ICTV Brands' (ICTV) CEO Kelvin Claney on Q4 2015 Results - Earnings Call Transcript

| About: ICTV Brands (ICTV)
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ICTV Brands Inc. (OTCQX:ICTV) Q4 2015 Earnings Conference Call March 23, 2016 4:30 PM ET


Kelvin Claney - Chairman & CEO

Rich Ransom - President

Ryan LeBon - CFO


Good day, ladies and gentlemen and welcome to the ICTV Brands Fiscal Year 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder today's call is being recorded.

I would now like to turn the conference over to your host, Ryan LeBon. Sir, you may begin.

Ryan LeBon

Thank you very much and welcome to our conference call to discuss ICTV Brands' financial results for the fiscal year 2015. On the call, we have Kelvin Claney, our Chairman and Chief Executive Officer; Rich Ransom, our President; and myself, our Chief Financial Officer. Rich will review the company's business operations and strategic shift to a digitally focused marketing strategy, I will review the company's financials, and Kelvin will review the company's current product initiatives and immediately thereafter, we will take questions from our call participants.

I'd like to take a quick moment to read the Safe Harbor Statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions, or predictions about the future are forward-looking statements. Although they reflect our current expectations and are based on our best view of the industry and of our performance as we see them today, they are not guarantees of future performance. These statements involve a number of risks and assumptions, and since those elements can change, we ask that you interpret them in that way. We urge you to review ICTV's Form 10-K and other SEC filings for a discussion of the principal risks and uncertainties that affect our performance and other factors that could cause our actual results to differ materially.

With that, I'd like to turn the call over to Rich Ransom.

Rich Ransom

Thank you, Ryan, good afternoon and thank you for joining us today. On our last on November, I announced that our management team had made some strategic decisions to address the challenges ICTV faced of having a diminishing North American television audience yet still a very high media rates due to larger brands entering the traditional remnant space typically reserved for direct to consumer marketers.

In addition to reviewing the financial results that were released today for 2015, we're going to update you on our progress as we continue to transition our marketing strategy from primarily direct response television to a digital marketing platform that allows us to reach far more potential customers at a lower acquisition cost.

Some highlights and updates that we will further discuss on this call include the closing of a private offering in October which brought in additional $1 million in capital that help fund additional products and growth.

The expansion of our digital marketing platform including listing on bedbathandbeyond.com in Q4. The acquisition of the rights to the DermaWand patent and trademark which closed in January of this year and ICTVs future plans to expand the brand. Expansion of new global markets for DermaWand and other brands. The successful launch into Quebec retail and plans for further retail distribution and an update on our current product pipeline.

2015 was a very challenging year for us. The year began with several new product campaign launches in the United States, including television campaigns for our Derma Brilliance to do an Elastin-RP brands, as well a mixed radio and television campaign for our CoralActives acne brand.

As those of you who followed us for the last year know none of these efforts yielded the results we had all hoped for. To add to the challenges, about midway through the year we began seeing long form television rates increase dramatically due to some large competitors with deep pockets entering the media space, namely Draft Kings and Fan Duel. This phenomenon caused the performance of our DermaWand direct to consumer business in the United States to suffer which resulted in our decision to substantially pull back our television advertising budget during the second half of 2015.

As we will discuss further on today's call, this was a huge blessing in disguise as it forced our hand as management to rethink both our short and long term strategies of how to grow the business into something that is not only very profitable but also sustainable for the long term. The core of this pivot in strategy is focused on building a digital marketing platform so that we can reach customers beyond their television sets and desktop computers. The most exciting part about this type of platform is the ability for ICTV to scale and bring new products to market at a much lower upfront cost.

In a few minutes I will expand upon the details of this new strategy and give you an update on our progress thus far. But for now, I will turn the call over to our Chief Financial Officer, Ryan LeBon, who will detail our financial performance and earnings for 2015.

Ryan LeBon

Thanks, Rich. Revenues for the three months ended December 31, 2015 were $4.4 million, compared to $8.6 million in prior year quarter. The primary driver of the decline in sales was our decrease in media related expenditures as Rich just discussed. Additionally, as a result of the timing of international shipments at quarter end coupled with the impact of the appreciation of the U.S. dollar, third-party international distributor revenue declined to $1.3 from $2.4 in the prior year quarter. Despite this decrease our international third party distributor revenue bounced back from $613,000 for the third quarter, and we have continued to diversify and brought in this revenue stream in the first quarter of 2016.

Total general and administrative expenses decreased to $1.1 million from $2.1 million in the prior -year quarter, as a result of bad debt expense decreases of $258,000, share-based compensation expense decreases of $194,000, consulting expense reductions of $209,000, travel expenditure decreases of $96,000 and payroll and employed benefit expense decreases of $61,000. The company has made a conscious effort to reduce unnecessary spending and implemented additional cost savings controls.

Additionally in December 2015, we underwent a reduction in labor force which we believe will help improve our overall profitability in the quarters to come. Total selling and marketing expenses decreased to $2.4 million from $5.1 million in the prior year quarter. Significant quarterly decreases include media. Expenditure decreases of $1.8 million which with less volume reduced our call center customer service and merchant fee by $454,000.

Additionally our production and product development expenditures decreased $798,000 as we launched several campaigns in late 2014. Partially offsetting these decreases was an increase in digital marketing expenses to $445,000 from $206,000 in the prior year quarter. As we continue to adopt our media model to more of a digital footprint and negotiate pricing with our significant vendors, we're optimistic that we will continue to achieve cost savings in the coming quarters.

As mentioned in our last investor call, during the fourth quarter we launched the DermaWand spa with two popup retail locations in Pennsylvania and California. With our prior success presenting our products at trade shows and on live home shopping, we were optimistic that this environment will work well.

Unfortunately, we identified early in the process that finding the right personnel to staff these locations was going to be a major challenge. The overhead cost particularly labor cost were not facing the sales, resulting in approximately $100,000 loss during the fourth quarter. Although we filled with additional capital in time, we may have been able to turn the results around. We decided to close the locations earlier and schedule which enable the loss from the test to be minimized.

Net loss for the fourth quarter was $582,000 compared to a net loss of $1.4 million in the prior year quarter. The resulting loss per share is $0.02 as compared to a loss per share of $0.06 adjusted earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA was an EBITDA loss of $454,000, as compared to an EBITDA loss of $1.1 million.

Revenues for the year ended December 31, 2015 were $24.1 million, compared to $32.3 million in the prior year. The primary driver of the decline in sales was the decrease in media expenses and decline in international third party distributor revenue. International third party distributor sales revenue decreased from $7.2 million to $5.3 million. Despite the decline the company further diversified its overall revenue base by adding several new distributors in France and South and Central America which we believe will help stabilize this revenue stream in the quarters to come.

The Latino Media Services Group comprises distributors from Chile, Argentina, Peru, Colombia, El Salvador and Ecuador accounted for $1.3 million sales in 2015 compared to $358,000 in the prior year. Our French distributor revenue from $46,000 in the prior year to $1.5 million for 2015. Furthermore, we have seen continued orders from this regions in the first quarter of 2016, as well as additional orders for more distributor which is located in Mexico.

Total general and administrative expenses decreased to $5.4 million from $7.7 million in the prior year as a result of bad debt expense decreases of $408,000, share-based compensation decreases of $659,000, consulting expense reductions of $747,000, travel expenditures decreases of $272,000 and insurance expense decreases of $169,000.

Total selling and marketing expenses decreased to $12.4 million from $17.1 million in the prior year. Significant decreases include media expenditures of $2.7 million, call center and customer service and merchant fee decreases of $1 million, production expenditure decreases of $509,000 and product development and testing expense reductions of $412,000.

Net loss was $1.4 million, compared to a net loss of $2.3 million in the prior year, resulting in a loss per share of $0.06, as compared to a loss per share $0.10. Adjusted EBITDA loss was $768,000 as compared to an EBITDA loss of $1 million in the prior year.

As of December 31, 2015 the company had $1.3 million in cash and cash equivalents and $2.3 million in working capital compared to $1.1 million and $1.9 million in the prior year. We continue to have note that obligations. Additionally, as discussed in our last update, we completed our capital rise in October of 2015 with no wards or underwriting fees. We believe that our current capital is more than sufficient to execute our strategic initiatives and coupled with our reduced overall cost structure, we'll return ICTV back to sustainable, profitable growth.

With that said, I'd like to turn the call back over to our President, Rich Ransom.

Rich Ransom

Thank you, Ryan. As I mentioned a few minutes ago, during the first half of the year we began to see that 2015 was not going to yield the results what I hoped for. Our management team realized that we needed to make some significant changes, not only in our day-to-day operations but also in our overall strategy of how to bring products to market. For many years our mission was fairly simple, find demonstrable products that translate well on television, develop created video assets, typically long-form infomercials to market and build brands direct to consumers. And finally, take those brands to Big Box, brick and mortar retail in the United States.

In addition to these principles, we would also look to distribute our brands through our international network of third-party distributors in a live television home shopping channels. The benefits to this of strategy were that if we got a hit product, it could increase the revenue and profit of the company in a very short amount of time. For ICTV this happened in 2012 and 2013 when we saw the success of the DermaWand infomercial take our company from $3 million in annual sales revenue in 2011 to over $40 million by the end of 2013. The challenge for this strategy is that it's hard to sustain without a succession of hit shows.

Over 2014 and 2015, we invested a lot of the profits generated in the previous year's looking for that next big show. We found products we believe hit the model such as Derma Brilliance, Elastin-RP, CoralActives, and put much of our time in resources and to trying to build successful direct-to-consumer television campaigns. At the same time television rates continue to rise as large companies with a traditional branding strategy, less focused on the ROI of an individual television spot invaded our space. To add fuel to the fire, television viewership has been on a steady decline, particularly with the rise of Netflix, Hulu, and Amazon instant video causing many to change their television viewing habits.

By the middle of 2015, our management team came to the realization we must change our core strategic plan. As we analyzed the current direct-to-consumer marketing environment and our core strengths, we organized our new strategy around cost effectively bringing products to the market in three core areas; our direct-to-consumer business, our network of third-party international distributors, and North America retail including live television, hope shopping.

I want to take a few minutes to walk you through some specifics around our strategy in each of these areas and then turn the call over to Kelvin who will give you an update on product initiatives and how they fit into our new strategy.

First, the direct-to-consumer business. For years we have dabbled with digitally marketing our brands but as we headed into the second half of 2015 we knew we needed to expand our knowledge base and begin testing new areas beyond just Google AdWords and basis real estate-marketing Danaher ads [ph].

A key area of focus for us was social media, specifically Facebook, which is the platform that our over 45 year old demographics specifically uses the most. During the fourth quarter, we spend just over $287,000 on Facebook ads. Primarily for DermaWand but also for Jidue, CoralActives and Derma Brilliance. We know it from the analyctics Facebook provides and from that investment our add reached over 6.7 million which equals about $0.42 per person that's all our order. There are two basic type of ads we serve up on Facebook. The first kind of ad is what we call the prospecting ad and is designed to get new potential customers to click on the ad and be driven to our product site for the first time.

So those of ad in the fourth quarter, we paid roughly $0.30 per click. The second type of ad is a remarketing ad. These will be ads that are served upto people who have been to our product site at least lunch before either through Facebook prospecting ad or through some other advertising. These people receive ads tend to be more qualified since they have some knowledge of the product. For remarketing ads through Facebook, we paid on average $1.10 per click.

Another air of digital marketing, we are starting to test there is something called programmatic advertising. In short, this is a type of advertising done through identifying our current customers profile and understanding where they live on the internet so that we can target those sites and create new customers. This allows our media dollars to be used only on the types of people who are most likely to own our products.

A big reason I'm so excited about our digital marketing platform -- the platform we're building is that so many ideas and products can be tested at a fraction of a cost of a television campaign. In the course of a week, our team can design five to 10 new ads that can be created on software we licensed for only few hundred dollars a year. Comparatively, a change to a television creator requires outsourced editing and new station page to be dubbed which at a minimum would cost a few thousand dollars and take several weeks to test. While digital is the new core of our strategy for direct-to-consumer, we're not completely abandoning television.

We continue to run our general on infomercial in both English and Spanish in the United States, and in French in Canada. Our first TV now is very simple, we only pay rates we're confident can deliver return on investment that meet or exceed our overall media efficiency ratio of 2:1 or better based on the history with the station and timeslot. Taking this approach has forced our television advertising budget down significantly compared to last year, about 60% lower but at a higher return on our investment.

The last thing I want to say in regards to our digital marketing strategy is, that it has crossover benefits into distribution channels other than our traditional direct-to-consumer business, particularly our North America retail strategy which I will talk about in a few minutes.

The second core area of our strategy is expansion of our international distribution business. As we have seen our international distribution network nearly double since 2014. As I speak to you today, ICTV Brands products have been sold in over 70 countries around the globe and that number of countries continues to grow. With all the work and effort we've put forth by our sales team to extend this network, our management team wanted to make sure we are able to frequently bring new products for the network to sell.

To that end, during 2015, ICTV began searching for products that were turn key for the international market, meaning that they were already selling in the U.S. through another marketer or had creative assets such as television commercial but did not have international distribution. This was a change in strategy for us as we traditionally approached products with the goal of ICTV marketing them in the U.S. first before taking them international. Our first success with this new strategy has come with the product called Point Perfect Sprinkler.

Point Perfect is an intelligent sprinkler with 12 adjustable heads, so that you can create your own custom watering system. The adjustable heads can be bend in any direction, so you can water regularly shaped gardens or lawns, water individual planters or target brown spots on the lawn. This product was launched by another marketing we know in Pennsylvenia. The test did not work and basically they've given up on the brand. Through our relationship with the company we were able to secure the rights for the product and their creative assets.

Late last year we presented the product to our distributors and during the last week of 2015 we received our first order from the distributor that covers several Eastern European countries. Another territory, France, has now placed an order for Point Perfect Sprinkler and others are considering testing it. To date, orders for the sprinkler are in access of $125,000.

We've also identified some products that we believe are good fit for the international market and are worth ICTV investing money in developing television commercials, specifically for the international space. Kelvin will discuss these products more in a few minutes but a key point to make is that the commercials are usually short as in the long funds we need for the U.S. market and also less expensive to create.

The third leg of our strategy is focused on widening our North America retail distribution. For years we have tried to go through the front door of Big Box retailers to get our products, namely DermaWand on the shelf. We've had limited success in getting opportunities for shelf space, and when we have, the DermaWand has not been placed in the best areas of the store for success. As we have developed more relationships with buyers at large retailers, it has become apparent that the easiest way to get our foot in the door is through the e-commerce site of the retailers.

Our first opportunity for this approach took place with bedbathandbeyond.com in November. We launched live on their site on a Saturday in early November with 18 units available for sale. By the following Tuesday, we've sold out and the buyer wanted to know how quickly they can get another 600 DermaWands. This do not happen by accident. As I mentioned before, our digital marketing strategy stretches beyond just traditional direct to consumer. For less than $200 we serve up ads to drove people to the Bed, Bath & Beyond website listings for the DermaWand and the results were better than we expected. Since that second order Bed, Bath & Beyond has consistently sold between 65 and 80 DermaWands per week on their site.

We are now in the process of getting store displays made, and we are on track to have a test in the coming months in about 30 to 40 Bed, Bath & Beyond stores. We are continuing to expand our retail footprint and are now listed on jcpenny.com with DermaWand and are approved as a vendor for walmart.com. We are just waiting final EDI setup with our warehouse and expect to have several of our brands including DermaWand and Jidue listed on Walmart site by early April.

The final thing I want to tell you about retail is that we've had a successful first quarter launch in the two chains in Quebec, the largest of which is a chain called Jean Coutu. The first orders of DermaWand shipped to Jean Coutu in February this year. We learned earlier this month that DermaWand will be featured on the front cover of their circular ad last week. The ad dropped last Thursday and I'm pleased to report that we learned this week that we sold 240 DermaWands at Jean Coutu last week alone.

To be honest, sales thus far have exceeded our expectations and more importantly proves to us that with the right placement in the store and the proper marketing support, DermaWand can be a major North American retail success.

Now, I'd like to turn the call over to Kelvin who will give you an update on our product portfolio.

Kelvin Claney

Thanks, Rich, and good afternoon to all of you on the phone. I really appreciate you calling in. I want to take a brief moment to thank our shareholders for their continued support as we make this exciting transition of expanding our platform to market our brands in the digital age. I also want to thank our very talented team. At the end of 2015, we had to make a very hard decision to cut our staff like 20% to reduce our overhead. Those who have remained have worked unbelievably hard to fill the gaps and pick up new responsibilities.

When I look at the great product mix we already have and the exciting new product pipeline and I combine that with a talented team we have working day in and day out to grow ICTV, I'm more than confident that the new strategy Rich just laid out is going to create sustainable growth for many years to come.

I'd like to take a few minutes to discuss the core products in our pipeline and the high level strategy for each one. Starting with DermaWand. In January, we announced that ICTV now officially owns the DermaWand outright including the patent and trademark. This is a very important acquisition for ICTV brands as a company, and we now own 100% of tangible asset that we can build value in for the stockholders. Today, the end we've talked for a long time about developing a next generation DermaWand unit. We did not want to proceed with the devotement of the new unit until the DermaWand total acquisition was complete.

I'm pleased to report to you today that we are very close to cutting steel on new tooling for the next generation DermaWand that will allow us to change the shape, to make it more slick looking as well as add color to the unit. The unit will also be more powerful than the original DermaWand. We believe there is opportunity with this new design to get a new patent. Pretty certain at least the design patent, and we are talking with our patent attorneys about this right now.

Another topic I want to update you on is our progress with opening up new markets with DermaWand, namely Japan. With Japan we've employed two engineering consultants to work on tweaking the transformer in the DermaWand to pass EMC standards with Japan, so we can receive an S Mark certification which is needed for retail sales in Japan. Unfortunately today we've not been able to pass the test to receive the S Mark. We know it's achievable and we continue to work with our factory and engineers to get us where we need to be. I cannot give you a specific timetable at this point, but know that opening Japan is a top priority for ICTV and a distribution partner who continues to support our efforts and anxiously awaits the opportunity to sell the DermaWand in Japan.

With regards to United Kingdom, we seem to have hit a wall with the oversight organization clear cut to be able to air the current long form infomercial. We shifted our strategy now to approaching retailers in the U.K. about putting DermaWand on their e-commerce site and using our digital marketing to support. We are also in conversations with TVC U.K. and believe we will get an opportunity later this year to take DermaWand to the live shopping audience. We are now considering what else can be made to our current show to be able to get clear cast approval to air the DermaWand infomercial.

DermaWand is a unique product, and it comes with its challenges that much likely Energizer bunny that just keeps selling and selling as new woman every year look in the mirror and see that first wrinkle appear. We're thrilled to now own the DermaWand, and I believe overtime owning this asset will create extraordinary value for our shareholders.

Another product we are very excited about is JiDue. As we announced last call, we'd been testing JiDue on the internet plus testing existing video created internationally and in the U.S. to determine the correct market position for this product which we believe we have determined. We used some of the capital raise in October to shoot a high-production value long form infomercial for JiDue and purchase inventory. The infomercial is focused on the sleep and relaxation benefits of JiDue plus the clinically proven improvement in the eye area, such as the diminishing of under eye bags and dark circles.

We did a combination studio shoot with a live shoot in amazing shopping mall to get spontaneous reactions from real first time users, and the reactions were phenomenal and it translates really well to a television audience. The show is very exciting and constantly cut from the studio to the live action segments at the mall.

As we have mentioned during 2015 several of our key distributors tested an existing cumulate spot for JiDue and the feedback we received was that if we had a long form show they thought the product would really sell well. We will be launching the show in April in the United States and into the international distributor network. We will also post the link to the show on our website as soon as the JiDue is finished.

Derma Brilliance has been testing in several international markets including the United Kingdom. The first test order from the U.K. distributor was for over $50,000 worth of product, and they seem to have interest from U.K. retailers with Derma Brilliance.

Our Mexican distributor also tested in the show and asked us for a few edits which we have made and they feel the product has the potential to work very well in the Mexican market. The show is running in the Philippine market and testing in Singapore and other Asian countries are pending. We continue to focus on the international marketplace for Derma Brilliance as well as the digital marketing and e-commerce efforts in the United States.

Another product we recently completed was an at home pedicure product we have brand the Ultimate Pedi by DermaWand. Knowing that we own the name DermaWand, we want to begin line extending the brand and this is our first opportunity to do that. We recently completed a low cost high quality 15-minute show for the international market and we have several distributors who have placed test orders for over 4,000 pieces thus far which should ship in early April, and we will have a further update on this brand on our next call in May.

Recently ICTV displayed our brands at the International Home & Houseware Show in Chicago. One of the hits of the show was the Good Planet Super Solution brand. Super Solution seals, shines, restores and protects any hard surface including tarnished brass and silver, oxidize fiber glass and auto paint surfaces. We demonstrated the product to the bar from TVC and they are willing to give Super Solution a test. We also demonstrated the product to several retailers and we are currently following up on those opportunities. Our Australian distributor continues to sell Super Solution and recently in India, a distributor in India has begun selling it. We expect to see other territories begin selling Super Solution in 2016.

With regards to the CoralActives brand, we received news that the company we licensed the product from dissolved in January due to the calling of a lender's debt. We are currently discussing a new marketing and distribution arrangement for the brand with the new owners, and we hope to have more information for you on our next investor call.

Another new product in the pipeline is an exercise product called Spin Force. Like Ultimate Pedi we're shooting a low cost high quality 15 minute show for the international market. We've began this production earlier this month and expect Spin Force to be available to our distributors later this year.

Lastly, we recently sourced a fantastic new mop and are branding it EdgeVantage. It's unique in the fact that the edge of the mop bends to a 90 degree angle to allow the user to thoroughly clean the normally hard to reach corners and edges of the floor near the base pods. We also presented this product and they loved it. The product is beginning the QI process now and hopes to be on air in the next few months. If it sells well in QBC, we may very well shot an international show.

A great benefit to our new marketing approach is that we can test far more products at a much lower cost than our old model. Rich and his team are also testing a handful of other products in digital platform and we fortunately have several sources bringing us new products to look at on a regular basis. We have a young talented team that is constantly coming up with new and innovative ways to market our products. I remain enthused and optimistic as ever about the growth potential for ICTV in 20016 and the years to come.

I will now turn the call back over to Rich for some closing remarks.

Rich Ransom

Thanks, Kelvin. I hope this call has helped you get a better idea of the path ICTV is on and the potential for long term sustainable growth.

For more frequent updates, I encourage you to check out our newly designed corporate website, www.ictvbrands.com. On the site you can signup for investor updates which get emailed out on a regular basis. Thank you again for your continued support. And operator we'd now like to take few questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Ken Wessermen, a private investor. Please go ahead.

Unidentified Analyst

Kevin, nice going. Just two questions, one about the DermaWand remodeling, do you think it's going to pass muster in Japan as far as their AMG requirements?

Kelvin Claney

I'm sure it is after we sold that but the reality is, we can begin marketing in the U.S. and Europe pretty much immediately. So, and that's our focus is to really get this thing into the U.S market because there is such an easy demand there for existing customers to trade up to a more powerful slicker version. But yes, we will ultimately get it into Japan. We don't want to get into Japan too quickly though Ken, because the current DermaWand is brand new to Japan. So our whole idea is to run the current infomercial which our partner wants to do for about two years and have then build a base of current DermaWands and then introduce the new shape to them in a couple of years time.

Unidentified Analyst

So can you tell in Japan over the net, but not in stores over our source?

Kelvin Claney

No, right now what we could do is we could actually apply to get what is called PSE and PSE would allow as a self-reporting standard to get. And PSE which we could get would allow us to sell on the internet, that would allow us to sell by direct response television, it just wouldn't allow us to sell in retail, retails require the S-Mark. The rest of it we could sell. But our distributor who was an absolute giant in Japan, I mean a huge infomercial marketing company, they said, hey, if that's what you want to do, go for it but if you do that we'll have to recuse ourselves because that's not our marketing strategy. They go direct-to-retail on television, as they go to the television they're going to retail at the same time. And quite frankly Ken, we thought about this hard and long but we think the best thing for the stockholders is to go with the giant in Japan and these guys are giants, you're talking huge volumes if we get this right, and we will, it's just going to take time and money, unfortunately. We'll get it right and then let's give it to the beast of Japan and let them do their job.

Unidentified Analyst

I agree with your strategy, I don't question it. One other point I wanted to ask about was whether you plan to do any investor presentations this year, in particular, the one that I hope you would do would -- the first one, LV Micro is sponsoring is in June. And even I think it's wonderful for your company is that you've done it before and gotten a good response there and it allows you to display your consumer products distributors that people could take home. So it really has that really great double bang effect you present your story to investors and you're able to show what you do, physically with so many companies can't do if they are biotech or they are doing in semiconductors and stuff. So I know you're trying to keep the budget under control but I'm hoping also that you allow for some exposure to other interested investors so it expands the market for the stock.

Kelvin Claney

Yes, I know Ken. I mean we've been talking about it internally and I have looked at that particular conference you've referenced. Unfortunately, we will be -- fortunately for us, there is a very powerful European conference that we'll be able to be at with our international distributor network around that same time and I will actually be attending that conference. So I will not be at LV Micro in the -- for the summer conference. I know they have one in December which we haven't committed to but we'll consider that and probably look at some on the East Coast, that would minimize the travel and I think a lot of opportunity exists along the eastern corridor where we're located. So at the moment we're not scheduled for any but it is something that as a management team we're beginning to talk about.

Unidentified Analyst

Okay. I really hope you do because it's hard to get more activity in the stock without getting the story out. And again, as a consumer company you have this wonderful opportunity to do both at the same time when you present. So I respect your decision making process, you're doing well for them considering, but I wanted to put my true sense in it, and I've done it. Thank you.

Kelvin Claney

Thank you, Ken.


Thank you. We'll go next to Mike Travictolos [ph], a private investor.

Unidentified Analyst

Hi guys, the first question is do you have any idea where do you think your breakeven revenue would be in 2016 considering you have different cost structure now?

Ryan LeBon

Mike, that's a great question. The management team took a lot of time going through our forecasting process and really revamping it. And we actually -- we drove our breakeven down to our -- to each marketing campaign we have. Having said that with our current cost structure we have right now and a lot of the expense that we've taken out of our overall overhead and G&A structure, we're looking at -- I think our breakeven point from a revenue standpoint will be in the $18 million to $20 million, in that standpoint.

Kelvin Claney

The truth, I'm going to jump in for a second Mike. The reality is it really depends on where the revenue comes from. In our company not all revenue is equal. Our international distributor network really doesn't take a lot of cost out for us but it doesn't deliver high revenue numbers either because the model is, we sell basically a wholesale container loads worth of product at a lower rate so that the distributor could then mark up and have marketing dollars to advertise the budget. So as you can kind of see, what we've done is -- what used to drive our revenue was television, we've pulled that way back. So it's fair to expect revenue to come down but at the same time we've pulled a lot of expense -- our cost center expense comes out of that and customer service, credit card processing, those types of things. That said we're still going to try and grow that side of the business too, based on our current projections, Ryan is right, as long as we're somewhere in the $18 million to $20 million range, we actually think we can be profitable with that. And that said, it does depend on the mix of where that revenue comes from.

Unidentified Analyst

Okay. Second question now, do you have an idea of what your royalty savings was going to be by buying the patent?

Kelvin Claney

Yes, it's a similar answer because we were in an old agreement which has been detailed in our prior filings. We're per unit regardless of what we sold at $402.50. At this time, we do expect a fairly substantial savings based on not having given out guidance, I don't know if we can exactly tell that number but I would say it's in the six figures for sure.

Unidentified Analyst

That's good. And would you comment on Q1 at all?

Kelvin Claney

I would say at this point, we're very pleased at where we are through this point, we're at a point where -- Q1 is really the challenge of international because of the Chinese New Year and getting those container orders out to our international customers. We believe we're at a point now where we believe a lot of things are going to shift this next week or so, and as long as they do we feel pretty confident, that will be at least the EBITDA positive in the first quarter.

Unidentified Analyst

Okay, that's all I got. Thank you.

Kelvin Claney

You got it.


Thank you. [Operator Instructions] It appears we have no further questions at this time. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.

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