EVINE Live's (EVLV) CEO Bob Rosenblatt on Q4 2015 Results - Earnings Call Transcript

| About: EVINE Live (EVLV)

EVINE Live Inc. (NASDAQ:EVLV)

Q4 2015 Earnings Conference Call

March 23, 2016 8:30 AM ET

Executives

Jason Iannazzo - Vice President of Investor Relations

Bob Rosenblatt - Chairman and Interim CEO

Tim Peterman - Chief Financial Officer

Analysts

Tom Forte - Brean Capital

Alex Fuhrman - Craig-Hallum Capital

Mark Smith - Feltl & Company

Mark Argento - Lake Street

Beth Lilly - GAMCO Investors

Operator

Greetings and welcome to the EVINE Live’s fourth quarter 2015 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Jason Iannazzo, Vice President of Investor Relations for EVINE Live. Thank you, you may begin.

Jason Iannazzo

Thank you, Melissa and good morning. I am joined today by Chairman and Interim CEO, Robert Rosenblatt and CFO, Tim Peterman. Comments on today's conference call may contain certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Such statements may be identified by words such as anticipate, believe, estimate, expect, intend, predict, hope, should, plan, will or similar expressions.

Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could cause actual results to vary materially from those expressed in any such statements. More detailed information about these risks and uncertainties and related cautionary statements are contained in EVINE Live's SEC filings.

Comments on today's call may also refer to adjusted EBITDA which is a non-GAAP financial measure. For reconciliation of this measure to our GAAP results and for our explanation on why we use it, please refer to today's news release available on our Investor Relations section of our website.

I would like to remind you that all information in this conference call is as of today and the company undertakes no obligation to update these statements.

Before I turn the call over to Bob Rosenblatt, EVINE Live’s Interim CEO and Chairman of the board, I’d like to give a brief introduction. Bob is at the role of Chairman on EVINE Live’s board of directors since 2014 and he brings over 30 years of operational and board governance experience, leading a variety of successful omni channel international retailers. This includes Group President and Chief Operating Officer at Tommy Hilfiger, President of HSN, and CFO at Bloomingdale’s. In addition, Bob also holds or recently held positions on a number of boards including PepBoys, ideeli, Newgistics and RetailNext. Bob knows our business very well and he has formed a tremendous relationship with our leadership team over the last 18 months. We’re excited to have his leadership on a day to day basis and are eager to move forward under his direction.

I’ll now turn the call over to Bob.

Bob Rosenblatt

Thanks, Jason and good morning to everyone. Since this is my first earnings call since becoming Interim CEO, I’d like to give a brief status on where we are as well as where we’re going in terms of our search for a permanent CEO for EVINE Live.

First, I’m very energized to have the opportunity. So while the board conducts its search for a permanent CEO with the help of Korn Ferry, I’d like everyone to know that I’m committed and I’m actively engaged with our senior team to identify ways to immediately expand on our successes and to address our opportunities.

I will remain CEO until we find the right candidate and until I’m comfortable that our business is delivering the shareholder value growth that we all expect. Furthermore, when that candidate does come aboard, it’s my intention to continue to have an important hand in our continued success, as an active member of the board of directors.

Our CFO, Tim Peterman is going to walk through the financial results for the fourth quarter and full year in greater detail in a few minutes, but at a high level I’d like to address our strategy on this first call.

This business model and its strategic opportunity remains as clear as it was in fiscal 2014 when the company posted an adjusted EBITDA of $23million. We will continue doing the things that drive profitability, such as broadening the merchandize mix, introducing new and exciting brands and products, expanding our network distribution where it makes sense and nurturing our culture that is exciting, alive and nimble.

However, we need to improve our disciplines around offering the most popular and profitable merchandising mix that our customers prefer with the surgical planning of gross profit and our cost structure. We plan to scale this business profitably by utilizing new technologies in all disciplines, especially in mobile and logistics as well as capitalizing on our expertise on video based ecommerce. This most importantly depends on the dedicated and hardworking folks that reside at EVINE Live.

I’ve been asked several times regarding whether we’re going to change strategy away from the new and proprietary and exclusive brand strategy in 2015. My response is that the idea of introducing new proprietary and exclusive brands is not new and will continue to remain important to us. However, this idea can only be one piece of a comprehensive strategy that is required to create profitable results and continue to build shareholder value.

Our work in 2016 will be centered on building a cohesive strategy that provides more clarity around how our merchandising, marketing, mobile and customer growths are integrated into a unified agenda that along with our operational support functions like customer solutions, fulfillment and television distribution can complement with their own individual efforts. Our end goal is to deliver stronger profitability this year and to have that stronger profitability continue into the future.

Now let’s talk a little bit about fourth quarter results. As we look at our 5% growth in sales during the quarter, I’d like to begin with highlighting the positive news in digital sales which grew 360 basis points to approximately 49.7% of total sales, which was fueled by continued strong migration of customers transacting via their mobile devises.

Mobile sales continued to make up a large percentage of our digital sales. We saw a 180 basis point increase in mobile conversion in the fourth quarter versus prior year and sales as a percent of total digital sales grew more than a 1000 basis point. Yes, a 1000 basis points from 34% to 45%. This is important and as we look at ways to expand our offerings online and on all devices, further online and mobile transactions are more profitable as they don’t require order capture agents to process sales transactions.

From a category by category perspective, I’d like to begin with the beauty business, which was exceptionally strong for us during the fourth quarter. Not only did we increase airtime during the quarter, but the beauty business category also generated higher dollars per minute, which is a strong productivity measure for revenue. More importantly, this category continues to deliver strong margins for the company and increased gross margins for the fourth quarter year-over-year.

Beekman 1802 and Consult Beaute, continued their solid performances as strong emerging brands and are now solidly among the top 25 brands offered by EVINE and the recently launched brand 100% PURE has also shown good traction. And although we’re pleased with these emerging brands, our established brands really drove the overall performance in the beauty category. We’re excited for how this category is positioned and are looking forward to how it does in the few quarters and then going forward.

Our fashion and accessories business continued to perform well in the quarter with 3% growth over the last year boosted by our fashion day events. Karen Fairchild of Little Big Town came back in November for a second visit and had a very successful showing, selling out multiple items. We had one brand launch during the quarter Sword & Plough, a socially conscious tote and hand bag manufacturer. Although the soft winter weather negatively impacted sales of boots and winter accessories, the fashion and accessories remains well positioned going forward.

As for our jewelry and watches category, EVINE Live continues to be the destination for watches. This category truly differentiates from our competition. While the Invicta brand continues to be the powerhouse of the category, we continue to see success with other well-known brands. However, during the quarter we continued shifts in airtime that negatively impacted our watch sales. We will look to a better balance for airtime allocations as we believe the watch category still presents a significant opportunity for us in both sales and productivity.

On the jewelry side, we made a deliberate decision to reduce airtime which boosted productivity for the category. Sales were down versus the fourth quarter of prior years, but I’m happy to report that the jewelry area continues to be one of our customers’ favorite categories. We remain excited about our growth here as our customers continue to be very engaged and look to EVINE Live for a better jewelry experience. We continue listening to our customers and will stay focused on what they want and the new trends that come out as they emerge.

Within the categories we experienced particularly strong sales in the following areas. Gems en Vogue, we had sales of over 11%; luxury diamond designer brands in general were over 104%. Our gemstone designer brands were up to 2% and our sterling silver sales were up 20%. This variety and mix of concept shows, theme shows and stone shows is essential to improving the success of this category which we believe is highly differentiated from the competition in regards to quality, value and average selling price.

As for our home and consumer electronics category, our fourth quarter narrative was really sensed around the sales velocity of our consumer electronics business as a result of Hoverboard sales, another example of how our company can be nimble and can be opportunistic. Consumer electronics grew 35% in the fourth quarter versus prior year. We made the necessary adjustments with our airtime schedule to accommodate the growing demand in the consumer electronics space and as a result home airtime and sales were reduced.

We’re mindful of the continued situation regarding the Hoverboard products and we’ll continue to monitor the situation as our customer safety is always a prime concern of ours. However, as you know Hoverboard’s only represent one of more than tens of thousands of products that we offer at EVINE Live and as retailer these occasional issues are not unexpected. Our long-term success is dependent upon our ability to expand our customer base.

Customer growth on a rolling 12 months basis was down 1%. Along with improving our margins, reversing this particular trend is a top priority. Attracting customers is a multifaceted effort. We will continue to leverage opportunities such as bringing on notable brand personalities with large social media followings while delivering the right merchandise and a strong customer experience as well. In addition, we’ll make the right investments in the marketing areas and in customer acquisition or in some cases better utilize the assets that we already own to improve our marketing efforts.

We’re seeing strong new name generation for many of our newly launched brands with strong followings including Nancy O'Dell, Karen Fairchild, the Dubrow’s from Consult Beaute, the Beekman Boys from Beekman 1802, Paula Deen and Todd English. We’ll continue to capitalize on the success of these new brands while identifying or developing additional new brands that will drive the same or better results. In addition, we are aware of the importance of utilizing marketing as an important component in our strategy and these are some of the things that we plan on intending on focusing on.

We’ll become more aggressive with our CRM campaigns and strategies. We’ll develop our enterprising customer acquisition marketing strategies and campaigns, we’re going to find opportunities to maximize customer retention and file growth with our programming and product mix and expand our overall brand awareness campaigns. Looking forward, we have an intense focus on our merchandising strategy, customer growth strategy, cost structure and our balance sheet to ensure that we not only make the proper investments in our business to continue to grow and build our brands, but that we’re also able to thoughtfully harvest those investments.

Based on what I’ve seen over the past eight weeks, it’s clear that we’re on the right path and I want to share a number of real examples with you regarding our progress so far. We created a profit improvement committee that is focused on developing and driving large scale cross functional profit generating initiatives. One of our highest priorities is examining the overall mix of our business and ensuring that it’s optimal for delivering the best revenues and customer growth and most importantly continued profit growth. This profit improvement committee is not something that we’re doing just now and there’ll be an end to it, it will be a continuous process to ensure that we make sure that we maximize our profit at the revenue gross margin and profit line on a regular basis.

We recruited a high level leader with tremendous experience to join the EVINE Live team. Nicole Stroya [ph] is already serving as our Chief Marketing Officer and Head of Broadcasting and will instrumental in developing and implementing strategies to drive customer and brand growth. Nicole has been on both sides of the retail table. She has a solid retail base of 18.5 years with Nordstrom’s where she held buying positions and merchandising positions as well as holding positions as store manager for several of the larger Nordstrorm stores. She went to work at LBMH as the Director of Business Development, managing benefit cosmetics where she was introduced to TV shopping before bringing the benefit brand into QBC. Since then she has run a public company and launched several companies as an entrepreneur including beauty brands the New Black and Kissing Elixir.

In addition, we’ve enacted a reduction in operating expense which included a reduction in force that equates to $5 million decrease in corporate overhead and related cost on an annualized basis. It’s always difficult to make this decision to reduce one’s head count, but it was necessary in order to be able to get to a point of sustained profitability. We’ll work more efficiently with less overhead, so we can operate within the financial borders of today’s business model, not next year’s. Finally, two last examples include our recent debt closing of a new $17 million term loan with GACP and our Boston station’s participation in the FCC auction.

On the debt side, PNC remains our primary banking partner, but GACP is a solid complimenting capital partner and this transaction helps provide incremental strength to our balance sheet and ensures that we have the flexibility to drive sustainable profitability in the future. On the auction side, it’s our decision to have our Boston station, WWDP participate in the upcoming FCC auction. The details and the timing and eventual outcome of this process are still to be determined and the team is organized to be opportunistic based on the potential outcomes.

Before I hand this over to Tim, I want to emphasize on what I know is one of our key competitive advantages, which is our expertise in selling goods and services to consumers through the video medium especially through the live video medium. We’ve been in the business of live digital video commerce for decades and we understand how to use all the tools associated with that to maximize our success. While offering authentic proprietary and exclusive brands remains an important part of our strategy, we have more work to do to maximize our performance and fully capitalize on the omni channel opportunities as the ways that people choose to transact business continue to evolve.

Together with the initiatives to drive growth and target new markets, we’re closely reviewing our merchandise mix to better align our offerings with customer demand and dynamic shopping landscape. Ultimately our goal remains to deliver profitable growth while leveraging our dynamic multichannel distribution platform to provide our customers with an engaged seamless shopping experience.

I’ll now hand the call over to our CFO Tim Peterman to walk through our 2015 fourth quarter results in more detail. Tim?

Tim Peterman

Thanks Bob. Good morning everyone and thank you for joining us today. I’d like to discuss several financial results and operational initiatives that are key to our short-term and our long-term of the business.

Consolidated net sales for the fourth quarter were 212 million compared to 201 million for the fourth quarter of last year, which represents a 5.1% increase year-over-year. Our return rate improved a 100 basis points year-over-year in the fourth quarter from 19.9% to 18.9%, matching the strong momentum on returns we achieved last quarter. Lower return rates were primarily result of improved quality of merchandise and operational process.

Gross profit dollars increased 1.3% to 66.4 million during the fourth quarter, where the gross profit as a percentage of sales decreased to 120 basis points to 31.4%, primarily related to the Bowling. 60 basis points was attributable to reduced margins from the mixing out of higher margin jewelry and watches and in the lower margin consumer electronics, partially offset by a positive mix in the beauty. 40 basis points was attributable to increased distribution depreciation due to the coming online of the technology and building upgrades to our Bowling Green facility.

On a positive note regarding gross profit margin, all of our categories outside of home and consumer electronics had an improved gross profit rate in the fourth quarter year-over-year. In addition, shipping and handling margin was also positive in the fourth quarter as we implemented a more disciplined shipping and handling balance. We believe this pricing discipline coupled with more measured promotions and lower negotiated shipping cost with vendors are key for maintaining our gross profit margins.

In terms of other Q4 takeaways, coming off the 3% reduction in average selling price year-over-year in the third quarter, our average selling price in the fourth quarter was $66, a 5% increase year-over-year. Fourth quarter operating expenses totaled 65 million compared to 62 million last year, which is a 5% increase over the prior year.

1.2 million of the increase was driven by an expansion of network distribution in the fourth quarter. The additional network distribution included Dubrow’s HD expansion, the launch of EVINE 2, our delayed feed second channel in West Coast and Texas market and a part time carriage shift [ph] with Time Warner in the New York market. Operating expenses were also affected by an increase of 1 million in online selling and church fee, an additional 0.8 million increase in variable cost, which all in resulted in variable cost as a percentage of sales increasing 10 basis points to 8.7% versus 8.6% last year.

As Bob mentioned, we’ve already begun to make the hard and smart decisions early in 2016 regarding ways to simply our organization to drive decision making faster and to build sustainable shareholder on an ongoing basis. Last week, we enacted a reduction in workforce and other related costs that will result in approximately 5 million in annualized expense savings. We will continue to look for more ways to make our business more efficient.

I’m pleased to report our continued progress on our implementation of our new warehouse management system in our fulfillment center in Blowing Green, Kentucky. Several product categories went live in new system in Q4 and we expect to transition the remaining categories to the new system during Q1 and Q2 of this year. This completed roll out of the new WMS is expected to result in improved labor productivity and shipping efficiencies that will result in variable rate declines in the back half of 2016.This new WMS and related processes will also improve the speed and accuracy of our shipments to our customers and therefore improve the overall customer experience here at EVINE Live.

As per the balance sheet, we ended the quarter with cash and restricted cash of 12.3 million compared to 12.6 million at the end of the third quarter. Net use of cash and restricted cash in the fourth quarter was 0.3 million, primarily driven by adjusted EBITDA of 4.9 million, net working capital investments of 4.4 million and capital expenditures of 4.1 million, of which 1.6 million related to the equipment installation in the new Bowling Green fulfillment facility. And this was offset by revolving credit line advances of 4.9 million.

Along with our cash of 12 million the company ended the year with about 30 million in additional availability on the PNC credit line which gave us a total liquidity position of about 42 million. As Bob mentioned, in March of this year we announced that the company secured a 17 million five year term loan GACP finance company. We expect to use these borrowings for general corporate purposes as well as to strengthen the overall liquidity position of our company.

Our primary focus in 2016 is to improve our execution on the fundamentals of this business, both from a profitability perspective as well as the balance sheet perspective. This incremental liquidity is part of an integrated plan to ensure we have the flexibility to be opportunistic with our business operations in order to improve profitability and value for all our stakeholders.

Our inventory for the quarter finished at 66 million, which is a 7% increase from this time last year. As a comparable, third quarter inventory growth was 10% year-over-year and fourth quarter of last year was 20% inventory growth year-over-year. So in short, our new product life cycle programs are working. The overall quality of this inventory is good and as a result we should be able to carefully manage inventory growth in the coming quarters.

A key focus to our customer growth strategy is improving our television network distribution. We continue to maintain that it it’s not just the number of homes that we broadcast in that will drive sales, but we also believe it is the number and quality of channels in those homes. I’m pleased to report that our Swagway HD [ph] launch in Q4 is exceeding our internal performance expectation and the launch of EVINE 2 in the fourth quarter in the West Coast market is right on plan in terms of performance. We will continue to see smart accretive distribution deals with our providers opportunistically as we continue to rank this area as one of our biggest strategic and financial opportunities.

Moving on to our financial outlook for 2016, let me start by saying, we acknowledge that we did not deliver the performance we had hoped for in 2015. As we continue to horn our merchandising strategy and take advantage of the cost actions and improve balance sheet, we do expect to see strong improvement in both our operational and financial results this year. We anticipate delivering top line revenue growth similar to 2015 revenue growth, improved gross margin particularly in the second half of the fiscal, improved operating expense as a percent of total sales and strong adjusted EBITDA growth from our 2015 adjusted EBITDA base.

We are focusing on adjusted EBITDA as the main metric to showcase an improving story and the entire team is laser focused on driving towards sustainable profitability. We don’t believe that the ongoing sustainable profitability is a one year fixed, what we do expect to deliver significant improved results in 2016 and to continue to improve in 2017 and beyond.

With that, let me turn it over to the operator and we will be happy to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Tom Forte with Brean Capital. Please proceed with your question.

TomForte

Good morning. Thanks for taking my questions. How should we think about the role of the jewelry and watches in the long-term mix of products and then to the extent which you’re working on building new brands outside of those two categories? How should we think about your patience, time to ramp those brands? And then and then if successful with the spectrum auction so the Boston TV station, what would be the most likely use of the proceeds? Thank you.

Bob Rosenblatt

Hey Tom, thanks for the question, it’s Bob. The way we think of all the categories including jewelry and watches is that every one of the different categories have different attributes that are associated with them as you know. Well that lead down to trying to figure out the best way to mix the merchandise to get to the best contribution margin that we can possibly get. So jewelry and watches continues to be an important part of our business, but it is not the only part of the business. But what’s important is looking at all different categories to figure out what has the same or similar attributes as jewelry and watches, especially as we balance that component versus bringing on what I’m going to call valuable new name. So to me this is all about trying to drive our continuous profitable mix of business and in doing so jewelry and watches certainly has a different lot of the different attributes that are developed that makes sense for that. But at the same time so do a lot of other categories and subcategories that we haven’t even started to get into it.

So, I know that usually people look at this business in terms of the breakdown of merchandise mix comp, but the reality is that when you got down to the brand level, we want to look at the all the different components of what makes long-term sustainable profitability and customer growth and drives a customer value proposition and continue to move forward. So, we are excited about jewelry and watches, but I think from a approach standpoint I can look at the business more in terms of what is customer want in every category and how do we provide the best experience for them, we plan on being able to continue to bring in then there is that are quality vendors that could provide based on the customers that we have and at the same time we hope to be able to bring customers who look like the customers that we have currently to be able to drive more of them to our network.

As you know our customer base although strong and we love our customers, still hasn’t opportunity for lot of growth. And one of the major things that we need to do is be able to focus on how to be able to grow that customer base and so whether that being jewelry and watches or whether that being home furnishings or beauty. Whatever the category is I think we need to look at it on a basis of what is the customer react to, how do we maximize, how do we do the on air experience and the online experience as adaptive to it and be able to have multi-platform experience that maximizes the growth on that. I’m going to let Tim answer the other question that you had asked.

Tim Peterman

Hi Tom, regarding their SEC options certainly the proceeds would go to our balance sheet and we would figure out what the best ROI for that it, but as you can appreciate depending on the proceeds, we would strengthen our balance sheet with those funds.

TomForte

Great, thank you very much.

Bob Rosenblatt

No problem.

Operator

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

Alex Fuhrman

Great, thanks for taking my question. Was hoping you can give us a little bit more of a sense as you think about your revenue guidance for the year. How you see that playing out over the course of four quarters of 2016 and then just you know broadly speaking thinking about the deploying of air time from watches in 2015, Can you five kind of frame up for us how much revenue was left on the table by taking air time out of those watch categories particularly the Invicta Watch. And as you think about revenue growth for 2016 what is the opportunity just to get that low hanging fruit by putting some air time back into the Invicta Watch category.

Bob Rosenblatt

Yeah, I mean when it comes to the whole science of medium that we are in, when we look at the sales components of it, the way that I think about this is looking at, I know that historically people have looked at this business in terms of looking revenue per minute, dollars per minute, but I would suggest you one of the things that was very successful from even when I was President at HSN, was to look at gross margin per minute and to look at contribution margin per minute and I think when you start looking at it that way and you add in the extra secret sauce of what the lifetime value of the customer is, you find out that it is lot more helpful to focus the entire company’s direction on how to be able to drive the sales as long it is profitable sales unless you have good reason not to drive it that way. So for example, if we want to be able to have good names I guess I would pass it [ph] that bringing on the Swagway was probably a good and opportunistic idea as I said last year in the fourth quarter.

However, a lot of those Swagway customers may not come back again. So, I would suggest to you that it might be, it might make more sense that when we look at this company from a statistical standpoint if you will but also an opportunistic standpoint the merchants and you know this comes a lot from my experience when I was Bloomingdales for 14 years and help figured the part of it that’s the most important to me is being able to enable the entire corporations especially the merchandising organization to understand how to be entrepreneurs of their own business and what it takes what components it takes to be able to drive revenue gross margin profitability and ultimately contribution profitability and lifetime value the customers to everybody. So, we expect to have the same kind of sales growth as we had last year as Tim had said. But I think what we are going to do is you will see that Invicta watches although an important part of our business needs to be measured appropriately and we also don’t want to give too much time because that obviously that dollars per minute or the gross margin dollars per minute will slow down because we want to be able to make sure that we give the appropriate time to that. So, we’ll be looking towards how to use both the on air time as well as online time to be able to locate our customer base as you well know we have all the customers information were the customers are for all of those things and figure out new and unusual ways to a be able to actually speak to the customers by maximizing air time.

So, the way that I like to think about for us is very similar to shelf space in a retail store. We want to be able to use it but at the same time there were so many other products that are out there and the opportunities that are out there that will go. We want to make sure that we maximize Invicta and we love Invicta and we just had incredibly great remote with them from Miami that incredibly well and we love our Invicta customers. We feel that this opportunities to be able to broaden that piece of it and we are going to be focused on broadening our customer mix and exploiting that piece of it going forward and I think Tim wants to join in for couple of comments.

Tim Peterman

Yeah, Alex to your question on the 2016 Outlook in terms of revenue expectation, certainly, I think from an expectation perspective you could think about that second third and fourth quarter as what we mean by that type of similar revenue growth obviously Q1 last year was flat to slightly down, that is not something we expect. We expect it to - the revenue growth more in the second, third and fourth quarter. Those types of growth rates, every quarter is what we’re trying to make.

Alex Fuhrman

Great, that’s very helpful thank you very much.

Tim Peterman

Operator. Thank you.

Operator

Thank you. Our next question comes from the line of Mark Smith with Feltl & Company. Please proceed with your questions.

Mark Smith

Good morning guys.

Bob Rosenblatt

Hey Mark.

Mark Smith

Can you guys walk us through the total homes decline, why we are seeing those go down?

Tim Peterman

In what sense Mark, I’m not sure that I’m following your question if you could. This is Tim by the way how are you?

Mark Smith

Yeah, doing well. Just looking at average forms in the quarter on a sequential basis as well as on year-over-year basis declining and first time we see that that happen on year-over-year basis.

Tim Peterman

The launch of the - what you will see with the launch of our Q4 distribution, I think you will see that that growth is going to be consistent in the CPI range. I think what we are seeing right now is just the leveling out I’m not - I don’t expect any materials distribution decline this is with the Q4 launch is that we have you will see a steady growth in that and remember that as we talk about before it is not just in total number of homes you are in, it is the number of channels you’re in the home. And what we are focused on in 2016 is improving the quality and the channels in the form that we know our already initiated to the TV retailing experience.

Mark Smith

Okay then second just as you bring up distribution what can you gives us as far as maybe inside into distribution cost per home that is being creeping up kind of every quarter. Do you expect that as you focus on this quality to continue moving maybe into the higher teens, $17 - $18 or do we flatten out here at some point?

Tim Peterman

No, I don’t expect them to increase. I think - we expect them to be relatively flat at most in 2016.

Mark Smith

Okay and then last question just looking at the balance sheet if you can give us your debt balance today and maybe talk about why add in this new facility with higher cost if you got still just about 30 available PNC and you made this cuts to operating expenses, why add this new debt piece?

Tim Peterman

We think of it as a couple of different ways. As it is a $700 million business growing the way we are. We feel good about the liquidity that we were in and at the end of third quarter. And in the fourth quarter our inventory finished probably couple of million higher than we wanted although 7% was a very big improvement from prior performance. We are expecting slightly better, we were opportunistic with our Swagway revenue opportunity and so we finished with a little bit higher inventory. Until we just want to make sure we have plenty of liquidity and plenty of room to be as opportunistic as possible in 2016. Flexibility is the key, we believe and we think this is for just more flexibility.

Bob Rosenblatt

And Mark it is Bob. Thanks for the question. As far as I’m concerned I come from a finance background although I certainly grew up in a more opportunistic retail world and for me since we have the business as Tim mentioned $700 million revenue business it is a lot more comfortable to be able to safe than sorry when it comes to retail in general. And so this is just I think for me at least it was something to get me a little bit of the level of comfort to be able to manage the business with little more flexibility and be more opportunistic.

Tim Peterman

And Mark to your question, this is Tim again, to your question about total debt with the term noting the revolver $72 million -$73 million, rounding up to $73 million.

Mark Smith

Today or at the end of the quarter?

Tim Peterman

At the end of the quarter.

Mark Smith

Okay can you give us balance today as change material?

Tim Peterman

Well obviously with that term note it would move up by that amount.

Mark Smith

Okay, then no other change in the PNC piece?

Tim Peterman

Obviously the term note is amortized down we pay on that on a quarterly basis but did not material fashion.

Mark Smith

Okay. Great thank you.

Bob Rosenblatt

No problem thank you.

Operator

Thank you our next question comes from the line of Mark Argento with Lake Street Capital Markets. Please proceed with your question.

Mark Argento

Hey good morning guys.

Bob Rosenblatt

Hey Mark.

Mark Argento

Couple of questions one can you talk a little bit about where you’re able to find the ability to take $5 million worth of cost out, what areas were you able to - where did you reduce headcount was that at headquarters, or was that more on the distribution side and then just quick question follow-up on the FCC maybe you could walk through your understanding in terms of timeline in terms of the process there.

Bob Rosenblatt

Sure, so let me - I’ll take the question on the headcount and then let Tim take the FCC component of it. We took out about 45 full-time positions in total. They were pretty much well distributed in all areas of the company and we did a little bit of reorganizing so that we made sure that nothing would be missed if you will we stayed away for the most part from the front of the house experience because we don’t wanted to mess if you well with anything on the front of the house because we want to make sure that we actually build on that experience as opposed to reduce on that experience. So it is mostly was a matter of being able to be more efficient and more effective in terms of streamlining the organization and most of the positions were in corporate, that we took the positions out of. And they ranged in high-level positions all the way down since it was 45 positions all the way down to staff positions but it was done in surgical manner and of course some other people that remind having the additional responsibilities.

But because we are able to do this in a smart strategic way so far they seem there doesn’t seem to be any impact in terms of anything that should be at risk for the business if anything we think we are giving the opportunity to some people that have been here for a long time and haven’t had the opportunity to really shine to be able to step up to the plate. So I hope that answers your question.

Mark Argento

Yeah, that was helpful thank you.

Bob Rosenblatt

Yeah, no worries, I’ll let Tim talk about the FCC piece of it.

Tim Peterman

Hi Mark, regarding the FCC process I think let’s just talk about what it is going on the FCC right now over the next month or so. It is going to be working with all the stations across the country to understand which stations will be willing to relocate or to relinquish their spectrum altogether. And that process will then yield a smaller group for the FCC to begin its auction process in the coming month. We already publicly stated that we are opportunistic here and we are participating in the auction and we are just as interested as all the other stations in understanding how this spares out. The FCC is actually moving along at surprisingly efficient manner right now and so we are optimistic that the timeline they presented over the last 90 days being that the first step takes place over the next 30 days and following that process or several months of process you know that will determine ultimately how the stations are valued. And then once that value established and the FCC is clear on who is going to participate and which fashion and then they work with the bidders and then after that the bidders are confirmed then there is the process of payment. But again it is still too early days, it is still exist only within the four corners of a PowerPoint presentation and we’re eager to see how it plays down.

Mark Argento

Great thanks guys, I appreciate it.

Bob Rosenblatt

No, no problem

Operator

[Operator instruction] Our next question comes from the line of Beth Lilly with GAMCO Investors. Please proceed with your question.

Beth Lilly

Good morning.

Bob Rosenblatt

Hi, Beth.

Beth Lilly

I have several questions. One is, can you just talk a little bit more about the FCC auction and you talked about the timeline but do you have any sense of price or I mean just give us any kind of financial implications or financial results for you guys.

Tim Peterman

Hi Beth, this is Tim.

Beth Lilly

Hi, Tim.

Tim Peterman

Hi, we can’t disclose any of that information but let’s say it is an ongoing process and you know we are just as eager to understand all this economic I’m sure our investors and our stakeholders are.

Beth Lilly

So the process is that you elected to put your station up for auction and then the FCC then just help us understand the price that you might eventually receive for it.

Tim Peterman

Yeah, we can’t really disclose any of that but because we don’t have any real information but the point of what I was explaining to Mark was that there is a serious of jading that the FCC is organizing on a countrywide basis. And that first jading process is going to occur over the next 30 days and which is the FCC determines based on how we respond whether we would give up our entire spectrum and get off the air or if we moved to a different station and the channel sharing agreement. That’s the first jading process, the most visible action that we have in terms of timing action calendar from it gets bigger, bigger and bigger.

Beth Lilly

Okay and let’s suppose then that you end up selling the station what’s the cost than in terms of is there a big cost than for you to put EVINE Live on the Boston market on another station?

Tim Peterman

No, we feel very comfortable not only is it not cost prohibitive but it is also strategically available. So it is not a question of being able to get on [ph] and it’s not a question that would burden our business model to replace the carriage. We feel good about that alternative for replacement carriage.

Beth Lilly

Okay and then just one another question about that. So you will have sense in the next 90 days then about what potential you’ll receive for WWDP.

Tim Peterman

Beth, no, I’m sorry - I can’t commit to any timeline, I’m sorry. We are participating along as the FCC leads us through this process and that’s all we can really hope to achieve.

Bob Rosenblatt

Hi Beth, it is Bob; unfortunately this is something that sort of once we entered the auction process it is out of our control. So we are kind of one of many that are involved in the process. As Tim said we are anxious as our investors to find out more about how quickly it could happen but because it is based on FCC moving the process forward practically impossible to be able to anticipate how quickly they can get it done.

Beth Lilly

Okay, all right couple of other questions. So you have 70 million in debt in your balance sheet at the end of quarter and then you talked about this additional $12 million term loan. So with that bring your total debt level to 82 million?

Tim Peterman

Well no, it is 72 which was an additional term loan at 17 so it brings closer to 88, so you are look at 90. That will be the - with the addition of the - at the year-end it was 72, that’s what I was quoting.

Beth Lilly

Yeah, got it. Okay and then Bob this is a question for you. So as you - it is interesting and we have been around EVINE Live for a long time. So you have been through a management team, the company has been through a management team from QBC they try to turn it around and then we had a team from HSN and so as the company looks at the next level leadership, can you describe to as qualities in a CEO that you think are important to lead the company forward?

Bob Rosenblatt

Yeah, that’s a great question. So I think - first of all I think that is certain attributes to running this business that are really important and I think that we’ve kind of whips eyeing [ph] ourselves over the last few years based on that and so I think that’s what reflective in the results over the last let’s say seven years or so. I think they had the different management teams and the boards had a very specific point of view in terms of what needed to be done without really understanding the nuances of being able to build good culture. That focuses on team effort to be able to drive and to culture of transparency to make sure that everybody understood when you move any of the levers what impact that has on the business. It is a very, in my years as President of HSN, I learned it was a very scientific business that really is a mix of art and science to be able to figure out the best result and to trust that you have a management team in place that understand the core competence in each of their areas and also understand all the different parts of the business to be able to drive the best profitability. In other words, what is the definition of success for each area and what is the holistic definition for the company.

And I think what has happened here is that and just it seems like it’s been a clash of whips eyeing as I said that - and moving of the pendulum that people have not taken the time and effort to utilize the science both on the board level and on the management level to actually say okay let’s look at this from a contribution margin level in terms of being able to see how we can use the team to be able to drive that. And I think that there was not the kind of discipline if you will, in this last group that was here in terms of driving business and I would almost say that the past group before that will overly disciplined in looking at it as a pure financial component of it as opposed to what I think most retailers are good at.

And again I will go back to my years in Bloomingdales and my years at Tommy Hilfiger in the sense that you really need to be able to focus on being able to look to be entrepreneurial and to be able to lead and response customer’s reaction so when I think about the next leader I think it is somebody who really needs to understand what the level of the businesses how to continue to build the culture out to be appropriate and put that discipline in place to be measurable and give everybody the tool then need to be able to succeed and frankly to be able to celebrate the victory is that are here and to do things in a way that actually are measured but at the same time when I was at HSN I think we were - when I first started we were about 1.2 billion and we were able to move up to about 1.8 billion. And the EBITDA - the cash flow went somewhere from to low double digits to somewhere around $300 million in cash flow. So when you get - this businesses if sake and when you get the right, the money really flows down and so I think the leader I would like to see that as a leader would be able to someone who is a student of the science of the business but at the same time understand the challenges and opportunities of being able to look at the world that is going to buy through the screen and whether that screen be TV or whether the screen be on your iPhone or whether it would be your iPad or wherever it is. This is someone who has to be able to understand how to use the metrics that e-commerce models and I was the Interim President of ideally.com for a while before we sold to Groupon.

You really need to be able to take the place model then you need to be able to apply the import commerce component of it that are successful today and all that great e-commerce company are being able to use predictive analytics to do that. And I think the combination of that would be someone that I think would be a great leader for the next generation of EVINE Live to point out and I think it is one that makes a lot of sense and again I’ve seen the success of this before. And so it is really exciting to be able to find that person, but that being said I feel very comfortable that we have a team in place already that will be able to deliver successfully on result and I’m not going to go anywhere and till I make sure that totally in a place that make sense and hopefully to be able to tutor whoever it is that comes in to be able to ensure that person will be able to take the mantle from me if you will and exploiting the whole live video commerce medium which everybody in the world including Amazon that was getting behind. The fact that we have for the last 30 years frankly did in figuring out how to exploit all the KPI’s that make sense on this. We figure we are going to able to maximize that as well. Does that answer your question?

Beth Lilly

It does maybe you can look at Mindy and come and take over the turnaround.

Bob Rosenblatt

Well, I don’t know if Mindy wants to do that. She seems to be pretty happy in what she is doing. She has done a great job over there and I’m a big fan of Mindy, but if Mindy would like to do that I would be happy - Mindy and I often in the past talked about partnering with each other because we actually felt that if two of us were able to get were able to partner together would be really great team in terms of being able to essentially do world domination. But I’m not sure that is on the cards, but I’d be happy to talk with her about it.

Beth Lilly

Okay, one last question. You named the head new chief merchandising officer is that correct did I hear that?

Bob Rosenblatt

No, what we have done is during the rift as we had a woman named Kenny Burnett [ph] who was responsible for merchandising and for planning and programming and we eliminated that position as part of the rift so right now the DMMs are reporting to me at this point in time.

Beth Lilly

Okay, but you mentioned a woman name named Nicole?

Bob Rosenblatt

Well I’m sorry. So Nicole Stroya ,who worked at Nordstrom has become the Chief Marketing Officer not the merchandising officer. I’m sorry so Nicole is responsible for broadcasting she’s responsible for the marketing function and e-commerce and so we never - we didn’t have here a real Chief Marketing Officer at any time and I think part of the reason that we weren’t a successful last year as we could have been is because to me one of the legs of the stool we are missing in the sense that we didn’t have somebody who was able - we had a lot great new brands but we weren’t able to be able to tell our story and get more customers that look like our customers to come over. So Nicole - one of Nicole’s biggest charges and since she is merchant in her DNA is to work with merchandising organization and with the brands to be able to make that and to bring that marketing sense alive with us, so that we can get more customers as I said we had about 1% decrease in our customer base this year and that was to me a disappointing statistics.

Beth Lilly

And what is Nicole’s background? Where did she come from?

Bob Rosenblatt

Nicole, I think I mentioned it earlier. Nicole was at Nordstorm’s for about 16.5 years in merchandising position both in central buying organization as well in the store organization. And then she went on to LBMH and she worked the benefit brand over there and actually brought the product QVC. And so Nicole actually been on air n both QVC and HSN I think and has developed products for HSN and QVC. And then she’s gone on to be a public CEO.

Beth Lilly

Oh, interesting okay. Great, well thank you for answering all my questions. I really appreciate it.

Bob Rosenblatt

No worries at all, I appreciate it. Thanks.

Operator

Thank you. There are no further questions at this time. I’d like to turn the floor back to management for final remarks.

Bob Rosenblatt

I just like to thank everybody for the time and attention given here. As I think we’re trying to react to what happened last year, we want to ensure that there is transparency in everything that’s being done here and we understand as a group that we have to focus on being able to make sure that the commitments that we make are ones that we believe in and that we’re going to be able to show you through results the fact that we’re doing what we’re doing because I think that’s - one of the critical elements is trust as we go forward. And I think what you can ensure is that we’ll be able to provide that trust to you and we have to earn it and we’ll earn over the next few quarters and forever. Thank you.

Operator

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

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