Item 1. FINANCIAL STATEMENTS
EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
January 30,
2016
|
|
(In thousands, except share and
|
|
per share data)
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash
|
$
|
32,723
|
|
|
$
|
11,897
|
|
Restricted cash and investments
|
450
|
|
|
450
|
|
Accounts receivable, net
|
99,472
|
|
|
114,949
|
|
Inventories
|
63,623
|
|
|
65,840
|
|
Prepaid expenses and other
|
5,812
|
|
|
5,913
|
|
Total current assets
|
202,080
|
|
|
199,049
|
|
Property & equipment, net
|
51,431
|
|
|
52,629
|
|
FCC broadcasting license
|
12,000
|
|
|
12,000
|
|
Other assets
|
1,697
|
|
|
1,819
|
|
|
$
|
267,208
|
|
|
$
|
265,497
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
70,341
|
|
|
$
|
77,779
|
|
Accrued liabilities
|
34,014
|
|
|
35,342
|
|
Current portion of long term credit facilities
|
2,993
|
|
|
2,143
|
|
Deferred revenue
|
85
|
|
|
85
|
|
Total current liabilities
|
107,433
|
|
|
115,349
|
|
Deferred revenue
|
142
|
|
|
164
|
|
Deferred tax liability
|
2,931
|
|
|
2,734
|
|
Long term credit facilities
|
84,432
|
|
|
70,271
|
|
Total liabilities
|
194,938
|
|
|
188,518
|
|
Commitments and contingencies
|
|
|
|
Shareholders' equity:
|
|
|
|
Preferred stock, $.01 per share par value, 400,000 shares authorized; zero shares issued and outstanding
|
—
|
|
|
—
|
|
Common stock, $.01 per share par value, 100,000,000 shares authorized; 57,192,294 and 57,170,245 shares issued and outstanding
|
572
|
|
|
571
|
|
Additional paid-in capital
|
423,806
|
|
|
423,574
|
|
Accumulated deficit
|
(352,108
|
)
|
|
(347,166
|
)
|
Total shareholders' equity
|
72,270
|
|
|
76,979
|
|
|
$
|
267,208
|
|
|
$
|
265,497
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
For the Three-Month
|
|
Periods Ended
|
|
April 30,
2016
|
|
May 2,
2015
|
Net sales
|
$
|
166,920
|
|
|
$
|
158,451
|
|
Cost of sales
|
105,472
|
|
|
101,146
|
|
Gross profit
|
61,448
|
|
|
57,305
|
|
Operating expense:
|
|
|
|
Distribution and selling
|
53,425
|
|
|
50,799
|
|
General and administrative
|
5,769
|
|
|
5,712
|
|
Depreciation and amortization
|
2,107
|
|
|
2,131
|
|
Executive and management transition costs
|
3,601
|
|
|
2,590
|
|
Distribution facility consolidation and technology upgrade costs
|
80
|
|
|
—
|
|
Total operating expense
|
64,982
|
|
|
61,232
|
|
Operating loss
|
(3,534
|
)
|
|
(3,927
|
)
|
Other income (expense):
|
|
|
|
Interest income
|
2
|
|
|
2
|
|
Interest expense
|
(1,205
|
)
|
|
(598
|
)
|
Total other expense
|
(1,203
|
)
|
|
(596
|
)
|
Loss before income taxes
|
(4,737
|
)
|
|
(4,523
|
)
|
Income tax provision
|
(205
|
)
|
|
(205
|
)
|
Net loss
|
$
|
(4,942
|
)
|
|
$
|
(4,728
|
)
|
Net loss per common share
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Net loss per common share — assuming dilution
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Weighted average number of common shares outstanding:
|
|
|
|
Basic
|
57,181,155
|
|
|
56,640,767
|
|
Diluted
|
57,181,155
|
|
|
56,640,767
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE
THREE-MONTH
PERIOD ENDED
APRIL 30, 2016
(Unaudited)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Additional
Paid-In
Capital
|
|
|
|
Total
Shareholders'
Equity
|
|
Number
of Shares
|
|
Par
Value
|
|
|
Accumulated
Deficit
|
|
BALANCE, January 30, 2016
|
57,170,245
|
|
|
$
|
571
|
|
|
$
|
423,574
|
|
|
$
|
(347,166
|
)
|
|
$
|
76,979
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,942
|
)
|
|
(4,942
|
)
|
Common stock issuances pursuant to equity compensation plans
|
22,049
|
|
|
1
|
|
|
(5
|
)
|
|
—
|
|
|
(4
|
)
|
Share-based payment compensation
|
—
|
|
|
—
|
|
|
237
|
|
|
—
|
|
|
237
|
|
BALANCE, April 30, 2016
|
57,192,294
|
|
|
$
|
572
|
|
|
$
|
423,806
|
|
|
$
|
(352,108
|
)
|
|
$
|
72,270
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EVINE Live Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
For the Three-Month
|
|
Periods Ended
|
|
April 30,
2016
|
|
May 2,
2015
|
OPERATING ACTIVITIES:
|
|
|
|
Net loss
|
$
|
(4,942
|
)
|
|
$
|
(4,728
|
)
|
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
|
|
|
|
Depreciation and amortization
|
3,041
|
|
|
2,307
|
|
Share-based payment compensation
|
237
|
|
|
609
|
|
Amortization of deferred revenue
|
(22
|
)
|
|
(21
|
)
|
Amortization of deferred financing costs
|
112
|
|
|
68
|
|
Deferred income taxes
|
197
|
|
|
197
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable, net
|
15,477
|
|
|
18,106
|
|
Inventories
|
2,217
|
|
|
(6,061
|
)
|
Prepaid expenses and other
|
101
|
|
|
(603
|
)
|
Accounts payable and accrued liabilities
|
(9,076
|
)
|
|
(14,238
|
)
|
Net cash provided by (used for) operating activities
|
7,342
|
|
|
(4,364
|
)
|
INVESTING ACTIVITIES:
|
|
|
|
Property and equipment additions
|
(1,605
|
)
|
|
(8,143
|
)
|
Net cash used for investing activities
|
(1,605
|
)
|
|
(8,143
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
Payments for deferred issuance costs
|
(1,287
|
)
|
|
(160
|
)
|
Payments on capital leases
|
(13
|
)
|
|
(13
|
)
|
Proceeds from issuance of revolving loans
|
—
|
|
|
4,300
|
|
Proceeds from issuance of term loans
|
17,000
|
|
|
2,849
|
|
Payments on term loans
|
(607
|
)
|
|
(647
|
)
|
Proceeds from exercise of stock options
|
—
|
|
|
2,405
|
|
Payments for issuance of common stock, net
|
(4
|
)
|
|
—
|
|
Net cash provided by financing activities
|
15,089
|
|
|
8,734
|
|
Net increase (decrease) in cash
|
20,826
|
|
|
(3,773
|
)
|
BEGINNING CASH
|
11,897
|
|
|
19,828
|
|
ENDING CASH
|
$
|
32,723
|
|
|
$
|
16,055
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
Interest paid
|
$
|
888
|
|
|
$
|
590
|
|
Income taxes paid
|
$
|
51
|
|
|
$
|
33
|
|
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
Property and equipment purchases included in accounts payable
|
$
|
357
|
|
|
$
|
1,179
|
|
Deferred issuance costs included in accrued liabilities
|
$
|
103
|
|
|
$
|
15
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EVINE Live Inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2016
(Unaudited)
(1) General
EVINE Live Inc. and its subsidiaries ("we," "our," "us," or the "Company") are collectively a digital commerce company that offers a mix of proprietary, exclusive and name brand merchandise directly to consumers in an engaging and informative shopping experience through TV, online and mobile devices. The Company operates a 24-hour television shopping network, EVINE Live, which is distributed primarily on cable and satellite systems, through which it offers proprietary, exclusive and name brand merchandise in the categories of jewelry & watches; home & consumer electronics; beauty; and fashion & accessories. Orders are taken via telephone, online and mobile channels. The television network is distributed into approximately
88 million
homes, primarily through cable and satellite affiliation agreements and agreements with telecommunications companies such as AT&T and Verizon. Programming is also streamed live online at evine.com and is also available on mobile channels. Programming is also distributed through a Company-owned full power television station in Boston, Massachusetts and through leased carriage on a full power television station in Seattle, Washington.
The Company also operates evine.com, a comprehensive digital commerce platform that sells products which appear on its television shopping network as well as an extended assortment of online-only merchandise. The live programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.
On November 18, 2014, the Company announced that it had changed its corporate name to EVINE Live Inc. from ValueVision Media, Inc. Effective November 20, 2014, the Company's NASDAQ trading symbol also changed to EVLV from VVTV. The Company transitioned from doing business as "ShopHQ" to "EVINE Live" and evine.com on February 14, 2015.
(2) Basis of Financial Statement Presentation
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America have been condensed or omitted in accordance with these rules and regulations. The accompanying condensed consolidated balance sheet as of
January 30, 2016
has been derived from the Company's audited financial statements for the fiscal year ended
January 30, 2016
. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of these financial statements. Although management believes the disclosures and information presented are adequate, these interim condensed consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its annual report on Form 10-K for the fiscal year ended
January 30, 2016
. Operating results for the
three-month period
ended
April 30, 2016
are not necessarily indicative of the results that may be expected for the fiscal year ending
January 28, 2017
.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. References to years in this report relate to fiscal years, rather than to calendar years. The Company’s most recently completed fiscal year,
fiscal 2015
, ended on
January 30, 2016
, and consisted of 52 weeks.
Fiscal 2016
will end on
January 28, 2017
, and will contain 52 weeks. The quarters ended
April 30, 2016
and
May 2, 2015
each consisted of 13 weeks.
Recently Adopted Accounting Standard Updates
In April 2015, the Financial Accounting Standards Board issued Simplifying the Presentation of Debt Issuance Costs, Subtopic 835-30 (Accounting Standards Update ("ASU") No. 2015-03). ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. The Company adopted this standard in the first quarter of fiscal 2016, applying it retrospectively. The consolidated balance sheet as
of January 30, 2016 reflects the reclassification of debt issuance costs of
$266,000
from other assets to long term credit facilities. The amount of debt issuance costs included in long term credit facilities as of April 30, 2016 was
$1.6 million
. In August 2015, the FASB issued Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, Subtopic 835-30 (ASU No. 2015-15), which clarifies that absent authoritative guidance in ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the staff of the Securities and Exchange Commission would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the revolving line of credit arrangement, regardless of whether there are any outstanding borrowings on the revolving line of credit arrangement. As of January 30, 2016, debt issuance costs of
$694,000
related to our PNC Credit Agreement, revolving line of credit were included within other assets. We continue to include these costs within other assets, amortizing them over the term of the PNC Credit Agreement.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Revenue from Contracts with Customers, Topic 606 (ASU No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. The guidance, also includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers. In July 2015, the Financial Accounting Standards Board approved a one year deferral of the effective date of ASU 2014-09. The standard will now become effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements.
In July 2015, the Financial Accounting Standards Board issued Simplifying the Measurement of Inventory, Topic 330 (ASU No. 2015-11). ASU 2015-11 changes the measurement principle for inventory from the lower of cost or market to lower of cost or net realizable value. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2015-11 on our consolidated financial statements.
In November 2015, the Financial Accounting Standards Board issued Balance Sheet Classification of Deferred Taxes, Topic 740 (ASU No. 2015-17). ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted and applied either prospectively or retrospectively. We are currently evaluating the impact of adopting ASU 2015-17 on our consolidated financial statements.
In February 2016, the Financial Accounting Standards Board issued Leases, Topic 842 (ASU No. 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective retrospectively for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2016-02 on our consolidated financial statements.
In March 2016, the Financial Accounting Standards Board issued Compensation-Stock Compensation, Topic 718 (ASU No. 2016-09). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. In addition, the ASU also clarifies the statement of cash flows presentation for certain components of share-based awards. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2016-09 on our consolidated financial statements.
(3) Fair Value Measurements
GAAP utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 measurement), then priority to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
As of
April 30, 2016
and
January 30, 2016
the Company had $
450,000
in Level 2 investments in the form of bank certificates of deposit. The Company's investments in certificates of deposits were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2 investments. As of
April 30, 2016
and
January 30, 2016
the Company also had long-term variable rate Credit Facilities with carrying values of
$87,425,000
and
$72,414,000
, respectively.
As of
April 30, 2016
and
January 30, 2016
, respectively,
$2,993,000
and
$2,143,000
was classified as current. The fair value of the variable rate Credit Facilities approximates and is based on its carrying value. The Company has no Level 3 investments that use significant unobservable inputs.
(4) Intangible Assets
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Life
(Years)
|
|
April 30, 2016
|
|
January 30, 2016
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
EVINE trademark
|
|
15
|
|
$
|
1,103,000
|
|
|
$
|
(98,000
|
)
|
|
$
|
1,103,000
|
|
|
$
|
(80,000
|
)
|
Total finite-lived intangible assets
|
|
|
|
$
|
1,103,000
|
|
|
$
|
(98,000
|
)
|
|
$
|
1,103,000
|
|
|
$
|
(80,000
|
)
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
FCC broadcast license
|
|
|
|
$
|
12,000,000
|
|
|
|
|
$
|
12,000,000
|
|
|
|
As of
January 30, 2016
, the Company had an intangible FCC broadcasting license with a carrying value of
12,000,000
and an estimated fair value of
$12,900,000
. The Company annually reviews its FCC television broadcast license for impairment in the fourth quarter, or more frequently if an impairment indicator is present. The Company estimates the fair value of its FCC television broadcast license primarily by using income-based discounted cash flow models with the assistance of an independent outside fair value consultant. The discounted cash flow models utilize a range of assumptions including revenues, operating profit margin, projected capital expenditures and an unobservable discount rate. The Company also considers comparable asset market and sales data for recent comparable market transactions for standalone television broadcasting stations to assist in determining fair value. The Company concluded that the inputs used in its intangible FCC broadcasting license asset valuation are Level 3 inputs related to this valuation.
While the Company believes that its estimates and assumptions regarding the valuation of the license are reasonable, different assumptions or future events could materially affect its valuation. In addition, due to the illiquid nature of this asset, the Company's valuation for this license could be materially different if it were to decide to sell it in the short term which, upon revaluation, could result in a future impairment of this asset.
The EVINE trademark asset is included in Other Assets in the accompanying balance sheets. Amortization expense related to the EVINE trademark license was
$18,000
and
$6,000
for the three-month periods ended
April 30, 2016
and May 2, 2015, respectively. Estimated amortization expense for fiscal 2016 and each of the subsequent fiscal years is
$74,000
.
(5) Credit Agreements
The Company's long-term credit facilities consist of:
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
January 30, 2016
|
PNC Credit Facility
|
|
|
|
|
PNC revolving loan due May 1, 2020, principal amount
|
|
$
|
59,900,000
|
|
|
$
|
59,900,000
|
|
|
|
|
|
|
PNC term loan due May 1, 2020, principal amount
|
|
12,245,000
|
|
|
12,780,000
|
|
Less unamortized debt issuance costs
|
|
(244,000
|
)
|
|
(266,000
|
)
|
PNC term loan due May 1, 2020, carrying amount
|
|
12,001,000
|
|
|
12,514,000
|
|
|
|
|
|
|
GACP Credit Agreement
|
|
|
|
|
GACP term loan due March 9, 2021, principal amount
|
|
16,930,000
|
|
|
—
|
|
Less unamortized debt issuance costs
|
|
(1,406,000
|
)
|
|
—
|
|
GACP term loan due March 9, 2021, carrying amount
|
|
15,524,000
|
|
|
—
|
|
|
|
|
|
|
Total long-term credit facilities
|
|
87,425,000
|
|
|
72,414,000
|
|
Less current portion of long-term credit facilities
|
|
(2,993,000
|
)
|
|
(2,143,000
|
)
|
Long-term credit facilities, excluding current portion
|
|
$
|
84,432,000
|
|
|
$
|
70,271,000
|
|
PNC Credit Facility
On February 9, 2012, the Company entered into a credit and security agreement (as amended on March 10, 2016, the "PNC Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent. The PNC Credit Facility, which includes The Private Bank as part of the facility, provides a revolving line of credit of
$90.0 million
and provides for a
$15.0 million
term loan on which the Company has drawn to fund improvements at the Company's distribution facility in Bowling Green, Kentucky. The PNC Credit Facility also provides an accordion feature that would allow the Company to expand the size of the revolving line of credit by another
$25.0 million
at the discretion of the lenders and upon certain conditions being met.
All borrowings under the PNC Credit Facility mature and are payable on May 1, 2020. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to
$6.0 million
which, upon issuance, would be deemed advances under the PNC Credit Facility. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of
$90.0 million
or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory. The PNC Credit Facility is secured by a first security interest in substantially all of the Company’s personal property, as well as the Company’s real properties located in Eden Prairie, Minnesota and Bowling Green, Kentucky up to
$13 million
. Under certain circumstances, the borrowing base may be adjusted if there were to be a significant deterioration in value of the Company’s accounts receivable and inventory.
The revolving line of credit under the PNC Credit Facility bears interest at LIBOR plus a margin of between
3%
and
4.5%
based on the Company's trailing twelve-month reported EBITDA (as defined in the PNC Credit Facility) measured quarterly in fiscal 2016 and semi-annually thereafter as demonstrated in its financial statements. The term loan bears interest at either a LIBOR rate or a base rate plus a margin consisting of between
4%
and
5%
on Base Rate term loans and
5%
to
6%
on LIBOR rate loans based on our leverage ratio as demonstrated in its audited financial statements.
As of
April 30, 2016
, the Company had borrowings of
$59.9 million
under its revolving credit facility. Remaining available capacity under the revolving credit facility as of
April 30, 2016
is approximately
$17.1 million
, and provides liquidity for working capital and general corporate purposes. The PNC Credit Facility also provides for a
$15.0 million
term loan on which the Company has drawn to fund an expansion at the Company's distribution facility in Bowling Green, Kentucky. As of
April 30, 2016
, there was approximately
$12.2 million
outstanding under the PNC Credit Facility term loan of which
$2.1 million
was classified as current in the accompanying balance sheet.
Principal borrowings under the term loan are to be payable in monthly installments over an
84
month amortization period commencing on January 1, 2015 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment starting in the fiscal year ended January 30, 2016 in an amount equal to fifty percent (
50%
) of excess cash flow for such fiscal year, with any such payment not to exceed
$2.0 million
in any such fiscal year. The PNC Credit Facility is also subject to other mandatory prepayment in certain circumstances. In addition, if the total PNC Credit Facility is terminated prior to maturity,
the Company would be required to pay an early termination fee of
3.0%
if terminated on or before October 8, 2016;
1.0%
if terminated on or before October 8, 2017,
0.5%
if terminated on or before October 8, 2018; and no fee if terminated after October 8, 2018. As of
April 30, 2016
, the imputed effective interest rate on the PNC term loan was
6.0%
.
Interest expense recorded under the PNC Credit Facility was
$857,000
and
$593,000
for the three-month periods ended April 30, 2016 and May 2, 2015, respectively.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus facility availability of
$10.0 million
at all times and limiting annual capital expenditures. As our unused line availability was greater than
$10.0 million
at
April 30, 2016
, no additional cash was required to be restricted. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of
1.1 to 1.0
, become applicable only if unrestricted cash plus facility availability falls below
$18.0 million
. As of
April 30, 2016
, the Company's unrestricted cash plus facility availability was
$49.8 million
and the Company was in compliance with applicable financial covenants of the PNC Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the PNC Credit Facility places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Costs incurred to obtain amendments to the PNC Credit Facility totaling
$1,148,000
and unamortized costs incurred to obtain the original PNC Credit Facility totaling
$466,000
have been deferred and are being expensed as additional interest over the
five
-year term of the PNC Credit Facility.
Great American Capital Partners Credit Agreement
On March 10, 2016, the Company entered into a term loan credit and security agreement (the "GACP Credit Agreement") with GACP Finance Co., LLC ("GACP") for a term loan of
$17.0 million
. Proceeds from the GACP Credit Agreement will be used to provide for working capital and general corporate purposes and to help strengthen the Company's total liquidity position. The term loan under the GACP Credit Agreement (the "GACP Term Loan") is secured on a first lien priority basis by the proceeds of any sale of the Company's Boston television station FCC license and on a second lien priority basis by the Company's accounts receivable, equipment, inventory and certain real estate as well as other assets as described in the GACP Credit Agreement. The Company has also pledged the stock of certain subsidiaries to secure such obligations on a second lien priority basis.
The GACP Credit Agreement matures on March 9, 2021. The GACP Term Loan bears interest at either (i) a fixed rate based on the greater of LIBOR for interest periods of
one
,
two
or
three
months or
1%
plus a margin of
11.0%
, or (ii) a daily floating Alternate Base Rate plus a margin of
10.0%
. As of
April 30, 2016
, the imputed effective interest rate on the GACP term loan was
14.0%
.
Principal borrowings under the GACP Term Loan are to be payable in consecutive monthly installments of
$70,833
each, commencing on April 1, 2016, with a final installment due at the end of the
five
- year term equal to the aggregate principal amount of all loans outstanding on such date. The GACP Term Loan is also subject to mandatory prepayment in certain circumstances, including, but without limitation, from the proceeds of the sale of collateral assets and from
50%
of annual excess cash flow as defined in the GACP Credit Agreement. The GACP Term Loan can be prepaid voluntarily at any time and, if terminated prior to maturity, the Company would be required to pay an early termination fee of
3.0%
if terminated on or before March 10, 2017;
2.0%
if terminated on or before March 10, 2018;
1.0%
if terminated on or before March 10, 2019; and no fee if terminated after March 10, 2019. Interest expense recorded under the GACP Credit Agreement was
$342,000
for the three-month period ended April 30, 2016.
The GACP Credit Agreement contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus revolving line of credit availability under the PNC Credit Facility of
$10.0 million
at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the GACP Credit Agreement) and a minimum fixed charge coverage ratio of
1.1 to 1.0
, become applicable only if unrestricted cash plus revolving line of credit availability under the PNC Credit Facility falls below
$18.0 million
. In addition, the GACP Credit Agreement places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Costs incurred to obtain the GACP Credit Agreement totaling
$1,453,000
have been deferred and are being expensed as additional interest over the
five
-year term of the GACP Credit Agreement.
The aggregate maturities of the Company's long-term credit facilities as of
April 30, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNC Credit Facility
|
|
|
|
|
Fiscal year
|
|
Term loan
|
|
Revolving loan
|
|
GACP Term Loan
|
|
Total
|
2016
|
|
$
|
1,608,000
|
|
|
$
|
—
|
|
|
$
|
637,000
|
|
|
$
|
2,245,000
|
|
2017
|
|
2,321,000
|
|
|
—
|
|
|
921,000
|
|
|
3,242,000
|
|
2018
|
|
2,143,000
|
|
|
—
|
|
|
850,000
|
|
|
2,993,000
|
|
2019
|
|
1,964,000
|
|
|
—
|
|
|
780,000
|
|
|
2,744,000
|
|
2020
|
|
4,209,000
|
|
|
59,900,000
|
|
|
850,000
|
|
|
64,959,000
|
|
2021
|
|
—
|
|
|
—
|
|
|
12,892,000
|
|
|
12,892,000
|
|
|
|
$
|
12,245,000
|
|
|
$
|
59,900,000
|
|
|
$
|
16,930,000
|
|
|
$
|
89,075,000
|
|
(6) Stock-Based Compensation - Stock Option Awards
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense for the
first
quarters of
fiscal 2016
and
fiscal 2015
related to stock option awards was
$120,000
and
$261,000
, respectively. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
As of
April 30, 2016
, the Company had
one
omnibus stock plan for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to
6,000,000
shares of the Company's stock. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2001 Omnibus Stock Plan expired on June 21, 2011. No further awards may be made under the 2001 Omnibus Plan, but any award granted under the 2001 Omnibus Plan and outstanding on June 21, 2011 will remain outstanding in accordance with its terms. The 2011 plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than
100%
of the fair market value of the underlying stock as of the date of grant. No incentive stock option may be granted more than
10
years after the effective date of the respective plan's inception or be exercisable more than
10 years
after the date of grant. Options granted to outside directors are nonstatutory stock options with an exercise price equal to
100%
of the fair market value of the underlying stock as of the date of grant. With the exception of market-based options, options granted generally vest over
three
years in the case of employee stock options and vest immediately on the date of grant in the case of director options, and have contractual terms of
10 years
from the date of grant.
The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company's stock. Expected term is calculated using the simplified method taking into consideration the option's contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
|
|
|
|
|
|
Fiscal 2016
|
|
Fiscal 2015
|
Expected volatility
|
84%
|
|
82%
|
Expected term (in years)
|
6 years
|
|
6 years
|
Risk-free interest rate
|
1.7%
|
|
1.7%
|
A summary of the status of the Company’s stock option activity as of
April 30, 2016
and changes during the
three months
then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
Incentive
Stock
Option
Plan
|
|
Weighted
Average
Exercise
Price
|
|
2004
Incentive
Stock
Option
Plan
|
|
Weighted
Average
Exercise
Price
|
|
2001
Incentive
Stock
Option
Plan
|
|
Weighted
Average
Exercise
Price
|
Balance outstanding, January 30, 2016
|
1,555,000
|
|
|
$
|
4.30
|
|
|
670,000
|
|
|
$
|
6.18
|
|
|
399,000
|
|
|
$
|
7.78
|
|
Granted
|
966,000
|
|
|
$
|
1.19
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited or canceled
|
(495,000
|
)
|
|
$
|
4.68
|
|
|
(19,000
|
)
|
|
$
|
8.78
|
|
|
(8,000
|
)
|
|
$
|
10.48
|
|
Balance outstanding, April 30, 2016
|
2,026,000
|
|
|
$
|
2.72
|
|
|
651,000
|
|
|
$
|
6.10
|
|
|
391,000
|
|
|
$
|
7.73
|
|
Options exercisable at April 30, 2016
|
841,000
|
|
|
$
|
3.76
|
|
|
633,000
|
|
|
$
|
6.14
|
|
|
391,000
|
|
|
$
|
7.73
|
|
The following table summarizes information regarding stock options outstanding at
April 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Vested or Expected to Vest
|
Option Type
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Aggregate
Intrinsic
Value
|
2011 Incentive:
|
2,026,000
|
|
|
$
|
2.72
|
|
|
8.6
|
|
$
|
340,000
|
|
|
1,926,000
|
|
|
$
|
2.78
|
|
|
8.5
|
|
$
|
306,000
|
|
2004 Incentive:
|
651,000
|
|
|
$
|
6.10
|
|
|
3.0
|
|
$
|
1,000
|
|
|
649,000
|
|
|
$
|
6.10
|
|
|
3.0
|
|
$
|
1,000
|
|
2001 Incentive:
|
391,000
|
|
|
$
|
7.73
|
|
|
2.0
|
|
$
|
—
|
|
|
391,000
|
|
|
$
|
7.73
|
|
|
2.0
|
|
$
|
—
|
|
The weighted average grant-date fair value of options granted in the first
three-months
of
fiscal 2016
and
fiscal 2015
was
$0.85
and
$4.35
, respectively. The total intrinsic value of options exercised during the first
three-months
of
fiscal 2016
and
fiscal 2015
was
$0
and
$1,397,000
, respectively. As of
April 30, 2016
, total unrecognized compensation cost related to stock options was
$880,000
and is expected to be recognized over a weighted average expected life of approximately
2.5 years
.
(7) Stock-Based Compensation - Restricted Stock Awards
Compensation expense recorded for the
first
quarter of
fiscal 2016
and
fiscal 2015
relating to restricted stock grants was
$117,000
and
$348,000
, respectively. As of
April 30, 2016
, there was
$1,157,000
of total unrecognized compensation cost related to non-vested restricted stock grants. That cost is expected to be recognized over a weighted average expected life of
1.9 years
. The total fair value of restricted stock vested during the first
three months
of
fiscal 2016
and
fiscal 2015
was
$23,000
and
$88,000
, respectively.
During the first quarter of fiscal 2016, the Company granted a total of
188,991
shares of time-based restricted stock awards to certain key employees as part of the Company's long-term incentive program. The restricted stock will vest in
three
equal annual installments beginning March 28, 2017. The aggregate market value of the restricted stock at the date of the award was
$187,101
and is being amortized as compensation expense over the
three
-year vesting period.
During the first quarter of fiscal 2016, the Company also granted a total of
179,156
shares of market-based restricted stock performance units to certain executives as part of the Company's long-term incentive program. The number of restricted stock units earned is based on the Company's total shareholder return ("TSR") relative to a group of industry peers over a three-year performance measurement period. The total grant date fair value was estimated to be
$223,571
, or
$0.98
-
$1.72
per share and is being amortized over the three-year performance period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of
0.9%
-
1.0%
, a weighted average expected life of
three
years and an implied volatility of
71%
-
73%
. The percent of the target market-based performance vested restricted stock unit award that will be earned based on the Company's TSR relative to the peer group is as follows:
|
|
|
|
Percentile Rank
|
|
Percentage of
Units Vested
|
< 33%
|
|
0%
|
33%
|
|
50%
|
50%
|
|
100%
|
100%
|
|
150%
|
During the first quarter of fiscal 2015, the Company granted a total of
67,786
shares of time-based restricted stock awards to certain key employees as part of the Company's long-term incentive program. The restricted stock will vest in
three
equal annual installments beginning March 20, 2016. The aggregate market value of the restricted stock at the date of the award was
$417,593
and is being amortized as compensation expense over the
three
-year vesting period.
During the first quarter of fiscal 2015, the Company also granted a total of
106,963
shares of market-based restricted stock performance units to certain executives as part of the Company's long-term incentive program. The number of restricted stock units earned is based on the Company's total shareholder return ("TSR") relative to a group of industry peers over a three-year performance measurement period. The total grant date fair value was estimated to be
$776,865
, or
$7.26
per share and is being amortized over the three-year performance period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of
0.9%
, a weighted average expected life of
three
years and an implied volatility of
54%
-
55%
. The percent of the target market-based performance vested restricted stock unit award that will be earned based on the Company's TSR relative to the peer group is as follows:
|
|
|
|
Percentile Rank
|
|
Percentage of
Units Vested
|
< 33%
|
|
0%
|
33%
|
|
50%
|
50%
|
|
100%
|
100%
|
|
150%
|
A summary of the status of the Company’s non-vested restricted stock activity as of
April 30, 2016
and changes during the
three-month period
then ended is as follows:
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Non-vested outstanding, January 30, 2016
|
861,000
|
|
|
$4.46
|
Granted
|
368,000
|
|
|
$1.12
|
Vested
|
(28,000
|
)
|
|
$5.76
|
Forfeited
|
(267,000
|
)
|
|
$5.60
|
Non-vested outstanding, April 30, 2016
|
934,000
|
|
|
$2.77
|
(8) Net Loss Per Common Share
Basic net loss per share is computed by dividing reported loss by the weighted average number of shares of common stock outstanding for the reported period. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during reported periods.
A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic loss per share and diluted loss per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
April 30,
2016
|
|
May 2,
2015
|
Net loss (a)
|
|
$
|
(4,942,000
|
)
|
|
$
|
(4,728,000
|
)
|
Weighted average number of shares of common stock outstanding — Basic
|
|
57,181,155
|
|
|
56,640,767
|
|
Dilutive effect of stock options, non-vested shares and warrants (b)
|
|
—
|
|
|
—
|
|
Weighted average number of shares of common stock outstanding — Diluted
|
|
57,181,155
|
|
|
56,640,767
|
|
Net loss per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Net loss per common share — assuming dilution
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
(a) The net loss for the
three-month period
ended
April 30, 2016
includes costs related to executive and management transition of
$3,601,000
and distribution facility consolidation and technology upgrade costs totaling
$80,000
. The net loss for the
three-month period
ended
May 2, 2015
includes costs related to executive and management transition of
$2,590,000
.
(b) For the
three-month period
ended
April 30, 2016
, there were -
0
- incremental in-the-money potentially dilutive common shares. For the
three-month period
ended
May 2, 2015
, approximately
741,000
incremental in-the-money potentially dilutive common shares have been excluded from the computation of diluted earnings per share, as the effect of their inclusion would be antidilutive.
(9) Business Segments and Sales by Product Group
The Company has
one
reporting segment, which encompasses its digital commerce retailing. The Company markets, sells and distributes its products to consumers primarily through its digital commerce television, online website evine.com and mobile platforms. The Company's television shopping, online and mobile platforms have similar economic characteristics with respect to products, product sourcing, vendors, marketing and promotions, gross margins, customers, and methods of distribution. In addition, the Company believes that its television shopping program is a key driver of traffic to both the evine.com website and mobile applications whereby many of the online sales originate from customers viewing the Company's television program and then place their orders online or through mobile devices. All of the Company's sales are made to customers residing in the United States. The chief operating decision maker is the Chief Executive Officer of the Company. Information on net sales by significant product groups are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
April 30,
2016
|
|
May 2,
2015
|
Jewelry & Watches
|
|
$
|
64,174
|
|
|
$
|
65,809
|
|
Home & Consumer Electronics
|
|
35,646
|
|
|
37,110
|
|
Beauty
|
|
23,240
|
|
|
19,525
|
|
Fashion & Accessories
|
|
27,528
|
|
|
23,329
|
|
All other (primarily shipping & handling revenue)
|
|
16,332
|
|
|
12,678
|
|
Total
|
|
$
|
166,920
|
|
|
$
|
158,451
|
|
(10) Income Taxes
At
January 30, 2016
, the Company had federal net operating loss carryforwards ("NOLs") of approximately
$312 million
, and state NOLs of approximately
$200 million
which are available to offset future taxable income. The Company's federal NOLs expire in varying amounts each year from 2023 through 2035 in accordance with applicable federal tax regulations and the timing of when the NOLs were incurred.
In the first quarter of fiscal 2011, the Company had a change in ownership (as defined in Section 382 of the Internal Revenue Code) as a result of the issuance of common stock coupled with the redemption of all the Series B Preferred Stock held by GE
Equity. Sections 382 and 383 limit the annual utilization of certain tax attributes, including NOL carryforwards, incurred prior to a change in ownership. Currently, the limitations imposed by Sections 382 and 383 are not expected to impair the Company's ability to fully realize its NOLs; however, the annual usage of NOLs incurred prior to the change in ownership is limited. In addition, if the Company were to experience another ownership change, as defined by Sections 382 and 383, its ability to utilize its NOL's could be further substantially limited and depending on the severity of the annual NOL limitation, the Company could permanently lose its ability to use a significant amount of its accumulated NOL's. The Company currently has recorded a full valuation allowance for its net deferred tax assets. The ultimate realization of these deferred tax assets and related limitations depend on the ability of the Company to generate sufficient taxable income in the future, as well as the timing of such income.
For the
first
quarters of
fiscal 2016
and
fiscal 2015
, the income tax provision included a non-cash tax charge of approximately
$197,000
, relating to changes in the Company's long-term deferred tax liability related to the tax amortization of the Company's indefinite-lived intangible FCC license asset that is not available to offset existing deferred tax assets in determining changes to our income tax valuation allowance. The Company expects the continued tax amortization of its indefinite-lived intangible asset and resulting book versus tax asset carrying value difference to result in approximately
$591,000
of additional non-cash income tax expense over the remainder of
fiscal 2016
.
Shareholder Rights Plan
During the second quarter of fiscal 2015, the Company adopted a Shareholder Rights Plan to preserve the value of certain deferred tax benefits, including those generated by net operating losses. On July 10, 2015, the Company declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of the Company’s common stock to shareholders of record as of the close of business on July 23, 2015 and issuable as of that date, and on July 13, 2015, the Company entered into a Shareholder Rights Plan (the “Plan”) with Wells Fargo Bank, N.A., a national banking association, with respect to the Rights. Except in certain circumstances set forth in the Plan, each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock,
$0.01
par value, of the Company (“Preferred Stock” and each one one-thousandth of a share of Preferred Stock, a “Unit”) at a price of
$9.00
per Unit.
The Rights initially trade together with the common stock and are not exercisable. Subject to certain exceptions specified in the Plan, the Rights will separate from the common stock and become exercisable following (i) the tenth calendar day after a public announcement or filing that a person or group has become an “Acquiring Person,” which is defined as a person who has acquired, or obtained the right to acquire, beneficial ownership of
4.99%
or more of the common stock then outstanding, subject to certain exceptions, or (ii) the tenth calendar day (or such later date as may be determined by the board of directors) after any person or group commences a tender or exchange offer, the consummation of which would result in a person or group becoming an Acquiring Person. If a person or group becomes an Acquiring Person, each Right will entitle its holders (other than such Acquiring Person) to purchase one Unit at a price of
$9.00
per Unit. A Unit is intended to give the shareholder approximately the same dividend, voting and liquidation rights as would one share of Common Stock, and should approximate the value of one share of Common Stock. At any time after a person becomes an Acquiring Person, the board of directors may exchange all or part of the outstanding Rights (other than those held by an Acquiring Person) for shares of common stock at an exchange rate of one share of common stock (and, in certain circumstances, a Unit) for each Right. The Company will promptly give public notice of any exchange (although failure to give notice will not affect the validity of the exchange).
The Rights will expire upon certain events described in the Plan, including the close of business on the earlier of the first anniversary of the date of the Plan or the date of the Company’s 2016 annual meeting of shareholders, if the Plan has not been approved by the Company’s shareholders, or the close of business on the date of the third annual meeting of shareholders following the last annual meeting of shareholders of the Company at which the Plan was most recently approved by shareholders, unless the Plan is re-approved by shareholders at that third annual meeting of shareholders. However, in no event will the Plan expire later than the close of business on July 13, 2025. Until the close of business on the tenth calendar day after the day a public announcement or a filing is made indicating that a person or group has become an Acquiring Person, the Company may in its sole and absolute discretion amend the Rights or the Plan agreement without the approval of any holders of the Rights or shares of common stock in any manner, including without limitation, amendments that increase or decrease the purchase price or redemption price or accelerate or extend the final expiration date or the period in which the Rights may be redeemed. The Company may also amend the Plan after the close of business on the tenth calendar day after the day such public announcement or filing is made to cure ambiguities, to correct defective or inconsistent provisions, to shorten or lengthen time periods under the Plan or in any other manner that does not adversely affect the interests of holders of the Rights. No amendment of the Plan may extend its expiration date.
(11) Litigation
The Company is involved from time to time in various claims and lawsuits in the ordinary course of business. In the opinion of management, the claims and suits individually and in the aggregate will not have a material effect on the Company’s operations or consolidated financial statements.
(12) Related Party Transactions
Relationship with GE Equity, Comcast and NBCU
Until April 29, 2016 the Company was a party to an amended and restated shareholder agreement, dated February 25, 2009 (the “GE/NBCU Shareholder Agreement”), with GE Capital Equity Investments, Inc. (“GE Equity”) and NBCUniversal Media, LLC (“NBCU”), which provided for certain corporate governance and standstill matters (as described further below). NBCU is an indirect subsidiary of Comcast Corporation (“Comcast”). The Company believes that as of April 30, 2016, the direct equity ownership of NBCU in the Company consists of
7,141,849
shares of common stock, or approximately
12.5%
of the Company’s outstanding common stock. The Company has a significant cable distribution agreement with Comcast and believe that the terms of the agreement are comparable to those with other cable system operators.
In an SEC filing made on August 18, 2015, GE Equity disclosed that on August 14, 2015, it and ASF Radio, L.P. (“ASF Radio”), an independent third party to us, entered into a Stock Purchase Agreement pursuant to which GE Equity agreed to sell
3,545,049
shares of the Company’s common stock, which is all of the shares GE Equity currently owns, to ASF Radio for
$2.15
per share. According to the SEC filing, ASF Radio is an affiliate of Ardian, an independent private equity investment company. The closing of this sale (the “GE/ASF Radio Sale”) occurred on April 29, 2016. In connection with the GE/ASF Radio Sale, the GE/NBCU Shareholder Agreement was terminated and the Company and NBCU entered into a new Shareholder Agreement (the “NBCU Shareholder Agreement”) described below.
GE/NBCU Shareholder Agreement
The GE/NBCU Shareholder Agreement that was terminated April 29, 2016 provided that GE Equity was entitled to designate nominees for
three
members of our Board of Directors so long as the aggregate beneficial ownership of GE Equity and NBCU (and their affiliates) was at least equal to
50%
of their beneficial ownership as of February 25, 2009 (i.e., beneficial ownership of approximately
8.7 million
common shares) (the “
50%
Ownership Condition”), and
two
members of our Board of Directors so long as their aggregate beneficial ownership was at least
10%
of the shares of “adjusted outstanding common stock,” as defined in the GE/NBCU Shareholder Agreement (the “
10%
Ownership Condition”). In addition, the GE/NBCU Shareholder Agreement provided that GE Equity may designate any of its director-designees to be an observer of the audit, human resources and compensation, and corporate governance and nominating committees of our Board of Directors. Neither GE Equity nor NBCU currently has, or during fiscal 2015 had, any designees serving on our Board of Directors or committees.
The GE/NBCU Shareholder Agreement required that the Company obtain the consent of GE Equity before the Company (i) exceeded certain thresholds relating to the issuance of securities, the payment of dividends, the repurchase or redemption of common stock, acquisitions (including investments and joint ventures) or dispositions, and the incurrence of debt; (ii) entered into any business different than the business in which the Company and our subsidiaries are currently engaged; and (iii) amended our articles of incorporation to adversely affect GE Equity and NBCU (or their affiliates); provided, however, that these restrictions would no longer apply when both (1) GE Equity is no longer entitled to designate
three
director nominees, and (2) GE Equity and NBCU no longer hold any Series B preferred stock. The Company was also prohibited from taking any action that would cause any ownership interest by us in television broadcast stations from being attributable to GE Equity, NBCU or their affiliates.
NBCU Shareholder Agreement
On April 29, 2016, the Company entered into the NBCU Shareholder Agreement with NBCU. The NBCU Shareholder Agreement replaced the GE/NBCU Shareholder Agreement. The NBCU Shareholder Agreement provides that as long as NBCU or its affiliates beneficially own at least
5%
of our outstanding common stock, NBCU will be entitled to designate
one
individual to be nominated to the Company’s Board of Directors. In addition, the NBCU Shareholder Agreement provides that NBCU may designate its director designee to be an observer of the audit, human resources and compensation, and corporate governance and nominating committees of our Board of Directors. In addition, the NBCU Shareholder Agreement requires the Company to obtain the consent of NBCU prior to our adoption or amendment of any shareholder’s rights plan or certain other actions that would impede or restrict the ability of NBCU to acquire our voting stock or our taking any action that would result in NBCU being deemed to be in violation of the Federal Communications Commission multiple ownership regulations.
Unless NBCU beneficially own less than
5%
or more than
90%
of the adjusted outstanding shares of common stock, NBCU may not sell, transfer or otherwise dispose of any securities of the Company subject to limited exceptions for (i) transfers to affiliates, (ii) third party tender offers, (iii) mergers, consolidations and reorganizations and (iv) transfers pursuant to underwritten public offerings or transfers exempt from registration under the Securities Act (provided, in the case of (iv), such transfers do not result in the transferee acquiring beneficial ownership in excess of
20%
).
Registration Rights Agreement
On February 25, 2009, the Company entered into an amended and restated registration rights agreement that, as further amended, provided GE Equity, NBCU and their affiliates and any transferees and assigns, an aggregate of five demand registrations and unlimited piggy-back registration rights. In connection with the GE/ASF Radio Sale, an amendment to the Amended and Restated Registration Rights Agreement was entered into removing GE Equity as a party and adding ASF Radio, L.P. as a party.
2015 Letter Agreement with GE Equity
On July 9, 2015, the Company entered into a letter agreement with GE Equity pursuant to which GE Equity consented to our adoption of a Shareholder Rights Plan in consideration for our agreement to provide GE Equity, NBCU and certain of their respective affiliates with exemptions from the Shareholder Rights Plan. GE Equity’s consent was required pursuant to the terms of the GE/NBCU Shareholder Agreement. This discussion is a summary of the terms of the letter agreement. In the letter agreement, the Company agreed that if any of GE Equity, NBCU or any of their respective affiliates that holds shares of our common stock from time to time (each a “Grandfathered Investor”) sells or otherwise transfers shares of our common stock currently owned by such Grandfathered Investor to any third party identified to us in writing (any such third party, an “Exempt Purchaser”), the Company will take all actions necessary under the Shareholder Rights Plan so that such third party will not be deemed an Acquiring Person (as defined in the Shareholder Rights Plan) by virtue of the acquisition of such shares. The Company further agreed that, subject to certain limitations, upon request of any Grandfathered Investor or Exempt Purchaser, and in connection with a transfer by such Grandfathered Investor or Exempt Purchaser of shares of our common stock to an Exempt Purchaser, the Company will enter into an agreement with the acquiring Exempt Purchaser granting such acquiring Exempt Purchaser substantially the same rights as set forth above with respect to any sale of our outstanding shares of common stock to any other third party. Additionally, the Company agreed that without the consent of any Grandfathered Investor that is an affiliate of GE Equity and any Grandfathered Investor that is an affiliate of NBCU, the Company will not (i) amend the Shareholder Rights Plan in any material respect, other than to accelerate the Expiration Date or the Final Expiration Date, (ii) adopt another shareholders’ rights plan or (iii) amend the letter agreement.
Director Relationships
The Company entered into a service agreement with Newgistics, Inc. ("Newgistics") in fiscal 2004. Newgistics provides offsite customer returns consolidation and delivery services to the Company. The Company's interim Chief Executive Officer, Robert Rosenblatt, is a member of Newgistics Board of Directors. The Company made payments to Newgistics totaling approximately
$1,465,000
and
$1,310,000
during the three-month periods ended April 30, 2016 and May 2, 2015, respectively.
One of the Company's directors, Thomas Beers, has a minority interest in one of the Company's on air food suppliers. The Company made inventory payments, to this supplier, totaling
$869,000
and
$83,000
during the three-month periods ended April 30, 2016 and May 2, 2015, respectively.
(13) Distribution Facility Expansion, Consolidation & Technology Upgrade
During fiscal 2014, the Company began a significant operational expansion initiative with respect to overall warehousing capacity and new equipment and system technology upgrades at our Bowling Green, Kentucky distribution facility. During the first quarter of fiscal 2015 the new building was substantially completed and expanded our
262,000
square foot facility to an approximately
600,000
square foot facility. Subsequently, during the second quarter of fiscal 2015, the Company finished the building expansion and moved out of its leased satellite warehouse space. The updated facilities and technology upgrade will include a new high-speed parcel shipping and item sortation system coupled with a new warehouse management system to support our increased level of shipments and units and a new call center facility to better serve our customers. The new sortation and warehouse management systems are expected to be phased into production through the first half of fiscal 2016. Total cost of the physical building expansion, new sortation equipment and call center facility was approximately
$25 million
and is being financed with our expanded PNC revolving line of credit and a
$15 million
PNC term loan.
As a result of our distribution facility expansion, consolidation and technology upgrade initiative, we incurred approximately
$80,000
in incremental expenses during the first quarter of fiscal 2016, relating primarily to increased labor and training costs associated with our warehouse management system migration.
(14) Executive and Management Transition Costs
On February 8, 2016, the Company announced the resignation of two executive officers, namely its Chief Executive Officer, and its Executive Vice President - Chief Strategy Officer & Interim General Counsel. In addition, on March 23, 2016, the Company also announced additional actions taken to reduce corporate overhead and other operating costs. In conjunction with these executive changes as well as other executive and management terminations made during the first three months of fiscal 2016, the Company recorded charges to income totaling
$3,601,000
for the three months ended April 30, 2016, which relate primarily to severance payments to be made as a result of the executive officer terminations and other direct costs associated with the Company's 2016 executive and management transition.
On March 26, 2015, the Company announced the termination and departure of three executive officers, namely its Chief Financial Officer, its Senior Vice President and General Counsel, and President. In addition, during the first quarter of fiscal 2015, the Company also announced the hiring of a new Chief Financial Officer and a new Chief Merchandising Officer. In conjunction with these executive changes as well as other management terminations made during the first three months of fiscal 2015, the Company recorded charges to income of
$2,590,000
for the three months ended May 2, 2015, which relate primarily to severance payments to be made as a result of the executive officer resignations, management terminations and other direct costs associated with the Company's 2015 executive and management transition.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes included herein and the audited consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended
January 30, 2016
.
Cautionary Statement Regarding Forward-Looking Statements
The following Management's Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with the Securities and Exchange Commission (the "SEC") (as well as information included in oral statements or other written statements made or to be made by us) contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as anticipate, believe, estimate, expect, intend, predict, hope, should, plan, will or similar expressions. Any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. These statements are based on management's current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; seasonal variations in consumer purchasing activities; the ability to achieve the most effective product category mixes to maximize sales and margin objectives; competitive pressures on sales; pricing and gross sales margins; the level of cable and satellite distribution for our programming and the associated fees or estimated cost savings from contract renegotiations; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties with whom we have contractual relationships, and to successfully manage key vendor relationships and develop key partnerships and proprietary brands; our ability to manage our operating expenses successfully and our working capital levels; our ability to remain compliant with our credit facilities covenants; customer acceptance of our branding strategy and our repositioning as a digital commerce company; the market demand for television station sales; changes to our management and information systems infrastructure; challenges to our data and information security; changes in governmental or regulatory requirements; including without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings; litigation or governmental proceedings affecting our operations; significant public events that are difficult to predict, or other significant television-covering events causing an interruption of television coverage or that directly compete with the viewership of our programming; our ability to obtain and retain key executives and employees; our ability to attract new customers and retain existing customers; changes in shipping costs; our ability to offer new or innovative products and customer acceptance of the same; changes in customer viewing habits or television programming; and the risks identified under "Risk Factors" in our recently filed Form 10-K and any additional risk factors identified in our periodic reports since the date of such report. More detailed information about those factors is set forth in our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Our Company
We are a digital commerce company that offers a mix of proprietary, exclusive and name brands directly to consumers in an engaging and informative shopping experience through TV, online and mobile devices. We operate a 24-hour television shopping network, EVINE Live, which is distributed primarily on cable and satellite systems, through which we offer proprietary, exclusive and name brand merchandise in the categories of jewelry & watches; home & consumer electronics; beauty; and fashion & accessories. We also operate evine.com, a comprehensive digital commerce platform that sells products which appear on our television shopping network as well as an extended assortment of online-only merchandise. Our programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.
Our investor relations website address is evine.com/ir. Our goal is to maintain the investor relations website as a way for investors to find information about us easily, including press releases, announcements of investor conferences, investor and analyst presentations and corporate governance. We also make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all amendments to these filings as soon as practicable after that material is electronically filed with or furnished to the SEC. The information found on our website is not part of this or any other report we file with, or furnish to, the SEC.
Corporate Name and Branding
On November 18, 2014, we announced that we had changed our corporate name to EVINE Live Inc. from ValueVision Media, Inc. Effective November 20, 2014, our NASDAQ trading symbol also changed to EVLV from VVTV. We transitioned from doing business as "ShopHQ" to "EVINE Live" and evine.com on February 14, 2015.
Products and Customers
Products sold on our media channel platforms include jewelry & watches, home & consumer electronics, beauty, and fashion & accessories. Historically jewelry & watches has been our largest merchandise category. While changes in our product mix have occurred as a result of customer demand and other factors including our efforts to diversify our offerings within our major merchandise categories, jewelry & watches remained our largest merchandise category in the first quarter of fiscal 2016. We are focused on diversifying our merchandise assortment both among our existing product categories as well as with potentially new product categories, including proprietary, exclusive and name brands, in an effort to increase revenues and to grow our new and active customer base. The following table shows our merchandise mix as a percentage of television shopping and online net merchandise sales for the three month periods indicated by product category group.
|
|
|
|
|
|
|
|
For the Three-Month
|
|
|
Periods Ended
|
|
|
April 30,
2016
|
|
May 2,
2015
|
Merchandise Category
|
|
|
|
|
Jewelry & Watches
|
|
43%
|
|
45%
|
Home & Consumer Electronics
|
|
24%
|
|
26%
|
Beauty
|
|
15%
|
|
13%
|
Fashion & Accessories
|
|
18%
|
|
16%
|
Total
|
|
100%
|
|
100%
|
Our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand, as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute. Our digital commerce customers — those who interact with our network and transact through TV, online and mobile device — are primarily women between the ages of 40 and 70. We also have a strong presence of male customers of similar age. We believe our customers make purchases based on our unique products, quality merchandise and value.
Company Strategy
As a digital commerce company, our strategy includes offering exciting proprietary, exclusive and name brand merchandise using online, mobile, social media and our commerce infrastructure, which includes television access to approximately
88 million
cable and satellite homes in the United States. We believe our greatest growth opportunity lies in leveraging these digital commerce platforms in a way that engages customers far more often than just when they are in the mood to shop.
By investing in new brands and offering a more diverse assortment of proprietary, exclusive (i.e., brands that are not readily available elsewhere) and name brand merchandise, presented in an engaging, entertaining, shopping-centric format, we believe
we will attract a larger customer base targeting a broader demographic. At the root of our efforts to attract a larger customer base is a focus on expanding and strengthening our relationships with the brands, personalities and vendors with whom we do business.
In addition to offering our customers a more diverse assortment of proprietary, exclusive and name brand merchandise, we are focusing on increasing awareness of the EVINE Live brand while at the same time augmenting our distribution footprint, with the goal of expanding our customer base. Properly executed, we believe these initiatives may provide us a greater opportunity to grow our top and bottom lines in a more meaningful and competitive way.
Priorities for fiscal 2016 that we believe will ultimately drive sustainable profitability are: improving our discipline around offering the most popular and profitable merchandise mix that our customers prefer; careful attention to gross profit and our cost structure; capitalizing on our expertise in video-based ecommerce; sensibly broadening our distribution base; improving channel adjacencies and placement; exploiting new technologies in mobile and logistics; increasing customer penetration, improving customer and partner relationship management; process improvements; brand building and delivering value to our customers and business partners. We believe that our new brand identity coupled with a fresh focus on existing as well as emerging platforms and technologies and the development of proprietary and exclusive brands along with an improved program distribution footprint will begin repositioning our Company as a digital commerce company that delivers a more engaging and enjoyable customer experience with sales and service that exceed expectations.
Our Competition
The digital commerce retail business is highly competitive and we are in direct competition with numerous retailers, including online retailers, many of whom are larger, better financed and have a broader customer base than we do. In our television shopping and digital commerce operations, we compete for customers with other television shopping and e-commerce retailers, infomercial companies, other types of consumer retail businesses, including traditional "brick and mortar" department stores, discount stores, warehouse stores and specialty stores; catalog and mail order retailers and other direct sellers.
Our direct competitors within the television shopping industry include QVC (owned by Liberty Interactive Corporation), and HSN, Inc. (in whom Liberty Interactive Corporation also has a substantial interest, according to public filings), both of whom are substantially larger than we are in terms of annual revenues and customers, and whose programming is carried more broadly to U.S. households, including High Definition bands and multi-channel carriage, than our programming. Multimedia Commerce Group, Inc., which operates Jewelry Television, also competes with us for customers in the jewelry category. Furthermore, on March 8, 2016, Amazon announced the premiere of a live television program,
Style Code Live
, which features products that viewers can order online. This program, and any additional similar programs that Amazon may offer in the future, may compete with us. In addition, there are a number of smaller niche players and startups in the television shopping arena who compete with us. We believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than we do, and that their fee arrangements are substantially on a commission basis (in some cases with minimum guarantees) rather than on the predominantly fixed-cost basis that we currently have. At our current sales level, our distribution costs as a percentage of total consolidated net sales are higher than those of our competition. However, one of our strategies is to maintain our fixed distribution cost structure in order to leverage our profitability.
We anticipate continued competition for viewers and customers, for experienced television shopping and e-commerce personnel, for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television shopping companies, but also from other companies that seek to enter the television shopping and online retail industries, including telecommunications and cable companies, television networks, and other established retailers. We believe that our ability to be successful in the digital commerce industry will be dependent on a number of key factors, including continuing to expand our digital footprint to meet our customers' "watch and shop anytime, anywhere" needs, increasing the number of customers who purchase products from us and increasing the dollar value of sales per customer from our existing customer base.
Summary Results for the
First
Quarter of
Fiscal 2016
Consolidated net sales for our
fiscal 2016
first
quarter were approximately
$166.9 million
compared to
$158.5 million
for our
fiscal 2015
first
quarter, which represents a
5%
increase. We reported an operating loss of approximately
$3.5 million
and a net loss of
$4.9 million
for our
fiscal 2016
first
quarter. The operating and net loss for the
fiscal 2016
first
quarter included charges relating to executive and management transition costs totaling
$3.6 million
and distribution facility consolidation and technology upgrade costs totaling
$80,000
. We had an operating loss of
$3.9 million
and a net loss of
$4.7 million
for our
fiscal 2015
first
quarter. The operating and net loss for the
fiscal 2015
first
quarter included charges relating to executive and management transition costs totaling
$2.6 million
.
GACP Credit Agreement & PNC Credit Facility Amendment
On March 10, 2016, the Company entered into a five-year term loan credit and security agreement (the "GACP Credit Agreement") with GACP Finance Co., LLC ("GACP") for a term loan of $17 million. Proceeds from the term loan under the
GACP Credit Agreement (the "GACP Term Loan") are being used to provide for working capital and for general corporate purposes of the Company. The GACP Credit Agreement matures on March 9, 2021. The GACP Term Loan bears interest at a fixed rate based on the greater of LIBOR for interest periods of one, two or three months or 1% plus a margin of 11.0%. On the same day, we entered into the sixth amendment to the PNC Credit Facility authorizing the Company to enter into the GACP Credit Agreement.
Executive and Management Transition Costs
On February 8, 2016, we announced the termination and departure of two executive officers, namely our Chief Executive Officer, and our Executive Vice President - Chief Strategy Officer & Interim General Counsel. In addition, on March 23, 2016, we also announced additional actions taken to reduce overhead and other operating costs. In conjunction with these executive changes as well as other executive and management terminations made during the first three months of fiscal 2016, we recorded charges to income of
$3.6 million
for the three months ended April 30, 2016, which relate primarily to severance payments to be made as a result of the executive officer terminations and other direct costs associated with our 2016 executive and management transition.
On March 26, 2015, we announced the termination and departure of three executive officers, namely our Chief Financial Officer, our Senior Vice President and General Counsel, and President. In addition, during the first quarter of fiscal 2015, we also announced the hiring of a new Chief Financial Officer and a new Chief Merchandising Officer. In conjunction with these executive changes as well as other management terminations made during the first three months of fiscal 2015, we recorded charges to income of
$2.6 million
for the three months ended May 2, 2015, which related primarily to severance payments to be made as a result of the executive officer terminations and other direct costs associated with our 2015 executive and management transition.
Distribution Facility Expansion, Consolidation and Technology Upgrade Costs
During fiscal 2014, we began a significant operational expansion initiative with respect to overall warehousing capacity and new equipment and system technology upgrades at our Bowling Green, Kentucky distribution facility. During the first quarter of fiscal 2015 the new building was substantially completed and we expanded our
262,000
square foot facility to an approximately
600,000
square foot facility. Subsequently, during the second quarter of fiscal 2015, we finished the building expansion and moved out of our expired leased satellite warehouse space. The updated facilities and technology upgrade includes a new high-speed parcel shipping and item sortation system coupled with a new warehouse management system to support our increased level of shipments and units and a new call center facility to better serve our customers. The new sortation and warehouse management systems are expected to be phased into production through the first half of fiscal 2016. The total cost of the physical building expansion, new sortation equipment and call center facility was approximately
$25 million
and was financed with our expanded PNC revolving line of credit and a
$15 million
PNC term loan.
As a result of our distribution facility expansion, consolidation and technology upgrade initiative, we incurred approximately $80,000 in incremental expenses during the first quarter of fiscal 2016, relating primarily to increased labor and training costs associated with our warehouse management system migration.
Results of Operations
Selected Condensed Consolidated Financial Data
Operations
|
|
|
|
|
|
|
|
Dollar Amount as a
Percentage of Net Sales for the
|
|
|
Three-Month Periods Ended
|
|
|
April 30,
2016
|
|
May 2,
2015
|
Net sales
|
|
100.0%
|
|
100.0%
|
|
|
|
|
|
Gross margin
|
|
36.8%
|
|
36.2%
|
Operating expenses:
|
|
|
|
|
Distribution and selling
|
|
32.0%
|
|
32.1%
|
General and administrative
|
|
3.5%
|
|
3.6%
|
Depreciation and amortization
|
|
1.2%
|
|
1.3%
|
Executive and management transition costs
|
|
2.2%
|
|
1.6%
|
Distribution facility consolidation and technology upgrade costs
|
|
—%
|
|
—%
|
|
|
38.9%
|
|
38.6%
|
Operating loss
|
|
(2.1)%
|
|
(2.4)%
|
Key Performance Metrics
|
|
|
|
|
|
|
|
For the Three-Month
|
|
Periods Ended
|
|
April 30,
2016
|
|
May 2,
2015
|
|
Change
|
Program Distribution
|
|
|
|
|
|
Total homes (average 000's)
|
87,851
|
|
88,303
|
|
(1)%
|
Merchandise Metrics
|
|
|
|
|
|
Gross margin %
|
36.8%
|
|
36.2%
|
|
60 bps
|
Net shipped units (000's)
|
2,417
|
|
2,230
|
|
8%
|
Average selling price
|
$62
|
|
$65
|
|
(5)%
|
Return rate
|
19.2%
|
|
20.3%
|
|
(110) bps
|
Online net sales % (a)
|
48.8%
|
|
45.2%
|
|
360 bps
|
Total Customers - 12 Month Rolling (000's)
|
1,441
|
|
1,437
|
|
0.3%
|
(a) Online net sales percentage is calculated based on net sales that are generated from our evine.com website and mobile platforms, which are primarily ordered directly online.
Program Distribution
Average homes reached, or full time equivalent ("FTE") subscribers, decreased
1%
in the
first
quarter of
fiscal 2016
over the comparable prior year quarter, resulting in a
452,000
decrease in average homes reached during that same period primarily related to certain telco platforms, offset with slight increases in our traditional cable carriers. We believe that our distribution strategy of pursuing additional channels in productive homes we are already in is a more balanced approach compared to our historical focus on just securing new untested homes. We continue to increase the number of channels on existing distribution platforms, alternative distribution methods and part-time carriage in strategic markets. This multi-platform distribution approach, complimented by our strong mobile and online efforts, will ensure that EVINE Live is available wherever and whenever our customers choose to shop.
In addition, we have made low-cost infrastructure investments that have enabled us to launch an up-converted version of our digital signal in a high definition ("HD") format and that improved the appearance of our primary network feed. We believe that having an HD feed of our service allows us to attract new viewers and customers. Our television home shopping programming is also simulcast 24 hours a day, 7 days a week on our online website, evine.com, and is also available on all mobile channels, which are not included in the foregoing data on homes reached.
Cable and Satellite Distribution Agreements
We have entered into distribution agreements with cable operators, direct-to-home satellite providers and telecommunications companies to distribute our television network over their systems. The terms of the affiliation agreements typically range from
one
to
five
years. During the fiscal year, certain agreements with cable, satellite or other distributors may expire. Under certain circumstances, the cable operators or we may cancel the agreements prior to their expiration. Additionally, we may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins. If the operator drops our service or if either we or the operator fails to reach mutually agreeable business terms concerning the distribution of our service so that the agreements are terminated, our business may be materially adversely affected. Failure to maintain our distribution agreements covering a material portion of our existing households on acceptable financial and other terms could materially and adversely affect our future growth, sales revenues and earnings unless we are able to arrange for alternative means of broadly distributing our television programming.
As of
April 30, 2016
, we believe the direct ownership of NBCU (which is indirectly owned by Comcast) in the Company consisted of
7,141,849
shares of common stock. The Company has a significant cable distribution agreement with Comcast and believes that the terms of this agreement are comparable to those with other cable system operators.
Net Shipped Units
The number of net shipped units (shipped units less units returned) during the
fiscal 2016
first
quarter increased
8%
from the prior year comparable quarter to approximately
2.4 million
from
2.2 million
. We believe the increase in net shipped units during the first quarter of
fiscal 2016
reflects the continued broadening of our merchandising assortment, driven by strong performance in our fashion & accessories and beauty product categories. Net shipped units also increased during fiscal 2016 due to a decline in our average selling price (as discussed below).
Average Selling Price
The average selling price ("ASP") per net unit was
$62
in the
fiscal 2016
first
quarter, a
5%
decrease from the prior year quarter. The decrease in the ASP was primarily driven by strong sales growth within our fashion & accessories and beauty product categories, which typically have lower average selling prices. These ASP decreases contributed to our increase in net shipped units by
8%
for the
three months
ended
April 30, 2016
. Decreasing our ASP has been a key component in our customer acquisition efforts. We are, however, planning to adjust our merchandising mix to achieve a more ideal balance between ASP and gross margin productivity.
Return Rates
For the
three months ended April 30, 2016
, our return rate was
19.2%
compared to
20.3%
for the comparable prior year quarter, a 110 basis point decrease. The decrease in the return rate was driven primarily by rate decreases across all our merchandise categories. We believe that the decreases in the category return rates were driven by the decreases in ASP as described above, improved quality of merchandise and improvements in the execution of our returns policy. We continue to monitor our return rates in an effort to keep our overall return rates commensurate with our current product mix and our average selling price levels.
Total Customers
Total customers who have purchased over the last twelve months increased
0.3%
over prior year to approximately
1.4 million
. During the first quarter of fiscal 2016, our customer average purchasing frequency increased 6% over the prior year first quarter.
We believe the recent increase in total customers and purchase frequency is primarily due to continued broadening of our product assortment at lower price points, strong growth in our beauty and fashion & accessories product categories, as well as increases achieved in our customer retention.
Net Sales
Consolidated net sales for the
fiscal 2016
first
quarter were approximately
$166.9 million
as compared with
$158.5 million
for the comparable prior year quarter, a
5%
increase. The increase in quarterly consolidated net sales was driven primarily by strong growth in our fashion & accessories and beauty product categories and increased customer purchase frequency. These increases were offset by a net sales decrease in our home & consumer electronics and jewelry & watches categories as we continue to shift our airtime and product mix from home & consumer electronics to beauty and fashion & accessories. In addition, we also experienced an increase in shipping and handling revenue in the first quarter of fiscal 2016 compared to fiscal 2015 as a result of more disciplined shipping promotions during the quarter. Our online sales penetration, that is, the percentage of net sales that are generated from our evine.com website and mobile platforms, which are primarily ordered directly online, was
48.8%
compared to
45.2%
for the
first
quarter of
fiscal 2016
compared to
fiscal 2015
. Overall, we continue to deliver strong online sales penetration. We believe the increase in penetration during the period was driven by our recent digital marketing initiatives and the strong performance of online promotions. Our mobile penetration increased to 45.6% of total online orders in the
first
quarter of fiscal 2016, versus 39.6% of total online orders for the comparable prior year period.
Gross Profit
Gross profit for the
fiscal 2016
first
quarter and
fiscal 2015
first
quarter was approximately
$61.4 million
and
$57.3 million
, respectively, an increase of
$4.1 million
, or
7%
. The increase in gross profits experienced during the
first
quarter was primarily driven by higher gross margin percentages experienced and a 5% increase in net sales (as discussed above). Gross margin percentages for the
first
quarters of
fiscal 2016
and
fiscal 2015
were
36.8%
and
36.2%
, respectively, a 60 basis point increase. The increase in the
first
quarter gross margin percentages reflects increase margins due to a shift in product mix into fashion & accessories, and beauty, which have a higher margin percentages. Gross margin percentages have also increased as a result of higher shipping and handling margins achieved during the first quarter as a result of more disciplined shipping promotions.
Operating Expenses
Total operating expenses for the
fiscal 2016
first
quarter were approximately
$65.0 million
compared to
$61.2 million
for the comparable prior year period, an increase of
6%
. Total operating expenses as a percentage of net sales were
38.9%
, compared to
38.6%
during the
first
quarters of
fiscal 2016
and
fiscal 2015
, respectively. Total operating expenses for the
first
quarter includes executive and management transition costs of
$3.6 million
and distribution facility consolidation and technology upgrade costs of
$80,000
, while total operating expenses for the
first
quarter of fiscal 2015 includes executive and management transition costs of
$2.6 million
. Excluding executive and management transition costs and distribution facility consolidation and technology upgrade costs, total operating expenses as a percentage of net sales for the
first
quarters of
fiscal 2016
and
fiscal 2015
were
36.7%
and 37.0%.
Distribution and selling expense increased
$2.6 million
, or
5%
, to
$53.4 million
, or
32.0%
of net sales during the
fiscal 2016
first
quarter compared to
$50.8 million
, or
32.1%
of net sales for the comparable prior year fiscal quarter. Distribution and selling expense increased during the quarter due in part to increased program distribution expense of $618,000 relating the launch of EVINE Too and broadened HD carriage. The increase over the prior year quarter was also due to an increase in variable costs of $1.4 million and increased accrued incentive compensation of $955,000, partially offset by decreased share-based compensation expense of $96,000 and decreased rebranding expense of $176,000. The increase in variable costs was primarily driven by increased variable fulfillment and customer service salaries and wages of $846,000 and increased variable credit card processing fees and credit expenses of $598,000, partially offset by decreased Bowling Green rent expense of $162,000. Total variable expenses during the
first
quarter of
fiscal 2016
were approximately 10.0% of total net sales versus 9.7% of total net sales for the prior year comparable period. The increase in variable expenses as a percentage of net sales during the first quarter of fiscal 2016 was primarily due to an
8%
increase in net shipped units compared with a
5%
increase in consolidated net sales and the decline in our average selling price during the quarter.
To the extent that our average selling price continues to decline, our variable expense as a percentage of net sales could continue to increase as the number of our shipped units increase. Program distribution expense is primarily a fixed cost per household, however, this expense may be impacted by growth in the number of average homes or channels reached or by rate changes associated with improvements in our channel position.
General and administrative expense for the
fiscal 2016
first
quarter increased
$57,000
, or
1%
to approximately
$5.8 million
or
3.5%
of net sales, compared to
$5.7 million
or
3.6%
of net sales for the comparable prior year fiscal quarter. General and
administrative expense increased during the
first
quarter primarily driven by increased accrued incentive compensation of $459,000, partially offset by decreased share-based compensation expense of $275,000 and decreased rebranding expense of $115,000.
Depreciation and amortization expense for the
fiscal 2016
first
quarter was approximately
$2.1 million
compared to
$2.1 million
for the comparable prior year period, representing a decrease of
$24,000
or
1%
. Depreciation and amortization expense as a percentage of net sales for the three-month periods ended
April 30, 2016
and
May 2, 2015
was 1.2% and
1.3%
, respectively. The marginal decrease in the quarterly depreciation and amortization expense was primarily due to decreased depreciation expense of $37,000 as a result of a reduction in our non-fulfillment depreciable asset base year over year, partially offset by increased amortization expense related to the trademark and brand name intangible asset, "EVINE Live", of $12,000.
Operating Loss
For the
fiscal 2016
first
quarter, we reported an operating loss of approximately
$3.5 million
compared to an operating loss of
$3.9 million
for the
fiscal 2015
first
quarter, an operating loss reduction of
$393,000
. Our operating loss for the
first
quarter of
fiscal 2016
decreased primarily as a result of increased gross profit, offset by increases in distribution and selling, general and administrative, executive and management transition costs and distribution facility consolidation and technology upgrade costs (as noted above).
Net Loss
For the
fiscal 2016
first
quarter, we reported a net loss of approximately
$4.9 million
or
$0.09
per share on
57,181,155
weighted average basic common shares outstanding compared with a net loss of
$4.7 million
or
$0.08
per share on
56,640,767
weighted average basic common shares outstanding in the
fiscal 2015
first
quarter. Net loss for the
first
quarter of
fiscal 2016
includes executive and management transition costs of
$3.6 million
, distribution facility consolidation and technology upgrade costs of
$80,000
, and interest expense of $1.2 million, offset by interest income totaling $2,000 earned on our cash. Net loss for the
first
quarter of fiscal 2015 includes executive and management transition costs of $2.6 million and interest expense of $598,000, offset by interest income totaling $2,000.
For the
first
quarter of
fiscal 2016
, net loss reflects an income tax provision of
$205,000
. The
fiscal 2016
first
quarter tax provision included a non-cash expense charge of approximately
$197,000
, relating to changes in our long-term deferred tax liability related to the tax amortization of our indefinite-lived intangible FCC license asset that is not available to offset existing deferred tax assets in determining changes to our income tax valuation allowance. As we continue to amortize the carrying value of our indefinite-lived intangible asset for tax purposes, we expect to record additional non-cash income tax expense of approximately
$591,000
over the remainder of
fiscal 2016
.
For the
first
quarter of
fiscal 2015
, net loss reflects an income tax provision of
$205,000
, which included a non-cash tax expense charge of $197,000, relating to changes in our long-term deferred tax liability related to the tax amortization of our indefinite-lived intangible FCC license asset as discussed above.
We have not recorded any income tax benefit on previously recorded net losses due to the uncertainty of realizing income tax benefits in the future as indicated by our recording of an income tax valuation allowance. Based on our recent history of losses, a full valuation allowance has been recorded and was calculated in accordance with GAAP, which places primary importance on our most recent operating results when assessing the need for a valuation allowance. We will continue to maintain a valuation allowance against our net deferred tax assets, including those related to net operating loss carry-forwards, until we believe it is more likely than not that these assets will be realized in the future.
Adjusted EBITDA Reconciliation
Adjusted EBITDA (as defined below) for the
fiscal 2016
first
quarter was
$3.4 million
compared with Adjusted EBITDA of
$1.6 million
for the
fiscal 2015
first
quarter.
A reconciliation of Adjusted EBITDA to its comparable GAAP measurement, net loss, follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month
|
|
|
Periods Ended
|
|
|
April 30,
2016
|
|
May 2,
2015
|
Adjusted EBITDA (a)
|
|
$
|
3,425
|
|
|
$
|
1,579
|
|
Less:
|
|
|
|
|
Executive and management transition costs
|
|
(3,601
|
)
|
|
(2,590
|
)
|
Distribution facility consolidation and technology upgrade costs
|
|
(80
|
)
|
|
—
|
|
Non-cash share-based compensation expense
|
|
(237
|
)
|
|
(609
|
)
|
EBITDA (as defined)
|
|
(493
|
)
|
|
(1,620
|
)
|
A reconciliation of EBITDA to net loss is as follows:
|
|
|
|
|
EBITDA (as defined)
|
|
(493
|
)
|
|
(1,620
|
)
|
Adjustments:
|
|
|
|
|
Depreciation and amortization
|
|
(3,041
|
)
|
|
(2,307
|
)
|
Interest income
|
|
2
|
|
|
2
|
|
Interest expense
|
|
(1,205
|
)
|
|
(598
|
)
|
Income taxes
|
|
(205
|
)
|
|
(205
|
)
|
Net loss
|
|
$
|
(4,942
|
)
|
|
$
|
(4,728
|
)
|
(a) EBITDA as defined for this statistical presentation represents net loss for the respective periods excluding depreciation and amortization expense, interest income (expense) and income taxes. We define Adjusted EBITDA as EBITDA excluding non-operating gains (losses), executive and management transition costs, distribution facility consolidation and technology upgrade costs and non-cash share-based compensation expense.
We have included the term "Adjusted EBITDA" in our EBITDA reconciliation in order to adequately assess the operating performance of our television and online businesses and in order to maintain comparability to our analyst’s coverage and financial guidance, when given. Management believes that Adjusted EBITDA allows investors to make a more meaningful comparison between our core business operating results over different periods of time with those of other similar companies. In addition, management uses Adjusted EBITDA as a metric measure to evaluate operating performance under our management and executive incentive compensation programs. Adjusted EBITDA should not be construed as an alternative to operating income, net income or to cash flows from operating activities as determined in accordance with GAAP and should not be construed as a measure of liquidity. Adjusted EBITDA may not be comparable to the same or similarly entitled measures reported by other companies.
Seasonality
Our business is subject to seasonal fluctuation, with the highest sales activity normally occurring during our fourth fiscal quarter of the year, namely November through January. Our business is also sensitive to general economic conditions and business conditions affecting consumer spending. Additionally, our television audience (and therefore sales revenue) can be significantly impacted by major world or domestic events which attract television viewership and divert audience attention away from our programming.
Critical Accounting Policies and Estimates
A discussion of the critical accounting policies related to accounting estimates and assumptions are discussed in detail in our
fiscal 2015
annual report on Form 10-K under the caption entitled "Critical Accounting Policies and Estimates."
Recently Issued Accounting Pronouncements
See Note 2 of Notes to Condensed Consolidated Financial Statements.
Financial Condition, Liquidity and Capital Resources
As of
April 30, 2016
, we had cash of
$32.7 million
and had restricted cash and investments of
$450,000
. Our restricted cash and investments are generally restricted for a period ranging from 30-60 days. In addition, under the PNC Credit Facility and
GACP Credit Agreement, we are required to maintain a minimum of
$10 million
of unrestricted cash and unused line availability at all times. As our unused line availability is greater than
$10 million
at
April 30, 2016
, no additional cash is required to be restricted. As of
January 30, 2016
, we had cash of
$11.9 million
and had restricted cash and investments of
$450,000
. For the first three months of fiscal 2016, working capital increased
$10.9 million
to
$94.6 million
. Our current ratio (our total current assets over total current liabilities) was
1.9
at
April 30, 2016
and
1.7
at
January 30, 2016
.
Sources of Liquidity
Our principal source of liquidity is our available cash of
$32.7 million
as of
April 30, 2016
, which was held in bank depository accounts primarily for the preservation of cash liquidity.
PNC Credit Facility
On February 9, 2012, we entered into a credit and security agreement (as amended on March 10, 2016, the "PNC Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent. The PNC Credit Facility, which includes The Private Bank as part of the facility, provides a revolving line of credit of
$90.0 million
and provides for a
$15.0 million
term loan on which we have drawn to fund improvements at our distribution facility in Bowling Green, Kentucky. The PNC Credit Facility also provides for an accordion feature that would allow us to expand the size of the revolving line of credit by an additional
$25.0 million
at the discretion of the lenders and upon certain conditions being met.
All borrowings under the PNC Credit Facility mature and are payable on May 1, 2020. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to
$6.0 million
which, upon issuance, would be deemed advances under the PNC Credit Facility. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of
$90.0 million
or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory.
The revolving line of credit under the PNC Credit Facility bears interest at LIBOR plus a margin of between 3% and 4.5% based on our trailing twelve-month reported EBITDA (as defined in the Credit Facility) measured quarterly in fiscal 2016 and semi-annually thereafter as demonstrated in our financial statements. The term loan bears interest at either a LIBOR rate or a base rate plus a margin consisting of between 4% and 5% on base rate loans and 5% to 6% on LIBOR rate loans based on our leverage ratio as demonstrated in our audited financial statements.
As of
April 30, 2016
, the Company had borrowings of
$59.9 million
under its revolving line of credit. As of
April 30, 2016
, the term loan under the PNC Credit Facility had
$12.2 million
outstanding, which was used to fund the expansion initiative of which
$2.1 million
was classified as current in the accompanying balance sheet. Remaining available capacity under the revolving credit facility as of
April 30, 2016
was approximately
$17.1 million
, and provides liquidity for working capital and general corporate purposes. In addition, as of
April 30, 2016
, our unrestricted cash plus facility availability was
$49.8 million
and we were in compliance with applicable financial covenants of the PNC Credit Facility and expect to be in compliance with applicable financial covenants over the next twelve months.
Principal borrowings under the term loan are to be payable in monthly installments over an
84
month amortization period commencing on January 1, 2015 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment starting in the current fiscal year ending January 30, 2016 in an amount equal to fifty percent (
50%
) of excess cash flow for such fiscal year, with any such payment not to exceed
$2.0 million
in any such fiscal year.
The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus facility availability of
$10.0 million
at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus facility availability falls below $18.0 million. In addition, the PNC Credit Facility places restrictions on our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
GACP Term Loan
On March 10, 2016, we entered into a term loan credit and security agreement (the "GACP Credit Agreement") with GACP Finance Co., LLC ("GACP") for a term loan of $17 million. Proceeds from the GACP Term Loan will be used for working capital and general corporate purposes and to help strengthen our total liquidity position. The term loan under the GACP Credit Agreement (the "GACP Term Loan") is secured on a first lien priority basis by the proceeds of any sale of our Boston television station FCC license and on a second lien priority basis by our accounts receivable, equipment, inventory and certain real estate as well as other assets as described in the GACP Credit Agreement. The GACP Credit Agreement matures on March 9, 2021. The GACP Term Loan bears interest at either (i) a fixed rate based on the greater of LIBOR for interest periods of one, two or three months or 1%
plus a margin of 11.0%, or (ii) a daily floating Alternate Base Rate plus a margin of 10.0%. Principal borrowings under the GACP Term Loan are to be payable in consecutive monthly installments of $70,833 each, commencing on April 1, 2016, with a final installment due at the end of the five-year term equal to the aggregate principal amount of all loans outstanding on such date. The GACP Term Loan is also subject to mandatory prepayment in certain circumstances, including, but without limitation, from the proceeds of the sale of collateral assets and from 50% of annual excess cash flow as defined in the GACP Credit Agreement.
The GACP Credit Agreement contains customary covenants and conditions, which are consistent with the covenants and conditions under the PNC Credit Agreement, including, among other things, maintaining a minimum of unrestricted cash plus revolving line of credit availability under the PNC Credit Facility of $10.0 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the GACP Credit Agreement) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus revolving line of credit availability under the PNC Credit Facility falls below $18 million. In addition, the GACP Credit Agreement places restrictions on our ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Other
Another potential source of near-term liquidity is our ability to increase our cash flow resources by reducing the percentage of our sales offered under our ValuePay installment program or by decreasing the length of time we extend credit to our customers under this installment program. However, any such change to the terms of our ValuePay installment program could impact future sales, particularly for products sold with higher price points. Please see "Cash Requirements" below for a discussion of our ValuePay installment program.
Cash Requirements
Currently, our principal cash requirements are to fund our business operations, which consist primarily of purchasing inventory for resale, funding accounts receivable growth through the use of our ValuePay installment program in support of sales growth, funding our basic operating expenses, particularly our contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. We closely manage our cash resources and our working capital. We attempt to manage our inventory receipts and reorders in order to ensure our inventory investment levels remain commensurate with our current sales trends. We also monitor the collection of our credit card and ValuePay installment receivables and manage our vendor payment terms in order to more effectively manage our working capital which includes matching cash receipts from our customers, to the extent possible, with related cash payments to our vendors. Our ValuePay installment program entitles customers to purchase merchandise and generally make payments in two or more equal monthly credit card installments. ValuePay remains a cost effective promotional tool for us. We continue to make strategic use of our ValuePay program in an effort to increase sales and to respond to similar competitive programs.
During fiscal 2014, we began a significant operational expansion initiative with respect to overall warehousing capacity and new equipment and system technology upgrades at our Bowling Green, Kentucky distribution facility. During the first quarter of fiscal 2015 the new building was substantially completed and we expanded our
262,000
square foot facility to an approximately
600,000
square foot facility. Subsequently, during the second quarter of fiscal 2015, we completed the building expansion and moved out of our expired leased satellite warehouse space. The updated facilities and technology upgrade includes a new high-speed parcel shipping and item sortation system coupled with a new warehouse management system to support our increased level of shipments and units and a new call center facility to better serve our customers. The new sortation and warehouse management systems are expected to be phased into production through the first half of fiscal 2016. The total cost of the physical building expansion, new sortation equipment and call center facility was approximately
$25 million
and was financed with our expanded PNC revolving line of credit and a
$15 million
PNC term loan.
We also have significant future commitments for our cash, primarily payments for cable and satellite program distribution obligations and the eventual repayment of our credit facilities. We believe that our existing cash balances will be sufficient to maintain liquidity to fund our normal business operations over the next twelve months. As of January 30, 2016 we had contractual cash obligations and commitments, primarily with respect to our cable and satellite agreements and payments required under our PNC Credit Facility and operating leases, totaling approximately $330.0 million over the next five fiscal years.
For the
three months
ended
April 30, 2016
, net cash provided by operating activities totaled approximately
$7.3 million
compared to net cash used for operating activities of approximately
$4.4 million
for the comparable
fiscal 2015
period. Net cash provided by (used for) operating activities for the
fiscal 2016 and 2015
periods reflects net loss, as adjusted for depreciation and amortization, share-based payment compensation, deferred taxes and the amortization of deferred revenue and deferred financing costs. In addition, net cash provided by operating activities for the
three months
ended
April 30, 2016
reflects a decrease in accounts receivable, inventory and prepaid expenses, partially offset by a decrease in accounts payable and accrued liabilities.
Accounts receivable decreased as a result of collections made on outstanding receivables balances resulting from our seasonal high fourth quarter. Inventories decreased as a result of disciplined management of overall working capital components commensurate with sales growth. Accounts payable and accrued liabilities decreased during the first
three months
of
fiscal 2016
primarily driven by a decrease in accrued inventory due to lower inventory levels and the timing of payments to vendors, partially offset by an increase in accrued severance.
Net cash used for investing activities totaled approximately
$1.6 million
for the first
three months
of
fiscal 2016
compared to net cash used for investing activities of
$8.1 million
for the comparable
fiscal 2015
period. For the
three months ended April 30, 2016
and
May 2, 2015
, expenditures for property and equipment were approximately
$1.6 million
and
$8.1 million
, respectively. The decrease in the capital expenditures from fiscal 2015 to fiscal 2016 primarily relate to expenditures totaling $4.8 million made during the first quarter of fiscal 2015 in connection with our distribution facility expansion. Additional capital expenditures made during the periods presented relate primarily to expenditures made for the development, upgrade and replacement of computer software, order management, merchandising and warehouse management systems, related computer equipment, digital broadcasting equipment and other office equipment, warehouse equipment and production equipment. Principal future capital expenditures are expected to include: the development, upgrade and replacement of various enterprise software systems; equipment improvements and technology upgrades at our distribution facility in Bowling Green, Kentucky; security upgrades to our information technology; the upgrade and digitalization of television production and transmission equipment; and related computer equipment associated with the expansion of our television shopping business and digital commerce initiatives.
Net cash provided by financing activities totaled approximately
$15.1 million
for the
three months ended April 30, 2016
and related primarily to proceeds from the GACP term loan of $17.0 million, partially offset by payments for deferred financing costs of
$1.3 million
, principal payments on the term loans of
$607,000
and capital lease payments of
$13,000
. Net cash provided by financing activities totaled
$8.7 million
for the
three months
ended
May 2, 2015
and related primarily to proceeds from the revolving loan under the PNC Credit Facility of $4.3 million, proceeds from the term loan under the PNC Credit Facility of $2.8 million and proceeds from the exercise of stock options of $2.4 million, partially offset by payments for deferred financing costs of $160,000, payments on the term loan of $647,000 and capital lease payments of $13,000.