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ValueVision Media, Inc. (NASDAQ:VVTV)

F2Q08 Earnings Call

August 25, 2008 11:00 am ET

Executives

Amy Kahlow - Director of Communications

John D. Buck - Executive Chairman of the Board, Chief Executive Officer

Frank P. Elsenbast - Chief Financial Officer, Senior Vice President

Keith R. Stewart - President, Chief Operating Officer, Director

Analysts

Bob Evans - Craig-Hallum Capital

Jamie Lester - Soundpost Partners

Alan Erinson - AVRS

Campbell Gibson - TGT

Debra Fine - Fine Capital

Operator

Good morning and welcome to ShopNBC’s second quarter financial results teleconference. (Operator Instructions) I would now like to turn the call over to Amy Kahlow, Director of Communications. You may begin.

Amy Kahlow

Good morning and welcome to today’s conference call. It may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressed in any such forward-looking statements. More detailed information about these risks and uncertainties is contained in ValueVision Media’s filings with the SEC.

I would now like to turn the call over to Mr. John Buck, Executive Chairman of the Board.

John D. Buck

Hello, everyone and thank you for joining us today. Let me begin by saying that we are very disappointed with our second quarter results. I want you to know that the board fully recognizes these performance issues and took decisive action to make the organizational leadership changes it felt were necessary without delay to address these trends.

As announced in the press release on Friday, the board appointed me to return as the company’s CEO, replacing Rene Aiu, who left ShopNBC, along with three other executives she had brought with her. As a part of the organizational leadership change, the board appointed a new president and COO for the company. Keith Stewart, who is with us here today, comes to ShopNBC with 20 years of executive retail experience. Keith has excellent leadership skills, a deep understanding of retail operations domestically and internationally, and importantly, he has nearly 15 years of experience in home shopping as an executive at QVC.

Together, Keith and I, along with our dedicated employees and vendor community, will be highly focused on taking action to reverse sales and earnings trends with a shared goal of making this company a more stable and profitable TV shopping business.

I know the company has undergone significant change this past year. I also know that many of our shareholders are upset, frustrated, and losing patience, if not already run out. We understand how you feel. We understand you have questions like what are you doing to fix this business and restore shareholder value? It’s a fair question and we owe you a response. We will address this and others as best we can and during the question-and-answer period.

Please note that the action being taken is what we believe to be right for the company and in the best interest of our shareholders. We continue to be very positive and confident that the challenges before us can be overcome. This company has a wonderful, wonderful set of assets and during the quarter did make progress in a number of core areas.

Before continuing, however, I would like to outline today’s prepared remarks, which will address three main areas: one, a financial review of our second quarter results by Frank Elsenbast, our CFO; two, a discussion of my role as CEO and Keith’s as President and COO, along with our respective near-term priorities; and three, a commentary on our plans for the periods ahead.

With that, I will turn the call over to Frank for a brief financial review of our second quarter results.

Frank P. Elsenbast

Thanks, John. Our second quarter revenues were $142 million. This is 26% below the $191 million reported last year. The shortfall was due to a 23% decline in shipped units and a 3% decline in the average selling price. Gross margin in the second quarter was 33.7%, which is down significantly from 35.3% last year. This reduction was due to lower merchandise margins partially offset by a favorable mix impact as we reduce the volume of consumer electronics sales.

Controlling our operating expenses remains a priority. In the second quarter, operating expenses, excluding equity compensation, were down 11% versus the prior year. Selling and distribution expense was down 11% versus last year, driven by lower variable costs, reduced marketing expense, and lower headcount. In the quarter, the company saw 4% growth in our FTEs and accordingly, our cable distribution fees increased slightly in the quarter.

G&A was down 11% due to lower headcount. EBITDA as adjusted was a negative $10.7 million, compared with the positive $1.8 million last year, resulting from the sales shortfall and lower gross margins, offset somewhat by the reduced operating expenses at the company.

We are focused on maintaining a strong balance sheet. The quarter ended with over $80 million in cash and securities, which is down $5 million from the first quarter balance. Disciplined management of working capital partially offset the EBITDA loss for the quarter.

Working capital generated over $10 million during the quarter as we reduced inventory levels and accounts receivable. Capital spending for the quarter was $2 million.

Our cash balance also reflects an additional temporary impairment of $3.3 million on our portfolio of auction rate securities. There was no stock buy-back activity this quarter. At this time, the company is focused on stabilizing the business and preserving its cash balance. Therefore, the $10 million share repurchase authorization remains unused.

With that, I will turn the call back to John.

John D. Buck

Thank you, Frank. Before introducing Keith and talking about our respective roles and near-term priorities, I think it makes sense to take a moment and talk about why I came back to serve as CEO on a full-time basis. Most of you know me well enough by now to know I care a great deal about this company, its employees, vendors, and shareholders. I have a history with ShopNBC. I’ve been on the board since 2004 and served as interim CEO for five months from November to March of ’08 -- November of ’07 to March of ’08. And so I know the company extremely well, have great relationships inside the organization with the board and with our strategic partners at GE and NBC Universal.

I also admire this company. ShopNBC has tremendous underlying assets -- a powerful brand, a shopping network that reaches 70 million homes, wonderful on-air hosts who have a great relationship with our large customer base, a strong merchandising department with loyal vendors, a thriving e-commerce business, a healthy balance sheet, and a dedicated employee base. So when the board asked me to serve as CEO, I accepted with enthusiasm. I care about what happens to this company and its future and I am committed to leading it significantly to improved performance.

ShopNBC is just an incredible asset and despite our challenges, I remain encouraged by the opportunity within. We have continued to hold productive household distribution negotiations with all our top cable operators. We recently signed an extended carriage agreement with one of the top five. We are pleased with the progress made so far and are seeing a meaningful reduction in our cable distribution carriage fees.

From a management standpoint, the company appointed Chris [Culessa], a retail executive with 23 years of experience and nearly a decade in home shopping, as Senior Vice President and Chief Merchant. And Jeff Lewis, a customer service executive with 25 years of leadership experience in retail and direct marketing, as Vice President of Customer Experience. Both Chris and Jeff are seasoned executives who are hitting the ground running. We are excited about the impact they are making in two critical areas of the company.

As Frank stated, we maintained a strong balance sheet with over $80 million in cash and securities and we continue the disciplined control of operating expenses, which were down year over year by 11% on the quarter.

On the merchandising front, the company continued to partner with its core vendors in areas we are strong, while bringing in new vendors to expand variety and newness. We also lowered our average selling price by layering in new businesses to our core jewelry, watch, and electronic businesses.

For example, we are layering in more women’s watches to our strong watch business. We are asking our high-end jewelry designers to create more affordable pieces without compromising on their design, integrity, and quality. We have done this and have seen good sales results and lower return rates.

We continue to be pleased with our e-commerce business, ShopNBC.com, which now represents 32% of our revenue. During the second quarter, ShopNBC.com also launched several live webcasts exclusively on the Internet to aggressively reach new customers and drive incremental sales by capitalizing on its strong niche categories, such as watches and coins. Presently, over 30% of new customers are being acquired through the web.

These are all positives. I believe ShopNBC can be a winning business model with the right leadership, which is why I’m delighted to now turn your attention to Keith Stewart, our new President and COO, who will be working side-by-side with me to move the company forward and rebuild shareholder value. ShopNBC is very fortunate to have a world-class TV shopping executive like Keith join the company and the board of directors. Keith comes to us from the gold standard in our industry, having been with QVC for 15 years. He started at the bottom, learned from every area in TV shopping, and achieved a high level of success at QVC. Today he possesses a strong understanding of multi-channel retailing and has a proven history of delivering growth and profitability spanning markets in the United States and Germany.

Because of his best-in-class operational background and intimate knowledge of our industry and customers, Keith can immediately take on the role of President and Chief Operating Officer, effectively lead ShopNBC's operations and its team through this transitional period and at this critical juncture. He is a terrific fit for our organization and we look forward to having him with us for many years to come.

In our dual leadership roles, Keith will focus primarily on running the day-to-day operations while I will focus more on the external issues. We will collaborate and support each other on all efforts to rebuild shareholder value.

With that, our immediate priorities for the business will be to: one, concentrate on improving the customer experience and driving sales from existing as well as new customers; two, aggressively focus on extending our carriage agreements and reducing our fee structure; three, efficiently manage our balance sheet to ensure ShopNBC maintains maximum operational flexibility; and four, engage our outstanding vendors to tap their creative and entrepreneurial talents.

We understand that this is a critical time at the company and we will be focused on the biggest opportunities first.

Externally, I plan to work with Keith and the board to: one, explore a wide range of new growth opportunities. There are many opportunities out in the marketplace for ShopNBC to partner with other companies to create significant value. For example, we may form alliances with other companies to leverage their customer base, their unique products, or obtain new distribution. And in fact, we have already begun to explore such avenues of growth.

I will also continue to work with our partners and GE and NBC in a number of areas. First, we are in an ongoing conversation with them regarding their current ownership position and the upcoming redemption of their 5.4 million shares of preferred stock. We need to determine if this will be paid off or extended in some form.

Second, we will continue to identify opportunities where we at ShopNBC can provide valuable commerce capabilities to NBC and their many cable and Internet properties.

Third, GE and NBC have been great partners for this company and we will continue to leverage that relationship going forward.

Finally, I will address most of the issues associated with being an public company, including communications with our board, shareholders, and other external stakeholders.

Keith and I are very excited about the opportunity before us. We clearly understand our individual roles and we’ve already started working on many of these priorities.

At this point, I would like to turn the call briefly over to Keith so that he can tell you a little more about himself and talk about some of his near-term priorities.

Keith R. Stewart

Good morning, everyone. I want you all to know that I am very, very excited to be here and delighted about becoming an integral part of ShopNBC and working closely and collaboratively with the dedicated team of employees to help position this company and its unique assets for improved future performance and success.

As John said, I’ve been in this business most of my retail life and I have a real passion for TV shopping. I’ve had leadership and operational experience in virtually every aspect of the business. Even though my background is largely with QVC, I can tell you that my vision for this company won’t be another QVC.

ShopNBC is the premier lifestyle brand in the home shopping space. Its customers tune in to shop with us because of the wonderful products which we sell, which are unique to our channel. We are going to protect, we’re going to build on our strengths, and we’re going to make it better.

There’s no question it’s a tough economy and I am fully aware of the challenges and work that lie ahead. However, I am confident that these challenges can be overcome. I am fully engaged and committed to bring about the kind of change this organization needs to realize tremendous opportunity from within. I firmly believe in its assets, its people, its brand, and its strength in the industry to be a powerhouse in this space.

As President and COO, my near-term priorities will be to take a deep dive as quickly as possible and right the course. Part of this will involve a qualitative and quantitative customer experience audit. Another priority will be to improve on some of the operational fundamentals of our business based on the best practices I experienced at QVC. I see some immediate short-term opportunities for upside within the company. Meanwhile. ShopNBC has a large and loyal base of customers who we’ll continue to focus on while at the same time taking full action to acquire new customers each and every month. And finally, we are going to continue focusing on cable negotiations and the thriving e-commerce business.

Once again, I couldn’t be happier to be here. I look forward to getting to know you, our shareholders, better in the days and months ahead.

With that, I’ll turn it back over to John.

John D. Buck

Thanks, Keith. Before concluding, I would like all of you to know that Keith has great confidence in the business and what needs to be done and he knows how to get it done. Furthermore, after Keith met with the officer team and all our employees on Friday, he decided not to take any cash compensation the first year. Instead, he is taking all of his pay in equity. My compensation will also be heavily weighted toward equity with my salary substantially reduced compared to the market for CEOs at companies this size.

And as you may recall, when I was interim CEO I took equity only. I think that you will find that our interests are aligned with those of our shareholders. We will disclose the final details of our comp plans later this week.

With that, let me conclude and reiterate that ShopNBC has undergone significant changes this past year. The results for the past six months are unacceptable and that’s why the board took prompt and decisive action with a leadership change.

ShopNBC has strong underlying assets with excellent growth potential. With the continued support and dedication of our employees, ShopNBC made progress in the second quarter in its cable negotiations, diversifying its merchandise mix, and continued success in our e-commerce business. As we enter a new ear of leadership, I remain encouraged by these signs of progress and I look forward to working with Keith and our talented management team to improve performance that will enable us to deliver long-term shareholder value.

Given the changes being implemented, we have decided not to provide guidance at this time.

In conclusion, it’s important that I say that I am sorry for the current situation and our present circumstances were the furthest, furthest thing from my mind earlier this year. But we’ve learned from the past and now we must go forward.

So with that, we’ll take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Bob Evans, you may ask your question and please state your company name.

Bob Evans - Craig-Hallum Capital

Two questions -- first, on the gross margin for this quarter, could you elaborate a little bit in terms of why it was down to the magnitude that it was and do you have a sense that we should see some improvement going -- you know, the upcoming quarter, next couple of quarters? Or give us some sense of trend there.

Frank P. Elsenbast

I would say the margin was down this quarter because there was a certain amount of clearance activity that continued to go on during the quarter and also if you’ll remember, at the end of the first quarter, we changed how we age our inventory and the obsolescence charge, so some of that margin hit was just the fact that our inventory is a little bit old and we currently have a reserve on the balance sheet for it. As we liquidate that inventory, I think you’ll see the margins come back up more to the historical levels.

Bob Evans - Craig-Hallum Capital

Okay, so going forward, once we are through that, we should -- there’s no structural change in margins?

Frank P. Elsenbast

No, no -- if anything, you should continue to see a favorable mix impact as I would expect the consumer electronics piece of the business won’t grow and could continue to decline.

Bob Evans - Craig-Hallum Capital

Okay, and John, could you elaborate, or someone elaborate in terms of clearly the sales were down significantly year over year and part of that is the economy, but also part of it was obviously operations. Can you elaborate a little bit more as to the why it was down the magnitude it was down?

John D. Buck

I think for this call, I mean, what we’ve said is really a 17% reduction in the first quarter, sales declined 26% in the second quarter. Certainly some of that is due to the economy and some of that is due to consumer spending and the demands on the pocketbook. But we also as a board felt we needed to make a leadership change and so I would just leave it at that.

Bob Evans - Craig-Hallum Capital

Okay. All right, that’s fine. Can you also comment on the cable negotiations? It looks like you’ve signed some portion of it, a smaller portion of it. Are we -- can you elaborate as to are we seeing declines in the costs, and if so, what level of magnitude?

John D. Buck

I’ll take a quick crack at it and then turn it over to Frank -- just to remind everybody, 65% of our distribution network is up for renegotiations this year. It’s actually the end of the year, they all come due at the end of the year.

We’ve had some very good results to date -- small, I think it’s about 5% so far that we’ve negotiated and those negotiations have resulted in a double-digit cost reduction so far for us. We’re going to be very aggressive going forward and this is a priority, as we said earlier.

But Frank, any other comments?

Frank P. Elsenbast

Bob, I think John just covered it.

Bob Evans - Craig-Hallum Capital

Okay, so can you elaborate on double-digit cost reductions or do you have to leave it there?

John D. Buck

I’m going to -- you know what, given we’re in negotiations with others, I’ll just leave it there.

Bob Evans - Craig-Hallum Capital

Okay. All right, fair enough. And Frank, how should we look -- I mean, ballpark-ish, how should we look at cash burns between now and the end of the year? Do you expect much cash burn? I’m not sure how much more you can do on working capital.

Frank P. Elsenbast

You know, Bob, for the balance of the year, I think we will -- I guess at this point, I would not -- we’re not going to provide guidance on the cash burn for the rest of the year. You’ve seen how we’ve been managing our working capital. We’ve been very successful in that in the first half of the year but I think at this point, with the number of changes going on, we’re not going to put out a forecast for the cash burn for the second half.

Bob Evans - Craig-Hallum Capital

Fair enough. Okay. Thank you.

Operator

Jamie Lester, you may ask your question and please state your company name.

Jamie Lester - Soundpost Partners

Can you just give me a sense for when Rene came in how much of the sales in the second quarter she could actually control versus how much was already I guess predetermined by the time she got there?

John D. Buck

Jamie, I don’t think I can comment on that. I don’t think I have enough information to deal with that question.

Jamie Lester - Soundpost Partners

Let me phrase it differently -- is it fair to say that she really didn’t have much of a control in the assortment and therefore blaming her for this sales decline is maybe not fair?

John D. Buck

Again, I really don’t want to comment on that subject. The fact is our sales were down, as I said, first quarter significantly, second quarter significantly and based on the financial performance, the board felt we just needed to make a leadership change.

Jamie Lester - Soundpost Partners

Right. Can you talk about the strategic considerations? If there were an acquirer who wanted to buy your company, would it make sense to have the renegotiations with the MSOs set or would it be better to wait and not sign any contracts until, or figured out if there were a different potential strategic direction for the company?

John D. Buck

I think that’s a great question. I think you could argue pros and cons on both sides of that. Clearly it depends on the outcome of these negotiations, whether that would be viewed favorable or not. On the other hand, a potential buyer coming in, that would give that buying organization an opportunity with the contracts coming due at the end of the year. So I actually think there’s pros and cons on each side of that, Jamie, and I think we just would have to deal with that at the time.

Jamie Lester - Soundpost Partners

And how are you managing the process with that in mind?

John D. Buck

Well, our primary focus is for the benefit of the business so we are staying focused on this business and as you know, our distribution costs are probably now in the 18% to 19% of revenue with the revenue softness, or the revenue decline. So at the end of the day, we’ve got to stay focused on what’s right for this business and I would think the buyer would appreciate that.

But again, in terms of negotiations, if a buyer came in near-term, I would think they could make an argument that would be a positive.

Jamie Lester - Soundpost Partners

Okay. Can you just walk through, since you are confident that this business can be extremely profitable at some point, can you just walk through what your assumptions are behind that, given that in the best economic climate this country has ever seen, the company barely broke even? And obviously again, you’ve done nothing but spend shareholders’ assets since that point, so can you just walk through why you are so confident in the independent success of the company? And any numbers you can throw out there would be helpful, as opposed to just kind of throwing out that you have good assets and good people.

John D. Buck

Well, I don’t have numbers in front of me and I’ll give you my answer -- I think as we’ve talked and talked in the past, when I look at these assets, I mean, we’ve got such wonderful, wonderful assets that it is shame on us. When you look at being in 70 million homes and when you look at the vendor relationships that we’ve got, we’ve got vendors that have been with us 17 years, 10 years, 12 years. We’ve got a wonderful -- a group of on-air hosts that have this incredible relationship, a trusting relationship. Our studios -- I think I can say for Keith, as he has toured our facilities, his first reaction has been of surprise at really the strength of our assets.

So I just -- you know what? It’s -- and as I look externally, Jamie, obviously this is the thing I’ll be looking at, is our assets and how we leverage these assets. We’ve got something really pretty unique here and I think it’s -- we need to be better stewards of this. I can’t say it anymore plainly. Keith wants to make a comment.

Keith R. Stewart

You know, I have an opportunity to walk into this with a fresh pair of eyes, if you will, and coming from QVC, where as John mentioned is the gold standard, one of the things they excel at is execution. And if you will, there’s a lot of basic blocking and tackling that is very, very necessary to return the performance turned back to where we all want it to be. And there are fundamentals, such as profit margins and return rates, just in the fact to get them in line that’s commensurate with the industry is a tremendous opportunity for all.

I couldn’t begin to spend enough time to talk about some of the initiatives and some of the things that we are going to do in the short-term that not only improve profitability but drive revenue at the top line and also manage the costs.

So I see lots and lots of opportunity and like I said before, I am very, very excited to be here.

Jamie Lester - Soundpost Partners

I’m sorry, I didn’t hear any numbers though, guys. Can you just walk through what the distribution cost per sub is going to be, where you hope to get it, what sort of revenues -- I mean, anything to give shareholders a sense that you frankly have an idea what you are doing with the business and if not, and you don’t know what you are doing with the business, then how you can justify keep on operating it and burning cash? Any numbers would be great.

John D. Buck

Well, let’s start with the one you mentioned. Today we are in close to 20% of revenue on the distribution cost. Now, that’s partly driven by the decline in revenue. QVC is around 5%, HSN is somewhere in the 8%, 9%, 10%. I’ve always said that it’s going to be difficult to get down to those levels but clearly we ought to be closer to HSN than where we are today. So from a cable negotiation point of view, we’ve made very, very, very good progress. It is limited.

You know, a lot of these guys don’t want to be dealing with these contracts until the end of the year anyways. You know, it’s pretty tough to get their attention right now, four and five months ahead. So clearly that is an opportunity and Keith brings a lot of knowledge in this area, obviously.

You know, you look at our returns rates -- our return rates are in the upper or the low 30s, 33%, 34%, 35%. I’ve often said this business is really a billion-dollar company. We’re giving back $300 million in returns. I think Keith again coming in, he sees an incredible opportunity to get back to more of the standard, which is in the high teens.

Now, are we going to get there day one or are we going to get their year one? No, it’s going to be again going in and fixing the business but we think returns is a pretty big opportunity for us.

Jamie Lester - Soundpost Partners

So Keith, high-end jewelry return rates at QVC, what were they relative to the corporate average?

Keith R. Stewart

Well, you know, I really can’t disclose the details of what their specific return rates are by category but just from a top line and looking at the apparel industry, the jewelry industry, and the [inaudible] profit goods, I can fairly say that they are in a much better place than we are today. And that’s just low-lying fruit for is -- it’s basic blocking and tackling, like I said, and making very, very good and disciplined decisions at the item level.

Jamie Lester - Soundpost Partners

And John, do you think you can get from 20% of costs to under 10 and yet you are signing distribution contracts that are 10% to 15% lower, which would imply, if all things go well, that you get to maybe 16%, 17% of revenues? Why would you sign these contracts if you think you can get under 10% of distribution costs? These are long-term contracts, John.

John D. Buck

Yeah, I’m sorry, Jamie, either then I -- either I misspoke or there was a misunderstanding. I said HSN is in the 8%, 9%, QVC is in the 5%, we’re running 18%, 19%, and I said there’s no way we’re going to get down to those levels but we should be closer to HSN than we are where we are today.

Jamie Lester - Soundpost Partners

Closer is not close, I guess, to paraphrase. Let me just take another tack on Ms. Rene -- Keith, it seems like the board gave Rene roughly three months to turn around the business. Can you turn the business around in three months? And if not, do you think that they will be looking for another CEO at that point?

Keith R. Stewart

No, this isn’t -- nobody’s here, including yourself, in this for the short-term. We’re here to build an infrastructure and build long-term sustained growth. I would have never, ever come to this company if I ever believed that it was a short-term approach. I’ve met with each board member. I’ve met with John and spent a lot of time with him and they all have a very distant horizon and are very bullish about the opportunities in the future, and I share those thoughts.

Jamie Lester - Soundpost Partners

And yet Rene came with the same assumptions and her time period was much shorter, so has something changed?

Keith R. Stewart

Jamie, I can’t speak to that.

John D. Buck

I think, Jamie, in all due respect, and as one of our large shareholders and I apologize, but I just think, suffice it to say that based on the financial performance for the first six months, first quarter, second quarter, the board made a decision that we needed to make a leadership change and I’m just going to leave it at that. And any further questions regarding Rene, I’ll just have to answer no comment.

Jamie Lester - Soundpost Partners

I guess last comment -- can you discuss what the strategic process will entail beyond what you’ve described, which all sounds really soft to me? Are you going to engage an investment banker? Are you going to explore selling some of the assets of the company to free up cash? Are you going to I guess entertain offers for the company, given again what you said, long held and justified frustration by I would imagine 100% of your shareholder base this time?

John D. Buck

In terms of monetizing the balance sheet, we are looking at those items. You are very familiar with them, for those on the phone. We’ve got -- we own a Boston TV station. We own the corporate headquarters and land here in Bowling Green and land. We have been aggressively looking at those assets. I think everybody understands the market we are in today and so this is going to be an issue of timing, when it makes sense to do something like this.

So we are, as I said in my comments, going to manage the balance sheet very, very efficiently. I think Frank and his team and the management of this place have done a wonderful job in managing working capital and we are going to be very tight on our operating expenses.

In terms of the new opportunities, this is going to be my priority, working with the board and being very aggressive and looking at things that we think -- you know, where we’ve got these assets and how we leverage these assets and marrying them up, if it’s possible, I’m just going to spend a lot of time in that area to significantly improve shareholder value.

In terms of somebody -- if an offer were to come in, I would say to you we will seriously look at it. I think that’s our fiduciary responsibility.

Jamie Lester - Soundpost Partners

And engaging an investment bank?

John D. Buck

As a board, we’ve not made that decision as yet.

Jamie Lester - Soundpost Partners

Okay, and then last question, and I think you for your time and allowing me to ask all these questions, since you share a confidence in the business that maybe others don’t, can you, obviously taking some compensation in stock instead of cash is good but really putting your money where your mouth is would involve putting a significant part of your net worth in the stock. I assume that’s not something you’d think about doing but I just wanted to check that assumption.

John D. Buck

Well, I don’t know if you should necessarily assume that. I’ve got some of my net worth involved in here out of pocket. I think you know that and I obviously think this is a wonderful set of assets and at today’s stock price, I mean, we’re trading at basically cash so I would just leave it at that.

Jamie Lester - Soundpost Partners

Okay, thanks.

Operator

Alan [Erinson], you may ask your question and please state your company name.

Alan Erinson - AVRS

As a way of introduction, I was one of the founders of ValueVision. I was Vice Chairman of the Board for a number of years after its inception and I have both a deep emotional and financial -- I still own over 100,000 shares and I’ve seen the stock at $52 and now it’s below $3. I am very cynical about -- good wishes are fine. I’ve been listening for years. For the most part, I’ve kept my mouth shut. I’ve been listening to the conference calls. We have never hired an executive that wasn’t “a world-class executive”. We’ve never hired an executive that didn’t have many, many years of experience with our competitors. With it all, we have fallen on our face time after time.

Now, as to my questions, Rene Aiu, John [Lederhall], Terry Curtis, John [Gunder] -- I would like to know -- these are people that have been with us for only a matter of months. I would like to know how much money it cost us between the executive search to hire them, termination pay to their predecessors, any hiring bonuses and perks and moving expenses we’ve paid to these people, any equity compensation they got, any separation and [termination] pay which we paid them when we left. I would like to know -- I think we may be losing more money with our revolving door than we are with our partner TV stations or on our merchandising. We are, you’ll pardon the expression, pissing away our legacy, what we have.

Now, I don’t -- if you say you don’t have these figures, as to what all these people cost us this past year, I would suggest that when you send out, which you promised to do, a letter confirming the new hiring arrangements with Keith and with yourself, John, at the same time let us know what it cost us for these mistakes.

Now, on an entirely different tack, I have fought most of the “partnerships” that we got involved in over the years because I felt they would be non-productive. Outside of making a bundle on some TV stations which we bought and then sold, most of our partnerships have been expensive mistakes, going all the way back to Montgomery Ward and everything that followed after that. So I would hesitate -- don’t be -- we should not be hasty in seeking out partnerships.

For the moment, I am finished. I would appreciate it if major stockholders such as myself have more information available to us. I’m not happy with holding all the stock I do when it’s under $3 a share and I know all I’m dealing with is all the hopes and promises and the brighter future. I want the future now. If we can’t do it, then let’s sell the company.

John D. Buck

Alan, I feel compelled to just say first, I’m very, very sorry. As a founder and someone that really had the idea and the concept and to see a company that went to $700 million, almost $800 million in revenue and a few quarters of positive EBITDA and then to see where we are at today, I can only imagine emotionally how you feel. So my first point is I’m just very, very sorry. I would hope you would be willing to meet. I would love to meet you and hear a little more on the history, and also just talk to you about my perspective.

In terms of the people cost, I don’t have any of that information today but I clearly understand your comment question, and I also understand your comment on the partnerships. So I think your summary was a pretty strong summary and I think it’s probably shared by a lot of people. The only thing I would offer you is as a founder, even though the financials have been ugly, and again I apologize, I don’t know when the last time you’ve been here or if you are in the area but I would love to host you and introduce you to our employees who are just -- we have wonderful, wonderful employees. I think you would be quite proud, and to see the facilities. The issue here is a leadership issue and as Chairman, I take full accountability. This is not an employee issue and I think you would be quite proud.

So again, I agree with everything you said. I am not going to sugar-coat everything. You are pretty much spot on and again, some of the specifics I don’t have, in terms of the people cost but thank you.

Alan Erinson - AVRS

John, I would love to meet with you. I don’t get around as much as I used to but anytime that you are in New York, I am right on Central Park West in the center of New York and my phone is listed. You can reach me anytime. I would love to meet with you and I have a lot of the history, which is now gone. I believe that I am the only one that has any involvement with ValueVision that really goes back to its inception and one of these days, I’ve got to clean out my files. When I was on the board, I make five, six trips every year out to the plant and I watched all the facilities. I helped [them in billing]. At one time, I used to go out and buy merchandise at the shows so we could save in sending somebody to New York to shop the shows.

I love the company but fortunately, I’m not destitute but emotionally, it kills me because I still believe that we had all the right things going for us, we had all the smart ideas. I don’t understand how we screwed it up so well.

John D. Buck

Alan, you have a commitment -- I’ll see you within the month and you are living in my favorite city.

Alan Erinson - AVRS

Okay. Thank you and good luck.

Operator

Campbell Gibson, you may ask your question and please state your company name.

Campbell Gibson - TGT

John, I’m just curious where the board thinks it gets the mandate to continue quarter after quarter and year after year of this sort of pursuit of operational improvement. When Will was here, we probably came as close to operational improvement as I’ve seen in several years and you guys couldn’t keep him, whether he was run off or what, I’m not really trying to refocus that. And then you came in for several months. We paid I’m sure millions to -- for strategic review, cost structure, and then we spent a lot of money bringing in new people, they were run off months later. And then you are brought back as -- and I don’t know you personally but you are brought back as CEO. I don’t understand where you’ve really demonstrated any operational experience that gives shareholders any encouragement that you and another industry veteran might do what others have not done.

I just don’t understand. The stock a little over a year ago was around $10. Before that, it was $14 and people were complaining then that we were under utilizing the assets and the balance sheet was under-utilized. We were buying stock at $10, we were buying it at $12, we were buying it at $8 and now at $2 and change, we’re not buying it. I mean, I’d be taking my compensation in stock as well. That’s a pretty attractive level and -- I just don’t understand. I’ve never seen such lack of responsiveness from a board. I’ve been listening to these calls for years, as Mr. Erinson just said, and I’ve heard the exact same set of promises for years and years and years and we seem to get no closer -- in fact, further away from any operational improvement and I just don’t understand how hiring an investment bank is not the next step. Thank you.

John D. Buck

Well again, thank you, Campbell. I don’t think there is anything I can add that I haven’t already said. It was a decision made by the board that given the financial results for the first two quarters and the trendline of those two quarters that we were decisive and felt we needed to make a change.

Campbell Gibson - TGT

In my view, the board has been there a lot longer than Rene -- maybe they should considering firing themselves for their lack of operational improvement and oversight. And I really would like to understand how, if you look at this company -- and I think the employees do a great job. I’m sure a lot of the employees work very hard. I’m really not blaming the employees so much as I’m blaming the board for a lack of shareholder responsibility and basically living up to their fiduciary responsibility.

John D. Buck

Again, Campbell, I think I probably addressed that earlier, so thank you for your comment and it’s been noted.

Operator

Debra Fine, you may ask your question and please state your company name.

Debra Fine - Fine Capital

John, my understanding is Rene came in March or late March?

John D. Buck

March 3rd.

Debra Fine - Fine Capital

March 3rd, and so you are saying that the first quarter results, which I assume there’s no ability for someone coming in to have an impact on the mix, is that correct? Don’t you order the mix in advance? It’s not ordered the day of the show?

John D. Buck

You know what, Debra, I’m just, as I said earlier, I’m just not going to go there. I’m just not going to comment on that right now.

Debra Fine - Fine Capital

Okay, so then the -- just reiterating what the prior caller said, you had issues with your prior CEO, you’ve had issues with this CEO, which are confusing given that you seem to be blaming her and the prior team for five months of activity where it’s very hard to make a change and I’m confused why the board’s expectations, if you felt that the business had to be changed, could be executed in such short period of time and it does call into question the board’s competency and whether this board should be the ones responsible for the fiduciary that they are supposed to execute. And I think it’s frankly a shame that you are not hiring an outside investment banker to put the company up for sale and frankly that you and the board have any -- feel that you still have a right to shepherd the company forward. Thank you.

John D. Buck

Debra, thank you and comments are noted. Thanks. Okay, folks, I am going to adjourn the meeting. Thank you again for attending on short notice and thanks for the questions and answers. Again, as I said earlier, I am sorry for the news that was presented in the first two quarter results. With that, thank you.

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Source: ValueVision Media F2Q08 (Qtr End 8/2/08) Earnings Call Transcript
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