ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes our consolidated operating results, financial condition and liquidity. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). All amounts disclosed are in thousands except store counts, share and per share data and percentages. See Note 1 "Description of Business and Basis of Presentation" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
This discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. For a discussion of the risks facing our business see "Item 1A—Risk Factors" of this Quarterly Report as well as in our 2022 Annual Report on Form 10-K.
Executive Overview
We are a global retail company that operates the Vince brand women's and men's ready to wear business. Previously, we also owned and operated the Rebecca Taylor and Parker brands until the sale of the respective intellectual property was completed, as discussed below.
Vince, established in 2002, is a leading global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day effortless style. Vince operates 50 full-price retail stores, 17 outlet stores, its e-commerce site, vince.com and through its subscription service Vince Unfold, vinceunfold.com, as well as through premium wholesale channels globally.
On April 21, 2023 the Company entered into a strategic partnership ("Authentic Transaction") with Authentic Brands Group, LLC ("Authentic"), a global brand development, marketing and entertainment platform, whereby the Company will contribute its intellectual property to a newly formed Authentic subsidiary ("ABG Vince") for total consideration of $76,500 in cash and a 25% membership interest in ABG Vince. Through the agreement, Authentic will own the majority stake of 75% membership interest in ABG Vince. The Company closed the Asset Sale on May 25, 2023. The Cash Consideration generated by the Asset Sale was used to prepay in full Vince, LLC's existing Term Loan Credit Facility (as defined below) and to repay a portion of the outstanding borrowings under Vince, LLC's 2018 Revolving Credit Facility (as defined below). On May 25, 2023, in connection with the Authentic Transaction, Vince, LLC, entered into a License Agreement (the "License Agreement") with ABG-Vince LLC, which provides Vince, LLC with an exclusive, long-term license to use the Licensed Property in the Territory to the Approved Accounts (each as defined in the License Agreement). See Note 14 "Subsequent Events" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information.
Concurrent with the Authentic Transaction, Vince, LLC entered into the certain Consent and Second Amendment to Amended and Restated Credit Agreement (the "Second Amendment to ABL Credit Agreement") to adjust the initial commitment level commensurate with the expected net proceeds after transaction related fees and the expected debt pay down, and to revise the maturity date to June 30, 2024, among other things, which was effective upon the closing of the Asset Sale. See Note 4 "Long-Term Debt and Financing Arrangements" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information.
Rebecca Taylor, founded in 1996 in New York City, was a contemporary womenswear line lauded for its signature prints, romantic detailing and vintage inspired aesthetic, reimagined for a modern era. On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group. The Rebecca Taylor collection was previously available through retail stores and outlet stores, through its branded e-commerce site and through its subscription service Rebecca Taylor RNTD, as well as through major department and specialty stores in the U.S. and in select international markets. All Rebecca Taylor retail and outlet stores operated by the Company were closed as of January 28, 2023 and the e-commerce site operated by the Company ceased in December 2022.
Parker, founded in 2008 in New York City, was a contemporary women's fashion brand that was trend focused. During the first half of fiscal 2020 the Company decided to pause the creation of new products to focus resources on the operations of the Vince and Rebecca Taylor brands. On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 1 "Description of Business and Basis of Presentation - (A) Description of Business" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information. The Parker collection was previously available through major department stores and specialty stores worldwide as well as through its e-commerce website.
We serve our customers through a variety of channels that reinforce our brand images. Our diversified channel strategy allows us to introduce our products to customers through multiple distribution points that are presented in three reportable segments: Vince Wholesale, Vince Direct-to-consumer and Rebecca Taylor and Parker.
23
Results of Operations
Comparable Sales
Comparable sales include our e-commerce sales in order to align with how we manage our brick-and-mortar retail stores and e-commerce online stores as a combined single direct-to-consumer channel of distribution. As a result of our omni-channel sales and inventory strategy, as well as cross-channel customer shopping patterns, there is less distinction between our brick-and-mortar retail stores and our e-commerce online stores and we believe the inclusion of e-commerce sales in our comparable sales metric is a more meaningful representation of these results and provides a more comprehensive view of our year over year comparable sales metric.
A store is included in the comparable sales calculation after it has completed 13 full fiscal months of operations and includes stores, if any, that have been remodeled or relocated within the same geographic market the Company served prior to the relocation. Non-comparable sales include new stores which have not completed 13 full fiscal months of operations, sales from closed stores, and relocated stores serving a new geographic market. For 53-week fiscal years, we continue to adjust comparable sales to exclude the additional week. There may be variations in the way in which some of our competitors and other retailers calculate comparable sales.
The following table presents, for the periods indicated, our operating results as a percentage of net sales, as well as earnings (loss) per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
April 29, 2023 |
|
|
April 30, 2022 |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
% of Net |
|
|
|
|
|
Amount |
|
|
Sales |
|
|
Amount |
|
|
Sales |
|
(in thousands, except per share data and percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
$ |
64,056 |
|
|
|
100.0 |
% |
|
$ |
78,376 |
|
|
|
100.0 |
% |
Cost of products sold |
|
|
|
34,464 |
|
|
|
53.8 |
% |
|
|
42,741 |
|
|
|
54.5 |
% |
Gross profit |
|
|
|
29,592 |
|
|
|
46.2 |
% |
|
|
35,635 |
|
|
|
45.5 |
% |
Gain on sale of intangible assets |
|
|
|
(765 |
) |
|
|
(1.2 |
)% |
|
|
— |
|
|
|
0.0 |
% |
Selling, general and administrative expenses |
|
|
|
32,733 |
|
|
|
51.1 |
% |
|
|
40,920 |
|
|
|
52.2 |
% |
Loss from operations |
|
|
|
(2,376 |
) |
|
|
(3.7 |
)% |
|
|
(5,285 |
) |
|
|
(6.7 |
)% |
Interest expense, net |
|
|
|
3,290 |
|
|
|
5.1 |
% |
|
|
1,884 |
|
|
|
2.4 |
% |
Loss before income taxes |
|
|
|
(5,666 |
) |
|
|
(8.8 |
)% |
|
|
(7,169 |
) |
|
|
(9.1 |
)% |
(Benefit) provision for income taxes |
|
|
|
(5,285 |
) |
|
|
(8.2 |
)% |
|
|
— |
|
|
|
0.0 |
% |
Net loss |
|
|
$ |
(381 |
) |
|
|
(0.6 |
)% |
|
$ |
(7,169 |
) |
|
|
(9.1 |
)% |
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
|
|
$ |
(0.03 |
) |
|
|
|
|
$ |
(0.60 |
) |
|
|
|
Diluted loss per share |
|
|
$ |
(0.03 |
) |
|
|
|
|
$ |
(0.60 |
) |
|
|
|
Three Months Ended April 29, 2023 Compared to Three Months Ended April 30, 2022
Net sales for the three months ended April 29, 2023 were $64,056, decreasing $14,320, or 18.3%, versus $78,376 for the three months ended April 30, 2022.
Gross profit decreased 17.0% to $29,592 for the three months ended April 29, 2023 from $35,635 in the prior year first quarter. As a percentage of sales, gross margin was 46.2%, compared with 45.5% in the prior year first quarter. The total gross margin rate increase was primarily driven by the following factors:
•The favorable impact from lower freight costs which contributed positively by approximately 620 basis points; and
•The favorable impact from the wind down of the Rebecca Taylor business, which historically operated at a lower overall gross margin, contributed positively by approximately 80 basis points; partly offset by
•The unfavorable impact from higher discounts in the wholesale off-price channel contributed negatively by approximately 560 basis points; and
•The unfavorable impact from an increase in promotional activity in the Direct-to-consumer segment which contributed negatively by approximately 110 basis points.
Gain on sale of intangible assets for the three months ended April 29, 2023 was $765 related to the sale of the Parker intellectual property and certain related ancillary assets. See Note 1 "Description of Business and Basis of Presentation - (A) Description of Business" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
Selling, general and administrative ("SG&A") expenses for the three months ended April 29, 2023 were $32,733, decreasing $8,187, or 20.0%, versus $40,920 for the three months ended April 30, 2022. SG&A expenses as a percentage of sales were 51.1%
24
and 52.2% for the three months ended April 29, 2023 and April 30, 2022, respectively. The change in SG&A expenses compared to the prior fiscal year period was primarily due to:
•$5,939 net decrease in total SG&A expenses resulting from the wind down of the Rebecca Taylor brand;
•$1,300 of decreased compensation and benefits, partly due to lower incentive-based compensation;
•$1,275 of decreased rent expense primarily due to lease modifications;
•$970 of decreased marketing and advertising costs; and
•$782 of decreased consulting and other third-party costs primarily due to investments in the prior year related to our customer facing technologies to further expand our omni-channel capabilities and our e-commerce platforms; partly offset by
•$2,741 of transaction related expenses associated with the Asset Sale.
Interest expense, net increased $1,406, or 74.6%, to $3,290 in the three months ended April 29, 2023 from $1,884 in the three months ended April 30, 2022, primarily due to higher interest rates.
(Benefit) provision for income taxes for the three months ended April 29, 2023 was $5,285 which is due to a $6,127 discrete tax impact from the change in classification of the Company's Vince tradename indefinite-lived intangibles to Assets Held for Sale offset by $842 of tax expense from applying the Company's estimated effective tax rate for the fiscal year to the three-months pre-tax loss excluding discrete items. The change in classification of the Company's Vince tradename indefinite-lived intangibles resulted in a reversal of the non-cash deferred tax liability previously created by the amortization of indefinite-lived tradename intangible asset recognized for tax but not for book purposes as this non-cash deferred tax liability can now be used as a source to support the realization of certain deferred tax assets related to the Company's net operating losses. The Company's estimated effective tax rate for the fiscal year is primarily driven by the non-cash deferred tax expense created by the current period amortization of indefinite-lived goodwill for tax but not for book purposes. A portion of these deferred tax liabilities cannot be used as a source to support the realization of certain deferred tax assets related to the Company's net operating losses which results in additional tax expense for the amortization difference for goodwill. The provision for income taxes was $0 for the three months ended April 30, 2022 as the Company was anticipating annual ordinary income for the fiscal year and the Company had determined that it was more likely than not that the tax benefit of the year-to-date loss would not be realized in the prior year or future years. See Note 10 "Income Taxes" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
Performance by Segment
The Company has identified three reportable segments as further described below:
•Vince Wholesale segment—consists of the Company's operations to distribute Vince brand products to major department stores and specialty stores in the United States and select international markets;
•Vince Direct-to-consumer segment—consists of the Company's operations to distribute Vince brand products directly to the consumer through its Vince branded full-price specialty retail stores, outlet stores, and e-commerce platform, and its subscription service Vince Unfold; and
•Rebecca Taylor and Parker segment—consisted of the Company's operations to distribute Rebecca Taylor and Parker brand products to major department stores and specialty stores in the U.S. and select international markets, directly to the consumer through their own branded e-commerce platforms and Rebecca Taylor retail and outlet stores, and through its subscription service Rebecca Taylor RNTD.
On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group. Substantially all Rebecca Taylor inventory was liquidated as of January 28, 2023. Additionally, all Rebecca Taylor retail and outlet stores operated by the Company were closed as of January 28, 2023 and the e-commerce site operated by the Company ceased in December 2022.
On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 1 "Description of Business and Basis of Presentation - (A) Description of Business" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information.
Unallocated corporate expenses are related to the Vince brand and are comprised of SG&A expenses attributable to corporate and administrative activities (such as marketing, design, finance, information technology, legal and human resource departments), and other charges that are not directly attributable to the Company's Vince Wholesale and Vince Direct-to-consumer reportable segments. In addition, unallocated corporate includes the transaction related expenses associated with the Asset Sale.
25
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 29, |
|
|
April 30, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Net Sales: |
|
|
|
|
|
|
Vince Wholesale |
|
$ |
32,467 |
|
|
$ |
33,464 |
|
Vince Direct-to-consumer |
|
|
31,508 |
|
|
|
34,782 |
|
Rebecca Taylor and Parker |
|
|
81 |
|
|
|
10,130 |
|
Total net sales |
|
$ |
64,056 |
|
|
$ |
78,376 |
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
Vince Wholesale |
|
$ |
8,571 |
|
|
$ |
10,163 |
|
Vince Direct-to-consumer |
|
|
1,101 |
|
|
|
(802 |
) |
Rebecca Taylor and Parker |
|
|
1,192 |
|
|
|
(1,484 |
) |
Subtotal |
|
|
10,864 |
|
|
|
7,877 |
|
Unallocated corporate |
|
|
(13,240 |
) |
|
|
(13,162 |
) |
Total loss from operations |
|
$ |
(2,376 |
) |
|
$ |
(5,285 |
) |
Vince Wholesale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(in thousands) |
|
April 29, 2023 |
|
|
April 30, 2022 |
|
|
$ Change |
|
Net sales |
|
$ |
32,467 |
|
|
$ |
33,464 |
|
|
$ |
(997 |
) |
Income from operations |
|
|
8,571 |
|
|
|
10,163 |
|
|
|
(1,592 |
) |
Net sales from our Vince Wholesale segment decreased $997, or 3.0%, to $32,467 in the three months ended April 29, 2023 from $33,464 in the three months ended April 30, 2022, primarily due to lower full-price shipments partly offset by an increase in off-price shipments.
Income from operations from our Vince Wholesale segment decreased $1,592, or 15.7%, to $8,571 in the three months ended April 29, 2023 from $10,163 in the three months ended April 30, 2022, primarily due to a decline in gross margin and lower net sales as noted above.
Vince Direct-to-consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(in thousands) |
|
April 29, 2023 |
|
|
April 30, 2022 |
|
|
$ Change |
|
Net sales |
|
$ |
31,508 |
|
|
$ |
34,782 |
|
|
$ |
(3,274 |
) |
Income (loss) from operations |
|
|
1,101 |
|
|
|
(802 |
) |
|
|
1,903 |
|
Net sales from our Vince Direct-to-consumer segment decreased $3,274, or 9.4%, to $31,508 in the three months ended April 29, 2023 from $34,782 in the three months ended April 30, 2022. Comparable sales decreased $2,750, or 8.2%, including e-commerce, primarily due to a decrease in e-commerce traffic. Non-comparable sales declined $524 which includes new stores which have not completed 13 full fiscal months of operations and Vince Unfold. Since April 30, 2022, one net store has closed bringing our total retail store count to 67 (consisting of 50 full price stores and 17 outlet stores) as of April 29, 2023, compared to 68 (consisting of 50 full price stores and 18 outlet stores) as of April 30, 2022.
Our Vince Direct-to-consumer segment had income from operations of $1,101 in the three months ended April 29, 2023 compared to a loss from operations of $802 in the three months ended April 30, 2022. The change was primarily driven by a decrease in SG&A expenses driven by decreased rent expense, as well as higher investments in our customer facing technologies to further expand our omni-channel capabilities and in our e-commerce platforms in the prior year.
Rebecca Taylor and Parker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(in thousands) |
|
April 29, 2023 |
|
|
April 30, 2022 |
|
|
$ Change |
|
Net sales |
|
$ |
81 |
|
|
$ |
10,130 |
|
|
$ |
(10,049 |
) |
Income (loss) from operations |
|
|
1,192 |
|
|
|
(1,484 |
) |
|
|
2,676 |
|
26
Net sales from our Rebecca Taylor and Parker segment decreased $10,049, or 99.2%, to $81 in the three months ended April 29, 2023 from $10,130 in the three months ended April 30, 2022, as a result of the wind down of the Rebecca Taylor and Parker businesses.
Our Rebecca Taylor and Parker segment had income from operations of $1,192 in the three months ended April 29, 2023 compared to a loss from operations of $1,484 in the three months ended April 30, 2022. The change was primarily driven by the wind down of the Rebecca Taylor business. In addition, income from operations for the three months ended April 29, 2023 includes a $765 gain associated with the sale of the Parker tradename, a net benefit of $624 from the wind down of the Rebecca Taylor business, primarily related to the release of operating lease liabilities as a result of lease terminations, and $150 of transaction related expenses associated with the sale of the Parker tradename.
Liquidity and Capital Resources
Our sources of liquidity are cash and cash equivalents, cash flows from operations, if any, borrowings available under the 2018 Revolving Credit Facility (as amended and restated and as defined below) and our ability to access the capital markets, including our Open Market Sale AgreementSM entered into with Jefferies LLC in September 2021 (see Note 7 "Stockholders' Equity" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information). Our primary cash needs are funding working capital requirements, including royalty payments under the License Agreement, meeting our debt service requirements, and capital expenditures for new stores and related leasehold improvements. The most significant components of our working capital are cash and cash equivalents, accounts receivable, inventories, accounts payable and other current liabilities.
Our recent financial results have been, and our future financial results may be, subject to substantial fluctuations, and may be impacted by business conditions and macroeconomic factors as discussed below. While these potential fluctuations of our results introduce inherent uncertainty in our projections of liquidity, based on our current expectations, during the next twelve months from the date these financial statements are issued, we expect to meet our monthly Excess Availability covenant (as defined in the A&R Revolving Credit Facility Agreement, as amended, and as defined below) and believe that our other sources of liquidity will generate sufficient cash flows to meet our obligations during this twelve month period. The foregoing expectation is dependent on a number of factors, including, among others, our ability to generate sufficient cash flow from operations, our ongoing ability to manage our operating obligations, the results of any future inventory valuations and the potential borrowing restrictions imposed by our lenders based on their credit judgment, which could materially and negatively impact our borrowing capacity, the wind down of the Rebecca Taylor business, as well as macroeconomic factors. Any material negative impact from these factors or others could require us to implement alternative plans to satisfy our liquidity needs which may be unsuccessful. In the event that we are unable to timely service our debt, meet other contractual payment obligations or fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness before maturity, seek waivers of or amendments to our contractual obligations for payment, reduce or delay scheduled expansions and capital expenditures, liquidate inventory through additional discounting, sell assets or operations or seek other financing opportunities.
Upon closing of the Authentic Transaction, and the consummation of the amendments in the Second Amendment to ABL Credit Agreement, as discussed above within "Executive Overview" and below within "Financing Activities", the Company believes it has strengthened its overall balance sheet and increased its working capital by prepaying in full the outstanding borrowings under Vince, LLC's Term Loan Credit Facility and repaying a portion of the outstanding borrowings under Vince, LLC's 2018 Revolving Credit Facility. The Second Amendment to ABL Credit Agreement has amended the maturity date of the 2018 Revolving Credit Facility to June 30, 2024. There can be no assurance that we will be able to refinance the 2018 Revolving Credit Facility on reasonable terms, if at all. See Note 4 "Long-Term Debt and Financing Arrangements" and Note 14 "Subsequent Events" to the Condensed Consolidated Financial Statements, as well as Part II, Item 1A "Risk Factors" in this Quarterly Report for further information.
27
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(in thousands) |
|
April 29, 2023 |
|
|
April 30, 2022 |
|
Operating activities |
|
|
|
|
|
|
Net loss |
|
$ |
(381 |
) |
|
$ |
(7,169 |
) |
Add (deduct) items not affecting operating cash flows: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,366 |
|
|
|
1,558 |
|
Provision for bad debt |
|
|
126 |
|
|
|
39 |
|
Gain on sale of intangible assets |
|
|
(765 |
) |
|
|
— |
|
Amortization of deferred financing costs |
|
|
519 |
|
|
|
214 |
|
Deferred income taxes |
|
|
(5,285 |
) |
|
|
— |
|
Share-based compensation expense |
|
|
420 |
|
|
|
609 |
|
Capitalized PIK Interest |
|
|
913 |
|
|
|
699 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Receivables, net |
|
|
3,235 |
|
|
|
4,773 |
|
Inventories |
|
|
9,974 |
|
|
|
(4,803 |
) |
Prepaid expenses and other current assets |
|
|
(683 |
) |
|
|
69 |
|
Accounts payable and accrued expenses |
|
|
(1,723 |
) |
|
|
(2,164 |
) |
Other assets and liabilities |
|
|
(2,438 |
) |
|
|
1,767 |
|
Net cash provided by (used in) operating activities |
|
$ |
5,278 |
|
|
$ |
(4,408 |
) |
Net cash provided by operating activities during the three months ended April 29, 2023 was $5,278, which consisted of a net loss of $381, impacted by non-cash items of $(2,706) and cash provided by working capital of $8,365. Net cash provided by working capital primarily resulted from a cash inflow in inventory of $9,974 primarily due to conservative inventory management and the sell-through of excess inventory, a cash inflow in receivables, net of $3,235 primarily due to the timing of collections, partly offset by a cash outflow in accounts payable and accrued expenses of $1,723 primarily due to the timing of payments to vendors.
Net cash used in operating activities during the three months ended April 30, 2022 was $4,408, which consisted of a net loss of $7,169, impacted by non-cash items of $3,119 and cash used in working capital of $358. Net cash used in working capital primarily resulted from a cash outflow in inventory of $4,803 primarily due to growth in the business and the timing of receipts and a cash outflow in accounts payable and accrued expenses of $2,164 primarily due to the timing of payments to vendors, partly offset by a cash inflow from receivables, net, of $4,773 primarily driven by the timing of collections.
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(in thousands) |
|
April 29, 2023 |
|
|
April 30, 2022 |
|
Investing activities |
|
|
|
|
|
|
Payments for capital expenditures |
|
$ |
(115 |
) |
|
$ |
(622 |
) |
Proceeds from sale of intangible assets |
|
|
1,025 |
|
|
|
— |
|
Net cash provided by (used in) investing activities |
|
$ |
910 |
|
|
$ |
(622 |
) |
Net cash provided by investing activities of $910 during the three months ended April 29, 2023 primarily represents the proceeds received from the sale of the Parker intangible assets (see Note 1 "Description of Business and Basis of Presentation - (A) Description of Business" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information).
Net cash used in investing activities of $622 during the three months ended April 30, 2022 represents capital expenditures primarily related to retail store buildouts, including leasehold improvements and store fixtures, as well as the investment in our information technology systems.
28
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(in thousands) |
|
April 29, 2023 |
|
|
April 30, 2022 |
|
Financing activities |
|
|
|
|
|
|
Proceeds from borrowings under the Revolving Credit Facilities |
|
$ |
63,827 |
|
|
$ |
91,573 |
|
Repayment of borrowings under the Revolving Credit Facilities |
|
|
(68,841 |
) |
|
|
(86,507 |
) |
Repayment of borrowings under the Term Loan Facilities |
|
|
(1,713 |
) |
|
|
— |
|
Proceeds from common stock issuance, net of certain fees |
|
|
— |
|
|
|
305 |
|
Tax withholdings related to restricted stock vesting |
|
|
(8 |
) |
|
|
(148 |
) |
Proceeds from stock option exercises, restricted stock vesting, and issuance of common stock under employee stock purchase plan |
|
|
15 |
|
|
|
23 |
|
Financing fees |
|
|
(125 |
) |
|
|
— |
|
Net cash (used in) provided by financing activities |
|
$ |
(6,845 |
) |
|
$ |
5,246 |
|
Net cash used in financing activities was $6,845 during the three months ended April 29, 2023, primarily consisting of $5,014 of net repayments of borrowings under the 2018 Revolving Credit Facility and the repayment of $1,713 of borrowings under the Term Loan Credit Facility.
Net cash provided by financing activities was $5,246 during the three months ended April 30, 2022, primarily consisting of $5,066 of net proceeds from borrowings under the 2018 Revolving Credit Facility.
Term Loan Credit Facility
On September 7, 2021, Vince, LLC entered into a new $35,000 senior secured term loan credit facility (the "Term Loan Credit Facility") pursuant to a Credit Agreement (the "Term Loan Credit Agreement") by and among Vince, LLC, as the borrower, the guarantors named therein, PLC Agent, LLC, as administrative agent and collateral agent, and the other lenders from time to time party thereto. Vince Holding Corp. and Vince Intermediate Holding, LLC ("Vince Intermediate") are guarantors under the Term Loan Credit Facility. The Term Loan Credit Facility matures on the earlier of September 7, 2026 and 91 days after the maturity date of the 2018 Revolving Credit Facility (as defined below).
The Term Loan Credit Facility is subject to quarterly amortization of $875 commencing on July 1, 2022, with the balance payable at final maturity. Interest is payable on loans under the Term Loan Credit Facility at a rate equal to the 90-day LIBOR rate, or an alternate applicable reference rate in the event LIBOR is no longer available, subject, in either case, to a 1.0% floor, plus 7.0%. During the continuance of certain specified events of default, interest will accrue on the overdue amount of any loan at a rate of 2.0% in excess of the rate otherwise applicable to such amount. In addition, the Term Loan Credit Agreement requires mandatory prepayments upon the occurrence of certain events, including but not limited to, an Excess Cash Flow payment (as defined in the Term Loan Credit Agreement), subject to reductions for voluntary prepayments made during such fiscal year, commencing with the fiscal year ending January 28, 2023.
The Term Loan Credit Facility contains a requirement that Vince, LLC will maintain an availability under its 2018 Revolving Credit Facility of the greater of 10% of the commitments thereunder or $9,500. The Term Loan Credit Facility did not permit dividends prior to April 30, 2022, or an earlier date designated by Vince, LLC (the period until such date, the "Accommodation Period") and now permits them to the extent that no default or event of default is continuing or would result from a contemplated dividend, so long as after giving pro forma effect to the contemplated dividend subtracting any accounts payable amounts that are or are projected to be past due for the following six months, excess availability for such six month period will be at least the greater of 25.0% of the aggregate lending commitments and $15,000. In addition, the Term Loan Credit Facility contains customary representations and warranties, other covenants, and events of default, including but not limited to, limitations on the incurrence of additional indebtedness, liens, burdensome agreements, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year, and distributions and dividends. Furthermore, the Term Loan Credit Facility is subject to a Borrowing Base (as defined in the Term Loan Credit Agreement) which can, under certain conditions result in the imposition of a reserve under the 2018 Revolving Credit Facility. As of April 29, 2023, the Company was in compliance with applicable covenants.
All obligations under the Term Loan Credit Facility are guaranteed by Vince Intermediate and the Company and any future material domestic restricted subsidiaries of Vince, LLC and secured by a lien on substantially all of the assets of the Company, Vince, LLC and Vince Intermediate and any future material domestic restricted subsidiaries.
On September 30, 2022, Vince, LLC entered into the First Amendment to the Term Loan Credit Agreement (the "TL First Amendment"). The TL First Amendment, among other things, (i) requires more frequent borrowing base reporting and establishes variance reporting in connection with the Rebecca Taylor, Inc. liquidation; (ii) removes the assets (other than intellectual property) of the Rebecca Taylor, Inc. and Parker Holding, LLC companies from the term loan borrowing base; (iii) permits the sale of the intellectual property of the Rebecca Taylor, Inc. and Parker Holding, LLC companies and the Rebecca Taylor, Inc. liquidation; (iv)
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amends the ABL (as defined in the Term Loan Credit Agreement) excess availability covenant to provide the Company with up to $5,000 of additional potential liquidity through December 28, 2022; and (v) requires prepayment of the Obligations in an amount equal to 100% of the Net Cash Proceeds received from the sale of the intellectual property of the Rebecca Taylor, Inc. and Parker Holding, LLC companies to be applied against the Obligations as outlined in the TL First Amendment. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets and net cash proceeds of $2,997 were used to repay a portion of the Term Loan Credit Facility. On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets and net cash proceeds of $838 were used to repay a portion of the Term Loan Credit Facility.
In connection with the TL First Amendment, Vince, LLC agreed to pay the term lenders fees equal to (i) $600 and (ii) if the underlying term loan is not paid in full by January 31, 2023, an additional $850, which is payable upon Payment in Full of the Term Loan Credit Facility.
As a result of the TL First Amendment, the Company incurred a total of $1,525 of financing costs. In accordance with ASC Topic 470, "Debt", the Company accounted for this amendment as a debt modification and has recorded $75 of the financing costs paid to third parties within selling, general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for fiscal 2022. The remaining $1,450 of financing costs were recorded as deferred debt issuance costs (which is presented within Long-term debt on the Condensed Consolidated Balance Sheets) which will be amortized over the remaining term of the Term Loan Credit Facility.
Through April 29, 2023, on an inception to date basis, the Company has made repayments of $7,335 on the Term Loan Credit Facility.
On May 25, 2023, utilizing proceeds from the Asset Sale, the Company repaid all outstanding amounts under the Term Loan Credit Facility and the Term Loan Credit Facility was terminated. See Note 14 "Subsequent Events" to the Condensed Consolidated Financial Statements in this Quarterly Report for further details.
2018 Revolving Credit Facility
On August 21, 2018, Vince, LLC entered into an $80,000 senior secured revolving credit facility (the "2018 Revolving Credit Facility" as amended and restated as described below) pursuant to a credit agreement by and among Vince, LLC, as the borrower, VHC and Vince Intermediate, as guarantors, Citizens Bank, N.A. ("Citizens"), as administrative agent and collateral agent, and the other lenders from time to time party thereto. The 2018 Revolving Credit Facility provides for a revolving line of credit of up to $80,000, subject to a Loan Cap, which is the lesser of (i) the Borrowing Base as defined in the credit agreement for the 2018 Revolving Credit Facility and (ii) the aggregate commitments, as well as a letter of credit sublimit of $25,000. It also provides for an increase in aggregate commitments of up to $20,000.
Interest is payable on the loans under the 2018 Revolving Credit Facility at either the LIBOR or the Base Rate, in each case, with applicable margins subject to a pricing grid based on an average daily excess availability calculation. The "Base Rate" means, for any day, a fluctuating rate per annum equal to the highest of (i) the rate of interest in effect for such day as publicly announced from time to time by Citizens as its prime rate; (ii) the Federal Funds Rate for such day, plus 0.5%; and (iii) the LIBOR Rate for a one month interest period as determined on such day, plus 1.00%. During the continuance of certain specified events of default, at the election of Citizens, interest will accrue at a rate of 2.0% in excess of the applicable non-default rate.
The 2018 Revolving Credit Facility contains a requirement that, at any point when Excess Availability (as defined in the credit agreement for the 2018 Revolving Credit Facility) is less than 10.0% of the loan cap and continuing until Excess Availability exceeds the greater of such amounts for 30 consecutive days, Vince, LLC must maintain during that time a Consolidated Fixed Charge Coverage Ratio (as defined in the credit agreement for the 2018 Revolving Credit Facility) equal to or greater than 1.0 to 1.0 measured as of the last day of each fiscal month during such period.
The 2018 Revolving Credit Facility contains representations and warranties, other covenants and events of default that are customary for this type of financing, including covenants with respect to limitations on the incurrence of additional indebtedness, liens, burdensome agreements, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of the Company's business or its fiscal year. The 2018 Revolving Credit Facility generally permits dividends in the absence of any event of default (including any event of default arising from a contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend and for the following six months Excess Availability will be at least the greater of 20.0% of the Loan Cap and $10,000 and (ii) after giving pro forma effect to the contemplated dividend, the Consolidated Fixed Charge Coverage Ratio for the 12 months preceding such dividend will be greater than or equal to 1.0 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than 1.0 to 1.0 if, after giving pro forma effect to the contemplated dividend, Excess Availability for the six fiscal months following the dividend is at least the greater of 25.0% of the Loan Cap and $12,500).
On November 1, 2019, Vince, LLC entered into the First Amendment (the "First Revolver Amendment") to the 2018 Revolving Credit Facility, which provided the borrower the ability to elect the Daily LIBOR Rate in lieu of the Base Rate to be applied to the
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borrowings upon applicable notice. The "Daily LIBOR Rate" means a rate equal to the Adjusted LIBOR Rate in effect on such day for deposits for a one day period, provided that, upon notice and not more than once every 90 days, such rate may be substituted for a one week or one month period for the Adjusted LIBOR Rate for a one day period.
On November 4, 2019, Vince, LLC entered into the Second Amendment (the "Second Revolver Amendment") to the credit agreement of the 2018 Revolving Credit Facility. The Second Revolver Amendment increased the aggregate commitments under the 2018 Revolving Credit Facility by $20,000 to $100,000. Pursuant to the terms of the Second Revolver Amendment, the Acquired Businesses became guarantors under the 2018 Revolving Credit Facility and jointly and severally liable for the obligations thereunder.
On June 8, 2020, Vince, LLC entered into the Third Amendment (the "Third Revolver Amendment") to the 2018 Revolving Credit Facility. The Third Revolver Amendment, among others, increased availability under the facility's borrowing base by (i) temporarily increasing the aggregate commitments under the 2018 Revolving Credit Facility to $110,000 through November 30, 2020 (such period, the "Third Amendment Accommodation Period") (ii) temporarily revising the eligibility of certain account debtors during the Third Amendment Accommodation Period by extending by 30 days the period during which those accounts may remain outstanding past due as well as increasing the concentration limits of certain account debtors and (iii) for any fiscal four quarter period ending prior to or on October 30, 2021, increasing the cap on certain items eligible to be added back to Consolidated EBITDA to 27.5% from 22.5%.
The Third Revolver Amendment also (a) waived events of default; (b) temporarily increased the applicable margin on all borrowings of revolving loans by 0.75% per annum during the Third Amendment Accommodation Period and increased the LIBOR floor from 0% to 1.0%; (c) eliminated Vince, LLC's and any loan party's ability to designate subsidiaries as unrestricted and to make certain payments, restricted payments and investments during the Third Amendment Extended Accommodation Period; (d) temporarily suspended the Fixed Charge Coverage Ratio covenant through the Third Amendment Extended Accommodation Period; (e) required Vince, LLC to maintain a Fixed Charge Coverage Ratio of 1.0 to 1.0 in the event the excess availability under the 2018 Revolving Credit Facility was less than (x) $10,000 between September 6, 2020 and January 9, 2021, (y) $12,500 between January 10, 2021 and January 31, 2021 and (z) $15,000 at all other times during the Third Amendment Extended Accommodation Period; (f) imposed a requirement (y) to pay down the 2018 Revolving Credit Facility to the extent cash on hand exceeded $5,000 on the last day of each week and (z) that, after giving effect to any borrowing thereunder, Vince, LLC may have no more than $5,000 of cash on hand; (g) permitted Vince, LLC to incur up to $8,000 of additional secured debt (in addition to any interest accrued or paid in kind), to the extent subordinated to the 2018 Revolving Credit Facility on terms reasonably acceptable to Citizens; (h) established a method for imposing a successor reference rate if LIBOR should become unavailable, (i) extended the delivery periods for (x) annual financial statements for the fiscal year ended February 1, 2020 to June 15, 2020 and (y) quarterly financial statements for the fiscal quarters ended May 2, 2020 and August 1, 2020 to July 31, 2020 and October 29, 2020, respectively, and (j) granted ongoing relief through September 30, 2020 with respect to certain covenants regarding the payment of lease obligations.
On December 11, 2020, Vince, LLC entered into the Fifth Amendment (the "Fifth Revolver Amendment") to the 2018 Revolving Credit Facility. The Fifth Revolver Amendment, among other things, (i) extended the period from November 30, 2020 to July 31, 2021 (such period, "Accommodation Period"), during which the eligibility of certain account debtors was revised by extending by 30 days the time those accounts may remain outstanding past due as well as increasing the concentration limits of certain account debtors; (ii) extended the period through which the applicable margin on all borrowings of revolving loans by 0.75% per annum during such Accommodation Period; (iii) extended the period from October 30, 2021 to January 29, 2022, during which the cap on which certain items eligible to be added back to "Consolidated EBITDA" (as defined in the 2018 Revolving Credit Facility) was increased to 27.5% from 22.5%; (iv) extended the temporary suspension of the Consolidated Fixed Charge Coverage Ratio ("FCCR") covenant through the delivery of a compliance certificate relating to the fiscal quarter ended January 29, 2022 (such period, the "Extended Accommodation Period"), other than the fiscal quarter ending January 29, 2022; (v) required Vince, LLC to maintain an FCCR of 1.0 to 1.0 in the event the excess availability under the 2018 Revolving Credit Facility was less than (x) $7,500 through the end of the Accommodation Period; and (y) $10,000 from August 1, 2020 through the end of the Extended Accommodation Period; (vi) permitted Vince, LLC to incur the debt under the Third Lien Credit Facility (as described below); (vii) revised the definition of "Cash Dominion Trigger Amount" to mean $15,000 through the end of the Extended Accommodation Period and at all other times thereafter, 12.5% of the loan cap and $5,000, whichever is greater; (viii) deemed the Cash Dominion Event (as defined in the credit agreement for the 2018 Revolving Credit Facility) as triggered during the Accommodation Period; and (ix) required an engagement by the Company of a financial advisor from February 1, 2021 until March 31, 2021 (or until the excess availability was greater than 25% of the loan cap for a period of at least thirty days, whichever is later) to assist in the preparation of certain financial reports, including the review of the weekly cashflow reports and other items. As of April 2021, the requirement to engage a financial advisor had been satisfied.
On September 7, 2021, concurrently with the Term Loan Credit Facility, Vince, LLC entered into an Amended and Restated Credit Agreement (the "A&R Revolving Credit Facility Agreement") which, among other things, contained amendments to reflect the terms of the Term Loan Credit Facility and extended the maturity of the 2018 Revolving Credit Facility to the earlier of June 8, 2026 and 91 days prior to the maturity of the Term Loan Credit Facility.
In addition, the A&R Revolving Credit Facility Agreement, among others: (i) lowered all applicable margins by 0.75%; (ii) revised the end of the Accommodation Period (as defined therein) to April 30, 2022 or an earlier date as elected by Vince, LLC; (iii)
31
amended the borrowing base calculation to exclude Eligible Cash On Hand (as defined therein); (iv) revised the threshold under the definition of the Cash Dominion Trigger Event to be the excess availability of the greater of (a) 12.5% of the loan cap and (b) $11,000; (v) deleted the financial covenant and replaced it with a requirement to maintain a minimum excess availability not to be less than the greater of (a) $9,500 and (b) 10% of the commitments at any time; and (vi) revised certain representations and warranties as well as operational covenants.
Concurrently with the TL First Amendment, on September 30, 2022, Vince, LLC entered into the First Amendment to the A&R Revolving Credit Facility Agreement (the "ABL First Amendment"). The ABL First Amendment, among other things, (i) requires more frequent borrowing base reporting and establishes variance reporting in connection with the Rebecca Taylor, Inc. liquidation; (ii) amends the definition of "Availability Reserves" to account for the difference between the aggregate amount of the ABL borrowing base attributable to the assets of the Rebecca Taylor, Inc. and Parker Holding, LLC companies and the amounts received (or anticipated to be received) as net proceeds of asset sales in connection with the Rebecca Taylor, Inc. liquidation; (iii) permits the sale of the intellectual property of the Rebecca Taylor, Inc. and Parker Holding, LLC companies and the Rebecca Taylor, Inc. liquidation; (iv) amends the excess availability covenant to provide the Company with up to $5,000 of additional potential liquidity through December 28, 2022; and (v) removes the assets of the Rebecca Taylor, Inc. and Parker Holding, LLC companies from the borrowing base from and after November 30, 2022. In connection with the ABL First Amendment, Vince, LLC agreed to pay the ABL lenders fees equal to (i) $375 and (ii) if the ABL was not paid in full by December 15, 2022, an additional $125, which was paid on January 31, 2023.
As a result of the ABL First Amendment, the Company incurred a total of $708 of financing costs. In accordance with ASC Topic 470, "Debt", the Company accounted for this amendment as a debt modification and therefore, these financing costs were recorded as deferred debt issuance costs (which is presented within Other assets on the Condensed Consolidated Balance Sheets) and will be amortized over the remaining term of the 2018 Revolving Credit Facility.
On April 21, 2023, Vince, LLC entered into the certain Consent and Second Amendment to Amended and Restated Credit Agreement (the "Second Amendment to ABL Credit Agreement"), which amends that certain Amended and Restated Credit Agreement, dated as of September 7, 2021 (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of September 30, 2022, the Second Amendment to ABL Credit Agreement and as further amended, restated, amended and restated, supplemented, modified or otherwise in effect from time to time, the "ABL Credit Agreement") by and among Vince, LLC as the borrower, the guarantors signatory thereto, Citizens, as administrative agent and collateral agent, Citizens, as an L/C Issuer, and the other lenders party thereto.
The Second Amendment to ABL Credit Agreement amends the ABL Credit Agreement to, among other things, (a) permit the sale of the intellectual property related to the business operated under the Vince brand contemplated in the Asset Sale, (b) replace LIBOR as an interest rate benchmark in favor of Daily Simple SOFR, subject to a credit spread adjustment of 0.10% per annum, and (c) increase the applicable margin in respect of loans under the ABL Credit Agreement to 2.75% for SOFR loans and 1.75% for base rate loans, (d) reduce the lenders' commitments to extend credit to (i) $70,000 as of the Asset Sale closing date, (ii) $65,000 as of June 30, 2023, (iii) $60,000 as of July 31, 2023, (iv) $55,000 as of September 30, 2023 and (v) $25,000 as of December 31, 2023, (e) amend the ABL Credit Agreement's maturity date to June 30, 2024, (f) reduce the capacity to incur indebtedness and liens, make investments, restricted payments and dispositions and repay certain indebtedness, (g) modify certain terms impacting the calculation of ABL Credit Agreement's borrowing base, (h) modify certain reporting requirements, (i) set the minimum excess availability covenant at $15,000, (j) remove cash dominion event qualifications related to certain obligations of Vince, LLC and certain of its subsidiaries under the ABL Credit Agreement and (k) modify certain representations and warranties, covenants and events of default in respect of documentation related to the Asset Sale.
The amendments set forth above became effective upon the contemporaneous consummation of the Asset Sale, the prepayment of the Term Loan Credit Facility in full and other transactions contemplated by the Asset Purchase Agreement. See Note 14 "Subsequent Events" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
As of April 29, 2023, the Company was in compliance with applicable covenants. As of April 29, 2023, $20,399 was available under the 2018 Revolving Credit Facility, net of the Loan Cap, and there were $53,484 of borrowings outstanding and $5,104 of letters of credit outstanding under the 2018 Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the 2018 Revolving Credit Facility as of April 29, 2023 was 6.6%.
Third Lien Credit Facility
On December 11, 2020, Vince, LLC entered into a $20,000 subordinated term loan credit facility (the "Third Lien Credit Facility") pursuant to a credit agreement (the "Third Lien Credit Agreement"), dated December 11, 2020, by and among Vince, LLC, as the borrower, VHC and Vince Intermediate, as guarantors, and SK Financial Services, LLC ("SK Financial"), as administrative agent and collateral agent, and other lenders from time to time party thereto.
SK Financial is an affiliate of Sun Capital Partners, Inc. ("Sun Capital"), whose affiliates own, as of April 29, 2023, approximately 69% of the Company's common stock. The Third Lien Credit Facility was reviewed and approved by the Special
32
Committee of the Company's Board of Directors, consisting solely of directors not affiliated with Sun Capital, which committee was represented by independent legal advisors.
Interest on loans under the Third Lien Credit Facility is payable in kind at a rate equal to the LIBOR rate (subject to a floor of 1.0%) plus applicable margins subject to a pricing grid based on minimum Consolidated EBITDA (as defined in the Third Lien Credit Agreement). During the continuance of certain specified events of default, interest may accrue on the loans under the Third Lien Credit Facility at a rate of 2.0% in excess of the rate otherwise applicable to such amount. The Third Lien Credit Facility contains representations, covenants and conditions that are substantially similar to those under the Company's 2018 Term Loan Facility, except the Third Lien Credit Facility does not contain any financial covenants.
The Company incurred $485 in deferred financing costs associated with the Third Lien Credit Facility of which a $400 closing fee is payable in kind and was added to the principal balance. These deferred financing costs are recorded as deferred debt issuance costs which will be amortized over the remaining term of the Third Lien Credit Facility.
All obligations under the Third Lien Credit Facility are guaranteed by the Company, Vince Intermediate and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries and are secured on a junior basis relative to the 2018 Revolving Credit Facility and the 2018 Term Loan Facility by a lien on substantially all of the assets of the Company, Vince Intermediate, Vince, LLC and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries.
The proceeds were received on December 11, 2020 and were used to repay a portion of the borrowings outstanding under the 2018 Revolving Credit Facility.
On September 7, 2021, concurrently with the Term Loan Credit Facility as well as the A&R Revolving Credit Facility Agreement, Vince, LLC entered into an amendment (the "Third Lien First Amendment") to the Third Lien Credit Facility which amended its terms to extend its maturity to March 6, 2027, revised the interest rate to remove the tiered applicable margins so that the rate is now equal to the 90-day LIBOR rate, or an alternate applicable reference rate in the event LIBOR is no longer available, plus 9.0% at all times, and to reflect the applicable terms of the Term Loan Credit Facility as well as the A&R Revolving Credit Facility Agreement.
Concurrently with the TL First Amendment and the ABL First Amendment, on September 30, 2022, Vince, LLC entered into the Second Amendment to the Third Lien Credit Agreement (the "Third Lien Second Amendment"). The Third Lien Second Amendment, among other things, (i) establishes variance reporting in connection with the Rebecca Taylor, Inc. liquidation; and (ii) permits the sale of the intellectual property of the Rebecca Taylor, Inc. and Parker Holding, LLC companies and the Rebecca Taylor, Inc. liquidation.
On April 21, 2023, Vince, LLC entered into that certain Consent and Third Amendment to Credit Agreement (the "Third Amendment to Third Lien Credit Agreement"), which amends that certain Credit Agreement, dated as of December 11, 2020 (as amended by that certain First Amendment to Credit Agreement, dated as of September 7, 2021, that certain Second Amendment to Credit Agreement, dated as of September 30, 2022, the Third Amendment to Third Lien Credit Agreement and as further amended, restated, amended and restated, supplemented, modified or otherwise in effect from time to time, the "Third Lien Credit Agreement") by and among Vince, LLC, as the borrower, the guarantors signatory thereto, SK Financial Services, LLC, as administrative agent and collateral agent, and the lenders party thereto.
The Third Amendment to Third Lien Credit Agreement amends the Third Lien Credit Agreement to, among other things, (a) permit the sale of the intellectual property of the Vince Business contemplated in the Asset Sale, (b) replace LIBOR as an interest rate benchmark in favor of Daily Simple SOFR, subject to a credit spread adjustment of 0.10% per annum, (c) amend the Third Lien Credit Agreement's maturity date to the earlier of (i) March 30, 2025 and (ii) 180 days after the maturity date under the ABL Credit Agreement, (d) reduce the capacity to incur indebtedness and liens, make investments, restricted payments and dispositions and repay certain indebtedness and (e) modify certain representations and warranties, covenants and events of default in respect of documentation related to the Asset Sale.
The amendments set forth above became effective upon the consummation of the Asset Sale, the prepayment of the Term Loan Credit Facility in full and other transactions contemplated by the Asset Purchase Agreement. See Note 14 "Subsequent Events" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
Seasonality
The apparel and fashion industry in which we operate is cyclical and, consequently, our revenues are affected by general economic conditions and the seasonal trends characteristic to the apparel and fashion industry. Purchases of apparel are sensitive to a number of factors that influence the level of consumer spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates and consumer confidence as well as the impact of adverse weather conditions. In addition, fluctuations in the amount of sales in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events affecting direct-to-consumer sales; as such, the financial results for any particular quarter may not be indicative of results for the fiscal year. We expect such seasonality to continue.
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Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of operations relies on our condensed consolidated financial statements, as set forth in Part I, Item 1 of this Quarterly Report, which are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. While we believe that these accounting policies are based on reasonable measurement criteria, actual future events can and often do result in outcomes materially different from these estimates.
A summary of our critical accounting estimates is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2022 Annual Report on Form 10-K. As of April 29, 2023, there have been no material changes to the critical accounting estimates contained therein.
