Q4 2022 iMedia Brands Inc Earnings Call
Greetings and welcome to the <unk> media 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 trial.
My phone keypad as a reminder, this conference is being recorded I would now like to turn the conference over to your host Alex Wasser Burger Senior Vice President General Counsel for I media brands. Thank you Sir you may begin.
Good morning, and thank you for joining US we issued our Q4 earnings release earlier this morning.
Do not have a copy it is available through the news section of our IR website at IR media brands Dot Com. This release is also an exhibit to the form 8-K, 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.
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 look.
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 <unk>.
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 I'm media brands, Tim Peterman Tim.
Thank you and good morning, everyone, let's start with the obvious quote early which is by Mike Tyson everybody has a plan until they get punched in the mouth completing our debt reduction event. This week was a milestone win for us, but make no mistake. It was struggled to complete the challenge began shortly after Thanksgiving when the new asset appraisal became effective.
Is materially reducing our company's liquidity, we worked collectively with our asset based lenders, who Fortunately provided us with the time to shift our priorities from net sales growth and customer engagement into short term cash optimization activities to fund principal repayment.
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 complying.
With our senior lender by making $19 million in principal repayments and about two months I want to emphasize that we could not have achieved this without all of 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.
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, we'll start to see the positive financial impacts of our refocusing efforts in the back half of this year.
For more details on our D. R. E. Please see our Q4 I our supplement published with our release today is I think about our overall 2020 to 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 are 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 shop HQ networks brands on Air on 123 T V which.
Which helped drive noticeable improvement in 123, Tvs gross margins average selling price and net sales productivity. We also launched our 123 auction app on shop, HQ Dot com, which will be now our second SaaS product after float left O T T M.
This one two or three T V auction App launched on shop HQ Dot Com is the first phase of one two or three Tvs 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 O T T app.
And offering on air advertising opportunities from shop, HQ shut Bulldog T V N shop, HQ health equally important this year, we completed the difficult data mining process of aggregating our company's first party data into a unified data lakes to help us internally.
They've improved digital advertising convergence.
And to 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 banks retail footprint based on consumer demand.
As you May recall in Q3, we terminated the underperforming check partnership which enabled us to preserve future airtime for our more productive brands.
This includes high performing brands returning to shop HQ from recent tours on our competitors Big brands like choice Gerard Myszka gems en Vogue regarding.
The reduction of our content distribution expense.
Remind stakeholders that fixing the expense structure with content distributors is a full contact sport and that is why shop HQ really hasnt been attempted it and 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 <unk> media beginning in 2019, I'm media established a growth strategy and an entrepreneurial culture focused on operating for TV networks shop, HQ, one to treat T V shop, Bulldog T V and shop HQ held each.
Which had been uniquely crafted to focus on the same boomer demographic consumer.
And to drive multiple revenue streams T Commerce E Commerce digital advertising O T T 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 Fi.
Angel statements Q4, consolidated net sales were negatively impacted by the Q4 liquidity challenge and the dish carriage disruption.
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 150 basis point decrease over the same prior year period Q.
Q4, consolidated operating expenses were $64 4 million, a decrease of about 13, 5% or $10 million.
Q4, adjusted EBITDA was $2 5 million and 84% decrease over that same prior year period.
For full year fiscal 2022 full year net sales or $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 2020 to 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 or 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 10th 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 the 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.
Okay.
If you'd like to ask a question. 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. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Thomas Forte with D. A Davidson. Please proceed with your question.
Great. Thanks, and I have one question one follow up so can you talk about for shop HQ.
You you've discussed in the prepared remarks.
Your focus on liquidity.
And things of that nature. So can you talk about.
I guess, what gives you confidence that shop, HQ will be able to rebound and then how should I think about.
The video retailing category performance.
Historically, it holds up relatively well during periods of macroeconomic challenges.
No.
And 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 his first historical trades has had in the past to be more resilient during macroeconomic challenges.
I think Tom the two part question and I'll start with the one on the shop HQ recovery first so let's.
Let's think about it.
Final logical event right. So we talked about this in Q3, we were focused on the sales closing the sale leaseback.
Transitioning to a new lender as he really at the end of the calendar year ended December now that delay.
Based on some complexities put us on a path that 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. We report that really materially became effective at the beginning of December and reduced our liquidity and so when that happens.
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 find repayments on our ABL alone now.
So as that moves through December and through January .
And moves into the amendment that we just signed you can see that our our liquidity is improving with the amendment that we have in place now post office, 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's shrinking liquidity.
That was moving to repay principal payments affected shop HQ. They were definitely not macro environment related they were really around the outcomes razor, it's really around the most basic things that we do for example, jewelry jewelry is a is a category that is the most important category in holiday and as you know.
Tom the jewelry business is unique and 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 you find out when we found ourselves in this situation where the.
The liquidity was moving into another situation, we couldn't bring in jewelry and you can see that in the charts that we provided are you know our receipts our inventory receipts in Q4 for jewelry, where over 50% decline the inventory balances 50% decline. The hours. We are contributing so we had to immediately shift out of <unk>.
Jory and that it was frustrating to the customer and move into other categories that really aren't used to that much airtime in as you think about our business jewelry and watches we report together, but you know if we if we reported them separately you would see that and we provided Disney 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 receipt, you'll find that the D. P M or the revenue productivity of that category funny.
As you can see with watches that went down in the 40% to 50%. So the example of the short term nature of not being able to acquire a jewelry receipt, which then causes us to over rotate in certain categories watches being example is it.
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 werent able to.
Provide the liquidity and 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 what I talked about in my prepared remarks about winning back share and doing the fundamentals of day to day operations, but it's.
Really that's fundamental is now that we have more liquidity or buying more jewelry and gold received its 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 this situation or that is fundamental.
As the mechanics of how we.
Faced the squeeze in the first place.
Yeah.
Thanks, and then for my follow up I wanted to ask a question I've ever seen for a little better you announced earlier the hiring of a chief transformational officer what are his responsibilities.
What what inspired you to add that role.
Great question. So the Huron is 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 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 unfortunately 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 Huron was really back in you know we brought them back into November was really part of the.
Effort to improve communication the effort to maximize cash opportunities planning all the different elements of what you would think about it in a lender transition scenario is what Huron specialty is smart folks to come in.
In short Timeframes to really help a company in Atlanta and move on and that is really what they've been doing since early November now their scope increased as a result of these vital.
Six party simultaneous transactions that you saw us easily pull off just kidding.
I'll close 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 a 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.
Yeah. It started here in Q1, and we think it'll close in Q2.
Thank you I'll get back in the queue for any additional questions.
Okay.
Thank you Ari.
Next question comes from the line of Mark Argento with Lake Street Capital markets. Please proceed with your question.
Yep.
Just a follow up on your or your last comments or maybe just walk us through kind of your current liquidity position.
You know how much runway do you guys how to execute kind of a turnaround here.
And then just a follow up on the 20 million in cost reductions you're now.
Obviously pretty aggressive and understandably, so, but you know what do you do to get to $20 billion out of the business right.
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 I think about how we do things differently. So the 20 million I would say it a little bit over half of that.
Was around labor employee staffing and then the other where different structural changes whether it is Andy.
Agreements in the I T area of different ways that we've been optimizing.
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.
Our cash flow durable and starting to move through that so bringing 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 were in today and moving into Q2, it's really two parts. One is short term and one is long term short term we've fortunate enough to look at this.
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 know our company has it starts with the Pontus transaction, Great group that we did with the sale leaseback transaction.
An accretive transaction for shareholders and where the net proceeds of call. It $42 million were used to immediately pay down the term debt with Green Lake $28 5 million as well as the pay down of our ABL senior lender and the $12 million range as well as a.
Discounted pay down of our 123 seller notes. So when you think about the leverage of the cash that we used to pay down debt and reduce interest or pay down $53 million of debt and $42 million of proceeds and reduce our interest expense in 2023 by 7 million it.
It really was around our you know our opportunity to take some of the debt off the table at a discount and provide some noncash element of those retirement, principally with the 123 seller note the 10% equity and went to three the business in Germany. So as we moved out of the 53.
Debt reduction and the decrease in the $20 million in operating expenses and the decrease in the $7 billion 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 two.
Three the past for liquidity and cash flow was 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 ILEC.
And again this entire transition is intended to replace our ABL lender in an organized way you.
You can look at it and say well how does that liquidity from our cash minimum perspective.
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 were we paid back.
Over $20 million in principal payments on the 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 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 towards the cost structure is low that the below the line costs are significantly lower and the liquidity in partnership with our lenders is actually stronger now.
We're moving into Q1. So those are the elements of why short term, we feel better about the our balance sheet to move through this recovery in Q1 at the beginning of Q2 and long term, obviously, we feel very strongly that the the assets we have in the business and the durability of what we have is going to be.
A very quick I won't take very quick I would say a reasonable solid transition in Q2 to a new ABL lender.
Yeah.
Sure colored Kevin just lastly, any color on the performance of the business you know so far this quarter you know given the macro environment.
Well from his previous.
And are you seeing any kind of a return to some normalcy.
To add some inventory or maybe just talk a little bit about what you're seeing now versus you know three or four months ago.
Sure Marci 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 ramped back up that's why we put the guidance out we did for Q.
One 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 at the fundamentals of our paying advertisers the suppliers those element are the backbone of how we.
Improve the business it is not a.
It's not.
It's not easy it's not overnight, but its not complicated right. So I would say based on our experience of turning a company like shop HQ, because that's just one of our brand moving that back in the right direction. We know it takes three to four months. After we what we experienced in Q4 and <unk>.
Having done it before already we understand the basic building blocks of what needs to occur and we feel good about that.
Okay.
And good luck.
Thank you. Our next question comes from the line of Alex Fuhrman with Craig Hallum Capital Group. Please proceed with your question.
Okay.
Hi, 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 bass it sounds like you.
You mentioned that there's a fairly constant demand for gold jewelry are what are the other categories of yours that are at the most sticky that you can lean didn't do as you start to build back your inventory.
Alex Thanks for the question, but absolutely the first step that we're doing right now is around jewelry and in particular, it's around 14 K cold in particular, it's around Stefano our largest the most popular gold brand. If you look at 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 is the Italian production of the gold that we offer is.
First and foremost the most important part of what we're doing behind that you have beauty beauty is our second category again, very similar to jewelry and that the lead time for us to acquire a beauty inventory receipt and the payment of those is almost immediate there there is not a lot.
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 it's that mechanic.
Now as you think about <unk>.
<unk>.
Our reason for being in particular, and we're talking about it's 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 and accelerated pace on that we were taking a much more moderated pace, but now given this opportunity as we like to say a challenge we're moving at a quicker pace.
Okay. That's really helpful. Thanks for that 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 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 work.
Capital will enable you to go after business that you couldn't in Q4 and Q1 can you talk a little bit about that.
Sure.
Taking a step back right we've talked about the different examples I think that's what your questions about the different things at different examples of the other liquidity challenge and how it impacted our business much more so than is there 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 map.
CRO environment in 123 television in Germany, with the with the conflict in Ukraine, but here in the U S. It really is about.
Putting back in place the game plan that we had.
And and had and delivered on over these eight previous quarter. So as it relates to the eye in what we call I M. D. S aren't really our digital advertising arm of shop HQ. It is as simple as you know just getting the working capital back in line and without aged payables in terms of engaging the supply.
If those mechanics are very easily fixed and we know all the players and have strong relationships ships with them and quite frankly, they were also very flexible they understood and that 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 had been passed along the 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 system suppliers are are quickly moving back up to speed with us as our liquidity increases.
Okay. That's really helpful. Thank you.
Thanks, Alex.
Thank you. Our next question comes from line of Eric Wold with B Riley Securities. Please proceed with your question.
Yeah. Thank you good morning, Jim.
One follow up on inventory a lot of the earlier questions just kind of where were around quote unquote kind of building back inventory I guess, you're still sitting on our release at the end of the year, you're still sitting on $112 million of inventory you keep talking about.
So what you see that inventory I guess the current mess 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.
The other inventory categories and areas to kind of stay in front of consumers to engage them and keep salesman going either he couldn't get some of the stuff that you're hoping to kind of get delivered in on time, what's holding you back from maybe doing something similar in Q4 Q1 or just background for the question you know maybe talk.
About.
That 100 plus million of inventory and the value of that and how what you can you still you still can still increase it this year or do you have to really build it up from that level in the 'twenty three long question.
That was a long question, Eric and I appreciate it and it's a great question, let me try to Peel it back and 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 of years remember our coal our total inventory starts with really three components you have.
<unk> HQ you now have our new business, Christopher <unk> banks, and you have 123 T V. In there as well you know the Christopher <unk> banks and went to three T V or in the you know in the 10 to $10 million 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 in the end the major flagship revenue of our business is around shop HQ. So, let's just focus on that and put Christopher <unk> banks and went to three T V. Aside even though they they.
Create anomalies when you look at year over year comparisons.
At shop HQ, 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 and jewelry. For example is that 50% of what it was in.
And at the beginning or in the middle of Q4, and rebuilding that and bringing down home and bringing down health all happened in a very organized way in our business and it works like this we have this grouping of by category inventory and we have that.
And then we have future receipts, obviously with open to buy.
As we look at the 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 receipt or very little receipts in those other categories is selling down the existing inventory we have in those categories. Now is it the Maxim D. P. M. On some of these items is not ideal but it 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 to sprinkle strategy of moving our inventory regardless of age and a very positive March 25 to 30 plus percent each and every quarter. So that's the unique ability of our programming strategy and really just.
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 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 remains stable. It's just the composition will be shifting and I think that you'll see the Christopher <unk> banks come down some in 2023 and I think that you will see the once you treat TV inventory staying relatively the same does that address some of those.
<unk>.
It does it does.
Appreciate it.
You follow up on the the Ibs.
Media business, Tom could you talk there about the liquidity being an issue there as well as the custodian of the payments back and forth.
No.
That was not an issue how would 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 'twenty three barring the liquidity headwind.
Yeah as you know.
Great question. When you think about what I was born logging about which is our reason for being it really is around increasing the share of our digital products right. 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 one to three we've recently launch it on shop, HQ dot com and that auction, which it is being advertised in placement by I N D S. 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 that there.
Fundamentals and when I say fundamentals the win percentage of our spot or 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 and I M. D. S. 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 as the as the Mecca, but we know because we have a business in the OTT space at 60% to 70% of that AD inventory goes and monetize still.
Today, so the maximum opportunity for us is really around taking.
[noise] tumor engagement apps like our 123 auction App and our first party data and making those elements more important for our advertising armed to go out and sell digital advertising on the web today, it's a it's a very big opportunity for us and one that I.
Can't talk enough about.
Got it and then just final question for me if I may I'm not sure. If there's somebody you can address you or not but I guess given the sale lease back the pay down of all the debt and kind of the ongoing discussions with.
You'll be lender should all of that being able to remove the going concern that's been in your phone and say where is that something that still.
May not be addressed.
But when you.
I'm not really sure how to answer that question, but I could start with just let's just look at the facts right.
Let's start with the.
You know the Q4 performance and liquidity.
Our challenge that we've just traversed it with the completion of these what we call the debt reduction event right. 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 <unk>.
Net sales again being pressured but also the fact that we've taken our cost structure down all of those elements.
Work in unison win account.
The company and its auditors are looking at it 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.
<unk> consumer engagement happening in the back half of the year. So you know were in Q1 now.
You can do the math on Q1, and Q2, but we think that would be right back on track and you'll see that in our financials in the back half of the year.
Got it thanks, Tim.
Yep. Thanks, Sir.
Thank you. Our next question comes from the line of Thomas Forte with D. A Davidson. Please proceed with your question.
Great. Thanks, two quick follow ups.
Tim can you first start with a high level comments on our 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.
Sure thing Tom the as we talked about.
And you were there at our capital markets day in February of 2022, we talked about three priorities right and when 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 than we were a little bit heavy in.
And that and we needed to move that down to 2022, we talked about targets and the $25 million to $30 million range on a methodical basis.
And taking that down over time as you can see the you know the complexity.
Of the delay in part this 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 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.
Youre looking at our non amortized bonds that are out there and youre looking at our ABL and some smaller seller notes with Singapore. We are you know those are all have a very organized methodical way of going down over time without any kind of event just out of the working cash.
With a business with a set of core it's a quarterly payment with the G. C. P. These or whether it's stock or cash whatever it happens to be so we feel good about moving it down again throughout 2023 and organized way not in a way like we did now this this Christmas that we pulled out of Q4 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 and a non eventful way through 2023.
Alright. Thank you and then last question for me you had previously given a handful of levers.
Levers you could pull.
On an as needed basis to do additional deleverage.
Some of them like the sale leaseback can.
Can you give your updated thoughts on levers you can pull.
To you know to Delever.
Very helpful. Other than in the past kind of appreciate an update.
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.
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 as from.
Our asset based lending perspective around it's really focused on the physical assets of our business. They aren't really tied and we don't feel like in.
Today's world of 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 a vet 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 of days to replace our existing lenders. It will be about not only the physical assets that are traditional asset based loan but also the IP. We've got some strong IP here and that is something that we'll look at the most easy.
It Leverages Bull asset you've heard me talk about and that we've demonstrated over time, we can do in a period of six months inventory as I talked about before we have a seven year history of moving aged inventory by category inventory lumps and bumps wherever it happens to be.
The way, we do it with as I would call. It our sprinkled strategy at margins that are acceptable as a balanced perspective to still achieve that 40 to $43 44 per cent is something that is unique about even us I think in the television retailing world, We don't buy in a way that.
Forces us to purge and a significant lost inventory so as you watch us this year.
<unk> Leverages, both and Youre going to see US do is to bring down as we changed the composition as well, but to bring down that inventory on a methodical basis that generates cash flow.
If you looked at the report card for 2022, you can see the working capital that we've been able to manage for 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'll see.
<unk> as a normal course of managing our inventory as a lever down and then you'll see as an opportunity as we find and partner with our new ABL lender to look at the IP opportunities. The bonds are certainly something out there that are interesting who couldn't comment on these bonds.
I'm going to comment on these bonds. They are trading at a significant discount. It is a an anomaly out there that we are looking at obviously, but I. That's all really I can say about them is that there is an opportunity with bond, 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 face of delivering our consensus after that after the Q4 situation. Those are our top priorities as you look out over the next 60 to 90 days.
Thank you for taking my question.
Thanks, Tom.
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.
Thank you listen as always we appreciate everybody's time and faith and Ah. We look forward to talking to you again in a short period of time about our business and what we're doing in and you can talk about what we've done and how we're doing it. Thank you.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.