Michael Porter - VP Finance Bob Rosenblatt - CEO Tim Peterman - CFO

Eric Wold - B. Riley Thomas Forte - Maxim Group Mark Argento - Lake Street Capital Market Alex Fuhrman - Craig-Hallum Alex Silverman - Special Situations Fund Victor Anthony - Aegis Capital

Greetings and welcome to the Evine Live Fourth Quarter 2016 Conference Call. At this time, all participants are in a listen-only-mode. A Question-and-Answer Session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Michael Porter, Vice President of Finance. Please go ahead sir.

Good morning and thank you for joining us today. Joining me on today's call is our CEO, Bob Rosenblatt and our CFO, Tim Peterman. Bob will provide his thoughts on our business and Tim will follow with the highlights of our financial performance. We issued our earnings release earlier this morning, if you do not have a copy of our earnings release you may obtain a copy through the news section of our Investor Relations Web site at evine.com. Some of the statements that we make 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 speak only as if today's date. We undertake no obligation to update publicly 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. Please refer to the Safe Harbor section in our earnings release today and our SEC filings for additional information. Finally, certain of the financial information disclosed on this call include non-GAAP measures such as adjusted EBITDA. The information required to be disclosed about these measures including reconciliations to the most comparable GAAP measures are included in the earnings release. The earnings release is also in exhibit to our Form 8-K that can be accessed through the SEC filing section of our Investor Relations Web site. Now I would like to turn the call over to Bob.

Thanks Michael, good morning everyone and thank you for joining our call today. As you can see based on our financial results, 2016 was always intended to be the basis to position ourselves for long-term growth and profitability in 2017 and beyond. I'll review those results, provide some highlights from our fourth quarter and I will end my prepared remarks with our 2017 growth strategy and how we intend to execute on it. I was named the Interim CEO in February and became permanent CEO in August of last year. From the beginning we developed and communicated a clear agenda that was focused on assembling a team that can execute and build a strong culture, improving profitability and strengthening the balance sheet. I'm proud of what we've accomplished so far and here are some of our significant highlights. Number one, we balanced the merchandizing mix and improved gross margin in excess of $3 million and gross margin percentage by 190 basis points. Number two, we improved adjusted EBITDA by 76% from the prior year. Number three, we hired five new senior executives to complement the existing team and further enhance our agility, decision making and overall culture. Number four, we secured a significant strategic investment lead by Tommy Hilfiger, Tommy Mottola and Morris Goldfarb which improved shareholder confidence and accelerated our brand building efforts. Number five, we completed the installation of and launched our new warehouse management system at our fulfillment center in Bowling Green, Kentucky, which is already enabling us to enhance the customer experience. Number six, we improved our cash position which allowed us just yesterday to retire $9.5 million of our high interest debt which further strengthens our balance sheet. And finally, just after year end we work with NBC Universal and Comcast to buyback 4.4 million shares of our stock. In addition to these seven milestone achievements, we have had dozens of smaller but just as significant successes in adding brands, enhancing relationships with our legacy partners and improving our company's ability to be nimbler and responsive. For the first time in the long time, our company has a solid foundation and solid momentum to realize our vision of being a top video commerce retailer. Regarding our fourth quarter performance, I'm proud to report for the fourth consecutive quarter we expanded our gross margin weight, improved our cash position and grew our adjusted EBITDA. I'm very pleased with these results particularly in light of the challenging macro-retail environment. We take satisfaction being one of the few consumer companies growing gross margin rate and EPS in this challenging environment. That said, our top-line revenue in the fourth quarter was down 9.9% and that was below our expectations. As a reminder, we expected our revenue to decline about 6% or approximately $13 million because we knew we would not be repeating to roughly $15 million of low margin Hover Board sales from the prior year in the fourth quarter. However, we were impacted more on the top line than we thought we were going to be the highly promotional retail environment that occurred in the fourth quarter. The good news is that despite the headwinds we encountered during the quarter our wearable's category was still up 2% and our overall gross profit rate improved by 260 basis points. I will now move to update on each of our product categories. Let me begin with our jewelry and watch category which represents 38% of our total revenue for the fourth quarter and 41% of total revenue for fiscal 2016. We continue to perform well and be the video commerce shopping destination of choice for this category. We had several well executed jewelry events during the quarter, this included our Diamond Day event in November, which resulted in 18% improvement in productivity over the last year. In addition, we are able to be the first company to market the Burmese Ruby which only recently became available to the U.S. market after 10 years [indiscernible]. The customer responded when we experienced the 30% higher productivity versus our base jeweler business. In addition, we had a successful January Gem week as we continue to have success selling a wide variety of gem stones to our very loyal jewelry customers. Within watches, we continue to do well with our Invicta Disney partnership which provided excited programming, excellent sales activity and most important generated strong and valuable new customer during the holidays. Gucci vs Prada Saci and Aragon, all were successful campaigns in the fourth quarter. We also added the Invicta Gabrielle Union collection to our portfolio in December. We will continue to add more collectable watches to our line up in fiscal 2017. Next is our beauty category which represented 17% of total revenue for the fourth quarter and 16% of total revenue for fiscal 2016. This continues to be our fastest growing category with 15% growth in the fourth quarter over the last year and 8% growth in fiscal 2016. Our core brands complemented with new and differentiated launches are driving the growth of this category. Long standing staples such as skin cosmetics and ISOMERS continue to perform while newer brand such as Beekman 1802 and Consult Beaute featuring Dr. Terry Dubrow and his wife Heather Dubrow have quickly become some of our most productive brands. In the spirit of compelling programming we conducted our second annual day of beauty in early December. Strategically positioned right before the Christmas Holidays, we featured many of our most popular beauty products and brands for entire day of exclusive deals and programming. We had success during the show as well as online result in one of the most productive and most profitable days during the holiday season. Next is our Fashion and Accessories category which represent 14% of total revenue for the fourth quarter and 18% of total revenue for fiscal 2016, both which were increases in mix penetration versus the prior year. Our strongest brands continue to be our proprietary and exclusive brands such OSO Casuals, Kate & Mallory and Indigo Thread. Combined during the quarter proprietary apparel grew 5% versus last year. The last product category is our Home & Consumer Electronics category which represent a 31% of total revenue for the fourth quarter and 25% of total revenue for fiscal 2016. The Home business continues to be a top priority for us with its potential to serve our customer base and attract new customers. We had strong Waterford business during the quarter that included an exciting holiday remote from Ireland in December that drove the sales growth for the category of 32% to last year. We did see some softness in kitchen and in fitness and wellness during the quarter. Let me now turn to consumer electronics, an area of our business which has been strategically reduced from the topline perspective based on the lower contribution margin typical of the branded and commoditized product offerings within that category. This was exacerbated in the fourth quarter which traditionally has been the highest level of consumer electronics demand because of the holidays. As a remainder, during the third quarter we reduced consumer electronics airtime by 51% which drove the 66% decrease in CE revenue. In the fourth quarter we reduced CE airtime by 41% which drove the 55% decrease in CE revenue. We continue to right-size our CE offering to engage our customers in a profitable fashion. To help us in this effort, we welcome Rob Elistein to Evine earlier this month as Vice President GMM of CE and Hard Home Categories. Rob brings a wealth of relevant experience from both QDC and HSN and we're excited about him joining the organization. I'll now discuss a couple of other key initiatives, first let me start with an update on our digital efforts. In the fourth quarter, 51.9% of our sales were digital, this is an increase year-over-year of 220 basis points. For fiscal 2016, 49.5% of our sales were digital which was an increase of 260 basis points from fiscal 2015. Mobile sales our biggest priority within digital has increased as a percentage of digital sales to 45.4% for fiscal 2016 compared to 42.3% for the same period last year. To help us continue to drive our digital growth agenda in 2017, our Chief Digital Officer, Sunil Verma, who started in August of last year recently appointed Lee Goehring to a newly created role of Vice President Digital Merchandising. Lee has been one of our merchandising executive since he joined Evine in 2012 and has a strong retail background with prior experience at Target and Best Buy. Lee will be focused on creating a seamless connection from our TV platform to our ecommerce engine and exploring other ways to grow our digital platforms across all screens. Regarding customer growth, we grew our 12 month wearable categories active customer file by a combined 3.7% and our total company 12 month active customer file was flat. Due to the aforementioned rebalanced merchandising mix, our customer file although flat, is now composed to customers who have a significantly higher purchase frequency and higher lifetime value. As I mentioned earlier, we are seeking additional ways to connect with our customers beyond the TV and that means becoming more aggressive in content distribution. We are improving our interactivity in large social platforms such as Facebook, Instagram, Pinterest and YouTube and the emerging over the top platforms like AppleTV, Roku and Amazon Fire. We continue to pursue our television distribution strategy of more channels in the right homes with the focus particularly on adding new HD channels and continuing to drive our secondary network channel Evine 2. Now about our future, our growth strategy for fiscal 2017 is exciting because it builds on our successes in 2016 and defines subtle shifts in priorities as we position the organization for continued growth in 2017 and 2018. This year we will focus on three core operating principles while continuing to strengthen our balance sheet, improve profitability and broaden our shareholder base. Those three operating principles are as follows, number one, new proprietary and exclusive brands will drive sales productivity, number two, smart additional content distribution will drive customer and margin growth, number three, managing operational fundamentals and expenses will drive profitability. Tim will discuss the financial milestones in detail as part of our 2017 outlook. We will also be further enhancing our interactive content strategy which is an important priority that we kicked off in the third quarter of fiscal 2016. Again, the goal of this strategy is to tie together our quote live on location entertainment with our social, online, mobile and television platforms to produce a much more exciting and interactive experience for our customers on all screens. This can take many forms, all of which allow our customers to engage with unique experiences via online, mobile, TV, social or a local event. In the fourth quarter, we continue to build out this strategy and we expanded our use of social media. This includes the launch of our backstage boutique concept, where we had a fully produced hour long beauty show that streamed live on Facebook and YouTube. We also conducted our first warehouse sale in January streaming live on Facebook live and YouTube where we brought our customers inside our warehouse to offer them limited time only deals. These concepts are now being added as regular additions to our content distribution portfolio to engage our customers conveniently and personally. To reach additional new customers, we are enhancing our social advertising initiative to maximize our interacted content strategy. And as we have discussed our conversion to high definition TV is expected to be completed in launch by September. We started the process of converting to high definition TV in the third quarter of fiscal 2016. We remained on track with this initiative. Phase I which included camera replacements and a transition to 16:9 aspect ratio which completed in the fourth quarter and Phase II which includes HD switcher replacements is set to be completed this spring. The final Phase will be completed by fall at which time we will be fully broadcasting in high definition. This transition to HD will improve our customer's viewing experience which we believe will result in incremental sales. I’ll now hand the call over to Tim to walk you through our 2016 fourth quarter financial, operational and content distribution results in more detail.

Thanks Bob and good morning everyone. I’ll start today with providing some additional financial details. Consolidated net sales for the fourth quarter were 190.5 million, which was a 9.9% decrease year-over-year as Bob mentioned earlier. I'd like to take a moment to provide some additional insights in our revenue performance for the quarter. As a remainder, we had expected our revenue to decline about 6% for the quarter which is related to specifically to our ongoing efforts to proactively eliminate low contribution margin products in our consumer electronics category. For example, we had planned to not repeat the 15 million of hoverboard sales from last Q4, and that was really one of the primary factors in our guidance. Excluding the effect of hoverboard from both years, fourth quarter net sales this year decline 3.2%. So it's this 3.2% decline that we attribute to the affected consumer volume pattern from the November elections and the extra rotation pressure on our wearables categories resulting from our decrease of airtime or CE that we talked about from last quarter as well. The good news is that despite all of these headwinds we encountered during this quarter, our wearable categories were still up 2% and gross profit as a percent of sales for the company increased 260 basis points to 34% compared to 31.4% in the fourth quarter of last year. Our return rate was 18.4% in the fourth quarter which was an improvement of 50 basis points year-over-year. For the year, our return rate improved 40 basis points to 19.4%, the improvement was driven by decreased return rate within our fashion, beauty, home and CE categories. Our average selling price in the fourth quarter was $54, an 18% decrease year-over-year. Again, this was primarily attributable to the mixing out of the consumer electronics and into the lower ASP categories, particularly beauty. Our gross margin percent improved 260 basis points during the quarter to 34%. For the year our gross margin percentage improved to 190 basis points to 36.3%. Gross profit dollars decreased 1.6 million in the fourth quarter however gross profit dollars were up over 3 million for the year. This is the fourth consecutive quarter of year-over-year gross profit rate improvement. Fourth quarter operating expenses totaled $61.1 million, which is a 5.7% decrease over the prior year. This was attributable primarily to lower content distribution costs and overall expense discipline across the organization. Also included in operating expenses are costs related to our primary operational functions, our fulfillment center, customer solutions group and our credit and payment group. We continue to increase our efficiency of all three functions in the quarter. In the customer solutions group, our most important KPIs are live agent contact rate which measures the post-sale support calls compared to unit sold. We again improved this metric during the quarter, this time by 350 basis points. This improvement is a total team effort as better execution on the frontend leads to fewer customer service problems on the backend. In our fulfillment center, we completed the design improvements to our new warehouse management system and were live with the new systems for most of the fourth quarter. I'm very pleased with our performance to date, we have seen efficiencies and expect our redesigned solution to reduce our wearable cost on a per unit basis in the warehouse by at least 10% starting in the second quarter. In our payments and credit group, we increased our private label credit card penetration during the quarter by 290 basis points compared to the same period last year. This is important because the utilization of the Evine credit card drives customer engagement and reduces our credit interchange and other processing fees. Wearable cost for the quarter were slightly down compared to last year as a decline in sales and improved efficiencies were offset by a decline in ASP which drove an 8% increase in net shipped units. Total wearable expense as a percent of sales was approximately 9.4% for the fourth quarter which was up about 70 basis points from the prior year. The increase in this wearable rate was primarily due to the higher transactions, an 8% increase in net shipped units resulting from the 9.9% decrease in net sales and the 18% decline in our average selling price. Regarding our content distribution, as if January 20, 2017, Evine was available in more than 87 million homes, which was in line with fiscal 2014 and 2015 yearend. Evine 2 has grown to become available in more than 8.4 million homes compared to 2.8 million homes at the end of last year. In addition, just this month we signed an agreement to launch Evine in approximately 500,000 hotel rooms across the U.S., which is scheduled to go live in the second quarter of this year. As for the balance sheet, we ended this year with cash and restricted cash of approximately $33.1 million which was a significant increase from the $12.3 million at this time last year. Along with our cash, we ended the quarter with approximately $19.8 million and additional availability on our PNC credit line which gives us a total liquidity position of approximately $52 million as of year-end. As previously announced, in our early first quarter of 2017, we agreed the purchase of block of 4.4 million shares of our common stock from our long-time holder and NBC Universal Media, a subsidiary of Comcast Corporation. We used cash on hand for the $4.9 million payment or a $1.12 per share. We continue to actively improve our capital structure. Related to our debt, our interest expense for the fourth quarter was $1.5 million. Also as Bob mentioned previously yesterday we paid down $9.5 million or approximately 60% of our 12% interest GACP debt. We used $3.5 million of cash on hand and $6 million of our PNC term loan which has a rate of 6.9% to pay down this debt. This is another great example of how our progress on delivering profitable operational performance is opening doors for us to improve other aspects of our business. This will result in approximately 200,000 of interest expense savings per quarter and help us as we move forward to sustainable profitability. Our inventory for the quarter finished at 70.2 million which is a 6.6% increase from this time last year. Our increase in inventory year-over-year is directly related to our sales reduction in the consumer electronics category which is primarily drop shipped from our vendors. As a result of this mix change we needed more inventory carried on hand the service demand when compared to last fourth quarter. In terms of our outlook for the first quarter of 2017, we project revenue in the first quarter to be in a range of 152 million to 157 million which is a decline of about 6% to 9%. This decline reflects our continually balancing of our merchandizing mix to reduce lower margin consumer electronics that began back in the second quarter of 2016. We also expect to incur approximately 1.6 million in onetime charges in the first quarter, primarily related to the early pay down of the GACP debt. From a bottom line perspective, we expect to post an improvement in net income and EPS as compared to prior year's first quarter results. For the full year 2017, we expect sales growth in the low single digit for the fiscal year. We should show sequential improvement in each quarter, so that revenues will be down lower to mid-single digits in the first half of the year and show growth in the mid-single digit in the second half of the year. We expect adjusted EBITDA to be in the $18 million to $22 million range which would be a growth of 11% to 23% year-over-year. Our fiscal year expectations include a 53rd week in 2017. Also for full year 2017, we expect to invest approximately 8 million in capital expenditures, weighted heavier in the first half of the year related to our transition to HD TV. Lastly, I wanted to provide an update on the SEC auction process for our Boston TV station WWDC. We pursue this auction alternative while supporting the government in its tend to recapture some broadcast spectrum from more of our non-core assets. However, none of this spectrum we offered was selected during the auction process because the prices available in the auction fell below our minimum acceptable threshold. We will continue to air our Evine programming on our Boston station. That being said, we are currently considering several channels share proposals to monetize a portion of our Boston channel spectrum while preserving our ability to continue to distribute Evine programming in Boston via our station. Like Bob, I am pleased with the momentum our team has achieved in hitting our profitable goals in 2016 and our growth strategy in 2017 builds on these successes. With that let me turn it back over to Bob.

Thanks Tim. I'd like to take a moment to thank all our shareholders and employees for your trust last year and going forward. We are working hard to build a company you are proud of and that continues to deliver shareholder value. Thank you for joining our call this morning and have a good rest of your day. And now I’ll turn it over to the operator for any questions.

Thank you. [Operator Instruction] Our first question today is coming from Eric Wold from B. Riley. Please proceed with your question.

Couple of questions, I guess one, and pardon if I missed this. The 8.4 million household versus 2.8 point last year that was Evine 2 and HD, or it's Evine 2 and then -- start by that for me and then, what are your expectations for how those two opportunities could grow in 2017?

Hey Eric this is Tim. On the Evine 2 that is a growth of non-HD, that is a growth of Evine 2 from the 2 through the 8 [ph] in number of home that they're at. And so regarding what we expect from Evine 2 in additional distribution, we're in discussions currently on several different launches and so we do intend to grow Evine 2 in 2017. As we talked about in the past the advantage of this is that we're able to add homes -- we're able to add additional channels in homes we're already in at a fraction of the cost that we pay to get in those initial homes for the initial Evine Signal. So we're very bullish on building Evine 2 and we're very bullish on now that we're beginning to broadcast by the third quarter in HD, really ramping up the HD homes that we're going to be available in.

Now on the HD, so when you get fully operational in HD, would that lead to a curtailment in the non-HD places you're into that kind a go in MSOs and kind of replacing where you are now replacing with HD or do you still want to have both available?

We definitely want to have both available. So as you can as we talked about in the past, the number of channels that we're on the home and home that we find productive is key and the HD neighborhood is a very lucrative neighborhood where a lot of folks are spending most of their time. So we want to move into that category, but not abandon any of the other existing channel placements that we're on.

Okay. Wasn’t sure if that was possible opportunity to reduce cost in the future on less placement so you can kind of tell that HD is obviously dominating your viewership and customer base going forward?

Eric, that's a different question. We are actually focused on reducing our content distribution cost We think that it is important for us to begin to scale our business. So that is a separate question and the answer to that is yes, we are focused on reducing those costs.

Okay. And then just final question. Obviously, ASPs have come down a fair amount of with the mix shift especially on CE and then obviously gross margin by that same reason going up. Do you feel that this -- the levels right now are the right levels over the next couple of years to really grow new customer trial, repeat customer buys, or is there an opportunity to move higher -- move those higher on mix? And then as a separate question from the improving you'd expect on margin from that fulfillment center as well?

Yeah hi Eric, it's Bob, I'll take that question. We think the ASPs can still go up a little bit. One of the reasons of that the ASPs have gone down is now that we finished our warehouse distribution center and we have more flexibility in terms of multi-packing. And at the same time, we have packing on new WMS system the ability to be able to offer more up-sales and cross-sales, so whether it be warranties or whether it be having merchandize that they buy on TV or online and we also make suggestions selling, so that we complete their outfits. All that means that usually the secondary item that we offer usually is at a lower average selling price than the original one that we sale. So now that we have the warehouse fully functional and we can bundle some of these packages. It makes us more efficient. That being said, we have a very specific strategy that has to do with being able to engage more customers by having some pricing at a little lower ASP to be able to get new customers to try some of the new merchandise. And once we do that, we believe since they'll love our product they'll be able to step up to buy items that are at a higher ASP, and that's just part of our whole strategy to be able to grow our customer base.

Perfect that’s help Bob. Thanks guys.

[Operator Instruction] Our next question today is from Thomas Forte from Maxim Group. Please proceed with your question.

So for the second half '17 mid-single digit sales growth, how should we think about the components on a five category basis? At that point in time for example are you expecting consumer electronics to be flat or slightly positive, and then some of the other categories. So how should we think about the five categories sales growth for mid-single digit sales growth in the second half of '17?

Okay thanks, it's really good question. I think what we're going to see is, with the change of that we are making in CE, we will start to seeing more penetration in CE, but more profitable penetration in CE than we have had before. So I can't tell you off hand whether we are going to go up 3 percentage points from a penetration standpoint or 5. But there will be some increase in CE. But what we are going to be focusing on instead of, I think we mentioned earlier, the one in have done, where a customer comes in for some items and never comes back again like last year when we did the Segway [ph]. We are going to see a lot more CE items that we feel have more stickiness for customers to have more life time value. On the other families of the business, we are still going to focus on it, frankly, not only on the divisional like level, but we are actually looking at it at a lower level than that. So they'll probably stay relatively the same with the exception it may -- it will come down a little bit obviously because of the increase in CE, but it will be a more profitable CE from a penetration standpoint, but we should see incrementality on these sales.

And then incremental -- so to the extent that you're guiding to EBITDA in '17, how should we think about your intent to use your cash flow either to further pay down debt or to buyback more shares?

Tom, this is Tim, good morning. In terms of how we are going to -- we are not -- opportunistically we are looking at broadening our shareholder base, we are not looking at trying to buyback our shares as a program. So that was more of a onetime situation.

And paying down debt, Tim?

Paying down debt is again we are going to be -- that’s something that we will be a little bit more methodical about and from a cash, when we have the opportunities, we will begin to really dig into that last 40% of the GACP debt. We think that as we have talked about that was always intended to short term and the operation improvements we made in 2015 disposition to continually move that down throughout 2017.

Great, thank you very much.

Next question today is coming from Mark Argento from Lake Street Capital Market. Please proceed with your question.

I got one strategic and one operational. So I'll start with the operational for Tim. So you had mentioned in terms of the warehouse, obviously, there is a pretty decent investment in there. In terms of starting to see some cost savings, I think you said Q2 we should start to see a little bit more leverage, can you talk about the capacity you have in that warehouse and be a bit more specific as to how you see that leverage kind of playing out here over the next couple of quarters?

Hi Mark, this is Tim. Yes, sure, when you think about our new WMS system in our Bowing Green Facility, the idea is that we have put a new building in place and a new warehouse management assist to keep our capacity at a -- about 60% basis. So when you think about what success we have at Bowling Green, we're sitting right around 55 to 60. When you think about the savings around the new WMS, all around labor. The new system allows us to combine packaging and it allows us to do more efficient handling of the consumer products that we're shipping out and in a more timely fashion, so the customer gets them faster. This type of service level improvement then reduces the backend customer service calls, allows us to process the returns faster, it really affects the entire customer solution ecosystem by making Bowling Green a more efficient, faster moving and a more complete packaging facility.

Great. And then when you say the abilities of bundle, is that what multiple units in one package, is that what you talking about?

Yeah the way the system work, it allows us to keep that window open longer. So we find our customers often times buy once or twice within a 24 hour period and with the new system we're able to hold that window open longer, combine those two purchases into one box and still get it out the door in time for them to receive it in two to three days.

Got it. And then the $8 million in CapEx for the year, is that mostly going to HD?

No, I think most, I would say that we invested in HD last year, as Bob talked about a lot of the camera purchases were in '16, and we're finishing up in 2017. So I'd say probably 50% was done last year and 50% this year. So the remainder of the capital spend is around our top priority which revolves around customer analytics and better understanding the predicted data that we can use to make the shopping experience more personal and more relevant. It's also around mobile and making sure that we catch up around the best practice in mobile. We have a strong mobile presence now, but we think that's a big opportunity for us particularly over the next couple of years as that channel opens up further.

Got it. And then just transitioning over Bob kind a from a strategic perspective, any additional thoughts on kind a where you guys are positioned, the opportunity to work with some other partners, this whole omnichannel concept here sounds great, but it's still seems like everybody is still very siloed off. How do you see -- are there opportunities, do you foresee any large strategic initiatives? I know there are some chatter about some potential partnerships. Maybe you could talk a little bit about the strategy here and now you have the platform stabilized, what's the opportunity to really lever what you have here and really take it to the next level?

Yeah absolutely, thanks. One of the things that have been so helpful for us is not only did we help get the infusion from Tommy, Tommy and Morris of the money, but Tommy and Tommy are also on -- our advisors of the company right now. So based on that, we've literally been able to get into pretty much into the office of anybody that we want to explain the opportunity of utilizing video commerce in a way to bridge the bricks and mortar experience currently which as everybody know is having is being challenged as well as the ecommerce experience, that is being challenged certainly from a profitability standpoint. So we think there is still a need to be able to tell story and be able to build brands. And we've been meeting with a significant amount of people who historically have only sold either through stores or on ecommerce and they are now approaching -- not only approaching us, but we have a program in place to start bringing on air more exclusive and proprietary products. So there will be name brands that available -- that the brands are available in other locations, but the products that we are going to have are proprietary and exclusive.

And is that something that you are rolling out this year?

Yes, we certainly intend to roll it out this year. As you know the investment made by the gentlemen -- those gentlemen happened in September and essentially right now what we are doing is we want to put together the program in a way that maximizes having the right partners to be able to roll it out in the second half of this year on a regular basis. We are already in the midst of and we'll probably start seeing some tests in the second quarter. But I would say that by the second half of the year, we will have our aligned partnerships and you will be able to start seeing those online and on air. And it should be -- I think it's going to be a little -- it's going to be very different than you see on the other networks.

Great thanks guys.

Thanks. Our next question today is coming from Alex Fuhrman from Craig-Hallum. Please proceed with your question.

Great, thanks for taking my question and congratulations on quite a transforming the year especially with the EBITDA improvement there. One thing I was hoping to get a little bit more color on, Tim you mentioned it in the prepared remarks, it seems like something that to me is probably been a pretty big part of helping to drive the productivity, but you mentioned a reduction in the minutes of customer service calls per unit sold. Can you give us a little bit more color on what's driving that? Is it changes in process, is it more related perhaps to the mix of what you are selling that some of the items perhaps in consumer electronics that have been scaled back or maybe associated with the higher number of customer service call, you will be curious to what's driving that, is that something that you think could continue to improve over the next couple of years?

Sure, so -- for sure let's start at the top, which is, some of it -- I think a lot of that was related to the shipping speed and the processing speed that we entered -- that we are now able to execute. So when you think back on calls, even your own personal experience, if you don’t get your packet in a certain period of time, you begin to make those phone calls to find out what's going on. If you don’t have your return process in the certain period of time. So our efficiency in the warehouse has improved the customer call and reduced the number of customer call. Certainly there is a component of mix, when you think about consumer electronics that's all drop shipped, so that’s a touch point of we don’t really control. Particularly around the holidays, when these drops shippers are overwhelmed with trying to service several other types of vendors that because their products drop ship perspective isn’t what as we call proprietary and exclusive. So again, the customers calling, trying to find out what's going on with their package. All those elements around mix, shipping speed and then just the packaging, of getting your packages all at once, as I talked about before in CE retailing, in particular our customers are buying many time in the year and often times several times a day. And as they do that they get one package if it's separated by a day, or if it's separated by two days when the orders are on the same day that also generates interest from the customer and inbound traffic. So the new WMS system is allowing us, again, from a customer touch point perspective to improve our service.

And Alex, it's Bob. I just wanted to add, because I think it's probably in the information that we have given you, but maybe not as specifically is one of the things we worked very hard at this year is breaking down the silos in each of the areas. So when you're asked Tim a question regarding how are we doing from a customer service standpoint and why are we doing better, it's because we have weekly calls [indiscernible] the operating team and Bowling Green team have weekly calls with the merchandising organization and have weekly calls with all the different components of the organization to ensure that everybody understands the importance by putting customer first in terms of the transaction. And historically I think here, what I found was people work more in silos and therefore they worked on their problems, but they didn't look at the global problem of how do you solve, how do you make the customer experience on any screen that they order the best possible experience that there is. And I think that's been -- although it's not specifically said here, when I see what we're doing that seems to be a change in the way that things were done in the past.

That's really helpful, thank you. And then just more of a housekeeping perspective, you've mentioned in your forecast this year includes the 53rd week. Can you give us a little bit of a sense of how much that week is expected to add in terms of revenue and profit, and I mean is that basically just like adding another late January, early February week to the results?

I think obviously as we haven’t given that, but I think that's a fine proxy for how to estimate it.

Well that's very helpful. Thank you guys.

Thanks Alex.

Thank you. [Operator Instructions]. Our next question today is coming from Alex Silverman from the Special Situations Fund. Please proceed with your question.

Most of my questions have been asked and answered. The one last one is, how much of that $1.6 million charge is cash and how much of that is non-cash?

Hey Alex this is Tim Peterman. We haven't really broken that out, but like I said the majority of it is related to the retirement of the debt.

I understand that, how much that is a cash prepayment penalty, and how much of that is writing off the amortized cost of the debt?

The majority of it is non-cash.

The majority is non-cash, okay.

That's correct.

Thank you, that's all I had.

Thanks.

Thank you. [Operator Instructions]. Our next question is coming from Victor Anthony from Aegis Capital. Please proceed with your question.

Thanks. So maybe I could just jump in on a broader industry question. So growth as we've all seen has been challenged, for all of the operators in this space, you guys, QDC and HSN. And all three I guess are looking for reduction of growth in the back half of this year. So I'm trying to determine whether or not this is more of a secular change or much cyclical change that's occurring in the industry. So maybe you could answer this, why isn’t this, what's happening a result of [indiscernible] or some other broader secular issue that's at play within the video commerce industry?

Hi Victor, it's Bob. Let me try to start at least with the answer to that. We've said from the beginning that because of the size of QDC and HSN and frankly they're kind battleships, and so they have built their business year-over-year based what they do and their mix of business has been based on that. And they have relied more strongly in the last few years on less proprietary brands and more on branded merchandise and more on CE and home that's available in other places. So I think that in their case, they have a challenged that's a little different than ours in the sense that they have tried to or they have been in many cases starting to compete with Amazon in many areas which is a challenging thing obviously because of all the reasons why. We on the other hand, at a little less than $700 million revenue, have the opportunity to be able not -- our journey from the beginning has been let's get out of those things that are available and branded in other areas. And as said, if it's easily available in other places then frankly we don't want to compete on price. So we have this great group of merchants who's job in life is to go out and find stuff that isn’t available to anybody else. And that is -- when I was President of HSN 10 years ago, when we read about $1 billion in revenue and we were able to work ourselves up to $2 billion in revenue that was always the journey that we wanted to take which was to be able work on a contribution margin basis to be able to get to scale. And in many ways, I think the team around -- the team here that we brought in are very focused on the same fundamentals of being able to grow from the base we have because of the business is one that is really based on that kind of growth. So I don’t think it's a secular change for us. I think our journey is very different in terms of being able to stick to our knitting, if you will, on the customers who like to engage with learning about brands and learning of the stories and being taken to Ireland and being taken into the factories and learning how the work merchandize, that’s not readily available in other places. I think the other guys have a different challenge on their hands because QDC is like $6 billion, $7 billion in revenue and HSN $2.5 billion in the U.S. revenue, having a different challenge on their hands based on how they built the business over the last couple of years.

Got it. Thank you very much.

Thank you. We have reached the end of our question-and-answer session. I’ll turn the floor back over to management for any further or closing comments.

Hi, it's Bob. I just want to thank you again for all of your time and all of your trust for the employees as well over the last year and going forward. We are going to continue to work hard, we are going to continue to focus on those metrics that don’t lie, we are going to be focusing on our cash, we are going to be focusing on our EPS. We believe that that journey is the one that’s going to lead to winning and we are going to continue to stay nimble and stay opportunistic. And I think that is going to be the thing that’s going to be able to get us elevated to the next levels. So thanks for everything. Thanks for your day and good bye.

Thanks. So that does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day. We thank you for your participation today.