This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: 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.
spk05: 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?
spk01: 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?
spk04: Thank you. And I'll be conducting your question and answer session. If you'd like to be placed into question queue, 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'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Tom Forte from DA Davidson. Your line is now live.
spk03: Great. Congrats, Tim, on the quarter. So one question and one follow-up. So you did a great job talking about the comparison of current viewership for your core customer, linear TV versus OTT or connected TV. I wanted to know what signs you're seeing. My impression for connected TV is that the conversion rates are lower versus linear television. Wanted to know if that was the case and if you're seeing any signs of improvement in conversion rates for connected TV.
spk01: Thanks, Tom. So it is interesting. Yeah, no, our experience is you're absolutely right. The conversion is lower. And really, CTV is dominated by the advertising marketplace. E-commerce or that whole arena has yet to really develop in any mature way. As we think about this space, you know, we think about it in three pieces, right? You have the content, you have the distribution, and then you have the consumer consumption. And the content that we're making today, this factual, interesting content that we would move into the streaming, is something that we do well in categories that we think is very interesting to people, whether that's you know the mining of gold jewelry fashion all these different elements of fact-based interesting content that we can move deeper into as we move into streaming is important and we call that in the we call that the content area within the distribution you're right you've got these devices and then you have these services services like zumo pluto and and trying to find the conversion in these nascent services or in these devices like a roku that have very fast-growing metrics, but they are not converting as quickly or certainly as in the numbers that linear TV is. you're absolutely right that the conversion is lagging. We do think it will catch up, but we don't think it will catch up until the core customer, really, that we're engaging with, 50 and plus, begins to adopt it and begins to get comfortable with it in a way that they have and it's taken 30 years to in linear television. And that's where you get to the last part, which is really the consumption. The consumer consumption has to evolve from where it is today in order to drive that conversion rates. And that's where our subsidiary float left sits, right? It's in that making those apps in a way that enables the consumer consumption to trust it, to have it personalized. Those are the areas that we think with that experience along with our content and then obviously responding to the format. The format is shorter. The format is different. And those also affect conversion, and those will also have to, evolve in order to bring the shorter format up to the conversion rates that the longer format are currently doing.
spk03: Great. And then for my follow-up question, you've done a lot to materially improve your balance sheet. What opportunities do you see today to make further improvements?
spk01: Interesting question. Yes, we feel good about our balance sheet today, and certainly we think that we have a You know, the net debt of calling the high 30s compared to the assets we have is certainly lots of boot collateral in our asset base. But I don't think about anything right now other than opportunistically we want to make sure that we're building the right relationships with our vendors and that we're taking advantage of the distribution opportunities as we see them. So we feel good about where we are right now.
spk03: Great. Thanks for taking my questions, Tim.
spk01: Thanks, Tom.
spk04: Thank you. Our next question today is coming from Mark Argento from Lake Street Capital Markets. Your line is now live.
spk00: Hey, morning, Tim. Congrats on a nice quarter. Just wanted to maybe dig in a little on areas that you see performing well. I know you launched a bunch of brands in the quarter, but could you maybe talk through a little bit on maybe some segments and brands that are performing well for you? Sure thing. Thanks, Mark. The
spk01: Yeah, so we've talked about in several releases 30-plus brands that we've launched in the quarter, and that, as a pace, is much better than last year. And the ones that are working well for us are really several in every category, and I'll kind of walk through some of those. So certainly in the beauty area, the launch of Contours RX was a strong performer for us and continues to be, and we're excited about the opportunities there. Within health, Reduced fat fast has been a very high converting product for us, as well as the e-wheels and the whole arena of mobility and massage and health and fitness at home. All of those categories with medic therapeutic have done really well. Everything from foot massagers to the vibrating platforms that we've introduced continue to become more and more in demand. On the jewelry side, jewelry by Jorge Perez. has done really well. Sona 22K gold jewelry has done really well. On fashion side, certainly the Burning Man's footwear, even Durango footwear as well, the boots have done really well for us. So activewear is our introduction to the activewear lines. We think that's going to do even better in the fall, but that has done well this spring. And certainly we are happy with Christopher and Banks, and that launch was in this this past month as well so there's lots of different pieces and as we've talked about Mark and I talked about on these calls it's never just one thing right it's a multitude of things working at the same time that create the opportunities that we're seeing today and they it's The brands that we're launching today will begin to mature and yield a higher conversion in the fall. The brands we launched last fall are the ones that are driving a lot of that demand right now. It's that constant building, finding the strongest providers, and then carrying them forward. That's how we continue to engage the customers. So that continues to work well for us, as does a Bulldog service, Shop Bulldog and Shop HQ Health. all of those specialties as we move deeper into those verticals are also performing well. So we're encouraged not only by the brand introductions that we put across them, but also on the personalities, if you will, of the networks that we have. The balance of Shop HQ, the focus and fun of Shop Bulldog, and the vertical going deeper into the areas of Shop HQ Health. Does that answer your question?
spk00: Yep, absolutely. And then just wanted to drill down on the 14% active customer growth. If you talk through, you know, are these existing customers that you brought back? Are they new customers? And kind of what, you know, what do you see resonating? You know, were you able to go in there with, you know, specific marketing campaigns and reactivate some customers? How are you achieving that type of active customer growth?
spk01: Great question, Mark, and I can tell you, slowly is the only way to go on this. So if you look back at our pattern from, you know, starting in May of 19, and you watch how we've moved every single quarter, you know, as we talked about in 2020, the first thing we had to do, among other things, was around the merchandising and new brands. But equally important, we had to move our merch margin, our gross profit margin, up 500 basis points every single quarter. So we got to a place from a business model perspective, we could begin to grow revenue profitably. But as you look back at those trends, each quarter you'll see that the customer file, the proxy for health, the 12-month customer file was in the high double digits decline back in, you know, early 19. And as you've And it started to go down to 15 and then down to 13 and then down to eight. And as you look through 2020 and you watch each and every quarter, you're moving less and less negative. And as I talked about all last year, it's arresting the decline. And that arrest really happened in Q4, but it only happened because of all the year and a half before that. And now when you see this growth in Q1, again, it's, It didn't happen suddenly. It was an overnight success that took 24 months that now you're starting to see that consistent performance driving consistent customer file growth. And when you think about where that growth came from, certainly it came from new customers, certainly it came from less churn, and certainly it came from reactivation. We have a history of strong performance in the beauty, fashion, jewelry, the wearables category. And that's where primarily those re-engagements occurred. And when you think about – so let me stop there and see if that answers your question, Mark.
spk00: Yeah, a little of everything, a little potpourri there. So, yeah, I know that answers it. And then just one quick follow-up on the carriage deal. The deal you struck with R&N, is that any materially different just structurally than some of the legacy deals that you've done? Maybe – Maybe you can tell us how you're thinking about carriage and the new world order. That's it for me. Thanks.
spk01: Yeah, Mark, that's a great question. RNN, I was hoping I'd get a chance to talk about this. It's a very big deal for us. The HD homes in these major markets, which we weren't in HD in these markets, and some of them just weren't available, wasn't that even if we could have afforded to pay the cable entrance into it, the bandwidth just wasn't there. So very important opportunity for us and one that we've been working on for quite some time and happy to get across the finish line and happy to partner with Dick and Christian on this effort as we move forward. In terms of the structure of it, absolutely similar to what we've been doing where we have an affiliate fee at service portion and a channel placement portion. From an accounting perspective, we expect the channel placement portion to, you know, relate to about $7 to $8 million in additional annual amortization of that channel placement fee, which, you know, as you know, the channel placement fee for us is making sure that it remains in the same channel all the time during the term of the agreement, which is critical because as you move channels around, The disruption is immense, the drop in viewership. And then you have to rebuild the viewership before you can rebuild the buying. So this is a very similar structure of what we've done in the past, except the distribution, the HD distribution, the low channel position is unique. And at this scale, I just can't emphasize enough the positive impact that we feel this is going to create for us, not only in the back half of this year because these services, they mature, right? They start with creating a list and that was what I was talking about with the viewership. So the HD neighborhoods where people more and more are just remaining to watch TV, they view it and they begin to watch it more and then they engage and then they're actively listening and then they're buying and that maturation process takes anywhere from 30 days to 18 months and so We expect good things from this. Thank you. Thanks, Mark.
spk04: Thank you. Our next question today is coming from Alex Furman from Craig Callum Capital Group. Your line is now live. Great.
spk06: Thanks very much for taking my question, and congratulations on a really strong start to the year. Wanted to get a sense of how you feel about the CBK partnership with Christopher and Banks. You know, that was a strong brand doing $100 million e-commerce business fairly recently. You know, now that you've had a chance to get more of a look under the hood, do you feel like the brand still resonates? Do you think the bankruptcy did any damage to the brand? Just curious, you know, as you think about your guidance for the back half of this year and then, you know, looking two, three years out, how big of a business can Christopher and Bakes ultimately be for you?
spk01: Thanks, Alex. Great question. And we are more excited about Christopher Banks than we began with. And first, I'll call out that we have a great partnership with Hilco, great group of folks that understand how to brand build. And yes, Hilco tipped over in January. It was a $300 million business. The brand had been around 50-plus years. And its reason for being was strong, which was it had these unique designs. They made, and still today we, we make our own patterns. They're proprietary patterns that fit. Everything about the brand has a unique reason for being, and that's why it resonates so well still now after closing its 250-plus retail stores. So let's start with, Where it was was this, call it, $200 million to $300 million retail enterprise with a $100 million digital platform. And we're moving forward with the digital platform that we would be surprised if we can't build bigger than that, you know, next year. That won't happen this year. As we've talked about, it takes the right amount of time to make sure that we do this the right way. So you've got a digital platform with a great, group of loyal customers that we're building on. We've also reopened already two of their strongest performing stores here in Minnesota as well as Branson, Missouri, where there's an outlet. And here in Minnesota, in Coon Rapids, is where the full price store is. And that opened just this past weekend. So if you think about the customer and the vendors that we've engaged with that we continue to work with, Kostroma, which is with G3, has done a great job. as well as several other key vendors. Those are all moving forward with us. The employees that we have hired that have been with the brand for also 15 to 20 years are great from the product development and the merchandising to the marketing and the digital marketing, which is critical to us. So we are bullish on Christopher Banks, as we talked about earlier in my remarks. We did launch Christopher Banks on TV, and that was a great experience. We have lots of notes on different ways of engaging our customer and their customer. We think, you know, and when you think about our strategy for growth, we are not going to replicate the large retail footprint. We do believe in the omni-channel experience. But the brick and mortar is a small component. We think that with the television being in 100 million homes with Shop HQ, that we'll be able to engage the customers with some of the interactive video as a replacement of the retail, rather than relying on retail to be driving the bus. Clearly, our strategy is digital is driving the bus on the development of this brand. And the complement is the brick and mortar retail.
spk06: Great. That's really helpful, Tim. And then if I could ask one about Float Left, I would imagine that's still a very small business for you relative to the retail side of your business, but there's been some really impressive national and global brands that Float Left has been partnering with to design products. some of their applications. At what point does that really start to inflect higher and become a really meaningful growth engine that starts to drive the overall result?
spk01: Great question, Alex. So you're correct on everything you said, which is FlowLess is a small component within our media commerce services inside our emerging business segment. Great management team there and a very strong technology platform, a stack of that has a highly customizable approach to working with major entertainment companies as they produce apps to engage their customers in this space, this connected TV space, this OTT space. And so as we talked about, we're taking our factual content and we are using their expertise to help us build streaming services apps in this arena. And their platform isn't as robust as we want it to be Yes, and as they would say, they would agree. We want to make sure that we have a robust ad ops component, advertising ops component, something that can, you know, a technology that can service their clients to make sure they're also a one-stop service partner so they can deal with the supply side providers, the demand side suppliers, and move in a way that they can grow their clients which would be one of them would be us, their client's business, because it is a new marketplace and it takes an important one-stop service, in our view, to help us navigate more quickly. And so when you ask about how quickly would that become a material part of our business, I can tell you that there's two pieces of that. Certainly the streaming service is going to be, you know, if there's a business that just recently closed, talked about moving into the streaming services in our programming strategy, which is this factual content. So there's a company called CuriosityStream started by John Hendricks that started Discovery, which, again, based on factual content. We also believe the factual content that we produce today will be important in streaming services, particularly for those niche services. So we think that the Floatless SaaS platform, as it develops and creates more capabilities like ad operations, as well as the development and distribution of our own streaming services, just is going to together combine, create a faster materiality to our financial statements in this connected TV space than just the float left services business or just our streaming services, if that helps answer your question.
spk06: That does. Thanks very much, Tim.
spk04: Thanks, guys. Thank you. Our next question is a follow-up from Tom Forte from D.A. Davidson. Your line is now live.
spk02: All right, thanks. So one follow-up to me, Tim. Can you talk about the drivers of gross margin in the quarter and to what extent the improvement is sustainable?
spk01: Tom, great question. Yes, I can. So first, the broader question, the answer to the broader question, which is, ideally, We see the gross margin of our business in the 37% range. There are occasions based on mix. Certainly, fashion is a higher gross margin and jewelry is a higher gross margin. And so in Q1, we did have a higher concentration of jewelry within the jewelry and watches, and certainly fashion is finding its footing again for us. And those created unusually high, call it 40% gross margin rate in the quarter. So I would say from a modeling perspective, we think about it back in the 37 range so we can properly scale revenue growth. So this would be an unusually high margin, not one that we're seeking from a business model perspective to replicate every quarter.
spk02: Great. Thanks for taking my follow-up question. Thanks, Tom.
spk04: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.
spk01: Thank you. And we appreciate everybody's time, as we always do, and we appreciate the questions, and we look forward to our next quarter and talking to you again then. Thank you.
spk04: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your
Disclaimer