Michael Porter - VP, Finance & IR Bob Rosenblatt - CEO Tim Peterman - COO & CFO

Mark Argento - Lake Street Capital Markets

Greetings and welcome to EVINE Live Fourth Quarter 2017 Earnings 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. I would now like to turn the conference over to Michael Porter. Thank you. You may begin.

Good morning and thank you for joining us today. Joining me on today's call is our CEO, Bob Rosenblatt; and our COO and CFO, Tim Peterman. Bob will provide his thoughts on our business and Tim will follow with the highlights of our financial and operational performance. We issued our earnings release earlier this morning. If you do not have our earnings release, you may obtain a copy through the news section of our Investor Relations website 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 and speak only as of 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 includes non-GAAP measures such as adjusted EBITDA. The information required to be disclosed about these measures including the reconciliations to the most comparable GAAP measures are included in the earnings release. The earnings release is also an exhibit to our Form 8-K that can be accessed through the SEC filings section of our Investor Relations website. Now I would like to turn the call over to Bob.

Thanks, Michael and good morning everyone. I'm pleased to report that our fourth quarter financial and operational results are the latest example of how we continue to consistently improve earnings per share to drive shareholder value. When I shared my initial vision with our senior team and other constituents back in the beginning of 2016 when our stock was at $0.41 per share and our annual adjusted EBITDA was $9 million, I admit that some people were skeptical. I said that was understandable and that credibility had to be earned. After two years of consistently executing on our goals, today I believe the majority of constituents recognize the progress that has been made. From fiscal 2015 to 2017, we've doubled our adjusted EBITDA and for fiscal 2017 we generated positive annual net income for the first time in 10 years. We have built a best-in-class management team, we have improved our balance sheet by paying off a $17 million high interest term loan that was needed at the beginning of 2016, we launched our television signal in high definition, we expanded our fulfillment center, we implemented a state-of-the-art warehouse management system and we dramatically improved our customer experience with better customer service, more robust merchandising assortments and more advanced technologies, especially in the digital space. We believe the successes of these first 2 years of our 3-year turnaround plan are not yet fully reflected in our current stock price because this third year 2018 is about revenue growth and building market share. These last 2 years have positioned us for this revenue growth opportunity and we are optimistic that our shareholder return will soon begin to be reflected not only through demonstrated revenue growth successes but also through the value creation of combined profitability and balance sheet successes we have achieved during these past 2 years. This will ultimately lead significantly improved cash flow on a go-forward basis. I'm encouraged by the significant progress we've made, specifically in the backhalf of fiscal 2017 when compared to our prior year, profitability in the third and fourth quarters combined increased 28%. That being said, I'd like to talk a bit about some specifics about our fourth quarter performance. Although we did not grow sales as much as we initially hoped to in the fourth quarter, this was more by design based on one of the significant benefits of our business model where we have the unique opportunity to read and react to the customers response literally in real-time. We made great progress with building the Company to allow us to focus on growth and thus shareholder value. For example, we continue to operate well within our contribution margin disciplines. Heading into the holidays, we had a strong merchandising plan and a defined marketing plan to support it. As we've seen in other recent holiday periods, there was significant promotional activity and discounting by direct and indirect competitors. Prior to introducing these disciplines, we would have participated in aggressive promotions with low margin products to drive higher revenue but this would have also resulted in lower profitability. This quarter we continue to stick with our strategy, to be opportunistic with our product mix to deliver appropriate levels of contribution margin. Although this resulted in less revenue growth than we originally expected, our profits remained on plan. This delivers for the shareholder and just as importantly, increases the trust within our customer base and strengthens the value proposition, especially for those customers with higher lifetime share of wallet than in the past. As I've said before, at this point in our Company's journey, we continue to focus on profitability and long-term customer loyalty and will take profits versus revenue that would not be added if to the overall financial position of the Company. During the quarter, we launched 7 new brands. Combined, these 7 new brands delivered 103% increase in sales and an 87% increase in new customers compared to new brand launches in the fourth quarter of the prior year. These new launches crossed multiple categories and were highlighted by known brands such as Bose and Seiko watches. Additionally, we were very excited to welcome Sharif Handbags to the EVINE family in the fourth quarter. Sharif designs are recognized alongside of some of the most iconic handbag designers in the world. Our product portfolio continues to improve as we continue to build on our core brands. We also introduced a new line in Invicta's successful series of character theme collections. This time Kermit and Miss Piggy appeared live on EVINE to help launch the newest addition to the Invicta Disney collection of watches, unique exclusive time pieces featuring many of the Sesame Street characters. These new Muppets collection included exclusive to EVINE Muppet timepieces and made for engaging TV. We also added to our Marvel collection with Black Panther, The Punisher, Thor and other iconic characters. Another example of a collaborative and creative efforts by our merchandising team and vendor partners that I was proud of during the quarter was launch of the Skyblue by Victoria Wieck Apple Watch Case. This exclusive to EVINE product is the only jewel covered case in the market that features Swarovski Zirconia crystal and is designed to beautifully encompass an Apple Watch. Victoria's loyal following continues to seek her newest creations and she consistently delivers high quality designs that our customers adore. We continue to focus on fueling our subscription businesses during the quarter and the results were strong. We grew our front-end and back-end subscriptions during the quarter by a combined 24% sequentially improving from the 20% growth reported in quarter three. We continue to focus on fueling our subscription business during the quarter and the results were strong. We grow our front-end and back-end subscriptions during the quarter by a combined 24%, sequentially improving from the 20% growth reported in Q3. Additionally, the front-end subscriptions alone grew 40% during the quarter which will help fuel continued growth in back-end subscriptions in fiscal 2018. As a reminder, back-end subscriptions are particularly profitable from a contribution margin perspective as they don't need to use valuable airtime to generate incremental sales. We also continue to enhance our mobile technology and recently launched a new native iOS app available for download in Apple's app store geared toward our customer creating a more seamless experience regardless of how they choose to shop. We continue to focus on making the customer experience as frictionless as possible. In the fourth quarter, 54.4% of our sales were digital, this is an increase year-over-year of 250 basis points. For fiscal 2017, 51.9% of our sales were digital which was an increase of 240 basis points from fiscal 2016. Mobile sales, our biggest priority within digital increased as a percentage of digital sales to 50.8% in the fourth quarter which was an increase of 580 basis points compared to last year. For fiscal 2017, mobile sales were 49.9% of digital sales which was an increase of 450 basis points compared to fiscal 2016. Viewership on social media platforms like Facebook and YouTube is becoming more and more relevant with the distribution of live content. During the fourth quarter, our content on Facebook and YouTube was watched for over 1,300 days, this is a 12% increase versus the third quarter. We also generated in access of 1 million views across both platforms. During 2017, we saw an 81% increase in impressions on Facebook and 372% increase in minutes watched on YouTube. Regarding our customer file, our current customers continue to tell us how much they enjoy shopping with EVINE and it's reflected in the 2% increase in purchase frequency in fourth quarter. For the full year, our purchase frequency reached 8.9x per year, that's a 9% increase over the full year compared to last year, and a 19% increase compared to fiscal 2015. Along with revenue growth, reestablishing growth in our customer file is a top priority for fiscal 2018 and there are two components to our strategy here. The first is increasing our new customer acquisition which will embrace various initiatives including applied machine learning, improved digital marketing spend, targeted social campaigns, systematic reform [ph] programs, and new brand launch campaigns. The other component is to maintain and increase our already strong customer retention and reactivation programs. These efforts will include continued use of propensity modeling, personalization and email. Both components will have a sharp focus on prioritizing high life-time value customers and the common thread between all is that analytics will serve as the compass towards efficient customer growth by helping to identify the right customer at the right time with the right product at a competitive price. Now, I would like to provide some highlights on our go-forward strategy. As I mentioned on our last call, our strategy is to position EVINE as a leading omni-channel provider of proprietary and exclusive goods using our fully built out direct-to-consumer and increasing valuable video commerce platform, this has not changed and we continue to have three primary tenants to our strategy designed to surprise and delight our customers and shareholders. First, we will continue to grow our products and programming muscle, our pipeline is strong for both. Our fixed programming initiatives continue to drive our highest viewership with Wakeup in Style on Saturday mornings, the Sizzle on Sunday Mornings, and Sweet Home Savannah with Paula Deen on Tuesday nights. Combined, these shows outperform their time slots by an average of 42%. We were also excited to bring back Season 2 of EVINE After Dark at the end of January. Backed by popular demand after the very successful Season 1, EVINE After Dark returned on air and online with an even larger assortment of product offerings and brands. Season 2 builds on the trailblazing Season 1 by creating a monthly 2-hour experience providing advice and education on real-life personal topics and solutions. Through this programming, every women has a safe and confidential platform to facilitate her intimacy journey. Our goal is to complement our strong programming calendar with a seamless and integrated platform that allows our customers to consume our content on the device of their choice and at their convenience. Our business model will rely on television, as well as other platforms such as social media, mobile, interactive advertising and community, and what we consider the combination of the art and science of the next generation of interactive video commerce. Second, we will grow our content distribution. Our growth here will be to continue to add new channels in the high definition neighborhoods. In 2017, we grew our HD distribution by over 10 million homes which was a 40% increase compared to the end of fiscal 2016. As a reminder, it takes these new HD channels time to mature but based on our prior HD launches on the Verizon FiOS and AT&T U-verse platform, we expect to see an increase in sales productivity per homes, upwards of 30% at maturity. Our improving content distribution supports our plan for sales growth in fiscal 2018 and there is opportunity for even more. The HD Channel Universe allows us to access to over 45 million additional homes which would get us in parity with the other video commerce networks. In addition to launching more HD channels over fiscal 2018, we have several distribution concepts under development to grow our customer base using emerging over-the-top platforms such as Roku, Amazon Fire and Apple TV. In the fourth quarter, on these platform we generated 40% growth in the number of sessions and a 36% increase in the number of users when compared sequentially to the third quarter. Third, continue to deliver profitable performance while positioning the sales engine to grow. We will continue to focus on our contribution margin, adjusted EBITDA, net income and free cash flow. We believe having a strong foundation of profit generation provides the most value in the long-term. I will now pass the call over to Tim to walk through our financial, operational, and content distribution results in more detail. Tim?

Thanks, Bob. I'll start with the highlights from the quarter. As a reminder, our fourth quarter had 14 weeks compared to 13 weeks last year and our fiscal year was a 53-week year compared to a 52-week year for fiscal 2016. Consolidated net sales for the fourth quarter were $192.7 million, which was an increase of 1.2% when compared to prior year fourth quarter. Our return rate was 19% in the quarter which was up 60 basis points year-over-year. This modest increase was related to higher average selling prices, particularly in the jewelry category. Our average selling price in the quarter was $57, a 6% increase year-over-year. This was primarily attributable to ASP increases in our jewelry, watches, home and CE categories. Our gross margin percentage decreased 20 basis points during the quarter to 33.8%. The slight decrease reflects our relatively strong home and consumer electronics category sales during the holiday period. Our fourth quarter operating expenses totaled $60.4 million, which was down slightly year-over-year despite having an extra week this year. Operating expenses as a rate of net sales decreased 60 basis points year-over-year from 32% last fourth quarter to 31.4% this year. This improvement in both operating expense dollars and rate was driven by continued expense optimization in our variable expense, program distribution expense and general and administrative expenses. Depreciation expense decreased by $0.4 million which is consistent with prior quarters and driven by a reduction in our non-fulfillment depreciable asset base. Lastly, we recognized a $0.6 million on the sale of our Boston TV Station that contributed to the year-over-year operating expense decline. As was the case all year, we had a great performance within our key variable costs which includes our primary operational functions, our customer solutions group, our fulfillment in logistics center, and our credit and payments group. Variable expenses for the quarter were approximately 8.7% of total net sales compared to 9.4% last year, a 70 basis point improvement which was driven by continued efficiency improvements in all functional areas. In the customer solutions group, I'm proud to report that for the second consecutive year, EVINE was a finalist for the Better Business Bureau's Torch Award for business ethics. Our Better Business Bureau's rating has been an A-plus for over 3 years. In addition, we continue to have success improving our live agent contact rate which measures the post-sales support calls compared to units sold. We improved this metric by 60 basis points in the fourth quarter over last year. This reflects continued improvement of our service to our customers at the point of sale and indicates less need for post sales customer support. In the fourth quarter we continue to implement our voice of the customer program which is refining our customer intelligence and responsiveness by deploying data driven decision making grounded by the voice of our customer. In addition, we continue to help our solution center convert opportunities into add-on sales with better training and knowledge. These efforts resulted in an increase in live agent close rate during the fourth quarter of 400 basis points over the fourth quarter of last year. In our fulfillment and logistics center, our cost per unit improved in the fourth quarter by 17% compared to the fourth quarter of last year as we continue to reap the benefits of our new WMS technologies in our upgraded building green facility. In addition, our building wide throughput measured by units per labor hour processed through the fulfillment center improved by 19% compared to the fourth quarter last year. In our payments and credit group, we continue to leverage our private label credit card to provide our most loyal customers exclusive and differentiated promotions. During the fourth quarter this included our 12-days of Christmas event that we offered a new and unique promotion each day to drive viewership and urgency. Our private label credit card remains an important loyalty tool while also helping to reduce our credit card interchange and other processing fees. So I'm pleased that we were able to increase the penetration on this card by 100 basis points during the calendar year. As Bob mentioned, our content distribution efforts is one of our most important tenant to our near end long-term growth. We remain in more than 87 million homes as of the end of the fourth quarter and are now in over 35 million HD homes. We expect to continue to increase the number of HD channels in fiscal 2018. In addition to launching in more HD channels this year, we have several distribution concepts under development to grow our customer base using emerging over-the-top platforms such as Roku, Amazon Fire, and Apple TV. In the fourth quarter, as Bob mentioned earlier, on these platforms we generated 40% growth and a number of sessions and a 36% increase in the number of users when compared sequentially to the third quarter. Additionally, on our YouTube platform while still nascent, continues to grow in both sales and audience. We generated adjusted EBITDA of approximately 7.7 million in the quarter which was a 19% increase compared to the fourth quarter of 2016. Improvement in this metric gave momentum throughout the year as third and fourth quarters combined increased 28% over last year. For the entire year, our adjusted EBITDA was $18 million, an 11% year-over-year increase. Interest expense was $1.1 million in the fourth quarter. During the quarter we fully paid off our high interest term loan with GACP. Accordingly, based on current interest rates, our expected run rate for interest should be about $1 million per quarter in fiscal 2018 which is about a 20% decrease annually in our interest expense. From a tax perspective, we do not expect to pay federal cash taxes for the foreseeable future as we have approximately $321 million of federal NOLs available to us to offset future taxable income as of the end of fiscal 2017. In addition, the newly enacted Tax Cuts and Jobs Act of 2017 will not affect our ability to utilize our available NOLs when needed and overall, will not have a significant impact on the Company. Turning to the balance sheet; we ended the year with cash of approximately $24 million which was no change from the end of the third quarter. We also had an additional $18 million of unused availability on our revolving credit facility with PNC Bank which gave us total liquidity of approximately $42 million at the end of the year. During the fourth quarter, we closed on the sale of our Boston TV Station, WWDP, and we were able to complete this transaction and receive the proceeds ahead of our initial plan. The cash received was used to pay down the remaining portion of our high interest term loan with GACP and for working capital purposes which we intend to use to further invest in proprietary and exclusive brands and for new carriage in additional high definition homes. These transactions resulted in a $3.5 million positive impact in net impact in the fourth quarter which includes the tax benefit of the reversal of the long-term deferred tax liability relating to the FCC licensed asset, the recognition of a gain on the sale and the subsequent loss on extinguishment of high interest debt. Our inventory for the quarter finished at $69 million which is down 2% compared to last year. We continue to feel good about our merchandising and supply chain efforts to help us manage to appropriate levels of inventory. In terms of our outlook for full year 2018, I'll first remind you that fiscal 2018 has 52-weeks compared to the 53-weeks in fiscal 2017. Because of this, we expect normalized full year 2018 sales growth to be in the 2% to 5% range on a 52-week over 52-week basis. This equates to 0% to 3% growth on a reported basis because of the extra week in fiscal 2017. We expect adjusted EBITDA to be in the $19 million to $21 million which would be growth of 5% to 17% year-over-year. We also expect to invest about $8 million to $10 million in capital expenditures during the year. As Bob indicated, we are pleased with our financial performance and we believe it is still being undervalued by the market. We are focused on driving continued profitability in both, revenue and free cash flow growth. As these three areas of focus continue to come together, we expect to increase our shareholder return. With that Bob and I are happy to take your questions.

[Operator Instructions]. Our first question is from Mark Argento with Lake Street Capital Markets. Please proceed.

I just wanted to peel the onion on the holidays a little bit, kind of what happened -- it sounded like promotional activity was the thing that made you guys pivot in terms of the revenue growth strategy in the quarter, maybe you could kind of peel the onion for us a little there?

Sure, that's exactly right. We, at our point, at our growth; you always have a choice in terms of leaning in to try to drive, no matter how good your plan is, you want it to be able to make sure that you can manage what you wanted, what you think is important and for us the most important thing obviously was being able to build the appropriate platform so that we can actually go forward in the strongest way possible. So when we saw our bunch of direct and non-direct competition cutting a lot, doing a lot of promotions and really kind of giving away from a contribution margin a lot of merchandise; we said, there is no real good reason for us to do that, we are building this for the long-term. And also -- in retail if you cut your costs on certain items and certain brands, then when the customer comes back the next time there is an expectation that they're going to wait in order to be able to -- wait for that reduction to come. And I saw a bunch of this when I was President of HSN, and we just made the decision that based on where we are -- at our juncture we decided that, that we do as no good reason to do that. We knew we were going to be able to manage towards being able to be in the strongest cash position possible and we knew we were going to be able to position ourselves for the third year which is really the growth year. So while a couple of the people in our direct competition actually went very hard on the promotional piece of it, we made the choice of not to do so.

And the promotional activity that was out there; was it lower prices on the products, was it more free shipping -- what kind of promotional activity kicked in there in the month of December?

It was a mixed bag, it certainly started with what we noticed to be a reduction in price, a lot of merchandise that has been sold by our competitors in the past; so that was the biggest piece of it. Then along with that we saw some additional promotions where -- and as you know, there is a different process in our competition in terms of their shipping and handling promotions and they already went lower I guess last year and they ended up going even lower and giving some free shipping and handling in order to be able to drive that and they did a lot of stuff on the web that was clear to us that was either clearance merchandise that they were trying to drive out that they had already bought and it looked to me as though they had an over inventoried situation and they were trying to get out of the merchandise in the best way possible to be able to drive sales even if it meant some EBITDA reduction and we choose not to do that.

And then in terms of total viewership, obviously you talked about some alternative channels, digital, Facebook, OTT and other opportunities; but when you look at the core viewership of the channel, are you seeing similar trends that others are out there in terms of traditional television viewership, down in the teens on a year-over-year basis? What are you guys seeing in terms of engagement through the channel?

If you're asking about the overall viewership as it relates to the over-the-top or the unplugging or cutting the core, we haven't really seen any material impact on that. Obviously, we are very mindful about getting on those platforms, although they are nascent, they are very important for the next 2-3 years to continue to introduce ourselves on that platform but our core customer continues to be not an early adopter and so they are still primarily watching on the television and on our air. There was a Nielsen study last year that talked about our core customer and they are actually watching more television via cable than they were 5 years ago. So that -- we haven't really seen anything material in that regard although we are very interested in growing our presence on those platforms.

And Mark, the other thing I'd point to is when we talk a little bit earlier regarding the amount of penetration that we have on e-commerce is that we found that because we are seeing a lot of activity on e-commerce that us being able to really cultivate more products and more value and we're -- people buying more merchandise on e-commerce platform, we are seeing a lot more activity on people that are going to the web to buy and the average retail on that, not for the item but for the items is going up; so that seems to be something we've never mind before in a way that we're doing now and now because we've made our aps a little bit more simplistic, it's a lot easier for us to be able to do upsells and cross-sells and subscription programs and that seems to be one of those areas that if we're paying up attention to and we will, we could get some real accretion there without having to do anything other than just be able to focus on the e-commerce digital part of our business.

Our next question is from Mark [ph] from Craig-Hallum Capital Group. Please proceed.

I was wondering if you could talk little more on the proprietary brands so much and that's kind of going to be one of main focuses in 2018, just maybe discuss the pipeline you've been seeing in the next queue [ph] compared to how things have been in 2017 just raising the application of real-time both watches and maybe some extensions?

Yes, we've really seen an amazing amount of people that have been coming to us and brands that have been coming to us that are in different stages of growth, now the easiest stages of growth for us when they come to us is for to be an item that's either under-distributed and a lot of the bricks-and-mortar companies are no longer carrying brands and a lot of people as everybody knows are not going as much to the bricks-and-mortar places as much as they used to; which gives us really the opportunity to be able to held the story for the brand because it helps in telling the story, and it also gives us the opportunity to start driving more and more into being able to develop our own private label brands and what we saw this year is that -- and we will see a lot more of this in the next quarter is our growth towards being able to really manage our own proprietary exclusive brands by being much more vertical. And by being much more vertical obviously, along with the science that we build over the last two years and knowing how much to buy and looking at the ultimate gross margin and ultimate contribution margin of the merchandise and in terms of sell-through, we become much, much better in terms of knowing how much to buy and at what prices to be able to do that. So we've seen probably this year I would say to double or tripling of proprietary and exclusive brands that have come to us in the past. And not only -- a lot of them are obviously in the apparel area and in the accessories area but also in the jewelry area we've gotten the opportunity to have a significant amount of merchandise that if we apply somebody who is known for that and we actually help them, we actually assist them with the sourcing of those products which we have at core competency as well and with brilliant more and more and you will see a lot more news on that. As we continue to grow that part of it, we expect the gross margin to be able to -- at percentage to be able to grow considerably because the ultimate gross margin and the ultimate contribution margin benefits the most if you order the right amount of merchandise at the right time. So we feel really [indiscernible] that that is probably I would say one of the biggest opportunities on the merchandise side to be able to have -- and as you guys have seen over the last two years that we've grown the gross margin percent and we plan on continuing to look at that as being one of our biggest opportunity areas.

On the HD pipelines, just wondering what you've seen so far from these homes you added in November, it seems similar ramp to maturity that you accepted; you mentioned before you're kind of get that to 3% uplift. And then, on a similar basis some of these old and top channels, what kind of ramp to maturity or just kind of -- how do you see that building out over the next couple of years and internally stages?

Regarding your first question around the maturity timeline for HD, there is a -- we have heard this question a couple of times, so we've put it out in our investor relation to presentation that we -- in our website, IR website and it really, it's a great chart that illustrates how it matures from zero through 13 to 14 months, that traditionally our experience in what we've seen from other HD launches like 18C versus Verizon and so it begins to happen fairly slowly where we're moving from a 5%, 6%, 7% out indexing of our normal distribution and then it really moves in as it matures into about 30% over indexing of what our traditional carriage does. So we're very excited about DHD, not only because of the most recent 10 that we've launched but now we're in 35 and we know we're going to continue to work on growing that number in 2018 so as these stagger in and mature as the ones in the November begin to mature in the spring of this year, that is why we're bullish about our growth prospects on the top line. And when we add more in the second and third quarter, we think that will then again drive growth for '19. In terms of the OTT platforms, they are still small and they are particularly still small for our demographic and our customers but that being said, it's a whole new generation of folks that are consuming media in different ways and it's important for us to be in front of that and again, show different types of our programming to them in those forms so it's not just 24/7 linear programming on video that we're showing, we're showing shorter clips, different kinds of engagements that they are interested in and that's what we're learning and that's why we're on those platforms.

[Operator Instructions] Our next question is from Eric [ph] with B.Riley FBR. Please proceed.

Also trying to dig in a little bit deeper into the results in the quarter and kind of what the underlying drivers were, you're going to look for the '18; so I understand it was a competitive environment out there that work in promotions and it shows not to compete and impacted your top line growth but still adjusted EBITDA came in at a very low point of the guidance range and touching $18 million versus $18 million to $22 million. So it seems like results even excluding the decision to not go after unprofitable revenue growth, the underlying trends are still well below expectations. So maybe help me understand that a little better?

Again, I guess I'll point back to what Tim said earlier regarding our 3-year turnaround plan which as Tim said in on our website. At the end of the day we are not looking and we continue to sweep in absolutely consistent as you -- I am sure you know, on this is that in terms of when we first came in and the challenges that we had in front of us, we made a decision that we're not going to manage quarter-to-quarter but we are going to focus on building the right platform and building a strong foundation in order to be able to build the strongest building that we can have. So we came in within the right parameters, you're right, we came in on the lower side of the right parameters but this is all about a story and building, this is not about a quarter-to-quarter run. So although I appreciate the question, and certainly true, we felt very comfortable that since we're controlling the direction of where we're going that we feel comfortable with that.

When you think about the 3-year turnaround plan, we're just completing the second year. Profits have doubled in that period of time, we've launched in the HD, we've strengthened the balance sheet, all of that prep work has been done to really make '18 where we do drive sales. So when we thought about the goals of completing the second year, it was on profitability but equally important, it was about Michael Henry building a great assortment of product, getting the content distribution of Comcast and others in HD. So we're building -- we didn't see the benefit of risking not achieving our goals in Q4 to make sure that we are positioned well to grow revenues in 2018. This is our third year, this is what we've been working for and so we understand that that trade-off is, was going to make us come in below our expectations but the profitability in year two was the most important metric, revenue growth is the most important metric in 2018.

I completely understand the goal of getting the right customers in there, obviously that's been a big part of your ship for the past couple of years into the product mix and getting kind of the one and done customers out of these, get more of the referring or repeat what was there. But maybe also then kind of -- if I drill into the metrics, total customers down 9% in the fourth quarter at lowest level in four years, is that a level that now is going to stabilize and maybe kind of contrast that with the HD rollout; when you rollout HD channels in the households, you kind of move towards that 30% lift. Is that driving a 30% less in sales than existing customers or is that actually helping to drive new customers as well because it seemed like a pretty big drop in customers; that's a surprise there.

To your point, it was the continuation and again, anything that you do is a journey. We have continued by looking at the lowest level of detail that we can get to in contribution margin which is really by vendor set and by hour to be able to determine what the lifetime value of customers are. And as we do that, as we move towards more personalization we felt that that was the best trade-off in order to be able to get ourselves financially in the best position possible to be able to win. So although we did know that we're going to move out some customers that were not profitable, we felt strongly that this was the right thing to do. I think -- it's safe to say -- I'll let Tim answer the piece on the HD side and rollout but it's clear to us that as we are able to get on these HD homes, it's much of the people that we're getting back, our people that frankly had moved onto the digital platform a long time ago and we're no longer willing the analog neighborhoods and they moved to the digital neighborhoods because almost everybody has -- our customers have a lot of -- have HD TVs but we didn't have the HD equipment until September to be able to go -- did we think it was worthwhile to go spend the money to go out -- to be able to go after those customers. So again, it is a process that we're going through.

To answer your question very directly, the answer is yes. From the profile where we are at customers we're moving forward and I want to build off of that. It's not an easy task when you think about our 3-year plan, to say is this we're going to take revenues down and we're going to move the less profitable, low margin ubiquitous product like CE, Consumer Electronics out and take out revenue down in order to build and find customers with a higher lifetime value and so that hardwork being complete, you will see the revenue came down, you will see that customers have come down but that was adding the content distribution as to your point, not only has the purchase frequency increased of existing customers but we're now attracting more customers. This new content distribution is important element of our customer acquisition model and that's why when we loaded those 10 million new wins on in the late fall, that's about -- that timing was planned for the spring of '18 and the fall of '18, so all of it is working together and it is a baseline that we're going to be growing from 2018.

Final question; I don't know if I've missed it. Did you give any kind of comments on expectations for the HD channel help us to add this year?

We did, it was called MORE, we want [ph] more of them and we did talk about the universe which was I believe $40 million additional HD homes available for us to negotiate with and to bring on and that is our universe. As you can see we've routed prestanding clip of $10 million to $15 million a year and we hope to replicate that again in 2018.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Bob Rosenblatt for closing remarks.

Thanks so much. I don't have much to say other than this journey has been amazing that where we started and where are now is -- we've built. And hopefully we've been able to build your confidence in terms of being able to -- quarter-after-quarter be able to transparent about where we were, transparent about where we're going and we thank you for all the support and we look forward to an amazing 2018. Thank you so much.

This concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.