iMedia Brands Inc (IMBI) 2001 Q4 法說會逐字稿

Welcome to ValueVision Media's fourth quarter 2001 and year-end earnings conference call.

During today's conference call, all lines will be on listen-only until we're ready for the question-and-answer segment. Today's call is also being recorded. If you have any objections, please disconnect at this time.

Before we begin, Anthony Giombetti, Director of Corporate Communications will read a brief statement.

Today's conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward-looking statements involve risks and uncertainties that could significantly affect actual results from those expressed in any such forward-looking statements.

More detailed information about these risks and uncertainties is contained in Value Vision Media's filings with the SEC.

I would now like to turn the call over to Mr. Gene McCaffery. Thank you.

Hi, good morning. Thank you for your interest. I'm with , Chief Legal Counsel and Dick Barns, our Chief Operating Officer and CFO.

Let me start by reviewing some of the top-line numbers. For the quarter, our sales were up 22 percent or $136 million. Over the last year, our Internet sales were $20 million, up 44 percent over the last year. The EBITDA for the quarter was three million and our FTEs for the quarter were up just under $3 million -- three million FTEs -- to 44 million full-time equivalents.

For the year-end, our sales were up 20 percent or 462 million. Our Internet sales closed at 62 million, which was 121 percent sales increase over last year. Our EBITDA was $7 million. And our full-time equivalents were, again, 44 million, which was 10 million full-time equivalents over the previous year and, significantly greater than we had originally planned.

Our FTE home growth has dramatically exceeded our planning and expectations. Originally, we planned to close the year at 37, 38 million homes. And we actually closed at 44. This translated into about $10 million in additional expense, with not a very dramatic impact on revenue, somewhat exacerbated by a difficult third quarter, which only had a sales increase of 10 percent. So, our trends have significantly improved. Often, in our releases, I state that we dramatically improved our FTEs and while there's a short-term drag on our profitability, there's a long-term opportunity for revenue.

Let me give you an example of maybe how you can translate that as you look at these things now and going forward. If we had -- we had seven million more homes for the year than we had originally planned. For planning purposes, you can figure that a home costs us just above $2.00 per year per home. That's an average.

So, if you take a look at the fourth quarter announcement that we had, just under three million new homes in the fourth quarter, over the previous year, that would translate on an annual basis, into about $6 million in annual expense. And if you were to quarter that, it would turn into about a quarterly expense, if they're on full-time for the whole quarter, into about a million five.

So, as you were to take a look at our third quarter EBITDA of $3 million, you could -- fourth quarter, I'm sorry -- misquote. Fourth quarter EBITDA of $3 million -- you could say that if we didn't bring on those three million new homes, that we wouldn't have incurred a million five in distribution expense. That's a good rule of thumb and that's why, when I continue to say that we continue to beat our expectations and there might be a short-term drag on expenses, but a long-term revenue opportunity, it also takes about -- somewhere between 10 and 12 months for these homes to become mature and to provide us the kind of revenue per home that we like to see.

So, that's just a -- I thought I'd explain that, because we seem to say that all the time without giving you a good example of what it means.

Our Internet business continues to grow as a result of a number of cross-marketing programs. You know, we've taken over the commerce responsibility for NBC. And we've had some terrific success with a number of cross-marketing programs with the NBC networks and ShopNBC.com. It does show the power of cross-marketing between medias, and we will be announcing a number of other initiatives in the future.

Subject of a fairly imminent future announcement will also be the fact that ShopNBC.com will be providing the backend and commerce support for NBC stations across the country -- that's owned and affiliated. And that's a real positive move for our ShopNBC.

The acquisition of FanBuzz will also provide a number of opportunities. FanBuzz has a strong and innovative management group. They've got some terrific technology that provides multi-platform merchandise and commerce site development and support. And we really do feel that between our two organizations, that we'll be able to dramatically expand this concept.

You know, if you look at the press release, you can see the kind of quality folks that FanBuzz now represents to include, you know, ESPN, the Olympics, USA hockey. And we're very pleased that we just closed on this transaction on March 8th. And we're pleased to have FanBuzz as part of our company.

It'll operate as an independent entity. It happens to be based right here in our home town. And we think that the cross-opportunities between our two companies will help us both significantly.

On the programming side, we debuted "Rebecca's Garden" this morning, Rebecca Kolls this morning. It's a really good example of the integration of syndicated television shows, a commerce site and commerce TV. And it really is a terrific example of what cross-promotion can do.

We've extended our programming agreements for 2002 with those and a solutions catalog, Coffee. We've also, you know, went into an agreement, signed an agreement with Time to do a number of joint projects this year, and we're working on a number of other programming concepts and partners.

We also launched the ShopNBC credit card in the fourth quarter, and have obtained tens of thousands of new card holders in just a few months, and that will certainly bode well for the future.

We've launched a number of direct marketing and specialty catalog initiatives -- all of which have been self-funding and profitable, and we'll be exploring the expanded opportunities there.

I mean, these type of affinity-oriented programs will certainly build customer loyalty, and we feel will result in improved revenues.

On a more operational note, as a result of the economic conditions of this past year in the aftermath of September 11, you know, we have managed expenses, starting in third quarter, particularly last year, in our G&A expense for the quarter, as well as for the overall year, was down nine percent from the previous year.

Quick, but on a softer note, and then I'll summarize. We certainly are very proud of the employees here who have contributed directly to the New York City Fire, Police and Emergency Services Fund -- over $200,000 in setup scholarships for local families affected by September 11. We are now aligned with the National Center for Missing and Exploited Children in Washington, D.C and throughout the days and weeks ahead, we'll be showing pictures enhanced and aged images and information in an effort to assist in these family tragedies and will be a major sponsor of the Special Olympics, an incredibly worthwhile organization that provides immeasurable support to challenged youth and adults.

I think our outlook, in summary, is very positive -- lots of new homes. Ten million last year, 20 million in the last years. We have a very mature operational capacity. Our systems and distribution monitorization will allow us to more than double our business without any additional capital expense.

Our fixed expenses are pretty much in place, at the existing level. Our variable expenses can be managed at a much better than three to one ratio of revenue to expense. And we closed the year, you know, after our buyback, with $230 million. And we remain debt free. And our sales trends remain strong and, at a minimum, are in line with the current guidance.

So, I think that we're feeling pretty good about things going forward. And I would then entertain your questions.

Is the operator there?

Hello? Hello? If you'll just bear with us, we're having a problem with the operator. We're looking into it at the moment.

If you would like to ask a question, press star, one, on your touch-tone phone. Star, one, to ask a question. , you may ask your question and please state your company name.

Hi. . Good morning.

Hi, .

Hi, .

I just had a couple questions and I don't know how much detail you can give us here. But, in terms of the revenue per household, what level do those households get up to where you consider them to be mature? You said, you know, nine to 12 months or whatever the ramp up is. And do you have any progress on, you know, the household? You added, obviously, a substantial amount over the last 24 months. You know, where do those households stand now in relevance to, you know, the mature households you have?

To -- and I -- we've the question a number of times. It's a difficult question to answer.

I would tell you that, at the moment, there's a big difference between our satellite households and our cable households. We break our cable households into full-time and part-time.

You know, we look to mature cable homes -- and, again, it's difficult to answer this, because there's a market issue involved. You know, if you look at a, you know, an eastern, urban market, we expect after 12 months our sales to -- on part-time and full-time cable homes -- you know, to exceed $20.

If we look at suburban cable homes, most of the markets are not that strong. So, I mean, actually, it actually runs by market. So it's really, it's very difficult to answer that. And we get a little convoluted because of the 44 million full-time equivalents we have, you know, 20 million have put on just in the last 24 months.

And we expect that, you know, as we move through the last, I mean, the -- the 10 million from two years ago obviously have fueled our sales increases over the past year. And we would expect that a combination of the 10 million that we just put on this past year and increasing our productivity per home, just in a general sense will fuel our revenue increase this year.

, it's Dick. Just to take a crack at that in a different way, I mean, historically, as we've looked at new cable systems being added, about 10 to 12 months is the timeframe that gets them up to something that would approximate a cable average. So that's kind of when we talk about maturity.

Now, as Gene had mentioned, some perform a lot better and some won't perform as well, but that's the kind of timeframe you'd expect to have the market develop. People find , place orders from it, and get the kind of a space they ...

Well, OK ...

mislead you, though. Our -- if you look at, you know, from an opportunity and a performance standpoint, if you look at our competition, our kind of , even in our mature household, is not as good or as penetrated as our competition.

It wasn't but three years ago that, you know, we had sales per home of about $8 per home. And we've doubled -- we've probably had -- we've had a 50 percent sales increase in our sales per home productivity, but we've had a four-time increase in the number of homes that we have.

So, you know, no matter how you cut it, it would look like, you know, our revenue opportunities going forward, based on this rapid growth, is pretty good.

OK. And are the satellite homes still approximating, maybe, you know, at full run rate, 75 percent of the cable homes?

About 60 percent.

Sixty percent. And then, the only other question I had is, in terms of new full-time homes, you know, you're factoring in two to three million in guidance to be added this year. Am I to assume that, you know, the only other large ones left to get would be a Comcast/AT&T? Where do you feel you stand on that and then is the growth of the two to three million coming from existing, you know, MSOs where you're just taking up more market share?

Yeah. We plan the growth, as I've said before, without any additional cable deals. I mean, there is an amazing amount of cable homes still available to us. I mean, we have about 20 percent of Comcast homes today. We have, you know, a slight -- a similar percentage of AT&T homes.

And then, we've got anywhere from, you know, 100 percent or 90 percent with TimeWarner, to between 25 and 30 and 40 percent with other systems. So, that does not anticipate any particular cable deal, other than just natural growth. With regard to the other -- with regard to those two particular cable companies and others, we continually discuss and negotiate with those companies.

OK. Thank you.

Thanks.

Thanks, .

Thank you. , you may ask your question and please state your company name.

Good morning. This is from .

Good morning, .

.

I was wondering if you could comment on the pipeline for vendor programming -- kind of your feel for the pipe and what you guys are seeing out there.

Well, I mean, we have, you know, we always have a dozen or so folks that are in the pipeline under different kinds of discussions. You know, as you take a look at our models, if you look at the way we, as well as many of the organizations discount our airtime, we have planned, this year, about $15 million worth of revenue from the outside sales force. And we probably have that by somewhere in the $8 million range, if I'm not mistaken.

You mean, cannibalized.

Cannibalized. Yeah. Right. Exactly. Sorry. Cannibalized. So, you know, we feel pretty good about the programming.

Just to clarify what cannibalized means. We assume and the revenue guidance we put out there, as Gene said, about $15 million of vendor airtime. But we also assume in the guidance and in our own planning, that we will, in selling vendor airtime to partners, actually cannibalize our own merchandise sales. So, we actually factor that down, as Gene had mentioned, pretty much cutting it in half in the sense of the guidance that's said there.

Yeah. So we think we're in pretty good shape.

OK. Could you comment on the jewelry margins for the quarter, as well?

Our jewelry margins remain pretty good. Our jewelry margins are, you know, in the low 40s. And, when you look at our margins in general, we've had a mix, as we mentioned in there, that, you know, our computer business -- if you look at jewelry and computers, I mean, our computer business has remained strong in light of -- or in spite of -- the economic issues and some of the difficulties that others have had in that category.

And there really is not a jewelry margin issue at all. It's really a fact that we sell a lot of computers at 23.5 percent.

Right.

And we're building, you know, we hope as we go forward, this month as well as going forward, that we continue to build a greater percentage of jewelry as a mix.

Not just jewelry, but soft tone and a number of other categories that have significantly higher margins.

OK. And just lastly, I was just wondering if you guys are going to keep your eyes open for any more acquisition targets on the market, kind of like a FanBuzz that you can fold into the ...

Well, I think, , , the answer to that is absolutely. We've obviously been somewhat cautious in the last year or so. And during that period in time, we've been building an infrastructure, and our company here is certainly strengthening our management team.

And we felt pretty good right now that we have the capacity right now to, you know, take on some synergistic type acquisitions like the FanBuzz. And we would certainly be looking at other opportunities to do so.

OK. Great. Thanks a lot.

Thank you.

Thank you. Mr. , you may ask your question, and please state your company name.

OK. US Bancorp Piper Jaffrey.

A couple of quick questions. First, I was wondering, Gene, could you just review kind of trend-wise where Q4 ended in terms of the sales percentage by category?

And then where you're expecting that to go in '01, considering these new categories that you're expanding into?

The sales percentage -- you mean as a mix?

Yeah.

Yeah. We ended at about 65 percent jewelry.

OK.

And we ended at, you know, in the 23, 24 percent computers. And then, you get 10, 11 percent in the area of, you know, soft tone apparel -- all other, if you will.

OK. And where do you see that going next year?

You know, we'd like to -- we'd certainly like to get the all other to be much higher. In other words, we're planning an increase in computers. But, obviously, we're planning a high double-digit increase, overall, in the company.

So, we're actually planning an increase in computers, but we're trying to get the all other categories up significantly higher because the all other categories have margins that range in the high 30s and low 40s. And then, of course, you know, in the jewelry area, the expansion -- we actually have been expanding, and I think we'll see some results from that this quarter.

You know, we are a very high-end jewelry company, relative to our competition. Our average price point, out the door, is about three-and-a-half to four times greater than QVC and HSN. And, you know, we have developed a strategy last quarter of going into the quarter and for the balance of the year, that we will maintain those sales on the higher end. And, by the way, the attendant return -- the return percentages, on the higher end, is really what drives our return rates much higher than HSN and QVC.

You know, if you look at their average prices points of, you know, 60 bucks, our return rates of merchandise under 100 bucks is about the same as theirs, which is, you know, far below 20 percent. Because we sell so much jewelry over three, four and 500 bucks, our return rates on that merchandise is very high.

But again, it's a profitable business from the standpoint that productivity on air is also very high. So, what we're going to do is maintain that volume at the high end and move in the $100, $200 high value diamond area. And that's how we hope to -- which is also high margin -- and that's how we hope to expand our margins and our margin dollars for the quarters to come.

OK. And then, maybe we could jump in, just quickly, on sponsorship as well. It sounds like you're planning about 15 million in sponsorship sales. Obviously, cannibalizing about half that.

Right.

Could you talk a little bit about, you know, how you see that materializing. I mean how much clarity do you have on that -- you know, where that's going to come from -- maybe in light of some of the -- some of the successes here, late in the last year. And then, what does that economic model look like today, in terms of what dollars you're getting and how much of your own outsourcing you're able to do to leverage your current expense structure?

Well, the, you know, we kind of announced that we just, you know, we just signed three of our fourth quarters to 2002 programs. And we don't like to, although the numbers have been about, we don't really like to put the -- we don't like to give the particular deals out for each -- for each person, obviously, from a competitive standpoint. But, you know, we talk about the 40 -- $60,000 an hour model, which is something that we adhere to.

You know, so a client can be worth anywhere from a 1.8 million to 2.4 million a year. And, so what you really need is, you know, five, six, seven clients, and to get to your $15 million.

And, or some, you know, or a greater number for a short period of time. And, you know, we feel that we're on track to accomplish that.

OK. Thank you.

Thank you.

Thanks, Jeff.

Thank you. As a reminder, if you would like to ask a question, press star one on your touch-tone phone -- star, one to ask a question.

Thank you, Mr. Steve , you may ask your question, and please state your company name.

Thanks. Steve at in Chicago. Good morning.

Hi, Steve.

I'd like to go back briefly to the discussion that -- surrounding questions.

Yeah.

First off, according to I think most Street estimates, satellite direct TV and dish network alone are going to add, you know, two to 2.5 million subscribers this year.

I believe you're on the main package on both. So does that mean that you're two to three million increase basically implies just what you'd pick up from the natural growth of satellites since cable subs really aren't growing any more?

No.

Could I correct one thing there? We actually have two to five million in our guidance. We said 46 to 49 million ...

Oh, OK.

... for the next year. And we ended this year at 44.

OK. So then, the two million is sort of the minimum increase, because you're going to get that just from satellite, correct?

Assuming satellite will grow at that rate, the answer would be yes.

Yeah, we, you know, it's a very difficult -- it's a very -- you know, you and I sat down, what, 3.5 years ago and ...

Yes, I think so.

... we certainly didn't think we were going to be a 44 or 45 million full-time equivalents ...

No, no. That's been terrific. I agree.

... and it's really hard -- my point being that it's really difficult to do, to figure it out.

You know, satellite slowed down last quarter, regardless of what they, you know, what they said. Will satellite add three million homes? Yeah, I hope so.

Will we be able to get, you know, more homes out of Delphia and more homes on, you know, X amount of cable systems? I hope so, because we've certainly exceeded it every year.

I mean, NBC cable has done a terrific job of, you know, getting us all these new homes. And I would expect, I mean -- we just don't -- it doesn't pay for us to be aggressive and say we're going to get nine, and then get six.

So, I mean, we kind of settle in on this three to five because, you know, you don't know you have a deal until you have a deal.

OK.

So ...

When you said before that you added 20 million homes, would it ...

In two years.

Two years.

... yeah, in two years, does that -- would, at the beginning of that two-year period, were you on any satellite homes? Or did you pick up the entire direct TV and dish platform ...

Yeah, when we put on -- when we put direct TV on, on August 2nd ...

Ninety-nine.

... of 1999 ...

OK.

... we added about nine million homes.

OK.

We added about nine million homes.

OK.

And subsequent to that, we -- Ecostar -- you know, we put on a few million homes with Ecostar.

OK.

But, I mean ...

When did you launch with Ecostar?

Around the same time.

Around the same time.

A little earlier, I think.

OK. Good. Because, obviously, the mix has shifted dramatically towards satellite, which has depressed -- at least, one factor that's depressed the overall revenue per home.

Yeah. We -- if you look at, you know, if you look at that, you know, above 30 percent of our homes are satellite. And you look at the competition, where, you know, 12 percent of their homes are satellite. And if you think that satellite's, you know, anywhere between, you know, 40 to 60 percent of a cable home. In fact, I believe one of our competitors actually takes the satellite home and only counts it as half a home.

OK.

.

Oh, I don't know that.

OK. And, then, just one more line of questioning on here. Do you have any idea of how much of that incremental -- or how much of the Internet spending, at all, is really stolen from TV? Because if you look, you're overall revenues rose from like 385 million to 462 million. And the Internet revenues rose by -- I don't ...

Thirty some odd number.

About -- yeah. A little over 30 million. So, if you just merely back those out, that implies that the TV only revenues -- I know this is not a fair way to do this -- you know, went from like 360 million up to 400 million, or up about 12 percent. Which I was sort of using as a rough gauge of, you know, when comparing that to the increase in the number of homes, you can see -- you can see the depression. But, obviously, some of those Internet revenues probably would be TV revenues if the Internet wasn't an option.

Yeah. You know, we look at -- you know, if you look at television revenues, you can probably take -- this is an estimate. But you can probably take, you know -- we probably lost $25 to $30 million in the third quarter in television revenues alone.

From 9-11?

Yeah. It was, you know, between being closed and losing most of New Jersey, Connecticut and New York for quite a few months. If you look at -- we do a lot of analysis on the Internet. We think that about 30 to 40 percent of what happens on the Internet is an enhancement to television. And what I mean by that is -- I think it's still incremental.

Because, if you -- you don't get a lot of people that are watching television that say, "I think I'll go to the Internet and buy it, instead of calling up." But what you do get is, when we're -- I'll use this word -- loosely, wildly successful. You know, we actually put up on the television screen, you know, go to automated ordering, or go shop NBC.com, because our operators may not be able to handle a particular success and a particular hour.

So it enhances television a great deal. So we think that -- we think about 40 percent -- you know, this is pretty loose -- but about 40 percent of what we do on the Internet is attributable to television.

I think that, there's a greater percentage attributable to the fact that people go to the Internet, because, you know, we do market the Internet on television.

But it's very, very difficult to determine, you know, who would have gone to the Internet and bought versus TV. I just don't know the answer to those things.

But I split it in half, and I split it in half and you probably have something that's reasonable.

OK. All right. Thanks. Appreciate it.

Thanks.

Thank you, sir. At this time I show no further questions.

Well, I'd like to -- I'd like to thank you for all your interest. Thank you very much.