LEGACY IMBDS, INC. The following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes included herein and the audited consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year endedJanuary 30, 2021 .
Cautionary Statement Concerning Forward-Looking Statements
The following Management's Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with theSEC (as well as information included in oral statements or other written statements made or to be made by us) contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact, including statements regarding guidance and the expected impact of cost initiatives, industry prospects or future results of operations or financial position are forward-looking. We often use words such as "anticipates," "believes," "estimates," "expects," "intends," "predicts," "hopes," "should," "plans," "will" and similar expressions to identify forward-looking statements. These statements are based on management's current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, many of which are, and will be, amplified by the COVID-19 pandemic, including (but not limited to): the impact of the COVID-19 pandemic on our sales, operations and supply chain, variability in consumer preferences, shopping behaviors, spending and debt levels; the general economic and credit environment; interest rates; seasonal variations in consumer purchasing activities; the ability to achieve the most effective product category mixes to maximize sales and margin objectives; competitive pressures on sales and sales promotions; pricing and gross sales margins; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties with whom we have contractual relationships, and to successfully manage key vendor and shipping relationships and develop key partnerships and proprietary and exclusive brands; our ability to manage our operating expenses successfully and our working capital levels; our ability to remain compliant with our credit facility covenants; customer acceptance of our branding strategy and our repositioning as a video commerce company; our ability to respond to changes in consumer shopping patterns and preferences, and changes in technology and consumer viewing patterns; changes to our management and information systems infrastructure; challenges to our data and information security; changes in governmental or regulatory requirements, including without limitation, regulations of theFederal Communications Commission andFederal Trade Commission , and adverse outcomes from regulatory proceedings; litigation or governmental proceedings affecting our operations; significant events (including disasters, weather events or events attracting significant television coverage) that either cause an interruption of television coverage or that divert viewership from our programming; disruptions in our distribution of our network broadcast to our customers; our ability to protect our intellectual property rights; our ability to obtain and retain key executives and employees; our ability to attract new customers and retain existing customers; changes in shipping costs; expenses relating to the actions of activist or hostile shareholders; our ability to offer new or innovative products and customer acceptance of the same; changes in customer viewing habits of television programming; and the risks identified under "Risk Factors" in our most recently filed Form 10-K and any additional risk factors identified in our periodic reports since the date of such report. More detailed information about those factors is set forth in our filings with theSEC , including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements whether as a result of new information, future events or otherwise. Overview Our CompanyiMedia Brands, Inc. and its subsidiaries ("we," "our," "us," or the "Company") is a leading interactive media company capitalizing on the convergence of entertainment, ecommerce, and advertising. We own a growing, global portfolio of Entertainment, Consumer Brands and Media Commerce Services businesses that cross promote and exchange data with each other to optimize the engagement experiences it creates for advertisers and consumers. Our growth strategy revolves around our ability to increase our expertise and scale 30
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using interactive video to engage customers within multiple business models and multiple sales channels. We believe our growth strategy builds on our core strengths and synergies and provides us an advantage in these marketplaces.
Our television networks are ShopHQ, ShopBulldogTV, ShopHealthHQ and the newly acquired 123tv. ShopHQ is our flagship, nationally distributed shopping entertainment network that offers a mix of proprietary, exclusive, and name-brand merchandise in the categories of Jewelry and Watches, Home, Beauty and Health, and Fashion and Accessories directly to consumers 24 hours a day using engaging interactive video. ShopBulldogTV, which launched in the fourth quarter of fiscal 2019, is a niche television shopping entertainment network that offers male-oriented products and services to men and to women shopping for men. ShopHealthHQ, which launched in the third quarter of fiscal 2020, is a niche television shopping entertainment network that offers women and men products and services focused on health and wellness categories such as physical, mental and spiritual health, financial and motivational wellness, weight management and telehealth medical services. 123tv, which the Company acquired onNovember 5, 2021 is the leading German interactive media company, disruptingGermany's TV retailing marketplace with its expertise in proprietary live and automated auctions that emotionally engage customers with 123tv's balanced merchandising mix of compelling products shipped directly to their homes. Our engaging, interactive video programming is distributed primarily in linear television through cable and satellite distribution agreements, agreements with telecommunications companies and arrangements with over-the-air broadcast television stations. This interactive programming is also streamed live online at shophq.com, shopbulldogtv.com and shophealthhq.com, which are comprehensive digital commerce platforms that sell products which appear on the Company's television lifestyle networks as well as an extended assortment of online-only merchandise. Our interactive video is also available on the OTT and CTV platforms such as Roku, Apple TV, Samsung connected televisions, and on mobile devices, including smartphones and tablets, and through the leading social media channels. Our consumer brands include Christopher & Banks,J.W. Hulme Company ("J.W. Hulme"), Cooking withShaquille O'Neal , Kate & Mallory, Live Fit MD and TheCloseout.com. Christopher & Banks and TheCloseout.com, a deeply discounted branded online marketplace, were acquired during the first quarter of fiscal year 2021. Our media commerce services brands are iMedia Digital Services ("iMDS") and i3PL, the Company's customer solutions and logistics services business. iMDS is comprised ofSynacor's Portal and Advertising business, which the Company purchased onJuly 30, 2021 (see Notes to Condensed Consolidated Financial Statements - Footnote #16 - Business Acquisitions for additional information), and its existing OTT app platform, Float Left.
Our Corporate Website
OuriMedia Brands corporate website is imediabrands.com and our Nasdaq trading symbols are IMBI and IMBIL. Our annual report is filed as our Form 10-K. We issue quarterly reports on Form 10-Q and our current third quarter press release is filed on Form 8-K. Proxy and information statements, and amendments to these reports if applicable, are available, without charge, in the investor relations section of our corporate website, imediabrands.com, as soon as reasonably practicable after they are electronically filed with or furnished to theSEC . Copies also are available, without charge, by contacting our Legal Department,iMedia Brands, Inc. ,6740 Shady Oak Road ,Eden Prairie, Minnesota 55344-3433. Our goal is to maintain the investor relations section of our corporate website as a way for investors to easily find information about us, including press releases, announcements of investor conferences, investor and analyst presentations and corporate governance. The information found on our corporate website is not part of this or any other report we file with, or furnish to, theSEC . TheSEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding us and other companies that file materials with theSEC electronically.
Summary Results for the Third quarter of Fiscal 2021
Consolidated net sales for our fiscal 2021 third quarter were$130.7 million compared to$109.0 million for our fiscal 2020 third quarter, which represents a 19.9% increase. We reported an operating loss of$6.0 million and a net loss of$9.5 million for our fiscal 2021 third quarter. We reported an operating loss of$3.4 million and a net loss of$4.7 million for our fiscal 2020 third quarter.
Consolidated net sales for the first nine months of fiscal 2021 were
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and integration costs totaling$5.8 million , a loss on debt extinguishment of$663,000 , restructuring costs of$634,000 and one-time customer concessions of$341,000 . We reported an operating loss of$6.6 million and a net loss of$10.5 million for the first nine months of fiscal 2020. The operating and net loss for the first nine months of fiscal 2020 included transaction, settlement and integration costs totaling$886,000 ; and restructuring costs of$264,000 .
ShopHQ Reporting Segment
ShopHQ offers its merchandise, which includes products in Jewelry and Watches,
Home, Beauty and Health, and Fashion and Accessories across all its sales
channels. Our merchandising strategy is focused on delivering a balanced
assortment of profitable products presented in an engaging, entertaining,
shopping-centric format using our unique expertise in storytelling and "live on
location" broadcasting. We are also focused on growing our high lifetime value
customer file and growing our revenues, through social, mobile, online, OTT and
CTV platforms, as well as leveraging our capacity, system capability and
expertise in distribution and product development to generate new business
relationships. We believe these initiatives will position us to deliver a more
engaging and enjoyable customer experience with product offerings and service
that exceed customer expectations. While changes in this product mix do occur as
a result of customer demand during certain times of the year, our legacy
strengths in Jewelry and Watches continue to represent our largest merchandise
category. Our merchants focus on diversifying our merchandise assortment within
our existing product categories and offering new products in new assortments. We
offer customers proprietary brands and merchandise as well as exclusive and/or
less distributed bundles of name-brands products. The following table shows our
ShopHQ reporting segment merchandise mix as a percentage of net merchandise
sales for the periods indicated.
For the Three-Month For the Nine-Month
Periods Ended Period Ended
October 30, October 31, October 30, October 31,
Net Merchandise Sales by Category 2021 2020 2021 2020
Jewelry & Watches 44 % 40 % 47 % 40 %
Home 17 % 16 % 16 % 14 %
Beauty & Health 24 % 34 % 22 % 34 %
Fashion & Accessories 15 % 10 % 15 % 12 %
Total 100 % 100 % 100 % 100 %
Our ShopHQ promotional strategy is driven by offering our customers competitive
pricing and special values, which drive new and existing customer engagement.
During fiscal year 2020, we began offering static programming for our viewers,
meaning we aired the same shows at the same times each week, and this has
improved our customers viewership of our programming. Our core customers are
primarily women between the ages of 45 and 70. We also have a smaller presence
of male customers of similar age. We believe our customers purchases are driven
by our engaging interactive video that demonstrates the product's utility and
quality, and our dependable, friendly customer experience.
ShopHQ distributes its interactive video content 24-hours a day primarily on
U.S. linear television's cable and satellite systems and it reached more than 79
million homes and 75 million homes during the three months ended October 30,
2021 and October 31, 2020 . ShopHQ is also streamed 24 hours a day, 7 days a week
on our ShopHQ website, broadcast over-the-air in certain markets and is
also available on mobile and social channels and on various video streaming OTT
and CTV platforms, such as Roku and Apple TV. This multiplatform distribution
approach, complemented by our strong mobile and online efforts, ensures that our
programming is available wherever and whenever our customers choose to shop.
We continue to increase the number of channels on existing distribution
platforms and alternative distribution methods, including reaching deals to
launch our programming on high definition ("HD") channels. For example, in June
2021 , we launched approximately 20 million new homes receiving our signal in
high definition through an affiliation agreement with RNN. These homes are
primarily in major television markets such as New York City , Los Angeles , San
Francisco , Philadelphia , Dallas , Houston , Washington D.C. and Boston . We believe
that our distribution strategy of pursuing additional channels in productive
homes already receiving our programming is a more balanced approach to growing
our business than merely adding new television homes in untested areas. We
believe that having an HD feed of our service allows us to attract new viewers
and customers.
We have entered into distribution agreements with cable operators,
direct-to-home satellite providers, telecommunications companies and
over-the-air broadcasters to distribute our television programming over their
systems. The terms of the distribution agreements typically range from one to
five years. During any fiscal year, certain agreements with cable, satellite or
other distributors
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may or have expired. Under certain circumstances, the cable operators or we may cancel the agreements prior to their expiration. Additionally, we may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins. If the operator drops our service or if either we or the operator fails to reach mutually agreeable business terms concerning the distribution of our service so that the agreements are terminated, our business may be materially adversely affected. Failure to maintain our distribution agreements covering a material portion of our existing households on acceptable financial and other terms could materially and adversely affect our future growth, sales and earnings unless we are able to arrange for alternative means of broadly distributing our television programming. During fiscal year 2021 and 2020, we entered into certain affiliation agreements with television providers for carriage of our television programming over their systems that includes television broadcast rights associated with our channel position on their systems. As a result, in accordance with GAAP, we recorded television broadcast rights assets of$55.6 million and$30.6 million during the nine months endedOctober 30, 2021 andOctober 31, 2020 . The total liability relating to television broadcast rights was$71.7 million and$26.2 million as ofOctober 30, 2021 andOctober 31, 2020 , of which$25.9 million and$21.5 million was classified as current. We believe having consistent favorable channel positioning within the general entertainment area on the distributor's channel line-up improves our sales. We believe that a portion of our sales is attributable to purchases resulting from channel "surfing" and that a channel position near popular cable networks increases the likelihood of such purchases. ShopHQ offers a balanced mix of merchandise to customers using interactive video and faces competition from a variety of sources, including, QVC and HSN. Both QVC and HSN are owned by Qurate Retail Inc. and each are substantially larger than ShopHQ in terms of annual revenues and customers, and the programming of each is carried more broadly toU.S. households, including high-definition bands and multi-channel carriage, than our programming. In addition,Multimedia Commerce Group, Inc. , which operatesJewelry Television , also competes with us for customers in the Jewelry and Watches category. In addition, there are several smaller niche television shopping networks and startups in the television shopping arena who compete with us. We anticipate continued competition for viewers and customers, for experienced television commerce and e-commerce personnel, for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television shopping companies, but also from other companies that seek to enter the television shopping and online retail industries, including telecommunications and cable companies, television networks, and other established retailers. We believe that ShopHQ's ability to be successful in the interactive video arena will depend on several key factors, including its ability to continue to curate compelling product assortments, capture and engage new and existing customers, and continually offer its interactive video on all the video distribution platforms available.
Emerging Business Reporting Segment
By leveraging ShopHQ's interactive video expertise, national scaled promotional
power, expansive media and vendor relationships, customer experience and
fulfillment capabilities, and financial resources, iMedia seeks to strategically
build and acquire growing businesses that accelerate the Company's strategic
goal of becoming the leading single-source partner to television advertisers and
consumer brands seeking to entertain and transact with customers using
interactive video.
Within the Emerging Business segment, the Company's operates its two, niche
lifestyle television networks, ShopBulldogTV and ShopHealthHQ, its consumer
brands that include J.W. Hulme, Kate & Mallory, Live Fit M.D. and Christopher &
Banks, its online marketplace brands TheCloseout.com, and its media commerce
services brands, iMDS and i3PL.
In terms of competitors for the Emerging Business reporting segment, we believe
there is a growing number of competitors in the creation, distribution and
consumption of streaming fact-based video content in the online, OTT and CTV
marketplaces, and for the digital services offered in the online, OTT, CTV and
advertising marketplaces. Today, we believe our competition in these arenas
range from the larger media commerce service companies like Brightcove ("BCOV")
and Channel Advisor ("ECOM"), to the smaller factual content streaming network
providers like Curiosity Streams ("CURI"), and larger single-source digital
services providers Shopify and Squarespace.
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Results of Operations
Selected Condensed Consolidated Financial Data
Operations
Dollar Amount as a Dollar Amount as a
Percentage of Net Sales for the Percentage of Net Sales for the
Three-Month Periods Ended Nine-Months Periods Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Gross margin 41.6 % 37.4 % 41.5 % 37.2 %
Operating expenses:
Distribution and selling 30.1 % 28.9 % 30.5 % 29.5 %
General and administrative 8.2 % 4.3 % 6.9 % 4.6 %
Depreciation and amortization 7.4 % 7.3 % 6.9 % 5.0 %
Restructuring costs 0.5 % - % 0.2 % 0.1 %
Total operating expenses 46.2 % 40.5 % 44.5 % 39.2 %
Operating loss (4.6) % (3.1) % (2.9) % (2.0) %
Key Performance Metrics
For the Three-Month For the Nine-Months Periods Ended
Periods Ended Periods Ended
October 30, October 30, October 30, October 31,
2021 2020 Change 2021 2020 Change
Merchandise Metrics
Gross margin % 41.6 % 37.4 % 420 bps 41.5 % 37.2 % 430 bps
Net shipped units (in
thousands) 1,919 1,664 15 % 5,411 4,775 13 %
Average selling price $ 68 $ 58 17 % $ 66 $ 61 8 %
Return rate 15.8 % 14.4 % 140 bps 16.0 % 14.5 % 150 bps
ShopHQ Digital net sales %
(a) 46.5 % 49.1 % (260) bps 48.5 % 50.7 % (220) bps
Total Customers - 12 Month
Rolling (in thousands) 1,229 1,028 20 % N/A N/A N/A
Digital net sales percentage is calculated based on ShopHQ net sales that are (a) generated from our website and mobile platforms, which are primarily ordered
directly online.
Net Shipped Units
The number of net shipped units (shipped units less units returned) during the
fiscal 2021 third quarter increased 15% from the prior year comparable quarter
to approximately 1.9 million. For the nine months ended October 30, 2021 , net
shipped units increased by 13% from the comparable prior year period to
approximately 5.4 million. The increase in net shipped units was mainly driven
by the increase in net sales.
Average Selling Price
The average selling price ("ASP") per net unit was $68 in the third quarter of
fiscal 2021, a 17% increase from the prior year quarter. ASP increases in the
third quarter ended October 30, 2021 were primarily driven by ASP increases in
our jewelry and watches category. For the nine months ended October 30, 2021 ,
the ASP was $66 , an 8% increase from the prior year comparable period. The ASP
increases in the first nine months ended October 30, 2021 were primarily driven
by ASP increases in our jewelry and watches category.
Return Rates
For the three months endedOctober 30, 2021 , our return rate was 15.8% compared to 14.4% for the comparable prior year quarter, a 140-basis point increase. For the nine months endedOctober 30, 2021 , our return rate was 16.0% compared
to
14.5% for the
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comparable prior year period, a 150-basis point increase. The increase in the
return rate was primarily driven by a sales mix shift out of beauty and health
into jewelry & watches, which has a higher return rate. We continue to monitor
our return rates in an effort to keep our overall return rates commensurate with
our current product mix and our ASP levels.
Total Customers
Total customers who have purchased over the last twelve months increased 20% over the prior year to approximately 1.2 million. The increase in total customers was mainly attributed to an increase in new customers compared to the prior year. We continue to focus on the following initiatives, among others, to increase our active customer file:
? introducing by appointment viewing "static programming," so viewers know when
to watch;
? launching innovative programming, such as "Learning to Cook with Shaq,"
"GemHQ," "
? managing category specific customer growth priorities around ASP, product
assortment and product margins.
Consolidated net sales, inclusive of shipping and handling revenue, for the fiscal 2021 third quarter were$130.7 million , a 20% increase from consolidated net sales of$109.0 million for the comparable prior year quarter. Consolidated net sales, inclusive of shipping and handling revenue, for the first nine months of fiscal 2021 were$357.3 million , an 8% increase from consolidated net sales of$329.4 million for the comparable prior year period. ConsolidatedNet Sales for the First Nine Months of Fiscal 2021 Compared to the Prior Year Periods For the Three-Month Periods Ended October 30, October 31, 2021 2020 Change % Change ShopHQ (dollars in thousands) Net merchandise sales by category: Jewelry & Watches $ 38,269 $ 36,744$ 1,525 4 % Home 15,166 14,805 361 2 % Beauty & Health 21,139 31,105 (9,966) (32) % Fashion & Accessories 12,697 9,787 2,910 30 % All other (primarily shipping & handling revenue) 10,087 11,841 (1,754) (15) % Total ShopHQ 97,358 104,282 (6,924) (7) % Emerging Business 33,323 4,743 28,580 603 % Consolidated net sales$ 130,681 $ 109,025 $ 21,656 20 % For the Nine-Months Periods Ended October 30, October 31, 2021 2020 Change % Change ShopHQ (dollars in thousands) Net merchandise sales by category: Jewelry & Watches$ 122,568 $ 115,204 $ 7,364 6 % Home 42,711 39,947 2,764 7 % Beauty & Health 57,043 98,539 (41,496) (42) % Fashion & Accessories 38,388 33,462 4,926 15 % All other (primarily shipping & handling revenue) 30,617 31,599 (982) (3) % Total ShopHQ 291,327 318,751 (27,424) (9) % Emerging 65,998 10,623 55,375 521 %
Consolidated net sales$ 357,325 $ 329,374 $ 27,951 8 %
Jewelry & Watches: The
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Home: The
Beauty & Health: The
Fashion & Accessories : The$2.9 million increase during the third quarter of fiscal 2021 was primarily due to a 20% increase in airtime compared to the prior year.
Other: The
Emerging Business: The$28.6 million increase during the third quarter of fiscal 2021 was mainly driven by revenue from business initiatives following the comparable prior year period, such as our launch of the ShopHealthHQ television network inSeptember 2020 , along with revenue from our newly acquired businesses of Christopher & Banks, iMDS and TheCloseout.com.
Digital and Mobile
We believe that our interactive television video is a key driver of traffic to
both our website and mobile applications whereby many of the online sales
originate from customers viewing our interactive television video and then
placing their orders online or through mobile devices. Our digital sales
penetration, or the percentage of ShopHQ net sales that are generated from our
website and mobile platforms, which are primarily ordered directly online, was
46.5% and 48.5% during the third quarter and first nine months of fiscal 2021
compared to 49.1% and 50.7% during the third quarter and first nine months of
fiscal 2020. Overall, we continue to deliver strong digital sales penetration.
Gross Profit
For the Three-Month Periods Ended
October 30, October 31,
2021 2020 Change % Change
(dollars in thousands)
ShopHQ $ 41,427 $ 38,801 $ 2,626 7 %
Emerging Business 12,994 2,013 10,981 546 %Consolidated gross profit $ 54,421 $
40,814$ 13,607 33 % Consolidated gross profit for the third quarter of fiscal 2021 was$54.4 million , an increase of$13.6 million , or 33%, compared to the third quarter of fiscal 2020. ShopHQ's gross profit increased$2.6 million , or 7% compared to the third quarter of fiscal 2020 and was primarily driven by higher gross profit percentages experienced in most product categories during the third quarter of fiscal 2021. Emerging Business gross profit increased by$11.0 million compared to the third quarter of fiscal 2020 and was primarily driven by the increase in net sales (as discussed above). Consolidated gross margin percentages for the third quarters of fiscal 2021 and fiscal 2020 were 41.6% and 37.4%, which represent a 420-basis point increase. ShopHQ's gross margin percentages for the third quarters of fiscal 2021 and fiscal 2020 were 42.5% and 37.2%, which represent a 540-basis point increase. The increase in the gross margin percentage primarily reflects an increase attributable to increased gross profit rates in most product categories. The category gross profit rates were positively impacted by more disciplined pricing and markdown execution. Emerging Business gross margin percentages for the third quarters of fiscal 2021 and fiscal 2020 were 36
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39.1% and 42.4%. The increase in the Emerging Business gross margin percentage
reflects new business initiatives not included in the prior year comparable
period, such as ShopHealthHQ, and recently acquired businesses, primarily
Christopher & Banks.
For the Nine-Month Periods Ended
October 30, October 31,
2021 2020 Change % Change
(dollars in thousands)
ShopHQ $ 121,115 $ 118,487 $ 2,628 2 %
Emerging 27,299 4,176 23,123 554 %
Consolidated gross profit $ 148,414 $ 122,663 $ 25,751 21 %
Consolidated gross profit for the first nine months of fiscal 2021 was $148.4
million , an increase of $25.8 million , or 21.0%, compared to the first nine
months of fiscal 2020. ShopHQ's gross profit was for the most part flat compared
to the first nine months of fiscal 2020 and was primarily driven by the 8%
decrease in net sales (as discussed above), partially offset by higher gross
profit percentages experienced in most product categories during the first nine
months of fiscal 2021. Emerging's gross profit increased $23.1 million compared
to the first nine months of fiscal 2020 and was primarily driven by the increase
in net sales (as discussed above), as well as a higher gross profit percentage.
Consolidated gross margin percentages for the first nine months of fiscal 2021
and fiscal 2020 were 41.5% and 37.2%, which represented a 430-basis point
increase. ShopHQ's gross margin percentages for the first nine months of fiscal
2021 and fiscal 2020 were 41.4% and 37.2%, which represented a 420-basis point
increase. The increase in the gross margin percentage was primarily attributable
to increased gross profit rates in most product categories. Emerging's gross
margin percentages for the first nine months of fiscal 2021 and fiscal 2020 were
42.2% and 39.3%. The increase in the Emerging Business gross margin percentage
reflects new business initiatives not included in the prior year comparable
period, such as ShopHQHealth, and recently acquired businesses, primarily
Christopher & Banks.
Operating Expenses
Total operating expenses for the fiscal 2021 third quarter were approximately$60.4 million compared to$44.2 million for the comparable prior year period, an increase of 36.7%. Total operating expenses as a percentage of net sales were 46.2% during the third quarter of fiscal 2021, compared to 40.5% during the comparable prior year period of fiscal 2020. Total operating expenses for the fiscal 2021 third quarter and the fiscal 2020 third quarter included transaction, settlement and integration costs of$3.8 million and$313,000 , as well as restructuring costs of$634,000 and$55,000 , respectively Total operating expenses for the first nine months of fiscal 2021 were approximately$158.8 million compared to$129.2 million for the comparable prior year period, an increase of 22.9%. Total operating expenses for the first nine months of fiscal 2021 included transaction, settlement and integration costs of$5.8 million and restructuring costs of$634,000 . Total operating expenses for the first nine months of fiscal 2020 included transaction, settlement and integration costs of$887,000 and restructuring costs of$264,000 . Excluding transaction, settlement and integration costs and restructuring costs, total operating expenses as a percentage of net sales for the third quarter and first nine months of fiscal 2021 were 42.8% and 42.5%, compared to 40.5% and 39.1% for the third quarter and first nine months of fiscal 2020. Distribution and selling expense increased$7.8 million , or 24.8%, to$39.3 million , or 30.1% of net sales during the fiscal 2021 third quarter compared to$31.5 million , or 28.9% of net sales for the comparable prior year fiscal quarter. Distribution and selling expense increased during the quarter primarily due to an increase in costs associated with the expansion of our Emerging Business segment which represented an increase of$5.3 million and an increase of ShopHQ segment costs of$2.5 million . Distribution and selling expense increased$11.8 million , or 12.2%, to$108.9 million , or 30.5% of net sales during the first nine months of fiscal 2021 compared to$97.1 million , or 29.5% of net sales for the comparable prior year period. Distribution and selling expense increased during the first nine months due to an increase in costs associated with the expansion of our Emerging Business segment which represented an increase of$10.6 million and an increase in ShopHQ segment costs of$1.2 million .
To the extent that our ASP changes, our variable expense as a percentage of net sales could be impacted as the number of our shipped units change. Program distribution expense is primarily a fixed cost per household. However, this expense may be impacted by
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changes in the number of average homes, channels reached or by rate changes associated with changes in our channel position with carriers.
General and administrative expense for the fiscal 2021 third quarter increased$6.0 million , or 129.3%, to$10.7 million or 8.2% of net sales, compared to$4.7 million or 4.3% of net sales for the comparable prior year fiscal quarter. General and administrative expense increased during the third quarter primarily due to an increase in costs associated with the expansion of our Emerging Business segment of$3.7 million and increased transaction and integration costs and restructuring costs of$2.4 million . General and administrative expense for the first nine months of fiscal 2021 increased$9.4 million , or 62.1%, to$24.6 million or 6.9% of net sales, compared to$15.2 million or 4.6% of net sales for the comparable prior year period. For the first nine months of fiscal 2021, general and administrative expense increased primarily due to an increase in costs associated with the expansion of our Emerging Business segment of$6.8 million and increased transaction and integration costs and restructuring costs of$1.8 million . Depreciation and amortization expense for the fiscal 2021 third quarter increased$1.7 million , or 22.1%, to$9.7 million compared to$8.0 million for the comparable prior year period. Depreciation and amortization expense as a percentage of net sales for the third quarters of fiscal 2021 and fiscal 2020 was 7.5% and 7.3%. The increase in depreciation and amortization expense for the third quarter of fiscal 2021 was primarily due to an increase in amortization expense of$1.7 million relating to additional television broadcast rights obtained during the second fiscal quarter of 2021. Depreciation and amortization expense for the first nine months of fiscal 2021 amounted to$24.7 million , an increase of$8.0 million , or 48.1%, compared to$16.7 million for the same prior year period. Depreciation and amortization expense as a percentage of net sales for the first nine months of fiscal 2021 and 2020 was 6.9% and 5.0%. The increase in depreciation and amortization expense for the first nine months of fiscal 2021 was primarily due to increased amortization expense of$7.8 million relating to the television broadcast rights obtained in fiscal 2021 and 2020.
Restructuring Costs
During the first quarter of fiscal 2020, the Company implemented and completed another cost optimization initiative, which eliminated positions across the ShopHQ segment, the majority of whom were employed in customer service, order fulfillment and television production. As a result of the first quarter fiscal 2020 cost optimization initiative, we recorded restructuring charges of$209,000 for the first quarter of fiscal 2020, which relate primarily to severance and other incremental costs associated with the consolidation and elimination of positions across the ShopHQ segment. These initiatives were substantially completed as ofOctober 30, 2021 . The first quarter fiscal 2020 optimization initiative is expected to eliminate approximately$16 million in annual overhead costs. During the third quarter of fiscal 2021, the Company implemented an additional cost optimization initiative. As a result of the third quarter fiscal 2021 cost optimization initiative, the Company recorded restructuring charges of$634,000 for the three-month period endedOctober 30, 2021 , which relate primarily to severance associated with the additional consolidation and elimination of positions across the Company's ShopHQ segment. These initiatives were substantially complete and remain unpaid as ofOctober 30, 2021 .
Operating Loss
For the fiscal 2021 third quarter, we reported an operating loss of approximately$6.0 million compared to operating loss of$3.4 million for the fiscal 2020 third quarter. ShopHQ reported an operating loss of$6.8 million and Emerging Business reported operating income of$0.8 million for the fiscal 2021 third quarter compared to operating loss of$2.4 million for ShopHQ and an operating loss of$1.0 million for Emerging Business for the fiscal 2020 third quarter. For the third quarter of fiscal 2021, ShopHQ's operating loss increased primarily as a result of decreased net sales and increased operating expenses offset partially by increased gross margins. The Emerging Business operating loss decreased during the fiscal 2021 third quarter primarily from an increase in net sales and related gross profits of$11.0 million , partially offset by an increase in distribution and selling expense of$5.3 million and an increase in general and administrative expense of$3.7 million . For the nine months endedOctober 30, 2021 , we reported an operating loss of approximately$10.4 million compared to an operating loss of$6.6 million for the comparable prior year period. ShopHQ and Emerging reported an operating loss of$11.5 million and operating income of$1.0 for the nine months endedOctober 31, 2021 compared to operating losses of$2.5 million and$4.1 million for the nine months endedOctober 31, 2020 . ShopHQ's operating loss increased primarily as a result of decreased net sales and increased 38
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operating expenses offset partially by increased gross margins. Emerging Business operating loss decreased during the first nine months of fiscal year 2021 primarily from an increase in net sales and related gross profits that increased by$23.1 million , partially offset by an increase in distribution and selling expense of$10.6 million and an increase in general and administrative expense of$6.8 million . Depreciation and amortization expense for the first nine months of fiscal 2021 increased by$8.0 million , or 48.1%, to$24.7 million compared to$16.7 million for the comparable prior year period.
Interest Expense
Total interest expense for the fiscal 2021 third quarter increased$2.1 million , or 159.1%, to$3.5 million compared to$1.3 million for the comparable prior year period. The increase is attributable to both a higher average debt balance during the current year, as well as an increase in interest expense related to broadcast rights. Total interest expense for the first nine months of fiscal 2021 increased$2.2 million , or 56.2%, to$6.1 million compared to$3.9 million for the comparable prior year period. The increase is attributable to both a higher average debt balance during the current year, as well as increase interest expense related to broadcast rights. Net Loss
For the fiscal 2021 third quarter, we reported a net loss of$9.5 million , or ($0.44 ) per share, on 21,503,340 weighted average basic common shares outstanding compared with net loss of$4.7 million , or ($0.39 ) per share, on 12,177,990 weighted average basic common shares outstanding in the fiscal 2020 third quarter. The net loss for the third quarter of fiscal 2021 included transaction, settlement and integrations costs totaling$3.8 million , interest expense of$3.5 million and restructuring costs of$634,000 . The net loss for the third quarter of fiscal 2020 included transaction, settlement and integrations costs totaling$312,000 and interest expense of$1.3 million . The net loss for the first nine months of fiscal 2021 was$17.3 million compared to a net loss of$10.5 million for the comparable prior year period, an increase of 61.3%. Net loss for fiscal 2021 included transaction, settlement and integrations costs totaling$5.8 million , interest expense of$6.1 million , a loss on debt extinguishment of$663,000 and restructuring costs of$634,000 . The net loss for the first nine months of fiscal 2020 included interest expense of$3.9 million , transaction, settlement and integrations costs totaling$886,000 and restructuring costs of$264,000 . For the third quarters of fiscal 2021 and fiscal 2020, the net loss reflects an income tax provision of$15,000 . For the first nine months of fiscal 2021 and fiscal 2020 the net loss reflects an income tax provision of$45,000 . The income tax provision for these periods relates to state income taxes payable on certain income for which there is no loss carryforward benefit available. We have not recorded any income tax benefit on previously recorded net losses due to the uncertainty of realizing income tax benefits in the future as indicated by our recording of an income tax valuation allowance. Based on our recent history of losses, a full valuation allowance has been recorded and was calculated in accordance with GAAP, which places primary importance on our most recent operating results when assessing the need for a valuation allowance. We will continue to maintain a valuation allowance against our net deferred tax assets, including those related to net operating loss carryforwards, until we believe it is more likely than not that these assets will be realized in the future.
Adjusted EBITDA Reconciliation
Adjusted EBITDA (as defined below) for the third quarter of fiscal 2021 was$10.1 million compared to Adjusted EBITDA of$6.4 million for the fiscal 2020 third quarter. For the nine-month period endedOctober 30, 2021 , Adjusted EBITDA was$26.5 million compared with$15.5 million for the comparable prior year
period.
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A reconciliation of the comparable GAAP measure, net income (loss), to Adjusted
EBITDA follows, in thousands:
For the Three-Month For the Nine-Month
Periods Ended Periods Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
Net loss $ (9,492) $ (4,748) $ (16,970) $ (10,522)
Adjustments:
Depreciation and amortization (a) 10,677 8,952 27,565 19,697
Interest income (85) (1) (124) (2)
Interest expense 3,551 1,339 6,245 3,920
Income taxes 15 15 45 45
EBITDA (b) $ 4,666 $ 5,557 $ 16,761 $ 13,138
A reconciliation of EBITDA to Adjusted EBITDA
is as follows:
EBITDA (b) $ 4,666 $ 5,557 $ 16,761 $ 13,138
Adjustments:
Transaction, settlement and integration costs,
net (c) 3,835 312 5,757 886
Restructuring costs 634 55 634 264
One-time customer concessions - - 341 -
Loss on debt extinguishment 9 - 663 -Non-cash share-based compensation expense 949
504 2,385 1,227 Adjusted EBITDA (b)$ 10,093 $ 6,428 $ 26,541 $ 15,515
Includes distribution facility depreciation of
30, 2021 and
(a) as a component of cost of sales within the accompanying condensed
consolidated statements of operations. The three-month and nine-month periods
ended
related to the television broadcast rights totaling
million and
EBITDA as defined for this statistical presentation represents net income
(loss) for the respective periods excluding depreciation and amortization
expense, interest income (expense) and income taxes. We define Adjusted
(b) EBITDA as EBITDA excluding non-operating gains (losses); transaction,
settlement and integration costs; restructuring costs; non-cash impairment
charges and write downs; one-time customer concessions; loss on debt
extinguishment; executive and management transition costs; rebranding costs;
and non-cash share-based compensation expense.
Transaction, settlement and integration costs, net for the three and
nine-month period ended
costs related primarily to the TCO, C&B,
(c) 123tv business acquisitions. Transaction, settlement and integration costs,
net, for the three and nine-month period ended
consulting fees incurred to explore additional loan financings, settlement
costs, and incremental COVID-19 related legal costs.
We use "Adjusted EBITDA" to adequately assess the operating performance of our
video and digital businesses and in order to maintain comparability to our
analyst's coverage and financial guidance, when given. Management believes that
Adjusted EBITDA allows investors to make a meaningful comparison between our
core business operating results over different periods of time with those of
other similar companies. In addition, management uses Adjusted EBITDA as a
metric measure to evaluate operating performance under our management and
executive incentive compensation programs. Adjusted EBITDA should not be
construed as an alternative to operating income (loss), net income (loss) or to
cash flows from operating activities as determined in accordance with GAAP and
should not be construed as a measure of liquidity. Adjusted EBITDA may not be
comparable to similarly entitled measures reported by other companies.
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Critical Accounting Policies and Estimates
A discussion of the critical accounting policies related to accounting estimates and assumptions are discussed in detail in our fiscal 2020 annual report on Form 10-K under the caption entitled "Critical Accounting Policies and Estimates."
Recently Issued Accounting Pronouncements
See Note 2 - "Basis of Financial Statement Presentation" in the notes to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Financial Condition, Liquidity and Capital Resources
As ofOctober 30, 2021 , we had cash and restricted cash of$53.5 million . In addition, under the Siena Credit Facility (as defined below), we are required to maintain a minimum of$7.5 million of unrestricted cash plus unused line availability at all times. As ofJanuary 30, 2021 , we had cash of$15.5 million . For the first nine months of fiscal 2021, working capital increased$86.7 million to$120.4 million (see "Cash Requirements" below for additional information on changes in working capital accounts). The current ratio (our total current assets over total current liabilities) was 2.03 atOctober 30, 2021 and 1.16 atJanuary 30, 2021 .
The Company is required to keep cash in a restricted account in order to
maintain letters of credit to both purchase inventory as well as secure the
Company's corporate purchasing card program. Any interest earned is recorded in
that period. The Company had
8.50% Senior Secured Notes
OnSeptember 28, 2021 , we sold and issued$80.0 million aggregate principal amount of 8.50% Senior Unsecured Notes due 2026 (the "2026 Notes") in an underwritten public offering (the "Offering"). The 2026 Notes pay interest quarterly in arrears onMarch 31 ,June 30 ,September 30 andDecember 31 of each year, commencing onDecember 31, 2021 , at a rate of 8.50% per year, and are scheduled to mature onSeptember 30, 2026 . The 2026 Notes were issued in denominations of$25 and are listed onThe Nasdaq Stock Market, LLC under the symbol "IMBIL". The net proceeds from the Offering were approximately$73.7 million , after deducting the underwriting discount and estimated offering expenses payable by the Company (including fees and reimbursements to the underwriters). The Company used all of the net proceeds from the Offering to fund its acquisition of 123tvInvest GmbH and 123tvHolding GmbH (the "Acquisition"). The 2026 Notes are senior unsecured obligations of the Company. There is no sinking fund for the 2026 Notes. The Company may redeem the 2026 Notes for cash in whole or in part at any time at its option (i) on or afterSeptember 30, 2023 and prior toSeptember 30, 2024 , at a price equal to$25.75 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or afterSeptember 30, 2024 and prior toSeptember 30, 2025 , at a price equal to$25.50 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, and (iii) on or afterSeptember 30, 2025 and prior to maturity, at a price equal to$25.25 per note, plus accrued and unpaid interest to, but excluding, the date of redemption. The Indenture provides for events of default that may, in certain circumstances, lead to the outstanding principal and unpaid interest of the 2026 Notes becoming immediately due and payable. If a Mandatory Redemption Event (as defined in the Supplemental Indenture) occurs, the Company will have an obligation to redeem the 2026 Notes, in whole but not in part, within 45 days after the occurrence of the Mandatory Redemption Event at a redemption price in cash equal to$25.50 per note plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
OnJuly 30, 2021 , we entered into a loan and security agreement (as amended throughSeptember 20, 2021 , the "Loan Agreement") withSiena Lending Group LLC and the other lenders party thereto from time to time,Siena Lending Group LLC , as agent (the "Agent"), and certain additional subsidiaries of the Company, as guarantors thereunder. The Loan Agreement has a three-year term and provides for up to a$80 million revolving line of credit. Subject to certain conditions, the Loan Agreement also provides for the issuance of letters of credit in an aggregate amount up to$5,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owing toPNC Bank, National Association , to pay the fees, costs, and expenses incurred in connection with the Loan Agreement and the transactions contemplated thereby, for working capital purposes, 41
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and for such other purposes as specifically permitted pursuant to the terms of the Loan Agreement. Our obligations under the Loan Agreement are secured by substantially all of its assets and the assets of its subsidiaries as further described in the Loan Agreement. Subject to certain conditions, borrowings under the Loan Agreement bear interest at 4.50% plus theLondon interbank offered rate for deposits in dollars ("LIBOR") for a period of 30 days as published inThe Wall Street Journal three business days prior to the first day of each calendar month. There is a floor for LIBOR of 0.50%. If LIBOR is no longer available, a successor rate to be chosen by the Agent in consultation with the Company or a base rate. The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions, including, among other things, minimum liquidity requirements of not less than$7,500,000 , and then moving to$15,000,000 , beginning after the close of the acquisition of 123tv until the Company's maximum senior net leverage ratio is less than 2.50:1.00, as of the end of any fiscal month. The Loan Agreement also requires the Company maintain a maximum senior net leverage ratio of not less than 3.50:1.00 as of the last day of the fiscal quarters ending approximatelyOctober 31, 2021 andJanuary 31, 2022 ; 3.25:1.00 as of the last day of the fiscal quarter ending approximatelyApril 30, 2022 ; 3.00:1.00 as of the last day of the fiscal quarter ending approximatelyJuly 31, 2022 ; 2.75:1.00 as of the last day of the fiscal quarters ending approximatelyOctober 31, 2022 andJanuary 31, 2023 and 2.50:1.00 as of the last day of the fiscal quarters ending approximatelyApril 30, 2023 and thereafter. In addition, the Loan Agreement places restrictions on the Company's ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to shareholders. The Company also pays a monthly fee at a rate equal to 0.50% per annum of the average daily unused amount of the credit facility for the previous month. As ofOctober 30, 2021 , the Company had total borrowings of$20.0 million under its revolving line of credits with Siena. Remaining available capacity under the revolving line of credit as ofOctober 30, 2021 was approximately$45.2 million , which provided liquidity for working capital and general corporate purposes. As ofOctober 30, 2021 , the Company was in compliance with applicable financial covenants of the Siena Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months.
GreenLake Real Estate Finance
OnJuly 30, 2021 , two of our subsidiaries,VVI Fulfillment Center, Inc. andEP Properties, LLC (collectively, the "Borrowers"), and the Company, as guarantor, entered into that certain Promissory Note Secured by Mortgages (the "GreenLake Note") withGreenLake Real Estate Finance LLC ("GreenLake") whereby GreenLake agreed to make a secured term loan (the "Term Loan") available to the Borrowers in the original amount of$28,500,000 The GreenLake Note is secured by, among other things, mortgages encumbering the Company's owned properties inEden Prairie, Minnesota andBowling Green, Kentucky (collectively, the "Mortgages") as well as other assets as described in the GreenLake Note. Proceeds of borrowings were used to (i) pay fees and expenses related to the transactions contemplated by the GreenLake Note, (ii) make certain payments approved by GreenLake to third parties, and (iii) provide for working capital and general corporate purposes of the Company. We have also pledged the stock that we own in the Borrowers to secure its guarantor obligations. The GreenLake Note is scheduled to mature onJuly 31, 2024 . The borrowings, which include all amounts advanced under the GreenLake Note, bear interest at 10.00% per annum or, at the election of the Lender upon no less than 30 days prior written notice to the Borrowers, at a floating rate equal to the prime rate plus 200 basis points. The Borrowers may prepay the GreenLake Note in full (but not in part) beforeJuly 30, 2022 (the "Lockout Date") upon payment of a prepayment premium equal to the amount of interest that would have accrued from the date of prepayment through the Lockout Date. After the Lockout Date, the GreenLake Note may be prepaid in full or in any installment greater than or equal to$100,000 without any prepayment penalty or premium on 90 days' prior written notice from Borrowers to GreenLake. The GreenLake Note contains customary representations and warranties and financial and other covenants and conditions, including, a requirement that the Borrowers comply with all covenants set forth in the Loan Agreement described above. The GreenLake Note also contains certain customary events of default. As ofOctober 30, 2021 , there was$28.5 million outstanding under the term loan with GreenLake, all of which was classified as long-term in the accompanying condensed consolidated balance sheet. Principal borrowings under the term loan are non-amortizing over the life of the loan. 42 Table of Contents PNC Credit Facility
OnJuly 30, 2021 , the PNC revolver and term loan were paid in full and the PNC Credit Facility was terminated through a refinancing with Siena and GreenLake (as discussed above). We recognized$663,000 in related debt extinguishment costs in the fiscal 2021 which included both the write-off of remaining deferred financing costs in related to the PNC term loan and revolver, as well as a prepayment penalty per the PNC Credit Facility. The PNC Credit Facility provided a revolving line of credit of$70.0 million and also provided for a term loan. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility were equal to the lesser of$70.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory. The PNC Credit Facility also provided for the issuance of letters of credit in an aggregate amount up to$6.0 million , which, upon issuance, would be deemed advances under the PNC Credit Facility. The PNC Credit Facility was secured by a first security interest in substantially all of the Company's personal property, as well as the Company's real properties located inEden Prairie, Minnesota andBowling Green, Kentucky . The revolving line of credit under the PNC Credit Facility bore interest at either a Base Rate or LIBOR plus a margin consisting of between 2% and 3.5% on Base Rate advances and 3% and 4.5% on LIBOR advances. The term loan bore interest at either a Base Rate or LIBOR plus a margin consisting of between 4% and 5% on Base Rate term loans and 5% to 6% on LIBOR Rate term loans. Interest expense recorded under the PNC Credit Facility was$0 and$1.6 million for the three and nine-month periods endedOctober 30, 2021 and$743,000 and$2.8 million for the three and nine-month periods endedOctober 31, 2020 .
Public Equity Offering
OnJune 9, 2021 , we completed a public offering, in which we issued and sold 4,830,918 shares of our common stock (at a public offering price of$9.00 per share. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately$40.1 million . We have used or intend to use the proceeds for general working capital purposes, including potential acquisitions of businesses and assets that are complementary to our operations. OnFebruary 18, 2021 , we completed a public offering, in which we issued and sold 3,289,000 of our common stock at a public offering price of$7.00 per share, including 429,000 shares sold upon the exercise of the underwriter's option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately$21.2 million . We have used and intend to use the proceeds for general working capital purposes. OnAugust 28, 2020 , we completed a public offering, in which we issued and sold 2,760,000 shares of our common stock at a public offering price of$6.25 per share, including 360,000 shares sold upon the exercise of the underwriter's option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately$15.8 million . We used the proceeds for general working capital purposes.
Private Placement Securities Purchase Agreement
OnApril 14, 2020 , we entered into a common stock and warrant purchase agreement with certain individuals and entities, pursuant to which we will issue and sell shares of our common stock and warrants to purchase shares of our common stock. The initial closing occurred onApril 17, 2020 and we issued an aggregate of 731,937 shares and warrants to purchase an aggregate of 367,197 shares of our common stock. We received gross proceeds of$1.5 million for the initial closing. The additional closings occurred during the second quarter of fiscal 2020 with an aggregate cash purchase price of$2.5 million , in which we issued 1,104,377 shares of our common stock, warrants to purchase an aggregate of 611,993 shares of our common stock at a price of$2.66 per share, and fully-paid warrants to purchase an aggregate of 114,698 shares of our common stock at a price of$0.001 per share. See Note 8 - "Shareholders' Equity" in the notes to our condensed consolidated financial statements for additional information.
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Other
Our ValuePay program is an installment payment program which allows customers to
pay by credit card for certain merchandise in two or more equal monthly
installments. Another potential source of near-term liquidity is our ability to
increase our cash flow resources by reducing the percentage of our sales offered
under our ValuePay installment program or by decreasing the length of time we
extend credit to our customers under this installment program. However, any such
change to the terms of our ValuePay installment program could impact future
sales, particularly for products sold with higher price points. Please see "Cash
Requirements" below for a discussion of our ValuePay installment program.
Cash Requirements
Currently, our principal cash requirements are to fund our business operations, which consist primarily of purchasing inventory for resale, funding ValuePay installment receivables, funding our basic operating expenses, particularly our contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. We closely manage our cash resources and our working capital. We attempt to manage our inventory receipts and reorders in order to ensure our inventory investment levels remain commensurate with our current sales trends. We also monitor the collection of our credit card and ValuePay installment receivables and manage our vendor payment terms in order to more effectively manage our working capital which includes matching cash receipts from our customers, to the extent possible, with related cash payments to our vendors. ValuePay remains a cost-effective promotional tool for us. We continue to make strategic use of our ValuePay program in an effort to increase sales and to respond to similar competitive programs. We also have significant future commitments for our cash, primarily payments for cable and satellite program distribution obligations and the eventual repayment of our credit facility. As ofJanuary 30, 2021 , we had contractual cash obligations and commitments primarily with respect to our cable and satellite agreements, credit facility, operating leases, and capital leases totaling approximately$181.2 million over the next five fiscal years. Our ability to fund operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in our sales and to use available funds from our Siena Credit Facility. Our ability to borrow funds is dependent on our ability to maintain an adequate borrowing base and our ability to meet our credit facility's covenants (as described above). Accordingly, if we do not generate sufficient cash flow from operations to fund our working capital needs, planned capital expenditures and meet credit facility covenants, and our cash reserves are depleted, we may need to take further actions that are within the Company's control, such as further reductions or delays in capital investments, additional reductions to our workforce, reducing or delaying strategic investments or other actions. Additionally, the COVID-19 and related variant outbreaks continues in both theU.S. and globally and is adversely affecting the economy, financial markets and has negatively impacted, and may continue to impact demand for our merchandise and impact our stock price. As a result, it is difficult to predict the overall impact of COVID-19 on our business and financial results. Despite these adverse impacts of COVID-19, we believe the COVID-19 pandemic has been impacting our business less than other media companies because of our direct-to-consumer business model that serves home-bound consumers who seek to buy goods without leaving the safety of their homes. For the nine months endedOctober 30, 2021 , net cash used for operating activities totaled$48.9 million compared to net cash provided by operating activities of approximately$9.1 million for the comparable fiscal 2020 period. Net cash (used for) provided by operating activities for the fiscal 2021 and 2020 periods reflects a net loss, as adjusted for depreciation and amortization, share-based payment compensation, amortization of deferred financing costs, payments for television broadcast rights, and inventory impairment write-down. In addition, net cash used for operating activities for the nine months endedOctober 30, 2021 reflects decreases in accounts payable and accrued liabilities, accounts receivable and deferred revenue and increases in inventories and prepaid expenses. Inventories increased as we prepare for continued revenue growth in 2021. Accounts receivable decreased during the first nine months of fiscal 2021 due to collections on outstanding receivables resulting from our seasonal high fourth quarter. Accounts payable and accrued liabilities decreased during the first nine months of fiscal 2021 primarily due to the timing of paying for cable distribution fees and inventory purchases. Prepaid expenses and other increased primarily due to our new salesforce implementation in 2021.
Net cash used for investing activities totaled
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Advertising business acquisition payment and compares to net cash used for investing activities of$3.7 million for the comparable fiscal 2020 period. For the first nine months endedOctober 30, 2021 andOctober 31, 2020 , expenditures for property and equipment were$7.2 million and$3.7 million . Capital expenditures made during the periods presented relate primarily to expenditures made for development, upgrade and replacement of computer software, order management, merchandising and warehouse management systems; related computer equipment, digital broadcasting equipment, and other office equipment; warehouse equipment, production equipment and building improvements. Principal future capital expenditures are expected to include: the development, upgrade and replacement of various enterprise software systems; equipment improvements and technology upgrades at our distribution facility inBowling Green, Kentucky ; security upgrades to our information technology; the upgrade of television production and transmission equipment; and related computer equipment associated with the expansion of our television shopping business and digital commerce initiatives. Net cash provided by financing activities totaled$123.6 million for the nine months endedOctober 30, 2021 and related primarily to proceeds from the issuance of common stock and warrants of$61.4 million , proceeds on Siena revolving loan of$56.7 million and proceeds on GreenLake term loan of$28.5 million . Net cash used for financing activities included primarily$41.0 million for full payment on the PNC revolving loan and$12.4 million on the PNC term loan. For the comparable period, the first nine months endedOctober 31, 2020 , net cash provided by financing activities totaled$3.2 million for the nine months endedOctober 31, 2020 and related primarily to proceeds from the issuance of common stock and warrants of$20.0 million and proceeds from our PNC revolving loan of$14.4 million , offset by principal payments on the PNC revolving loan of$28.8 million , principal payments on our PNC term loan of$2.0 million , the remaining payment for our fiscal 2019 business acquisition totaling$238,000 , finance lease payments of$75,000 , payments for common stock issuance costs of$39,000 and tax payments for restricted stock unit issuances of$8,000
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