iMedia Brands, Inc.

And welcome to iMedia Brand's fourth quarter and full year 2021 earnings call. At this time, all participants are in 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. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Monty Wagman, CFO. Please go ahead.

Good morning, everyone, and thank you for joining. We issued our Q4 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 April 1, 2022, 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 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. 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. I would like to start today by thanking our employees, vendors, advertisers, and digital publishing partners for their amazingly consistent effort that enabled iMedia to produce a transformational 2021. A year where our revenue grew 21% year over year, our adjusted EBITDA grew 74% year over year, and we assembled the strategic assets necessary to to scale our interactive media growth strategy. And we were even able to demonstrate that strategy with the successful relaunch of Christopher and Banks. We build entertainment brands here. That's what we do. Now, many companies say that, and some are pretty good at it, but it's how we build entertainment brands here that makes us unique. We require three non-negotiable criteria for every entertainment brand we build or acquire. First, It has to be a brand that is accelerating the online migration of its entertainment, whether that entertainment is defined as a TV show, consumer product or service, or simply information a consumer is passionate about. Second, it must be a brand that is targeting customers who are women and men, primarily 55 years of age and older. Third, we must believe we can realistically make it financially accretive in year one. That is our scope. That is our discipline. Create entertainment. aggregate audiences, monetize engagement. Our primary competitive advantage is that our entertainment brands promote and provide first-party data to our consumer brands and digital advertising brands, which we believe other advertising platforms and consumer brands do not always enjoy. Since we are accelerating our pace to become the leading interactive media company, capitalizing on the convergence of entertainment, e-commerce, and advertising, we are implementing certain actions to make it easier for the investor community to see our progress. For instance, as we announced earlier, beginning with Q4 2021, we are reporting our results within three financial operating segments, entertainment, consumer brands, and media commerce services. I hope you find this information useful. In addition, as part of this effort, we held our first Capital Markets Day here at our global headquarters in Eden Prairie, Minnesota, on February 7th. And I would like to thank many of you listening today who attended. We had a great turnout of existing and prospective investors who collectively engaged with our leaders as we explained who we are, how we operate, and where we are going. We talked about how we view ourselves as a self-contained digital media ecosystem, a walled garden, if you will, and why the first step in our journey that began in 2019 was to revitalize ShopHQ because it was this revival of that created iMedia's big bang moment, giving life to the interactive media strategy you see working today. We talked about how ShopHQ's promotional power and first-party data are fueling the omni-channel growth of our consumer brands, like Christopher & Banks and JW Hume, as well as fueling digital advertising growth for our iMedia Digital Services, or IMDF. We talked about why we acquired 123TV, which is disrupting TV retailing in Germany with its gamification strategy, and why we believe 123TV's proprietary auction platform and gamification expertise will enable us to disrupt the online hotel and airline shopping marketplaces here in the U.S. We talked about why we acquired Cinecor's portal and advertising business segment and rebranded it IMDS. We believe this video advertising platform that engages and monetizes over 200 million monthly users for its online publishers, MVPDs, and ISPs is a primary catalyst in our company's overall data-driven growth strategy. What we love about IMDS is it operates a leading proprietary programmatic advertising exchange that has real scale and maintains direct technological API connections into the top supply-side platforms and demand-side platforms, which provides IMDS with speed, and we all know speed matters. It has an entrepreneurial management team we know fits well with our culture. It has a direct search agreement with Google because for a very long time, IMBS's biggest clients have been and continue to be reputable online publishers, MVPDs, and ISPs. I will note we recently announced the renewal of our Google agreement. We believe we can take these existing competitive advantages and add ShopHQ and Christopher Bank's first-party shopping data, which is a competitive advantage because the entire digital advertising industry is scrambling to prepare for Google's upcoming removal of third-party online cookies. Leverage ShopHQ's relationships with IMDS's core clients, the MVPDs and ISPs in the U.S., which ShopHQ pays roughly $80 million annually. Add ShopHQ and Christopher Bank's unique digital advertising demand, which further improves the transparency of IMDS's advertising clients. capture OTT advertising supply from Float Left's OTT SaaS platform clients, and capture first-party data from 123TV's disruption of the digital shopping for hotels and airlines here in the U.S. We believe IMDS, now equipped with our synergies, will become a financially significant growth catalyst for our company. Before I turn it over to Monty to talk about our Q4 and full-year financial results, I would like to emphasize what I believe are the top takeaways from today. One, ShopHQ is operating well now, for the first time in a long time. In addition to the programming, merchandising, and margin improvements, ShopHQ's recent HD launches in the top 10 markets are performing better than expected, creating 15% to 25% lift in those markets. As I said at our Capital Markets Day, ShopHQ is fixed. Two, our strong 2021 financial outlook And strategic accomplishments didn't just happen. It took three years of hard work by passionate employees continually accomplishing aggressive goals to create the type of culture capable of producing consistent future performance. We have that now. Three, our exciting 2021 financial results do not mean that iMedia doesn't face its share of marketplace challenges every day. We do. ShopHQ continues to face unusually high logistics costs from the COVID-19 pandemic. We believe the worst is behind us, but we are expecting these extra costs to continue for fiscal 2022. 123TV is absorbing a new challenge, which is the Russia-Ukraine conflict's negative impact on Germany's economy, Germany's GDP forecast, and Western Europe's consumer confidence. Since Germany is Western Europe's biggest economy, consumer confidence matters. For example, German auto companies like Volkswagen, BMW, and Porsche all operate large facilities and employ large workforces in Germany, and this Russia-Ukraine conflict is accelerating an already existing electronic component shortage for car manufacturing. These marketplace challenges being said, and these are only a few, I will reiterate all these challenges are factored in our financial guidance. Four, we believe our 2022 first-quarter, and full-year net sales guidance is achievable because the annualization impact alone of our three 2021 acquisitions should generate roughly 20% annual net sales growth for our company in 2022. Five, we are bullish on our 2025 net sales target of $1.5 billion. We have the strategic pieces in place, and now we need to execute. Meaning, profitably grow our brands we own and operate today, the most significant brands being ShopHQ, Christopher & Banks, 123TV, and IMDS. As always, I appreciate your trust on this journey together. Now, I will turn the call over to Monty to discuss our 2021 financial results and our outlook for 2022. Monty?

Thanks, Tim. Q4 consolidated net sales were $193.8 million. an increase of about 55% compared to the same prior year period, driven in part by the closing of the 123TV acquisition in November. Full year 2021 net sales were $551 million, a 21% increase over 2020, and the strongest net sales annual growth in over 10 years. We improved our Q4 consolidated gross margin to 38.3%, which was a 270 basis point improvement over the same prior year period. Full-year 2021 gross margin also improved to 40.4%, which was a 360 basis point improvement over 2020 and the best full-year margin in the company's history. Our Q4 consolidated operating expenses were $74.5 million, an increase of about 63%, or $28.7 million, primarily driven by the operating costs of our 2021 acquisitions, of Christopher and Banks, IMDS, and 123 TV, which were not part of iMedia Financials in the same period prior year. Full year 2021 consolidated operating expenses were $233.3 million, an increase of about 33%, or $58.3 million, again, primarily driven by the 2021 acquisitions. I would like to note for investors that in 2021, we incurred roughly $7 million in one-time expenses related to our 2021 financing and acquisitions, which was about a $6 million increase in one-time costs from 2020. And I will also note that this is not something we expect to occur again in 2022. Q4 adjusted EBITDA was $15.1 million, an 80% improvement over the same prior year period. and the best performance since the company began reporting adjusted EBITDA in 2005. Full year 2021 adjusted EBITDA was $41.6 million, an increase of about 74%, or $17.7 million. Regarding our Q4 balance sheet, total unrestricted cash was $11.3 million, compared to $15.5 million at prior year end. Our net debt at year end was $149.8 million, an increase of $111.9 million year over year, driven primarily by the debt financing of the 123TV acquisition. Regarding capital expenditures, during the quarter, we spent approximately $2 million on capital projects, primarily reflecting investments and upgrades to our website, infrastructure, and facilities. Regarding our outlook for the first quarter of 2022, We anticipate reporting net sales of approximately 156 million, which is approximately 40% growth over the same prior year period. We anticipate reporting adjusted EBITDA of approximately 9 million, which is approximately a 12% increase over the same prior year period. Our guidance includes our expectations that the Russia-Ukraine conflict will continue to have a negative impact on the German economy and that we will continue to experience unusually high logistics costs due to COVID-19. For the full year 2022, we reiterate our previously provided 2022 guidance. We anticipate reporting revenue of approximately $675 to $725 million, adjusted EBITDA of approximately $50 to $60 million, and we anticipate reporting positive quarterly earnings per share beginning in the back half of 2022. As a reminder, from a tax perspective, we have approximately $397 million in federal NOLs that are available to us to offset future taxable income. Thank you for your time this morning. I will turn the call back over to the operator for Q&A.

Operator? Thank you, and I'll be conducting a 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 two 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 one. One moment, please, while we poll for questions. Our first question today is coming from Mark Argento from Lake Street Capital. Your line is now live.

Hey, Jim. Hey, Monty. Just a few quick ones here. Just wanted to get a feel for what's been working in terms of product sales. It looks like in the quarter, fashion accessories were up pretty substantially, maybe watches and jewelry down a little bit. What kind of trends do you anticipate? And then how are you guys positioned from an inventory perspective to be able to benefit there?

Hey, Mark, thank you for the question. Yeah, so in terms of performance in fashion, If you think about the entertainment segment, it's really driven by the Christopher and Banks, the digital relaunch of Christopher and Banks. As we've talked about in the past, we started from zero in mid-March, and it's 40-plus million. It's been quite a success, and that's because as you think about what Christopher and Banks is, which is an omnichannel brand, it was the launch of the TV shows on Shop HQ, believe it or not, that are now the most popular shows. that's driving a lot of that velocity. So it's not only as a brand on Shop HQ, but we've reopened those five retail stores where they're best performing. We've launched a catalog. I don't know if you've had a chance, Mark, to try our style out, interactive style out on our website for Christian Banks, but really that has been driving the fashion performance. And in terms of jewelry and watches, our top brands in those categories do continue to drive the business You've got Stefano in gold. You've got Invixit in watches. It's been a strong performance, along with some very strong debuts in areas that are very important to us, particularly beauty. With Blue Stallion, there's been another great launch. And then our core brands in beauty continue to perform well, that being Isomers and Consult. So it's been a pretty steady movement on that. And as we add in 123TV to the mix, it's also going to be, you're going to see some of our strongest brands on Shop HQ begin to make an impact on 123TV because as I've talked about, one of the great things of why we feel so good about 123TV beyond everything I've listed in prior calls is the merchandising mix is the same. The customer base is the same. So as we add value into that platform and they add value into ours, our top brands, are going to be helping mature their revenue growth at a much quicker pace. So let me stop there and see if that answers your question, Mark.

Well, that's helpful. And I guess kind of dovetailing to that, if you think about kind of what's called the reopening in a trade, but as we put Omicron and hopefully COVID past this year and you see people start to get back into offices a little bit more, And does that change the, you know, kind of the sales mix, you know, going forward? And, you know, obviously inventory is up a bunch as you've, you know, scaled things up. Just wanted to make sure you guys are, you know, kind of positioned well there.

Yeah, the great question again. And when you say a bunch, you mean moving from 68 to 116. Yes, that is a bunch. And from over the year. But as you think about where we made those investments, A big chunk of that was the investment in Christopher and Banks. We couldn't be more pleased with how that's growing. One of the growth areas in inventory was also some late logistics. Different brands receive different types of logistical delays in Christopher and Banks. We did receive a big chunk of inventory past the holiday season, and we're going to sit on that to the end of the year. That's a piece of the growth. Another piece of the growth is folding in 123 TV. Obviously, they are a very important part of our growth strategy. They're doing very well. But again, when you look on a year-over-year basis, that $50 million increase in inventory is really related to the Christopher and Banks and the 123 TV, with some growth for ShopHQ, because as we experience with Christopher and Banks, and as I'm sure everybody is experiencing in virtually every inventory in terms of every industry in terms of logistics, we took some early bites on inventory and bringing it in to make sure that we didn't face delays so that, you know, we are sitting on a little bit more inventory than normal on Shop HQ. But again, we feel that is offense to make sure that we don't get snagged like many of us did and like we did earlier in the year.

That's helpful. Congrats on a strong 21 and good luck this year.

Thank you, Mark.

Thank you. Next question is coming from Eric Wolfe from B. Riley. Your line is now live.

Thank you.

Good morning, guys. Appreciate the questions. I guess, first off, Monty, you talked about the annualization of the acquisitions last year, in terms of giving the comfort in Q1 and kind of 2022. Aside from the generalization of those acquisitions, what do you see as having the greatest organic growth contribution in 2022 towards your guidance? And when should we see some benefit from the 1, 2, 3 TD move in disrupting some of the U.S. consumer segments you've highlighted, and how long will it take for that effort to become impactful as a result?

Hey, Eric. Yeah, that was me that mentioned that. Let me see if I can parse that into a couple pieces. The organic growth is, let's start with, I like to think of it as a triangle. Let's start with the base of the triangle. And that is our flagship service, Shop HQ. That continues to be the organic growth story that turns the whole engine. And that has been three years in the making. And so we expect organic growth in that in Q1. We also expect the Christopher Banks to continue in terms of organic growth. That's been something that we've talked about a lot. IMDS, which is our advertising platform, we're expecting strong organic growth from them as well. Those are drivers. 123 is obviously moving in the right direction as well, but in terms of percentage growth, we see those being the biggest contributors. On the reverse side, so moving back across the pond from 123 and really their proprietary gamification strategy and their expertise around it, that is a summertime launch of what we've described as disrupting the U.S.-based digital shopping for travel, primarily being hotels and airlines. So that's been in the works for some time, but we want to make sure we do it the right way, and we're rolling that out in the summertime.

Got it. And then as we think about the new segmentation that you've laid out, and now we've got Q1 guidance, can you give us a sense of the implied seasonality of the combined business for the remaining quarter of the year?

I don't think you're going to see a difference in seasonality in terms of the core businesses. We are still being driven by the entertainment segment, which doesn't have a lot of seasonality to it, obviously bigger in the fourth quarter. And the advertising business, that being IMDF, does continue to have a stronger fourth quarter as well. and consumer brands the same way. So I think they're all very consistent, but there's not a large jump like sometimes you see in a catalog world. This is media, so we will see that lift very similar to the lift, maybe a little bit stronger of a lift in Q4 this year than we did in prior years. So as particularly the IMDS business grows, that does have a much stronger lift in Q4 than does the entertainment segment or the consumer brand segment. So as that gets bigger, you'll see that lift in Q4 grow.

Got it. And then this final question for me, I guess, if you think about the channel placement agreements that you've done in past years, obviously you've got the one last year under the HD top 10 markets, but kind of before that and beyond that, how large is the opportunity there to optimize those agreements and to save cash flow as your business has evolved beyond that?

Great question, Eric, something we talk about all the time. Yeah, so we've talked about this quite a bit with the positive EPS in the back half of the year, and that comes from a variety of continued changes and then just the benefits of the changes that we've put in the business model today. When you think about the channel placement and you think about R&N, which was the launch of our HD carriage, we have talked about in eight of the top 10 markets, just as a reminder, eight of the top 10 markets last year, In late summer, we launched with R&N, a great partner, in these HD markets. And we have not been in these top markets in HD in our lifetime because we were never in a position to really benefit from it because we were always working on our programming or marketing. So now that we fixed those pieces and we launched the HD, we're seeing the lift that we've expected, which is as they mature, they're growing 15% to 25%, and our history shows us that that should tap top out in the 30% growth in those markets year over year HD compared to SD. Now, there's a cost certainly to the HD carriage and to the carriages of getting better placement. For example, with RNN, it was really shorter payment terms. So as you look at our balance sheet, we had to invest 10 plus million dollars in shorter payment terms in order to secure that HD carriage. So when you think about the bets that we placed in 2021, it wasn't just really strong top line growth of, you know, 20 plus and strong EBITDA growth. It was really about making bets to continue that type of performance. We invested 20 plus million dollars in inventory. Again, we talked about that. We invested in faster payment terms for the, you know, the RNN carriage. We invested in in our computer technology, in our stacks, in our physical assets. That was another 10 million. We haven't talked about this a bit in the last quarter, but one of the biggest innovations we did this year in the entertainment side was around our Salesforce implementation. And that is, if anybody's done it on the call, that's no easy task. But we developed the, we already had the Salesforce service, and we launched Salesforce marketing with certain improvements and Salesforce sales. So All of our customer services, from a service and sales perspective, have a much stronger set of information in front of them to improve their customer service. So that was also an investment we did. And then finally, from an investment perspective, setting us up for success in 22, we invested about $6 million in a loan to one of our top vendors to get exclusivity for the next five years so we would avoid surprises. All of these investments are designed to continue the growth and the profitability that you see in 2021. So I want to make sure that we get that on the table because that was a very important part of 2021 as well.

Helpful. Thanks, Tim. Yep. Thanks, Eric.

Thank you. Next question today is coming from Alex Furman from Craig Hallam. Your line is now live.

Great. Thanks very much for taking my question. It sounds like the upcoming removal of third-party cookies by Google could be a pretty big catalyst for IMDS. Is that something that's already factoring in to your conversations with advertising partners? When do you think we might start to see an impact from that?

Hi, Alex. Great question. I don't know if you guys saw recently, there was an announcement we promoted Matt Liardini to the president of IMDS. He's been you know, leading that organization for a while and already doing great things there, most recently with the Google renewal. So when you think about the ecosystem of digital advertising, and you can spread it any way you want from OTT, programmatic, and how we go into that with Flow Left, or just looking at digital advertising as it sits today, and to your question about Google. Google has been talking about removing third-party tracking, and just for everybody's benefit, That means that the conversion and the tracking that advertisers have today with this third-party cookie tracking system is going away sometime in the next 12 to 24 months. Google is talking about it. They delayed it a couple times, but it is coming. So what advertisers have to do is make sure that they can find another way to keep the conversion of their efforts to their client high. And the only real way to do that in the future is forget about tracking. You need to have unique demand, and you need to have first-party data. So when someone is looking for someone to buy a red toaster, you have a data lake that you can look into on a no-name basis and say, well, you know what? I have these many people that are looking for a red toaster, and I think that I can provide this advertiser a very high conversion with just the data that I have in control. That fundamental is being explored by many of the larger companies today, Target with Roundel, Walmart with their ad network. It's not that it's precedent, but it is, you do see this more and more because people are looking to make sure that they are prepped and ready for that pretty significant change. Google destroys the internet every couple years with some change, and I say destroyed because from it, a new ecosystem comes and there's growth. So we feel we're very well positioned with the 35 plus million shopper data that we have between Christopher and Banks and our entertainment group, as IMDS fuels for this next stage, not only are they improving their core products, but they have this extra opportunity because of our first party data. And when we think about when that will come into the marketplace, we again think about this summer. We're already putting what we call, or what the industry calls, private marketplace advertising packages together. and minimal viable packages or minimal viable products that advertisers are looking for that contain this first-party data. So this is a very exciting time in advertising, and having our piece with Matt and his team is something we're excited about, but it will fold into public view in the second and third quarter.

Great. That's really helpful. Thanks, Tim. Absolutely. Thanks, Alex.

Thank you. Next question is coming from Thomas Forte from DA Davidson. Your line is now live.

Great.

Three questions. I'll go one at a time.

So first question, Tim and Mani, how should we think about the three most important gross margin drivers for this fiscal year?

Well, gross margin, I think, is going to follow the lines of where they are today, right? We are thinking about – let me see if I can – describe it in brands instead of segments. So Shop HQ continues to be, because it's also the biggest, you know, a very big contributor to gross margin. We spent a lot of time fixing that gross margin, and we're excited about watching it continue at that pace. Christopher and Banks, another very big driver in terms of gross margin. As I've talked about, their reason for being is so strong from their proprietary perspective fabrics and designs to the fit and the quality of their customer experience. It has always been a very strong margin business, and that will continue to be a driver. The areas that we are excited about that will, on a year-over-year basis, show growth is 123TV. Certainly, we're going to be doing all sorts of different things with them and already are to bring their margin closer to ShopHQ's margin, very similar to what it took us three years to do with Shop HQ. So that kind of accelerated growth from one, two, three, you'll see as the quarters move out. And INDS, certainly you'll see margin growth there, again, year over year, as we add in our first party data. Those will be secondary to Shop HQ and to Christopher and Banks.

Great. And the second question is, how should we think about the potential impact of inflation on your business, including how it affects the behavior of your four customer demographic?

Great question. Involving, obviously. And what is the definition of inflation? I guess it doesn't include gas anymore, or it's constantly evolving. McDonald's hamburgers, $4. In terms of impact to our core customer, again, 55 and older, and I can't emphasize that enough that all of our businesses are focused on that baby boomer demographic. growing and very steady from a financial perspective, 10x the buying power. I don't think inflation is going to have an impact on their consumer confidence today. I think that it is certainly out there. It is certainly worrisome. There's a lot of half information like I just made fun of in terms of what is inflation. But I think it's too early to tell that it's never going to have an impact. But I'd say today, We don't see it having a drag on, like for today, we do see logistics costs continuing to stay high. We do see, although a minor impact, we do see consumer confidence in Europe having an impact in terms of what they feel about what's going on. Because it isn't so much in reality, it's just really about the confidence level and do they feel like buying to treat themselves or their family members in what we do today. Because You know, we're a business about entertaining and providing products and services to folks. We're not any type of – we're not curing cancer. So it is an elective. So we want to make sure that consumer confidence is a meaningful component of how we forecast growth, and we see it not as a drag at current. And, again, we update our forecast every quarter.

Great. So third and final, I think I know the answer, but I want to make sure. So does the Ukraine-Russian conflict at all change the timing of your 123TV efforts for disrupting U.S. travel?

Tom, no, it doesn't. It doesn't at all.

I think that it's two different things. And again, our execution, 2021 is about our execution, the launch of the travel and the proprietary platform that we're using. integrating into an API here in the U.S., that's all execution on our own.

Thank you. Thanks, Tom.

Thank you. We reach into our question and answer session. I'd like to turn the floor back over to management for any further closing comments.

Thank you. I just want to say thank you, everybody, for their time today, and we look forward to catching up with you soon.

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 participation today.