Sequential Brands, a U.S. group that has a portfolio of consumer brands including Heelys, Avia and DVS, said that it is not expected to be able to comply over the next twelve months with certain of its financial covenants.
It noted that if it fails to comply with the covenants or further extends a waiver on a credit agreement with Wilmington Trust and other lenders “an event of default” would be triggered and its obligations under the loan agreements may be accelerated. Creditors have already taken control of the company’s board.
Sequential received several extensions of the waiver in the first quarter of 2021. The current extension of the waiver expires on April 19 and the company is negotiating its renewal.
The management continues to evaluate strategic alternatives, including the divestiture of one or more existing brands or a sale of the company. “The risk of non-compliance creates a material uncertainty that casts substantial doubt with respect to the ability of the company to continue as a going concern,” it added.
Sequential ended its financial year on Dec. 31 with $15.5 million in cash, but the long-term debt stood at $434.5 million.
In the fourth quarter, revenues from continuing operations were $23.0 million, compared to $24.2 million in the prior year quarter. The reported loss from continuing operations narrowed to $4.4 million from of $7.9 million and the adjusted net loss from continuing operations $4.5 million against $8.9 million. Adjusted Ebitda from continuing operations rose to $13.2 million from $8.0 million.
In the full year, revenues from continuing operations dropped to $89.8 million from $101.6 million in 2019. Reported loss from continuing operations was $88.1 million compared to a loss of $34.3 million and the adjusted net loss from continuing operations was $14.5 million against a loss of $16.0 million. The loss from continuing operations included non-cash impairment charges of $85.6 million for intangible assets related to the trademarks for the Jessica Simpson, Gaiam, Joe’s and Ellen Tracy brands reflecting the financial impacts of the Covid-19 pandemic and a $2.9 million loss resulting from the company’s agreement to exit its remaining lease obligation from its former office headquarters.
Adjusted Ebitda from continuing operations for the year grew to $56.9 million from $45.8 million in 2019.