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 ended
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 the
Overview
Our Company
We are 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 we create for advertisers and consumers. Our growth strategy revolves around our ability to increase our expertise and scale using interactive video and first-party data to engage customers within multiple business models and multiple sales channels. We believe our growth strategy builds on our core strengths and provides an advantage in these marketplaces.
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During fiscal 2021, we began reporting based on three reportable segments:
? Entertainment, which is comprised of our television networks, ShopHQ,
ShopBulldogTV, ShopHQHealth, ShopJewelryHQ and 1-2-3.tv.
Consumer Brands, which is comprised of Christopher & Banks ("C&B"),
? Company ("JW"), Cooking with
TheCloseout.com ("TCO").
? Media Commerce Services, which is comprised of iMedia Digital Services
("iMDS"), Float Left ("FL") and i3PL.
The corresponding current and prior period segment disclosures have been recast to reflect the current segment presentation.
Our Corporate Website
Our
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, the
Summary Results for the First quarter of Fiscal 2022
Consolidated net sales for our fiscal 2022 first quarter were
Entertainment Segment
The entertainment segment is comprised of its television networks, ShopHQ, ShopBulldogTV, ShopHQHealth, ShopJewelryHQ and 1-2-3.tv.
ShopHQ is the Company's 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, 365 days a year 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.
ShopHQHealth, 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.
ShopJewelryHQ, which digitally launched in the fourth quarter of fiscal 2021,
? is a niche television shopping entertainment network that offers jewelry
products and services to men and to women.
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1-2-3.tv, which was acquired in
interactive media company, disrupting
? its expertise in proprietary live and automated auctions that emotionally
engage customers with 1-2-3.tv's balanced merchandising mix of compelling
products shipped directly to their homes.
Each entertainment network offers engaging, interactive video programming distributed primarily in linear television through cable and satellite distribution agreements, agreements with telecommunication companies and arrangements with over-the-air broadcast television stations. This interactive programming is also streamed live online on the respective network's digital commerce platforms that sell products which appear on the Company's television networks as well as offer an extended assortment of online-only merchandise. These networks' interactive video is also available on leading social platforms over-the-top ("OTT") platforms and ConnectedTV platforms ("CTV") such as Roku, AppleTV, and Samsung connected televisions, mobile devices, including smartphones and tablets. The following table shows our Entertainment reporting segment merchandise mix as a percentage of net sales for the periods indicated.
For the Three Months Ended
April 30, May 1,
Entertainment: 2022 2021
Jewelry & Watches 37.7 % 40.8 %
Health, Beauty & Wellness 19.8 % 23.6 %
Home 17.0 % 12.0 %
Fashion & Accessories 15.5 % 12.8 %
Other (primarily shipping & handling revenue) 10.0 % 10.8 %
Total entertainment revenues 100 % 100 %
Consumer Brands Segment
The consumer brands segment is comprised of Christopher & Banks ("C&B"),
Christopher & Banks ("C&B") - The Company's flagship consumer brand, C&B was
founded in 1956 and is a brand that specializes in offering women's
value-priced apparel and accessories that cater to women of all sizes, from
petite to missy to plus sizes. Its internally designed, modern and comfortable
? apparel and accessories provide customers with an exclusive experience. The
brand was acquired by us in partnership with
omni-channel business model includes digital advertising driven online revenue,
five brick and mortar retail stores, direct-to-consumer catalogs and a growing
wholesaling business driven primarily by C&B's television programming on our
entertainment networks.
offering men and women high quality accessories made by craftswomen and
craftsmen the world over. The brand was acquired by the Company in 2019. JW's
? omni-channel business model includes two brick and mortar retail stores,
direct-to-consumer catalogs, digital advertising driven online revenue and a
growing wholesaling business driven primarily by JW's television programming on
our entertainment networks.
Cooking with
? products and watches designed and curated by Shaq via its licensing agreement
with
Shaq's television programming on our entertainment networks.
OurGalleria.com and TheCloseout.com are online marketplaces with business
models driven by its television programming on our television networks.
OurGalleria.com is a higher-end online marketplace for discounted merchandise,
? offering an exciting shopping experience with a selection of curated flash
sales and events. TheCloseout.com is a lower-end online marketplace for
discounted merchandise, offering quality products at deeply discounted prices.
The Company obtained a controlling interest in TheCloseout.com in 2021.
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The following table shows our Entertainment reporting segment merchandise mix as a percentage of net sales for the periods indicated.
For the Three Months Ended
April 30, May 1,
Consumer Brands: 2022 2021
Fashion & Accessories 85.8 % 82.2 %
Home 10.6 % 16.6 %
Jewelry & Watches 1.1 % 2.7 %
Other (primarily shipping & handling revenue) 2.5 % (1.5) %
Total consumer brand revenues 100 % 100 %
Media Commerce Services Segment
The media commerce services segment is comprised of iMedia Digital Services ("iMDS"), Float Left ("FL") and i3PL.
iMedia Digital Services ("iMDS") - The Company's flagship media commerce
service brand is iMDS, which is a digital advertising platform specializing in
engaging shopping enthusiasts online and in OTT marketplaces. iMDS's suite of
services includes its Retail Media Exchange ("RME") and value-added services
("VAS"). RME is an advertising auction platform for advertisers, digital
publishers, supply-side-platforms (SSPs) and demand-side platforms (DSPs). VAS
? is a suite of services centered on offering managed and self-serve end-to-end,
white-label digital platforms for domestic multichannel video programming
distributors (MVPDs), internet service providers (ISPs), digital publishers and
ecommerce brands. iMDS's growth strategy is driven by its ability to
differentiate its advertising platform by offering solutions that include our
first-party shopping enthusiast data created continually by our entertainment
and consumer brand segments. iMDS is primarily comprised of
and Advertising business, which the Company acquired in July of 2021.
Float Left ("FL") - FL is an OTT SaaS app platform that offers media and
consumer brands the digital tools they need to deliver engaging television
experiences to their audiences within the OTT and ConnectedTV ecosystems. FL
? offers custom, natively built solutions for Roku, Fire TV, Apple TV, Web, iOS
and Android Mobile, and various smart TVs. Its growth strategy is driven by its
ability to integrate iMDS's advertising operations within its OTT SaaS platform
and continue to deliver sophisticated end-to-end OTT apps. FL was acquired by
us in 2019.
i3PL offers end-to-end, white label, managed services specializing in ecommerce
customer experience and fulfillment services through its
? distribution center. i3PL's business model is driven primarily by providing
these services to vendors, clients and customers within our entertainment and
consumer brands segments.
The following table shows our Entertainment reporting segment merchandise mix as a percentage of net sales for the periods indicated.
For the Three Months Ended
April 30, May 1,
Media Commerce Services: 2022 2021
Advertising & Search 95.5 % - %
OTT & Other 4.5 % 100.0 %
Total media commerce services revenues 100 % 100 %
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Results of Operations
Selected Condensed Consolidated Financial Data
Operations
Dollar Amount as a
Percentage of Net Sales for the
Three Months Ended
April 30, May 1,
2022 2021
Net sales 100.0 % 100.0 %
Gross margin 39.7 % 40.6 %
Operating expenses:
Distribution and selling 27.9 % 30.3 %
General and administrative 8.8 % 5.7 %
Depreciation and amortization 7.0 % 6.5 %
Restructuring costs 0.1 % - %
Total operating expenses 43.9 % 42.5 %
Operating loss (2.9) % (1.9) %
Consolidated Net Sales Consolidated net sales, inclusive of shipping and handling revenue, for the
fiscal 2022 first quarter were
Gross Profit
For the Three Months Ended
April 30, May 1,
2022 2021 Change % Change
Entertainment $ 52,238 $ 42,964 $ 9,275 21.6 %
Consumer Brands 5,831 2,304 3,527 153.1 %
Media Commerce Services 3,268 740 2,528 341.7 %
Consolidated gross profit $ 61,337 $ 46,007 $ 15,330 33.3 %
Consolidated gross profit for the first quarter of fiscal 2022 was
Consolidated gross margin percentages for the first quarters of fiscal 2022 and fiscal 2021 were 39.7% and 40.6%, which represent a 95-basis point decrease. The Entertainment segment's gross margin percentages for the first quarters of fiscal 2022 and fiscal 2021 were 40.01% and 40.36%, which represent a 35-basis point decrease. Sales mix is impacting the gross margin rate due to the unfavorable impact from the 1-2-3.tv acquisition. 1-2-3.tv gross margin rates are less than the aggregate gross margin rate for the Entertainment segment compared to the prior year. The Consumer Brands segment's gross margin percentages for the first quarters of fiscal 2022 and fiscal 2021 were 45.92% and 45.15%. The increase in the gross margin percentage reflects the favorable impact from the Christopher & Banks acquisition. The Media Commerce Services segment's gross margin percentages for the first quarters of fiscal 2022 and fiscal 2021 were 28.99% and 45.14%. Sales mix is impacting gross margin rate due to lower rates realized in our iMDS commerce services.
Operating Expenses
Total operating expenses for the fiscal 2022 first quarter were approximately
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fiscal 2022, compared to 42.5% during the comparable prior year period of fiscal
2021. Total operating expenses for the fiscal 2022 first quarter and the fiscal
2021 first quarter included transaction, settlement and integration costs of
Distribution and selling expense increased
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 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 2022 first quarter increased
Depreciation and amortization expense for the fiscal 2022 first quarter
increased
Restructuring Costs
During the first quarter of fiscal 2022, we implemented an additional cost
optimization initiative. As a result of the first quarter fiscal 2022 cost
optimization initiative, we recorded restructuring charges of
Operating Loss
For the fiscal 2022 first quarter, we reported an operating loss of
approximately
Interest Expense, Net
Net interest expense for the fiscal 2022 first quarter increased
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Effect of Foreign Exchange Rates
In November of 2021, we acquired a foreign subsidiary, 1-2-3.tv, which reports
its financial information in Euros. For the three months ended
April 30 ,January 29, 2022 2022
Foreign Exchange Rate (USD / Euro) - Closing
(5.4) %
The average exchange rate was
Net Loss
For the fiscal 2022 first quarter, we reported a net loss of
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Adjusted EBITDA Reconciliation
Adjusted EBITDA (as defined below) for the first quarter of fiscal 2022 was
A reconciliation of the comparable GAAP measure, net income (loss), to Adjusted
EBITDA follows, in thousands:
Three Months Ended
April 30 , May 1,
2022 2021
Net loss attributable to shareholders $ (11,896) $ (3,228) Adjustments:
Depreciation and amortization (a) 11,731 8,317 Interest income and other (168) (1) Interest expense 5,854 1,313 Income taxes 16 15 EBITDA (b)$ 5,537 $ 6,416
A reconciliation of EBITDA to Adjusted EBITDA is as follows: EBITDA (b)
$ 5,537 $ 6,416
Adjustments:
Transaction, settlement and integration costs, net (c) 2,509 701 Restructuring costs 157 - One-time customer concessions - 341 Non-cash share-based compensation expense 985 678 Adjusted EBITDA (b)$ 9,188 $ 8,136
Includes distribution facility depreciation of
month periods ended
(a) depreciation is included as a component of cost of sales within the
accompanying condensed consolidated statements of operations. The three-month
periods ended April 30, 2022 and May 1, 2021 include amortization expense
related to the television broadcast rights totaling $7,922 and $5,200 .
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 month period
ended April 30, 2022 include transaction and integration costs related(c) primarily to the Synacor's Advertising and Portal and 123tv business
acquisitions. Transaction, settlement and integration costs, net, for the
three-month period ended May 1, 2021 include transaction and integration
costs related to the TCO and C&B business acquisitions.
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(d) 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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Results of Operations - Reporting Segments
The following table sets forth, for the periods indicated, certain statement of operations data for each segment
Three Months Ended
April 30, May 1,
2022 2021
Amount % of Total Amount % of Total
Net Sales
Entertainment $ 130,574 84 % $ 106,461 94 %
Consumer Brands 12,699 8 % 5,103 5 %
Media Commerce Services 11,272 7 % 1,639 1 %
Total net sales $ 154,544 100 % $ 113,203 100 %
Gross Margin
Entertainment $ 52,238 85 % $ 42,964 93 %
Consumer Brands 5,831 10 % 2,304 5 %
Media Commerce Services 3,268 5 % 740 2 %
Total gross margin $ 61,337 100 % $ 46,007 100 %
Operating Income (Loss)
Entertainment $ (9,173) 141 % $ (1,502) 73 %
Consumer Brands 1,826 (28) % (680) 33 %
Media Commerce Services 834 (13) % 131 (6) %
Total operating income (loss) $ (6,513) 100 % $ (2,051) 100 %
Entertainment Segment
The entertainment segment is comprised of our television networks: ShopHQ, ShopBulldogTV, ShopHQHealth, ShopJewelryHQ and 1-2-3.tv. The following table summarizes net sales by product category and other information from statements of operations for the entertainment segment:
Three Months Ended
April 30, May 1,
2022 2021
Entertainment: Amount % of Rev Amount % of Rev
Jewelry & Watches $ 49,209 37.7 % $ 43,396 40.8 %
Health, Beauty & Wellness 25,785 19.8 % 25,097 23.6 %
Home 22,213 17.0 % 12,817 12.0 %
Fashion & Accessories 20,252 15.5 % 13,686 12.8 %
Other (primarily shipping & handling revenue) 13,115 10.0 % 11,465 10.8 %
Total entertainment revenues $ 130,574 100.0 % $ 106,461 100.0 %
Gross margin $ 52,238 40.0 % $ 42,964 40.4 %
Operating loss $ (9,173) (7.0) % $ (1,502) (1.4) %
Entertainment net sales increased
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Entertainment gross margin percentage was 40.01% and 40.36% for the first three months of fiscal 2022 and 2021, respectively. For 2022, the 35-basis point decrease was primarily attributable to the acquisition of 1-2-3.tv. 1-2-3.tv gross margin rates are less than the aggregate gross margin rate for the Entertainment segment compared to the prior year.
Entertainment operating loss was (7.0)% and (1.4)% for the first three months of fiscal 2022 and 2021, respectively. For 2022, the increase in operating loss as a percentage of sales was due to an increase in program distribution expense and an increase in broadcast rights amortization.
Consumer Brands Segment
The consumer brands segment is comprised of Christopher & Banks ("C&B"), J.W.
Hulme Company ("JW"), Cooking with Shaquille O'Neal ("Shaq"), OurGalleria.com
and TheCloseout.com ("TCO"). The following table summarizes net sales by product
category and other information from statements of operations for the consumer
brands segment:
Three Months Ended
April 30, May 1,
2022 2021
Consumer Brands: Amount % of Rev Amount % of Rev
Fashion & Accessories $ 10,898 85.8 % $ 4,194 82.2 %
Home 1,349 10.6 % 850 16.6 %
Jewelry & Watches 140 1.1 % 137 2.7 %Other (primarily shipping & handling revenue) 312 2.5 % (78) (1.5) % Total consumer brands revenues
$ 12,699 100.0 %$ 5,103 100.0 % Gross margin$ 5,831 45.9 %$ 2,304 45.1 % Operating income (loss)$ 1,826 14.4 %$ (680) (13.3) %
Consumer brands net sales for the consumer brands segment increased
Consumer brands gross margin percentage was 45.92% and 45.15% for the first three months of fiscal 2022 and 2021, respectively. For fiscal 2022, the 77-basis point improvement was primarily due to the 2021 acquisition of Christopher & Banks.
Consumer brands operating income (loss) as a percentage of sales was 14.4% and (13.3)% for the first three months of fiscal 2022 and 2021, respectively. The increase in operating income as a percentage of sales in 2022 was primarily attributable to the 2021 acquisition of Christopher and Banks.
Media Commerce Services Segment
The media commerce services segment is comprised of iMedia Digital Services
("iMDS"), Float Left ("FL") and i3PL. The following table summarizes net sales
by product category and other information from statements of operations for the
consumer brands segment:
Three Months Ended
April 30, May 1,
2022 2021
Media Commerce Services: Amount % of Rev Amount % of Rev
Advertising & Search 10,761 95.5 % - - %
OTT & Other 511 4.5 % 1,639 100.0 %
Total media commerce services revenues
Gross margin$ 3,268 29.0 %$ 740 45.1 % Operating income (loss)$ 834 7.4 %$ 131 8.0 % 44 Table of Contents
Media commerce services net sales increased
Media commerce services gross margin percentage was 28.99% and 45.14% for the first three months of 2022 and 2021, respectively. For fiscal 2022, the 1,615-basis point decrease was primarily due to the shift to lower-margin portal and advertising services through the acquisition of iMDS.
Media commerce services operating income (loss) was 7.4% and 8.0% of sales for the first three months of fiscal 2022 and 2021, respectively. For 2022, the decrease in operating income as a percentage of sales is primarily due to the acquisition of iMDS.
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 2021 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 of
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 Unsecured Notes
On
The net proceeds from the Offering were approximately
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 after
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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
On
Subject to certain conditions, borrowings under the Loan Agreement bear interest
at 4.50% plus the
The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions. In addition, the Loan Agreement places restrictions on our 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. We also pay 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 of
GreenLake Real Estate Finance
On
The GreenLake Note is scheduled to mature on
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 of
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Public Equity Offering
On
On
On
Private Placement Securities Purchase Agreement
On
The purchasers consisted of the following:
The warrants have an exercise price per share of
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
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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 of
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.
For the three months ended
In addition, net cash used for operating activities for the three months ended
Net cash used for investing activities totaled
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Net cash provided by financing activities totaled
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