iMedia Brands, Inc.

Greetings and welcome to the iMedia Brands fourth quarter and full year 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 turn the conference over to your host, Alex Wasserberger, Senior Vice President, General Counsel for iMedia Brands. Thank you, sir. You may begin.

Good morning, and thank you for joining us. We issued our Q4 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 and good morning, everyone. Let's start with the obvious quote early, which is by Mike Tyson, everybody has a plan until they get punched in the mouth. Completing our debt reduction event this week was a milestone win for us, but make no mistake, it was a struggle to complete. The challenge began shortly after Thanksgiving when a new asset appraisal became effective, materially reducing our company's liquidity. We worked collectively with our asset-based lenders who fortunately provided us with the time to to shift our priorities from net sales growth and customer engagement into short-term cash optimization activities to fund principal repayments. We shifted our management team's valuable time and energy away from day-to-day priorities. We stretched our employees, and we stretched our vendors. We drained internal creative and financial resources, and we pressured our customers' loyalties. But we, as a culture, rose to the challenge, day by day, inch by inch. And we reestablished compliance with our senior lender by making $19 million in principal repayments in about two months. I want to emphasize that we could not have achieved this without all our stakeholders' efforts, meaning our employees, our lenders, and our vendors being part of this effort. This short-term achievement, though, we knew would come with a short-term cost, and that was our financial performance in Q4 2022 and our expected Q1 2023 financial performance. Now that we have simultaneously closed these six transactions that are all connected by the singular purpose of reducing our debt by $53 million and reducing our annual interest expense by $7 million, our teams and vendors are rapidly shifting their focus back to our normal day-to-day fundamentals. However, this is not an overnight fix. We have merchandise categories and vendors that require time, attention, and capital. We have customers to recapture. we have market share to win back from our competitors. I estimate our shareholders will start to see the positive financial impacts of our refocusing efforts in the back half of this year. For more details on our DRE, please see our Q4IR supplement published with our release today. As I think about our overall 2022 report card, I think back to our priorities we shared at our Capital Markets Day in February 2022. We explained why we would prioritize the integration of our 2021 acquisitions the reduction of our content distribution expenses, and the strengthening of our balance sheet. Now that we have talked in detail about how we have finally strengthened our balance sheet, let's go back and review our progress on the first two 2022 priorities. Regarding the integration of our 2021 acquisitions, beginning in Q3 of 2022, we began launching our best-performing ShopHQ Networks brand on-air on 123TV. which helped drive noticeable improvement in 123 TV's gross margins, average selling price, and net sales productivity. We also launched our 123 Auction app on ShopHQ.com, which will be now our second SaaS product after Float Left's OTT app. This 123 TV Auction app launched on ShopHQ.com is the first phase of 123 TV's product development roadmap as it continues on its timeline to launch its standalone travel auction site focused on disrupting the online travel shopping marketplaces here in the U.S. We also expanded our digital advertising offerings to include offering OTT inventory from our Float Left OTT app and offering on-air advertising opportunities from Shop HQ, Shop Bulldog TV, and Shop HQ Health. Equally important this year, we completed the difficult data mining process of aggregating our company's first-party data into unified data lakes to help us internally drive improved digital advertising conversions. Since all of our businesses are targeting the same boomer demographic, this is another unique strategy of what we're doing here. We also expanded Christopher and Bank's retail footprint based on consumer demand. As you may recall, in Q3, we terminated the underperforming Shack partnership, which enabled us to preserve future airtime for our more productive brand. This includes high-performing brands returning to ShopHQ from recent tours on our competitors, big brands like Joyce Gerard, Anushka, Gems & Vogue. Regarding the reduction of our content distribution expense, I will remind stakeholders that fixing the expense structure with content distributors is a full-contact sport, and that is why ShopHQ really hasn't attempted it in its last 30 years. We did, though, in 2022 because it's critical to our long-term success. Our decision to not renew DISH until we came to an agreement on future expense reductions created a short-term reduction in our 2022 net sales, but it was critical and a necessary first step to position us to achieve our milestone of reducing our content distribution as a percent of net sales in 2023. Before I give more color on our financials, I want to remind everyone about what we believe our reason for being is here at iMedia. Beginning in 2019, iMedia established a growth strategy and an entrepreneurial culture focused on operating four television networks, ShopHQ, 123TV, ShopBulldogTV, and ShopHQ Health, each of which have been uniquely crafted to focus on the same boomer demographic consumer and to drive multiple revenue streams, e-commerce, digital advertising, OTT SaaS revenues, and brick-and-mortar retail. Our diversified revenue model and singular focus on one customer demographic enables us to accelerate the share growth of net sales from digital products and reduce our historical reliance on the sale of physical inventory products that, as we all know, require logistics expenses, working capital, storage. Turning my comments to our financial statements, Q4 consolidated net sales were negatively impacted by the Q4 liquidity challenge and the dish carriage disruptions. Q4 net sales were $133.5 million, a decrease of about 31% compared to the same prior year period. Q4 consolidated gross margin was 36.8%, which was a 150 basis point decrease over the same prior year period. Q4 consolidated operating expenses were $64.4 million, a decrease of about 13.5% or $10 million. Q4 adjusted EBITDA was $2.5 million. an 84% decrease over that same prior year period. For full year fiscal 2022, full year net sales were $544.5 million, a 1% decrease over the same prior year period. Full year 2022 gross margin also decreased to 38.6, a 180 basis point decrease over 2022. Full year 2022 consolidated operating expenses were $257.3 million, an increase of about 10.3%, or $23.9 million. This increase was primarily driven by the $30 million in one-time integration costs incurred in 2022 related to the 2021 acquisitions. Full-year 2022 adjusted EBITDA was $25.4 million, a decrease of 39%, or $16.2 million, most of that decline happening in Q4. Regarding our cash liquidity as of Q4, the total unrestricted cash was 7.1 million compared to 11.3 million at the same time prior year. In terms of our outlook, the company anticipates Q1 net sales to continue to be negatively impacted by the Q4 liquidity challenge and expects to report Q1 net sales of approximately 105 million, a 31% year-over-year decline similar to Q4. The company anticipates positive Q1 net income driven primarily by several one-time gains related to the company's debt reduction event completed on April 10, 2023. The company has approximately $390 million in federal NOLs and does not expect to have any federal income tax payments on the debt reduction event transactions nor the company's 2023 net income. In anticipation of this short-term Q1 net sales pressure and to enable the company to produce stable, profitability, and cash flow. In February 2023, the company completed a cost reduction event that reduced annual operating expenses by over $20 million. The company anticipates Q1 adjusted EBITDA to be approximately $1 million in line with Q4 adjusted EBITDA. As always, I appreciate your trust on this journey together. Thank you for your time this morning. I will turn the call back over to the operator for Q&A. Operator?