iMedia Brands, Inc.

Greetings and welcome to the iMedia Brands first quarter 2022 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. As a reminder, this conference is being recorded. I would now like to send the conference over to your host, Tom Zielecki, Senior Vice President and Chief Financial Officer for iMedia Brands. Thank you. You may begin.

Good morning, everyone, and thank you for joining. 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. A webcast replay of the call will be available via the link provided in today's press release, as well as on the IR section of our website. Some of these 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, Tom, and good morning, everyone. We are on plan and off to a good start this year. Within our media commerce services segment, our digital advertising services flagship business, iMedia Digital Services, or IMDS, performed better than we expected and remains on track to grow its 2022 revenue by at least 50% compared to 2021. More importantly, we continue to see progress with attracting new clients and renewing existing clients for our digital services. In fact, a few weeks ago, we signed a new multi-year renewal agreement with Lumen Technologies. As many of you know, Lumen is a $19 billion-plus leading U.S.-based Internet service provider, providing network, edge cloud, security, communication, and collaboration solutions that support businesses and consumers with one of the fastest and most secure platforms for next-generation apps and data. IMDS's value-added solutions include will be providing Lumen with a fully managed web portal containing highly engaging content, support and communication services, e-commerce shopping experiences, and digital advertising solutions. IMDS will aid Lumen in retaining, scaling, and monetizing their users through innovative content and advertising solutions on desktop and mobile web platforms. Within our consumer brand segment, our omni-channel flagship brand, Christopher & Banks, also performed better than expected, and remains on track to grow its revenues by at least 50% in 2022 compared to 2021. In addition, as part of our consumer brands operating segment, I'd like to report that our development plans to launch our new 123TV travel website here in the U.S. continues to progress on track with an estimated launch date in Q3 2022. Within our entertainment segment, our flagship networks, ShopHQ and 123TV, performed a bit below expectations in the first quarter, related to what we believe are ongoing consumer concerns about the economy. All those highlights being said, I would like to note that our ability to deliver consolidated company growth in times like these centers on our unique business strategy, designed to grow four separate revenue streams, namely e-commerce, e-commerce, advertising, and business-to-business services, each focused on the same boomer customer demographic, which in turn reflects enables us to cross promote and share data. These four revenue streams monetize our delivery of compelling interactive entertainment to consumers on all engagement platforms, including linear television, over-the-top television, online, social, catalog, and physical stores. In short, this recent evolution of our business model to capture multiple revenue streams gives us an advantage we have not had historically. We now have the potential to traverse headwinds that may arise in one revenue stream, like logistic costs in T-commerce and e-commerce, while we capture opportunities that may arise in another revenue stream, like first-party data in digital advertising. I would like to now talk a bit about our balance sheet and provide some additional insight regarding our 2022 and 2023 Debt Service and Working Capital Plan and how our recent equity raise fits within this plan. Our strategy is designed to reduce our interest expense and reduce our net senior debt leverage ratio over time in a methodical fashion. For 2022, our plan centers on increasing our levels of cash generated from inventory optimization, profitability growth, and our just completed equity raise. More specifically, For fiscal years 2022 and 2023, we're targeting to reduce our senior debt by 10% to 15% each year, which will reduce our net senior debt leverage ratio from a 3-plus as of Q1 to about 2.5 at the end of 2022, and then to about a 2.0 by the end of 2023. Specifically, for fiscal 2022, this means a debt reduction of approximately $20 to $30 million by the end of the year generated by the following. Number one, increased profitability at Shop HQ in Q3 and Q4, driven by an approximate $20 million reduction in Shop HQ operating expenses, primarily driven by the reduction in negotiated television distribution expense and the reduction of other operating expenses. Number two, reduced inventory levels at ShopHQ, 123TV, and Christopher Banks in Q2, Q3, and Q4 of this year. In 2021, we intentionally increased our inventory level by $23 million year-over-year to ensure logistic delays did not impact our ability to deliver to our customers and also to get ahead of price increases taken by our suppliers. In 2022, our plan is to bring that inventory level back down by about $12 to $15 million by the end of the fiscal year. Number three, the equity raise we just completed will provide about $22 million in additional cash to strengthen our working capital and reduce our debt. Four, during May, we renegotiated our short-term seller no payable from $14.5 million to $7 million, which reduces our 2022 debt service requirements. The other $7.5 million will be payable in Q1 2023. I would like to also note that in 2021, we incurred roughly $9 million in one-time expenses related to our 2021 financings and acquisitions, which we do not expect to occur again in 2022. For fiscal 2023, our plan is to fund our debt reduction with the additional cash generated from ShopHQ's planned increased profitability and normal working capital management. Regarding the timing of our recently completed equity raise, this was a judgment call we made based on our belief that the global and U.S. economy will not improve and may even worsen throughout the remainder of 2022. We see all of the same indicators you do. The S&P 500 is performing at its lowest year-to-date levels since 1939. US monetary policy continues to drive significant inflation and rising mortgage rates. Russia's invasion of Ukraine and the associated economic sanctions continue to create macroeconomic global uncertainty. China's increased COVID-related lockdowns continue to exacerbate already challenging global supply chain issues. The University of Michigan's May Consumer Sediment Report indicated the U.S. consumer's assessment of their current financial situation relative to a year ago is at its lowest reading since 2013. And consumer's assessment of the buying conditions for durables reached its lowest level since 1978. In addition, we believe we will likely see additional market volatility this fall driven by the midterm U.S. elections. We recognize dilution is always a sensitive subject and one we do not take lightly. In this instance, we believe the achievement of our 2022 and 2023 goals, explained in more detail today, will accelerate our per-share growth and more than absorb the short-term dilutive effect of this raise. Before I turn it over to Tom, who will provide more detail regarding our Q1 performance and outlook for the remainder of 2022, I would like to provide a brief introduction of Tom. I met Tom in 2018 when I hired him as my CFO for a direct-to-consumer business I operated in Chicago. I know him, I trust his judgment, and I appreciate his pace. He has already relocated himself and his family here to Minneapolis from Chicago. He has already added new finance and accounting talent to our team, and I am confident he will help us tackle the complexities of a rapidly growing company and help us capture the new opportunities we see for the future. Tom, welcome to the jungle.