iMedia Brands, Inc.

Greetings and welcome to the iMedia Brands second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I would now like to turn the conference over to your host, Mr. Monty Wagman, Chief Financial Officer for iMedia Brands. Please go ahead, sir.

Good morning, everyone, and thank you for joining. This is Monty Wagman, iMedia Brands Chief Financial Officer. We issued our Q2 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 filed this morning. I would also like to remind everyone this call will be available for replay through September 7, 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. We believe the expectations reflected in our forward-looking statements are reasonable, but give no assurance such expectations or any of the 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 references to non-GAAP measures on this call, such as adjusted EBITDA. Please refer to our earnings release for further information about these measures, including reconciliations to the most comparable GAAP measures. 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.

Thank you for joining. Q2 was another strong quarter for us. We navigated through a logistics challenge related to COVID-19. We ignited three catalysts to accelerate shareholder growth, one in each of our three business strategies, TV networks, consumer brands, and digital services. We grew our customer file again. In fact, July was the 10th month in a row We improved our gross margin to 42.3%, a 510 basis point improvement over the same prior year period. We significantly strengthened our balance sheet, and despite the logistics bumps and bruises we endured in Q2 that challenged our revenue, we exceeded our profitability expectations that we communicated to investors during our Q1 earnings call. Strategically, our individual successes within our TV networks, consumer brands, and digital services are collectively accelerating our company's timeline to becoming the leading single source partner to consumer brands and advertisers seeking to entertain and transact with customers using interactive video. Now, let's walk through these Q2 highlights in a bit more detail. Q2 net sales were 113.4 million, a decrease of 9% compared to the same prior year period, and about 5 million lower than we'd expected for the quarter. As many retailers are enduring, for the first time we experienced material shipping delays for several of our most productive products. From our fashion favorites like Kate & Mallory and Indigo Thread, to health favorites like our air purifiers and laser paint massagers, to our seasonal home favorites like Quantum Vacuums and Colston Air Fryers. Inventory receipts were consistently delayed. Fortunately, our entrepreneurial culture pivoted quickly, reprogramming our calendar with on-hand inventory that was often higher margin but lower productivity. Thus, the results you see for the quarter are gross margin dollar and rate growth despite reduction in net sales. For example, several of our 34 new product launches during the quarter received more airtime than originally estimated, like Dr. Sevenor Skin Care, which is based on Dr. Sevenor's 40 years of experience performing plastic surgery and is a proprietary collection of quick and easy beauty treatments for women and men to use in the comfort of their own home. Jewels by Jorge Perez, which is a collection that showcases Jorge's artistic talent for creating colorful and unique designs infused with his vibrant Cuban heritage. And last but certainly not least, our very own Christopher and Banks, which debuted in Q2. These shows focus on putting her first, providing our customers with style, value, and service that help her look fabulous and feel amazing for every day and for life's special moments. The good news is, although we expect continued congestion at the domestic ports on a smaller scale going forward, we have already adjusted our programming calendars accordingly. Also good news are year-to-date KPIs are strong. Year-to-date net sales were $226.6 million, which was a 3% growth compared to the same prior year period and the strongest year-over-year net sales growth in the company's first two fiscal quarters in seven years. And Year-to-date adjusted EBITDA was $16.4 million, a $7.3 million increase or 80% improvement over the same prior year period, and the highest Q2 year-to-date adjusted EBITDA in the company's history. Now let's talk about our Q2 strategic catalysts. First, our acquisition of Cinecorp's portal and advertising business segment, which is the catalyst for our digital services strategy and is truly the foundation of iMedia's overall digital strategy. which is best explained in my mind with a simple formula. Cinecor's video advertising platform plus iMedia's first-party purchasing data from ShopHQ plus Float Left's best-in-class OTT app equals a truly differentiated video advertising platform. A good example of a competitor to our strategy would be Walmart's advertising platform, Walmart Connect, that utilizes its first-party purchasing data to help it better serve its advertisers seeking to reach better targeted audiences. We have renamed our advertising business iMedia Digital Services, or IMDS. And I'm proud to announce it is already a leading video advertising platform that monetizes over 200 million monthly users for its online publishers by utilizing its proprietary technologies and its interactive video services to drive engagement, traffic, and conversion. We expect IMDS will generate at least $45 million in profitable revenues over these next 12 months. Very soon, our plan is that IMDS will also offer our advertisers tailored first-party customer shopping data from retail, catalog, and e-commerce that will enable us to efficiently deliver publishers' targeted demographics and conversion at real scale. Today, major advertisers use IMDS's comprehensive suite of video, header-bidding display technology, and search in mobile and desktop to eliminate costs, maximize yield, and create exposure to new demand sources. Our advertising products names are S2S Bidder, Reflex, and Search. We also offer our advertisers and publishers an optional best-in-class value-added engagement platform. which is a managed online and OTT digital start page that enables our advertisers and publishers to provide their end users a compelling video-centric website slash portal slash app, depending on the platform, for original content, news and entertainment, email, identity management, identity protection, and TV everywhere. IMDS creates and hosts these fully managed interactive video experiences online. across all technology platforms, specializing in desktop, mobile, OTT, and CTV apps. Our next catalyst, Christopher & Banks, or CBK, is the central driver in our consumer brand strategy and is the first real example of how iMedia is being positioned in the marketplace already as being the best single-source partner to drive growth using interactive video. In this case, Hillco is our partner, and I'd like to give more context on this opportunity that Hillco and iMedia are so excited about capturing. CBK was a publicly held specialty retailer featuring exclusively designed, privately branded apparel targeting plus-size women who were 55-plus years old. CBK operated 450 retail stores in 44 states, as well as its websites. However, CBK filed for Chapter 11 bankruptcy on January 14, 2021, and its primary lender, Hillco, purchased it. To really size the opportunity, let's look at its history. For 2019, CBK posted about $350 million in revenue, of which about $80 million was e-commerce sales. For 2020, CBK posted about $200 million in revenue, and about $100 million of that was e-commerce sales. So that was the opportunity that Hillco was thinking about. Hillcote carefully evaluated its best path from doing it itself to partnering with other folks, and it concluded that iMedia, with its national television promotional platforms, expertise in fashion merchandising, proprietary e-commerce capabilities including web and mobile, customer service, 3PL capabilities, and financing products, was the best choice for them for a single source partner to relaunch its CBK brand. iMedia's growth strategy for CBK centers on its ability to create live CBK-branded television experiences on Shop HQ to engage CBK customers who may miss the live demonstration that they used to enjoy within the bricks-and-mortar experience. Our short-term goal is clear, and that is to recapture quickly the $100 million in digital sales from prior year, and I am pleased to report that our progress to date has been meaningful. Our second catalyst, RNN's new 20 million HD homes that launched on June 28th, is a central driver in our TV network strategy. As you may recall, these were 20-plus million high-definition homes across New York City, Los Angeles, San Francisco, Philadelphia, Dallas, Washington, D.C., Houston, and Boston, which will help us level the playing field against our competition in these markets that matter most. To date, our revenue lift in these markets is consistent with our already communicated expectations, and we are very pleased. Now back to walking through our Q2 KPIs. Our operating expenses in Q2 were $50 million, an increase of 15% or $6.5 million, driven primarily by new merchandising and marketing-related costs, an additional transaction and integration costs for CBK, and an increase in amortization related to our broadcast distribution rights. Regarding our balance sheet, Total unrestricted cash was $20.9 million compared to $15.5 million at prior year, year end. On June 14th, we closed on a common stock equity raise, generating proceeds of $40.3 million net of discounts, commissions, and other offering costs. Then, on July 30th, we closed on an expanded $108.5 million debt refinancing facility to replace our previous facility with PNC. Regarding capital expenditures, during the quarter, we spent approximately 3.1 million on capital projects, primarily reflecting investments and upgrades to our websites, infrastructure, and facilities. Regarding our outlook, for Q3, we anticipate reporting at least 9 million of adjusted EBITDA and approximately 127 million in net sales, which is roughly a 17% growth in net sales compared to the same prior year period. For the full year 2021, We anticipate reporting full year adjusted EBITDA between 37 and 40 million, which is an increase from our previous guidance of between 35 and 37 million. In addition, we anticipate reporting full year net sales of at least 502 million, which is an approximate 11% full year net sales growth compared to 2020. 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 are important times here at iMedia as we accelerate our growth in building shareholder value. Thank you for your time this morning. I will turn the call back over to the operator for Q&A. Operator?