iMedia Brands Inc (IMBI) 2013 Q3 法說會逐字稿

Good afternoon, and welcome to ValueVision Media's fiscal 2013 third-quarter conference call. Following today's presentation, there will be a formal question-and-answer session. Today's call is being recorded for instant replay.

I would now like to turn the call over to Teresa Dery, Senior Vice President and General Counsel at ValueVision. You may begin.

Thank you, operator, and good afternoon. I'm joined today by Keith Stewart, CEO; Bill McGrath, EVP and CFO; Bob Ayd, President; Carol Steinberg, COO, and other members of the senior management team.

Comments on today's' conference call may contain certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as anticipates, believes, estimates, expect, intend, predict, hope, should, or similar expressions. Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressed in any such statements. More detailed information about these risks and uncertainties, and related cautionary statements, is contained in ValueVision's SEC filings.

Comments on today's call may refer to adjusted EBITDA, a non-GAAP financial measure. For reconciliation of adjusted EBITDA to our GAAP results, and a description of why we use adjusted EBITDA, please refer to our third-quarter 2013 news release available on the Investor Relations section of our website.

Although the focus of today's call is about ValueVision's third-quarter results, I would like to briefly comment on the recent actions by The Clinton Group. The Clinton Group has taken steps to call a special meeting of shareholders for a vote on a number of proposals. While we do not agree with many of their statements, we do endorse the right of our shareholders to vote on the governance of The Company at a properly called meeting. There has been some public correspondence and media coverage on how and when these special meetings should take place.

Last Friday, ValueVision issued a press release in which we state that our Board believes the prolonging of public disputes on the delay of special meeting is not in the best interest of ValueVision or its shareholders, particularly given the Company's need to focus on running its business during the vital holiday season. Accordingly, ValueVision has scheduled a special meeting of shareholders to be held on March 14, 2014, for the purpose of voting on The Clinton Group's proposals.

With that said, we are here today to talk about ValueVision's third-quarter results. We do not intend to take any questions regarding The Clinton Group and we thank you for your cooperation in that regard. Lastly, all information in this conference call is as of today, and the Company undertakes no obligation to update these statements.

I will now turn the call over to Keith.

Thanks, Teresa, and thank you, everyone, for joining the call today.

Our third-quarter performance demonstrated continued successful execution of our strategy, and in particular, on our two principal areas of focus, to position ValueVision for long-term, sustainable growth and profitability. The first area of focus is steadily improving our top and bottom line financial performance. Our second area of focus is on initiatives targeted at expanding our total base of customers.

With respect to improved financial performance, our team delivered another strong quarter of net sales and adjusted EBITDA increases, as well as a significant reduction in our reported net loss. We were also successful in attracting and retaining more customers, which is improving the sales penetration of our TV distribution footprint.

In Q3, we continued the shift of our merchandise mix away from Jewelry & Watches, reducing this category to 44% of sales, from 50%, as we invested in other areas that drive higher viewership and new customers. We expanded the product assortment within each of our four major product categories, while further reducing our average price point.

On the TV distribution front, in Q3, we continued to make progress in improving our channel position. Our programming is now below channel 50 on 20% of our homes, an increase from 15% of the homes at the beginning of this year.

Reflecting these initiatives, on a 12 month rolling basis, our total customer base increased 13% to 1.25 million, compared to last year. Within the quarter, our total customer base increased 20%. At the same time, we delivered a 12% increase in customer purchase frequency, reflecting the benefits of our broader mix and our lower average price.

On the e-commerce front, our strategies continued to gain traction. Mobile sales grew 45% in the quarter versus last year. We also added new functionality on our website, and made progress rolling out enhanced mobile apps.

Finally, our customer service continued to improve in Q3, raising our customer satisfaction levels. Our improvement in the overall customer experience is reflected in our achieving a double-digit increase in our Net Promoter score.

To recap, our Company-wide efforts combined to deliver improved financial, operational, and customer satisfaction performance in the third quarter. We improved our channel position in a meaningful amount of homes, making our programming accessible to a broader base of potential customers. Our expanded and more diverse product mix is attracting greater interest and sales traction. We are appealing to a broader audience through our lower average selling price. We made further improvements in our customer experience, yielding greater customer retention and purchase frequency at ShopHQ.

We recognize there's more work to do to elevate, refine and expand our business. We remain focused on driving sales and customer growth, while laying the foundation for sustainable growth and profitability.

Before concluding, I wanted to inform you that we posted an updated IR presentation on our website today. There, you can find more detail and context on our strategies and progress, as well as a slide on customer modeling, which further illustrates my comments.

With that, I'll turn the call to Bill, for a review of our Q3 financial performance. Bill?

Thanks, Keith.

Third-quarter sales rose 7% to $147 million. Year-to-date net sales were up 9% to $447 million. Gross profit in Q3 improved 9% to $55 million, on a 7% increase in sales. Gross margin rate increased by 60 basis points to 37.5%.

The margin rate was favorably impacted by higher mix of Fashion & Accessories, partially offset by the increased mix of the lower-margin category of Home & Consumer Electronics. Margins also benefited from reduced levels of promotional activity in the quarter versus prior year.

Q3 operating expenses increased 3% to $56 million against the 7% growth in sales, reflecting improved operating leverage. As a percentage of sales, operating expenses decreased to 37.9% from 39.4% last year. Operating expenses were influenced by variable costs in Q3. These costs increased as a percentage of sales to 8.1%, versus 7.1% last year, principally reflecting the impact of the 31% increase in net shipped units.

Cable and satellite TV distribution expense declined in Q3 versus last year. Lower TV distribution expense was primarily due to the rate savings on our largest TV distribution agreement, that went into effect January 1, 2013. This rate decrease was partially offset by growth in our overall household footprint of around 4%, along with the cost of investments in improving our channel position in certain markets.

As we've discussed, improving the quality of our TV distribution platform is integral to our growth strategy. We continue to see improved channel positions in select markets that have higher potential for long-term revenue performance.

To that end, in mid-November, we improved our channel position to below channel 50 in an incremental 5 million homes. This will impact our fourth-quarter TV distribution expense, which is expected to increase around $1 million related to this change. Q3 operating expense growth versus prior year also reflects increased salary and recruiting expenses, employee benefit enhancements, as well as accruals for incentive compensation.

Adjusted EBITDA in Q3 improved to $3.6 million from $600,000 last year, due to sales and gross profit growth. Year-to-date adjusted EBITDA is $13.2 million, compared to roughly breakeven through the first three quarters of last year. ValueVision recorded a Q3 net loss of around $1.2 million or $0.02 per share, versus a net loss of $3.7 million or $0.08 per share for the same quarter last year. Year-to-date, the Company's net loss is $1 million or $0.02 per share, compared to a $16 million net loss or $0.33 per share a year ago.

Our balance sheet condition remains strong. We ended Q3 with a cash balance, including restricted cash of $31 million. Net use of cash in the quarter was $3 million. This includes a use of $4 million for working capital, primarily for inventory investments, in advance of the holiday season. We also had around $3 million in capital expenditures, these uses of cash were partially offset by $4 million in adjusted EBITDA.

ValueVision continues to maintain $12 million in undrawn availability under its $50 million credit facility with PNC. This availability further strengthens our balance sheet condition. We expect operating expenses in Q4 and potentially subsequent quarters to reflect a material increase in advisory fees and other expenses. This is in regard to the Company's activity in responding to the shareholder group mentioned earlier. During the third quarter, the Company incurred around $300,000 in costs related to this matter. ValueVision is working to manage these expenses prudently, while ensuring that all shareholder interests are represented.

With that, I'll now turn the call over to Bob.

Thank you, Bill.

In Q3 I'm pleased to say that we continued to diversify and broaden our merchandise mix at lower price points. We achieved strong consistent margins. We also increased sales productivity and lowered return rates.

During the quarter, the average price point decreased by 20% to $80 from $100 a year ago. This reflects strong growth in Fashion & Accessories, as well as a shift to lower price points in our other categories. With respect to diversifying our merchandising mix, as Keith mentioned, we successfully shifted the mix away from Jewelry & Watches To Fashion and Home & Consumer Electronics. This planned shift in sales mix and the broadening of our product offerings is powering strong growth in customer counts.

Fashion & Accessories achieved very strong sales growth in Q3. It now represents 12% of our business. Strength in sportswear, footwear and handbags drove the results. Home & Consumer Electronics saw double-digit growth in Q3. We balanced and broadened the mix with growth in home and kitchen electrics, cookware and collectibles.

Within Consumer Electronics, we saw healthy performance in tablets, mobile phones and accessories. We continue to see strong consumer demand for Apple and Android brands. Within Beauty, Health & Fitness, the Beauty segment saw positive sales growth in the third quarter, driven by increases in skincare and color cosmetics. This was offset by softness in the health segment. The Beauty segment is a key driver of new customers, and increased purchase frequency.

In Q3, key brands added include Juice Beauty and Loreal skincare and cosmetics, Google Chromebooks and Roku in electronics, and Perlina handbags and Ariat footwear in our Fashion division. We have improved our merchandising organization, having made progress this year on filling the majority of key open positions.

To further support our merchandising strategies, we made improvements to our studios and sets. We updated the look and capabilities of our studios with innovative set designs, state-of-the-art lighting, graphics and monitors. These improvements are designed to support the investments we're making in expanding our Fashion and home segments. Our studio upgrades include an updated kitchen set to support more cooking and housewares shows.

Overall, Q3 was a strong quarter for the Company; business volume was up and margins improved. We ended the quarter with strong demand, and believe we are well-positioned for the holiday shopping season.

Carol?

Thanks, Bob.

Our third-quarter performance included a number of initiatives that improved our operating metrics, elevated the customer experience, and enhanced our digital storefront. Our operational transition to the new ShopHQ brand is nearly complete. The simplicity and functionality of the brand design is consistent across our multi-channel platforms and our customer touchpoints.

During Q3, the visibility of the ShopHQ brand has been greatly increased, and the presence of the ShopNBC brand logo will further diminish over the remainder of the license period, which concludes at the end of our fiscal year. Our aggregate rebranding costs were approximately $300,000 in the third quarter and we expect them to be $1.2 million for the fiscal year. These costs will not recur next year.

Similarly, the conclusion of our license for the ShopNBC logo will reduce amortization expense by $4 million, beginning in 2014. As we mentioned last quarter, on May 15, the Company made a final cash payment to NBCU of $2.8 million for the use of the ShopNBC logo through January 31, 2014.

Our continued focus in Q3 on reducing costs and improving the customer experience yielded a decrease in transaction costs to $2.55 per unit, versus $2.59 a year ago. This reduction was realized despite a significant unit increase in the quarter, which resulted in expanded use of an off-site storage facility for inventory. We continue to review expansion options to increase capacity at our current 262,000 square foot distribution center.

In addition, we improved our processes across automated ordering, call centers and all of our online channels. These improvements included a simplified checkout process, as well as enabling our customer service agents to remain more focused on one-call resolution. We also reduced cycle time on package delivery to customers.

In Q3, we redesigned our customer invoice to make it easier for them to identify critical order information, allowing for more convenient and faster returns. Customer feedback indicates they are pleased with the improved cycle time and both product receipt and returns. Overall, these operational improvements helped drive growth in our total customer base and improved satisfaction levels.

As Keith mentioned earlier, our third-quarter and rolling 12-month metrics surrounding new customer counts, customer purchase frequency, and the total customer base, improved markedly in Q3. Our customers are responding favorably to our merchandising and operational initiatives.

Turning to our digital initiatives, we continued to focus on driving customer engagement across our online channels of internet, smartphone and tablet devices. Internet sales, as a percentage of total sales, increased to 47% in Q3 versus 45% last year. Mobile, including smartphone and tablet devices, continues to drive increased traffic to our online channels. We remain focused on consistency with our broadcast, providing an easy-to-use interface and enhancing the experience with compelling content. Mobile net sales growth was 45% in Q3, and increased to 22% of internet sales versus 18% during last year's quarter.

In Q3, we also improved features, usability and functionality available through our tablet apps. In the third quarter, we launched a brand-new ShopHQ app for iPads. This app offers a more exciting experience than the website, as we incorporated tablet functionality to enhance the ways customers can shop, access a variety of content, and view our broadcasts.

During Q4, an update to the ShopHQ iPad app will enhance the TV viewer's experience, by providing real-time integrated content relevant to the show currently being broadcast. What this means is that if the broadcast show is streaming on the iPad, there is also the opportunity to engage in live chats and view several content modules, all topical to the current show.

Content and chat topics will change on the hour, and be synchronized to the TV show. These enhancements offer a powerful new dimension to the ShopHQ experience, and are expected to increase overall customer engagement. Additionally, several other mobile deployments and enhancements are planned in Q4. Our primary focus is on our upcoming Android deployments of our ShopHQ and launch iPad apps.

In conclusion, we are pleased with the results of our third-quarter operating and digital performance. Our rebranding is nearly complete. We generated strong customer growth, increased customer satisfaction and lowered transaction costs. Our digital initiatives continued to progress in a number of fronts, driving greater customer engagement, and we remain focused on delivering long-term, sustainable growth.

Operator, please open the line for questions.

(Operator Instructions)

Your first question comes from the line of Neely Tamminga of Piper Jaffray.

I was just wondering if you could help us think about Q4, maybe take us back to where you were last year in Q4, and how we should think about like the product mix, as well as some of the price points overall, and how we should be thinking about that particular line item? Was it going to start to flatten out, or is it going to be down? That would be helpful. Thanks.

Hi, Neely, it's Keith. Thanks for the question. As Bob had mentioned, we're very excited about Q4, and we continue to shift our product mix at an accelerated rate, and I referred to from last year we went from 50% to 44% in jewelry and watch mix and our average selling price, as stated, is about $3 lower than Q2.

So we will lower our average selling price in the fourth quarter. I anticipate it will be some place in the high $70s and we'll continue to see incremental improvement quarter after quarter.

And then overall, in terms of the total customers, and obviously you have had some good initiatives in kind of driving your overall total customers and purchase frequency. Should we continue to see trends like we've been seeing?

Obviously, there's some visibility into current quarter to date trends. Could we see another 20% increase year over year in total customers, or will that also start to moderate?

That's exactly why we're doing what we're doing, Neely, and thank you. So obviously we're focused on our financial performance and steadily improving our sales and overall profits. But at the top of the list are the initiatives targeted at expanding our customer base.

And by moderating our average selling price, by broadening our product mix, by improving our consistent channel position, and all the interesting things that Carol had brought about with our digital strategies, are all measured to continue to drive strong customer growth, and improve purchase frequency. So that's a long way of saying we expect more of the same.

Thank you.

Your next question comes from the line of Mark Smith of Feltl.

First off, can you just walk us through the categories, and what the sales mix was?

Sure. Mark, this is Bob Ayd, thank you. In Q3 Jewelry & Watches is about 44% of our business. Home & Consumer Electronics is about 30%. Beauty and Fitness, about 14%. And Fashion at 12%. So that's the way it's broken up on the 10-Q.

Perfect. And then as we look at the mix of air time, did that follow similar trends, or are there places where you're putting some air time where you're maybe not seeing as much, where you don't have to put the air time, you're seeing still some continued growth?

It pretty much follows the sales mix, Mark. And as we reduce all of our assets, it's not just air time, it's certainly our home page and other CRM initiatives, seeding them away from Jewelry & Watches. We're not only investing in expanding the Fashion & Accessories businesses, but broadening the mix and exposure of the brand-new product categories on all of our assets, and we'll continue with those efforts.

And can you give us the mix of new products, and maybe any bump that you saw from new products that were in this quarter?

This is Bob again. We introduced about 5,500 new products, and rather than talk at products, I could talk about categories, and I'll start with the Fashion division. We saw very strong growth in our shoe and apparel businesses. In Beauty, both color and skincare did very well.

And CE, we added a number of categories. This year, unlike last year, we were heavily into tablets and heavily into peripherals, which would include headphones, computer keyboards, battery chargers, and phones. And those businesses, as you know, were very strong.

In terms of brands, just to highlight some, in Fashion, we introduced Perlina handbags, which is a strong upscale brand. Ariat footwear. In Beauty, we introduced Rodial Skincare and Juice Beauty. In our Consumer Electronics business, we introduced Google Chromebooks, Proscan, Roku. And, again, in apparel, or Fashion, we introduced Ellen Tracy outerwear. So we had a good mix of products, a good mix of new vendors and a good mix of growth categories.

And then last question, just as we look at the gross profit margin and you diversified your sales mix, is there an opportunity, as you focus on some of these other categories and pull away from Jewelry & Watches, to expand margins or will we see them where they are here this, let's call it, 37.5% kind of range.

Mark, this is Bill. And just in terms of characteristics, gross margin characteristics of the individual categories, Home & Consumer Electronics tend to run a little bit below the average. However, when you look at the growth in Beauty and in Fashion & Accessories, they're actually a little bit above the average. So you have kind of a net neutral influence of mix, as impacting margins within the quarter.

Now, having said that, when you look ahead to Q4, generally speaking, you'll have a little bit more emphasis on the Home and the Consumer Electronics items, that are a little bit more giftable. So you have that cyclical influence that you would typically see in a fourth quarter.

Also, in the fourth quarter, you may see a little bit of a step-up in promotional activity, depending on what the marketplace is doing. We're poised to respond to that well.

Okay. And maybe just a last question, just to clarify. On your return rates, why we see maybe the seasonality in Q3, why that bumps up, and how you feel about your return rate here, and current trends.

The return rates, Mark, have operated within a pretty close bandwidth. I'd say to the degree that you have a slight uptick within Q3 over Q2, you're really driving that, primarily by the influence of the Fashion mix within the period, shoes and garments tend to have a little bit of a higher return rate within that category.

Okay. Perfect. You are comfortable at the current level here at 22%, 23%?

Yes, we're comfortable that that's consistent with the product mix that we're offering, yes.

Great. Thank you.

(Operator Instructions).

And your next question comes from the line of Justin Ruiss of Sidoti.

I just had a quick question when it comes to channel placement, and it seems that's been improving. What are your plans so far to get that even better? Is there -- are you taking the steps to try and push that towards more of a lower level when it comes to being below 50?

Yes, Justin, this is Bill. Channel position is a very important part of our strategy. To the extent that we improve the quality of our storefront, or that we increase the number of systems in which we're carried on more than one channel, we know that increases viewership, and along with that, that broadens the customer file, and it translates to revenues.

Keith had mentioned in the call that our percentage of our total footprint that is below channel 50, which is still a meaningful distinction, broadly as a characteristic, lower is better in terms of the quality of the channel position. We've increased from about 15% of our footprint below channel 50 to about 20% of our footprint. And within those systems, we've seen a meaningful rise in the number of new customers, the number of total active customers purchasing with us, and most importantly, in terms of the sales per household.

Similarly, we mentioned in the beginning of the year that for 19 million of our households, we added a second channel, and there too, within that system, a meaningful rise in terms of the performance of those systems and that footprint nationwide, relative to the overall market performance. So when we look ahead to the fourth quarter, I mentioned in the comments that for an additional 5 million homes, we have added a second channel, which is below channel 50.

Those are in markets that we expect will do very well for us, and also within a subset of those homes, about 3.5 million of those 5 million homes, we will also be carried on two HD channels. So the strategy of improving the quality of our distribution footprint has been and continues to be very important for us.

Okay. Great. And then, just when it comes to the price point, I know that's been lowered significantly. What's a comfortable level for you, for your price point?

This is Keith. We feel very good about the progress that we're seeing on our product mix, and because of the progress of broadening and diversifying the mix, in conjunction with lowering the average selling price, that -- and the channel positioning that Bill had talked about is driving the extraordinary amount of new and active customer growth. So as I look at this over the next 12 to 18 months, we should land somewhere in the low 70s, and we'll see incremental improvement of, I believe, quarter on quarter, as we saw walking out of Q2, into Q3.

Got you. And then just one more. You mentioned the CapEx spend on the increase on the studios. Should we assume that CapEx should be trending down at all when -- for modeling purposes?

No, I wouldn't assume that, Justin. When we look at our CapEx spending for this year, I think we're going to come in, in total, somewhere around $9 million to $10 million.

I think as a baseline level of CapEx, looking ahead to 2014, we're probably closer to $12 million, maybe a little bit higher than that in terms of the baseline level of CapEx. When I consider baseline CapEx, that would be investments primarily in our IT initiatives and platforms, as well as improvements in the studio and other elements of broadcasting.

Now, in addition to that, Carol had commented on the fact that we are leasing third-party space outside of our -- the four walls of our Bowling Green distribution center in terms of handling the higher volume capacity, and we've really been leasing that space for most of the year. A separate consideration for us is what's really the right long-term distribution platform, that is, warehouse distribution platform for us.

So we will be evaluating whether we would continue our lease options, whether we would expand our distribution center in Bowling Green, or whether we would look at some other alternative. So that may have a bearing on capital expenditures in 2014.

All right. Perfect. Thank you very much.

Your next question comes from the line of Peter Mahon of Dougherty.

I just had a couple follow-ups. Bill, you usually give us a transactional cost per unit, and I apologize if I missed it, but would you mind telling us what that is, and maybe getting into some of the things that impacted that number during the quarter?

Sure, Peter. Carol had mentioned in her comments the transaction cost per unit in the third quarter was $2.55. A year ago, we were about $2.59.

That's a little bit higher than what we had run in the second quarter. I think we were closer to $2.48 or so. The reason for the increase in the transaction cost actually has to do with what I was just discussing with Justin, and that is that, for a higher percentage of our volume in the third quarter, we were operating, handling and shipping some units out of our third-party lease facilities, and when you broaden the footprint like that, it tends to add a little bit of a premium to your transaction cost.

Got it. Okay. Great. And then you talked about -- Bob, you talked about the break-out of the various categories for the quarter. Would you mind giving us what those percentages were last year? Just so we can kind of get an idea of how those changed year over year.

Sure. In Q3 of last year, Jewelry & Watches was approximately 50% mix. Home and CE at 27%. Beauty & Fitness at 15%. And Fashion was at 7%.

Excellent. Thank you. That's all the questions I had. Thank you.

Your next question comes from the line of Mark Smith of Feltl.

Just one quick follow-up. And Bill, I don't know if you can quantify or give us any insight into expectations for advisory fees in Q4?

No, Mark, I can't. We did incur about $344,000, more precisely, in costs related to that, in the third quarter. I will say that it will -- we expect that it would be materially higher for that, than that, I should say, in the fourth quarter, depending on the level of activity. But I really couldn't comment beyond that.

Okay. Great. Thank you.

Your next question comes from the line of [Robert Ralph] of National Alliance Capital Markets.

Just two quick ones. First, given the change that you're making to ShopHQ from ShopNBC and the rebranding and the product mix change, obviously HSN and QVC are big on personalities like Martha Stewart or Emeril, et cetera, but you have a different demographic. I think it's a little better credit quality, a little higher net worth, and a different price point.

Given this change, have you considered partnering with, instead of a personality, say a big box retailer or brick and mortar company that's having difficulty because of online sales, and having, say, the Best Buy block every Tuesday from 7 to 8 or whatever, Williams-Sonoma or something like that, where they partner and use your platform as a way to sell their products and drive traffic to their store, but also drive people to your channel and to purchase things, rather than just selling a product, but almost a store within a store? Where you're the store, and then they have a block of time once a week as a destination location, I'm wondering if that's something you are considering or see opportunities to do that going forward?

Robert, it's Keith. I'll open up by saying we always evaluate those opportunities and we have stuck our toe in the water a couple of different times with other retailers, and other types of ventures, that add new product and interest to our viewers. Candidly, there is one issue that makes it difficult with many of those examples, is that, when you try and split two retail margins it's very difficult to be competitive within a marketplace.

All of that said, beyond shifting the mix and broadening the product, within the content that we offer, and I'll speak just to the product at the moment since that's where your question is addressed, it's our strategy to provide national brands that create authority and credibility to the ShopHQ brand, as we have many, and Bob had spoken to before. On top of that, we look to have a variety of exclusive products, of which the majority of our products are exclusive to ShopHQ, which allows us to differentiate ourselves from the marketplace, add value to our customer base, and create interesting content and programming.

And then thirdly is proprietary brands, of which -- that we actually own, where we own the brand, we own the supply chain, we own the product. There's more margin opportunities there, and there's more opportunities for differentiation. So within a product space we see lots of opportunity, directly to your question, and then on the other areas of content, Carol touched on a lot of those on the call.

Great. I was thinking more along the lines of almost even leasing an hour a week to some of these places where they pay you a large amount of money, rather than pay for commercials, and they can sell whatever they want, as long as you approve, and something you're not selling, but drives people, and kind of an endorsement, given the quality of your brand, and the demographic that you serve, something along those lines, as opposed to a revenue split.

I would say, Robert, if there's an opportunity that presents itself that's good for the shareholders and stakeholders alike, we certainly would open it up for conversation.

Great. And one other question. Obviously, most people don't remember the history of this company, but years ago, the distribution costs, especially for analog was off the charts per sub per year and digital was something else.

As things have changed, clearly your distribution fixed costs have come down materially, and due to the operating leverage in the model, once you cover them, it is what it is. I wonder if you could just give us a quick history or update as to where the Company was, and where it is now in terms of the length of your average distribution contract, and what you're paying on average per year for distribution, compared to the way things were, when distribution costs was $250 million a year, and where you see it going?

Sure. Thanks, Robert. This is Bill. And yes, if you use a benchmark of 2008 which was basically when this management team was -- it was the year that preceded us coming on-board, our cost per household was about $1.72. And really, that was reflecting, frankly, a lot of contracts that were not favorable to us either in terms of cost or quality. And over time, as those agreements expired, we were able to negotiate those favorably, not only in terms of cost, but also in terms of the quality of those systems.

I'll say on a run rate basis, we brought $1.72 per household down to an expected level at the end of this year in the range of $1.10 to $1.15. But more importantly, within that, we have made significant improvements in terms of the quality of that distribution. One point of reference is the mix of households that are in, again, what we would consider more favorable channel positions, relative to either low on the dial, or adjacencies that we're more comfortable with.

And then the second consideration is the percentage of our footprint that has more than one channel within a household. So we refer to it as dual illumination, but we've got two or more channels within that footprint. And again, using that same point of reference of 2008, that was about 17%, less than 20% of our households had a second channel.

As of the end of the third quarter, that was about 70%, and with the addition of the 5 million homes, which will have a second channel below channel 50, that rate will improve further to about 75% of our footprint. So our focus has been reduction in cost, and improving quality.

Relative to your question on directionally where this is going, I certainly don't expect anything close to the same step function reductions that we've had in cost. In fact, if anything, if I were looking forward on distribution cost, I'd say it would be -- as contracts come up for renewal, and our typical interval on a contract is two to three years -- as they come up for renewal, we will look to improve our cost position, but I'd say, more importantly we want to emphasize the quality of our distribution. So we're willing to reinvest to improve the quality of our footprint.

Okay. Great. And are there any material contracts coming up for renewal at the moment, or have you secured for the next two or three years, the bulk of our distribution?

2014, no major contracts up for renewal. We had negotiated a large tranche close to 60 million of the 86 million home footprint was negotiated at the beginning of this year, and the terms on those three agreements, primary agreements were three to five years.

Great. Thank you very much.

Thank you, Robert.

Thank you everyone for joining the call today and your participation in the Q&A session. This concludes our call for the third quarter of 2013.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a wonderful day.