Q4 2021 iMedia Brands Inc Earnings Call
Hello, and welcome to <unk> media brands fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
What should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Now my pleasure to turn the call over to Martin Wagner CFO . Please go ahead.
Good morning, everyone and thank you for joining we issued our Q4 earnings release earlier. This morning. If you do not have a copy you may access it through the news section of our IR website at IR media brands Dotcom. 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 April one 2022, starting today at 11 30, a M eastern time.
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.
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. Please refer to our earnings release for further information about these measures, including reconciliations to the most comparable GAAP measures.
Now I would like to turn the call over to the CEO of <unk> media brands, Tim Peterman, Tim. Thank you Marty and good morning, everyone.
I'd like to start today by thanking our employees vendors advertisers and digital publishing partners for their amazingly consistent effort that enabled I media to produce a transformational 2021.
A year, where our revenue grew 21% year over year, our adjusted EBITDA grew 74% year over year, and we assembled the strategic assets necessary to scale, our interactive media growth strategy.
And we were even able to demonstrate that strategy with the successful relaunch of Christopher and banks rebuilt.
We build entertainment brands here, that's what we do know many companies say that and some are pretty good at it but it's how we build entertainment brands here that makes us unique we require three non negotiable criteria for every entertainment brand, we build or acquire first it has to be a brand that is accelerating the online migration.
<unk> of its entertainment what does that entertainment is defined as a television show.
Tumor product or service or simply information a consumer is passionate about.
Second it must be a brand that is targeting customers, who are women and men, primarily 55 years of age and older.
Third we must believe we can realistically make it financially accretive in year, one that is our scope that is our discipline.
Create entertainment aggregate audiences monetize engagement our primary competitive advantage is that our entertainment brands promote and provide first party data to our consumer brand and digital advertising brand, which we believe other advertising platforms and consumer brand do not always enjoy.
Since we are accelerating our pace to become the leading interactive media company capitalizing on the convergence of entertainment E Commerce and advertising.
We are implementing certain actions to make it easier for the investor community to see our progress for instance, as we announced earlier beginning with Q4 2021, we are reporting our results within three financial operating segment.
Entertainment consumer brand and media Commerce services I Hope you find this information useful.
In addition, as part of this effort we held our first capital markets day here at our global headquarters in Eden Prairie, Minnesota on February 7th.
And I would like to thank many of you listening today, who attended we had a great turnout of existing and prospective investors, who collectively engaged with our leaders as we explained who we are how we operate and where we're going.
We talked about how we view ourselves as a self contained digital media ecosystem, a walled garden if you will.
And why the first step in our journey that began in 2019 was to revitalize shop HQ because it was this revival that created immediate big Bang moment, giving life to the interactive media strategy you see working today.
We talked about how shop HQ is promotional power and first party data are fueling the omnichannel growth of our consumer brands like Christopher <unk> banks, and J W. Hulme as well as fueling digital advertising growth for I media digital services or I M. D. S. We talked about while we acquired 123 T V, which is disrupting television retailing in Germany.
With its gamification strategy and why we believe 123 Tvs proprietary auction platform and gamification expertise will enable us to disrupt the online hotel and airline shopping marketplaces here in the U S.
We talked about why we acquired soon of course portal and advertising business segment and rebranded it I M. D. S. We believe this video advertising platform that engages and monetize is over 200 million monthly users for its online publishers N V. P. DS and Isps is a primary catalyst in our company's overall.
Data driven growth strategy.
What we love about I N D. S is it operate a leading proprietary programmatic advertising exchange that has real scale and maintains direct technological API connections into the top supply side platforms and demand side platforms, which provide I M. D S with speed and we all know speed matters.
It Hasnt entrepreneurial management team, we know fits well with our culture.
It has a direct search agreement with Google because for a very long time I M. B S. As biggest clients have been and continued to be reputable online publishers Mvpds and Isps.
Of note, we recently announced the renewal of our Google agreement.
We believe we can take these existing competitive advantages and add shop, HQ and Christopher Banks first party shopping data, which is a competitive advantage because the entire digital advertising industry is scrambling to prepare for google's upcoming removal of third party online cookies.
Leverage shop, Hq's relationships with I M. D S. As core clients. The M D P DS and Isps in the U S, which shop HQ pays roughly $80 million annually.
Add shop, HQ, and Christopher banked unique digital advertising demand, which further improves the transparency of I M D S as advertising clients.
Capture OTT advertising supply from float left OTT SaaS platform clients and capture first party data from one to three Tvs disruption of the digital shopping for hotels and airlines here in the U S.
We believe I M. D. S. Now equipped with our synergies will become a financially significant growth catalyst for our company before I turn it over to Monty to talk about our Q4 and full year financial results I would like to emphasize what I believe are the top takeaways from today.
One shop HQ is operating well now for the first time in a long time. In addition to the programming merchandising and margin improvement shop HQ as recent H D launches in the top 10 markets are performing better than expected, creating 15% to 25% lift in those markets.
As I said at our capital markets day shop HQ is fixed.
Two.
Our strong 2021 financial and strategic accomplishment Didnt just happen. It took three years of hard work by passionate employees continually accomplishing aggressive goals to create the type of culture capable of producing consistent future performance we.
We have that now.
Three our exciting 2021 financial result, do not mean that I immediate doesn't face its share of marketplace challenges every day, we do.
Shop, HQ continues to face unusually high logistics costs from the COVID-19 pandemic. We believe the worst is behind us, but we are expecting these extra costs to continue for fiscal 2022 123 television is absorbing a new challenge, which is the Russia, Ukraine conflict negative impact on Germany's economy Germany's G.
D P forecast and western Europe's consumer confidence.
Germany is western Europe's biggest economy consumer.
Consumer confidence matters for example, German auto companies like Volkswagen BMW and Porsche all operate large facilities and employ large workforces in Germany, and this Russia, Ukraine conflict is accelerating it already existing electronic component shortage for car manufacturing.
These marketplace challenges being said and these are only a few I will reiterate all of these challenges are factored in our financial guidance.
Four we believe our 2020 to first quarter and full year net sales guidance is achievable because the annualized nation impact alone of our three 2021 acquisitions should generate roughly 20% annual net sales growth for our company in 2022.
Five we are bullish on our 2025 net sales target of 1.5 billion, we had the strategic pieces in place and now we need to execute meaning profitably grow our brand we own and operate today. The most significant brands being shop HQ, Christopher <unk> banks 123 T V.
He and I M D S.
As always I appreciate your trust on this journey together now I will turn the call over to Monty to discuss our 2021 financial results and our outlook for 2022 Monty.
Tim Q.
Q4, consolidated net sales were $193 8 million, an increase of about 55% compared to the same prior year period, driven in part by the closing of the 123 T V acquisition in November full year 'twenty 'twenty. One net sales were 551 million, a 21% increase over 'twenty 'twenty and the straw.
Biggest net sales annual growth in over 10 years, we improved our Q4 consolidated gross margin to 38, 3%, which was a 270 basis point improvement over the same prior year period.
Full year 2021 gross margin also improved to 40.4%, which was a 360 basis point improvement over 2020, and the best full year margin in the company's history.
Our Q4 consolidated operating expenses were $74 5 million, an increase of about 63% or 28.7 million, primarily driven by the operating costs of our 2021 acquisitions of Christopher <unk> banks I M. D. S. In 123 T V, which were not part of our immediate.
<unk> in the same period prior year.
Full year 2021 consolidated operating expenses were $233 3 million, an increase of about 33% or $58 3 million again, primarily driven by the 2021 acquisitions I would like to note for investors that in 2020 , one we incurred roughly 7 million in one time.
<unk> related to our 2021 financing in acquisitions, which was about a 6 million increase in one time costs from 'twenty 'twenty and I'll also note that this was not something we expect to occur again in 2022.
Q4, adjusted EBITDA was $15 1 million, an 80% improvement over the same prior year period and the best performance since the company began reporting adjusted EBITDA in 2005.
Full year 2021 adjusted EBITDA was $41 6 million, an increase of about 74% or $17 7 million.
Regarding our Q4 balance sheet total unrestricted cash was $11 3 million compared to $15 5 million at prior year end, our net debt at year end was $149 8 million, an increase of $111 9 million year over year, driven primarily by the debt financing of the 123 T V Act.
Physician.
Regarding capital expenditures during the quarter, we spent approximately 2 million on capital projects, primarily reflecting investments and upgrades to our web site infrastructure and facilities.
Guarding our outlook for the first quarter of 2022 we anticipate reporting net sales of approximately $156 million, which is approximately 40% growth over the same prior year period.
We anticipate reporting adjusted EBITDA of approximately $9 million, which is approximately a 12% increase over the same prior year period. Our guidance includes our expectations that the Russia, Ukraine conflict will continue to have a negative impact on the German economy and that we will continue to experience unusually high logistics.
Costs due to COVID-19.
For the full year 2022 we reiterate our previously provided 2022 guidance, we anticipate reporting revenue of approximately $675 million to $725 million adjusted EBITDA of approximately $50 million to $60 million and we anticipate reporting positive quarterly earnings per share.
Beginning in the back half of 2022.
As a reminder, from a tax perspective, we have approximately 397 million in federal Nols that are available to us to offset future taxable income.
Thank you for your time this morning, I will turn the call back over to the operator for Q&A.
Operator.
Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset.
Before pressing star one one moment. Please while we poll for questions. Our first question today is coming from Mark Argento from Lake Street Capital. Your line is now live.
Hey, Jim.
So a few quick ones here just wanted to.
Get a feel for.
Kind of what's been working in terms of <unk>.
Product sales in the core.
Fashion accessories were up pretty substantially maybe watches and jewelry down a little bit.
What kind of trends do you anticipate.
How are you guys positioned from an inventory perspective too.
To be able to get there.
Hey, Marc Thank you for the question Yeah. So in terms of performance in fashion. If you think about the entertainment segment, it's really driven by the bank. The digital relaunch of Christian Bank, we were as we've talked about in the past we started from zero and in mid March in 40.
40 plus million, it's a it's been quite a success because the if you think about what Christopher Bank debt, which is an omni channel brand. It was the launch of the T. V shows on shop, HQ believe it or not that are now the most popular shows that's driving a lot of that velocity. So it's not only as a brand on shop.
Hugh but we've reopened those five retail stores at where their best performing we've launched a catalog I don't know if you've had a chance mark to try our style out interacted style app on our web site for some banks that really that has been driving the fashion performance and in terms of jewelry and watches that are top brands in those categories.
We do continue to drive the business, you've got Stefano and gold you've got Invictus and watches it's been a it's been a strong performance along with some very strong debuts in areas that are very important to us, particularly beauty.
With Blue Sky and it's been another great launch and then our core brands in beauty continue to perform well that being isomers and consult so it's been a pretty.
Pretty steady movement on that as we add in 123 TV to the mix. It's also going to be you're going to see some of our strongest brands on shop HQ begin to make an impact on what degree TV because as I talked about the one of the great things of why we are here.
Feel so good about one Q3 TV beyond everything that existed in prior calls it the merchandising mix is the same.
Estimate base is the same so as we add value into that platform and they add value into art. Our top brands are going to be helping mature there their revenue growth at a much quicker pace.
Let me stop there and see if that answers your question Mark.
Well, that's helpful and I guess, it kind of dovetail into that if you think about Jonathan.
Got the reopening.
Trade, but.
But on the product.
This year and you see people start.
I'll get back in the offices is a little bit more and then does that change the.
Kind of the sales mix.
Going forward.
Obviously inventory is up a bunch.
Still things off just wanted to make sure you guys are yes.
Yes got it positioned well there.
Yeah the.
Great question again, and when you say a bunch you mean moving from 68 to 116, yet that is about it and from over the year, but as you think about where we made those investments.
A big chunk of that was the investment Christopher <unk> banks.
We couldn't be more pleased with how that's growing and you know what are the what are the growth areas.
Inventory was also some late logistics.
Different brands received different types of logistical delays at Christopher <unk> banks, we did receive a big chunk of inventory past the holiday season, and we're going to sit on that through the end of the year is that a piece of the growth, but another piece of the growth is folding in 123 T. Obviously, they are a very important part of our growth strategy there.
We're doing very well, but again when you look on a year over year basis that $50 million increase in inventory is really related to the Christopher <unk> banks and the one two or three TV with some growth for shop HQ, because as we experienced with Christopher <unk> banks and as I'm sure everybody is experiencing in virtually every <unk>.
Mentor in terms in every industry in terms of logistics.
We took some early bites on inventory and bringing it in to make sure that we didn't say delays. So that we are sitting on a little bit more inventory than normal on shop HQ, but again, we feel that is often to make sure that we don't get don't get snag like many others did and like we did earlier in the year.
That's helpful. Congrats on a strong in 'twenty, one and good luck this year.
Thank you Mark.
Thank you next question is coming from Eric Wold from B Riley. Your line is now live.
Thank you good morning, guys I appreciate the questions I guess.
First off.
Your multi you talked about you know the.
The annual evasion of the acquisitions last year, maybe Tim.
Curious if you give me the comfort Inn in Q1 and kind of 2022.
Aside from the generalization of those acquisitions, where do you see as having the greatest organic growth contribution in 2022 towards your guidance.
When should we see some benefit from the once you treat gd move and disrupting some of the U S consumer segments, you'd highlight and how long will it take for that effort to become.
Impactful to our results.
Hey, Eric Yeah that was needed it mentioned that the let.
Let me see if I can parse that into a couple of pieces.
The organic growth is.
Let's start with I like to think of it as a triangle, let's start with the base of the triangle and that is our flagship service shop HQ that continues to be the organic growth story that it turned to the whole engine and that has been in three years in the making and so we expect organic growth in that in Q1. We also expect the Christopher <unk> banks to.
<unk> in terms of organic growth that's been something that we've talked about a lot.
India, which is our advertising platform, we're expecting strong organic growth from them as well. Those are drivers 123 is obviously moving in the right direction as well, but in terms of percentage growth, we see those being the biggest contributors on the reverse side, so moving back across the pond from one to three and really.
They are proprietary.
Gamification strategy and their expertise around it.
That is a summer time launch of what we've described as disrupting the U S based digital shopping for travel primarily being hotels and airlines. So that's been in the works for some time, but we want to make sure we do it the right way and we're rolling that out in the summertime.
Got it and then.
As you think about the new segmentation that you've laid out and now we've got Q1 guidance can you give us a sense of could be implied seasonality.
Some of the kind of combined business for many quarters of the year.
I don't think you're going to see a difference in seasonality in terms of the.
Our core businesses, we are still in we're still being driven by the entertainment segment, which doesn't have a lot of seasonality to it obviously bigger in the fourth quarter and the advertising business that being India does continue to have a stronger fourth quarter as well. So the end consumer brands. The same way so I think they're all very consistent.
But theres not a large jump like sometimes you see in the catalogue World. This is you know media. So we will see that lift very similar to the lift maybe a little bit stronger of a lift in Q4. This year than we did in prior years, so and particularly the I N D. S business grows that.
It does have a much stronger lift.
In Q4 than does the entertainment segment or the consumer brand segment. So as that gets bigger you will see that lift in Q4 grow.
Got it and then just final question for me I guess as you think about the the the channel placement agreements.
That you've done in past years, obviously, you got the you know the one last year and the HD tucked in markets that kind of before that and beyond that.
How large is the opportunity there too to optimize those agreements generally stayed cash flow as your business has evolved beyond that.
Great question, Eric something we talked about all the time here. So when we we've talked about this quite a bit with the positive EPS in the back half of the year and that comes from a variety of continued changes and then just the benefit of the changes that we've put in the business model today, when you think about.
The channel placement and you think about <unk>, which was the launch of our HD carriage, we had talked about in eight of the top 10 markets and just as a reminder, eight of the top 10 markets last year.
And in late summer, we launched with aren't in a great partner and these HD market and we have not been any top market in H D. In our lifetime, because we were never in a position to really benefit from it because we're always working on our programming or marketing. So now that we fixed those pieces and we launched the HD we're seeing there.
Lift that we had expected which is as they mature they are growing 15% to 25% in our history shows us that should tap top out in the 30% growth in those markets year over year HD compared to ft. Now, there's a cough certainly to the HD carriage in to the <unk>.
Marriages of getting better placement for example, with RNA and it was really shorter payment terms. So as you look at our balance sheet, we had to invest $10 million in shorter payment terms in order to secure that HD carriage. So when you think about the bets that we placed in 2021. It wasn't just really strong top.
Line growth of 20, plus a strong EBITDA growth. It was really about making bets to continue that type of performance, we invested $20 million in inventory again, we talked about that we invested in faster payment terms for the.
They arent encourage we invested in in our computer technology, and our staff and our physical assets that was another $10 billion I don't we haven't talked about this a bit in the last quarter, but one of the biggest innovations. We did this year in the entertainment side was around our Salesforce implementation and that is.
If anybody has done it on the call that's no easy task, but we developed the we already had the sales force service that we launched Salesforce marketing with certain improvement and Salesforce sales. So all of our customer services.
From a service and sales perspective have a much stronger.
Set of information in front of them to improve their customer service. So that was also an investment that we did and then finally from me.
And that's been perspective, setting us up for success in 2002, we.
I guess invested about $6 million and our loan to one of our top vendors to get exclusivity for the next five years. So we would avoid surprises all of these investments are designed to continue the growth and the profitability that you see in 2021, so that.
I want to make sure that we get that on the table because that was a very important part of 2021 as well.
Thanks, Dan.
Thank you Sir.
Thank you next question today is coming from Alex Fuhrman from Craig Hallum. Your line is now live.
Great. Thanks, very much for taking my question.
It sounds like the upcoming removal of third party cookies by Google could be a pretty big catalysts for IMD, yet is that something that is already factoring in to your conversation with advertising partners. When do you think we might start to see an impact from that.
Hi, Alex Great question.
If you guys saw recently there was natural we promoted madly or do you need to the president of I N. D. S. He has been leading that organization for a while and already doing great things. There. Most recently with the Google renewal. So when you think about the ecosystem of digital advertising and you can spread it anyway, you want from OTT.
Programmatic in how we go into that with the left or just looking at digital advertising as it sits today and to your question about Google.
Google has been talking about removing third party tracking and just for everybody's benefit that means that the conversion and the tracking that advertisers have today with this third party cookie tracking system isn't is going away sometime in the next 12 to 24 months.
<unk> is talking about it they delayed a couple of times, but it is coming.
What advertisers have to do is make sure that they can.
Another way to keep the conversion of their effort to their client high and the only real way to do that in the future is forget about tracking you'd need to have unique demand and you need to have first party data. So when someone is looking for someone to buy a red toaster you have the data Lake that you can look into on a no name.
They say well you know what I had these many people they're looking for a red toaster and I think that I can provide this advertiser a very high conversion with just the data that I have and control that fundamental is being explored by many of the larger companies today when target would round L. Walmart with their AD network, it's not that it's.
Precedent, but it is you do see this more and more because people were looking to make sure that they are prepped and ready for that pretty significant change I think Google destroys the Internet every couple of years with some change and I say destroyed because from at least ecosystem comes in there's growth. So we feel we're very well positioned.
With the 35 plus million shot.
Shopper data that we have the two Christopher <unk> banks and in our Entertainment group as I N. I M. D. S fuels for this next stage not only are they improving their core products, but they had this extra opportunity because of our first party data and when we think about when that will come into the marketplace. We again think about this summer.
We're already putting what we call or what the industry calls private marketplace.
Advertising packages, together and minimal viable packages minimal viable product that advertisers are looking for that contain this first party data. So this is a very exciting time in advertising and in having our peace with Matt and his team and it's something we're excited about but it will fold into public view in.
The second and third quarter.
Great that's really helpful. Thank them.
Absolutely Thanks, Alex.
The next question is coming from Thomas Forte from D. A Davidson your line is now live.
Three questions I'll go one at a time so the first question tending money Wuxi, what how should we think about the three most important gross margin drivers for this fiscal year.
Okay.
Well gross margin I think is.
Kind of follow the lines of of where they are today right. We are thinking about.
Let me see if I can describe it in.
In brand instead of segment, so shop HQ continues to be.
It's also the biggest you know a very big contributor to gross margin. We spent a lot of time fixing that gross margin where it is.
Cited about watching it continue at that pace Christopher Bank, another very big driver in terms of gross margin.
As I've talked about their reason for being is so strong from their proprietary.
Fabrics and designs to the fit and the quality of their customer experience. It is always been a very strong margin business and that will continue to be a driver. The areas that we're excited about that will on a year over year basis show growth is 123 T V certainly were.
We're gonna be doing all sorts of different things with them and already are to bring their margin closer to shop, HQ smart and very similar to what it took us three years to do with shop HQ, so that that kind of accelerated growth from one to three youll see as the quarters move out and I N D. S. Certainly you'll see margin growth there again here.
Over a year as we add in our first party data those will be secondary to shop, HQ and the Christopher <unk> banks.
Great and then the second question is how should we think about the potential impact of inflation on your business.
How it affects the behavior of your core customer demographic.
Great question involving obviously and what is the definition of inflation I guess it doesn't include gas anymore or I like it its constantly evolving Mcdonald's hamburgers $4. The in terms of impact to our core customer again, 55 and older and as you know I can't emphasize that.
And not that all of our businesses are focused on that baby boomer demographic growing and very steady from a financial perspective 10 extra buying power.
The.
I don't think inflation is going to have an impact on their consumer confidence today I think that it is certainly out there. It is certainly worrisome. It is theres a lot of half information like I just made fun of in terms of what is it.
Inflation, but I think it's too early to tell that it's never going to have an impact, but I'd take today, we don't see it having a drag.
On like for today, we do see a.
Logistics cost continuing to stay high rate, we do see although a minor impact we do see consumer confidence in Europe , having an impact in terms of what they feel about what's going on because it isn't so much in reality, it's just really about the confidence level and do they feel like buying to treat themselves or their family.
Members.
And what we do today, because we're a business about entertaining and providing products and services to folks. We're not we're not any type of we're not sure and cancer. So it is an elected so we wanted to make sure that consumer confidence is a meaningful component of how we forecast growth and we see it not as a drag at current.
And again, we update our update our forecast every quarter.
Right. So the third and final I think I know the answer but I want to make sure. So does Ukraine, Russia conflict at all change the timing of your 123 television efforts for disruptive U S travel.
I've got no it doesn't it it doesn't at all I think that it is.
Two different things and again.
What our execution 2021 is about our execution with the launch of the travel and the proprietary platform that were that were.
Integrating into an API here in the U S. That's all execution on our own.
Thank you.
Thanks, Tom.
Thank you, we really shouldn't have a question and answer session I would like to turn the floor back over to management for any further or closing comments.
Thank you I just want to say thank you everybody for their time today, and we look forward to catching up with you soon.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.