iMedia Brands, Inc.

Hello, and welcome to iMedia Brands, Inc. Third Quarter 2022 Earnings Call. 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. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Alex Wasserberger, Vice President, Deputy General Counsel. Please go ahead, Alex.

Good morning, and thank you for joining us. We issued our Q3 earnings release earlier this morning. If you do not have a copy, it is available through the news section of our IR website at imediabrands.com. This release is also an exhibit to the Form 8K we filed this morning. A webcast recording of this call will be available via the link provided in today's press release, as well as on our 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 GAAP 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, Alex, and good morning, everyone. I'll start today with the obvious. It's a tough environment out there. Some challenges we expected, like the struggling U.S. economy, and some we did not, like the extended Russian conflict. Although we intellectually understand all these are short-term in nature, it still significantly rises our risk radar, right? Risks in job security, risks in fundamental consumer-centric business models, risks in our investments and our loans. Therefore, today I'd like to start with three topics that I know our investors prioritize today, debt, liquidity, and working capital. In February, we explained our debt and liquidity management plan, and I'm excited to say that we are positioned to exceed all of our goals stated then. From a working capital perspective, year-to-date this year, we have generated $5 million in positive working capital. Last year at this point, we had used $41 million in working capital, which means this year we have improved our working capital management by roughly $46 million. From a debt reduction perspective, during our Capital Markets Day in February, we talked about a $25 million target for debt reduction by year-end. To date, we have reduced our debt by $7 million. On November 8th, we executed an LOI with a real estate firm to sell three of iMedia's four buildings for $48 million in a sale-leaseback transaction. Because of our roughly $380 million in NOLs, our gain on this transaction will seem tax-free. We remain confident we will close this transaction in Q4, and our goal is actually to close in December. In terms of our use of the $44 million in estimated net proceeds, we plan to retire the $28.5 million Green Lake Term Loan and use the remaining $16 million to reduce our ABL loan, which in short, increases our working capital to fund our growth. This means combined, we are positioned to reduce our debt by roughly $50 million, or 200% of our target. our interest savings alone next year will be over $4 million. With that important update complete, let's turn our discussion to our core, our television networks, ShopHQ, 123TV, ShopBulldogTV, and ShopHQ Health, and how we are engaging our customers in this challenging environment that will likely be here for several quarters. From an overall company perspective, before we move into each network, our customer report card is great. For the seventh successive quarter, iMedia posted year-over-year customer file growth in Q3 this quarter by 15%. And as we discussed in our last earnings call, our strategy to increase the upcoming Q3 promotional activity turned out to be very successful. Today, unlike many of our previous earnings calls, I'd like to start our conversation talking about 123TV, our vibrant and growing television network in Germany, in spite of the Russian conflict's ongoing negative impact on the German economy and its energy resources. Under the new leadership of Michael Hoenke, President, and Eberhard Koim, CFO and COO, I'm pleased to share their progress today as they continue to successfully optimize merchandise margins, increase price points, drive viewership engagement, and improve profitability. A couple KPIs that will demonstrate their success. Q3's net revenue per customer was €132, which was a 4% increase over Q2. Q3's average selling price was €21.4, a 14% over Q2, and one of the foundational elements of what the company is doing today to improve its profitability. Q3's ending inventory was 23% lower than Q2's ending inventory, which means not only are they doing it with margin and with balance, they're doing it in a very fast-turning inventory environment. In addition, Q3 staffing costs were 15% lower than Q2 staffing costs. So hats off to Michael and Eberhard who are doing a great job. In addition to growing the core business, Michael and Eberhard are also working with their technology team headed by Emmanuel. I'm going to make this an attempt. Margiana, who is their technology lead, and they are doing an amazing job bringing their shopping auction widgets to Shop HQ for a soft launch in December or early January. We're very excited about this opportunity and we can talk more about that during the Q&A session. Let's now turn our attention to Shop HQ as the team there is well prepared for the holiday season with a great level of inventory, an unbelievable schedule of great shows,