Greetings and welcome to the iMedia Brands Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tim Peterman, Chief Executive Officer for iMedia Brands. Thank you, you may begin.

Good morning everyone and thank you for joining. I’m Tim Peterman, iMedia Brands’ CEO. Before I go into my prepared remarks, I would like to cover a few housekeeping items. We issued our Q2 earnings release earlier this morning. If you don’t have a copy, you may access it through the News section of our IR website at imediabrands.com. This release is also an exhibit to Form 8-K filed this morning. I would also like to remind everyone that this call will be available for replay through September 1 starting today at 11:30 am Eastern time. A webcast replay will also be available via the link provided in today’s press release as well as on the investors webpage at iMediabrands.com. Some of the statements made during this call are considered forward-looking statements and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today’s date. We undertake no obligation to update or revise these forward-looking statements for any reason. We believe the expectations reflected in our forward-looking statements are reasonable but give no assurance such expectations or any of our forward-looking statements will prove to be correct. For additional information, please refer to the Safe Harbor statement in today’s earnings release and our SEC filings. Finally, we will make references to non-GAAP measures on this call, such as Adjusted EBITDA. The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures, are included within our earnings release. With these housekeeping items now complete, let’s begin. As with our last call, I’d like to begin this morning by saying that iMedia Brands continues to be focused on taking every step it can during these uncertain times to keep its employees, vendors, customers, guests and their families safe. Before we turn our attention to our strong Q2 results, let’s take a step back. It was only one year ago when we began this journey to define a new interactive media strategy and to implement it with a leaner, more entrepreneurial organization filled with employees who love operational discipline and embrace calculated risks. It was only one year ago when this underperforming television retailer with a poor merchandising assortment, declining vendor base, bloated overhead, negative customer file trends, negative viewership trend, and real working capital pressure from 18 months of material losses literally picked itself up off the floor and worked hard, and I mean day and night, to create the financial results you see today. Our employees, our directors, vendors, and myself are all proud of that effort and today’s report card. With that, let’s go into the Q2 details. ShopHQ’s continued Q2 improvement and product pricing discipline, assortment planning, and on-air execution continue to drive customer and margin growth, as illustrated by the following three key metrics. First and foremost, our Q2 active customer file grew by 1% over the same period last year, which was the first year-over-year quarterly growth in four years driven by a 38% increase in new customers. Our Q2 gross margin of 37.2% improved 90 basis points over the same period last year, and for the first six months of 2020 our gross margin of 37.1% improved 480 basis points over the same period last year, and our new product launches continue to resonate with our customers. For the first six months of 2020, revenue from new product launches produced 19% of ShopHQ’s total revenue, which is our best success rate ever. From a profitability perspective, the Q2 performance was strong. We achieved an adjusted EBITDA of $10.7 million, which was the best quarterly adjusted EBITDA performance ever. Q2 net income of $1.1 million and EPS of $0.11 were also strong performances. Our balance sheet continues to improve. Cash at quarter end was $18.7 million, an $8 million improvement from year end. In addition, we reduced our net debt at the end of Q2 by $23 million moving from $59 million in net debt at year end to $36 million in net debt at the end of the second quarter. Our credit facility provides up to a $90 million revolving line of credit as supported by our borrowing base, and we have a term loan which matures in July of 2023. Our inventory balance at the end of the second quarter was $62 million compared to $64 million at the end of the first quarter. Regarding capital expenditures, during the quarter we spent approximately $1.4 million on capital projects, primarily reflecting investments and upgrades to our website and infrastructure. As a reminder, from a tax perspective we have approximately $393 million in federal NOLs that are available to us to offset future taxable income. In terms of our outlook, in Q3 and Q4, we believe the Company will post Adjusted EBITDA in the mid to high single digit millions. We also continue to believe iMedia will be less impacted by COVID than other media companies because we have a direct-to-consumer revenue model that serves customers who seek to buy goods from the comfort of their own homes, and we are not dependent on advertising dollars from national advertisers who are impacted by the continued disruptions in the brick and mortar shopping experience. Before I close, I would like to explain again our broader journey here to become a leading interactive media company growing a portfolio of niche television networks, niche advertisers, and complementary media-commerce services, and why we recently created an emerging business operating segment. As we launch and acquire businesses designed to better engage with the younger generation of shoppers who primarily consume media on the internet-based video distribution platforms, sometimes called over-the-top or OTT, and TVE or TV Everywhere, we believe our new emerging business operating segment will become a fast-growing part of our overall Company. For example, with the acquisition of Float Left Interactive in Q4 of 2019, a leading OTT technology provider to entertainment brands competing in the OTT and TVE video ecosystems, iMedia is well positioned to pursue new opportunities in this internet-based video platform that today enjoys more technological innovation and more customer experience improvements than the 24/7 linear video platform provided by the MVPDs to ShopHQ. For perspective, LRG estimates that 80% of U.S. TV households have at least one internet connected TV device, included connected smart TVs, standalone streaming devices like Roku, Amazon Fire stick, or set-top boxes, Chromecast or Apple TV, connected video game systems or Blu-ray players. This is a slight increase from the 74% of at least one connected TV device in 2018, a bigger increase of 57% in 2015, and it was only 24% in 2010. This research also estimates that roughly 40% of adults in U.S. TV households watch video on a TV via a connected device daily, and that 40% compares to 29% in 2018, 12% in 2015, and only 1% in 2010. As of today, S&P estimates the linear U.S. television marketplace is comprised of about 100 million TV households. Roughly 80 million of those homes are reached by MVPDs, or multichannel video programming distributors like a Comcast or a DirectTV, and 20 million of those homes are reached by OTA providers, or over-the-air broadcasters who reach these consumers via an antenna. ShopHQ is today nationally distributed by the MVPDs and many of the OTA broadcasters. It is also streamed on ShopHQ.com, its mobile apps, and it’s available on OTT services like Roku, Apple TV, Amazon Fire stick, and Samsung smart TVs. That being said, ShopHQ’s merchandising strategy is not focused today on the younger generation of potential customers who are primarily consuming their media on internet-based non-linear television, because ShopHQ’s customers who are primarily 50 years old-plus are watching about the same amount of linear television that they were five years ago, and most importantly these customers spend about $15 billion annually in television retailing on the existing video platform provided today by the MVPDs. We established our emerging business operating segment to pursue these OTT and TVE video platform opportunities which we believe will one day be the size of the marketplace ShopHQ enjoys today with the MVPDs. In closing, I would like to say that these are important times at iMedia as we continue on our path to become a growth company. Thank you for your time this morning. I will turn the call back over to the Operator for Q&A. Operator?

[Operator instructions] Our first question comes from the line of Mark Argento with Lake Street Capital. Please proceed with your question.

Good morning, Tim. Congrats on a nice, real strong quarter. Was curious where you guys are seeing the strength. It looks like the health and beauty business was up pretty big in the quarter, and you guys are de-emphasizing home and CE, but maybe you could just get in the weeds a little bit on mix. That’d be great.

Sure thing, Mark. Thanks for the question. Certainly in Q2, we did see a pick-up certainly with everybody at home in the—I’d call it the home improvement, health and beauty categories, and probably a little bit of a retreat in some of the higher end jewelry and jewelry categories. So, in terms of consumer trends, that’s certainly what we saw from our perspective, and it was really an opportunity for us since we are strong in beauty and in health. It was an opportunity for us to really serve the customers at a time when not only the interest shifts to what we would call our strengths, but it was also a time when there were--you know, the HUT levels, which is homes using television or people watching television, had increased, and so it was both of those elements that helped drive some of the new product introductions that we created in Q2 and in Q1 resonate with those customers.

Got it. In terms of--you know, do you anticipate those trends continuing in terms of mix or do you expect to see more kind of watch and jewelry come back as you get closer to holiday? How do you see mix playing out through the rest of the year?

You know, it’s interesting - it’s anybody’s guess on those things. When we think about our air time mix, we do think beauty and health is something that we’ve done well for a while and certainly in Q2 as well, and as you know we launched our ShopHQ health-dedicated channel, so we do think that there is still demand certainly for jewelry, which was a little bit of a retreat in Q2 and our normalized mix going into Q3 and Q4 is our strategy because we are dedicating an entire channel to the beauty and health category because we think not only are we able to serve it well on ShopHQ today, but we’re not able to really capture the full extent of the opportunity, so that’s why when you balance out a dedicated channel in that health area as well as the normal ShopHQ, which is a bit broader, has a very strong jewelry, very strong watch, very strong fashion, home, home in certain categories, particularly with our strong brands like Mackenzie and Waterford, those continue to perform well in Q2, Q1, and really every quarter. We’ve built very good brands in those categories and we certainly want to give them the opportunity to grow based on the consumer demand. We think that will be more balanced in Q3 and Q4.

Got it, and then just looking at the operating expenses, it looks like your distribution and selling expense as a percentage of sales was down pretty materially. Could you talk a little bit about what’s driving that benefit?

It’s a combination, right, so--and I talked about it in the last quarter, it’s never one thing. So, the combination of--in Q3 and Q4, when we moved to a static programming calendar, we began to make less and less changes. We found that as those changes happened and it became more predictable for the customer, our variable rate was able to come down, so less customer calls, less--you know, all these different elements of the variable rates came down, so that’s in distribution and selling. Our distribution costs with our MSOs again, based on partnering with them and negotiating with them, our costs came down there. Our overhead--it’s a multitude of things all coming together at once, and it’s never--as I said, it’s never disconnected from the front of the house decisions, which had to do with not only the static programming calendar but also how we thought about rebuilding each customer file category by category, like watches. We brought the customer file growth there in Q4 that also impacted distribution and selling expenses, made us more efficient. Then when you think about how we plan our shows with a better price point balance, it allows us to manage our inventory. If you look at the way we’ve managed our working capital, our inventory has come down quarter over quarter pretty significantly, it’s because we’re buying differently. When we say we’re buying differently, we’re buying differently because we have less inventory and our margins are much stronger, and that again brings down your distribution and selling expense.

And obviously, you think this is something that you can sustain given the mid-to-high, single-digital EBITDA, positive EBITDA for the next couple of quarters, so that’s awesome. Thanks Tim.

Thanks Mark.

Thank you. Our next question comes from the line of Alex Fuhrman with Craig Hallum Capital Group. Please proceed with your question.

Great. Thanks very much for taking my question, and congratulations on the really strong results here. One thing I really wanted to ask about would be the improved viewership trend that as your distribution and viewership moves more and more away from traditional linear distribution and more towards non-linear platforms, how are you driving that viewership with customers not necessarily flipping through the channels the way they used to and perhaps having your network catch their eye?

Thanks Alex. Tricky question, don’t know how to approach it. We’ll try starting at the top, which is let’s think about ShopHQ and its distribution platform. I should have done it--I’m trying to do a better job of explaining the different strategies. So Bulldog, ShopHQ Health, and some of these channels that are coming out are going to be a lot more reliant on some of these, we call them social selling platforms, where you have certain personalities or you have certain products that resonate with different types of customers, and those customers, if they’re younger, are on a different kind of platform, and we’ll go through that here in a minute. But back to the main, our flagship network which is ShopHQ, still today and for the next three to four years, we certainly are focused solely, and solely is a strong word, but primarily on the existing platform that we talked about, which is this $15 billion annual revenue oligopoly between us, QVC, and HSN, where there are customers that we intend to liberate, in other words take share from other networks and compete at that level. We think that the platform today with the customers today, there is plenty of opportunity for us in share over the next three to four years without trying to make ShopHQ into something it’s not and going after a different generation on a different internet platform - that’s what we spent a little bit of time talking about in my prepared remarks around emerging business, whereas when we have products in selling format that would engage a different type of customer that is an early adopter in these OTT platforms or even in the TV Everywhere, we will have a shorter selling season, right, so it will be a two-minute sell, it won’t be an hour sell. It will be done differently, and it’s really the type of selling is really a primary engine of how we’re going to be more relevant in these internet-based video platforms, rather than the traditional selling approach that we’ve done today with ShopHQ. We’ve been testing that for several quarters with success, and so we call that term social commerce, and you’ll hear more and more from us in Q3 and Q4 as we begin to expand that effort, and we think that social commerce strategy is how we’ll be relevant on those platforms.

Thanks Tim, that’s really helpful. Then can you talk a little bit more about the secondary network, the Bulldog and then the upcoming launch of ShopHQ Health? Is this really about going after a new customer or taking your existing customers who’s interested in those categories and really expanding that opportunity? Can you just talk a little bit more about how those networks are going to play into your overall portfolio?

Sure. Let’s take a step back and say why are we doing what we’re doing? The answer is we have certain strengths with our core business, which is ShopHQ, and that is the first core strength was that different from any other television retailer, 25% of our customer base is male because of Invicta watches and CE and some other areas, and so we thought for ourselves how do we give--that’s a very big category that’s underserved, how do we give that the independent status it deserves? That was the strategy behind creating Bulldog, and so Bulldog will be focused on a broader category of serving products and services to the male customer using our beginning advantage of the customers that we have today on ShopHQ but then finding other customers. That’s the-always the strategy is to use the strength we have today, find the distribution that is economical and where those customers are, and then build and find new customers. Bulldog is not as reliance on 24/7 linear television distribution. We are incubating our programming in other forms of shorter blocks of programming where males are and at times when males are watching television, or when--you know, and we’re doing it in a way that we are also inviting to females who happen to be buying for males, for their males as they say. The strategy for Bulldog is the same strategy we’re doing for ShopHQ Health. We see the health and wellness category as something very underserved in television retailing and in media in general, and we think our strength in beauty and health today can give the independent status to a 24/7 network that we just are launching today--you know, in September, and we expect--you know, based on our research, our experience and our ambition, we expect ShopHQ Health to be as big or bigger than ShopHQ one day, just because of the category and the type of programming and the type of services that we see that could accompany that network. Hopefully that answers your question. It starts with our strengths and then we move into something that we think deserves independent status because of the entertainment and the commerce that’s migrating online.

That does answer my question. That sounds terrific. Thanks a lot, Tim.

Thanks Alex.

Thank you. Our next question comes from the line of Elliot Alper with DA Davidson. Please proceed with your question.

Great, thank you. Could you talk about the monthly cadence of sales trends you saw throughout the quarter and if you saw any correlation between sales trends and geographies that began different stages of reopening and how significant that was? Then lastly, curious if you could talk about any sales trends quarter to date.

Thanks Elliot, and--so let’s do those separately. First of all in Q2, the geographic relationship to what you’re describing, COVID, did we see any of that, and the answer would be no. We really didn’t see anything like that geographically timing-wise. What we did see certainly, as we talked about at the beginning of the call, which was we did see viewership going up and we did see some of the categories waning as interest in beauty, health and home improvement grew. The opportunity for us was that we were already in the process of, from a product assortment planning and planning our shows with a price band balance, that it allowed us when we think about that shift in consumer demand, we weren’t so stocked full of inventory and so set in our ways that it allowed us fairly quickly to address that shifting demand and able to provide the programming and the product that met that demand. That was something that was more of a national phenomenon more than a geographic phenomenon. Does that answer that first question?

Yes.

And then in terms of the second question, I’m not really sure it’s--if you could go into a little bit more detail on that, I want to better address it on the second part of your question.

Just on the cadence of sales trends you saw in the quarter and any trends quarter to date, if possible to call out.

Yes, so--I’m trying to think how might I do that. We don’t really get into inter-quarter results, and I was hoping for a different angle on that. I would just say that we don’t offer any color on our quarter to date in performance, and to Mark Argento’s call earlier, we think that in terms of when and how the consumers’ shifting preference for beauty and health will change, we’re not sure, but what we do know is that our game plan consists of a pretty clear road map for Q3 and Q4 as it relates to the mix and as it relates to what we’re offering, and we do think as a result of Q2 and our strength in beauty and health, that we think the popularity of ShopHQ Health may be more impacted by how long and when and how it migrates in terms of the stay-at-home and COVID. But we don’t think ShopHQ Health and our agenda there is going to be driven as a reflection of how COVID ultimately stays or goes in Q3 and Q4.

Okay, great. Then on the new customer growth, could you expand more what into the growth? Are you seeing new customers fitting into these niche categories? Are you seeing a wider demographic of customers, and what would be the Company’s plan to retain these new customers?

Sure. Again, let’s go back to the origin of the change, which was in Q3 and Q4, as we’ve talked about in the past, we went about a category by category strategy to rebuild our customer file, which had been negative for quite some time, and in Q4 we talked about how we deployed a certain strategy to rebuild the watch customer. It was around price point, it was around certain elements around engaging those customers, and in Q1 and Q2 we’ve been going about it in a very methodical basis on which categories, which shows, which static programming would address new customers and which would embrace the existing customers. Sometimes that answer is not the same. But if you want to think about the primary driver for the customer file growth in Q2, it would be around our ability to move very quickly to launch quality brands and products that resonate with those new and existing customers, so the first time in our Company’s history in 30 years, we generated roughly 19% of our revenue year to date, in Q1 and Q2 from product launches that took place in Q1 and Q2, and that really to me is a KPI that says we are not just launching products to launch products, we’re not just flailing at what we think our customer may or may not like, we are being thoughtful about the 25-some brands that we did launch, that they are sticking and that they make a difference to the customer. Customer file growth is comprised of three things, right: new customer growth, reactivation of customers that have not bought in a while, and churn. It’s that balance and finding a way to make it grow, and it is not a science, it is an art, it’s an everyday thing, but we have a road map we feel pretty good about and that road map had its picture taken, as I like to say, in Q1 and Q2, and the results were pretty good.

Great, I appreciate it.

Thank you. Ladies and gentlemen, as a reminder, if you’d like to join the question queue, please press star, one on your telephone keypad. Our next question is a follow-up from the line of Mark Argento with Lake Street Capital. Please proceed with your question.

Hey Tim, more of just a quick housekeeping here, but I did notice--it looks like the D&A or the amortization, it looks like that’s up quite a bit, and then I also see the--it looks like you guys have some television distribution rights on the balance sheet now, so just wondering what’s going on there. Is that a new accounting treatment for those rights? Thanks.

Sure thing, Mark. In Q1, we talked about that more and talked about television amortization, which is in the entertainment industry and in our industry in TV retailing, the distribution agreements with the MSOs, a portion of it is related to the actual channel and staying on that channel and the right for that channel. They call them broadcast rights, and then a certain amount is obviously just for the servicing fees, and in this industry of television retailing it’s oftentimes a percent of net sales. The amortization that you see in our balance sheet and our income statement relates to the channel placement rights or those intangible rights related to our distribution agreements, which is us getting caught up with the standards of how this industry accounts for that.

So the amount of amortization basically, will that fluctuate depending upon the sales in the quarter, or is that pretty static?

No, traditionally the channel placement fees are static and the fees related to the volatility of the business are all related to the service fees.

Great, thanks for the reminder.

Yes, thanks Mark.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I’ll turn the floor back to Mr. Peterman for any final comments.

Thank you Melissa. Listen - I just want to say again thank you to everybody who has been with us and who joined us this morning. We are moving in a strong direction to become a growth company and we’re excited about it, and look forward to talking to you soon. Thank you.

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