iMedia Brands, Inc.

Greetings and welcome to the iMedia Brands' third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Peterman, CEO of iMedia Brands. Thank you. You may begin.

Good morning, everyone, and thank you for joining. This is Tim Peterman, iMedia Brands CEO. Before I go into my prepared remarks, I would like to cover a few housekeeping items. We issued our Q3 earnings release earlier this morning. If you do not have a copy, you can access it through the Investors section of our website at imediabrands.com. This release is also an exhibit to the Form 8K filed this morning. I would also like to remind everyone that this call will be available for replay through December 8, 2020, starting today at 1130 a.m. Eastern. A webcast replay will also be available via the link provided in today's press release, as well as the investor section of our website. Some of the statements made during this call are considered forward-looking and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performances and speak only as of today's date. We undertake no obligation to update or revise these forward-looking statements for any reason. We believe the expectations reflected in our forward-looking statements are reasonable, but give no assurance such expectations or any of our forward-looking statements will prove to be correct. For additional information, please refer to the Safe Harbor Statement in today's earnings release and our SEC filings. Finally, we will make references to non-GAAP measures on this call, such as adjusted EBITDA, The information required to be disclosed about these measures, including reconciliations to the most comparable gap measures, are included within our earnings release. With these housekeeping items complete, let's begin. As with our last call, I would like to reiterate that iMedia Brands continues to be focused on taking every step it can during these uncertain times to keep its employees, vendors, customers, guests, and their families safe. Q3 was a strong financial report card for us as our entrepreneurial-minded employees and vendors continue to use their imagination and grit to perform within our new, more accountable processes. This new approach I installed last year has infused our cultural personality with trust and passion, and it's those two emotions that are most responsible for driving our results, like Q3 adjusted EBITDA was $6.4 million, a $7.4 million improvement over the same prior year period. Year-to-date adjusted EBITDA was $15.5 million, a $24.7 million improvement over the same prior year period. Q3 gross margin was 37.4%, a 130 basis point improvement over the same prior year period. Year-to-date gross margin was 37.2%, a 370 basis point improvement over the same prior year period. Q3 net sales were 109 million, a decline of 5% compared to the same prior year period, which was the best year-over-year quarterly net sales performance in more than two years. This success was primarily driven by 49 exciting new brands launched so far this year that have generated approximately 21% of our year-to-date net sales, the highest percent in any nine-month period in our company's 30-year history. In August, we were pleased to see that our equity raise was oversubscribed and the participation from high-quality institutional investors was meaningful. Regarding our Q3 balance sheet, cash was $19 million, an $8.7 million improvement from prior year-end. Net debt at the end of Q3 was $33.6 million, a $25.1 million reduction from prior year-end. The company's debt structure is composed of a credit facility that provides up to a $90 million revolving line of credit, subject to a borrowing base, and a term loan that matures in July 2023. Our inventory balance at the end of the third quarter was $72 million, an $11 million decrease from the same prior year period. Regarding Q3 capital expenditures, we invested approximately $1.2 million on capital projects, primarily reflecting investments in our websites and infrastructure. In terms of our Q4 outlook, we believe the company will post adjusted EBITDA in the mid to high single digit millions. As a reminder, from a tax perspective, the company has approximately $393 million in federal NOLs that are available to us to offset future taxable income. In terms of our journey to become a leading interactive media company, Growing a portfolio of lifestyle television networks, consumer brands, and media commerce services, we achieved several important milestones during Q3. In early 2020, we premiered our Learning to Cook with Shaq television program on both Shop HQ and Shop Bulldog TV. As always, our goal is to maximize the sales of Shaq products on these networks. However, for the first time, we also plan to unlock the promotional power of our networks to drive the creation of a meaningful brick-and-mortar retail opportunity. This would be a first for TV retailing from our perspective, and I'm proud to announce the achievement of that milestone in October when our Shack Kitchen products launched in over 2,000 Target and Sam's Club stores. Another milestone achievement was the launch of our newest 24-7 TV retailing network, Shop HQ Health. As we announced in August, we launched this network in 15 million homes, and I'm happy to report it is off to a great start. Today, I would like to provide more color on why we launched this service and what type of programming products and services it will offer and why we are so excited about it. Last fall, we launched Shop Bulldog TV by using Shop HQ's existing strength in men's categories as the initial competitive advantage to create this live 24-7 TV retailing channel dedicated to men and women who are shopping for their men. Shop HQ Health was launched for the same reasons. Shop HQ's existing strengths in beauty and health categories are being utilized as the initial competitive advantage for this new 24-7 TV retailing channel dedicated to self-improvement for men and women. To be specific, we define self-improvement as products and services within the traditional TV retailing categories of health and beauty. However, we are equally focused on offering products and services in what today is referred to as telehealth. Telehealth is different from telemedicine in that telehealth refers to a broader scope of health-related products and services consumed by people in their homes via interactive video delivered to them via cable box, the Internet, over-the-top services like Apple TV or Roku. or over-the-air services from broadcasters, whatever the form of delivery. We believe telemedicine refers specifically to remote clinical services, while telehealth refers to broader health products and services, such as mental health, spirituality, and weight loss. Today, we size the U.S. telehealth marketplace at about 11 billion, and it's expected to grow by 30-plus percent for each of the next five years. The core customer in this space is the same core customer iMedia interacts with today, men and women who are 45 and older. The growth in this marketplace is being driven by consumers who are seeking the purchase of an advanced level of health education, products and or services at lower costs via interactive video in their own homes. Based on these characteristics, we think we are strategically situated to capture a meaningful share of this growing marketplace. In closing, I would like to say that these are important times here at iMedia as we continue on our path to become a growth company. Thank you for your time this morning. I will turn the call back over to the operator for Q&A. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first question has come from the line of Mark Argento with Lake Street Capital. Please proceed with your questions.