Q1 2021 iMedia Brands Inc Earnings Call
[music].
And then.
[music].
Yes.
[music] cash.
And.
Thank you.
And.
[music].
Okay.
[music].
And.
[music] debt.
Yes.
Hello, and welcome for the media brands first quarter 2021 earnings call and webcast. At this time all participants are in a listen only mode.
And then 1 should require operator assistance. Please press star zero and your telephone keypad, a question and answer session will follow the formal presentation.
And as a reminder of this conference is being reported its now my pleasure to turn the call over to Matthew Blackman Corporate controller. Please go ahead Sir.
Good morning, everyone and thank you for joining this is Monte wagon and I need your brands corporate controller, we issued our Q1 earnings release early this morning. If you do not have a copy you may access it through the new section of our IR website at I mean, the brands Dot Com. This release is also an exhibit to the form 8-K filed this morning I would.
Also like to remind everyone. This call will be available for replay through June 8.2021, starting today at 11.30, a M eastern time and.
Webcast replay will also 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 for any reason.
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 and finally, we will make reference to non-GAAP.
Measures on the call such as adjusted EBITDA, the information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures are included within our earnings release now I would like to turn the call over to the CEO of I'm, the new brands, Tim Peterman Tim.
Thank you Marty and good morning, everyone Q1 was another strong quarter for US revenue was $113.2 million and increase of 18% compared to the same prior year period.
And this was driven in part by the 34, new brands, we launched during the quarter across our television networks.
Q1, gross margin was 46% a 350 basis point improvement over the same prior year period.
Q1, adjusted EBITDA was $8.1 million, a $9.8 million improvement compared to the same prior year period.
And our Q1 total active customer file grew by 14% and that's the company's highest growth rate for this metric and 7 years.
But before I go deeper into our Q1 financial performance I want to walk through 2 recent achievements and our strategic road map to becoming the leading single source provider and partner for advertisers seeking to entertain and transact with customers using interactive video.
And I need to believe that today, the largest the scaled marketplace to reach the largest concentration of our core customer demographic using interactive video is linear television, which is the roughly $100 million less homes reached via Mvpds broadcasters telcos and satellite providers.
And as noted by Nielsen and the state of traditional TV 5 year study published in 2017 and updated by Nielsen quarterly thereafter, I immediate core customer demographic is primarily women who are at least 50 years old and particularly women or at least 65 years old and in the study it shows how our customer demographic is.
The only demographic that continues to watch more linear TV today than they did 5 plus years ago.
Ever we also believe that within a short 2 years the internet based video ecosystem over the top of our OTT. What many are calling today connected television or CTV will also be of scaled marketplace to engage large concentrations of our core customer demographic that is why we acquired float left and 2.
19, a leading OTT SaaS platform flow.
Let the accelerates the immediate abilities to launch its own OTT streaming services to engage new customers with its interesting factual content and monetize it efficiently with S. Vod, a vod and or e-commerce.
Net also accelerates the immediate ambitions to 1 day offer a single source.
OTT service to enable advertisers to create distribute and monetize their own interactive video content.
As noted the Nielsen's Q3, 2020 of the state of traditional TV viewers for at least 65 years old watch each day about 6 hours of linear TV compared to only 37 minutes on the internet connected TV devices or CTV.
Therefore, we are mindful to prioritize our linear television distribution efforts, while aggressively strengthening our streaming and OTT service capabilities for the quickly approaching CTV future.
Today I'm proud to report 2 recent wind and our linear TV arena.
First our new affiliation agreement with Iron and the largest independent broadcast group in the U S and.
And we have previously stated we want a bigger share of the $10 billion annual revenue marketplace that is television retailing today, and oligopoly really between QVC HSN and our flagship television networks shop HQ.
And the additional 20 million high definition homes, we are obtaining and 8 of the top 10 U S markets that is New York City of Los Angeles, San Francisco, Philadelphia, Dallas, Washington, D C Houston, and Boston will help us level, the playing field against our competition in these markets that matter most.
Our affiliation with the R N and HD stations, which also have great low channel position next to national broadcast affiliates like ABC, CBS, and NBC and which also provides us new carriage and the over the air homes and these markets.
Represent what we believe is a significant catalyst to drive shop HQ revenue growth beginning in Q3 of this year.
Our partnership with gig French are and its founder and media entrepreneur, who built the station group from scratch will be and important collaboration for us as we navigate future TV distribution opportunities.
I immediate estimate shop, HQ will experience of revenue lift and these arent and markets that will range from 5% initially to as much as 35% within 18 months based on its previous revenue lift the experiences from HD launches in 2016 and 17.
In addition, immediate believes the consumers' preferences today to watch the linear TV and the HD channel neighborhood on their cable and satellite systems has only increased since the company's previous HD launches.
Our second recent strategic win is Christopher and banks are Hilco partnership to acquire this iconic 50 plus year old brand demonstrates our leading brand managers like Hilco <unk> media is a leading single source partner to help promote and build their consumer brands.
Because of this hilco collaboration and our authentic brand group collaboration with Shaquille O'neal that we get and 2019, we believe more advertisers and brand managers will realize immediate is uniquely positioned to leverage its national television promotional power to accelerate our brands digital and brick and mortar retail arm.
Fortuity, while also providing a compelling customer experience that concludes with <unk> media efficiently shipping product directly to the customer from its fulfillment center and.
In other words, we are becoming a complete single source partner.
And with those 2 strategic wins now covered let's delve back into our strong Q1 financial performance.
Our operating expenses in Q1 were $48 million and increase of 17% or $6.9 million driven primarily by the $5.2 million increase and amortization related to our distribution broadcast rights and channel placement fees, which were not yet successfully negotiated and completed by shop HQ until Q2.
Last year regarding our Q1 balance sheet cash was $14.9 million compared to $16.2 million for the same prior year period.
Q1, net debt was $37.8 million of 10% reduction or improvement when compared to the same prior year period.
This net debt reduction is meaningful considering the company also reduced its accounts payable and Q1 by $25 million when compared to the same prior year period.
The company also prepared for 2020, when revenue growth by increasing its inventory level in Q1 to $75 million and $11 million increase from the same prior year period.
Regarding capital expenditures during the quarter, we spent approximately $2.1 million on capital projects, primarily reflecting investments and upgrades to our web site and infrastructure regarding.
And our outlook for Q2, the company anticipates reporting at least $8 million of adjusted EBITDA and approximately $121 million of revenue, which is roughly a 3% decline and revenue compared to the same prior year period due to the prior year period unusually high revenue performance.
For the full year 2021, the company anticipates reported full year adjusted EBITDA between 35, and $37 million, which is an approximate $7 million increase from the company's previous guidance.
In addition, the company anticipates reported full year revenue of at least $490 million, which is an 8% full year revenue growth compared to 2020 and is driven primarily by shop HQ is new 20 million HD homes launching in late June and the growth of Christopher and banks.
As a reminder, from a tax perspective, the company has approximately $397 million and federal Nols that are available to us to offset future taxable income.
In closing I would like to say that these continue to be important times here and I and media as we move into our revenue growth stage. Thank you for your time. This morning, I will turn the call back over to the operator for Q&A operator.
Thank you, we'll now be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star 1 on the telephone keypad, a confirmation tone will indicate your line is and the question queue.
You May press star 2 of treated like some of your question from the queue.
And for participants using speaker equipment may be necessary to pick up of the handset before pressing star 1.1 moment. Please while we pull for questions are for.
First question for you from Tom Forte from D. A Davidson your line is now live.
Great.
That's the came in the quarter. So 1 question and 1 follow up so you did.
Did a great job talking about the comparison of current viewership for your core customer linear TV versus the OTT or connected TV.
I wanted to know what signs youre seeing.
My impression for connected TV is the.
The conversion rates are lower versus linear TV.
Wanted to know if that was the case and if youre seeing any signs of improvement and conversion rates for connected TV.
Thanks, Tom.
It is interesting.
Our experience is youre absolutely right the conversion.
<unk> is lower and.
And really CTV is dominated by the advertising marketplace E Commerce.
And that whole arena has yet to really develop and any mature way as we think about the.
The space, we think about it the 3 pieces right you have the content and the distribution and then you had the consumer consumption and the content that we're making today the factual interest and content that we would move into the streaming is something that we do well and categories that we think is very interesting for people whether that.
And the mining of gold jewelry, and fashion and all of the surface element of that.
Base interest and content that we can move deeper into as we move into streaming is important and we call that and that we called out the content area within the distribution Youre right <unk> got these devices and then you had the services services like Zillow Pluto and and.
And trying to find the conversion and indeed, Nathan and services are in these devices like roku debt path.
Fast growing metrics, but they are not converting as quickly or is it certainly is and the numbers that linear TV and so.
You're absolutely right that the conversion is lagging we do think it will catch up but we don't think of it will catch up until the core customer really that we're engaging with 15 plus begins to adopt it and begin to get comfortable with it and a way that they have and it's taken 30 years to and linear TV and that's where you get to the <unk>.
And last part which is really the consumption the canoe.
Tumor consumption.
And at the evolved from where it is today in order to drive that conversion rate and that.
That's where our subsidiary and flow left fits right, its and that making those apps and a way that the <unk>.
<unk> the consumer consumption to trusted.
Haven't personalized those of the areas that we think with that experience along with our content and then obviously of responding to the format. The format is shorter the format is different and those also affect conversion and those will also have the evolve in order to bring the shorter format up.
2 of the conversion rates that the loss of format and are currently doing.
Great and then for my follow up question and you've done a lot to materially improve your balance sheet.
What opportunities and you see today to make further improvements.
Interesting question, Yes, we feel good about our balance sheet today, and and certainly we think that we have a.
The net debt of call and the high thirties compared to the assets. We have is certainly.
And lots of good collateral and our asset base, but I don't think about anything right now other than Opportunistically, we want to make sure that we're building the right relationships with our vendors and that we're taking advantage of the the <unk>.
Distribution opportunities as we see them so.
And we feel good about where we are right now.
Great. Thanks for taking my questions and.
Thanks, Tom.
Thanks for the next question today is coming from Mark Argento from Lake Street Capital markets. Your line is a lot of life.
Hey, good morning, Jim Congrats on the nice quarter, just wanted to maybe dig in a little on areas that you see and are performing well I know you watch the bunch of brands for the quarter, but could you maybe talk through a little bit on maybe some segments and brands that are performing well for you.
Sure thing thanks, Mark the.
So we've talked about and several of our leases 30, plus brands and we've launched in the quarter and net at the pace. It is.
Much better than last year, and and the ones that are working well for us are really several and every category and I'll kind of walk through some of them. So certainly and the beauty area of the launch of contours Rx was the strong performer for US and continues to be and we're we're excited about the opportunities there within the health.
<unk>.
The reduced fat fast has been a a very high converting product for us as well as the emails and the whole.
Arena of mobility, and massage and health and fitness at home all of those categories with Medicare Pudic have done really well everything from a foot massagers to the debt the library and platforms that we introduced.
Continue to become more and more and demand on the jewelry side jewelry by Jorge Perez has done really well so the 'twenty to get gold jewelry and have done really well on fashion side, certainly the 30 mens footwear, even durango and footwear as well and the booths and done really well for us So net of the App.
Activewear Activewear is our introduction for the activewear lines.
And we think thats going to do even better and the fall, but that has done well of the spring and certainly we are happy with Christopher and banks and that launch was in the.
This past month as well so there are lots.
It's a different pieces and as we've talked about.
Mark and I talked about on these calls it's never just 1 thing it's a multitude of things working at the same time that create the opportunities that we're seeing today and they.
The brands that we're launching today, we will begin to mature and yield a higher conversion and the fall of the brands. We launched last fall are the ones that are driving a lot of that demand right now its debt constant building finding the strongest providers and then carrying them forward and thats, how we continue to to it.
The gauge the customer so that continues to work well for us as does the Bulldog service shop, Bulldog and shop HQ health all of those specialties as we move deeper into those verticals are also performing well. So we're encouraged and not only by the brand kind of.
Introductions that we put across them, but also on the personalities. If you will have the networks that we have the balance of shop HQ, the focus and funding of shop Bulldog and the the vertical going deeper into the areas of shop HQ health.
Yes.
Thanks for your question.
Yeah, absolutely and then.
Just wanted to drill down on the 14% active customer growth.
Could you talk through and are these existing customers that you brought back or the new customers and.
And what what do you see resonating.
The to go in there with specific marketing campaigns and free.
Activates and customers are you achieving that type of action.
Customer growth.
Great question, Mark and I can tell you it slowly.
And is the only way to go on there. So if you look back at our pattern from 2000.
Starting in May and of 19, and you watch how we've moved every single quarter.
You talked about and 2020, the first thing we had to do among other things for us around the merchandising and new brands, but equally important we had to move our merch margin or gross profit margin of 500 basis points every single quarter. So we should we got to a place from a business model perspective, we could begin to grow revenue profitably.
But as you look back at those trends each quarter, you'll see that the customer file the proxy for held for 12 month customer file with in the high double digits decline back in early 19, and as you and it's starting to go down to 15, and then down to 13 and then Dow.
And the 8 and if you look through 2020, and you watch each and every quarter you are moving less and less negative and as I talked about all of last year.
Resting the decline and that really.
It really happened in Q4, but it only happened because of all of the year and a half before that and now with the when you see this growth and Q1 again.
And it didn't happen and suddenly it was an overnight success of 24 months that now youre starting to see that consistent performance driving consistent customer file growth and when you think about where that growth came from certainly it came from new customers certainly came from less churn and certainly it came from reactivation.
We have a history of.
Strong performance and the beauty fashion jewelry, the Wearables category and Thats, what primarily those those.
The engagements occurred.
And when you think about <unk>, let me stop there and see if that answers your question Mark.
So it's a little of everything a little pop for either so you don't know that answer that and then just.
1 quick follow up on the.
On the carriage deal.
And the deal you struck with R&M and is that any materially different just structurally than some of the legacy deals that you've done maybe.
And maybe you could tell us how youre thinking about carriage and.
The new World order.
For me thanks.
Yes, Mark debt Great question, the arent and I was hoping I could the chance to talk about this the <unk>.
The big deal for Us.
And the HD homes, and these major markets, which we werent and HD and these markets and some of them just werent available wasn't debt, even if we could afford to pay the cable entrants into it.
And the bandwidth just wasn't there so very important.
Opportunity for us and and 1 that we've been working on for quite some time and happy to get across the finish line and.
And happy to partner with <expletive> and Christian on this effort as we move forward in terms of the structure of the absolutely similar to what we've been doing where we have a affiliate fee of service portion and the channel placement portion from an accounting.
The perspective, we expect the channel placement of portion too.
And relate to about 7.
$7 million to $8 million and additional.
Annual and.
Amortization of that channel placement fee, which as you know the channel placement fee for us is making.
And making sure that it remains the same channel all the time during the term of the agreement, which is critical because as you move channels around the disruption is immense.
And the drop and viewership and then get the rebuild the viewership before you can rebuild the buying so this is a very similar structure of what we've done and the path.
Except the distribution and the HD distribution and the low channel position.
Is unique and at this scale I just can't emphasize enough of the positive impact that we.
We feel this is going to create for us not only and the back half of this year because these services they mature right they start with creating a lift and debt with the what I was talking about with the viewership. So the HD neighborhoods, where people more and more of just remaining to watch television.
And they view it and they.
Begin to watch it more and then they engage and then Theyre actively listening and then they are buying and that that maturation process takes anywhere from 30 days to 18 months and so we.
We expect good things from it.
Thank you.
Thanks Mark.
Thank you. Our next question today is coming from Alex Fuhrman from Craig Hallum Capital Group. Your line is that of life.
Great. Thanks, very much for taking my question and congratulations on a really strong start to the year wanted to get a sense of how you feel about the CDK partnership with Christopher and Bank.
That was the strong brand doing $100 million of E Commerce business fairly recently.
Now that you've had a chance to get more of a look under the Hood you still like the brand is that still resonate. The do you think the bankruptcy did any damage to the brand just curious as you think about your guidance for the back half of this year and then looking 2 to 3 years out how big of the business.
And Ken Christopher and baked ultimately be for you.
Thanks, Alex Great question, and we are more excited about Christopher Thanks, then.
And we began with and first I'll call out debt, we have a great partnership with Hilco, Great group of folks that understand how the brand build and yet hilco tipped over and January it was a $300 million business.
The brand has been around 50 plus years and its reason for being was strong which was it had these unique designs. They made and still today, we we make our own patterns and their proprietary patterns to fit the everything about the brand has a unique reason for being and Thats why.
And I resonate so well still now after closing of 200.
The plus retail stores, so let's start with <unk>.
Sure. It was was the call it to the $2 million to $300 million retail enterprise with $100 million digital platform and we are moving forward with the digital platform that we would be surprised if we can't build bigger than that next year and won't that won't happen. This year as we talked about it takes the.
Right amount of time, the nature of that we do this the right way. So you have got a digital platform with a great group.
And of loyal customers that were building on and we've also reopened already 2 of their strongest performing stores here in Minnesota, as well as brands, and Missouri, where theres, an outlet and here in Minnesota and.
For the rapid is where the.
Our full price stores and that opened just this past weekend. So if you think about the customer and the vendors that we've engaged with that we continue to work with.
The stroma, which is with the G. III has done a great job as well as several other key vendors those are all moving forward with us.
The employees that we have hired that have been with the brands are also 15 to 20 years are great from the product development and the merchandising to the marketing and the at the.
The digital marketing, which is critical to us. So we are bullish on Christopher banks as we talked about earlier in my remarks, we did launch Christopher banked on television and that was of great experience. We have lots of notes on different ways of engaging our customer and their customer.
We think.
And when you think about our strategy for growth, we are not going to replicate the large retail footprint, we do believe and and the omni channel experience, but and.
And the brick and mortar is a small component, we think that with the TV being and 100 million homes with shop HQ debt will will be able to engage the customers with some of the interactive video as a replacement of the retail rather than relying on retail it would be driving the bus clearly our strategy is.
Digital is driving the bus on.
And the development of this brand and the complement is the brick and mortar retail.
Great. That's really helpful for them and then if I could ask 1 about flow lap.
I would imagine that's still a very small business for you relative to the retail side of your business, but there's been some really impressive national and global brands that left has been partnering with the design some of their applications.
Point is that really start to inflect higher and and become a really meaningful growth engine.
And that starts to drive the overall result.
Great question, Alex So Youre correct on everything you said, which is flow that is a is a small component within our media commerce services inside of our emerging business segment, Great management team, there and a very strong technology platform and stack that hasnt highly customizable.
Approach to working with major entertainment companies as they produce apps to engage their customers and.
In the space is connected TV spaces, OTT space and so as we talked about we're taking our factual content and we are using their expertise to help us the streaming services app in this arena and Theyre platform isn't it.
As robust as we want it to be yet and as they would say they would agree we want to make sure that we have a robust AD ops component advertising at the component something that can.
Technology that can service their clients to make sure. There are also a 1 stop service partners. So they can deal with the supply side providers debt.
And Sai flat.
Suppliers and move and move in a way that they can grow their their client.
It would be 1 of them would be us their clients' business because it is a new marketplace and it takes and important 1 stop service and our view to help us.
Navigate more quickly and so when you ask about how quickly would that become a material part of our business and I can tell you that theres 2 pieces of that certainly the streaming service is going to be.
The.
And our business of just recently.
Talked about moving into the streaming services and our programming strategy, which is the factual content. So there's a company all of the curiosity stream started by John Hendricks debt.
And that started discovery, which again based on factual content. We also believe the factual content that we produce today will be important and streaming services, particularly for those niche services. So we think the.
And the slope of the SaaS platform as it develops and <unk>.
Create more capabilities and operations as well and the development and distribution of our own streaming services just is going to.
Together combined create a faster materiality to our financial statements and disconnected television space and just the flow.
And let the services business or just our streaming services.
Hello, Thanks for your question.
Doug Thanks, very much standard.
Thanks, guys.
Thanks for the next question is a follow up from Tom Forte from D. A Davidson your line is that of all.
All of it.
Alright. Thanks, So 1 follow up for me Tim can you talk about the drivers of gross margin and the quarter and to what extent the improvement is sustainable.
Tom Great question.
Yes, I can fill for the.
The broader question at the answer to the broader question, which is.
Ideally, we see the gross margin of our business and the 37% range we don't.
Of our occasions based on mix certainly.
Cash and is a higher gross margin and <unk>.
Already the growth higher gross margin and so and in Q1, we did have a higher concentration of jewelry within the jewelry and watches and certainly fashion is finding its footing again for it and those created unusually high call it 40% gross margin rate in the quarter.
I would say from a modeling perspective.
And we think about it back in the 37.
Range and so we can properly scale revenue growth.
This would be a and unusually high margin.
Not 1 that we are seeking from a business model perspective to replicate every quarter.
Great. Thanks for taking my follow up question.
Thanks, Tom.
Thank you we reached end of our question and answer session and I'd like to turn the floor back over to management for any further or closing comments.
Okay.
Thank you and we appreciate everybody's time as we always do and we appreciate the questions and we look forward to.
Our next quarter and talking to you again.
Thank you.
Thank you for that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day.
Thank you for your participation today.
Okay.