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Good morning, and thank you for joining us. We issued our Q4 earnings release earlier this morning. If you do not have a copy, It is available through the News section of our IR website at imediabrands.com. This release is also an exhibit to the Form 8 ks we filed this morning. A webcast recording of this call will be available via the link provided in today's press release as well as on our 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. 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 cautionary 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. Please refer to our earnings release for further information About these measures, including reconciliations to the most comparable GAAP measures, where possible, with reasonable efforts.
1m 51s
Now, I would like to turn the call over to the CEO of Eye Media Brands, Tim Peterman. Tim? Thank you, and good morning, everyone. Let's start with the obvious quote early, which is by Mike Tyson, Everybody has a plan until they get punched in the mouth. Completing our debt reduction event this week Was a milestone win for us. But make no mistake, it was a struggle to complete. The challenge began shortly after Thanksgiving when a new asset appraisal became effective, materially reducing our company's liquidity. We worked collectively with our asset based lenders, who fortunately provided us with the time to shift our priorities from net sales growth and customer engagement into short term cash optimization activities to fund principal repayments. We shifted our management team's valuable time and energy away from day to day priorities. We stretched our employees and we stretched our vendors. We drained internal creative and financial resources, and we pressured our customers' loyalties. But we, as a culture, rose to the challenge day by day, inch by inch. And we reestablished compliance with our senior lender by making $19,000,000 in principal repayments in about 2 months. I want to emphasize that we could not have achieved this without all our stakeholders' efforts, meaning our employees, our lenders and our vendors being part of this effort.
3m 12s
This short term achievement though we knew would come with a short term cost, and that was our financial performance in Q4 2022 and are expected Q1 2023 financial performance. Now that we have simultaneously closed these 6 transactions that are all connected by the singular purpose of reducing our debt by $53,000,000 and reducing our annual interest expense by 7,000,000 Our teams and vendors are rapidly shifting their focus back to our normal day to day fundamentals. However, this is not an overnight fix. We have merchandise categories and vendors that require time, attention and capital. We have customers to recapture. We have market share to win back from our competitors. I estimate our shareholders will start to see the positive financial impacts of our refocusing efforts in the back half of this year. For more details on our DRE, please see our Q4 IR supplement published with our release today. As I think about our overall 2022 report card, I think back to our priorities we shared at our Capital Markets Day in February 2022. We explained why we would prioritize the integration of our 2021 acquisitions, the reduction of our content distribution expenses And the strengthening of our balance sheet.
4m 28s
Now that we have talked in detail about how we have finally strengthened our balance sheet, let's go back and review our progress on the first two 2022 priorities. Regarding the integration of our 2021 acquisitions, beginning in Q3 of 2022, We began launching our best performing ShopHQ Networks brand on air on 123 TV, which helped drive noticeable improvement in 123 TV's Gross margins, average selling price and net sales productivity. We also launched our 123 auction app on shophq.com, which will be now our 2nd SaaS product after Float left OTT app. This 123 TV auction app launched on shophq.com is the first phase of 123 TV's product development roadmap as it continues on its timeline to launch its stand alone travel auction site focused on disrupting the online travel shopping marketplaces here in the U. S. We also expanded our digital advertising offerings To include offering OTT inventory from our float left OTT app and offering on air advertising opportunities from ShopHQ, Shop Bulldog TV and ShopHQ Health. Equally important, this year, we completed the difficult data mining process of aggregating our company's first party data into unified data lakes to help us internally drive improved digital advertising conversions.
5m 53s
Since all of our businesses are targeting the same boomer demographic, This is another unique strategy of what we're doing here. We also expanded Christopher and Banks' retail footprint based on consumer demand. As you may recall, in Q3, we terminated the underperforming Shack partnership, which enabled us to preserve future airtime for our more productive brands. This includes high performing brands returning to ShopHQ from recent tours on our competitors, big brands like Joyce Gerard, Anushka, Jim's in Vogue. Regarding the reduction of our content distribution expense, I will remind stakeholders that fixing the expense structure with content distributors is a full contact sport, and that is why ShopHQ really hasn't attempted it in its last 30 years. We did though in 2022 because it's critical to our long term success. Our decision to not renew DISH until we came to an agreement on future expense reductions created a short term reduction in our 2022 net sales, but it was critical and a necessary first step to position us to achieve our milestone of reducing our content distribution as a percent of net sales in 2023. Before I give more color on our financials, I want to remind everyone about what we believe our reason for being is here at Imedia.
7m 11s
Beginning in 2019, Imedia established a growth strategy and an entrepreneurial culture focused on operating 4 television networks: ShopHQ, 123 TV, Shop Bulldog TV and ShopHQ Health, each of which have been uniquely crafted to focus on the same Boomer demographic consumer and to drive multiple revenue streams, t commerce, e commerce, digital advertising, OTT SaaS revenues and brick and mortar retail. Our diversified revenue model and singular focus on one customer demographic Enables us to accelerate the share growth of net sales from digital products and reduce our historical reliance on the sale of physical inventory products that, as we all know, require logistics expenses, working capital, storage. Turning my comments to our financial statements. Q4 consolidated net sales were negatively impacted by the Q4 liquidity challenge and the DISH carriage disruption. Q4 net sales were $133,500,000 a decrease of about 31% compared to the same prior year period. Q4 consolidated gross margin was 36.8%, which was 150 basis point decrease over the same prior year period. Q4 consolidated operating expenses were $64,400,000 a decrease of about 13.5 percent or 10,000,000 Q4 adjusted EBITDA was $2,500,000 an 84% decrease over that same prior year period. For full year fiscal 2022, full year net sales were $544,500,000 a 1% decrease over the same prior year period.
8m 52s
Full year 2022 gross margin also decreased to 38.6, a 180 basis point decrease over 2022. Full year 2022 consolidated operating expenses were $257,300,000 an increase of about 10.3 percent or $23,900,000 This increase was primarily driven by the $30,000,000 in one time integration costs incurred in 2022 related to the 2021 acquisitions. Full year 2022 adjusted EBITDA was $25,400,000 a decrease of 39% or 16,200,000 most of that decline happening in Q4. Regarding our cash liquidity as of Q4, the total unrestricted cash was $7,100,000 compared to $11,300,000 at the same time prior year. In terms of our outlook, the company anticipates Q1 net sales to continue to be negatively impacted by the Q4 Liquidity Challenge and expects to report Q1 net sales of approximately $105,000,000 a 31 The company anticipates positive Q1 net income driven primarily by several One time gains related to the company's debt reduction event completed on April 10, 2023. The company has approximately $390,000,000 in federal NOLs and does not expect to have any federal income tax payments on the debt reduction event transactions nor the company's 2023 net income. In anticipation of the short term Q1 net sales pressure And to enable the company to produce stable profitability and cash flow, in February 2023, the company completed a cost reduction event That reduced annual operating expenses by over $20,000,000 The company anticipates Q1 adjusted EBITDA to be approximately $1,000,000 in line with Q4 adjusted EBITDA.
10m 48s
As always, I appreciate your trust on this journey together. Thank you for your time this morning. I will turn the call back over to the operator for Q and A. Operator?
10m 57s
Thank you. On your telephone keypad. A confirmation tone will indicate your line is in the question Our first question comes from the line of Thomas Forte with D. A. Davidson. Please proceed with your question.
11m 23s
Great. Thanks, Jim. So I have one question and one follow-up. So Can you talk about for ShopHQ, you discussed in the prepared remarks, your focus on liquidity And things of that nature. So can you talk about, I guess, what gives you confidence that SHOP HQ We'll be able to rebound and then how should I think about the video retailing categories performance. Historically, it holds up relatively well during periods of macroeconomic challenges. So, A, what gives you confidence that you'll be able to, I guess, restart ShopHQ? And B, what gives you confidence that it has the Historical traits we've had in the past to be more resilient during macroeconomic challenges.
12m 16s
Sure thing, Tom. Two part question. I'll start with the one on the ShopHQ recovery first. So let's think about Chronological events, right? So we've talked about this in Q3. We were focused on the sale closing the sale leaseback, Transitioning to a new lender at the really at the end of the calendar year end of December. Now that delay based on Complexities put us on a path. But before we got to the end of the year where that was delayed, we were looking at the beginning of December, A new asset valuation report that really materially became effective at the beginning of December And reduced our liquidity. And so when that happened, we found ourselves in a situation where we were shifting from the normal holiday Activities into moving into cash optimization situations where we were creating the funding, the cash from our working capital To fund repayments on our ABL loan. Now as that moves through December and through January, the and moves into the Amendment that we just signed, you can see that our liquidity is improving with the amendment that we have in place now post Pontus. But if you go back to Q4, if you go back to December January, you have to think about a couple of examples of how that shrinking liquidity That was moving to repay principal payments affected SHOP HQ.
13m 49s
They were definitely not macro environment related. They were really Around the Occam's razor, it's really around the most basic things that we do. For example, jewelry. Jewelry is a category that it's The most important category in holiday. And as you know, Tom, the jewelry business is unique in that it doesn't have a long lead time. They Ship it in overnight. You pay for it cash on delivery as opposed to home or fashion, where you're bringing the products 30, 60, 90 days in advance and selling them in that fashion. So with jewelry, when you find our when we found ourselves in this situation where The liquidity was moving into another situation. We couldn't bring in jewelry and you can see that in the chart that we provided Our receipts, our inventory receipts in Q4 for jewelry were over 50% decline. The inventory balance is 50 That declined the hours we are contributing. So we had to immediately shift out of jewelry and that was frustrating to the customer And move into other categories that really aren't used to that much airtime. And as you think about our business, jewelry and watches, we report together. But if we reported them separately, you would see that and we provided this in the IR chart, watches, for example, In Q4, we had to over rotate it.
15m 11s
I think the airtime went up 40 plus percent. And as you over rotate categories to make up for that jewelry airtime that you can't Because of the inventory receipts, you find that the DPM or the revenue productivity of that category plummets. So as you can see with watches that went down in the 40%, 50%. So the example of the short term nature of not being able to Acquired jewelry receipt, which then causes us to over rotate in certain categories, watches being the example, Is the elements of the decline that we talked about in Q4 that generated this, what would be the highest Q4 decline in our company history. Another example, again, because we're not just about ShopHQ, but our digital Business, right? That is an ecosystem that is made up of publishers and advertisers and we really weren't able to Provide the liquidity and the working capital to pay those customers on time and again that pressures Prepared remarks about winning back share and doing the fundamentals of day to day operations, but it's really As fundamental as now that we have more liquidity, we're buying more jewelry and gold receipts. It's filling back up to the normal levels that it appears on our calendar.
16m 40s
It is satisfying the customer demand that has been with us for 30 years. So the mechanics of how we move out of the Thanks. And then for my follow-up, I wanted to ask a question I received from an investor. You announced earlier the hiring of the Chief Transformational Officer. What are his responsibilities? And What inspired you to have that role? Great question. So Huron is the group that is our Chief Transformational Officer. Again, you move back in time, you say at the end of Q3 when we talked about what we were doing and how we were Monetizing our balance sheet with the sale leaseback and moving into a different transition from a lender perspective, When we went into the situation at the beginning of December, this new asset valuation really put us in a tough situation almost immediately. Unfortunately for us, our lenders were very, accommodating and flexible and they worked with us to provide us the time to make those repayments. As part of that amendment that we had with our lenders, we brought in Huron, which Huron was really back We brought them back in, in November. It was really part of the effort to improve communication, the effort to maximize Cash opportunities to do planning, all the different elements of what you would think about in a lender transition, scenario is what Huron Specialty is.
18m 22s
Smart folks to come in, in short timeframes to really help a company and a lender move on. And that is really what they've been doing since early November. Now Their scope increased as a result of these final 6 party simultaneous transactions that you saw us Easily pull off, just kidding, saw close this week. As part of that, they are helping us Move through after structuring these simultaneous transactions, moving through the next 3 to 4 months As we work with an investment banker to run an organized RFP in order to replace our senior lenders in an organized period of time. Again, everybody here in this ecosystem of ours, whether it's employees, lenders, vendors, They're all working with us together in order to make sure that there is an organized transition. And we believe that transition will happen in It started here in Q1 and we think it will close in Q2.
19m 27s
Thank you. I'll get back in the queue for any additional questions.
19m 34s
Thank you. Our next question comes from the line of Mark Argento with Lake Street Capital Markets. Please proceed with your question.
19m 42s
Yes. Hey, Tim. Just to follow-up on your last comments there. Maybe just walk us through kind of your current liquidity position. How much runway do you guys have to execute kind of a turnaround here? And then just a follow-up on the $20,000,000 in cost reductions. It seems obviously pretty aggressive and understandably so, but what did you do to get $20,000,000 out of the business? Thanks.
20m 10s
Sure thing, Mark. Let's talk about how we came out of Q4. So as we saw this pressure in Q4, we realized as We are finalizing our game plan and budget for 2023 that we had to reduce our cost structure. And as we've done in the past, Think about how we do things differently. So the $20,000,000 I would say a little bit over half of that was around labor, employee staffing And then the other were different structural changes, whether it is, in the agreements in IT area, different ways that we've been optimizing our infrastructure, not just around our staffing levels. So it was an important step to make sure that as we navigated through what we knew would be a recovery period of Q1 and then into Q2 based on what we saw in Q4 that we needed to make sure that we were cash flow durable and sturdy to move through that. So bring down the cost basis instead of hoping for a miraculous, and immediate Net productivity revenue increase is what we did. So when you think about the liquidity moving into Q1 that we're in today and moving into Q2, there's really 2 parts. 1 is short term and 1 is long term.
21m 32s
Short term, We're fortunate enough to look at this pay down of our debt. Let's go through that for a minute It's important because that's the short term liquidity that now our company has. It starts with The Pontus transaction, great group that we did with the sale leaseback transaction, an accretive transaction for shareholders And where the net proceeds of call it $42,000,000 were used to immediately pay down The term debt with GreenLake $28,500,000 as well as the pay down of our ABL senior lender In the $12,000,000 range as well as a discounted pay down of our 1, 2, 3 seller notes. So when you think about the leverage of the Cash that we used to pay down debt and reduced interest or pay down $53,000,000 of debt $42,000,000 of proceeds and reduce our interest expense in 2023 by $7,000,000 It really was around Our opportunity to take some of the debt off the table at a discount and provide some non cash element Of those retirements, principally with the 123 seller note, the 10% equity in 123, the business So as we moved out of the $53,000,000 debt reduction and the decrease in the $20,000,000 in operating expenses and the decrease in the $7,000,000 of interest expense.
23m 5s
And as you look at 2023 and you realize that we are not going to again Have the roughly $28,000,000 of one time integration expenses incurred in 2022 and 2023, the path for liquidity and cash flow is a much And when you look at that scenario, then you look at the amendments and the forbearance agreement that we've established with our ABL lender Today, that has a 6 month term along with a 3 month extension at our election. Again, This entire transition is intended to replace our ABL lender in an organized way. You can look at it and say, well, how does that liquidity from a cash minimum perspective, how does that compare to what was in place in Q4? And the liquidity situation is much stronger in Q1 for two reasons. Number 1, in Q4, we paid back Over $20,000,000 in principal payments on the senior loan, whereas we're not doing that anymore. Now we're back in compliance with the senior lender. The other is that the cash minimum absent the Pontus transaction and the proceeds from that is half What it was in Q4 and so that additional liquidity is also important for us as we move forward.
24m 25s
So The cost structure is low. The below the line costs are significantly lower and the liquidity in partnership with our lenders is Stronger now that we're moving into Q1. So those are the elements of why short term we feel better about the balance sheet to move through this Recovery in Q1 at the beginning of Q2. And long term, obviously, we feel very strongly that the assets We have in the business and the durability of what we have is going to be a very quick I won't say very quick. I would say a reasonable Solid transition in Q2 to a new ABL lender.
25m 7s
Thanks for that color, Tim. And just Lastly, any color on the performance of the business so far this quarter, Given the macro environment like we referenced previous, are you seeing kind of a return to some normalcy? As you're able to add some inventory or maybe just talk a little bit about what you're seeing now versus 3, 4 months ago?
25m 34s
Sure, Mark. When we started this journey back in 2019, we were coming off a very tough year when I came back and started as CEO. And From that experience and others, we knew that it isn't an easy fix to take a quarter after a downturn that will immediately ramp back up. That's why we put the guidance out we did for Q1 where you have a roughly 30% decline in net sales in Q4 and we expect the same In Q1 and that's how we're preparing for it. The elements of how you turn around net sales and in our case, it is not macro, it's really about The mechanics of putting the jewelry back on the calendar, not over rotating watches, it's about advertising, the fundamentals of paying the advertisers and Those elements are the backbone of how we improve the business. It is not a It's not easy. It's not overnight, but it's not complicated, right? So I would say based on our experience of Turning a company like ShopHQ because that's just one of our brands, moving that back in the right direction, we know takes 3 4 months after what we experienced in Q4.
26m 49s
And having done it before already, we understand the basic building blocks of what needs to occur, Thank you. Our next question comes from the line of Alex Fuhrman with Craig Hallum Capital Group. Please proceed with your question.
27m 12s
Hi, Tim. Thanks for taking my question. As you start to add inventory back, I'm curious where You anticipate that demand has held up the best. It sounds like, you mentioned that there's a fairly constant demand For gold jewelry, what are the other categories of yours that are the most sticky that you can lean into as you start to build back your inventory?
27m 38s
Alex, thanks for the question. Well, absolutely, the first step that we're doing right now is around jewelry. And in particular, it's Around 14 ks gold, in particular, it's around Stefano, our largest and most popular gold brand. If you look at If you were watching over Q4, you would see that that was greatly reduced. So just reestablishing those mechanics of Having the lead time for STEPHANO II increase is the Italian production of the gold that we offer is first and foremost The most important part of what we're doing. Behind that, you have beauty. Beauty is our 2nd category. Again, very similar to jewelry in that the lead time for us to acquire beauty inventory receipt And the payment of those is almost immediate. There it's not a long lead time. So they have a unique characteristic of being impacted when there's a liquidity situation. They just happen to be the 2 most important categories for us. So as we move through back into Q1 and Q2, it's simply about reinvesting With those vendors, simply about engaging the customers and it's that mechanical. Now as you think about Our reason for being in particular since we're talking about a ShopHQ, its merchandising strategy is around these wearable categories. 1st and foremost, it's jewelry and beauty.
29m 3s
And quite frankly, we never like to waste a challenge. So we are actually Accelerating our migration into jewelry and beauty at a quicker rate, in Q1 and Q2 in order to Stabilize and then continue to a growth pattern in the customer file in total for ShopHQ. So you'll see from us in Q1 and Q2 An accelerated pace on that, we were taking a much more moderated pace, but now given this opportunity, as we like to say, in a challenge, We're moving at a quicker pace.
29m 37s
Okay. That's really helpful. Thanks for that, Tim. And then if I could ask on the digital advertising side of the business, what is the path to winning back the business you lost there? Is it like it is on the side of the business where it's just as simple as having a little bit more working capital will enable you to go after business that you couldn't in Q4 and Q1, can you talk a little bit about that?
30m 4s
Sure. Taking a step back, right, we've talked about the different examples. I think that's what your question is about. The different examples of the liquidity challenge and how it impacted our business, much more so than Is there a macro environment that's touching on advertising or a macro environment that's touching on ShopHQ? I mean, certainly, you Still have the macro environment at 123 TV in Germany with the conflict in the Ukraine. But here in the U. S, it really is about Putting back in place the game plan that we had and delivered on over these 8 previous quarters. So as it relates to the What we call IMDS are really our digital advertising arm of ShopHQ. It is as simple as just Getting the working capital back in line and without aged payables in terms of engaging the suppliers, Those mechanics are very easily fixed and we know all the players and have strong relations And quite frankly, they were also very flexible in this. They understood and, the value that we provide on our advertising Platform, with now as we infuse our first party data in there from the different businesses, it's a unique offering, Right.
31m 20s
We have unique supply out there in a marketplace that is crowded with advertising units that have been passed along to 3 to 4 to 5 before it gets to the customer from where it started at the advertiser. We believe that the platform that we have is because of this unique nature of what Our first party customer data is bringing to the table is a sought after product and that's why these advertisers and suppliers are quickly moving back up to speed with us as our Okay. That's really helpful, Tim. Thank you.
31m 53s
Yes. Thanks, Alex.
31m 56s
Thank you. Our next question comes from the line of Eric Wold with B. Riley Securities. Please proceed with your question.
32m 3s
Thank you. Good morning, Jim. I want to follow-up on inventory. A lot of the earlier questions kind of We're around kind of building back inventory. I guess you're still sitting on at the end of the year, you're still sitting on $112,000,000 of inventory. Can you talk about What you see in inventory, I guess the currentness, if that's a word, of that inventory. I know that during the early supply chain issues, you're able to lean on kind of Other inventory categories and areas to kind of stay in front of consumers, stay engaged with them and keep sales momentum going even though you couldn't get some of the stuff you're hoping to kind of Get delivered in on time. What's holding you back from maybe doing something similar in Q4, Q1? I guess back, rounding back to the first part of the question, maybe talk about that 100 plus 1,000,000 of inventory And the value of that and how much you can you still increase it this year? Or do you have to really build it up from that level into 2023? Long question. That was a long question, Eric, and I appreciate it. And it's a great question.
33m 7s
Let me try to peel it back in pieces. Starting with inventory and it really is about the composition. Start with where we were last year, where we are today and if you look at over the last couple of years, remember Our total inventory starts with really 3 components. You have ShopHQ. You now have our new business Christopher and Banks And you have 123 TV in there as well. The Christopher and Banks and 123 TV are in the $10,000,000 to $12,000,000 range. And so when you look at year over year growth or look at year over year decline, those pieces are relevant. But as we look at SHOP HQ, Q, it really is and the major flagship revenue of our business is around ShopHQ. So let's just Focus on that and put Christopher and Banks and 123 TV aside even though they create anomalies when you look at year over year comparisons. At SHOP HQ, the inventory that we have today, it's about composition. If you look at the IR slide that we presented, You can see that the inventory in jewelry, for example, is at 50% of what it was, in at the beginning or in the middle of Q4 And rebuilding that and bringing down home and bringing down health all happens in a very organized way in our business and it works Like this.
34m 31s
We have this grouping of by category inventory and we have That inventory and then we have future receipts obviously with open to buy. As we look at this recovery as we could Call it into Q1 and Q2, I would say 80% of our new receipts are focused purely on jewelry and beauty. And what we're doing As a consequence of that and with 0 receipts or very low receipts in those other categories is selling down the Existing inventory we have in those categories. Now is it the maximum DPM on some of these items is not ideal, but From a balance perspective, we feel good about the margin of 42%, 43%, 44% because of the increased airtime back Into jewelry and beauty. We have a demonstrated history here and we call it the sprinkle strategy of moving our inventory regardless of age at a very positive margin is to be able to shift your receipts on a composition level to improve a particular category And reduce future receipts, sell what you have on existing, which then creates the cash flow for the working capital. So I think that To your question about inventory, I would say composition wise, you'll see more from Jewelry and Beauty and you'll see the overall ShopHQ inventory level Remain stable.
36m 6s
It's just the composition will be shifting. And I think that you'll see the, Christopher and Banks Come down some in 2023, and I think that you will see the 123 TV inventory staying relatively the same. Does that Some of those questions?
36m 24s
It does. It does. I appreciate it. And then your follow-up on the IMBS Media Business, Tom, you talked there about the liquidity being an issue there as well in terms of facilitating the payments back and forth. If that was not an issue, how do you think that business would have performed in Q4 and Q1? What are you seeing underlying Macro wise, is that still a growth business in 2023 barring the liquidity headwind?
36m 57s
Yes. Great question. When you think about what I was monologuing about, which is our reason for being, it really is around Increasing the share of our digital products, right. We believe the biggest growth area in our company, in terms of percent sales growth Year over year, we'll be in this digital advertising, the SaaS products like the auction widget that continues to be developed by 123. We recently launched it on shophq.com and that auction widget is being advertised in placement by IMDS, our Advertising arm as well. So as you asked about the macro environment, the macro environment for digital advertising, particularly with the assets that we have is strong. Now the year over year decline, if you look at our IR presentation, you can see a rather acute decline in Q4 And that was all driven by these liquidity challenges we talked about. But the fundamentals and when I say fundamentals, the win percentage of our spots, Our advertising opportunities is strong and has been strong. It dipped in Q4 and it's moving back in the right direction as we Now bring back our advertisers as we now bring back our syndicated supply of content. So it's not a macro environment for us on IMDS.
38m 19s
It really is maximizing the original opportunity we had with digital advertising and that is bringing the promotional power of ShopHQ, bringing the first party data Into that ecosystem. Remember, if you think about digital advertising on the web and if you think about We have a very good opportunity of digital advertising in the OTT space. People are talking a lot about the OTT space as the mecca, but we know because we have A business in the OTT space that 60% to 70% of that ad inventory goes unmonetized still today. So the maximum opportunity for us is really around taking consumer engagement apps like our 123 auction app And our first party data and making those elements more important for our advertising arm to go out and sell digital advertising on the web today. It's a very big opportunity for us and one that I can't talk enough about.
39m 19s
Got it. And then just final question for me, if I may. I'm not sure if it's something you can address here or not, but I guess given the sale leaseback, the pay down of all the debts and kind of the ongoing discussions with Your lead lender, should all of that be able to remove the going concern that's been in your financial or is that something that still May not be addressed.
39m 42s
Well, when you like to I'm not really sure how to answer that question, but I could start with Just let's just look at the facts, right? Let's start with the Q4 performance and the liquidity A challenge that we just traversed with the completion of these, what we call the debt reduction event, right? You can look at the History of the amendments that we've done, you can look at our cash flow, you can look at the elements of our guidance where we talked about the Net sales again being pressured, but also the fact that we've taken our cost structure down. All of those elements Work in unison when a company and its auditors are looking at a going concern and whether that's an issue or not. I think that If you were looking at all the facts, I would say that you would follow the path right along the path that I'm describing, which is you'll begin to see the efforts, The financial impact of our reengagement efforts around net sales growth, around consumer engagement happening in the back half of the year. Yes, we're in Q1 now. So you could do the math on Q1 and Q2, but we think that we'll be right back on track and you'll see that in our financials in the back half of the year.
41m 2s
Got it. Thanks, Tim.
41m 4s
Yes. Thanks, Eric.
41m 7s
Thank you. Our next question comes from the line of Thomas Forte with D. A. Davidson. Please proceed with your question.
41m 13s
Great, thanks. Two quick follow ups. So Tim, can you first start with the high level comments on this is where you are today from a debt standpoint And then, this is your plan and a high level for reducing debt on a go forward basis.
41m 30s
Sure thing, Tom. The as we talked about and you were there. At our Capital Markets Day in February 2022, we talked about 3 priorities, right? And I went through this in my prepared remarks. One of them being on strengthening the balance sheet. We knew as we put together the in 2021 to be able to execute our growth plan and our growth strategy that we talked about today that we were a little bit heavy in debt and we needed to move that down through 2022. We talked about targets in the $25,000,000 to $30,000,000 range on a methodical basis I'm taking that down over time. As you can see, the complexity of the Delay in Pontus into where it ended today, it ended up fortunately for us, and shareholders reducing our debt by $53,000,000 rather than the $20,000,000 to $25,000,000 So if you think about Q1 last year, we had $207,000,000 in debt. And if you think about where we are today in that one $123,000,000 range, it's a significant decline because our debt repayment efforts didn't begin and end With this debt reduction event, as you know, that has been happening each quarter as we move through 2022.
42m 45s
So if you start with where we are today in this $123,000,000 range, you're looking at our non amortized bonds that are out there, and you're looking at our ABL and some smaller seller notes with Synacor. We've those are all have a very organized methodical way of going down over time without any kind of event, Just out of the working cash flow of the business, with Synacor, it's a quarterly payment. With the GCP, these are whether it's Stock or cash, whatever it happens to be. So we feel good about moving it down again throughout 2023 in an organized way, not in An event way like we did now, this chrysalis that we pulled out of Q4 with this debt structure where it is, it's kind of a onetime restructuring that we feel And we will move that down over time in a non eventful way through 2023.
43m 42s
All right. Thank you. And then last question for me. You had previously given a handful of Levers you could pull on an as needed basis to do additional deleverage. You've pulled some of them like the sale leaseback. Can you give your updated thoughts on levers you can pull to delever? It It was very helpful in the past and I appreciate an update.
44m 12s
Sure. As you think about the market cap of our business And if you think back at Q2 and Q3 and why we were moving into the sale leaseback to monetize 3 out of our 4 buildings, The completion of this transaction did not include the 4th building. So our 4th building is obviously An asset we have in the business that is also available down the road, if we choose to create a debt reduction event. When you also think about The business and the balance sheet that we have, we really are as from an asset based lending perspective It's really focused on the physical assets of our business. They aren't really tied and We don't feel like in today's world of our lending today is focused on IP. We know that we have IP that is down the road another Asset, just like the buildings that we can lever in the event that we wanted to take another debt reduction event In course, not something that we're planning on, but it is something as we move through with our investment banker, which we'll be announcing here in the next couple of days To replace our existing lenders, it will be about not only the physical assets that are traditional asset based loan, but So the IP, we've got some strong IP here and that is something that we'll look out.
45m 38s
The most easy and leverageable Asset that you've heard me talk about and that we've demonstrated over time we can do in a period of 6 months is inventory. As I talked about before, We have a 7 year history of moving aged inventory by category inventory, lumps, Bumps, whatever it happens to be, the way we do it with, as I would call it, our Sprinkle strategy at margins that are acceptable to us as a balance perspective To still achieve that 42%, 43%, 44% is something that is unique about even us I think in the TV retailing world. We don't buy in a way that, forces us to purge at a significant lost inventory. So As you watch us this year, the leverageable event you're going to see us do is to bring down as we change the composition as well, But to bring down that inventory on a methodical basis that generates cash flow. As you look at the report card 2022, you can see the working capital that we've been able to manage or the cash that we've been able to generate From our working capital management continues to be a significant lever that we always have demonstrated we can do.
46m 53s
So I would say if you wanted to think about 2023, you will see as a normal course us managing our inventory as a lever down. And then you'll see as an opportunity as we find our and partner with our new ABL lender to look at the IP opportunities. The bonds are certainly something out there that are interesting who couldn't comment on these bonds, so I'm going to comment on these They are trading at a significant discount. It is an anomaly out there that we are looking at obviously, but That's all really I could say about them is that there is an opportunity with Bond, but it's not something that we think is the best use of our capital today. It really is about Reestablishing the growth in Jewelry and Beauty. It's really about reestablishing the faith of delivering our Consensus after the Q4 situation. Those are our top priorities as you look out over the next 60 to 90 Thank you for taking my questions.
47m 59s
Thanks, Tom.
48m 1s
Thank you. Ladies and gentlemen, that concludes our time allowed I'll turn the floor back to Mr. Peterman for any final comments.
48m 8s
Thank you. Listen, as always, we appreciate everybody's time and faith. And We look forward to talking to you again in a short period of time about our business and what we're doing and you can talk about what we've done and how we're doing it. Thank you.
48m 24s
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Key Insights
IMBI completed a significant debt reduction event, reducing debt by $53 million and annual interest expense by $7 million, but this came at the cost of short-term financial performance in Q4 2022 and expected Q1 2023.
Q4 2022 net sales were $133.5 million, down 31% year-over-year, with gross margin at 36.8% (down 150 bps) and adjusted EBITDA at $2.5 million (down 84%); full-year 2022 net sales were $544.5 million (down 1%), with adjusted EBITDA of $25.4 million (down 39%).
Liquidity challenges in Q4 led to a focus on cash optimization, impacting inventory (notably jewelry) and digital advertising, but the company expects to see positive financial impacts from refocusing efforts in the back half of 2023.
IMBI implemented a cost reduction event in February 2023, lowering annual operating expenses by over $20 million, primarily through labor and structural changes, and anticipates Q1 adjusted EBITDA of approximately $1 million.
The company expects Q1 2023 net sales of approximately $105 million (down ~31% YoY), but anticipates positive Q1 net income due to one-time gains from the debt reduction event; IMBI has ~$390 million in federal NOLs and does not expect federal income tax payments for 2023.
