iMedia Brands, Inc.

Hello, and welcome to the iMedia Brands first quarter 2021 earnings call and webcast. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Monty Wagman, Corporate Controller. Please go ahead, sir.

Good morning, everyone, and thank you for joining. This is Monty Wagman, iMedia Brands Corporate Controller. We issued our Q1 earnings release earlier this morning. If you do not have a copy, you may access it through the news section of our IR website at imediabrands.com. This release is also an exhibit to the Form 8K file this morning. I would also like to remind everyone this call will be available for replay through June 8, 2021, starting today at 1130 a.m. Eastern Time. A webcast replay will also be available via the link provided in today's press release as well as on the IR 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 performance and speak only as of today's date. We undertake no obligation to update or revise these forward-looking statements for any reasons. 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 in our SEC filings. Finally, we will make reference 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. Now I would like to turn the call over to the CEO of iMedia Brands, Tim Peterman. Tim?

Thank you, Monty, and good morning, everyone. Q1 was another strong quarter for us. Revenue was $113.2 million, an increase of 18% compared to the same prior year period. This was driven in part by the 34 new brands we launched during the quarter across our television networks. Q1 gross margin was 40.6%, a 350 basis point improvement over the same prior year period. Q1 adjusted EBITDA was 8.1 million, a 9.8 million improvement compared to the same prior year period. And our Q1 total active customer file grew by 14%, and that's the company's highest growth rate for this metric in seven years. But before I go deeper into our Q1 financial performance, I want to walk through two recent achievements in our strategic roadmap to becoming the leading single source provider and partner for advertisers seeking to entertain and transact with customers using interactive video. We at iMedia believe that today the largest scaled marketplace to reach the largest concentration of our core customer demographic using interactive video is linear television. which is the roughly 100 million U.S. homes reached via MVPDs, broadcasters, telcos, and satellite providers. As noted by Nielsen's The State of Traditional TV five-year study published in 2017 and updated by Nielsen quarterly thereafter, iMedia's core customer demographic is primarily women who are at least 50 years old and particularly women who are at least 65 years old. And in this study, it shows how our customer demographic is the only demographic that continues to watch more linear television today than they did five-plus years ago. However, we also believe that within a short two years, the Internet-based video ecosystem, over-the-top or OTT, or what many are calling today connected TV or CTV, will also be a skilled marketplace to engage large concentrations of our core customer demographics. That is why we acquired Float Left in 2019, a leading OTT SaaS platform. Float Left accelerates iMedia's abilities to launch its own OTT streaming services to engage new customers with its interesting factual content and monetize it efficiently with SVOD, AVOD, and or e-commerce. Float Left also accelerates iMedia's ambitions to one day offer a single source OTT service to enable advertisers to create, distribute, and monetize their own interactive video content. As noted in Nielsen's Q3 2020, The State of Traditional TV, viewers who are at least 65 years old watch each day about six hours of linear television, compared to only 37 minutes on the internet-connected TV devices, or CTV. Therefore, we are mindful to prioritize our linear television distribution efforts while aggressively strengthening our streaming and OTT service capabilities for the quickly approaching CTV future. Today, I'm proud to report two recent wins in our linear television arena. First, our new affiliation agreement with RNN, the largest independent broadcast group in the U.S. As we have previously stated, we want a bigger share of the $10 billion annual revenue marketplace that is TV retailing today, an oligopoly, really, between QVC-HSN and our flagship television network, Shop HQ. The additional 20 million high-definition homes we are obtaining in eight of the top 10 U.S. markets, that is New York City, Los Angeles, San Francisco, Philadelphia, Dallas, Washington, D.C., Houston, and Boston, will help us level the playing field against our competition in these markets that matter most. Our affiliation with the RNN HD stations which also have great low channel position next to national broadcast affiliates like ABC, CBS, and NBC, and which also provide us new carriage in the over-the-air homes in these markets, represent what we believe is a significant catalyst to drive Shop HQ revenue growth beginning in Q3 of this year. Our partnership with Dick French, RNN's founder and media entrepreneur who built this station group from scratch, will be an important collaboration for us as we navigate future television distribution opportunities. iMedia estimates ShopHQ will experience a revenue lift in these R&N markets that will range from 5% initially to as much as 35% within 18 months based on its previous revenue lift experiences from HD launches in 2016 and 17. In addition, iMedia believes the consumers' preferences today to watch linear television in the HD channel neighborhoods on their cable and satellite systems has only increased since the company's previous HD launches. Our second recent strategic win is Christopher & Banks. Our Hilco partnership to acquire this iconic 50-plus-year-old brand demonstrates how leading brand managers like Hilco view iMedia as a leading single-source partner to help promote and build their consumer brand. Because of this Hilco collaboration and our authentic brand group collaboration with Shaquille O'Neal that we did in 2019, we believe more advertisers and brand managers will realize iMedia is uniquely positioned to leverage its national television promotional power to accelerate a brand's digital and brick-and-mortar retail opportunities. while also providing a compelling customer experience that concludes with iMedia efficiently shipping product directly to the customer from its fulfillment center. In other words, we are becoming a complete single source partner. And with those two strategic wins now covered, let's delve back into our strong Q1 financial performance. Our operating expenses in Q1 were $48 million, an increase of 17% or $6.9 million. driven primarily by the $5.2 million increase in amortization related to our distribution broadcast rights and channel placement fees, which were not yet successfully negotiated and completed by Shop HQ until Q2 of last year. Regarding our Q1 balance sheet, cash was $14.9 million compared to $16.2 million for the same prior year period. Q1 net debt was $37.8 million, a 10% reduction or improvement when compared to the same prior year period. This net debt reduction is meaningful, considering the company also reduced its accounts payable in Q1 by $25 million, when compared to the same prior year period. The company also prepared for 2021 revenue growth by increasing its inventory level in Q1 to $75 million, an $11 million increase from the same prior year period. Regarding capital expenditures, during the quarter, we spent approximately $2.1 million on capital projects, primarily reflecting investments and upgrades to our website and infrastructure. Regarding our outlook, for Q2, the company anticipates reporting at least $8 million of adjusted EBITDA and approximately $121 million of revenue, which is roughly a 3% decline in revenue compared to the same prior year period due to the prior year period's unusually high revenue performance. For the full year 2021, the company anticipates reporting full-year adjusted EBITDA between $35 and $37 million, which is an approximate $7 million increase from the company's previous guidance. In addition, the company anticipates reporting full-year revenue of at least $490 million, which is an 8% full-year revenue growth compared to 2020, and is driven primarily by ShopHQ's new 20 million HD homes launching in late June and the growth of Christopher and Banks. As a reminder, from a tax perspective, the company has approximately $397 million in federal NOLs that are available to us to offset future taxable income. In closing, I would like to say that these continue to be important times here at iMedia as we move into our revenue growth stage. Thank you for your time this morning. I will turn the call back over to the operator for Q&A. Operator?