iMedia Brands Inc (IMBI) Q4 2022 Earnings Call Transcript

iMedia Brands Inc (NASDAQ:IMBI) Q4 2022 Earnings Call dated Apr. 12, 2023.

Corporate Participants:

Alex Wasserburger — Senior Vice President, General Counsel

Tim Peterman — Chief Executive Officer

Analysts:

Thomas Forte — D.A. Davidson — Analyst

Mark Argento — Lake Street Capital Markets — Analyst

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Eric Wold — B. Riley Securities — Analyst

Presentation:

Operator

Greetings and welcome to the iMedia Brands Fourth Quarter and Full-Year 2022 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to your host, Alex Wasserburger, Senior Vice President, General Counsel for iMedia Brands. Thank you, sir. You may begin.

Alex Wasserburger — Senior Vice President, General Counsel

Good morning, and thank you for joining us. We issued our Q4 earnings release earlier this morning. If you do not have a copy, it is available through the News section of our IR website at imediabrands.com. This release is also an exhibit to the Form 8-K we filed this morning. A webcast recording of this call will be available via the link provided in today’s press release as well as on our IR section of our website.

Some of the statements made during this call are considered forward-looking and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today’s date. We undertake no obligation to update or revise these forward-looking statements. We believe the expectations reflected in our forward-looking statements are reasonable but give no assurance such expectations or any of our forward-looking statements will prove to be correct. For additional information, please refer to the cautionary statement in today’s earnings release and our SEC filings.

Finally, we will make references to non-GAAP measures on this call such as adjusted EBITDA. Please refer to our earnings release for further information about these measures, including reconciliations to the most comparable GAAP measures, where possible with reasonable efforts.

Now, I would like to turn the call over to the CEO of iMedia Brands, Tim Peterman. Tim?

Tim Peterman — Chief Executive Officer

Thank you, and good morning, everyone. Let’s start with the obvious quote early, which is by Mike Tyson, “everybody has a plan until they get punched in the mouth.” Completing our debt reduction event this week was a milestone win for us, but make no mistake, it was a struggle to complete. The challenge began shortly after Thanksgiving when a new asset appraisal became effective materially reducing our company’s liquidity. We worked collectively with our asset-based lenders who fortunately provided us with the time to shift our priorities from net sales growth and customer engagement into short-term cash optimization activities to fund principal repayments.

We shifted our management team’s valuable time and energy away from day-to-day priorities. We stretched our employees and we stretched our vendors. We drained internal creative and financial resources and we pressured our customers’ loyalties. But we as a culture rose to the challenge, day by day, inch by inch and we reestablished compliance with our senior lender by making $19 million in principal repayments in about two months.

I want to emphasize that we could not have achieved this without all our stakeholders’ efforts, meaning, our employees, our lenders and our vendors being part of this effort. This short-term achievement though we knew would come with a short-term cost and that was our financial performance in Q4 2022 and our expected Q1 2023 financial performance. Now that we have simultaneously closed these six transactions that are all connected by the singular purpose of reducing our debt by $53 million and reducing our annual interest expense by $7 million, our teams and vendors are rapidly shifting their focus back to our normal day-to-day fundamentals.

However, this is not an overnight fix. We have merchandise categories and vendors that require time, attention and capital. We have customers to recapture, we have market share to win back from our competitors. I estimate, our shareholders will start to see the positive financial impacts of our refocusing efforts in the back half of this year. For more details on our DRE, please see our Q4 IR supplement published with our release today. As I think about our overall 2022 report card, I think back to our priorities we shared at our Capital Markets Day in February 2022. We explained why we would prioritize the integration of our 2021 acquisitions, the reduction of our content distribution expenses and the strengthening of our balance sheet.

Now that we have talked in detail about how we have finally strengthened our balance sheet, let’s go back and review our progress on the first two 2022 priorities. Regarding the integration of our 2021 acquisitions beginning in Q3 of 2022, we began launching our best-performing ShopHQ Networks brand on air on 123tv, which helped drive noticeable improvement in 123tv’s gross margins, average selling price and net sales productivity. We also launched our 123 Auction app on ShopHQ.com, which will be now our second SaaS product after Float Left OTT app.

This 123tv Auction app launched on ShopHQ.com is the first phase of 123tv’s product development roadmap, as it continues on its timeline to launch its standalone Travel Auction side focused on disrupting the online travel shopping marketplaces here in the U.S. We also expanded our digital advertising offerings to include offering OTT inventory from our Float Left OTT app and offering on-air advertising opportunities from ShopHQ, ShopBulldogTV and ShopHQHealth. Equally important this year, we completed the difficult data mining process of aggregating our company’s first-party data into unified data lakes to help us internally drive improved digital advertising convergence. Since all of our businesses are targeting the same boomer demographic, this is another unique strategy of what we’re doing here.

We also expanded, Christopher & Banks retail footprint based on consumer demand. As you may recall, in Q3, we terminated the underperforming Shaq partnership, which enabled us to preserve future airtime for our more productive brands. This includes high-performing brands returning to ShopHQ from recent tours on our competitors, big brands like Joyce Giraud, Anushka, Gems En Vogue. Regarding the reduction of our content distribution expense, I would remind stakeholders that fixing the expense structure with content distributors is a full context [Phonetic] and that is why ShopHQ really haven’t attempted it in it’s last 30 years, we did though in 2022 because it’s critical to our long-term success. Our decision to not renew DISH until we came to an agreement on future expense reductions, created a short-term reduction in our 2022 net sales, but it was critical and a necessary first step to position us to achieve our milestone of reducing our content distribution as a percent of net sales in 2023.

Before I give more color on our financials, I want to remind everyone about what we believe our reason for being is here at iMedia. Beginning in 2019, iMedia established a growth strategy and an entrepreneurial culture focused on operating four television networks; ShopHQ, 123tv, ShopBulldogTV and ShopHQHealth, each of which have been uniquely crafted to focus on the same boomer demographic consumer, and to drive multiple revenue streams t-commerce, e-commerce, digital advertising, OTT SaaS revenues and brick-and-mortar retail. Our diversified revenue model and singular focus on one customer demographic enabled us to accelerate the share growth of net sales from digital products and reduce our historical reliance on the sale of physical inventory products that as we all know require logistics expenses, working capital storage.

Turning my comments to our financial statements, Q4 consolidated net sales were negatively impacted by the Q4 liquidity challenge and the DISH carriage disruption. Q4 net sales were $133.5 million, a decrease of about 31% compared to the same prior year period. Q4 consolidated gross margin was 36.8%, which was a 150 basis point decrease over the same prior year period.

Q4 consolidated operating expenses were $64.4 million, a decrease of about 13.5% or $10 million. Q4 adjusted EBITDA was $2.5 million, an 84% decrease over that same prior year period. For full-year fiscal 2022, full-year net sales were $544.5 million, a 1% decrease over the same prior year period.

Full-year 2022 gross margin also decreased to 38.6%, a 180 basis point decrease over 2022. Full-year 2022 consolidated operating expenses were $257.3 million, an increase of about 10.3% or $23.9 million. This increase was primarily driven by the $30 million in one-time integration costs incurred in 2022 related to the 2021 acquisitions. Full-year 2022 adjusted EBITDA was $25.4 million, a decrease of 39% or $16.2 million, most of that decline happening in Q4.

Regarding our cash liquidity, as of Q4, the total unrestricted cash was $7.1 million compared to $11.3 million at the same time prior year. In terms of our outlook, the company anticipates Q1 net sales to continue to be negatively impacted by the Q4 liquidity challenge and expects to report Q1 net sales of approximately $105 million, a 31% year-over-year decline similar to Q4.

The company anticipates positive Q1 net income, driven primarily by several one-time gains related to the company’s debt reduction event completed on April 10th, 2023. The company has approximately $390 million in federal NOLs and does not expect to have any federal income tax payments on the debt reduction event transactions nor the company’s 2023 net income.

In anticipation of the short-term Q1 net sales pressure and to enable the company to produce stable profitability and cash flow, in February 2023, the company completed a cost reduction event that reduced annual operating expenses by over $20 million. The company anticipates Q1 adjusted EBITDA to be approximately $1 million in line with Q4 adjusted EBITDA.

As always, I appreciate your trust on this journey together. Thank you for your time this morning. I will turn the call back over to the operator for Q&A. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Thomas Forte with D.A. Davidson. Please proceed with your question.

Thomas Forte — D.A. Davidson — Analyst

Great. Thanks, Tim. So I have one question and one follow-up. So can you talk about for ShopHQ, you discussed in your prepared remarks your focus on liquidity and things of that nature. So can you talk about, I guess, what gives you confidence that ShopHQ will be able to rebound? And then how should I think about the video retailing category’s performance? Historically, it holds up relatively well during periods of macroeconomic challenges. So, a, what gives you confidence that you’ll be able to, I guess, restart ShopHQ; and, b, what gives you confidence that it has the historical trades as said in the past to give more resilient during macroeconomic challenges?

Tim Peterman — Chief Executive Officer

Sure. Thanks Tom. Two-part question, I’ll start with the one on the ShopHQ recovery first. So let’s think about chronological events, right. So, we’ve talked about this in Q3, we were focused on the sale — closing the sale leaseback, transitioning to a new lender at the — really at the end of the calendar year ended December. Now that delay based on some complexities put us on a path, but before we got to the end of the year where that was delayed, we were looking at the beginning of December, a new asset valuation report that really materially became effective at the beginning of December and reduced our liquidity. And so when that happened, we found ourselves in a situation where we were shifting from the normal holiday activities into — moving into cash optimization situations where we were creating the funding the cash from our working capital to fund repayments on our ABL loan.

Now as that moves through December and through January the — and move into the amendment that we just signed, you can see that our liquidity is improving with the amendment that we have in place now post [Indecipherable]. But if you go back to Q4, if you go back to December and January, you have to think about a couple of examples of how that shrinking liquidity that was moving to repay principal payments affected ShopHQ. They were definitely not macro-environment related, they were really around the Occam’s razor, it’s really around the most basic things that we do, for example, jewelry.

Jewelry is a category that it’s the most important category in holiday. And as you know, Tom, the jewelry business is unique and that it doesn’t have a long lead time, they ship it in overnight, you pay for it, cash on delivery as opposed to home or fashion. We are bringing the products in 30 days, 60 days, 90 days in advance and selling them in that fashion. So with jewelry when you find — when we found ourselves in the situation where the liquidity was moving into another situation, we couldn’t bring in jewelry and you can see that in the charts that we provided our receipts — our inventory receipts in Q4 for jewelry were over 50% declined, the inventory balance is 50% declined, the hours we are contributing. So we had to immediately shift out of jewelry and that was frustrating to the customer and move into other categories that really aren’t used to that much airtime.

And as you think about our business, jewelry and watches, we report together but if we reported them separately, you would see that and we provided this in the IR chart, watches for example in Q4, we had to over rotate it. I think the airtime made up 40-plus-percent. And as you over rotate categories to make up for the jewelry airtime that you can’t air because of the inventory receipts, you find that the DPM or the revenue productivity of that category flaunt [Phonetic]. So as you can see, with watches that went down in the 40%, 50%.

So the example of the short-term nature of not being able to acquire jewelry receipts, which then causes us to over rotate in certain categories, watches, being the example is, is the element of the decline that we talked about in Q4 that generated this, what would be the highest Q4 decline in our company history. Another example, again, because we’re not just about ShopHQ, but our digital advertising business, right. That is an ecosystem that is made up of publishers and advertisers and we really weren’t able to provide the liquidity and working capital to pay those customers on time and again that pressures the net sales.

And when you think about the path back from that, I talked about in my prepared remarks about winning back share and doing the fundamentals of day-to-day operations. But it’s really as fundamental as now that we have more liquidity or buying more jewelry and gold receipts is filling back up to the normal levels that it appears on our calendar, it is satisfying the customer demand that has been with us for 30 years. So the mechanics of how we move out of the situation are about as fundamental as the mechanics of how we faced the squeeze in the first place.

Thomas Forte — D.A. Davidson — Analyst

Thanks. And then for my follow-up, I wanted to ask a question I received from an investor. You announced earlier, the hiring of the Chief Transformation Officer, what are his responsibilities and what inspired you to add that role?

Tim Peterman — Chief Executive Officer

Great question. So, hereon, is the group that is our Chief Transformation Officer. Again you move back in time, you say at the end of Q3, when we talked about what we we’re doing and how we were monetizing our balance sheet with the sale leaseback and moving into a different transition from a lender perspective, when we went into the situation at the beginning of December, this new asset valuation really put us in a tough situation almost immediately. And fortunately for us, our lenders were very accommodating and flexible and they worked with us to provide us the time to make those repayments. As part of that amendment that we had with our lenders, we brought in Hiron [Phonetic] which — Hiron was really back in, we brought them back in, in November was really part of the effort to improve communication, the effort to maximize cash opportunities to do planning, all the different elements of what you would think about in a lender transition scenario is what Hiron specialty is, smart folks to come in, in short timeframes to really help a company and a lender move on and that is really what they’ve been doing since early November.

Now their scope increased as a result of the final six party simultaneous transactions that you saw us easily pull off, just kidding, saw close this week. As part of that, they are helping us move through after structuring these simultaneous transactions moving through the next three to four months as we work with an investment banker to run an organized RFP in order to replace our senior lenders in an organized period of time. Again, everybody here in this ecosystem of ours, whether it’s employees, lenders, vendors, they’re all working with us together in order to make sure that there is an organized transition and we believe that transition will happen in — it’s started here in Q1 and we think that will close in Q2.

Thomas Forte — D.A. Davidson — Analyst

Thank you. I’ll get back in the queue for any additional questions.

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 — Lake Street Capital Markets — Analyst

Yeah, thanks. Just to follow up on your last comments there. Maybe just walk us through kind of your current liquidity position. How much runway do you guys have to execute kind of a turnaround here? And then just a follow-up on the $20 million in cost reductions now how — it seems obviously pretty aggressive and understandably so, but what did you do to get to $20 million out of the business? Thanks.

Tim Peterman — Chief Executive Officer

Surely Mark. Let’s talk about how we came out of Q4. So as we saw this pressure in Q4, we realized as we were finalizing our game plan and budget for 2023 that we had to reduce our cost structure. And as we’ve done in the past, think about how we do things differently. So the $20 million I would say, a little bit over half of that was around labor, employee staffing. And then the other were different structural changes, whether it is and the agreements in the IT area, different ways that we’ve been optimizing our infrastructure, not just around our staffing levels.

So it was an important step to make sure that as we navigated through what we knew would be a recovery period of Q1 and then into Q2 based on what we saw in Q4 that we need to make sure that we were cash flow durable and sturdy to move through that. So, bring down the cost basis instead of hoping for a miraculous and immediate net productivity revenue increase is what we did. So when you think about the liquidity moving into Q1 that we’re in today and moving into Q2, there’s really two parts, one is short-term and one is long-term. Short-term, we’ve fortunate enough to look at this pay down of our debt.

Let’s go through that for a minute, because it’s important because that’s the short-term liquidity that now our company has. It starts with the Pontus transaction, great group that we did with the sale leaseback transaction, an accretive transaction for shareholders and where the net proceeds, of call it $42 million were used to immediately pay down the term debt with GreenLake $28.5 billion as well as the pay down of our ABL senior lender in the $12 million range as well as a discounted pay down of our 123 seller notes.

So when you think about the leverage of the cash that we used to pay down debt and reduce the interest — pay down $53 million of debt and $42 million of proceeds and reduce our interest expense in 2023 by $7 million, it really was around our opportunity to take some of the debt off the table at a discount and provide some non-cash element of those retirements, principally with the 123 seller note with 10% equity in 123, the business in Germany.

So as we moved out of the $53 million debt reduction and the decrease in the $20 million in operating expenses and the decrease in the $7 million of interest expense. And as you look at 2023 and you realize that we are not going to again have the roughly $28 million of one-time integration expenses incurred in 2022 and ’23, the path for liquidity and cash flow is a much different picture in 2023. And when you look at that scenario, then you look at the amendments and the forbearance agreement that we’ve established with our ABL lender today that has a six-month term along with a three-month extension at our election, again, this entire transition is intended to replace our ABL lender in an organized way.

You can look at it and say, well, how does that liquidity from a cash management [Phonetic] perspective, how does that compare to what was in place in Q4 and the liquidity situation is much stronger in Q1 for two reasons, number one, in Q4, we paid back over $20 million in principal payments on the senior loan, whereas we’re not doing that anymore, now we’re back in compliance with the senior lender. The other is that the cash minimum absent this transaction, the proceeds from that is half of what it was in Q4. And so that additional liquidity is also important for us as we move forward to it. The cost structure is low, the below-the-line costs are significantly lower and the liquidity in partnership with our lenders is actually stronger now that we’re moving into Q1.

So those are the elements of why short-term, we feel better about the balance sheet to move through this recovery in Q1 and the beginning of Q2. And long-term, obviously, we feel very strongly that the assets we have and the business and the durability of what we have is going to be a very quick, I won’t say very quick, I would say, a reasonable solid transition in Q2 to a new ABL lender.

Mark Argento — Lake Street Capital Markets — Analyst

Thanks for that color, Tim. And just lastly, any color on the performance of the business so far this quarter given the macro-environment like it was referenced previous. And are you seeing kind of a return to some normalcy as you’re able to add some inventory or maybe just talk a little bit about what you’re seeing now versus three, four months ago?

Tim Peterman — Chief Executive Officer

Sure, Mark. The — when we started this journey back in 2019, we were coming off a very tough year when I came back and started as CEO. And from that experience and others, we knew that it isn’t an easy fix to take a quarter after a downturn that will immediately ramp back up, that’s why we put the guidance out we did for Q1, where you have a roughly 30% decline in net sales in Q4 and we expect the same in Q1 and that’s how we’re preparing for it.

The elements of how you turn around net sales and in our case, it is not macro which really about the mechanics of putting the jewelry back on the calendar, not over rotating watches, it’s about advertising, the fundamentals of paying the advertisers and suppliers, those elements are the backbone of how we improve the business, it is not a — it’s not easy, it’s not overnight, but it’s not complicated, right. So, I would say, based on our experience of turning a company like ShopHQ because that’s just one of our brand, moving that back in the right direction, we know it takes three to four months after what we experienced in Q4 and having done it before already, we understand the basic building blocks of what needs to occur and we feel good about that.

Mark Argento — Lake Street Capital Markets — Analyst

Thanks, Tim. Good luck.

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 — Craig-Hallum Capital Group — Analyst

Hi, Tim, thanks for taking my question. As you start to add inventory back, I’m curious where you anticipate that demand has held up the best. It sounds like you mentioned that is a fairly constant demand for gold jewelry. What are the other categories of yours that are the most sticky that you can lead into as you start to build back your inventory?

Tim Peterman — Chief Executive Officer

Alex, thanks for the question. Well, absolutely the first step that we’re doing right now is around jewelry and in particular, it’s around 14-K gold in particular, it’s around Stefano, our largest and most popular gold brand. If you look at — if you were watching over Q4, you would see that that was greatly reduced. So just reestablishing those mechanics of having the lead time for Stefano to increase is the Italian production of the gold that we offer is, first and foremost, the most important part of what we’re doing. Behind that, you have beauty.

Beauty is our second category. Again, very similar to jewelry and that the lead time for us to acquire beauty inventory receipts and the payment of those is almost immediate there, though, It’s not a long lead time, so they have a unique characteristic of being impacted when there’s a liquidity situation. And then it’s just happened to be the two most important categories for us. So as we move through back into Q1 and Q2, it’s simply about reinvesting with those vendors simply about engaging the customers and it’s that mechanical.

Now, as you think about our reason for being in particular, since we’re talking about it ShopHQ, its merchandising strategy is around these wearable categories. But first and foremost it’s jewelry and beauty and quite frankly, we never like to waste a challenge. So we are actually accelerating our migration into jewelry and beauty at a quicker rate in Q1 and Q2 in order to stabilize and then continue to a growth pattern in the customer file in total for ShopHQ. So you’ll see from us in Q1 and Q2 an accelerated pace on that, we were taking a much more moderated pace. But now given this opportunity as we’d like to say, a challenge, we’re moving at a quicker pace.

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Okay, that’s really helpful. Thanks for that, Tim. And then if I could ask on the digital advertising side of the business, what is the path to winning back the business you lost there, is it — like it is on the retail side of the business where it’s just as simple as having a little bit more working capital will enable you to go after business that you couldn’t in Q4 and Q1. Can you talk a little bit about that?

Tim Peterman — Chief Executive Officer

Sure. Taking a step back, right, we’ve talked about the different examples. I think that’s what’s your question is about. The different examples of the liquidity challenge and how it impacted our business much more so than is there a macro environment that’s touching on advertising or a macro environment that’s touching on ShopHQ. I mean, certainly, you still have the macro environment in 123tv in Germany with a conflict in Ukraine, but here in the U.S., it really is about us putting back in place the game plan that we had and had and delivered on over these eight previous quarters. So as it relates to the — what we call IMDS, really our digital advertising arm of ShopHQ, it is as simple as just getting the working capital back in line and without aged payables in terms of engaging the suppliers, those mechanics are very easily fixed and we know all the players have strong relationships with them.

And quite frankly, they were also very flexible in this, they understood and the value that we provide on our advertising platform with now as we infuse our first-party data in there from the different businesses, it’s a unique offering, right. We have unique supply out there in the marketplace, it is crowded with advertising units that had been passed along the 3 times to 4 times to 5 times before it gets to the customer from where it started at the advertiser. We believe that the platform that we have is because of this unique nature of what our first-party customer data is bringing to the table is a sought-after product and that’s why these advertisers and suppliers are quickly moving back up to speed with us as our liquidity increases.

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Okay. That’s really helpful, Tim. Thank you.

Tim Peterman — Chief Executive Officer

Yeah, thanks Alex.

Operator

Thank you. Our next question comes from the line of Eric Wold with B. Riley Securities. Please proceed with your question.

Eric Wold — B. Riley Securities — Analyst

Thank you. Good morning, Tim. One follow-up on inventory, lot of the earlier questions kind of were around “building back inventory” I guess you’re still sitting on — at the end of the year, you’re still sitting on $112 million of inventory. Can you talk about what you see that inventory, I guess the current [Indecipherable] if that’s a word of that inventory. I know that during the early supply chain issues, you’re able to lean on kind of other inventory categories and areas to kind of stay in front of consumers, stay engaged with them and keep sales ongoing, you couldn’t get some of that stuff you’re hoping to kind of get delivered in on time. What’s holding you back from maybe doing something similar in Q4, Q1. And I guess, that running out of first part of the question. Maybe talk about that $100 plus million of inventory and the value of that and how much you — can you still — do you still — can you still increase it this year or do you have to really build it up from that level into ’23, long question?

Tim Peterman — Chief Executive Officer

That was a long question, Eric and I appreciate it and it’s a great question, let me try to peel it back in pieces. Starting with inventory and it really is about the composition, start with where we were last year, where we are today. And if you look at over the last couple of years, remember, our total inventory starts with really three components, you have ShopHQ, you now have our new business Christopher & Banks and you have 123tv in there as well. The Christopher & Banks and 123tv are in the USD10 million to USD12 million range. And so when you look at year-over-year growth or look at year-over-year decline, those pieces are relevant. As we look at ShopHQ, it really is and the major flagship revenue of our business is around ShopHQ.

So let’s just focus on that and put Christopher & Banks and 123tv aside, even though they create anomalies when you look at year-over-year comparisons. At ShopHQ, the inventory that we have today, it’s about composition. If you look at the IR slide that we presented, you can see that the inventory and jewelry, for example, is at 50% of what it was in — at the beginning or in the middle of Q4 and rebuilding that and bringing down home and bringing down health all happens in a very organized way in our business and it works like this. We have this grouping of by category inventory and we have that inventory and then we have future receipts, obviously with open-to-buy. As we look at this recovery as we could call it into Q1 and Q2, I would say 80% of our new receipts are focused purely on jewelry and beauty.

And what we’re doing as a consequence of that and with zero receipts or very little receipts in those other categories is selling down the existing inventory we have in those categories. Now, is it the maximum DPM on some of these items is not ideal, but from a balance perspective, we feel good about the margin of 42%, 43%, 44% because of the increased airtime back into jewelry and beauty. We have a demonstrated history here and we call it the sprinkle strategy of moving our inventory regardless of age at a very positive margin, 25%, 30-plus-percent each and every quarter. So that’s the unique ability of our programming strategy and really this business is to be able to shift your receipts on a composition level to improve a particular category and reduce future receipts sell what you have on existing, which then creates the cash flow for the working capital.

So, I think that to your question about inventory, I would say composition wise, you’ll see more from jewelry and beauty and you’ll see the overall ShopHQ inventory level remains stable, it’s just the composition will be shifting and I think that you’ll see the Christopher & Banks come down some in 2023, and I think that you will see the 123tv inventory staying relatively the same, does that address some of those questions?

Eric Wold — B. Riley Securities — Analyst

It does, it does. I appreciate it. And just follow-up on the iMDS media business, Tim, you talked there about the liquidity being an issue there as well, and the facility in the payments back and forth. If that was not an issue, how do you think that business would have performed in Q4 and Q1 and what are you seeing underlying macro wise, that’s still a growth business in ’23 barring the liquidity headwinds?

Tim Peterman — Chief Executive Officer

Yeah, as you — great question. When you think about what I was monologuing [Phonetic] about which is our reason for being, it really is around increasing the share of our digital products, right. We believe the biggest growth area in our company in terms of percent sales growth year-over-year will be in this digital advertising, the SaaS products like the auction widget, that continues to be developed by 123. We’ve recently launched it on ShopHQ.com and that auction, which is being advertised in placement by iMDS, our advertising arm as well. So as you asked about the macro environment, the macro environment for digital advertising, particularly with the assets that we have is strong.

Now the year-over-year decline if you look at our IR presentation, you can see a rather acute decline in Q4 and that was all driven by these liquidity challenges we talked about, but the fundamentals and when I say fundamentals, the win percentage of our spots are advertising opportunities is strong and has been strong, it dipped in Q4 and it’s moving back in the right direction as we now bring back our advertisers, as we now bring back our syndicated supply of content. So it’s not a macro environment for us on iMDS, it really is maximizing the original integration opportunity we had with digital advertising. And that is bringing the promotional power of ShopHQ, bringing the first-party data into that ecosystem.

Remember if you think about digital advertising on the web and if you think about the opportunity of digital advertising in the OTT space, people are talking a lot about the OTT space as the [Indecipherable] but we know because we have a business in the OTT space that 60% to 70% of that ad inventory goes unmonitized still today. So the maximum opportunity for us is really around taking a consumer engagement apps like our 123 Auction have and our first-party data and making those elements more important for our advertising arm to go out and sell digital advertising on the web today, it’s a very big opportunity for us and one that I can’t talk enough about.

Eric Wold — B. Riley Securities — Analyst

Got it. And then just final question from me, if I may. I’m not sure if it’s something you can address here or not, but just given the sale leaseback, the pay down of all the debt in kind of the ongoing discussions with your lead lender. Should all of that be able to remove the going concern that’s been your [Indecipherable] or is that something that’s still may not be addressed?

Tim Peterman — Chief Executive Officer

And that you had to answer that question, I could start with, just let’s just look at the facts right. Let’s start with the Q4 performance and liquidity, a challenge that we just traversed and with the completion of these what we call the debt reduction event, right. You can look at the history of the amendments that we’ve done, you can look at our cash flow, you can look at the elements of our guidance where we talked about the net sales, again, being pressured, but also the fact that we’ve taken our cost structure down.

All of those elements work in unison when a company and its orders are looking at a going concern and whether that’s an issue or not. I think that if you were looking at all the facts, I would say that you would follow the path right along the path that I’m describing which is you’ll begin to see the efforts, the financial impact of our reengagement efforts around net sales growth, around consumer engagement happening in the back half of the year. So we’re in Q1 now, so you can do the math on Q1 and Q2, but we think that would be right back on track and you’ll see that in our financials in the back half of the year.

Eric Wold — B. Riley Securities — Analyst

Got it. Thanks Tim.

Tim Peterman — Chief Executive Officer

Yeah, thanks, Eric.

Operator

Thank you. Our next question comes from the line of Thomas Forte with D.A. Davidson. Please proceed with your question.

Thomas Forte — D.A. Davidson — Analyst

Great, thanks. Two quick follow-ups. So Tim, can you first start with a high-level comments on, this is where you are today from a debt standpoint. And then this is your plan at a high level for reducing that on a go-forward basis.

Tim Peterman — Chief Executive Officer

Sure thing, Tom. The — as we talked about and you were there at our Capital Markets Day in February 2022, we talked about three priorities right and I want to do this in my prepared remarks, one of them being on strengthening the balance sheet. We knew as we put together the pieces in 2021 to be able to execute our growth plan and our growth strategy that we talked about today that we were a little bit heavy in debt and we needed to move that down to 2022. We talked about targets in the USD25 million to USD30 million range on a methodical basis and taking that down over time. As you can see, the complexity of the delay and part this into where ended today, it ended up fortunately for us and shareholders, reducing our debt by $53 million rather than the USD20 million to USD25 million. So if you think about Q1 last year, we were at $207 million in debt and if you think about where we are today in that $123 million range, it’s a significant decline because it — our debt repayment efforts didn’t begin and end with this debt reduction have been. As you know, that has been happening each quarter as we move through 2022. So if you start with where we are today in this $123 million range, you’re looking at our non-amortized bonds that are out there and you’re looking at our ABL and some smaller seller notes with Synacor.

We’ve — those are all have a very organized and methodical way of going down over time without any kind of event just out of the working cash flow over the business with Synacor, it’s a quarterly payment with the GCP, these are whether it’s stock or cash, whatever it happens to be. So we feel good about moving it down again throughout 2023 in organized way, not in an event way like we did now this Chris list that we pulled out of Q4 with this debt structure, where it is, it’s kind of a one-time restructuring that we feel-good about and we will move that down over time in a non-eventful way through 2023.

Thomas Forte — D.A. Davidson — Analyst

All right. Thank you. And then last question for me. You had previously given a handful of levers you could pull on a as-needed basis to do additional deleverage, you pulled some of them like the sale leaseback. Can you give your updated thoughts on levers you can pull to delever, it’s very helpful earlier than in the past and I appreciate an update.

Tim Peterman — Chief Executive Officer

Sure. As you think about the market cap of our business and if you think back at Q2 and Q3, and why we were moving into the sale leaseback to monetize three out of our four buildings, the completion of this transaction did not include the fourth building, so our fourth building is obviously an asset we have in the business that is also available down the road if we choose to create a debt reduction event. When you also think about the business and the balance sheet that we have, we really are as from an asset-based lending perspective around — it’s really focused on the physical assets of our business.

They aren’t really tied and we don’t feel like in today’s world of our lending today is focused on IP. We know that we have IP that is down the road another asset just like the buildings that we can lever in the event that we wanted to take another debt reduction event in course, not something that we’re planning on, but it is something as we move through with our investment banker, which we’ll be announcing here in the next couple days to replace our existing lenders, it will be about not only the physical assets that are traditional asset-based loan, but also the IP. We’ve got some strong IP here and that is something that we’ll look out. The most easy and leverageable asset that you’ve heard me talk about and that we’ve demonstrated over time, we can do in a period of six months is inventory.

As I talked about before, wwe have a seven-year history of moving aged inventory by category inventory, lumps bumps, whatever it happens to be the way we do it with as I would call it our sprinkle strategy at margins that are acceptable as a balanced perspective to still achieve that 42%, 43%, 44% is something that is unique about even us I think in the TV retailing world, we don’t buy in a way that forces us to purge at a significant lost inventory.

So, as you watch us this year, the leverageable thing you’re going to see us do is to bring down as we changed the composition as well, but to bring down that inventory on a methodical basis that generates cash flow. If you looked at the report card for 2022, you can see the working capital that we’ve been able to manage or the cash that we’ve been able to generate from our working capital management continues to be a significant lever that we always have demonstrated we can do.

So I would say if you wanted to think about 2023, you will see as a normal course us managing our inventory as a lever down and then you’ll see as an opportunity as we find our and partnering with our new ABL lender to look at the IP opportunities. The bonds are certainly something out there that are interesting who couldn’t comment on these bonds, so I’m going to comment on these bonds, they are trading at a significant discount. It is an anomaly out there that we are looking at, obviously, but that’s all really I could say about them is that, there is an opportunity with bond, but it’s not something that we think is the best use of our capital today, it really is about reestablishing the growth in jewelry and beauty. It’s really about reestablishing the phase of delivering our consensus after the Q4 situation. Those are our top priorities as you look out over the next 60 days to 90 days.

Thomas Forte — D.A. Davidson — Analyst

Thank you for taking my questions.

Tim Peterman — Chief Executive Officer

Thanks Tom.

Operator

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I’ll turn the floor back to Mr. Peterman for any final comments.

Tim Peterman — Chief Executive Officer

Thank you, Allison. As always, we appreciate everybody’s time and faith and we look forward to talking to you again in the short period of time about our business and what we’re doing and you can talk about what we’ve done and how we’re doing it. Thank you.

Operator

[Operator Closing Remarks]