iMedia Brands Inc (IMBI) 2014 Q4 法說會逐字稿

Good morning and welcome to EVINE Live's fiscal 2014 fourth-quarter conference call. Following today's presentation, there will be a question-and-answer session. Today's call is being recorded for instant replay.

I would now like to turn the call over Teresa Dery, Senior Vice President and General Counsel. Please proceed.

Thank you, Whitley. I am joined today by CEO Mark Bozek and CFO Bill McGrath.

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, expects, intends, predicts, hope, should, plan, 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 EVINE Live's SEC filings.

Comments on today's call may also refer to adjusted EBITDA and adjusted net income or loss, which are both non-GAAP financial measures. For reconciliations of each of these measures to our GAAP results and for a description of why we use them, please refer to today's news release, available on the investor relations section of our website.

I'd like to remind you that 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 Mark.

Good morning, everyone. Thank you for joining us to discuss our fiscal fourth-quarter and year-end results. I also plan to provide an overview on the new initiatives we have embarked on since I started two quarters ago, along with the progress we have made in the first few months of this year.

We ended fiscal 2014 on a strong note, with an adjusted EBITDA of $22.8 million, a growth rate of 26% year over year, and an adjusted EBITDA margin improvement of 60 basis points to 3.4%. We have a solid liquidity position that includes availability on our recently expanded credit facility.

As a digital commerce retailer, the key to leveraging all of our platforms is engagement with our customers wherever they are, and we are benefiting from that broad reach of our multiple digital platforms. In the fourth quarter, our television platform was available in 88 million households, while 46.1% of our sales were made online.

Even more noteworthy is that mobile is our fastest-growing platform, with $32 million in mobile sales during the quarter. This represented a 24% year-over-year growth rate to a record 34.4% of online sales.

Our efforts to broaden our product assortment are being well received by our customers. Our rolling 12-month active customer count rose 7% to 1.4 million. In the fourth quarter, net shipped units rose 23% to 2.9 million and average purchase frequency was 4.3 times in the quarter, up 17% year over year. These were all new highs for our Company and it's good to see during this initial period of transition that we are successfully injecting some well-needed life into the business in ways that are directly quantifiable.

This is only the beginning. In two short quarters, we have accomplished a lot. I said to our team on day one that the first two things we were going to do was to create irrelevancy for the people who work here and for the people who make our product, and that's exactly what we are doing.

You need only to have been here this past weekend when we launched the Titan collection by Todd English to see for yourself just how that relevancy thing is working. Over 5,000 new customers shopped with EVINE last weekend. And judging by the amount of testimonial calls we had, I would bet that a good number of them used to shop on another network.

Step by step, product by product, we have begun the process to build the proprietary broader assortment we have talked so much about. However, this is not a sprint; it doesn't have to be in order for us to win. We came here to create long-term, sustainable growth and we have just begun that.

What's abundantly clear is that the quantity and the quality of talented product makers and personalities who want to create brands for us have increased dramatically. We are now, I believe, viewed as a far more relevant alternative channel in which to launch new brands. This broader mix should begin to enable our strong existing brands that we have for so long heavily relied on to grow in a much healthier manner.

The very first new EVINE Live brand we launched, the Deadliest Catch collection, has been a real success story. The best frozen crab on the planet and you can only buy them from EVINE Live. That was in December.

Since then, we have completely rebranded the Company in half the time we had said we would. We have rung the bell at NASDAQ in New York City, with members of our team joining in person in Times Square, at our studios in Minneapolis, and from our newly expanded distribution facility in Bowling Green, Kentucky.

During our live broadcast from The Plaza in New York over Valentine's weekend, we returned to broadcasting live 24/7, in line with our previously stated goal, and it's working. At The Plaza, we introduced an array of new exclusive brands, including the Lisa Vanderpump jewelry estate collection, FrescoWare by Scotto, Peace & Love Jewelry by Nancy Davis, and our own private-label confection line, DEVINE Treats.

These launches complemented the rollout of new product offerings from some of our customer favorite brands such as Waterford and Skinn Cosmetics. The efforts of Russell Nuce, who joined as Chief Strategy Officer in November, along with our merchants, have already begun to add real value. These efforts include strategic partnerships and exclusive launches on nine notable proprietary brands in just the last three months.

Next up is the launch of Paula Deen next week on March 25. We are thrilled to welcome Paula and her fans, her many fans, to the EVINE Live family.

Obviously, our goal with all of these new product launches will be to drive long-term sustainable growth in sales and enhance our profitability and margins.

As Vice President of Digital, Wade Gerten, who started in January, is focused on leading our digital initiatives on all platforms, including TV, online, mobile, and social. We're benefiting from Wade's extensive experience in the retail technology sector to enhance the breadth and functionality of our digital effort.

By working with our new proprietary brands to tap into their extensive fan base, EVINE Live appeared on the Facebook homepage of over 1 million users during Valentine's weekend.

Please mark your calendars for our first EVINE Live investor day on Thursday, May 28, at our studios in Minneapolis. We are very excited to share with you in person some of the many things we have in our arsenal and introduce you to a few of our new brands and personalities.

While our Company benefits from a 25-year history, the energy among our team is fresh and rejuvenated. I look forward to introducing you to everyone on the 28th.

Finally, the transition at EVINE Live is underway and I believe it is wise to set expectations cautiously, but also optimistically. As we move forward, we will continue our scrappy and nimble approach in all areas of the business, including with a very keen eye on costs, as well as with a focus on all things digital.

These last two quarters have been incredibly busy, productive, and rewarding. I strongly believe that our sector of retail that includes TV, mobile, and online continues to grow at a faster rate than the bricks-and-mortar world and the strictly online-only players, who, despite high valuations, are challenged to show actual profits.

We are committed to driving long-term sustainable topline growth efficiently and effectively, leveraging our infrastructure and customer reach.

With that, I'd like to turn the call over to Bill to review our financial results, after which we will both be available to take your questions. Thank you. Bill?

Thanks, Mark.

Fourth-quarter sales of $201 million were up 4% over prior year. Sales growth in fashion and accessories, home, and watches offset an anticipated reduction in the sales of consumer electronics. In the prior year, consumer electronics comprised 25% of the sales mix and this year it was 16% of sales mix.

Net shipped units in the quarter increased 23% versus last year, as our average selling price declined to $63 from $74, principally influenced by the mix of sales in our fashion, beauty, and home categories.

Mark described several of the exciting proprietary brand launches which are occurring in the current quarter. We are excited with the potential of these brands, as well as others in the pipeline, and our strategy of developing the proprietary brand portfolio is key to driving long-term sustainable growth.

In the near term, these launches require investment in air time as we iterate and develop these categories to their full potential. Given this context, we wanted to share that for the next two fiscal quarters we anticipate aggregate revenue growth will be in the range of 3% to 7% over the comparable prior-year periods.

Gross profit dollars increased 6% to $66 million and our gross margin percentage of 32.6% was an increase of 50 basis points to last year. The improved gross margin reflects the favorable impact of the mix shift away from consumer electronics, partially offset by increased shipping and handling promotions within the quarter.

Fourth-quarter operating expenses totaled $62 million, compared to $63 million last year. Excluding unusual items in each year, operating expenses were roughly flat to prior year.

Operating expenses were affected by an increase in variable costs of $1.8 million. Variable costs as a percentage of sales were 8.5% versus 8% last year, reflecting the impact of the 23% increase in net shipped units. We anticipate that fiscal 2015 variable expenses as a percentage of sales will be between 8.5% and 9%, likely trending lower towards year-end as we realize the benefits of the Bowling Green, Kentucky, warehouse expansion.

The increase in variable expenses were partially offset by lower salaries and lower costs -- and related costs, as well as lower depreciation and amortization.

Adjusted EBITDA in Q4 totaled $7 million versus $5 million in Q4 last year. Net income from the quarter totaled $3 million, a $5 million increase over last year.

Turning to the balance sheet, we ended the quarter with cash and restricted cash of $22 million, compared to $26 million at the end of Q3. Net use of cash in the fourth quarter was primarily working capital related, reflecting executive severance payments which were accrued during the third quarter, as well as fourth-quarter payments for inventory receipts.

On March 6, we increased our credit facility with PNC to a total size of $90 million, from $75 million. This $15 million expansion improves our liquidity and provides support for working capital requirements as our business continues to grow.

With that, Operator, let's open the line to questions.

(Operator Instructions). Neely Tamminga, Piper Jaffray.

Congratulations on all the very tangible progress going on at the Company right now. Question for you on -- just two primary questions. Clearly, the rebranding event occurred in Q1, and so we are just trying to gauge -- you mentioned just over the last weekend you saw 5,000 new customers. Can you get a sense for us contextually as to maybe what you're seeing in terms of new customers or reactivated lapsed customers coming back to the brand on Q1 to date type trends? Then I have a follow-up housekeeping question on the guidance.

In aggregate, Neely, new names quarter to date are running in the high single digits as a growth rate.

Okay.

By the way, Neely, this is Mark. I think that in Q1, the rebranding really in terms of the customer just began Valentine's weekend. We made the announcement to change the Company name back in November, and the ticker, et cetera, but the real customer-facing rebranding on all of our platforms began February 14.

It is really the early signs of that and it's like this weekend, as I mentioned earlier, with Todd English. You can begin to see that, in my opinion, it is always -- the next easiest customer for us to get first are ones who have either shopped with us already or who shop at our direct competitors. We can clearly see by the amount of new names and, as I said, the amount of calls that we had that we are doing that. We are starting to attract those kinds of sticky customers that are not necessarily just one-and-done customers that we would normally have had would it have been consumer electronics.

That's what we are seeing in the frequency even in Q4, Mark, having ticked up? Is that another way to read some of those metrics from your vantage point (multiple speakers)

I think, yes, from an early perspective. Given in Q4, it was really just the Deadliest Catch and Pamela McCoy collection that were the first two EVINE Live brands that we launched. It was more -- it began there, I believe. The notion that we could sell crab from the Bering Sea for $160 and have 30% of that be on auto delivery is really quite amazing.

And so, it's those kinds of trends that we see, and ideally with the breadth of this broader assortment, that enable you to grow more potent, if you will, new customers than the past.

I would say, Neely, the growth in the purchase frequency that you saw in Q4 and over the full fiscal 2014 reflected a very positive influence from the growth in the apparel and the beauty classifications, which in themselves have a high replenishment rate in terms of purchase frequency that occurs.

What we hope to have happen, especially as we look at brands of products that we really haven't had a significant presence in before, such as food, as Mark has mentioned illustrated by Deadliest Catch, or the cookware brands that we look to offer, they are well above average in terms of the home classifications in terms of creating purchase frequency.

And so, we are hoping that is a continued wind in the sails in terms of addressing that. That's a very, very important metric for us.

What's also encouraging in all this is that, as we said from the beginning, in any of these businesses, you have to create this variety; otherwise, you tend to play your same shows -- in our case, the same products -- over and over again and there is a tendency when you do that that those brands can suffer a bit.

I think, as you know, we have some pretty powerful brands that -- four or five of them that are pretty substantial that we want to make sure we continue to grow those. We think and we strongly believe we can make those businesses even healthier because the broader mix and assortment that we're going to have in the food category, soon in the ingestible category, more to come in the skin care category and a whole lot of others that are in the pipeline, offer that variety. That variety is really what's going to help us grow and keep -- and enable us to sustain growth by having and attracting new customers that stick with you, right, that are not -- as I said a minute ago, that are just come in and go out.

Yes, it's very exciting stuff going on here.

In terms of as we think about the financial model and translating this into the commentary you made around looking for a 3% to 7% increase in revenue growth in the aggregate Q1/Q2, at a very topline level last year Q1 and Q2 actually grew at comparable levels on a one- and a two-year basis. Is there something about this mid-quarter relaunch that puts maybe Q1 closer to the 3% side and Q2 closer to the 7% side in terms of how we should be modeling this on a revenue growth?

Yes, I think that's -- directionally, that's a fair way to look at it, Neely. We have -- as we make these investments in air time, they are not only absolute minutes that are invested, but they are also prime minutes in there. They are minutes that require a lot of promotional emphasis, and, of course, that creates some displacement from other categories.

And so, I think the impact of that and the resulting guidance on sales is more skewed towards Q1 and then the higher end of the range would be more skewed towards Q2.

That's great. Thanks. Good luck out there.

Thomas Forte, Brean.

Thank you and congrats on the successful launch of EVINE Live. Can you talk a little about unit sales trends and average selling price? Are we at a point now in the adjustment of the mix where you will start to see, I guess, smaller numbers there as far as versus, I guess, big changes in average selling price and units sold?

Yes, I think as it relates to the average selling price, as everyone knows we have dramatically reduced our selling price in the last three or four years from in the $200s now down into $60, but I think for us because there is so much opportunistic discovery in all the new brands and categories that we are launching, that to say that we have hit the bottom or it is going to trend back up, we like to talk in the range of anywhere from $60 to $75 because I think as these new launches come out, some of them take, some of them don't take, and I think we have to find that balance.

Rather than quantifying it in a number of just $60 to $65, I think the range of $60 to $75 in terms of the ASP is where we are comfortable going forward into these next few quarters.

But we don't see any acceleration in the decline, Tom. I think we are probably near the low point that we would expect in terms of average selling price.

Great. Then as far as the timing of the addition of proprietary products, is this something where we should expect it to be 10 percentage points a year? So if the starting point today is, give or take, 25%, should we expect you to be at 50% in two years? How should we think about the timing of adding the proprietary products?

I actually think that's a pretty fair percentage that you just gave, Tom. I think 50% within the next 18 months to two years, I think, is likely where not only we want to be, frankly we have to be there, I think, because I know it works.

I have done it before and I have seen where if you build these proprietary brands, they don't all get built in a week, and some of them are more popular from the beginning than others, but I think that's -- 50% within the next 18 months to two years is the right way to do this. As I said, it's not a sprint and I think sprints cause existing customers to run away, as has been evidenced by some of the retailers that have tried to do these pivots too rapidly, and I think we have done it so far in just the right amount of cadence in terms of making sure our existing customers come with us -- they clearly have -- and that we are now beginning to add new customers that have never shopped with us before.

Great, so last question. As you add these new brands, so think of Deadliest Catch and then Paula Deen coming up and Todd English, would you say that versus what you were doing before that they have a greater propensity for digital sales, both e-commerce and mobile commerce?

Doing before meaning what I used to do before?

No, versus, I guess, the legacy products you were selling. Would you say that part of the EVINE Live strategy should suggest that not only will you have sustainable growth, but you will have greater digital penetration for the new brands you are launching?

You bet. You are absolutely correct. That is part and parcel of a big part of our strategy. I think the opportunity to -- we refer to them and have from the beginning as these brands with fans, and they have fans and we have a really growing smart team, led by Wade Gerten on the digital side of things, that we have some very clever ways that we are experimenting with in terms of creating business that doesn't come digitally just by what we've had on television that day, which as you all know or as many of you know, a lot of the business that happens digitally happened to be on television in the last 24 hours.

We believe they are real opportunities because the Deadliest Catch. Paula Deen has 4.5 million fans on Facebook. There is all kinds of very smart, clever social ways. It's not just about a like on Facebook, but we think there are some clever ways that you can transfer -- translate them into more than a like, but a love, because they're actually going to be buying product from us.

To answer your question, [we are] 100%, 1,000% for sure that we think the opportunity is digitally because they have existing fan bases will enable us to do this in a really robust way.

Great, thanks again, and congrats on the relaunch.

Alex Fuhrman, Craig-Hallum Group.

Thanks, guys, and really looking forward to that investor day in May. I think that will be a big hit and I think it's the right time to be doing something like that.

I wanted to talk a little bit about your television footprint right now. I think, Mark, when you joined the Company back in June, the mantra at the time was that your cable and satellite fees will be creeping their way higher towards $1.15 per home as you reinvested into some better channels. It looks like it has stayed at that $1.13 level, so trying to think about that and the guidance for the next couple quarters.

Are you waiting until you really start to see a little bit more of a lift after you have repositioned your brands to then start to invest in more homes and better channel placement, or is that maybe more we should be thinking about that $1.13 staying more or less where it is for the foreseeable future?

Thanks, Alex. We did land at about $1.13 per home for the fourth quarter. We had a relatively small volume of movement, about 300,000 homes in the New York area that we had changed channel position and that slightly affected the cost.

But you are right in terms of the first focus in the level of investment is going to be on the development of brands and the overall improvement in the product portfolio. Frankly, that puts us in a better position to evaluate ROI on the distribution investments as we move forward, because we think that the contribution margin we'll garner out of improvement in channel position has a higher potential than it would with the current mix.

As I look out over the course of this year, I think we will -- at the high end, potentially, in terms of systems that might move, I think we may end the year at around $1.15, but certainly in the early part, the first two quarters, I think we will be in that same $1.13 range.

Also, Alex, this is Mark. I think that we are going to react opportunistically here. I think we have to because, obviously, you don't want to build the church for Easter Sunday in a way and have great lower channel position and still offer not as much robustness in your assortment.

My theory is or our theory is if you build it, they will come, and that before we invest -- to Bill's point on this $1.13, before we invest that way, we want to make sure that when we do, that when you get into those lower, more competitive channel positions that what you are offering is something that is worth it, right? And that something is going to help increase your sales by being in that lower channel position.

Great, that's really helpful. Then, Mark, I just had a quick follow-up on something you mentioned in your prepared remarks about a lot of the people, and certainly we can see it on the message boards, see it watching the television, there are clearly a lot of people who shop on the other major television shopping networks. Are there certain brands that you have launched that tend to bring in that seasoned TV shopping customer? Is it more the personalities that have had the affiliations with those other networks or would it be also some of the more -- they are all exclusive to you -- but also some of the more private-label things like DEVINE Treats? Are those bringing in that Q and H shopper as well or is it more like the Todd English/Paula Deen type brand?

It's a little early, but the last two names that you just mentioned, obviously one of them used to be where I used to work, and so you can clearly see that popularity of Todd English that he has had and with customers in our space -- not just us, but within our space -- is something that tends to, at least so far, have been probably more popular, more successful out of the gate, although the Deadliest Catch certainly doesn't fit any of those categories and that has driven both new names and core customers quite robustly.

Paula Deen, we will find out next week.

But certainly, I think, we're not doing this just to have -- launch a bunch of brands that used to be on HSN or QVC. That's certainly not the goal here, but there are some, just like the television business, where moving from one place to the other, if you can rebuild them, and I believe, as I said in my remarks, that we are now a far more competitive alternative to those places. We are because I think we have reset the tone of the launching pad for these new brands versus perhaps the last place they come and you can't sell anywhere else.

I think that's the big difference. There is still a lot for us to prove here, right? But the amount of people, as I said, coming through the door that are talking to us about launching all these different things in really clever ways, beyond just how many dollars per minute or how much air time they are going to get in 168 hours a week of our programming, is a lot.

I think that the early signs are good. I believe it. I know it from the past that those are pretty easy customers to get, and, boy, it's really easy to get to socially these days in social networking to communicate what you are doing because, as I said on the Todd call -- the Todd testimonial calls, where are you? We miss you. You hear all those kinds of things. You say, okay, well, maybe there is something that we are doing right here, and that's not going to happen every time. It just happened to happen this past weekend really well.

Great, thanks a lot, Mark, and I look forward to seeing what you guys come up with for Paula Deen next week.

Greg McKinley, Dougherty.

Guys, you provided some color on the Titan collection, for example, and talked about some of the other brands you have recently launched. Are you able or will you or can you provide any additional metrics around how you might have measured the results of those initial launches, or you're not prepared to do that at this point?

I don't think we are really prepared to do them in a metric sort of way, Greg. I think that a strategy is one thing; opportunistic -- or opportunity is another way of looking at it because we came out that weekend and we launched eight or nine brands in one weekend, right. That's eight or nine more brands that have been launched here in four years in a weekend.

And so, we don't -- what we are trying to do, and like we did with Todd, you are measuring it in terms of how much air time they get, what's happening digitally, but you want and often in this business you have -- you can have great strategic plans and you can plan out who has got X amount of fans and where they're coming from, and they can go on the air and they don't do any business.

Then you can have things like BoKU Superfoods, which was a brand that we launched Valentine's weekend that did $40,000 at 3 o'clock in the morning with no promotion, with no previous air time, and it's this great new brand now that we discovered out of nowhere. And it's those kinds of -- the mix of those kinds of surprises -- nobody has ever heard of this brand before, but you can go on, present it a very compelling way, and you have that mixed with people like more notable brands like Todd English, and it's a good thing.

But measuring them this early on, particularly since it is -- we are six weeks out from Valentine's -- actually, a month out from Valentine's Day, a little bit soon to that. The only measure that I think is relevant right now is the quantity and the quality of them. If you can start to see that how many we're launching, and like television pilots, right, they don't all work, but some of them are starting to work in a really good way, then you start to -- I think once we get out beyond that, we will have more ability to then measure them with the right kind of metrics that you are able to apply to how you look at our business.

How should we think about or what would be -- I don't know if there is a normal in that sense, but when would some of these brands -- you have already done it with Deadliest Catch -- when would some of these brands get additional air time to come back, and is that a way we might be able to get a glimpse into how you are thinking about it?

It's very much like the television business, again. So if you get a 13-episode order from the network, then you know you're doing pretty good. If you get a 2, then you know you're not getting such a good support.

But the Deadliest Catch has been on three times since December, so that's a good sign. We had a show two weeks ago where Sig was -- the Captain, Sig, was stuck on a boat and he couldn't make it to air, and our team didn't want to put them on the air. I said, no, we are doing the show anyways.

He called in from the boat on his cell phone and we killed it. We did -- it was great live interactivity. That sort of thing really works.

Todd English was here last month. He is going to be here again next month. BoKU foods that I mentioned earlier, they are going to be here in a couple of weeks. DEVINE Treats has already been on several times. Lisa Vanderpump is coming back in June.

Some of them -- again, depending on the category, Greg, if it's apparel, obviously, it's a longer sort of runway to get them launched, but in some of these other categories, particularly the food and the cookware, it really -- you can have shorter sort of lead times. And again, some of them that we're going to do are not -- that didn't necessarily hit it out of the park on Valentine's weekend are some that we've launched subsequently.

I believe and I have seen it, I have done it, where they weren't so great in the beginning, but if you stick with it and you can make that connectivity, particularly now in connectivity that's not just to a television screen, but on your phone and on your tablet and online, that I think there is exciting new disruptive opportunities for us to reach him and her in ways that are not being done yet.

Okay, thank you. Then some metrics that you have provided in the past, retained customers, I think that was a metric you have given us in the last couple years. What was it for 2014? Do you have that handy?

Yes, Greg. Of the total customer count, which we mentioned -- I think Mark referenced on the call of 1.447 million, which is up about 7%, retained customers were about 760,000 customers and that number is up about 10%.

Now that correlates to another metric or a couple of other metrics that we've referenced, one being the purchase frequency. So to the degree that you are able to attract customers into categories that have a higher rate of repurchase, the natural ones that one would anticipate are beauty and then fashion, but similarly in the home and the food categories, there is a higher level of stickiness and repurchase rates if customers become comfortable with those brands that can help to drive that retained customer number higher.

That's very important because that's -- obviously, the value of an existing customer over time has an annuity aspect to it and it's certainly much more valuable to retain an existing customer than to pursue a new customer, which has a relatively high fall-off rate.

Thank you, and then I guess the last couple questions I had, Mark, you went to 24-hour live content. Is there a way to talk about how those extra couple hours of live can impact the business versus repeating taped content? What are your updated thoughts on investments in HD and anything else like that, or is that to be determined when you feel like, I guess, your cable fees -- when you feel like you have developed a more robust product offering?

I think as it relates to HD and our plans on that, I think we still have to be -- at some point make the investment to broadcast and change our technology over to HD.

However, there were very few people who watched us this past weekend or who watched us from The Plaza or who have watched some other things that we've done and they said, well, that would have been better in HD, right? I think when you start shooting things from cell phones and different ways that we have done some of the things in the past, it doesn't become as much of an issue as perhaps it was from the beginning.

As it relates to the -- and again, we're not taking it off the table, but live and creating live, fun, interactive television doesn't necessarily have to be the perfectly lit thing. It just has to be live.

As it relates to the overnights, our Company is called EVINE Live, not EVINE Live part-time. I think going to live was something when we first got here that we felt that we had to do. We had to do it smartly and cost effectively, so we didn't just go back live and start losing money, but it has been profitable. The ROI has been profitable to date. It has been up about 17% early on in the month of February than it was when we were on tape.

As I mentioned earlier, we launched BoKU foods at 3 o'clock in the morning and did $40,000 in sales, and so that did more than what would have been likely had we been on tape.

Also, let's not forget there's a lot of customers who shop during those times, and there are a lot of people that were really upset who didn't like that we were on tape and they would post and write and call rather relentlessly, and they are not doing that anymore. Again, in addition to that, so I think to answer the question before, it's been a good move to go overnight. It is now an opportunity where we are going to test and try other things and not necessarily just with product, but ways to present our platforms in really unique kind of ways because the bar is much lower there. There is much less people watching.

I think that kind of experimentation and that sort of disruption will enable us to do that. It also helps us to clear through some inventory that is cleaner than we would if we're just running on tape repeats.

Yes, and what is that block of time? What hours went from tape to live?

From 1 AM Eastern to 7 AM -- or 7 AM Eastern, yes. It was six hours.

Thank you.

(Operator Instructions). Mark Argento, Lake Street Capital Markets.

First question, just more housekeeping. Just wanted to review the guidance. You talked 3% to 7% topline and then distribution costs trending at 8.5 to 9. I think there was a couple other things that you might have mentioned as well. Could you just touch on guidance for modeling purposes, anything else that you guys -- that we should be aware of as we're thinking about the year and the progression?

Yes, certainly, Mark. As you mentioned, the topline guidance over the first two quarters we see in that 3% to 7% range, first quarter being closer to the lower end of that range. The variable expenses as a percentage of sales, over the course of the year we will move somewhere in the range of 8.5% to 9%.

To refresh on variable costs for us, what that represents is the cost of credit card fees, bad debt expense, and the cost of taking and processing a customer order through our distribution center in Bowling Green. As we get to the fourth quarter, we expect that rate will decline as we start to realize the benefits, one, of having our full operations consolidated under that roof in Bowling Green, and also the implementation of Manhattan Associates Warehouse Management System that we think will give us some operational benefits and we will be able to achieve some outbound freight benefits as well, relative to combining packages more readily than we have in the current distributed platform.

Distribution cost becomes another component within selling and distribution expense, and we mentioned the guidance on that is that our rate will be somewhere between $1.13 and $1.15 per home and that we would see the household footprint growing at a pretty small rate, somewhere 1% to 2% maybe over the course of the year.

Then, finally, you have within our operating expenses all other operating costs, which are relatively fixed, including our broadcasting teams, our merchandising teams, our digital commerce teams, as well as our corporate group, and we see that pool of costs increasing in the range of 3% to 4% over the course of the year.

That's a helpful recap. When you think about incremental margins, obviously, you have the distribution. You have the studios and all the infrastructure, so the incremental margins on your business have to be fairly substantial. Could you just -- how do you think about incremental margin on another $1 revenue internally? What kind of percent do you think about it as?

Yes, that's a good question, Mark. If you take the two components of, we will call it, variable margin on an incremental $1 of sales, one would be the margin rate on the gross profit, which for us historically has run -- again, it's a function of mix and activity within the quarter, but we run between 36% and 38% at that range.

Then your -- the variable cost structure, and if we use a round number of 9% that I was describing earlier, then that puts you in a contribution margin level of, say, 28%, round numbers, as contribution margin out of each incremental $1 of sales.

Within a range, that should -- that essentially should flow through to EBITDA. You do get to -- you get some incremental fixed cost if the nature of those incremental sales are a function of adding new product lines and having to add expertise or perhaps an additional emphasis on digital that requires acquisition of different skill sets, but as a rough rule of thumb, that contribution margin flowthrough using the current distribution platform and the current corporate structure is about -- again, on the high end, contribution margin about 28% of sales.

That is helpful. Then just pivoting back to the brands, I know, Mark, you had mentioned that you guys launched eight or nine brands in one weekend. When you think about -- when you lay out the roadmap for the rest of this year, is it 20 brands that you will launch, 25 brands? Maybe from a high level, how do you think about the brand and product roadmap and starting to get a better feel for cadence going through the rest of this year?

I really don't want to say a specific number. I think if we look at cadence, what we look at now is six weeks or so or maybe even you go back to December with the Deadliest Catch, you really look at not only the new launches, but you look at the ones that you've already launched that then begin to become your new anchors, if you will, like the Deadliest Catch and like Todd English, and you start to build out that sort of depth and breadth as we go.

But without giving a specific number, because these are all very fluid discussions that are in the pipeline, but there's a lot of them and I think there are some really clever, robust ones that, particularly in the adjustable side of things, that we have a lot of enthusiasm and excitement around those. That's a big, big business. That's at big, big high margins and big new name generating categories and it's a category we have not played in much at all.

But I think that as we roll them out, particularly going into our third and fourth quarter, you are certainly going to see more of them and you're going to see more of the ones that we've already launched in the past six weeks.

This brands-with-fans notion that we have adopted from the beginning is really paying off because even on the Deadliest Catch side of things, and I'm sorry to keep coming back to that, but it is no sense going back to things that haven't worked. You might as well go back to things that have worked. That's working. That's a television show that on April 12 goes into its 12th season.

I rest assured the people who produce the Deadliest Catch are loving this, because not only are we selling a lot of product with the Deadliest Catch name on it, we are also now beginning to connect with people like Discovery Channel and others in really robust ways where the opportunity to sell commerce potentially in those arenas, and mind you, they would love it because incremental revenue is something that all the cable networks are after in a big way, this becomes a very real thing.

It's not necessarily just a promotion or a publicity campaign for the Deadliest Catch. These are real dollars and this is real money and really, really good product that we are selling.

So I think that connectivity to those other ways of commerce beyond just our digital platforms, including television, which we refer to and think of as a digital platform, that connectivity to those other networks, it is ripe for opportunity right now because they are very much looking for those kind of connections.

All of those things as we look forward into the kinds of brands that we want to launch, there is also the home cleaning business, right, and home organization. They are not necessarily going to be big, noisy brands, but they are going to be fillers that help provide this broader assortment that we talked about.

So when we look at 168 hours a week of our programming, we have more breadth and depth, not just in big-name personalities, but in all the different categories, some that are going to be known and some that are not going to be known. But this entertainment piece of it and this digital interaction piece of it you're going to hear a lot about from us in the coming year because I think there is really clever ways because of our size, Mark, and because of our scrappy approach and a very sort of start-up-esque kind of mentality, particularly from a digital side of things.

We can do a lot of things where we think some of the others can't because the bar is lower for us, and when you have a low bar, you can take more chances. And we are cautious about them. We know in this process where we are. We know where we were. We know very much where we have come, and so none of this is done in any kind of knee jerking sort of way. We don't want it to be in a knee jerking way because knee jerks caused hockey-stick growth to have the hockey puck smack you in the face.

We're doing this in a very cautiously optimistic kind of way, but you can see, I think, ideally, you can hear in the enthusiasm what we are doing is a very real thing, and the path forward is all good for us.

Great, last question, and I appreciate you breaking out what consumer electronics was in the quarter versus the year-ago period. It looks like, by some back of the envelope math, roughly -- almost $16 million worth of consumer electronics revenue that you didn't have this quarter that was in the year-ago period. What were you guys able to replace that with? Obviously, the fashion and accessories business made up a good chunk of that.

Are there any kind of brands that you could point to or any of the brands you could point to that were able to help you guys really offset that delta? I am assuming that consumer electronics, that $16 million, was a lot of tablet revenue. Is that accurate -- from last year?

Yes, Mark, in fact, that was the primary driver of the consumer electronics business a year ago was a pretty small portfolio of tablet devices.

The distribution -- the offsetting influences were, as you mentioned, the fashion business and the beauty categories actually did well for us also within the period. Our watch business, even with a reduced emphasis of air time, had a nice increase in productivity, and, of course, that's a variable we pay attention to that to the extent that even if watches are getting a little bit less air time, to the extent that air time is more special and focused and well promoted, we hope to continue to drive productivity within that classification.

We had a lot of emphasis as well in the home areas, not so much for proprietary brands, however. Emphasis -- seasonally, we had a strong emphasis on tabletop. The linen business tends to be strong for us within the fourth quarter of the year. Deadliest Catch did occur in the fourth quarter, but continuing into this current year. So not a lot of proprietary brand emphasis in Q1. There were several. Deadliest Catch, we mentioned.

But even though -- if you look at some of our existing brands, like Madi Claire is a proprietary brand. Skinn Cosmetics is essentially a proprietary brand. Those categories -- those are brands that have been here for a while and they have shown real strength in the fourth quarter.

Look, do you think -- does anybody in our world want to be in a position in the fourth quarter where one product makes or breaks their quarter again? Definitely, definitely not, particularly in consumer electronics. It is the most challenging area to be in, and as we all know from this world, you can push your topline really, really hard and then you take a real hit on the margin in the process.

But Mark, you did the math. You take the consumer electronics number out there and you look at our growth without it, and it's a double-digit number. I think that's a good sign. It's not so much just about the proprietary brands, but these new proprietary brands are enabling just the beginning, right? They are enabling some of those brands like Skinn and Waterford to exhale a little bit, so that when they do come back on air, they have a more robust ability to grow rather than, oh, there they are again or there is some more watch shows again.

The more depth we have, then you're just not seeing them as often as normal. When you do that, I think you are able to take the proprietary brands that are existing for us -- they are still 25% of them, so we still have them. It's not like we have zero. It just enables more robust growth going forward.

Mark, I wanted to add a point to our discussion on the contribution margin flowthrough to EBITDA earlier, and that is that, as you are aware, we have substantial net operating loss carryforwards, and so that flowthrough to EBITDA to net income is -- has quite a very, very modest tax rate that gets applied to it because of the $300 million in federal NOLs that carry forward.

Right, $300 million, that's the number now? Great.

Yes.

I think the CE number -- if you were able to back that out, like you said it would have been really, really strong growth, so I think it's important that -- obviously, I'm glad you guys broke that out for us because you can see the magnitude of it. Congrats on a strong finish to the year and hopefully a strong 2015 as well. Thanks.

Mark Smith, Feltl.

First, can you talk about gross profit margin opportunity as we continue to see sales mix shift between different categories? Will we see any pressure on that in the near term on some new categories or is there opportunity to really expand that?

I don't think we look at it in terms of expanding the gross profit. I think the percentages that we are in right now, and again it fluctuates only somewhat based on our opportunities that we are launching into these new categories and these new areas, but I don't think that the effort will be behind higher gross margins than what we have traditionally been at. That's not really the goal.

The goal is really on -- at the risk of being redundant -- on the breadth and the depth piece of it. I think as you look at mix, particularly in home, there are some areas there that have really high margin and there are some areas they don't have as high margins. And so, it is just a matter of how we balance the mix, particularly going into third and fourth quarter.

The ingestible business is one that we are not in, as an example, is a really high gross margin business to be in, and it's also a repeat business that drives a lot of business without having to use your air time to do it.

But overall, I wouldn't say there is -- that there is gross margin opportunities that we look to. It's more in the breadth and the depth and the quality of those brands that deliver across the spectrum so that we are able to maintain the gross margin.

The ebb and flow, Mark, as you have cited, part of it is mix, and as our Mark indicated that it is going to be dynamic relative to the composition of the mix within a given quarter.

For us, the strong categories of merchandise margin tend to come in the classifications of fashion and beauty, which are strong for us. Jewelry also is a category that has above-average margins. Home products tend to be middle of the road, although within those you can have categories like food, and then, separately, ingestibles, which tend to be very high-margin classifications, and then consumer electronics tends to be the outlier, at least in terms of initial margins that are relatively low.

The other thing that impacts margins as well is the influence of shipping and handling activity within the quarter. Fourth quarter tends to be historically a promotional period for us, as with all retailers, and so the activity there in terms of shipping and handling promotions tends to be higher. However, we are always mindful that it is a competitive environment and that we look at that environment and decide how we respond accordingly.

Okay. Then can you guys give us a quick update on the distribution center where you are at now, and then maybe if you can quantify or talk a little bit more about long-term benefits from this investment?

Certainly, Mark. The size, we are roughly doubling the footprint of the distribution center, so we have -- it was about a 300,000-square-foot initial facility. We are expanding that to about 640,000 aggregate square feet.

We have completed the full footprint in the building, and we are in the process of racking out that facility and moving inventory which was previously stored at outside satellite locations under one roof.

The remaining work will involve material handling and sortation systems that will occur over the -- through the second quarter, basically, so the facility will be -- it's up and running now. Again, we are storing product and moving product out of there, as well as the upgrades that will occur with the physical sortation systems, warehouse management system, and material handling systems internally will be implemented probably by end of Q3.

So we will start to see the benefits of that, I believe, in the fourth quarter.

And in terms of the benefits, two tiers, really, of savings. One is the reduction in operating expenses. It will be a much more efficient operation than we have today, once we have assimilated the benefits of the physical infrastructure, as well as the Manhattan Associates and [intelegrated] material handling and warehouse management systems.

Then the second component is a more efficient outbound freight operation to our customers. We will be in a better position to combine packages and to either address that in terms of the cost of the customer or the margin benefits that may accrue to us in terms of reducing freight cost.

Those benefits, again, we expect to see those begin to manifest in Q4.

Then last question, you guys talked a little bit about it, but just any other insight on G&A outlook for this year? And if you can talk about share-based compensation and what you are planning on for this year?

Sure. G&A, Mark, I think in aggregate will be -- it will be a little bit higher than the range of guidance that I described. I say G&A meaning the G&A line on the P&L.

That's because we have certain service costs and costs that are associated with our IT systems that are more fee based than some of the historical stuff we have done internally.

And share-based compensation, I think, will be comparable to next year, about $3 million in aggregate, and I would expect to see that rateable over the quarter, so roughly $750,000 to $300,000 per quarter.

Or $800,000?

Yes, $750,000 to $800,000 per quarter, excuse me.

Excellent, thank you.

Greg McKinley, Dougherty.

Real quickly, what do you anticipate CapEx to be, and what is your total borrowing capacity and availability today? And then, lastly, what do you mean when you say adjustables?

I'm sorry. That would be ingestibles, Mark (multiple speakers)

Oh, ingestibles. Okay.

Yes, that's right. (laughter)

I couldn't figure out what you were talking about.

Adjustables are actually the elastic waistband on my pants. That's a separate topic.

The CapEx for the year I anticipate within the range of $12 million to $15 million. That's primarily IT-related cost.

The borrowing base for -- if we think of the credit facility as two components, one is a 25 -- or a $15 million term loan that we are financing the Bowling Green distribution center with and we're also financing $10 million -- we're using $10 million of our revolver to finance Bowling Green, so aggregate financing for Bowling Green is $25 million, of which $15 million is a term loan.

The borrowing base capacity, as we would talk about it, then, under an ABL, would be the underlying assets and the borrowing capacity that supports the remainder, which is -- we will describe that as a $75 million revolving facility, even though $10 million is used for Bowling Green. The borrowing base exceeds -- comfortably exceeds the $75 million, so that $75 million, which is the assets that collateralize that or support that under the ABL, are inventory and are Accounts Receivable, and there is advanced rates and other variables that net that down, but the net borrowing base is well in excess of the $75 million capacity of the revolving credit facility.

Okay, so in aggregate $100 million total?

No, I'm sorry. In aggregate, it is $75 million on the revolver plus $15 million on the term loan, so $90 million total.

Okay, thank you.

There are no further questions in queue. I will now turn the call back over to Mark Bozek, CEO, for closing remarks.

Thank you very much. I would like to thank everybody for being a part of this call.

I just in closing wanted to say that I think the enthusiasm that you hear, cautious and carefully charted, is very real. And it is something that we are as a Company very excited about it. It is a very fluid discussion to have right now. People pick up the phone and return our calls. They want to do business with us. That's very exciting for us.

I think that our efforts carefully charted over these -- this next year are going to begin to pay off in very robust kinds of ways. I think the notion of being all things digital is something that we are very excited about. In fact, I don't know if anybody noticed, but we announced on our press release this morning that we broadcast via Meerkat the live stream that took SXSW by storm over the weekend in Austin, and luckily it came back up this morning after Jimmy Fallon, when he posted it on Meerkat yesterday, shut it down.

I'm sure we didn't have quite as many hits as Jimmy Fallon did yesterday, but nonetheless we were there and we were broadcasting on Meerkat. I have no idea how it looked, but it is the notion of that -- without being flippant about it. It is those kind of things and those kind of conversations that give us real enthusiasm in this scrappy approach for us to be far more competitive than we have ever been.

We thank you for all your questions. Thank you for your support. We very much look forward to seeing you all of you here on May 28. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.