iMedia Brands Inc (IMBI) 2015 Q4 法說會逐字稿

Greetings and welcome to the EVINE Live fourth-quarter and 2015 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jason Iannazzo, Vice President of Investor Relations for EVINE Live. Thank you, you may begin.

Thank you, Melissa, and good morning. I'm joined today by Chairman and Interim CEO, Bob Rosenblatt, and CFO, Tim Peterman.

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, believe, estimate, expect, intend, predict, hope, should, plan, will or similar expressions. Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could cause actual results to vary materially from those expressed in any such statements. More detailed information about these risks and uncertainties and related cautionary statements are contained in EVINE Live's SEC filings.

Comments on today's call may also refer to adjusted EBITDA, which is a non-GAAP financial measure. For a reconciliation of this measure to our GAAP results and for an explanation of why we use it, please refer to today's news release available on our Investor Relations section of our website. I'd like to remind you that all information on this conference call is as of today, and the Company undertakes no obligation to update these statements.

Before I turn the call over Bob Rosenblatt, EVINE Live's Interim CEO and Chairman of the Board, I'd like to give a brief introduction. Bob has held the role of Chairman on EVINE Live's Board of Directors since 2014, and he brings over 30 years of operational and board governance experience leading a variety of successful omni-channel international retailers. This includes Group President and Chief Operating Officer at Tommy Hilfiger, President of HSN and CFO at Bloomingdale's.

In addition, Bob also holds or recently held positions on a number of boards, including Pep Boys, ID Elite, Newgistics, and Retail Next. Bob knows our business very well, and he has formed a tremendous relationship with our leadership team over the last 18 months. We are excited to have his leadership on a day-to-day basis, and are eager to move forward under his direction.

I'll now turn the call over to Bob.

Thanks, Jason, and good morning to everyone. Since this is my first earnings call since becoming Interim CEO, I'd like to give a brief status on where we are, as well as where we are going in terms of our search for a permanent CEO for EVINE Live.

First, I'm very energized to have the opportunity. So while the Board conducts its search for a permanent CEO with the help of Korn Ferry, I'd like everyone to know that I'm committed and I'm actively engaged with our senior team to identify ways to immediately expand on our successes and to address our opportunities.

I will remain CEO until we find the right candidate, and until I am comfortable that our business is delivering the shareholder value growth that we all expect. Furthermore, when that candidate does come aboard, it is my intention to continue to have an important hand in our continued success as an active member of the Board of Directors.

Our CFO, Tim Peterman, is going to walk through the financial results for the fourth quarter and full year in greater detail in a few minutes. But at a high level, I'd like to address our strategy on this first call.

This business model and its strategic opportunity remains as clear as it was in FY14 when the Company posted an adjusted EBITDA of $23 million. We will continue doing the things that drive profitability, such as broadening the merchandise mix, introducing new and exciting brands and products, expanding our network distribution where it makes sense and nurturing a culture that is exciting, alive and nimble. However, we need to improve our disciplines around offering the most popular and profitable merchandising mix that our customers prefer, with the surgical planning of gross profit and our cost structure.

We plan to scale this business profitably by utilizing new technologies in all disciplines, especially in mobile and logistics as well as capitalizing on our expertise on video based e-commerce. This most of importantly depends on the dedicated and hard-working folks here that reside at EVINE Live.

I've been asked several times regarding whether we're going to change strategy away from the new and proprietary and exclusive brand strategy in 2015. My response is that the idea of introducing new proprietary and exclusive brands is not new, and will continue to remain important to us. However, this idea can only be one piece of a comprehensive strategy that's required to create profitable results and continue to build shareholder value.

Our work in 2016 will be centered on building a cohesive strategy that provides more clarity around how our merchandising, marketing, mobile and customer growths are integrated into a unified agenda that, along with our operational support functions like customer solutions, fulfillment and television distribution, can compliment with their own individual efforts. Our end goal is to deliver stronger profitability this year, and to have that stronger profitability continue into the future.

Now let's talk little bit about fourth-quarter results. As we look at our 5% growth in sales during the quarter, I'd like to begin with highlighting the positive news in digital sales, which grew 360 basis points to approximately 49.7% of total sales which was fueled by a continued strong migration of customers transacting via their mobile devices.

Mobile sales continue to make up a large percentage of our digital sales. We saw a 180 basis point increase in mobile conversion in the fourth quarter versus prior year, and sales as a percent of total digital sales grew more than 1,000 basis points. Yes, 1,000 basis points from 34% to 45%.

This is important, and as we look at ways to expand our offerings online and on all devices. Further, online and mobile transactions are more profitable, as they don't require order capture agency to process sales transactions.

From a category-by-category perspective, I would like to begin with the Beauty business, which was exceptionally strong for us during the fourth quarter. Not only did we increase air time during the quarter, but the Beauty business category also generated higher dollars per minute, which is a strong productivity measure for revenue. More importantly, this category continues to deliver strong margins for the Company, and decreased gross margins for the fourth quarter year over year.

Beekman 1802 and Consult Beaute continued their solid performances as strong emerging brands, and are now solidly among the top 25 brands offered by EVINE. And the recently launched brand, 100% Pure, has also shown good traction.

And although we are pleased with these emerging brands, our established brands really drove the overall performance in the Beauty category. We're excited for how this category is positioned, and are looking forward to how it does the next few quarters and going forward.

Our Fashion & Accessories business continued to perform well in the quarter, with 3% growth over last year, bolstered by our Fashion Day events. Karen Fairchild of Little Big Town came back in November for a second visit, and had a very successful showing, selling out multiple items.

We had one brand launched during the quarter, Sword & Plow, a socially conscious tote and handbag manufacturer. Although the soft winter weather negatively impacted sales of boots and winter accessories, the Fashion & Accessories category remains well positioned going forward.

As for our Jewelry & Watches category, EVINE Live continues to be the destination for watches. This category truly differentiates us from our competition. While the Invicta brand continues to be the powerhouse of the category, we continue to see success with other well-known brands.

However, during the quarter, we continued shifts in air time that negatively impacted our watch sales. We will look to a better balance for air time allocations as we believe the watch category still presents a significant opportunity for us in both sales and productivity.

On the Jewelry side, we made a deliberate decision to reduce air time, which boosted productivity for the category. Sales were down versus the fourth quarter of prior years, but I'm happy to report that the Jewelry area continues to be one of our customer's favorite categories.

We remain excited about our growth here as our customers continue to be very engaged and look to EVINE Live for a quote, better jewelry experience. We continue listening to our customers, and will stay focused on what they want and the new trends that come out as they emerge.

Within the categories, we experienced particularly strong sales in the following areas. Gems en Vogue had sales of over 11%, luxury diamond designer brands in general were over 104%. Our gemstone designer brands were up 2%, and our sterling silver sales were up 20%. This variety and mix of concept shows, theme shows and stone shows is essential to improving the success of this category which we believe is highly differentiated from the competition in regards to quality, value and average selling price.

As for our Home & Consumer Electronics category, our fourth-quarter narrative was really censored around the sales velocity of our Consumer Electronics business as result of hoverboard sales. Another example of how our Company can be nimble and can be opportunistic.

Consumer Electronics grew 35% in the fourth quarter versus prior year. We made the necessary adjustments with our air time schedule to accommodate the growing demand in the Consumer Electronics space, and as result, Home air time and sales were reduced.

We are mindful of the continued situation regarding the hoverboard products, and will continue to monitor the situation as our customer's safety is always a prime concern of ours. However, as you know, hoverboards only represents one of more than tens of thousands of products that we offer at EVINE Live, and as retailer, these occasional issues are not unexpected.

Our long-term success is dependent upon our ability to expand our customer base. Customer growth on a rolling 12-month basis was down 1%. Along with improving our margins, reversing this particular trend is a top priority.

Attracting customers is a multifaceted effort. We will continue to leverage opportunities such as bringing on notable brand personalities with large social media followings, while delivering the right merchandise and a strong customer experience as well. In addition, we will make the right investments in the marketing areas and in customer acquisition, or in some cases, better utilize the assets that we already own to improve our marketing efforts.

We are seeing strong new name generation for many of our newly launched brands with a strong followings, including Nancy O'Dell, Karen Fairchild, the Dubrow's from Consult Beaute, the Beekman boys from Beekman 1802, Paula Deen and Todd English. We will continue to capitalize on the success of these new brands, while identifying or developing additional new brands that will drive the same or better results.

In addition, we are aware of the importance of utilizing marketing as an important component in our strategy, and these are some of the things that we plan on intending on focusing on. We will become more aggressive with our CRM campaigns and strategies, we will develop more enterprising customer acquisition marketing strategies and campaigns. We're going to find opportunities to maximize customer retention and file growth with our programming and product mix, and expand our overall brand awareness campaigns.

Looking forward, we have an intense focus on our merchandising strategy, customer growth strategy, cost structure and our balance sheet to ensure that we not only make the proper investments in our business to continue to grow and build our brands, but that we are also able to thoughtfully harvest those investments. Based on what I've seen over the past eight weeks, it is clear that we are on the right path and I want to share number of real examples with you regarding our progress so far.

We created a profit improvement committee that is focused on developing and driving large-scale cross-functional profit-generating initiatives. One of our highest priorities is examining the overall mix of our business, and ensuring that it is optimal for delivering the best revenues and customer growth, and most importantly, continued profit growth. This profit improvement committee is not something that we're doing just now and there will be an end to it. It will be continuous process to ensure that we make sure that we maximize our profit at the revenue, gross margin and profit lines on a regular basis.

We recruited a high-level leader with tremendous experience to join the EVINE Live team. Nicole Ostoya is already serving as our Chief Marketing Officer and Head of Broadcasting, and will be instrumental in developing and implementing strategies to drive customer and brand growth.

Nicole has been on both sides of the retail table. She has a solid retail base of 18.5 years with Nordstrom's, where she held buying positions and merchandising positions, as well as holding positions as store manager for several of the larger Nordstrom's stores.

She then went to work at LBMH as a Director of Business Development managing Benefit Cosmetics, where she was introduced to TV shopping before bringing that brand to -- the Benefit brand into QVC. Since then, she has run a public company and launched several companies as an entrepreneur including Beauty Brands, The New Black, and Kissing Elixirs.

In addition, we've enacted a reduction in operating expense, which included a reduction in force that equates to a $5 million decrease in corporate overhead and related costs on an annualized basis. It is always difficult to make this decision to reduce one's headcount, but it was necessary in order to be able to get to a point of sustained profitability.

We will work more efficiently with the less overhead so we can operate within the financial borders of today's business model, not next year's. Finally, two last examples include our recent debt closing of a new $17 million term loan with GACP, and our Boston station's participation in the FCC auction.

On the debt side, PNC remains our primary banking partner. With GACP as a solid, complementing capital partner and this transaction helps provide incremental strength to our balance sheet, and ensures that we have the flexibility to drive sustainable profitability in the future.

On the auction side, it's our decision to have our Boston station, WWDP, participate in the upcoming FCC auction. The details on the timing and eventual outcome of this process are still to be determined, and the team is organized to be opportunistic based on the potential outcomes.

Before I hand this over to Tim, I want to emphasize on what I know is one of our key competitive advantages, which is our expertise in selling goods and services to consumers through the video medium, especially through the live video medium. We have been in the business of live digital video commerce for decades, and we understand how to use all the tools associated with that to maximize our success.

While offering authentic proprietary and exclusive brands remains and important part of our strategy, we have more work to do to maximize our performance and fully capitalize on the omni-channel opportunities as the ways that people choose to transact business continue to evolve. Together, with the initiatives to drive growth and target new markets, we are closely reviewing our merchandise mix to better align offerings with customer demand and a dynamic shopping landscape. Ultimately, our goal remains to deliver profitable growth while leveraging our dynamic multi-channel distribution platform to provide our customers with an engaged, seamless shopping experience.

I will now hand the call over to our CFO, Tim Peterman, to walk through our 2015 fourth-quarter results in more detail. Tim?

Thanks, Bob. Good morning, everyone, and thank you for joining us today. I would like to discuss several financial results and operational initiatives that are key to our short-term and our long-term success of the business.

Consolidated net sales for the fourth quarter were $212 million compared to $201 million for the fourth quarter of last year, which represents a 5.1% increase year over year. Our return rate improved 100 basis points year over year in the fourth quarter, from 19.9% to 18.9%, matching the strong momentum on returns we achieved last quarter. Lower return rates were primarily the result of improved quality of merchandise and operational process.

Gross profit dollars increased 1.3% to $66.4 million during the fourth quarter. However, gross profit as a percentage of sales decreased 120 basis points to 31.4%. Primarily related to the following: 60 basis points was attributable to reduced margins from the mixing out of higher-margin Jewelry & Watches and into lower margin Consumer Electronics, partially offset by a positive mix in the Beauty; 40 basis was attributable to increased distribution depreciation due to the coming online of the technology and building upgrades to our Bowling Green facility.

On a positive note regarding gross profit margin, all of our categories outside of Home and Consumer Electronics had an improved gross profit rate in the fourth quarter year over year. In addition, shipping and handling margin was also positive in the fourth quarter, as we implemented a more disciplined shipping and handling balance. We believe this pricing discipline, coupled with more measured promotions and lower negotiated shipping costs with vendors, are key for maintaining our gross profit margins.

In terms of other Q4 takeaways, coming off a 3% reduction in average selling price year over year in the third quarter, our average selling price in the fourth quarter was $66, a 5% increase year over year. Fourth-quarter operating expenses totaled $65 million compared to $62 million last year, which is a 5% increase over the prior year.

$1.2 million of the increase was driven by an expansion of network distribution in the fourth quarter. The additional network distribution included: the Verizon FIoS HD expansion, the launch of EVINE Too, our delayed feed second channel in the West Coast and Texas markets and a part-time carriage test with Time Warner in the New York market. Operating expenses were also affected by an increase of $1 million in online selling and search fees, and an additional $0.8 million increase in variable costs, which all in, resulted in variable cost as a percentage of sales increasing 10 basis points to 8.7% versus 8.6% last year.

As Bob mentioned, we've already begun to make the hard and smart decisions early in 2016 regarding ways to simplify our organization to drive quality decision making faster, and to build sustainable shareholder value on an ongoing basis. Last week, we enacted a reduction in workforce and other related costs that will result in approximately $5 million in annualized expense savings. We will continue to look for more ways to make our business more efficient.

I'm pleased to report our continued progress on our implementation of our new warehouse management system in our fulfillment center in Bowling Green, Kentucky. Several product categories went live in the new system in Q4, and we expect to transition the remaining categories to the new system during Q1 and Q2 of this year.

This completed rollout of the new WMS is expected to result in improved labor productivity and shipping efficiencies that will result in variable rate declines in the back half of 2016. This new WMS system and related processes will also improve the speed and accuracy of our shipments to our customers, and therefore, improve the overall customer experience here at EVINE Live.

As for the balance sheet, we ended the quarter with cash and restricted cash of $12.3 million, compared to $12.6 million at the end of the third quarter. Net use of cash and restricted cash in the fourth quarter was $0.3 million, primarily driven by adjusted EBITDA of $4.9 million, net working capital investments of $4.4 million, and capital expenditures of $4.1 million, of which $1.6 million related to the equipment installation in the new Bowling Green fulfillment facility and this was offset by revolving credit line advances of $4.9 million. Along with our cash of $12 million, the Company ended the year with about $30 million in additional availability on the PNC credit line which gave us a total liquidity position of about $42 million.

As Bob mentioned, in March of this year, we announced that the Company secured a $17 million five-year term loan with GACP Finance Company. We expect to use these borrowings for general corporate purposes, as well as to strengthen the overall liquidity position of our Company.

Our primary focus in 2016 is to improve our execution on the fundamentals of this business, both from a profitability perspective as well as a balance sheet perspective. This incremental liquidity is part of an integrated plan to ensure we have the flexibility to be opportunistic with our business operations in order to improve profitability and value for all our stakeholders.

Our inventory for the quarter finished at $66 million, which is a 7% increase from this time last year. As a comparable, third-quarter inventory growth was 10% year over year, and fourth quarter of last year was 20% inventory growth year over year. So in short, our new product lifecycle programs are working. The overall quality of this inventory is good and as a result, we should be able to carefully manage inventory growth in the coming quarters.

A key focus to our customer growth strategy is improving our television network distribution. We continue to maintain that it is not just the number of homes that we broadcast in that will drive sales, but we also believe it is the number and quality of channels in those homes.

I'm pleased to report that our Verizon HD launch in Q4 is exceeding our internal performance expectations, and that our launch of EVINE Too in the fourth quarter in the West Coast markets is right on plan in terms of performance. We will continue to seek smart accretive distribution deals with our providers opportunistically as we continue to rank this area as one of our biggest strategic and financial opportunities.

Moving onto our financial outlook for 2016, let me start by saying, we acknowledge that we did not deliver the performance we had hoped for in 2015. As we continue to own our merchandising strategy and take advantage of the cost actions and improve balance sheet, we do expect to see strong improvement in both our operational and financial results this year.

We anticipate delivering top line revenue growth similar to 2015 revenue growth, improved gross margin, particularly in a second half the fiscal year. Improved operating expense as a percent of total sales, and strong adjusted EBITDA growth from our 2015 adjusted EBITDA base.

We are focusing on adjusted EBITDA as the main metric to showcase an improving story, and the entire team is laser focused on driving towards sustainable profitability. We don't believe that the ongoing sustainable profitability is a one-year fix, but we do expect to deliver significant improved results in 2016 and to continue to improve in 2017 and beyond.

With that, let me turn it over to the operator, and we will be happy to answer your questions.

(Operator Instructions)

Tom Forte, Brean Capital.

Good morning, thanks for taking my questions. How should we think about the role of Jewelry & Watches in the long-term mix of products?

And then to the extent that you are working on building new brands outside of those two categories, how should we think about your patience on time to ramp those brands? And then if successful the Spectrum auction for the Boston TV station, what would be the most likely use of the proceeds? Thank you.

Hey, Tom, thank you. Thanks for the question. It is Bob.

The way we think of all the categories, including Jewelry & Watches, is that every one of the different categories have different attributes that are associated with them, as you know. All that leads down to trying to figure out the best way to mix the merchandise to get to the best contribution margin that we could possibly get.

So, Jewelry & Watches continues to be an important part of our business, but it is not the only part of our business. But what's important is looking at all different categories to figure out what has the same or similar attributes as Jewelry & Watches, especially as we balance that component versus bringing on what I'm going to call valuable new names.

So to me, this is all about trying to drive a continuous profitable mix of business. And in doing so, Jewelry & Watches certainly has a lot of the different attributes that are developed that make sense for that. But at the same time, so do a lot of other of the categories and some categories that we have not even started to get into yet.

So I know that usually people look at this business in terms of the breakdown of merchandise mix, Tom. But the reality is that when you get down to the brand level, we want to look at all the different components of what makes long-term sustainable profitability and customer growth and drives the customer value proposition and continue to move forward.

So we are excited about Jewelry & Watches. But I think from an approach standpoint, I tend to look at the business more in terms of what does our customer want in every category and how do we provide the best experience for them. We plan on being able to continue to bring in vendors that are quality vendors that could provide, based on the customers that we have, and at the same time we hope to be able to bring customers who look like the customers that we have currently to be able to drive more of them to our network.

As you know, our customer base, although strong and we love our customers, still has an opportunity for a lot of growth. And one of the major things that we need to do is be able to focus on how to be able to grow that customer base.

So whether that be in Jewelry & Watches or whether that be in home furnishings or Beauty, whatever the category is, I think we need to look at it on a basis of what does the customer react to, how do we maximize how to do the on-air experience and the online experience as an adaptive to it. And be able to have a multi-platform experience that maximizes the growth on that. I'm going to let Tim answer the question -- the other question that you had asked.

Hello, Tom. Regarding the FCC auction, certainly the proceeds would go to our balance sheet and we would figure out what the best ROI for that is. But as you can appreciate, depending on the proceeds, we would strengthen our balance sheet with those funds.

Great, thank you very much.

No problem.

Alex Fuhrman, Craig-Hallum Capital Group.

Great, thanks for taking my question. Was hoping you could give us a little bit more of a sense of as you think about your revenue guidance for the year, how you see that playing out over the course of the four quarters of 2016?

Then just broadly speaking and thinking about the pulling of air time from Watches in 2015, can you frame up for us how much revenue was left on the table by taking air time out of those watch categories, particularly the Invicta watch? And as you think about revenue growth for 2016, what is the opportunity just to get that low hanging fruit by putting some air time back into the Invicta watch category?

Yes, when it comes to the whole science of the medium that we are in, when we look at the sales components of it. The way that I think about this is looking at, I know that historically, people have looked at this business in terms of looking revenue per minute, dollars per minute. But I would suggest to you one of the things that was very successful for me when I was President at HSN was to look at gross margin per minute and to look at contribution margin per minute.

And I think when you start looking at it that way and you add in the extra secret sauce of what the lifetime value of the customer is, you find out that it is a lot more helpful to focus the entire Company's direction on how to be able to drive the sales as long as it is profitable sales, unless you have a good reason not to drive it that way.

So for example, if we want to be able to have good names, I would posit that bringing on the Swagway was probably good and opportunistic idea, as I said last year in the fourth quarter. However, a lot of those Swagway customers may not come back again.

So I would suggest you that it might make more sense that when we look at this Company from a statistical standpoint, if you will, but also an opportunistic standpoint, the merchants, and this comes a lot from my experience when I was at Bloomingdale's for 14 years and Hilfiger, the part of it that's the most important to me is being able to enable the entire Corporation, especially the merchandising organization, to understand how to be entrepreneurs of their own business, and what components it takes to be able to drive revenue, gross margin profitability, and ultimately contribution profitability and lifetime value of the customer to everybody.

So we expect to have the same kind of sales growth as we had last year, as Tim had said. But I think what we are going to do is you will see that Invicta watches, although an important part of our business, needs to be measured appropriately.

And we also don't want to give too much time, because then obviously the dollars per minute or the gross margin dollars per minute will slow down because we want to be able to make sure that we give the appropriate time to that. So we will be looking towards how to use both the on air time as well as the online time to be able to look at our customer base. And as you well know, we have all the customer information of the customers are for all of those things, and figure out new and unusual ways to be able to actually speak to the customers by maximizing air time.

So the way that I like to think about air time for us is very similar to shelf space in a retail store. We want to be able to use it.

But at the same time, there are so many other products that are out there and the opportunities that are out there that although we want to make sure that we maximize Invicta, and we love Invicta, and we just had an incredibly great remote with them from Miami that did incredibly well and we love our Invicta customer, we feel there's opportunities to be able to broaden that piece of it. And we're going to be focused on broadening our customer mix and exploiting that piece of it going forward. And I think Tim wants to join in on a couple of comments.

Alex, to your question on the 2016 outlook in terms of revenue expectation. Certainly, I think from an expectation perspective, you could think about the second, third and fourth quarter as what we mean by that type of similar revenue growth.

Obviously, Q1 last year was flat to slightly down, that's not something that we expect. We expect the revenue growth more in the second, third and fourth quarter. Those type of growth rates every quarter is the point we are trying to make.

Great, that's very helpful. Thank you very much.

Thank you.

Mark Smith, Feltl & Company.

Morning, guys. First off, can you guys walk us through the total homes decline, why we are seeing those go down?

In what sense, Mark? I'm not sure that I'm following your question, if you could -- this is Tim by the way, how are you?

Doing well. Just looking at average homes in the quarter on a sequential basis, as well as on a year-over-year basis declining. I think that's the first time that we've seen that happen on a year-over-year basis.

The launch of the -- what you will see with the launch of our Q4 distribution, I think you will see that the growth is going to be consistent in the CPI range. I think what we're seeing right now is just the leveling out. I don't expect any material distribution decline. With the Q4 launches that we have, you will see a steady growth in that.

Remember that as we talked about before, it is not just the total number of homes you are in, it is the number of channels you are in the home. And what we are focused on in 2016 is improving the quality and the channels in the homes that we know are already initiated to the TV retailing experience.

Okay. Second, as you bring up distribution, what can you give us as far as maybe insight into distribution costs per home that's been creeping up every quarter? Do you expect that as you focus on this quality to continue moving maybe into the higher teens, $1.17, $1.18, or do we flatten out here at some point?

No, I don't expect them to increase. We expect them to be relatively flat at most in 2016.

Okay. And then, last question just looking at the balance sheet. If you can give us where the debt balance is today, and maybe talk about why add this new facility with higher costs if you've got still just about $30 million from PNC and you've made these cuts to operating expenses, why add this new debt base?

We think of it as a couple different ways. As a $700 million business growing the way we are, we feel good about the liquidity that we were in at the end of third quarter. And in the fourth quarter, our inventory finished probably a couple million higher than we wanted, although 7% was a very big improvement from prior performance, we were expecting slightly better.

We were opportunistic with our Swagway revenue opportunity, and so we finished with a little bit higher inventory. So we just want to make sure we have plenty of liquidity and plenty of room to be as opportunistic as possible in 2016. Flexibility is the key, we believe, and we think this affords us more flexibility.

Mark, it is Bob. Thanks for the question.

As far as I'm concerned, I come from a finance background although I certainly grew up in a more opportunistic retail world. And for me, since we have a business that as Tim mentioned is a $700 million revenue business, it is a lot more comfortable to be able to be safe than sorry when it comes to retail in general. So this is just, I think for me at least, it was something to give me a little bit of a level of comfort to be able to manage the business with a little more flexibility and be more opportunistic.

Mark, to your question, this is Tim again, to your question about total debt. With the term note and the revolver, we're at $72 million, $73 million rounding up to $73 million.

Today or at the end of the quarter?

At the end of the quarter.

Can you give us a balance today? Has it changed materially?

Well, obviously with the term note, it would move up by that amount.

Okay, but no other a change in the PNC piece?

No. Obviously, the term note is amortized down. We pay on that on a quarterly basis, but not in a material fashion.

Great. Thank you.

No problem, thank you.

Mark Argento, Lake Street Capital Markets.

Good morning, guys. A couple of questions, one, can you maybe talk a little bit about where you were able to find the ability to take $5 million worth of costs out? What areas were you able to or where did you reduce headcount? Was that at headquarters or was that more on the distribution side?

Then just a quick question follow-up on the FCC. Maybe you could walk through your understanding in terms of timeline in terms of the process there?

Sure. Let me take -- I'll take the question on the headcount, and then I'll let Tim take the FCC component of it.

We took out about 45 full-time positions in total. They were pretty much well distributed in all areas of the Company. We did a bit of reorganizing so that we made sure that nothing would be missed, if you will.

We stayed away for the most part from the front of the house experience because we don't want to mess, if you will, with anything on the front of the house. Because we want to make sure that we actually build on that experience, as opposed to reduce on that experience.

So it is mostly was an matter of being able to be more efficient and more effective in terms of streamlining the organization, and most of the positions were in Corporate that we took the positions out of. And they ranged in high-level positions all the way down, since it was 45 positions, they were all the way down to staff positions. But it was done in a surgical manner, and of course some of the people that remained ended up having additional responsibilities.

But because we were able to do this in a smart, strategic way, so far, there doesn't seem to be any impact in terms of anything that should be at risk for the business. If anything, we think we are giving the opportunity to some people that have been here for a long time and haven't had the opportunity to really shine, to be able to step up to the plate. I hope that answers your question.

That's helpful, thank you.

No worries. I will let Tim talked about the FCC piece of it.

Hello, Mark. Regarding the FCC process, let's just talk about what's going on. The FCC right now over the next month or so is going to be working with all the stations across the country to understand which stations will be willing to relocate or to relinquish their spectrum all together. And that process will then yield a smaller group for the FCC to begin its auction process in the coming months.

We've already stated and publicly stated that we are opportunistic here, and we are participating in this auction and we are just as interested as all the stations in understanding how this bears out. The FCC is actually moving along at a surprisingly efficient manner right now. So we are optimistic that the timeline that they presented over the last 90 days, being that this first step takes place over the next 30 days, and then following that process are several months of process that will determine ultimately how the stations are valued.

And then once that value is established and the FCC is clear on who's going to participate in which fashion, then they work with the bidders, and then after that the bidders are confirmed, then there's the process of payment. But again, it's still early days. It still exists only within the four corners of a PowerPoint presentation, and we are eager to see how it plays out.

Great, thanks, guys. Appreciate it.

No problem.

(Operator Instructions)

Beth Lilly, GAMCO Investors.

Good morning. I have several questions. One is, can you just talk a little bit more about the FCC auction? And you talked about the timeline, but do you have any sense of price or just give us any kind of financial implications or financial results for you guys?

Hello, Beth, this is Tim. We can't disclose any of that information. But it is an ongoing process, and we are just as eager to understand all those economics as I'm sure that our investors and all stakeholders are.

So the process is, is that you have elected put your station up for auction and then the FCC then -- just help us understand the price that you might eventually receive for it.

We can't really disclose any of that, Beth, because we don't have any real information. But the point of what I was explaining to Mark was is that there's a series of gaiting processes that the FCC is organizing on a country-wide basis. And that first gaiting process is going to occur over the next 30 days in which the FCC determined based on how we respond whether we would give up our entire spectrum and get off the air or if we would move to a different station and a channel sharing agreement.

That's the first gaiting process, that's the most visible action that we have in terms of a time and action calendar. From there, it gets vaguer and vaguer and vaguer.

Okay. And let's suppose then that you end up selling the station. What's the cost then in terms of you -- is there a big cost then for you to put your station -- to put EVINE Live on the Boston market on another station?

No. We feel very comfortable that not only is it not cost prohibitive, but it's also strategically available. So it is not a question of being begun, and it is not a question that it would burden our business model to replace that carriage. We feel good about that alternative for replacement carriage.

Okay. And then just one other question about that. So you will have a sense in the next 90 days then about what potentially you will receive for WWDP?

Beth, no, I'm sorry, I can't commit to any timeline, I'm sorry. We are participating along as the FCC leads us through this process, and that's all we can really hope to achieve.

Unfortunately, hello, Beth, it is Bob. Unfortunately, this is something that's once we entered the auction process, it's out of our control. So we are one of many that are involved in the process.

And as Tim said, we are as anxious as our investors are to find out more about how quickly it could happen. But because it is based on FCC moving the process forward, it is frankly it is impossible to be able to anticipate how quickly they can get it done.

Okay. A couple other questions. So you have $70 million in debt on your balance sheet at the end of the quarter, then you talked about this additional $12 million term loan. So would that bring your total debt level to $82 million?

No, it is $72 million which was the -- and then the additional term loan is $17 million. So it would bring it closer to $88 million -- so you're looking at $90 million. That would be with the addition of the -- at year end it was $72 million, that's what I was quoting.

Yes, got it. Okay. And then, Bob, this is a question for you.

So as you -- it is interesting and we've been around EVINE Live for a long time. So you've been through a management team, the Company has been through a management team from QVC that tried to turn it around, and then we had a team from HSN. And so as the Company looks at the next level of leadership, can you describe to us qualities in a CEO that you think are important to lead the Company forward?

Yes, that's a great question. I think first of all, I think there are certain attributes to running this business that are really important. And I think that we've whip sawed ourselves over the last few years based on that, and so I think that's what's reflective in the results over the last let's say seven years or so.

And I think they had -- that the different management teams and the Boards had a very specific point of view. In terms of what needed to be done without really understanding the nuances of being able to build a good culture that focuses on a team effort to be able to drive -- and a culture of transparency to make sure that everybody understood when you move any of the levers what impact that has on the business.

It is a very -- in my years as President of HSN, I learned it was very scientific business that really is a mix of art and science to be able to figure out the best result. And to trust that you have a management team in place that understand the core competencies in each of their areas, and also understand all the different parts of the business to be able to drive the best profitability. In other words, what is the definition of success for each area, and what is the holistic definition for the Company?

I think what's happened here is that -- and it just seems like it is been a clash of whip sawing, as I said, and moving of the pendulum that people have not taken the time and effort to utilize the science. Both on the Board level and on the management level to actually say okay, let's look at this from a contribution margin level in terms of being able to see how we can use a team to be able to drive that.

I think that there was not the kind of discipline, if you will, in the last group that was here in terms of driving business. And I would almost say that the past group before that were overly disciplined in looking at it as a pure financial component of it as opposed to what I think most retailers are good at. And again, I will go back to my years in Bloomingdale's and my years at Tommy Hilfiger in the sense that you really need to be able to focus on being able to look at how to be entrepreneurial and to be able to lead and respond to customers reactions.

So when I think about the next leader, I think it is somebody who really needs to understand what the levers of the businesses is, how to continue to build the culture out to be appropriate, how to put the disciplines in place to be measurable, and give everybody the tools they need to be able to succeed.

And frankly, to be able to celebrate the victories that are here, and to do things in a way that actually on measured. But at the same time, when I was at HSN, I think when I first started there, I think we were at about $1.2 billion. And we were able to move up to a about $1.8 billion, and the EBITDA, the cash flow went somewhere from the low double-digits to somewhere around $200 million, $300 million cash flow.

So when you get -- this is a the business of scale and when you get the business right, the money really flows down. So I think the leader -- I would like to see that the leader would be able to be someone who is a student of the science of the business. But at the same time, understands the challenges and the opportunities of being able to look at the world that's going to buy through the screen and whether that screen be TV or whether that screen be on your iPhone or whether it be on your iPad or wherever it is, this is someone who has to be able to understand how to use the metrics that are in the e-commerce models and I was the Interim President of ideally.com for a while before we sold to Groupon.

You really need to be able to take the base model, and then you need to be able to apply the e-commerce components of it that are successful today and all the great e-commerce companies of being able to use predictive analytics to do that. I think the combination of that would be someone that I think would be a great leader for the next generation of EVINE Live 2.0. And I think it is one that makes a lot of sense.

And again, I've seen the success of this before, so it is really exciting to able to find the person. But that being said, I feel very comfortable that we have a team in place already that will be able to deliver successfully on the results. And I'm not going to go anywhere until I make sure that we are totally in a place that makes sense. Then I will hopefully be able to tutor whoever it is that comes in to be able to ensure that person will be able to take the mantle from me.

And exploiting the whole live video commerce medium, which everybody the world including Amazon now is getting behind. The fact that we have for the last 30 years frankly been figuring out how to exploit all the KPIs that make sense on this, we figure we're going to be able to maximize that as well. Does that answer your question?

It does, maybe you can recruit Mindy to come and take over the turnaround.

I don't know if Mindy wants to do that. She seems to be pretty happy in what she's doing. She's done a great job over there. I'm a big fan of Mindy's. But if Mindy would like to do that, I would be happy -- Mindy and I have often in the past talked about partnering with each other. Because we actually felt that if the two of us were able to partner together it would be really great team in terms of being able to essentially do world domination. But I'm not sure that's in the cards, but I would be happy to talk with her about it.

Okay. One last question. You named a new Chief Merchandising Officer. Is that correct, did I hear that?

No. What we have done is during the rift, is we had a woman named Penny Burnett was responsible for merchandising and for planning and programming. And we eliminated that position as part of the rift, so right now the DMMs are reporting to me at this point in time.

Okay. But you mentioned a woman named Nicole?

I'm sorry. Nicole Ostoya, who worked at Nordstrom's has become the Chief Marketing Officer, not the merchandising, I'm sorry. So Nicole is responsible for broadcasting. She's responsible for the marketing function and e-commerce. So we didn't have here a real Chief Marketing Officer at any time.

And I think part of the reason that we weren't as successful last year as we could have been is because to me one of the legs of the stool were missing. In the sense that we did not have somebody who was able -- we had a lot of great new brands, but we were not able to be able to tell our story and get more customers that look like our customers to come over.

So one Nicole's biggest charges and since she's a merchant in her DNA is to work with the merchandising organization and with the brands to be able to make that alive. And to bring the marketing sense alive with us so that we can get more customers, because as I said, we had about a 1% decrease in our customer base this year and that was to me it a disappointing statistic.

What is Nicole's background? Where did she come from?

Nicole, I think I mentioned it earlier, Nicole was at Nordstrom's for about 16.5 years in merchandising positions, both in the central buying organization as well in the store organization. Then she went on to LBMH and she worked with the Benefit brand over there, and actually brought the product to QVC. So Nicole has been on air on both QVC and HSN I think, and has developed products for HSN and QVC and then she's gone on to be a public CEO.

Interesting. Okay, great. Thank you for answering all my questions. I really appreciate it.

No worries at all, I appreciate it. Thanks.

Thank you. There are no further questions at this time. I'd like to turn the floor back to management for final remarks.

I want to thank everybody for the time and attention given here. As I think we are trying to react to what happened last year, we want to ensure that there is transparency in everything that's being done here. And we understand as a group that we have to focus on being able to make sure that the commitments that we make are ones that we believe in, and that we're going to be able to show you through results the fact that we are doing what we are doing.

Because I think that's one of the critical elements is trust as we go forward. And I think what you can ensure is that we will be able to provide that trust to you, and we have to earn it, and we'll earn it over the next few quarters and forever. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.