pertains to the number of shares outstanding that is used in the guidance, could you tell us what that number is currently? And if that has changed since the settlement of the $105 million of March 2018 converts?

David K. Jones - Chief Financial Officer & Executive Vice President

The number that we are using currently for guidance is about $54 million and that includes the weighted average share count as a result of issuing the additional 7 million shares on the repurchase of the converts.

Steven L. Marotta - C.L. King & Associates, Inc.

So the third quarter and the fourth quarter would be closer to $57 million, is that accurate?

David K. Jones - Chief Financial Officer & Executive Vice President

Yeah. That's correct.

Steven L. Marotta - C.L. King & Associates, Inc.

Okay. Without a change...

David K. Jones - Chief Financial Officer & Executive Vice President

I would – $56 million and change, I would say it...

Steven L. Marotta - C.L. King & Associates, Inc.

Okay. Without a change in the non-GAAP EPS for the year, that must mean that you expect more net income than you would have previously? Is that accurate?

John N. Haugh - President & Chief Executive Officer

Well, the things that we adjusted the GAAP EPS change (31:12) don't affect the non-GAAP.

Steven L. Marotta - C.L. King & Associates, Inc.

Right. But the settlement of the convert would though, no?

John N. Haugh - President & Chief Executive Officer

Yes. Yes. I mean of course. We've got less interest as a result of the convert.

Steven L. Marotta - C.L. King & Associates, Inc.

I understand. Okay. That's obviously, right. That makes sense. The increase in marketing spend in the second half of the year, was that planned previously or is that a new component to the income statement?

John N. Haugh - President & Chief Executive Officer

No, I think we have said overall we thought that marketing could be up year-over-year. I think in the first half it's just timing. And I would tell you what we've found is with a lot of the initiatives that we have now, they may not necessarily be as expensive as initiatives have been in the past. So we've found that we're a little bit more efficient with the marketing dollars. But certainly, it's been slower in the first half and it'll accelerate in the second half.

Steven L. Marotta - C.L. King & Associates, Inc.

Okay. Lastly, why is the $14 million for Ed Hardy China included in the free cash flow this year, but the Complex Media $35 million transaction is not?

John N. Haugh - President & Chief Executive Officer

Well, our definition of free cash flow, we include sales of trademarks and intellectual property. The Complex Media was, I'll call it, an other investment. It wasn't an investment in IP. And so we consider – we don't consider it in our free cash flow.

Steven L. Marotta - C.L. King & Associates, Inc.

Okay. Fair enough. Thank you very much. Appreciate it.

John N. Haugh - President & Chief Executive Officer

Thanks.

Operator

And our next question comes from Patrick Marshall from Cowen & Co. Your line is open.

Patrick Marshall - Cowen & Co. LLC

Hi. Good evening. So I just wanted to drill down on the cash a little bit. So you said, I think, as of today, you now have $245 million of cash. How much of that is unrestricted domestic?

David K. Jones - Chief Financial Officer & Executive Vice President

Let me get my cash sheet. So unrestricted domestic is about $72.7 million; and Patrick, in that there's about $40.6 million from wholly-owned subs and about $32 million from consolidated joint ventures.

Patrick Marshall - Cowen & Co. LLC

Sorry. What was that second number?

David K. Jones - Chief Financial Officer & Executive Vice President

$32.2 million from consolidated joint ventures.

Patrick Marshall - Cowen & Co. LLC

Understood. And then the proceeds of Badgley Mischka, BBC Ice Cream (33:58) and Ed Hardy China, are the proceeds from those sales available to repay the convert?

David K. Jones - Chief Financial Officer & Executive Vice President

No, the proceeds from those are in what's called an excluded asset account under our new term loan. And they're available for acquisitions, but not for the repayment of debt.

Patrick Marshall - Cowen & Co. LLC

Right. Okay. And then so any potential sales of JVs in China; those would also fall under those accounts, right?

David K. Jones - Chief Financial Officer & Executive Vice President

Yes. That's correct.

Patrick Marshall - Cowen & Co. LLC

So are there any assets within the Iconix portfolio which would be unencumbered? I mean, available to be – the proceeds of which could be applied towards paying down the converts?

David K. Jones - Chief Financial Officer & Executive Vice President

Oh, I see. No. I think generally for the terms of our new term loan – so if assets are sold within the securitization, there's repayment requirement within the securitization.

Patrick Marshall - Cowen & Co. LLC

Sure.

David K. Jones - Chief Financial Officer & Executive Vice President

If they're outside of the securitization generally the money has to go to repay the new term loan.

Patrick Marshall - Cowen & Co. LLC

The term loan. Understood. Thank you.

Operator

And at this time I am showing no further questions. I would like to turn the call back to Mr. John Haugh, CEO.

John N. Haugh - President & Chief Executive Officer

Perfect. Thank you. So thank you to everyone again for this afternoon. More importantly, thank you for your ongoing support. We appreciate it. We appreciate you challenging us and asking us good questions, and we look forward to seeing everybody at our fall investor day. Thanks. Enjoy your evening.

Operator

Ladies and gentlemen. This concludes the program. You may have a great day.

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