iMedia Brands, Inc.

During the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom Zielecki, Senior Vice President, Chief Financial Officer for iMedia Brands. Thank you. You may begin.

Good morning, and thank you for joining us. We issued our Q2 earnings release earlier this morning. If you do not have a copy, you may access it through the new section of our IR website at imediabrands.com. This release is also an exhibit to the Form 8K we filed this morning. A webcast 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 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 cautionary 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 gap measures where possible with reasonable efforts. 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. Although we did have a few short-term revenue bumps in the road that I will discuss in a moment, our uninterrupted progress in building our four core brands that resulted in a 38% growth And our 12-month customer file has made me even more bullish on the sturdiness of our growth strategy in choppy economic times and on our abilities to achieve our long-term goals. For example, during Q2, our television networks launched 20 exciting new brands, and many of these new brands aired on more than one of our television networks. A few examples are Shop HQ launched Glamazon Beauty with Kim Baker, our first fully inclusive color cosmetics line. Kim is the founder of Glamazon and a celebrity makeup artist whose work has been seen on top TV broadcasts across the globe. Shop HQ Health launched LiveVac, an FDA-registered Class II medical device used as a rescue device when in a choking emergency. And we've sold over 10,000 units across all our networks this quarter. Shop Bulldog TV launched NFL Watches by Invicta, the fourth year in a row for our exclusive partnership with the NFL and Invicta. This year, we featured eight new NFL watches in classic Invicta collections, Pro Diver, Coalition Forces, and Bolt. 123TV launched Talika, a well-established French beauty brand for skin, bath, and body. It premiered in July and was instantly a big performer for the TV network and already has multiple shows returning in August. Our Christopher and Banks business outperformed our expectations again, generating over $23 million in net sales for the 2022 spring season. a 79% growth compared to the 2021 season. We believe this success is driven by its popular television programming on ShopHQ that creates the awareness that drives strong performance at the five CB retail store locations and on its digital platform. Our online advertising business, IMDS, also continues to perform well from a revenue and profitability perspective. In addition, IMDS just successfully renewed 10 of its top cable and ISP clients for their continued usage of IMDS's hosted website products. To provide some perspective on the scale of these renewals, these deals collectively secure IMDS as the exclusive provider of website hosting and advertising services for these cable and ISP providers to their 9.5 million U.S. homes that on average generate about 3 million monthly unique visitors. In terms of those short-term revenue bumps in the road that I mentioned earlier, let's talk about each. Regarding the dish renewal, remember, we chose to not renew dish because we couldn't agree on terms. It didn't happen to us. We decided the short-term hit to the top line and the less-so hit to the bottom line was worth the pain to achieve our strategic goal of increasing ShopHQ's overall profitability by replacing less profitable carriage deals. Now, that being said, DISH has been a great partner of ours for over 20 years, and I expect together we will figure out agreeable renewal terms in the fourth quarter. And if we don't, then ShopHQ will find replacement carriage that does achieve its profitability targets, and DISH will fill our spot with another television network. Regarding that second revenue bump, it is a consequence of our relentless focus on capital allocation and simplification, or as Churchill said, Out of intense complexities, intense simplicities emerge. Every day here at iMedia, we work to simplify our goals and processes to improve our yield as a team. This means we will often pivot our tactics to improve, and sometimes we decide it's best to simply exit. It doesn't mean these businesses failed financially or were bad ideas. Most often we exit because the resources and time to develop the businesses further didn't make sense, or is distracting our attention from our core four flagship brands. To that end, during Q2, we exited four small businesses for these reasons. Our I3PL business, which was a pick, pack, and ship service we offered to Shop HQ vendors and third parties. Shop Jewelry HQ and Leventa, our two smallest television networks. And thecloseout.com and ourgalleria.com, which were our two online marketplaces. Regarding that last speed bump, the Russian conflict, yes, this is one that is not in our control, but we also expect it to be short-term. We believe it's increasingly impacting our near-term sales opportunity for 123TV in Germany, which is our nationally distributed television network to Germany's 40 million-plus television homes. For perspective, the German economy is heavily export-oriented, the largest exporter in Europe and the third largest in the world. So the continuing logistic delays and challenges that you see today are disproportionately impacting the German economy. In addition, Germany exports 0.8% of its GNP to Russia, and that is estimated to decline about 80% because of these sanctions. Germany is also strong in industries that use a lot of energy, for example, automobile manufacturing, and those businesses are suffering from the rising energy prices in Germany. We believe these economic pressures, coupled with an 8.5% inflation rate and the general concern about the war not far away, is really impacting the German consumer spending on discretionary spending, which is what we do at 123TV. That being said, our 123TV team in Germany is moving at a lightning pace, implementing synergies with ShopHQ, continuing to build their gamification engagement with consumers. And also, equally important, building our auction shopping widget that we plan to soft launch this fall to disrupt both the television retailing marketplace here in the U.S. and the digital shopping for travel services here in the U.S. Before I turn it over to Tom to review our financials and provide our guidance for the third quarter, I, of course, must quote Churchill once more. If you have an important point to make, don't try to be subtle or clever. Use a pile driver. Hit the point once, then come back and hit it again. So here I go. We believe our ability here at iMedia to grow in these uncertain times centers on our unique business strategy designed to grow three separate revenue streams, e-commerce, advertising, and services, each focused on the same core customer demographic that begins at the age of 50. These three revenue streams monetize our delivery of compelling interactive entertainment to our boomer customer on all customer platforms. linear television, connected TV, online, mobile, social, brick-and-mortar retail. And this helps us as a company traverse pain points that may arise in any one revenue stream, like logistics costs in e-commerce. And it also allows us to capture opportunities that may arise in another revenue stream, like first-party data and digital advertising. With that, I will turn the call over to Tom. Tom?

Thanks, Tim, and good morning, everyone. For the quarter, we posted $133 million in net sales, a 17% increase over the same prior year period. Year to date, we posted $288 million in net sales, a 27% increase over the same prior year period. Q2 gross margin is 36.3%, a 597 basis point decrease versus the prior year. This was driven primarily by our decision to adjust our near-term Shop HQ gross margin expectations during the quarter to keep sales flowing in this recessionary economy. As Tim mentioned, our 12-month customer file increased 38%, which was primarily driven by solid performances at Shop HQ, great performance at Christopher and Banks, and the addition of 123TV's customers into our accounts. Our 12-month customer file, excluding 123TV, grew by 18%. Q2 net loss was $11 million or 42 cents per common share. This included $5 million in one-time charges resulting from our divestitures and staffing reductions in the quarter. Regarding our outlook for the third quarter, we anticipate reporting net sales of approximately $138 million, which is approximately 6% growth over the same prior year period. We anticipate reporting adjusted EBITDA of approximately $8 million, which is approximately a 20% decrease over the same prior year period. Thank you for your time this morning. Tim and I are now pleased to take any questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, 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 the star keys. Our first question comes from the line of Victoria James with DA Davidson. Please proceed with your question.

Good morning. Thank you for taking my question. So the first one I've got is, what is enabling ShopHQ to outperform its video retailing peers, such as like HSN and QVC, And what gives you the confidence that you can continue to do so in the future?

Hi, Victoria. Thank you for the question. It's great seeing you in your conference earlier this week. So when you think about ShopHQ and what we talked about with our enterprise strategy of how we have these different revenue streams working together, ShopHQ is a linear television network. It's available nationwide, and it has its challenges in this economy just like everybody else. The things that help us remain more durable than would otherwise be is the complementary assets that we have that work with it. For example, IMDS, which is our digital advertising platform, many of the products that we have, we have opportunities to create dedicated digital advertising forms to support in addition to the television exposure. So that cross-promotion is always very helpful as we think about ways to the ways to combat the economy and the pressures that come with it. Christopher Banks is another great example. That's a brand that was 300 million with so many customers just chomping at the bit to try to understand where they can buy their clothing again and where they can do these style outs. And so that being on Shop HQ creates a growth path above and beyond what a normal brand would launch because it had, you know, 7 million customers, been around for 50 years. And so when we have brands or anomalies in the model, like Christopher and Banks, growing disproportionately when you have advertising to support the television distribution. Those are two unique assets that don't really happen at any of the other competitors in e-commerce, whether that's QVC or whether that's jewelry TV. So these unusual moments in our model help us overcome what would otherwise be pressure without respect from the economy. It's not that we don't feel it. It's just we have different stocks in our portfolio rather than just all bonds.

Fantastic. And then if I can just sneak in one more, my second question would be, can you give your current thoughts on your core customer? How is she handling the changes in the stock market and home market price volatility and maybe also inflation?

Thanks, Victoria. So that was like a softball pitch for me because I get to wax on about our core customer, which is all we really talk about here in this business. All of our brands are focused on on the same demographic, which really, again, starts at 50. And she, you're right, primarily, at least with Shop HQ, is primarily female, but we also have men on Shop HQ as well. The core customer, in our experience and what we're seeing in the data, isn't as impacted, if you will, as I would say some of the younger demographics. And that is a variety of reasons, but just the sheer size and growth of our demographic is what has helped us grow our customer file, for example. When I reported the results today, our total customer file 12 months grew by 38%. Now, to be apples to apples, let's take one, two, three out of it, the German TV retailer, and just look in the U.S. We grew by 18%. And that just doesn't happen overnight, remember, we were for years in a negative position, and then about a year and a half ago, started to peak into zero, and now we're growing much faster. So the core customer that we're engaging with, this boomer that, as I've talked about in the past from the US Census Bureau, grown 34% over the last 10 years, they are concerned about the economy, certainly concerned about the recession, or what you could say was two consecutive quarters of negative GDP growth, whatever you want to call it, but They're concerned about those elements. They're concerned about the upcoming election. All of those things are concerning, but they're not as impactful, in my view, as the folks that have less discretionary income or are not used to the emotional engagement of TV retailing, which is fundamentally different than the flat experience of a digital or even a retail experience when you're going into the mall. This emotional engagement, along with the boomer that's more set in their ways, along with the boomer that has discretionary income that isn't going to react like they're in a precedent time. This economy is tough, but it's certainly one that everybody that's in that age group has seen before, and it shall pass as well.

Thank you so much for your time this morning.

Thanks, Victoria.

Thank you. Our next question comes from the line of Mark Argento with Lake Street Capital Markets. Please proceed with your question.

Hey, Tim and Tom. Just a couple quick ones. I think, Tom, you had mentioned you guys have done some headcount reductions. Maybe talk a little bit about where you guys stand right now and full-time equivalents, and are you at a level that you think you can grow the business at with the heads you have?

Hey, Mark, this is Tim. Thanks for that question. It was I that was talking about that in the release and such. As you've known us pivot and innovate our business model these last three or four years as we grow, Q2 and what we talked about in Q1, our $20 million target of expense reductions on our march to be EPS positive in Q4, there were a couple things that we wanted to make sure everybody understood, which is our priorities. And, again, this year it's all about growing our four core brands. It's about reducing our debt from, you know, 15 to 20 million. It's about being EPS positive in Q4. Those priorities have consequences, and some of those consequences mean that, you know, the business has to innovate in the historical way it used to work. So as we think about staffing reductions, some of them, of course, are performance-oriented where you're looking at trying to move in certain directions, but a lot of it is reinventing how we do things. It is not, I hate to even use such a pat analogy, but the buggy whip. It is the idea of doing the same thing with less people is just not successful. So, for example, when we moved to a static programming calendar on Job HQ, which meant that the reason we did it was to build viewership. So consumers would be able to see that we have the same show on the same week with the same products and the same host. That builds viewership patterns. That also, as a consequence, allows us to reshape how internally we were staffing that function and not changing it every minute was a big way that we were able to reduce our operating costs. So when you think about our staffing reductions, It isn't about the idea of doing more with less. It's really about doing it differently. And that's what we've demonstrated we do over and over again as we march towards this Q4 EPS positive, which is precedent for the company and for Shop HQ. So hopefully that answers your question. In terms of FTEs, we don't really provide that information. But I would say that on average, as the business evolves, I think if you wanted to say that there was a percent of staffing, you could put it in the 10% to 15% range, and that would be a realistic assumption.

Great. That's helpful. And then just remind us the balance sheet, kind of where you're sitting today. You've got $20 million in cash. I know you had mentioned potentially doing a sale eastbound, but just walk us through.

Certainly, Mark. As I had talked a little bit before, one of our priorities this year was As we put the pieces together last year to make sure that we could scale advertising revenues and e-commerce revenues and service revenues, we came out of the year, call it, I think, $15 to $20 million too high in debt. We like to be a company that is below a 2.0 in terms of a ratio. So we talked about this movement through the year and that movement through the year of creating excess cash to reduce our net debt. you know, was going to be funded from reducing our inventory, which, remember, we started the year with, call it, $115, $120 million in revenue. I'm sorry, in inventory, and we were going to march that down through the year. That would be one source. I can tell you that, you know, that has been successful for us. We were, I believe, $115 in inventory at the end of Q1, and at the end of Q2, we're at $103, $104. And so that is on path. Another source was our equity raise. Maximizing that was something that was important to us. And we felt with the timing to do it at the beginning of Q2 was important, given what we think is going to go on with the economy and the back half. And then just the profitability of the company. So if you took our picture right now, as they say, get your picture took, we would say that our net debt at the end of Q1 was, call it, 184 and our net debt at the end of Q2 is 172 so call that 12 million dollars so in terms of our journey to get to the end of the year with a 15 to 20 million dollar reduction in debt we're halfway there and the better quarters are coming but that is very important because I know I've said this before but you know our priorities have consequences and a lot of times the there is some short-term disruption as a result of that and An example would be our election not to renew DISH until we get the right terms. So these are all very important because it's very important for us to reach those two primary goals, that being EPS positive and Q4, and getting us down below 2.0 in our leverage ratio.

Great. Appreciate it. Good luck.

Thanks, Mark.

Thank you. Our next question comes from the line of Eric Wold with Be Righted Securities. Please proceed with your question.

Thank you. Good morning. A couple questions, I guess. One, just a follow-on question from the last set of questions on kind of balance sheet and all that. Can you walk us from the adjusted EBITDA guidance this year of $41 million to a cash flow number, thinking about the carriage payment, interest expense, all that, and kind of how those two shake out compared to each other?

Well, so, Eric, nice to hear from you again. I think the question is, what are the elements that exist between our adjusted EBITDA and net income?

More cash flow, just pure cash.

Okay. So, well, when you think about free cash flow, then you're putting in the working capital management, which is what we talk about today. So, I would say if you think about free cash flow, the important things for us to accomplish are one, the reduction of inventory. That is important because as we talked about at the end of last year, we had quite a bit of use of cash in the buildup of inventory to avoid logistic delays that we incurred the year before. So moving that back down into normal levels is going to be important. That's probably the single biggest element of working capital that is driving that excess cash to create the debt reduction opportunity. When you think about overall free cash, then you have to obviously think about the adjusted EBITDA and then non-cash charges. And then there is a cash amortization piece in our business that we've talked about before called broadcast rights. You'll see over time, fairly quickly, as we continue to rebuild Shop HQ, that that cash amortization of broadcast rights will be coming down. And you'll see that in Q2, Q3, and Q4, because remember, these were the rights we paid cable carriers to secure, because we were pretty broken in 2019, to secure the same placement, to secure the same place on the dial, so we had a shot at building the company back again, the video service back again. And now, three years later, our success with Shop HQ, the programming, the new brand, the viewership, all of those elements are making it less of a requirement to have a guarantee because now the MSOs and ISPs that are carrying us are incentivized to keep us in a great spot because they're making more money the more money we make. So I think you'll see from a difference between JustEva.net income or free cash flow, that element will be going down as well. When you think about what we've talked about with net debt, you'll see our interest obviously come down as well. That is something that is we're very mindful of as we move into 23 and 24, but it isn't an event. What we've always tried to explain is that we move in a very direct, but a very non-camelot or non-pendulum swinging way. So the reduction of our debt is going to come 20, could be 20 plus this year, then about the same next year, and that interest will come down as well. So those are the, hopefully that answers your question on the elements between adjusted EBITDA and net income or free cash flow, whatever proxy you want to use.

That's helpful. Do you have an actual number we can point to for that $41 million of EBITDA to what the cash flow number would be instead of walking the elements, the actual dollar amount?

We haven't provided a working capital guidance for the year. What we have provided for the year are two KPIs, the revenue and the adjustment EBITDA. And then certainly happy to talk to you afterwards about any type of assumptions on working capital, but that's not something we've ever really disclosed. Although you could track us and you could track us right now on the main element of that working capital, which is the inventory. And I'd say that our report card is pretty good right now, given that it's down, call it 12 million. And just like with the net debt and cash being up, we expect that to continue. So that should be helpful.

Got it. And then this final question, the four businesses you shut down in the quarter, I know you noted there's a $70 million impact of sales in the quarter. I guess one, is that a good kind of annualized quarterly number? So four times seven would have been a $28 million-ish for kind of an annualized basis. And were those four on a combined basis contributing to EBITDA, or are they still in negative EBITDA build mode?

Great question. The So, yeah, they were on the lower end of that profitability scale for the very reasons of the capital allocation process that we talked about, which is, as I mentioned in my remarks, it doesn't mean these businesses are bad. They're actually really good businesses, in particular TCO, the closeout, and the marketplaces, and even the TV networks. But as we stay brutally focused on our four core brands, and when I say focus, it's not just our resources, our cash, or those sorts of things. It's management's time and attention. So to answer your question about run rate, yeah, I would say that's a fine proxy to look at. TCO was the partnership that we were in. Again, that business will go on. We exited selling our interest back to the original partners. Our Galleria, remember, we had a dual strategy on marketplaces, which were two different personalities. Instead of taking those two new personalities, what we're really doing is opening up a much stronger e-comm presence on Shop HQ to take advantage of the over 5 million monthly uniques, to take advantage of our advertising platform that can actually drive even more traffic to Shop HQ. So we're putting more wood behind one arrow versus shooting multiple arrows on this marketplace concept. In terms of the impact from jewelry and the Leventa networks, these are ideas that we still love. and that we still may one day do, but we believe that the best use of resources and management time and attention over the next 18 months is to really grow the core ShopHQ Networks brand, which is ShopHQ, Health, and Bulldog. Those are the core, along with 123TV. So as a consequence, as you see us pivot and look at our – does our capital allocation – expectations are they being met. These four in particular were, we decided at the end of the day, at the beginning of Q4, Q2, that it was time to exit.

Thank you. Yep. Thanks, Eric.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Alex Furman with Craig Helm Capital Group. Please proceed with your question.

Great. Thanks for taking my questions. Tim, I wanted to ask about the decision not to renew your carriage with DISH. Was rate really the biggest factor here? And now that you've had a little bit of time operating the business without carriage on DISH, are there any learnings you can share about how much, if any, of that business you were able to recapture from DISH users, maybe viewing your content online or on other platforms? carriage providers, any color on how that went would be helpful. And then I guess just thinking, you know, counted down the road, you know, if it made sense to end your carriage with DISH in the short term, you know, could that also be an option in the long term? Or are you, you know, pretty committed to getting back on DISH?

Great questions, Alex. I'll try to piece them one by one. So, for example, the DISH us being transparent about our DISH negotiation is really what we're just trying to explain is a consequence of the priorities we just talked about, which is Shop HQ, and we've talked about this for about a year, needs to reduce their carriage costs. And as a result of that, we have to really focus on rate. So to answer your first question, it was about rate. DISH is a great partner, great platform. Like I said, we've been around for 20 years. But we have to make tough decisions And those tough decisions start with if we're not going to achieve our goal of reducing our carriage costs, then we have to think about another way of doing it. So when I talked about us being down from DISH in Q2, Q3, and in the forecast I put it Q4, do I think we will solve it earlier? I do. Do I want to manage my expectations? Yes, that's why I put it out there. But in the event that for some reason we can't as partners come together on that on the term of rate, then it is a very self-fixing process, Alex. We have all sorts of distribution opportunities out there. The learnings of dropping DISH is it's painful, right? No one wants to look at their revenue and go, wow, that's going down. And that's why this company in the last 30 years has never done it. So we're making the hard decisions for the long-term shareholder growth that might come with a little full contact, because this is full contact to fix these issues. We are in discussions with all sorts of companies about potential replacements for that carriage. I don't want to replace the carriage and the cost we have budgeted for DISH until I know for certain that it isn't a platform that we can come to terms with and grow with. If that decision is, or if there's enough data that we say, okay, this cannot be won, then there's all sorts of other opportunities in the satellite world, in the MSO world, in the broadcast world. You know, the over-the-air broadcast section of video consumption in the U.S. is growing the fastest. You think about the people talk about cord cutting. What they don't talk about is the, what is it, Jessica, 30% growth in the OTV, over-the-air OTAs. It's pretty significant. And as a platform, it is something that we're looking at as well, and we've Got great response on that. So there's multiple avenues for our video to reach our consumers, but we believe in good partners. We've been a long-term partner for them. We think we'll figure it out. But like I said, DISH is not an issue. It is a point we wanted to bring out for transparency. It's really an opportunity we don't want to let pass.

Great. That really makes a lot of sense. Thanks for that explanation, Tim. And then just following up on that, are there any other major carriage agreements that you have coming due in the next year? And can you talk about just how generally those renegotiations have gone? Has there been any sort of a trend in rate or terms?

No, there's nothing imminent coming up for renewal. And when you think about Why DISH? DISH was probably on the low end, or not probably, is on the low end of profitability for all of our carriers, and that's why you see this happening. All of our other platforms are very good, and we feel great about them, but there are no short-term renewals coming up that would be of question.

Okay. That's very helpful. Thanks, Tim.

Thanks, Alex. Thanks.

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn the floor back to Mr. Peterman for any final comments.

I just want to say again, thank you everybody for your time today. We look forward to seeing you again very soon in about a quarter.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.