iMedia Brands Inc (IMBI) 2020 Q4 法說會逐字稿

Greetings, and welcome to the iMedia Brands, Inc. Fourth Quarter and Full Year 2020 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce Monty Wegman, Corporate Controller. Thank you. You may begin.

Good morning, everyone, and thank you for joining. We issued our Q4 earnings release earlier this morning. If you do not have a copy, you may access it through the News section of our IR website at imediabrands.com. This release is also an exhibit to the Form 8-K filed this morning.

I would also like to remind everyone this call will be available for replay through April 6, 2021, starting today at 11:30 a.m. Eastern Time. A webcast replay will also be available via the link provided in today's press release as well as on the IR section of our website.

Some of the statements made during this call are considered forward-looking and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today's date. We undertake no obligation to update or revise these forward-looking statements for any reason. We believe the expectations reflected in our forward-looking statements are reasonable but give no assurance such expectations or any of our forward-looking statements will prove to be correct. For additional information, please refer to the safe harbor statement in today's earnings release and our SEC filings.

Finally, we will make references to non-GAAP measures on this call, such as adjusted EBITDA and free cash flow. The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures are included within our earnings release.

Now I will turn the call over to iMedia Brands CEO, Tim Peterman. Tim?

Thank you, Monty. I would like to begin this morning reiterating that iMedia Brands continues to be focused on taking every step it can during these uncertain times to keep its employees, vendors, customers, guests and their families safe.

Q4 2020 was another strong report card for us. Q4 net revenue was $125 million, an increase of 1% compared to the same prior year period.

Q4 adjusted EBITDA was $8.4 million, a $17.5 million improvement compared to the same prior year period. And Q4 new customers grew by 12%, the highest growth rate for this metric in 7 years.

Regarding our Q4 balance sheet, cash was $15.5 million, a $5.2 million improvement from the same prior year period. As a reminder, the company's debt structure today is composed of a credit facility that provides a $75 million line of credit, subject to a borrowing base, and a term loan that matures in July 2023. As of the end of Q4 2020, the company had $41 million outstanding on its line of credit, which was a 24% decrease or $13 million compared to the same prior year period.

In addition, the company had $12.4 million outstanding on its term loan at the end of Q4, which was an 18% decrease or $2.7 million compared to the same prior year period. Our Q4 inventory balance was $69 million, a 13% decrease compared to the same prior year period.

Regarding capital expenditures, during the quarter, we spent approximately $1.2 million on capital projects, reflecting primarily the investments and upgrades to our website and infrastructure.

Regarding our Q4 expenses, operating expenses decreased 16% or $8.5 million to $45.8 million. Full year 2020 operating expenses decreased 19% or $41.2 to $175 million. These meaningful expense reductions reflect the continued positive impact of our leaner organizations expense discipline. As strong as these Q4 results are, I would like to note that these results are also consistent with our full year 2020 performance.

For example, for the full year of 2020, the company posted a $42 million annual improvement in adjusted EBITDA, a $21 million reduction in net debt and a $16 million reduction in accounts payables and accrued liabilities.

Full year 2020 cash flow from operations was $6.2 million, a $12.4 million improvement compared to the same prior year period. Full year 2020 free cash flow was $1.3 million, a $14.6 million improvement compared to the same prior year period. We launched 60-plus new merchandising brands in the year that generated roughly 20% of the company's annual revenue, which is the highest number and the highest percent of annual revenue in our company's history.

New customer growth for 2020 was 14% compared to the same prior year period. In addition, the company grew its new customer file for 3 consecutive quarters in 2020, and that's the first time since 2014.

Gross margin growth in Q4 was 560 basis points compared to the same prior year period. And for the full year 2020, it was a 420 basis point growth compared to the same prior year period.

ShopHQ was the first and only national television network to offer an FDA authorized at-home COVID-19 test to consumers in the U.S. ShopHQ was the first television retailer to use its national promotional platform to generate demand from brick-and-mortar retailers for ShopHQ products. For example, our Shaq Kitchen products today are available in over 1,700 Target and Sam's Club stores nationwide.

Taking a step back from our 2020 financial results, I want to reiterate how passionately we work every day to drive our new interactive media growth strategy that centers on building a growing portfolio of lifestyle television networks, consumer brands, and media commerce services. Since May 2019, we have launched 2 additional 24/7 television networks, ShopBulldogTV and ShopHQ Health as well as a new online discount marketplace, OurGalleria.

We acquired an OTT SaaS company Float Left and 2 leading consumer brands, J.W. Hulme and Shaq. Most recently, we've accomplished the following: On February 5, the company contributed approximately $3.5 million in inventory to acquire a controlling interest in an online marketplace called TheCloseOut, which offers consumers exclusive and name brand products at deep discounts. On February 18, the company successfully closed on its oversubscribed common stock equity raise totaling $21.2 million. On March 1, the company entered into a licensing partnership with ReStore Capital, a Hilco Global company, where iMedia will operate and grow the Christopher & Banks business in all sales channels, including digital, television, catalog and brick-and-mortar.

Regarding our 2021 company priorities, they are consistent with 2020 to accelerate the revenue growth of what we know works. In 2021, we will: drive continued innovation in our merchandising and programming offerings, while continuing to improve our customers' experiences. We will increase the high-definition penetration of our television networks distribution footprints, particularly in the larger DNA markets. We will drive profitable revenue growth in our proprietary online marketplaces by leveraging iMedia Television network's promotional power. We will capitalize on the success of our innovative Shaq business model by deploying it with other key iMedia brands.

We will leverage iMedia's existing television programming to accelerate our ability to launch compelling OTT streaming services, and we will opportunistically and profitably scale our media commerce services. In terms of our 2021 outlook, the company anticipates posting Q1 revenue growth between 3% and 5% compared to the same prior year period. In addition, the company reiterates its earlier guidance that the company anticipates posting at least $6 million in Q1 adjusted EBITDA and between $28 million and $32 million in adjusted EBITDA for the full year 2021.

As a reminder, from a tax perspective, the company has approximately $397 million in federal NOLs that are available to us to offset future taxable income.

In closing, I would like to say that we are excited and optimistic about our ability to deliver consistent, profitable annual revenue growth. Thank you for your time this morning. I will turn the call back over to the operator for Q&A. Operator?

(Operator Instructions) Our first questions come from the line of Thomas Forte with D.A. Davidson.

So Tim, congrats on the quarter and the year. I have one question and one follow-up. So first for my question, you sort of touched on this in your prepared remarks, but can you talk about TheCloseOut website and Christopher & Banks, how those initiatives fit into your overall vision for iMedia Brands?

Sure. Thanks, Tom. The -- well listen, if you think about our agenda and what we're building here, we really have 3 different parts of the strategy. There's the building out of our lifestyle television networks, there's the building of our consumer brands and then there's the building of our media commerce services. Both of the businesses that you described, Christopher & Banks and TheCloseOut are really about the consumer brands and media commerce services.

If you take a step back and think about when we began in 2019, May 2019, we've launched 2 new 24/7 television networks, right? So -- and each of those were launched because of the strength of ShopHQ's customer file and merchandising mix. We started with bulldog, ShopBulldogTV. And then we, last spring, launched Health, 2 categories that we do very well, and we think we have a competitive advantage in.

And then as we began to build our Consumer Brands segment, we first started with J.W. Hulme, who we acquired in late '19. And then with the Shaq launched last spring. That was really our second effort in that area of note. As you think about Christopher & Banks, Christopher & Banks would be the third within that consumer brand. Each of those have a different model to them. But certainly, Christopher & Banks is an exciting opportunity for us.

I mean first, if you think about Christopher & Banks and where it fits in our agenda, I'd like to talk a little bit about who the partners are involved with it and why we think it's so exciting. The Hilco team, ReStore Capital's team, Ben Nortman, Ian Fredericks and Dan Rubin, both all 3 great operators, great partners for us as we move to really build the Christopher & Banks brand. So that's the first part of why we're excited about.

The second part is the team that we have working on it led by, obviously, Cassie Anliker of our team with -- working with the team from Christopher & Banks that we've hired to help us build it. Kelly -- so I'm going to go through a couple of those folks of why we're excited.

The leader on the marketing side of Christopher & Banks is very strong. Kelly Eisinger is a top operator, and we're excited to have her on the team, as well as Desica Harms, who's leading the merchandising side of Christopher & Banks. Also very exciting to have her aboard helping us build it.

When you think about Christopher & Banks, the reason that we're so excited about it strategically is that they share the same customer that we have today. It starts at 55 female and moves up from there. But what they bring to the table in addition to just sharing our same customer, is they have proprietary styles, proprietary print. They have a very loyal customer file. They have a brand that's been around for 50 years. These -- all of these elements are strong for us to be able to use our promotional platform now creating -- we're launching a television show for them next month, using our promotional platform to complement what they already have is -- I wouldn't say magic, but it's certainly an economic opportunity for everybody involved.

So Christopher & Banks, building that within our consumer brands segment is important. And every brand we do -- or we build in our consumer brand benefits from our traditional media promotion and our media commerce services, whether that be the pick, pack and ship, creative services, our loyalty programs, whatever they are, these brands and these 3 segments all work together.

So moving on from Christopher & Bank as an explanation, let's move into TheCloseOut. So when we talked about our strategy with the television networks and how we move from a general service of ShopHQ into distinct personalities that we go deeper into, ShopBulldog is really a male service for men's products and services and women shopping for men's products and services. We think about ShopHQ Health, again, very deep into the area of telehealth and telemedicine. We're doing that exact same strategy with our online marketplaces.

So as you know, last fall, we launched OurGalleria. OurGalleria.com is a online discount marketplace. But the branding of it, the personality of it is much more -- it's a higher end, very feminine, more like a real, real type of marketplace, whereas the closeout is a different personality, and it is a -- it goes deeper into a market that I call, it's much more irreverent marketing. It's more aggressive price discounts, it has a totally different feel. Both of those marketplaces, we feel are big, but we think the way to reach those customers in a more efficient way with a more loyal following is to do it in these different types of personalities or branding, if you will.

So I'll stop there and see if that answers your question, Tom.

Yes. Very helpful. All right. So then for my follow-up Tim, I wanted you to remind investors of how the pandemic has impacted iMedia and talk about your ability to generate sales growth on top of last year's performance.

Sure, Tom. The -- maybe the best thing to do is just look at the metrics as we answer that question. So I'll start with merchandising mix.

As we all know, last year, the -- in Q2, the HUT levels moved up pretty dramatically, and there were all sorts of different issues going on with customers as everybody were - was navigating in their own personal journey through this pandemic. And as we begin to shift and move in a way that we thought would be best for our shareholders and really our customers, we began to offer a bit more health product in that Q2. And that was something that was in very high demand. And in fact, also in Q3 and Q4, we worked for 6 months to be the first television network to launch an EUA-authorized COVID home test for our customers.

Again, all of these things around the idea that this is an evolution of telemedicine and telehealth being accelerated by the current COVID situation. But as you look at Q2 and you look at our merchandising mix, you can see that beauty and health at -- in that quarter was about 43%. So certainly, it was -- we were addressing the demand at that time because in Q1 of 2020, our beauty and health mix was only 24%. So it moved up to 43%. But then if you watch, as we move through Q3 and Q4, the beauty and health mix in Q3 was 34%. And then in Q4, was only 24%.

So that spike in COVID-related products and the HUT levels and everything else, in our minds was a onetime event that would move through the system in its ordinary course, because customers and our marketing and our new brands are in all categories, and that's what we've demonstrated by Q4 being the growth in revenue the first time in a very long time. And that with a mix of only 24% beauty and health.

So those KPIs give us a very strong comfort that the pressure -- or as we would say, the lapping of Q2 with health products isn't really an issue for us. In addition to just the mix now being normalized, what shareholders also have to remember is that Q2 was a high spike in health products for last year. But after Q2, we've been very busy at also launching and acquiring new businesses that were not also around in Q2.

So the lapping of opportunities goes both ways. So you get pressure from the COVID, call that 10% to 15% lift from the HUT levels, but then let's think about what we have done from Q3 forward to where we are today. ShopHQ Health was launched in Q3 of last year and has done really well from us from the very beginning. All the new brands that we launched in the back half of the year are now moving through into Q1 and Q2. TheCloseOut was obviously not here last year. Christopher & Banks, again, was not here -- is not anything that we're lapping from last year.

OurGalleria, the higher-end online discount marketplace, we launched in Q4 of last year. Those are the elements that make us feel very optimistic, as I said in my prepared remarks, about being able to produce consistent revenue growth. It's something that we know is the fundamental thing about 2021 because we've moved through the financial turnaround. We fixed the gross margin.

Most importantly, we've established a culture and a lean organization that believes in what we're doing, and that's driving all of this. But those are the things that make us feel good about as we move into Q1, Q2, Q3 and Q4.

Our next questions come from the line of Mark Argento with Lake Street Capital.

Tim, just a couple of quick ones. When you look at the Christopher & Bank deal in particular, and the Shaq deal, these are what I call, you're kind of almost a principal in these transactions with these brands. Do you see the opportunity to do more of those types of transactions? Is that 1 or 2 a year? Is there an opportunity to work on a bigger portfolio?

And then a follow-up on the balance sheet. I think you made some nice improvement, obviously, with the capital raise recently. But maybe talk a little bit about the balance sheet, how you'd like to see that play out over the next year in terms of continuing to pay down debt with free cash flow or balance that with reinvestment?

Sure thing, Mark. The -- so yes, I think what you're starting to see with Shaquille and with Christopher & Banks, is our strategy unfolding. So the strategy of using this 100 million home national platform of ShopHQ to drive the opportunities for even a brick-and-mortar opportunity, like we're doing with Shaquille, obviously, available in over 1,700 Target and Sam's Club stores, the -- that -- we started to figure out how to do that and do it well.

And then in addition to that, using our scale, pick, pack and ship platform, our sales force, we have a very strong consumer experience platform. All of those elements make for when you have a brand that has the kind of power, I guess, would be a lack of a better word, like a Shaquille kitchen product, then we can use our assets to really build it like no other brand can do it, like no other company can do like there because we have both the front end, the promotional power of scale, television. And then the back end, pick, pack and ship the digital platform, all of the other elements that are critical. So we take that know-how and now we partner with Hilco and we're doing Christopher & Banks.

The reason why I mentioned the partnership with ReStore Capital is that they are a good, strong group of operators that are in constantly in the flow of all these types of opportunities. And so it's a partnership that we expect as partners to replicate again and again when it makes sense.

So when I say when it makes sense, there has to be reasons. Christopher & Banks, we shared the same customer file, Christopher & Bank, they had all of these different elements of a very strong business. And everything that we had from the traditional media and the back end services that are much less expensive to do were things that we could immediately complement them on and share the upside with our customers as well. Our customers are very interested with ShopHQ in the Christopher & Banks, proprietary styles, proprietary prints, all the different things that go back and forth. So there were reasons why each of these brands make sense for us to give an unfair advantage for growth.

That doesn't mean all brands that come across our table are brands that we're going to pursue because we're going to be very selective about it. But yes, I think that we're demonstrating that we have a model here because of these -- of our particular group of assets, that can really do a lot for a brand when that brand makes sense for iMedia. So that is, yes, something that we expect to do more of.

So regarding the -- before I move on to the balance sheet, Mark, let me just see if that answers your question.

Yes. No, That's helpful. I appreciate it.

Yes. So the balance sheet love to talk about the balance sheet, as an ex-finance guy, I would say that was -- doesn't get enough attention, the glorious work that we did in 2020 from taking down the -- our line of credit, moving that down. It was a significant move as well as our term note. Let me set the table as I did in the prepared remarks.

We really have PNC, which is a great partner. We have a $75 million line of credit, subject to a borrowing base and then a term note. And the we have moved down significantly the borrowing base -- not the borrowing base to have the outstanding balance and a term loan.

And so when we think about, as we move through 2021, it's -- we will be opportunistic, but we don't believe that we like paying interest as a matter of process. But we don't think zero debt is the right answer either. So we'll continue to look at what the optimal mix is. The -- certainly, the equity raises that we did do were each for a distinct reason, and they weren't designed to pay down 100% of our debt.

We were certainly working with the last fall's raise and really focusing on improving the payment terms for some of our existing vendors that we thought would give us an unfair advantage at different margin opportunities and other ways to make sure that we could continue to grow the business and these vendors that we like so much. So that was the first part. In the second raise, what we're really focused on, it's not so much again that the raise is for anything above working capital, but it's working capital with designed reasons.

We talked about -- in my prepared remarks, about how we want more high-definition distribution for our -- each of our television networks. So as folks talk about the linear 24/7 landscape, often what everybody will jump to immediately is the difference between the MSO ecosystem, the MVPDs and the Internet-based ecosystem, call that the OTT or over-the-top. But in between that, particularly for customers who are our customers that start at 50 and move up, there is the high-definition neighborhood and what we are focused on as we move into 2021, is there are certain markets that we do not feel our high-definition penetration is high enough, and we're going to go after those and the way to go after those are obviously around different payment terms and things like that.

So we want to make sure that we have the balance sheet to make those big changes, and we have demonstrated evidence, as we've done this in the past, when we move in a market, particularly a top 10 market to HD heritage, it drives 20%, 30% growth and productivity in that market over time.

So it's something that we're very bullish on, and the reason I'm saying that before you move from MVPD SD, standard definition, to OTT, we do also have evidence that more and more customers today are hanging out in the HD neighborhood, they're just not moving out of it. And that's accelerating over the last, call it, 36 months, and that's why that's such an important priority for us in 2021.

So the balance sheet, the cash that we're using will be deployed for opportunistic growth in revenue and in margin rather than just a complete paydown of debt, if that answers your question.

(Operator Instructions) Our next questions come from the line of Alex Fuhrman with Craig-Hallum.

Congratulations on a tremendously strong year and turnaround. I wanted to ask about the new brands that you've launched on the ShopHQ platform from a merchandising perspective. I mean it certainly seems like the caliber and quality of the brand that continues to improve, and that it sounds like from your commentary that they're contributing more to your business than new brands have historically.

Can you talk a little bit about -- typically, what does the maturity curve look like when you launch a new brand? Is there kind of a honeymoon period upfront when you do a big promotion that fades?

Or does it take maybe a year or 2 to build?

And then just curious, as you start to bring in bigger and better brands as you've been doing? Do they kind of fit the curve that you've seen in the past, maybe at a higher level because they're bigger brands? Or have they been maybe evolving differently than typically when you launch new brands?

Alex, sure, so let's take a step back and say, when we talk about new brands, the reason that you saw so many from us last year and how it was 20% of our revenue was in -- it takes some time. So all over the back half of '19, we are developing, building these brands, finding brands that are less distributed or exclusive to us, and then we're launching in 2020. That really hasn't happened.

We think of a new brand that is anything over 5 million is a successful new brand launch. And it has been quite some time, really 2014, '15, since we were able to do that. And so that was a top priority for us in '19 to make sure that we introduced in '20.

And there is no magic curve or no magic expectation on how you can anticipate the growth of a new brand. It really comes down to the vendor and the merchants involved in building the brand. It -- so for example, Invicta has been around for most of our 30 years history, and the reason that, that brand remains relevant and does so well each and every year is because it has a vendor, a leader, Al, that continually offers new styles and new ways of -- new products, new marketing, it's that constant innovation.

And so what we did in 2020 is we tried to partner with vendors in different areas, whether that's in beauty with the launch of (inaudible) or Annayake in different -- in home, different areas, we tried to partner with vendors that understood that concept, that understood that it's really not about one product being launched and just hoping that it's going to do well for the next 5 years. It's about that constant blocking and tackling of new product development. So we're -- why we feel good about the brands we launched in 2020 is we did it with the vendors that have a point of view that have an aggressive notion of how they want the brand to build and have a realistic expectation about the types of product assortment by price band and by value that they are going to continue to have to build in order to be relevant on this platform.

A great example would be Mackenzie Childs, a brand that is available at other player places but very not large distribution, and they have a great team that's constantly building new products and not only new products in their core areas of tabletop and home, but in different fragrances in different areas that we've collaborated together to say, listen, we have a white space here, you have an amazing brand, what about this migration into this area?

So that's -- to us, it's all about the vendor relationship and the product assortment. And that with Cassie, who runs our beauty and jewelry and fashion; and Lee who runs our home as well as dusting and washes. All of them -- all of those leaders in our merchandising area know that when they're bringing a brand on, we have certain policies and expectations where we used to as a company to come and bring a brand on and 12 out there for an hour and say, "Hey, I hope it does well. Where today, we're saying, listen, there's a 3 to 5-hour minimum. That means that we, as an organization, just can't launch a brand where we're just not sure enough or not committed enough to just put it out there for 1 hour.

So we've organized differently to give any new brand we do put on air a better chance of success. It is those fundamentals of why we think that the life cycle, the new brands we're launching will actually outpace the recent history that the company has faced with its new brand launches over the last 6 years.

So let me stop there and see if that answers your question on the new brands, Alex.

That's really helpful, Tim. And then I wanted to also ask, if I could, just -- however, maybe it makes sense to explain it, can you kind of help us size the health and wellness opportunity here? I mean it was great to see that your strong fourth quarter results were driven by a number of categories and not just health and wellness. I think that certainly speaks to the strength of the customer file and your overall business.

But now that we're in, hopefully, the final innings of the pandemic or at least the second half of the game here, how do you think about that opportunity 3, 4, 5 years out when presumably, sales of facial coverings and things like that will be close to zero? I imagine the interest that's been building for years in health and wellness in general isn't going to go anywhere, but does that maybe take a little bit of the urgency off the category? Or again, just trying to think about kind of how you view that business 3, 4, 5 years out when the pandemic is in the rearview mirror?

Sure, Alex. It is -- we've dug into it even before the pandemic. So yes, I agree with you 100%. Let me start with the affirmative, which is yes the -- what specifically would -- we would say is UV lighting, some of the products around that, that have an acute life cycle and a shorter life cycle because the -- just the product development in those areas are going to be so fast that it won't be as big of an area for us as it was in Q2 of last year.

But as you look at even the mix within health that we -- that you already see from just Q2 to Q4, we're much stronger now in fitness and health, mental health. There's all sorts of all sorts of genetics, spiritual, financial, there's so many elements of telehealth that we are planning for 2021 that the notion of COVID-related product is nothing more than 1 of 6 or 7 or 8 other categories that were that we're focused on within that health arena.

So it's not -- I wouldn't say it's an unusual category. And I'll say there'll be categories that come and go based on seasonality. There'll be products that come and go based on the flu that year. When we think about our home testing opportunity, it isn't just about COVID testing. There are so many different types of home testing and treatments and things that people are more comfortable in buying in a direct-to-consumer environment than they do even going to their doctors.

So we are still very bullish on the health category and don't see the drop in the COVID-related items, that's anything more than a blip. It really isn't something that we are considering a bump in the road as we continue to grow both in number of distribution and homes in streaming services in health in the -- there is -- and they don't always have to be the things that we're selling to people.

What we've talked about -- meaning physical products. There's an information layer that we are very interested in as it relates to all of our entertainment services.

So for example, in health, there are Q&A types of opportunities doctors that can give the -- the rise of podcast is by no means a coincidence. The information that people are seeking today on a many to many basis is something that we're going to capitalize on health as well as that it was going to be about physical products, and you'll see more of that from us as we roll out 2021. It's exciting in a lot of ways, but I'll stop there and see if that addresses your question.

That does, Tim. That's really helpful.

There are no further questions at this time. I'd like to hand the call back over to Tim Peterman for any closing comments.

I just thank everybody again for their time this morning. I'd like to welcome the new businesses that we just brought into the family here at iMedia Brands, certainly TheCloseOut team, Mauricio and Fausto appreciate everything you guys are doing every day. And certainly with the Christopher & Banks team, Kelly and Desica, thank you again, as well as new partners with Ben, Ian and Dan. I do think Christopher & Banks is a very big thing for us. If you think about -- they were $100 million digital platform in revenue last year.

It is something with a -- just such a great customer base that we're already interacting with, and we're really excited about what we're calling the virtual stylist within the Christopher banks arena and also doing that with Chris -- with our core ShopHQ customers as well. So we'll talk about that in Q1. But thank you, everybody, for your time, and we'll talk again soon.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.