SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 22, 2002
SHOP AT HOME, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 0-25596 62-1282758
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
5388 Hickory Hollow Parkway, Antioch, Tennessee 37013
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(Address, including zip code, of principal executive office)
(615) 263-8000
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(Registrant's telephone number, including area code)
Item 5. Other Events
On Monday, April 22, 2002, Shop At Home, Inc. held a conference call
to discuss the Company's financial results for the third quarter of its fiscal
year 2002, ending March 31, 2001. These results were filed with the SEC on the
Form 10-Q filed on April 19, 2002. The Company has elected to voluntarily file a
copy of this transcript on this Form 8-K to ensure that the contents of such
conference call are fully disseminated and that any investor of Shop At Home,
Inc. has full access to such transcript.
The conference call was also broadcast live over the Internet on
Monday, April 22, 2002 at 11:00 a.m. Central Time. The audio replay is available
at www.shopathometv.com/corporate/news-index.html, and will be accessible for 90
days. A telephone instant replay of the conference call is available through the
close of business April 29, 2002 by dialing 1-888-482-2240.
A transcript of the April 22, 2002, Financial Conference Call is
attached hereto as Exhibit 99.1.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHOP AT HOME, INC.
(Registrant)
By: /s/ George J. Phillips
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George J. Phillips
Executive Vice President and General Counsel
Date: April 23, 2002
EXHIBIT 99.1
SHOP AT HOME, INC.
3rd Quarter Earnings Conference Call
April 22, 2002
11:00 a.m. CDT
Coordinator Good morning and thank you for standing by. All
participants will be able to listen only until the
question and answer session of the call. This
conference is being recorded at the request of Shop
At Home Network. If anyone has any objections you may
disconnect at this time. I would like to introduce
your speaker for the call today, Ms. Kearstin
Patterson, Director of Communications. Ma'am, you may
begin.
K. Patterson Good morning and welcome to Shop At Home's third
quarter fiscal 2002 conference call. I am Kearstin
Patterson, the company's Director of Communications.
On the call with me today are George Ditomassi and
Frank Woods, Shop At Home's Co-CEOs. Also present is
our Chief Financial Officer, Arthur Tek.
Our release was sent out Friday morning, April 19th
and our 10-Q is currently available on Edgar. Mr. Tek
will provide a brief overview of the third quarter
results and then Mr. Ditomassi, followed by Mr.
Woods, will make some additional comments. Following
their comments, the executive management present will
take questions from the investment banking analysts,
financial firm representatives and fund investors who
are participating on the call.
Before we begin I'd like to say that any statements
made today on behalf of Shop At Home with regard to
the expectations of future revenue earnings,
household distribution or other performance factors,
including any statements regarding the plans or
objectives of management for future operations are
forward-looking statements for the purposes of the
SEC statute. The company undertakes no obligation to
publicly update or revise any forward-looking
statements, whether as a result of new information,
future events, or otherwise after the date of this
call. Because of these risks and uncertainties the
forward-looking events and circumstances discussed in
this call may not occur, and actual results could
differ materially from those anticipated or implied
in the forward-looking statements for the reasons
spelled out in the 10Q and the company's most recent
10K.
It is my pleasure now to introduce our Chief
Financial Officer, Arthur Tek. Arthur?
A. Tek Thanks, Kearstin. During the quarter ended March
31st we were able to achieve a substantial reduction
in our losses year over year. Our operating loss
improved 51%, dropping to $6.7 million from $13.5
million last year. EBITDA improved 67%, from a loss
of $8.9 million last year to a loss of $2.9 million
this year. Our net loss, excluding an asset sale gain
last year, improved to $6.2 million from $10.6
million last year.
Revenues declined slightly by 1% from last year, but
our gross margin improved to 35.4% compared to 28%
last year. The March quarter also compared favorably
to the December quarter. Revenue and EBITDA were
about the same in March as they were in December. As
a retailing company the December quarter is normally
our best sales producing quarter, so since March was
equal to December we improved on a seasonally
adjusted basis.
Salaries and wages declined because last year we
accrued severance for our former CEO. Excluding the
severance, salaries and wages were about the same
year over year. Our affiliation expenses increased
16%, but the number of full time equivalent homes we
reached increased 42%, so our cost on a per home
basis declined by 25%. General and administrative
expenses declined 26%. That was due to a variety of
cost containment efforts. We were particularly
successful in reducing bad debts.
Depreciation and amortization declined because we
were no longer required to amortize our TV station
licenses. We would take that a step further by saying
that these license assets are substantially
understated on our balance sheet. We had a
non-recurring expense line on our income statement.
We incurred approximately $800,000 in costs related
to a bond offering which was not completed. Our
interest expense declined 24% because of less debt, a
lower interest rate on our bank debt, and the
write-off last year of deferred financing costs.
Looking at our balance sheet, we ended the quarter
with $15.3 million of cash plus another $700,000 of
restricted cash, which will become unrestricted
during the June quarter. Our debt is almost entirely
long term and our working capital is positive. Frank
Woods will discuss our funding plans later in the
call. George Ditomassi will now discuss our operating
trends. George.
G. Ditomassi Thank you, Arthur. In the past quarter our ratios
and marketing/merchandising sales directions
continued to follow our projected plans. In terms of
repeat customers, where we were repeating at
somewhat less than one of four new customers bought
again from us, we are now close to three of four
customers buy a second time. In terms of categories
and top line, all of our categories except sports
memorabilia are up, plus we're introducing new
items and categories. Our returns are down from
26% to 28% highs to under 20% and they're running
stable. Our daytime hours are now more productive
than our overnights, which is a dramatic change from
last May.
Our charge-backs are substantially down. In terms of
improved customer service, we answer the phone much
quicker and much better, responding to complaints and
questions. Where we might have been five to nine
minutes six to nine months ago, we answer now in an
average of 35 seconds.
We ship 45% of all our goods, which is up from 10%
last May. We now have a new executive management team
in place and operating very well: three executive VPs
in Bennett Smith, Tom Merrihew and Rob Wales; Vice
Presidents of Kurt Staiger and Laura Purswell. Our
margins are up 5 to 6 points from where we were when
we began this project. Certainly, if you have
questions later please feel free to ask them. Now
it's my pleasure to introduce Mr. Woods.
F. Woods While we are not performing at the level that
all of us anticipate, expect, and want to perform at,
as Arthur Tek pointed out, our loss from operations
for the quarter did improve 51% over last year and
our EBITDA performance improved 67% over a year ago.
Likewise for the nine months, loss from operations
improved 38%; EBITDA loss improved 55%.
We are at our core a retail merchandiser who sells
products over television. One of the other areas that
we would like to highlight as being successful during
the past quarter is the continuation of performance
in our distribution and carriage achievement in our
affiliate relations department. We have been able,
since July of last year, to have cost reductions on
our renegotiated carriage agreements of almost $7.120
million. Now that does not all come down to a
reduction that you see in current expense charges
because we've added new carriage and we've greatly
increased our carriage, but that is an important part
of our plan over the last six months to reduce our
cost and expenses.
We also currently are in approximately 38.5 million
homes on an FTE basis. This represents significant
improvement over a year ago and over the last six
months. We must continue to improve our distribution
in carriage and grow the business. We've been
successful in doing that even with limited funds and
limited availability to negotiate for major
transactions with the MSO parties.
I would also like to address our funding position and
plan during the current period. As Arthur pointed
out, we had approximately $15 million on hand as of
March 31. During February and March the company
pursued a possible high-yield debt funding; however,
we elected not to go forward with the high-yield debt
transaction. We said in a March 18th news release
that we plan to continue exploring financing options.
We have continued with some funding options,
including strategic partners. We believe that we now
have better potential transactions for funding and
growth available.
A strategic partner who brings funding and
contributions to our core business elements would
present an ideal transaction for the company. In the
competitive retail merchandise marketplace, a partner
with a background in media, retail, cable, or
entertainment categories might offer the very best
transaction available for Shop At Home.
With this background from Arthur, George, and myself
we will open the meeting for questions.
Coordinator John Lawrence of Morgan Keegan, you may ask your
question.
J. Lawrence Good morning, guys. George, could you talk a little
bit about on the merchandising side? Go into the
revenue line just a little bit more. What percentage
are we down? How much are we trying to make up with
the loss of sports?
G. Ditomassi Well, the category itself is down $45--$65
million over the period of a year if you annualized
it. We feel pretty good about the fact that we have
taken the other categories and increased our sales
there. We're certainly a much more solid base today
in terms of well rounded categories than we were nine
months ago.
J. Lawrence What are some of those categories that
you're the most excited about? Certainly, we've
noticed that the presentation is a lot better and all
of those kind of things, but would you highlight some
of those that you've come into daytime hours and you
feel better about?
G. Ditomassi Well, in some of the instances what we've done,
John, is our margins have increased dramatically.
For instance, there are several categories that are
running slightly ahead of a year ago in terms of top
line, but our margins are far better. We have others
where top lines increased reasonably well along
with the margins. We're doing more in things like
electronics. We are trying different kinds of
products. In terms of apparel, we're doing more in
that area as well. We have other plans for new
categories as we go through the summer months.
J. Lawrence Great. Thanks.
Coordinator Tyson Bauer of Wealth Monitors you may ask your
question.
T. Bauer Good morning, gentlemen. In looking at your
revenue number, initially it looked flat, but once
you go through it, it actually looks pretty
impressive by being able to absorb the loss in sports
memorabilia. Just a follow up on John's question.
What kind of base level are you looking at on the
sports side? Do you expect the other categories to
continue to grow so we should see incremental
increases in overall revenue?
G. Ditomassi Tyson, thank you for your comments. I think that
we pretty much are where we want to be with sports
and collectibles and memorabilia. Now, perhaps,
we have a base we can grow on. It's a very solid
base. The other product lines that we're trying, for
instance, if we were to talk jewelry, we're talking
about things that are somewhat exclusive to us in
some instances. In others it's product we've not
tried before and is doing very well. We think we are
doing a far better job with the categories that were
in place before. As we introduce new categories,
like cooking, which is a huge category for QVC and
HSN, we think that as we introduce it, it may be a
slow build, but it's one that will be very profitable
at the end of the line.
T. Bauer Are you capable or do you have the data available to
show us where you stand in the remerchandising effort
as far as revenues or time allotted toward one gender
as opposed to now the other gender?
G. Ditomassi I'm sure you're speaking about our
addressing ourselves much more today to the female
than we have in the past. Yes, we have information
that shows us that we're accomplishing what we wanted
to do in terms of changing that a bit. Certainly, the
most dramatic for me is to find that we have become a
much stronger daytime channel network than we had
ever been. In fact, now we're a stronger daytime
network than we are overnight, which is dramatically
different than where we were six months ago.
T. Bauer Is that the metric that you look at or focus on
really the revenue from the jewelry, cookware,
or the time allotted to it? How do you focus on
success or benchmark it?
G. Ditomassi There are so many variables, but you
certainly have hit on a very important one, and that
is how much time are we allotting to each of these
categories. If we were to look at that kind of chart
you would see that we're allotting different times
than we were to different categories in the past.
Certainly, by doing that we have made ourselves more
attractive to the female viewer that we think was so
important to us. So that is changing and we feel very
good about it.
T. Bauer One last question then I'll allow other people
to ask. Arthur, in the funding that you're seeking,
is the primary use really to reposition your current
balance sheet, or is it to fund further operational
activities such as trying to garner more carriage or
have it available for working capital needs? Could
you address what's the primary use for the funds?
A. Tek Well, as everybody knows, we tried to raise money
through a bond offering during the quarter. The use
of proceeds of that bond offering would have repaid
our existing debt, but the primary reason for the
offering was to allow us to expand the company and to
get more cable carriage, more inventory, increase the
amount of financing we give our customers. Those are
still the things that we're interested in in terms of
any financing that we might do.
T. Bauer So really, both avenues. If you got a strategic
that was in the cable business, would you be able
to use their carriage and then use whatever proceeds
to reposition your balance sheet?
A. Tek I think a cable operator could be an attractive
strategic partner for us, sure.
T. Bauer Okay. Thanks a lot, gentlemen.
Coordinator ... you may ask your question.
C. Blackman Yes, I was curious if you'd expand a little
bit on your DirecTV relationship. Of the 38.5 million
full time equivalent households, how many of that
would be coming from DirecTV and how does it compare
as far as revenues per household with your other full
time equivalent households?
F. Woods This is Frank Woods. DirecTV has been a major
achievement for us. We went on DirecTV October 23rd
and we've experienced a good response. It accounts
for about 25% of our FTEs at this point. We try not
to get into giving out detailed information with
respect to what our yield is per segment of carriage
for competitive purposes in the marketplace, but
we're satisfied that DirecTV has been a good
relationship and we expect it to continue to be.
C. Blackman Will you enter more households through DirecTV?
F. Woods Well, they are growing very rapidly. We are also on
EchoStar, and both EchoStar and DirecTV, the digital
marketplace delivery system, projects great growth,
and we will be part of that growth.
C. Blackman Okay. Arthur, you said, as you mentioned, in the
debt offering that you're trying to do, you could
have repaid the existing debt, but you're going to
use it for operations. The way you said it, it
almost sounds like you tried and weren't able to pull
the offering off. Was that the case or was it more
that you pulled it because there may be better
opportunities?
F. Woods It's a combination of both. This is Frank Woods
again. We were not satisfied with where we ended up
on the high-yield debt offering, and we also have
several opportunities that have been there all along
and have presented themselves as we have gone into
2002, and we're continuing to pursue what we think
are advantageous opportunities.
C. Blackman Okay. One final question if I may. I know June
30th, some of the EBITDA covenants come into play.
Any advancement at all or improvement on changing the
EBITDA covenants that come into place June 30th?
A. Tek They don't come into place June 30th per se in
that there are no EBITDA covenants through June 30th.
They would come into play on July 1st. The first
EBITDA test would be for the September quarter and
therefore that test wouldn't be done until October.
F. Woods That's actually an amended covenant.
C. Blackman You basically got a waiver through June 30th? Is
that right?
A. Tek That's right.
C. Blackman Then it goes back into effect after that?
A. Tek That's right.
C. Blackman Okay. Thank you.
C. Blackman Did you say what the EBITDA covenants were after
that?
A. Tek No.
Coordinator EJ Salite of Potomac Capital, you may ask your
question.
T. Grey Actually, it's Tim Grey here. Good morning,
everybody. A couple things. Anything on guidance
as far as top line? Maybe you can talk about
seasonality and how Q1 was actually better even
though it was flat from Q4? When can we start to
see that? We're in Q2 now. Are you starting to see
some improvement now?
A. Tek I don't think we're prepared to give guidance,
Tim. We have not in the past. I think what we've
said is when we get back to an EBITDA positive
situation we'd have more confidence in our
projections.
T. Grey So no projection as far as what quarter we might
get to an EBITDA positive? What about some sequential
improvements on some of the metrics? You mentioned
a lot of year over year improvements. Some of the
stuff I can look back and get...repeat customers and
those sorts of things. Can you elaborate...there?
A. Tek You were breaking up a little bit, Tim. I think you
were asking about repeat customers.
T. Grey Yes, just the sequential improvements on your
metrics that we can judge you by. Is there any way
you can elaborate on those? Repeat orders from
customers, maybe some improvement in some of the
categories on the top line?
A. Tek Well, I'm not sure how much more of that we can
do. We've discussed the top line at some length with
earlier questions with regard to repeat customers.
Those have continued to increase and more than half
of our business is now in repeat customers. I think
we mentioned that in our press release.
T. Grey Just one last thing then. Can you just talk a little
bit more about seasonality then? How much, on a
percentage basis, was the drop off because of
seasonality that you would normally see?
A. Tek Well, the December quarter for all retailers is
the best quarter. The March quarter is perhaps better
for us than for other retailers in that we are more
related to households using television when the
weather is cold and so forth, so we probably do
better than other retailers in March. Nevertheless,
March is not normally equal to December for us in our
industry. That's why we thought that we had had, in
that light, a quarter that was perhaps better than it
looked.
T. Grey One last thing. Can you just tell us what the EBITDA
covenants are from the bank loans that start in July?
A. Tek We have not negotiated the covenants starting
July 1st.
T. Grey Thank you very much.
Coordinator John Lawrence of Morgan Keegan and Company, you may
ask your question.
J. Lawrence Arthur, just to follow up, is it anybody's guess as
far as whether or not Congress will do the auction on
the 19th of June?
F. Woods John, it's Frank Woods. We had a national
broadcasters' meeting two weeks ago in which the
topic of conversation at the top of the agenda was
the auction. The FCC has announced within the last
ten days that they do plan to hold the auction in
June. There is a movement underway to try to have
Congress implore the FCC to delay the auction.
That was being brought about by some of the
wireless spectrum industry companies, but it looks
like the auction's going to hold. We are certainly
anticipating that and planning on that. That will
give us an opportunity on our 2.5 units that we have
available in the auction process that are impacted
by the auction, and those are Cleveland, Boston, and
a one half interest that we kept in Houston. We
think we will get some idea, if that June auction
date holds, of what the value of those rights might
be.
J. Lawrence Last question. Not to beat a dead horse
here, but if I characterize it the right way, is it
fair to say that the progress, especially on the cost
side of the business that you guys have made in the
last year, is bringing around more people to talk
about strategic alternatives?
F. Woods That would certainly be a fair statement.
J. Lawrence Great. Thank you.
Coordinator Tyson Bauer of Wealth Monitors, you may ask your
question.
T. Bauer Two quick follow ups. One, Arthur, obviously
you've had tremendous improvement in gross margin. Do
you expect that to continue, and would you expect it
to be more from further cost reductions or from an
increase in the revenue line?
A. Tek Tyson, as we said before, we're not going to do
projections, but we have had three quarters in a
row of gross margins that were substantially
improved.
T. Bauer I'll avoid the revenue side of it. Are you as lean
and mean as you can get or are there some other areas
that you feel like you could trim?
A. Tek Well, improving margins is something our
merchandising department does every day in terms of
the effort to do that, and negotiating with our
vendors and making sure that we have the right mix of
products, because certain product lines have lower
margins than others. That's an on-going process and
we're never satisfied with our margins in that sense.
And we're never satisfied with our operating
expenses. We continue to try to improve our systems
such as taking more calls automatically, where we've
greatly increased that. I think we've tripled that
year over year. That enables us to answer phones
with less salary expense.
T. Bauer Arthur, could you comment, you or George, you've
picked up twenty-three new vendors, the way I read
it. That's fairly astounding progress that you're
making there. What has been the key to being able to
do that and attracting those people to work with you?
G. Ditomassi I think that certainly speaks well of our new
management team and the people we've sent out. When
you know the contacts that a Rob Wales and a Tom
Merrihew have, it speaks to going out and talking
to vendors that they had done business with in the
past. I think that there's recognition now that
we've made tremendous strides over the past nine
months and that we are somebody that offers them
another customer to do business with. I have been in
the business a long time and I think that having
another customer to do business with
is something we all look for.
T. Bauer Well, they must be satisfied with your performance to
build this relationship or initiate it.
G. Ditomassi Very much so. There are people that we
could not have struck a deal with or furthered our
relationship with nine months ago, that, due to this
new management team and the progress we've made,
we're making deals with people we didn't have
relationships with before.
T. Bauer Okay. Last question for the day, for me anyway. A
strategic partner seems like that has been put to
the forefront as the most attractive option at this
point in time. When you mentioned possible partners,
can we conclude that there are multiple people that
are interested in your reviewing the best options?
There's more than one?
G. Ditomassi When we sat together as a group as early as
mid-May of last year we knew that there were
unbelievable ways to go in terms of a strategic
partner. Lists were made up of the kinds of people.
Frank has gone back, and I think made note of the
kinds of strategic partners that we think would take
us to the next level and where we want to bring this
company. It's a very wide list in terms of where we
could go. Frank, is it fair to say that there are all
kinds of names out of the retail world and the
broadcast world?
F. Woods There are. Tyson, I think broadcasting and
cable ran a story on November 26th in their weekly
magazine edition on the top 25 networks in America.
Out of the top twenty-five networks, QVC was ranked
2nd and HSN was ranked 8th. Out of the top ten
networks only four of those showed a revenue increase
while the others had declined. Out of the four
showing revenue increases, two of those were home
shopping companies.
There's enormous interest in our industry and there's
great potential opportunity with the category of,
perhaps, strategic partners that I mentioned earlier,
being media, entertainment, cable and retail. There
are such opportunities that we have tried, at all
times, to be open and to be available and to discuss
and look at what alternatives might be available to
us. I think it's fair to say that we're satisfied
that we've had exploration with some really
significant people that would bring a lot to the
company and that we've continue to discuss.
T. Bauer So we're beyond the list stage--have actually had
initial talks or whatever. Not saying that anything
will come from it, but you are beyond the list of
potentials?
F. Woods I think that would be a fair categorization.
T. Bauer Thanks a lot, gentlemen.
Coordinator At this time there are no further questions.
F. Woods Thank you very much.