Q3 2020 iMedia Brands Inc Earnings Call
[music].
Greetings and welcome to the on media brands third quarter 2020 earnings call.
This time, all participants are in on listen only mode.
A brief question and answer session will follow the formal presentation.
On the watch require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host can Peter <unk> CEO media brands. Thank you you may be GAAP.
Good morning, everyone and thank you for joining this is Tim Peterman I media brands CEO Bill.
Before I go into my prepared remarks, I would like to cover a few housekeeping items.
We issued our Q3 earnings release earlier. This morning, if you do not have a copy you can access it through the investors section of our web site I'd media brands Dot Com that's true.
Releases also on exhibit to the form 8-K filed this morning.
I would also like to remind everyone that this call will be available for replay through December eight 2020, starting today at 11 30 am Easter a webcast replay will also be available via the link provided in today's press release.
As well as the investors 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 performances and speak only as of today's date.
We undertake no obligation to update or revise these forward looking statements for any reason we.
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. The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures.
Included within our earnings release.
With these housekeeping items complete let's begin.
As with our last call I would like to reiterate that I media brands continues to be focused on taking every step. It can during these uncertain times to keep its employees vendors customers guest and their families say Q.
Q3 was a strong financial report card force as our entrepreneurial minded employees and vendors continue to use their imagination and grit to perform within our new more accountable processes.
This new approach on installed last year has infused our cultural personality with trust and passion and it's those two emotions that are most responsible for driving our results like Q3, adjusted EBITDA was 6.4 million a 7.4 million improvement over the same prior year period.
Year to date adjusted EBITDA was 15.5 million, a 24.7 million dollar improvement over the same prior year period Q.
Q3, gross margin was 37.4% a 130 basis point improvement over the same prior year period.
Year to date gross margin was 37.2 per cent Athree hundred 70 basis point improvement over the same prior year period.
Q3, net sales were 109 million a decline of five per cent compared to the same prior year period, which was the best year over year quarterly net sales performance in more than two years.
This success was primarily driven by 49 exciting new brands launch so far this year that have generated approximately 21% of our year to date net sales the highest per cent in any nine month period in our Companys 30 year history.
In August we were pleased to see that our equity raise was oversubscribed and the participation from high quality institutional investors was meaningful.
Regarding our Q3 balance sheet cash was 19 million an $8.7 million improvement from prior year end net.
Net debt at the end of Q3 was $33.6 million, a 25.1 million dollar reduction from prior year end.
The company's debt structure is composed of a credit facility that provides up to a 90 million dollar revolving line of credit.
Two a borrowing base on a term loan debt matures in July 2023.
Our inventory balance at the end of the third quarter was $72 million, an $11 million decrease from the same prior year period.
Regarding Q3 capital expenditures, we invested approximately 1.2 million on capital projects, primarily reflecting investment in our web sites and infrastructure.
In terms of our Q4 outlook, we believe the company will post adjusted EBITDA in the mid to high single digit millions.
As a reminder, from a tax perspective, the company has approximately $393 million and federal and no wells that are available to us to offset future taxable income in terms of our journey to become a leading interactive media company growing a portfolio of lifestyle television networks consumer brands and media Commerce service.
As we achieved several important milestones during Q3.
In early 2020, we premiered our learning to Cook with Shaq television program on both shop, HQ and shop Bulldog TV.
As always our goal is to maximize the sales of shack products on these networks. However for the first time, we also plan to unlock the promotional power of our networks to drive the creation of a meaningful brick and mortar retail opportunity.
This would be a first for TV retailing from our perspective and I'm proud to announce the achievement of that milestone in October when our share kitchen products launched in over 2000 target and Sam's club stores.
Another milestone achievement was the launch of our newest 24, seven TV retailing network shop, HQ health as we announced in August we launched this network and 15 million homes and I'm happy to report it is off to a great start.
Today, I would like to provide more color on why we launched this service and what type of programming products and services that will offer and why we are so excited about it.
Last fall, we launched shop build on TV by using Shopify skews existing strength in men's categories as the initial competitive advantage to create this live 24, seven TV retailing channel dedicated to men.
And women who are shopping for their men.
Shop HQ health was launched for the same reason shopping queues existing strength in beauty and health categories are being utilized as the initial competitive advantage for this new 24, seven TV retailing channel dedicated to self improvement from men and women to be specific.
We define self improvement as products and services within the traditional TV retail in categories of health and beauty. However, we are equally focused on offering products and services and what today is referred to as Tele health teller.
Tele health is different from Tele medicine, and that Tele health refers to a broader scope of health related products and services consumed by people in their homes vs. Interactive video delivered to them via cable box the internet.
Over the top services like Apple TV Roku.
Or over the air services from broadcasters whatever the form of delivery, we believe telemedicine refer specifically to remote clinical services, well Tele health refers to broader health products and services, such as mental health spirituality and weight loss today, we size the U.S.
Tele health marketplace at about 11 billion and it's expected to grow by 30 plus percent for each of the next five years.
The core customer in the space is the same core customer immediate interacts with today men and women, who are 45 and older.
The growth in this marketplace is being driven by consumers who are seeking the purchase of an advanced level of health education products and or services and lower costs via interactive video in their own homes based.
Based on these characteristics. We think we are strategically situated to capture a meaningful share of this growing marketplace in closing I would like to say that these are important times here at I. media as we continue on our path to become a growth company. Thank you for your time. This morning, I will turn the call back over to the operator for Q1 day.
Operator.
Thank you we will now be conducting a question and answer session. We would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for your questions.
Our first question was from from the line of Mark Argento with Lake Street Capital. Please proceed with your questions.
Good morning.
Core.
A little bit on.
Customers.
31% growth.
Customers.
And also a 21% of sales coming from.
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A little bit on that.
Getting the customers.
On the network.
Good day.
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Thanks.
Sure. Thank mark the around customers. It's interesting if you think about the headline we provided in the press release.
Talking about our active customer file from Q3 gross by 4% and from perspective, our queue. At this time last year, our Q3 cash profile declined by 14%. So the the question on what we've been doing to have such a dramatic change year over year all revolves on.
Around two things right as we've talked about this before one would be that the programming the static from pending calendar and the introduction of programs that happened on the same week. Each week. So customers can build their viewing habits that is an important element of change force that began last Q3 really at the end it came.
And is it building momentum as it goes and then the second is obviously the the new brand launches I think particularly with it when you're turning the company around from a decline even to flatten into growth you really have to keep the product assortment fresh with new product and really new brands that folks to engage with.
Really in virtually every category from food, where we had a great introductions from companies like see there in wells kitchen to collectibles. We you know we had all sorts of coins and collectibles in that category to our core home brands introduced a few new brands sub brands themselves like Mackenzie.
Child glow.
Beauty things like the alive all of these different elements in every single category, we had strong a product launches and those are.
Our important flow.
I guess it say it this way there are important if they're successful so the idea that we launched that many and they generated 21% of our revenue is is really the key thing is that the different that's the highest we've had ever as a company. So I think that it's really both of those things working together that created the true.
Sure on the test.
Right.
The brands.
Like.
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From pretty.
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<unk> brands.
The brands.
Yeah.
A great question Marty so some of the brands that you're referring to probably are the Karl lagerfeld, and the T.K.N.Y. fashion GH bass footwear as you and I know you know we do the Threepl services for GE, three and act on that for quite some time on him.
Scale that last year and those are some of the brands that day represented just really as we build our relationship.
In the community. If you will we are establishing better and stronger brands on the networks and that would be you know Nash.
National brands like that it's always nice to complement proprietary and exclusive brands with a more well known brands and then yeah.
There's the ones like Oakley sunglasses and.
A lot and even when you balance those against header.
Gross proprietary brand that we launched its just really that mix.
The customers like to see that is had been working force and it's really nothing more fancy that our merchants just being very.
Offensive minded in asking the question that some of these brands that.
I would take 234 years ago weren't really considering.
The TV really TD retailing marketplace as a as a big sales channel opportunity, but I think I think that's changed over the last couple of years certainly on might know that if you. If you look at across the spectrum of TD retailing from QVC to HSN to us.
Most of the higher in fashion brands have tried or are on our network. So it's a I think it's a good it's a good statement about our channel in its entirety.
Thanks, Tim.
Absolutely Thanks Mark.
Thank you. Our next question is coming from a lot of that Tom Forte with D.A. Davidson. Please proceed with your question.
Great. Thanks for taking my questions. So Tonight, a handful of questions. We'll just go one at a time on the.
First question I have is when I think about holiday and I think about E commerce I'm concerned about it.
Inventory levels and I'm concerned about logistics capacity.
Meeting I'm worried that even for Amazon, they're not going to have.
Yes, since dr. consumers want and.
And even for Amazon.
They're going to have a hard time getting it to the consumer in time for holiday.
So can you talk about does video reach I think in general have an inventory advantage on Amazon I know oftentimes you make large buys on for things your future on Air and then what gives you confidence in your logistics efforts to be able to get the gifts to consumers in time for holiday.
Thanks, Tom Good question, and certainly relevant right now the Phyllis let's take the first part which is really the inventory we feel really good about how we have managed our inventory on that it started way back in January which is what this time last year as you may recall, we were we were.
Caught short handed in terms of the type of inventory that sell best and this season.
Last holiday season, we were really on doubling down in the CE category because.
I was going to fill the gap, where traditionally because of the proprietary and exclusive products are reason from being is that our Q4. This year is not really dependent on CE in fact, its a very minimal part of our our Q4 strategy. This year and so as a result, I would say that we are now.
Got pressured.
In terms of delays in logistics in getting those products and I will say of the small amount of hours. We've had in CE. There is that pressure and that is a real thing but in the other categories that were in that you know our strength you just go down on the wearable categories of beauty.
Fashion jewelry watches health, we are not seeing that same kind of pressure. So it's I wouldn't say, we're that smart I would just say that coincidentally, our strength or not in the products that are available everywhere and I think those are where are you going to see the most pressure on.
From a logistics.
He perspective, and I also think that you're going to see pressure from you've yet and Fedex and we've already been navigating through that and has everybody else because of the sheer volume going on I think both of those things create some pressure for some retailers that are in that space of consumer electronics.
But I don't expect based on everything we know so far with respect to either a U P S and Fedex that we're facing any unusual pressure.
Okay wonderful hurts the true more at the Analyst day last week QVC said.
They are starting to have data to support that older millennials are engaging with their platform on which I thought was remarkable on kinda went against you.
Stereotypes said, it's just baby boomers on.
No. Your demographics are a little different but can you talk about how younger consumers are engaging with your different brands.
[noise] well that's an interesting question an interesting perspective, certainly our destination in terms of taking share from QVC and HSN insane engage with the younger consumer is where we see the biggest opportunity for us and we've talked about that in the past you know.
We do think that the customer starting at 45 and up is a concern.
Continues to be our target.
However, the the migration of those customers on to OTI T.. It's certainly something that we are focused on the migration of those core customers to HD only in some market is certainly a focus of our attention and when we look at the products that we're selling we don't we're.
We are not actually targeting and embracing that and the lineal and the same in the same.
Maybe a focus that QVC and HSN or I'm not sure what they mean by the older millennial is that.
What would you characterize as the age of an older millennial.
In the Thirtys.
In the Thirtys, yes, so I would say that there I'd say the 40 and in the human condition, a 40 year old season fell to 30 in the mirror. So I'd say that we're still focused on the 45, an up well see themselves as the 35 and up and we are more focused on their migration and viewing habits and what platform. They are most interested in.
Engaging in that being social we're certainly doing a lot more on the influencer side and on the.
It ranges from influencing to social like Instagram, we've had a lot of great programs on that and we're selling differently on those platforms. So what we're doing our two minute short sales with our hosted our guests that are engaging more of our core customers on those social platforms, and we're certainly improving our apps or OTN.
Over the top App in terms of how that next generation call. It the 44 year old enough aren't engaging in cutting the cord and engaging with platforms like Roku Apple TV, Samsung Smart TV as you as you know last Q4, we acquired flow that interactive, which we feel and is.
A leading oh Gee at maker and they are right now in the process of upgrading and overhauling our existing app. So we can better engage again with our core customers in these new Internet based video platforms.
Great. So you sort of touched upon my last question, there, which is historically again for video retailing on it was my understanding that the core consumer needed to engage with the programming.
Don't know through as many as five times before he or she got comfortable and then started purchasing.
It may be too early but on the over the top platforms, you're talking about a broker on Amazon fire TV and.
And things of that nature.
Are you seeing similar behavioral patterns, where they engage with it.
Good day with your programming on road too and then after a certain hurdle they start converting.
Again, it may be too early to tell but I'd love to hear your thoughts.
Yes, the phenomena on you're talking about is I believe it and we see it in our data.
In the more defined areas of call it and that's those are and the P.D. So we know for example, the maturing.
The home that is recently launched with one of our television networks and this industry wide, whether it's advertising supported or TV retailing that it takes a while for them to mature or are they the customer begins to engage they see it on the channel eight Wocket day, it's a couple of different I touch points and they begin to engage it.
The same way that we view data when we look at viewership we know when viewership starts decline.
On T.V. retailing, we don't monetize that but it's a great early indicator that the home is maturing and the viewership and then the engagement follows and that same phenomenon on you're talking about with the O.G.T. happening and maturing. It's very early but it is also prevalent in terms of how we market to customers. So.
Think about the world of attribution right. The more times, you touched that customer with an email with the television signal with a social all of those different touch points. Then engage and then eventually result in a purchase so I do think we'll see the same thing with Oh, Gee, but you're you're right in that it's too.
Early for us and too small for us to really gauge it but we do see some of our best customers and we measure how they interact on our new platforms on and and we are trying to take that data to learn from it but I would say overwhelmingly though in terms of measuring O.G.T. in.
Priority of things are are bigger priority right now is on the personalization of our existing customers and watching how and using the data that we do have to engage with them in a more meaningful way on a personalized basis, whether that email whether that SMS, whether that when they're calling to talk to us it's those touch points.
That we think have a higher conversion yield for our revenue model today on not to say that Oh Gee as it matures, we'll not provide and we do believe it will provide the same kind of <unk>.
Next on sorry, you inspired me to ask one more question. So historically there was a point in time, where I would argue that for QVC HSN and shop. Its Q. There was a halo effect so to the extent that one or more of those efforts were doing well it cash the halo effect on video retailing in June.
General QVC certainly seems like it's got its groove back on <unk> do you feel like there is a potential for a halo effect are you seeing a halo effect at Trapiche Q.
Well, that's a great question I would just like to add something with it were fiercely independent and we don't think we need a halo effect, we think that our brands are on their own ramp on that but yes, I do believe that QVC and HSN, yeah, well, certainly QVC and HSN is finding its way again.
Inside the overall organization are very well run organization and the more the more they engage customers and they had a good experience than the more we will be able to take share from them as our our channel. They are good experience in TV retailing. So I do think that that's true the better they do more.
Easier it is for us to acquire new customers as well I was getting a little bit about that but I do think that our growth perspective is really on how we execute on continuing with the shopping HQ product assortment development, how we continue to build bulldog into a a really interesting deep.
Vertical from men and for women shopping from men and certainly shop HQ health around the area that you traditionally think of as beauty and health in the TV retailing on arena, but also in this whole I would call. It a merging if people are familiar with it tele health area, where I think the interactive video.
No component of health care and that remote element of health care.
Particularly around some of the broader issues of weight loss, you know addiction. All these mental health issues, just self improvement and goal setting whether that financial or what what it might be I do think that interactive video component is something that we are tailor made to pursue because parts.
Securely the customer set of 45 and up we share with them and that's why I wanted to make those comments in my prepared remarks, and also talk about it as we think about how we get new customers in the future.
Great. Thank you for taking my questions and keep up the good worked on.
Exar.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question is coming from the line about experimented with Craig Hallum. Please proceed with your question.
Great. Thanks, very much for taking my question and congratulations on another really strong quarter here you know.
Like you've identified quite an opportunity here in the Tele health market can you talk a little bit about how that's going I know, it's early but book you tell us a little bit about what you've seen so far that you kind of look at the 2021, what are some of the signposts you're going to be looking for in terms of engagement on as you ultimately make the day.
Decision to scale into more homes over time.
Thanks, Alex.
I will take the first question about health and then we'll talk a little bit about engaged on which is.
An important component not only in the new homes, but I'll get to that second so Intel.
The.
So as we talked about.
[noise] Bulldog and wood shop, HQ health. The goal really is to use our existing strength to have an initial competitive advantage to engage our customers and new customers in the topic in the vertical of which both of these are but in particular health and.
So we are using our best brands at our best guess and vendors, who traditionally provide a certain product on shop HQ to create new product force and shop HQ held so with these ideas of.
Well, they recognize and high quality vendors that can move with us and specialize in this area that we think will give us this initial start to.
Dive into this vertical and then once these customers start to engage with us on the traditional topics in other areas of let's call. It let's take weight loss. For example, the there's all sorts of interactive goal setting and it and interactive video applications out there today, we're focused on.
Our seeking different ways and cheaper ways to.
Maintain that that type of information and discipline in their lives and that is an area that we think once they find a trusted source like shop HQ health that we can even provide advertising supported services and other types of services to these customers to make sure that they have eight a.
A higher conversion with our content. So it's a it's a step by step process and it doesn't happen overnight that's why.
As we did with Bulldog, you'll see us rollout original programming night by night as we add distribution with Bulldog. We introduced three nights of original programming, where it was dedicated Bogot Bulldog programming and you'll see the same thing in Q1 as we roll out original programming for shopping to help.
And as those days, which are in those new subs are added then we add an additional night of original programming and we see that evolution taking place throughout 2021, so with new probe to your second question with New homes, you will see new original programming they work hand in hand to engage.
Gauge these customers.
Right. That's really helpful. Tim and then if I could just ask also about the partnership with Shaquille O'neal and that's certainly very interesting on it sounds like quite an opportunity seek your product and target stores and Sam's club as well up can you talk a little about the economics of that relationship your partnership with.
Dentek brands group and Shaquille O'neal you know.
Who's taking the inventory risk et cetera, you know just just just curious to get a little bit of a better sense of what shop HQ his role in that in that product assortment is.
Sure the Shaquille first off I'd like to say, it's just an absolutely great partner does that you know is constantly innovating with us as we build what we think will be a very big brands. So let's start back at the beginning of Oh, why we partnered with Shaquille and that was the I.
India is when you have a personality and on and someone like Shaquille that resonates with so many different types of folks and they still authentic and everything he does the idea of using our television network as a promotional platform to build a larger.
Brick and mortar retail opportunity was really something that was I called unusual without precedent here on TV retailing and so this spring we started with that and we did a lot of different types of shows with Shaquille and we the low developed everything from food to different types of table talk to different types of.
Kitchenware and we found the absolute best product, we felt that would work based on what our customers voted on during the spring and so as we did that we then started to focus on testing more in infomercials on that best product that we found in TV retailing and then further.
Identified okay. Now we have a very small list of what we now know and have tested our the best products that we think will work at retail and that's what we engaged target and Sam club and other retailers with and that's how we were able to secure all those stores now as you talked about the very beginning.
We had great partners in this new model that we're working with authentic brands group, obviously very important growth very seasoned operators. They are shaquille as a partner with them and as a result, we became a partner with them and they've been very helpful. In not only with shaquille, but in other brands that they have because day.
We are obviously very interested in this new model that we're creating where we control you know a national television network to create commerce opportunities at retail the other other.
Other partner that we have in this Tri Starr is an excellent partner as well. They are the many have helped us design with Shaquille all the different types of kitchen products and they have very strong relationships in the retail ecosystem and they were critical in our effort to share this retail just.
Commission that we announced a couple of months ago. So both of those partnerships are important I can't say enough about Shaquille Perry.
His and his management team are all we've all been critical in the development of this opportunity and its in terms of the economics certainly it's public information I believe that our relationship with AG is a three year term and theres royalty associated with that and in terms of the economics on TV retailing.
Certainly there are just a normal economics of us offering any kind of product on our air and our partnership with AG and Tri Starr, we haven't really gone into publicly about how we're sharing the proceeds of the the retailing sales, but when we do you will be the first to know alley.
And wheels that publicly.
[laughter].
Well I appreciate that thank you very much.
Okay.
Thank you Alex that those are both important questions.
There are no further questions at this time I would like to hand, the call back over to Tim Peterman for any closing comments.
Thank you Robert.
Thanks again, everybody for your time. This morning, we appreciate your time and attention and look forward talking to you soon.
Thank you. This does conclude this morning's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great site.
[noise].