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spk02: 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.
spk03: 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.
spk00: 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?
spk02: Thank you. 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 Thomas Forkley with DA Davidson. Please proceed with your question.
spk04: Great. Thanks, Kim. So I have one question and one follow-up. So can you talk about, for ShopHQ, you discussed in your prepared remarks your focus on liquidity and things of that nature. So can you talk about, I guess, what gives you confidence that ShopHQ will be able to rebound? And then how should I think about the video retailing category's performance? Historically, it holds up relatively well during periods of macroeconomic challenges. So, A, what gives you confidence that you'll be able to, I guess, restart Shop HQ? And B, what gives you confidence that it has the historical traits it's had in the past to be more resilient during macroeconomic challenges?
spk00: Sure thing, Tom. Two-part question. I'll start with the one on the Shop HQ recovery first. So let's think about chronological events, right? So we talked about this in Q3. We were focused on the sale, closing the sale, lease back, transitioning to a new lender at the, really at the end of the calendar year, end of December. Now that delay, you know, based on some complexities, put us on a path. But before we got to the end of the year where that was delayed, we were looking at, at the beginning of December, a new asset valuation report that really materially became effective at the beginning of December and reduced our liquidity. And so when that happened, we found ourselves in a situation where we were shifting from the normal holiday activities into moving into cash optimization situations where we were creating the funding, the cash from our working capital to fund repayments on our ABL loan. Now, as that moves through December and through January, and moves into the amendment that we just signed, you can see that our liquidity is improving with the amendment that we have in place now post Pontus. But if you go back to Q4, if you go back to December and January, you have to think about a couple of examples of how that shrinking liquidity that was moving to repay principal payments affected Shop HQ. They were definitely not macro environment related. They were really around the Occam's Razor. It's really around the most basic things that we do. For example, jewelry. Jewelry is a category that it's the most important category in holiday. And as you know, Tom, the jewelry business is unique in that it doesn't have a long lead time. They ship it in overnight. You pay for it cash on delivery as opposed to home or fashion where you're bringing the products in 30, 60, 90 days in advance. and selling them in that fashion. So with jewelry, when we found ourselves in this situation where the liquidity was moving into another situation, we couldn't bring in jewelry. And you can see that in the charts that we provided. Our receipts, our inventory receipts in Q4 for jewelry were over 50% decline. The inventory balance is 50% decline. The hours we are contributing So we had to immediately shift out of jewelry, and that was frustrating to the customer, and move into other categories that really aren't used to that much airtime. As you think about our business, jewelry and watches, we report together. But if we reported them separately, you would see that, and we provided this in the IR chart, watches, for example, in Q4, we had to over-rotate it. I think the airtime went up 40-plus percent. And as you over rotate categories to make up for that jewelry airtime that you can't air because of the inventory receipts, you find that the DPM or the revenue productivity of that category plummets. So as you can see with watches, that went down in the 40, 50%. So the example of the short-term nature of not being able to acquire jewelry receipts, which then causes us to over rotate in certain categories, watches being the example, is the element of the decline that we talked about in Q4 that generated this, what would be the highest Q4 decline in our company history. Another example, again, because we're not just about Shop HQ, but our digital advertising business, right? That is an ecosystem that is made up of publishers and advertisers, and we really weren't able to provide the liquidity and the working capital to pay those those customers on time. And again, that pressures the net sales. And when you think about the path back from that, you know, I talked about in my prepared remarks about winning back share and doing the fundamentals of day-to-day operations. But it's really as fundamental as now that we have more liquidity, we're buying more jewelry and gold receipts. It's filling back up to the normal levels that it appears on our calendar. it is satisfying the customer demand that has been with us for 30 years. So the mechanics of how we move out of the situation are about as fundamental as the mechanics of how we faced the squeeze in the first place.
spk04: Thanks. And then for my follow-up, I wanted to ask a question I received from an investor. You announced earlier the hiring of a chief transformational officer. What are his responsibilities and what inspired you to add that role?
spk00: Great question. So Huron is the group that is our chief transformational officer. Again, you move back in time, you say at the end of Q3 when we talked about what we were doing and how we were monetizing our balance sheet with the sale-leaseback and moving into a different transition from a lender perspective. When we went into the situation at the beginning of December, this new asset valuation really put us in a tough situation almost immediately. And fortunately for us, our lenders were very accommodating and flexible, and they worked with us to provide us the time to make those repayments. As part of that amendment that we had with our lenders, we brought in Huron, which Huron was really back in – effort to improve communication, the effort to maximize cash opportunities, to do planning, all the different elements of what you would think about in a lender transition scenario is what Huron's specialty is. Smart folks to come in in short time frames to really help a company and a lender move on. And that is really what they've been doing since early November. Now, their scope increased as a result of these final six-party simultaneous transactions that you saw us easily pull off, just kidding, saw closed this week. As part of that, they are helping us move through after structuring these simultaneous transactions, moving through the next three to four months as we work with an investment banker to run an organized RFP in order to replace our senior lenders in an organized period of time. Again, everybody here in this ecosystem of ours, whether it's employees, lenders, vendors, they're all working with us together in order to make sure that there's an organized transition, and we believe that transition will happen. It started here in Q1, and we think it'll close in Q2.
spk04: Thank you. I'll get back in the queue for any additional questions.
spk02: Thank you. Our next question comes from the line of Mark Argento with Lake Street Capital Markets. Please proceed with your question.
spk06: Yeah. Hey, Tim. Just to follow up on your last comments there, maybe just walk us through kind of your current liquidity position. You know, how much runway do you guys have, you know, to execute kind of a turnaround here? And then just to follow up on the $20 million in cost reductions, you know, how, you know, it seems obviously pretty aggressive and understandably so, but What did you do to get $20 million out of the business? Thanks.
spk00: Sure thing, Mark. Let's talk about how we came out of Q4. So as we saw this pressure in Q4, we realized as we were finalizing our game plan and budget for 2023 that we had to reduce our cost structure. And as we've done in the past, think about how we do things differently. So the $20 million, I would say a little bit over half of that was around the labor, employee staffing, and then the other were different structural changes, whether it is in the agreements in the IT area, different ways that we've been optimizing our infrastructure, not just around our staffing levels. So it was an important step to make sure that as we navigated through what we knew would be a recovery period of Q1 and then into Q2, based on what we saw in Q4 that we needed to make sure that we were cash flow durable and sturdy to move through that. So bring down the cost basis instead of hoping for a miraculous and immediate net productivity revenue increase is what we did. So when you think about the liquidity moving into Q1 that we're in today and moving into Q2, there's really two parts. One is short-term and one is long-term. We're fortunate enough to look at this pay down of our debt. Let's go through that for a minute because it's important because that's the short-term liquidity that now our company has. It starts with the Pontus transaction, great group that we did with the sale-leaseback transaction, an accretive transaction for shareholders in where the net proceeds of call it $42 million were used to immediately pay down the term debt with GreenLake, $28.5 million, as well as the pay down of our ABL senior lender in the $12 million range, as well as a discounted pay down of our 1-2-3 seller notes. So when you think about the leverage of the cash that we used to pay down debt and reduced interest, we'll pay down $53 million of debt on $42 million of proceeds, and reduce our interest expense in 2023 by 7 million, it really was around our opportunity to take some of the debt off the table at a discount and provide some non-cash elements of those retirements, principally with the 1-2-3 seller note, the 10% equity in 1-2-3, the business in Germany. So as we moved out of the $53 million debt reduction and the decrease in the $20 million in operating expenses and the decrease in the $7 million of interest expense. And as you look at 2023 and you realize that we are not going to again have the roughly $28 million of one-time integration expenses incurred in 2022 and 23, the path for liquidity and cash flow is a much different picture in 2023. And when you look at that scenario, then you look at the amendments and the forbearance agreement that we've established with our ABL lender today that has a six month term along with a three month extension at our election. Again, this entire transition is intended to replace our ABL lender in an organized way. You can look at it and say, well, how does that liquidity from a cash minimum perspective, How does that compare to what was in place in Q4? And the liquidity situation is much stronger in Q1 for two reasons. Number one, in Q4, we paid back over $20 million in principal payments on the senior loan, whereas we're not doing that anymore. Now we're back in compliance with the senior lender. The other is that the cash minimum, absent the Pontus transaction and the proceeds from that, is half of what it was in Q4. And so that additional liquidity is also important for us as we move forward. So the cost structure is low, the below the line costs are significantly lower, and the liquidity in partnership with our lenders is actually stronger now that we're moving into Q1. So those are the elements of why short term we feel better about the balance sheet to move through this recovery in Q1 at the beginning of Q2. And long-term, obviously, we feel very strongly that the assets we have and the business and the durability of what we have is going to be a very quick, I won't say very quick, I would say a reasonable, solid transition in Q2 to a new ABL lender.
spk06: Thanks for that, Collar, Tevin. Lastly, any color on, you know, the performance of the business, you know, so far this quarter, you know, given the macro environment like was referenced previous, you know, are you seeing kind of a return to some normalcy as you're able to add some inventory or maybe just talk a little bit about what you're seeing now versus, you know, three, four months ago?
spk00: Sure, Mark. You know, when we started this journey back in 2019, we were coming off a very tough year when I came back and started as CEO. And from that experience and others, we knew that it isn't an easy fix to take a quarter after a downturn that will immediately ramp back up. That's why we put the guidance out we did for Q1, where you have a roughly 30% decline in net sales in Q4, and we expect the same in Q1, and that's how we're preparing for it. The elements of how you turn around net sales, and in our case, it is not macro. It's really about the mechanics of putting the jewelry back on the calendar, not over-rotating watches. It's about advertising, the fundamentals of paying the advertisers and suppliers. Those elements are the backbone of how we improve the business. It's not easy, it's not overnight, but it's not complicated. So I would say based on our experience of turning a company like Shop HQ, because that's just one of our brands, moving that back in the right direction, we know takes three to four months after what we experienced in Q4. And having done it before already, we understand the basic building blocks of what needs to occur, and we feel good about that.
spk05: Thanks, Tim. Good luck.
spk02: Thank you. Our next question comes from the line of Alex Furman with Craig Howland Capital Group. Please proceed with your question.
spk08: Hi, Tim. Thanks for taking my question. You know, as you start to add inventory back, I'm curious where you anticipate that demand has held up the best. It sounds like, you know, you mentioned that there's a fairly constant demand for gold jewelry. What are the other categories of yours that are the most sticky that you can lean into as you start to build back your inventory?
spk00: Alex, thanks for the question. Well, absolutely. The first step that we're doing right now is around jewelry. And in particular, it's around 14K gold. In particular, it's around Stefano, our largest and most popular gold brand. If you were watching over Q4, you would see that that was greatly reduced. So just reestablishing those mechanics of having the lead time for Stefano to increase the Italian production of the gold that we offer is first and foremost important. the most important part of what we're doing. Behind that, you have beauty. Beauty is our second category. Again, very similar to jewelry in that the lead time for us to acquire beauty inventory receipts and the payment of those is almost immediate. It's not a long lead time. So they have a unique characteristic of being impacted when there's a liquidity situation. And they just happen to be the two most important categories for us. So as we move through back into Q1 and Q2, it's simply about reinvesting with those vendors, simply about engaging the customers, and it's that mechanical. Now, as you think about our reason for being, in particular, since we're talking about at Shop HQ, its merchandising strategy is around these wearable categories. But first and foremost, it's jewelry and beauty. And Quite frankly, we never like to waste a challenge. So we are actually accelerating our migration into jewelry and beauty at a quicker rate in Q1 and Q2 in order to stabilize and then continue to a growth pattern in the customer file in total for Shop HQ. So you'll see from us in Q1 and Q2 an accelerated pace on that. We were taking a much more moderated pace. But now, given this opportunity, as we like to say in a challenge, we're moving at a quicker pace.
spk08: Okay, that's really helpful. Thanks for that, Tim. And then if I could ask on the digital advertising side of the business, what is the path to winning back the business you lost there? Is it, you know, like it is on the retail side of the business where it's just as simple as having – You know, a little bit more working capital will enable you to go after business that you couldn't in Q4 and Q1. Can you talk a little bit about that?
spk00: Sure. You know, taking a step back, right, we've talked about the different examples. I think that's what your question is about, the different examples of the liquidity challenge and how it impacted our business. much more so than is there a macro environment that's touching on advertising or a macro environment that's touching on Shop HQ. I mean, certainly you still have the macro environment of 123 TV in Germany with the conflict in Ukraine, but here in the U.S., it really is about us putting back in place the game plan that we had and delivered on over these eight previous quarters. So as it relates to the What we call IMDS are really our digital advertising arm of Shop HQ. It is as simple as just getting the working capital back in line and without aged payables in terms of engaging the suppliers. Those mechanics are very easily fixed, and we know all the players and have strong relationships with them. And quite frankly, they were also very flexible in this. They understood, and the value that we provide on our advertising platform with now as we infuse our first-party data in there from the different businesses, it's a unique offering, right? We have unique supply out there in a marketplace that is crowded with advertising units that have been passed along three to four to five times before it gets to the customer from where it started at the advertiser. We believe that the platform that we have is because of this unique nature of what our first-party customer data is bringing to the table, is a sought-after product. And that's why these advertisers and suppliers are quickly moving back up to speed with us as our liquidity increases.
spk01: Okay, that's really helpful, Tim. Thank you. Yep, thanks, Alex.
spk02: Thank you. Our next question comes from Eric Wold with B Reilly Securities. Please proceed with your question.
spk07: Thank you. Good morning, Jim. I want to follow up on inventory. A lot of the earlier questions kind of were around, quote, unquote, kind of building back inventory. I guess you're still sitting on, at the end of the year, you're still sitting on, you know, $112 million of inventory. Can you talk about, you know, what you see in that inventory, I guess the currentness, if that's a word, of that inventory? I know that during the early supply chain issues, you're able to lean on kind of other inventory categories and areas to kind of stay in front of consumers, stay engaged with them. and keep salesmen going, even though you couldn't get some of the stuff you're hoping to kind of get delivered in on time. What's holding you back from maybe doing something similar in Q4, Q1? I guess back, rounding back the first part of the question, you know, maybe talk about, you know, that hundred plus million of inventory and the value of that and how much you, can you still increase it this year or do you have to really build it up from that level into 23? Long question.
spk00: That was a long question, Eric, and I appreciate it, and it's a great question. Let me try to peel it back in pieces. Starting with inventory, and it really is about the composition. Start with where we were last year, where we are today, and if you look at over the last couple years, remember our total inventory starts with really three components. You have Shop HQ, you now have our new business, Christopher and Banks, and you have 123 TV in there as well. you know, the Christopher and Banks and 123TV are in the, you know, in the $10 to $12 million range. And so when you look at year-over-year growth or look at year-over-year decline, those pieces are relevant. But as we look at Shop HQ, it really is, and the major flagship revenue of our business is around Shop HQ. So let's just focus on that and put Christopher and Banks and 123TV aside, even though they – create anomalies when you look at year-over-year comparisons. At ShopHQ, the inventory that we have today, it's about composition. If you look at the IR slide that we presented, you can see that the inventory in jewelry, for example, is at 50% of what it was at the beginning or in the middle of Q4. And rebuilding that and bringing down home and bringing down health all happens in a very organized way in our business, and it works like this. We have this grouping of buy category inventory, and we have that inventory, and then we have future receipts, obviously, with open to buy. As we look at this recovery, as we could call it, into Q1 and Q2, I would say 80% of our new receipts are focused purely on jewelry and beauty. And what we're doing as a consequence of that, and with zero receipts or very little receipts in those other categories, is selling down the existing inventory we have in those categories. Now, is it the maximum BPM on some of these items is not ideal, but from a balance perspective, we feel good about the margin of 42%, 43%, 44% because of the increased airtime back into jewelry and beauty. We have a demonstrated history here, and we call it the sprinkle strategy, of moving our inventory regardless of age at a very positive margin, 25, 30 plus percent each and every quarter. So that's the unique ability of our programming strategy and really this business is to be able to shift your receipts on a composition level to improve a particular category and reduce future receipts, sell what you have on existing, which then creates the cash flow for the working capital. So I think that To your question about inventory, I would say composition-wise, you'll see more from jewelry and beauty, and you'll see the overall Shop HQ inventory level remain stable. It's just the composition will be shifting. And I think that you'll see the Christopher and Banks come down some in 2023, and I think that you will see the 123TV inventory staying relatively the same. Does that address some of those questions?
spk07: It does. It does. I appreciate it. And then your follow-up on the IMBS media business, you talked there about liquidity being an issue there as well in terms of facilitating the payments back and forth. If that was not an issue, how do you think that business would have performed in Q4 and Q1? What are you seeing underlying macro-wise? Is that still a growth business in 23, barring the liquidity headwinds?
spk00: Yeah, great question. When you think about what I was monologuing about, which is our reason for being, it really is around increasing the share of our digital products. We believe the biggest growth area in our company in terms of percent sales growth year over year will be in this digital advertising, the SaaS products like the auction widget that continues to be developed by 123. We recently launched it on shophq.com. and that auction widget is being advertised in placement by IMDS, our advertising arm as well. So, as you asked about the macro environment, the macro environment for digital advertising, particularly with the assets that we have, is strong. Now, the year-over-year decline, if you look at our IR presentation, you can see a rather acute decline in Q4, and that was all driven by these liquidity challenges we talked about, but the fundamentals And when I say fundamentals, the win percentage of our spots, our advertising opportunities, is strong and has been strong. It dipped in Q4, and it's moving back in the right direction as we now bring back our advertisers, as we now bring back our syndicated supply of content. So it's not a macro environment for us on IMDS. It really is maximizing... the original integration opportunity we had with digital advertising, and that is bringing the promotional power of Shop HQ, bringing the first-party data into that ecosystem. Remember, if you think about digital advertising on the web, and if you think about the opportunity of digital advertising in the OTT space, people are talking a lot about the OTT space as the mecca, but we know because we have a business in the OTT space that 60 to 70% of that ad inventory goes unmonetized still today. So the maximum opportunity for us is really around taking consumer engagement apps like our 123 Auction app and our first-party data and making those elements more important for our advertising arm to go out and sell digital advertising on the web today. It's a very big opportunity for us and one that I can't talk enough about.
spk07: Got it. And then this final question for me, if I may, I'm not sure if it's something you can address here or not, but I guess given the sale lease back, the pay down of all the debts and kind of the ongoing discussions with your lead lender, should all of that be able to remove the going concern that's been in your financial or is that something that still may not be addressed?
spk00: Well, when you, I'm not really sure how to answer that question, but I could start with, Let's just look at the facts. Let's start with the Q4 performance and the liquidity challenge that we just traversed with the completion of these, what we call the debt reduction event. You can look at the history of the amendments that we've done. You can look at our cash flow. You can look at the elements of our guidance where we talked about the net sales, again, being pressured, but also the fact that we've taken our cost structure down. All of those elements work in unison when a company and its auditors are looking at a going concern and whether that's an issue or not. I think that if you were looking at all the facts, I would say that you would follow the path right along the path that I'm describing, which is you'll begin to see the efforts, the financial impact of our re-engagement efforts around net sales growth, around consumer engagement happening in the back half of the year. So, you know, we're in Q1 now, so, you know, you could do the math on Q1 and Q2, but we think that we'll be right back on track, and you'll see that in our financials in the back half of the year.
spk05: Got it. Thanks, Tim.
spk01: Yep. Thanks, Eric.
spk02: Thank you. Our next question comes from the line of Thomas Forte with DA Davidson. Please proceed with your question.
spk04: Great, thanks. Two quick follow-ups. So, Tim, can you first start with the high-level comments on this is where you are today from a debt standpoint, and then this is your plan at a high level for reducing debt on a go-forward basis?
spk00: Sure thing, Tom. As we talked about, and you were there, at our Capital Markets Day in February 2022, we talked about three priorities, right? And I went through this in my prepared remarks. one of them being on strengthening the balance sheet. We knew as we put together the pieces in 2021 to be able to execute our growth plan and our growth strategy that we talked about today, that we were a little bit heavy in debt and we needed to move that down through 2022. We talked about targets in the $25 to $30 million range on a methodical basis and taking that down over time. As you can see, the complexity of the delay and Pontus into where it ended today, it ended up, fortunately for us and shareholders, reducing our debt by $53 million rather than the $20 to $25 million. So if you think about Q1 last year, we were at $207 million in debt. And if you think about where we are today in that $123 million range, it's a significant decline because it our debt repayment efforts didn't begin and end with this debt reduction event. As you know, that has been happening each quarter as we move through 2022. So if you start with where we are today in this $123 million range, you're looking at our non-amortized bonds that are out there, and you're looking at our ABL and some smaller seller notes with Cinecorp. those all have a very organized, methodical way of going down over time without any kind of event, just out of the working cash flow of the business. With Cinecor, it's a quarterly payment. With the GCP, these are, whether it's stock or cash, whatever it happens to be. So we feel good about moving it down again throughout 2023 in an organized way, not in an event way like we did now. This chrysalis that we pulled out of with this debt structure where it is. It's kind of a one-time restructuring that we feel good about, and we will move that down over time in a non-eventful way through 2023. All right, thank you.
spk04: And then the last question for me, you had previously given a handful of levers you could pull on an as-needed basis to do additional deleverage. You pulled some of them, like the sale leaseback, Can you give your updated thoughts on levers you can pull to de-lever? It was very helpful in the past. I kind of appreciate an update.
spk00: Sure. As you think about the market cap of our business and if you think back at Q2 and Q3 and why we were moving into the sale-leaseback to monetize three out of our four buildings and the completion of this transaction did not include the fourth building. So our fourth building is obviously an asset we have in the business that is also available down the road if we choose to create a debt reduction event. When you also think about the business and the balance sheet that we have, we really are, from an asset-based lending perspective, it's really focused on the the physical assets of our business. They aren't really tied and we don't feel like in today's world of our lending today is focused on IP. We know that we have IP that is down the road, another asset just like the buildings that we can lever in the event that we wanted to take another debt reduction event in course. Not something that we're planning on, but it is something as we move through with our investment banker, which we'll be announcing here in the next couple days, to replace our existing lenders, it will be about not only the physical assets that are traditional asset-based loans, but also the IP. We've got some strong IP here, and that is something that we'll look at. The most easy and leverageable asset that you've heard me talk about and that we've demonstrated over time we can do in a period of six months is inventory. As I talked about before, we have a seven-year history of moving aged inventory by category inventory, lumps, bumps, whatever it happens to be, the way we do it with, as I would call it, our sprinkle strategy at margins that are acceptable as a balanced perspective to still achieve that 42%, 43%, 44% is something that is unique about even us, I think, in the TV retailing world. We don't buy in a way that forces us to purge at a significant loss inventory. So as you watch us this year, the leverageable event you're going to see us do is to bring down, as we change the composition as well, but to bring down that inventory on a methodical basis that generates cash flow. As you look at the report card for 2022, you can see the working capital that we've been able to manage or the cash that we've been able to generate from our working capital management continues to be a significant lever that we always have demonstrated we can do. So I would say if you wanted to think about 2023, you will see as a normal course us managing our inventory as a lever down. And then you'll see as an opportunity as we find our and partner with our new AVL lender, to look at the IP opportunities. The bonds are certainly something out there that are interesting. Who couldn't comment on these bonds? Well, I'm going to comment on these bonds. They are trading at a significant discount. It is an anomaly out there that we are looking at, obviously, but that's all really I could say about them is that there is an opportunity with bonds, but it's not something that we think is the best use of our capital today. It really is about reestablishing the growth in jewelry and beauty. It's really about reestablishing the faith of delivering our consensus after the Q4 situation. Those are our top priorities as you look out over the next 60 to 90 days.
spk04: Thank you for taking my question. Thanks, Tom.
spk02: Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Peterman for any final comments.
spk00: Thank you. Listen, as always, we appreciate everybody's time and faith, and we look forward to talking to you again in a short period of time about our business and what we're doing, and you can talk about what we've done and how we're doing it. Thank you.
spk02: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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