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): September 6, 2000
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 September 1, 2000, Shop At Home, Inc. held a conference call with
certain financial analysts to announce and discuss the Company's financial
results for its fiscal year ending June 30, 2000. These results were filed with
the SEC on the Form 10-K filed August 31, 2000. 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. A transcript of the
September 1, 2000, 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
Vice President and General Counsel
Date: September 6, 2000
SHOP AT HOME NETWORK
Moderator: Kent Lillie
September 1, 2000/9:00 a.m. CDT
Page 1
SHOP AT HOME NETWORK
CONFERENCE CALL TO DISCUSS FISCAL 2000 RESULTS
September 1, 2000
9:00 a.m. CDT
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995 - The transcript of the foregoing conference call includes forward-looking
statements within the meaning of Section 27A of Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including statements
regarding continued revenue and distribution growth, the future performance and
projected profitability of Shop At Home, Inc. and collectibles.com and the
anticipated impact of new management initiatives. Actual results may differ
materially from those which may be identified for a number of reasons as are
discussed from time to time in Shop At Home's SEC reports, including but not
limited to its Annual Report on the Form 10-K filed with the SEC on August 31,
2000 (Business and Management's Discussion and Analysis of Financial Condition
and Results of Operations), and any recently filed 8-K's.
Coordinator: Good morning and welcome to fiscal 2000 year-end
conference call. Following today's presentation there
will be a formal question and answer session. At that
time instructions will be given should anyone wish to
ask a question. Until that time, all lines will be in
a listen only fashion. At the request of Shop at Home
the conference is being recorded. Should you object,
you may disconnect at this time.
I'd now like to turn the meeting over to today's
host, Miss Ari Amiri, Director of Investor Relations.
Ma'am, you may begin.
A. Amiri: Good morning and welcome to Shop at Home's
fiscal 2000 year-end results conference call. On the
call with me today is Kent Lillie, President and
Chief Executive Officer; Arthur Tek, Executive Vice
President and Chief Financial Officer; and Tim Engle,
President and Chief Operating Officer of the Shop at
Home Network and Collectibles.com.
Our release was sent yesterday afternoon and our 10-K
is currently available on Edgar. We will be taking
questions after our presentation of the year-end
results for both the Network and Collectibles.com,
and you may direct your questions to any of those
present.
Before we begin, I would like to say that any
statements made today on behalf of Shop At Home with
regard to the expectations of future revenues,
earnings coverage or other performance factors and
including any statements regarding the plans or
objectives of management for future operations, are
forward-looking statements for the purposes of the
SEC statutes.
It is my pleasure now to introduce Mr. Lillie.
K. Lillie: Good morning. As you've no doubt read in our
release, we're pleased today to announce a number of
outstanding results from the year just ended and a
very positive outlook for the current year, but
tempered with less than expected performance from the
network side of our operations in the last quarter.
To begin, the company has posted its 26th consecutive
quarter of year over year revenue growth and a new
record high for our fourth quarter ending June 30th,
as well as record household distribution for the
network in terms of total households reached and
full-time equivalents.
I'm also delighted to announce that collectibles.com
performance was and is well above marketplace
expectations in all leading metrics, including number
of browsers, page views, time spent per browser,
revenue per browser and most important, gross
revenue, margins and earnings. Margins, I would like
to reiterate, that are in the mid-thirties range,
among the highest on the Internet, and a testimony to
our business plan and our desire to make this a
profitable business as soon as possible.
We temper this euphoria, however, with disappointment
over the much less than satisfactory and expected
performance from our Network operations in the last
quarter. As disappointed as we all are, I will say
that we have moved swiftly and decisively to identify
the problems, both people and systems, and have
implemented an aggressive plan to return, not just
the Network, but also the entire company back to
profitability.
First as you know, we consolidated the two management
groups, the Network and collectibles.com management
groups in late June, with the surviving group being
the managers of collectibles.com, most of whom had
previous and very successful tenures with the
Network.
The immediate result was not only significant cost
savings of well over a million dollars a year, but a
return to the fundamentals and basic business
principles that turned this company around originally
seven years ago. I'm pleased to say that we are
already seeing the benefits of that change in early
improvements in the basic drivers of our business:
revenue, margin and return rates.
I also want to say that this company is committed to
returning to bottom line profitability, and sooner
rather than later. For example, we've eliminated over
80 positions from our highest employee count in early
May. We've renegotiated a substantial number of our
major contracts to achieve more cost savings, and
we've attacked our 2001 budget to eliminate all
non-essential expenses. As you will learn from Arthur
in a moment and should observe from our performance
going forward, a number of additional innovative and
cost saving solutions.
Before Arthur speaks to those savings, I would like
Tim to outline his initiatives for improving the
operating performance of the Network and in
maintaining the great momentum already established at
Collectibles.com. Tim?
T. Engle: Thank you, Kent. July 7th marked a new beginning for
Shop at Home. As Kent mentioned, not only did we
converge our Network and Internet operating units,
which included several key management changes, we
also identified and adopted new strategies to
increase sales, improve profitability and maintain
the momentum that we've established with
collectibles.com. During my remarks today I will
address these three critical areas and how we intend
to strengthen this business over the next several
quarters.
First and foremost, we will work to improve sales
through implementing aggressive customer centric
strategies that will increase revenue and ultimately,
profitability. This will be done by implementing more
effective price points, returning to destination
based programming, move effective database marketing,
implementation of a private label credit card and
always products.
The first of these will be to lower our price points.
Over the last several months our average transaction
has increased steadily from our last several year
average of $175 to a recent high of as much as $360.
Although impressive by some standards, this higher
price point does not optimize our infrastructure nor
appeal to the largest possible customer base.
I've instructed Ron Cook and Marshall Carr, our
Senior Vice Presidents in charge of Product and
Merchandising, to immediately work to bring our
average transaction down to $150. This should improve
our business in a number of ways, but most notably
increase call volume, reduce fraud, improve order
conversion rates, reduce returns and cancellations
and limit our reliance on customer financing.
One of the advantages of collectibles.com is it will
allow us to offer both the high end and low end price
point products, without negatively impacting valuable
Network time. I believe it is the single most
significant change we will be making over the next
several months.
Secondly, we will improve sales by once again
committing our Network to destination based
programming. It is important that our existing, as
well as new customers, have consistency when their
favorite products will air. We believe that
destination based programming will strengthen our
current base, while continuing to capture new
customers who are introduced to our programming
through surfing or strategic advertising placements.
The third is database marketing. We are encouraged
with the opportunities that this channel can bring,
especially since we have not fully exploited this in
the past. With the recent addition of Debbie
Seigenthaler Vice President of Database Marketing,
Shop At Home will now fully leverage our two million
customer database for the purpose of creating more
sales. In fact, just recently we've implemented a
reactivation program for customers who had not bought
in 60 days, with great success in adding incremental
sales. This type of marketing will continue at an
aggressive pace.
Additionally, we plan to implement a
customer-financing alternative through our current
stretch pay program. This private label credit card
will allow our customers to obtain additional credit
within six seconds of our sales representatives
submitting their information. More importantly, it
will allow Shop At Home to obtain the full retail
price of a product, up front and off balance sheet.
This will have a double impact of increasing sales
and reducing our accounts receivables with customers.
It is impossible to talk about increased sales
without addressing product. This company has always
prided itself on identifying and quickly capitalizing
on hot market opportunities such as Beanie Babies,
the Home Run Race of several years back, Furbies,
Pokemon and more. As we enter the busiest season in
retailing, we have identified several significant
trends and product opportunities which we feel could
have a significant impact on sales. It is our
intention to maintain the leadership we have
established in being the first to market with many of
these hot products.
Our second strategic initiative is to improve overall
profitability. Arthur will discuss many of the
expense efficiencies already implemented. I would
like to address how we are improving margins in three
critical areas, programming and scheduling, product
sourcing and discounting.
Programming and scheduling of our 168 hours defines
our store, it controls the mix of product that our
customers see and buy, thus there is no single
activity that has a greater impact on margin than
managing the schedule. We have implemented a
disciplined approach that helps control product flow
on error. For example we have triggers that kick in,
if during a particular week we exceed an approved
number of electronics hours, which traditionally have
much lower margins than jewelry or sports. We have
developed a programming grid that will return results
in excess of 37% margin in the very short-term, with
plans in place to return the company to 40+%.
Additionally, we have reexamined all of our vendor
relationships in the last six weeks to determine
where additional cost concessions can be obtained, or
in some cases eliminating the middleman by going
directly to the source. Progress has already been
achieved in all product categories in improving our
share of the margin .
Next, we have significantly reduced and in some cases
eliminated discounting on the Network. Our marketing
and sales efforts will focus on more value added
promotions versus outright discounts on products. We
will utilize both our database marketing and
collectibles.com channels, as a discount vehicle; if
warranted, thus eliminating the impression on the
Network that customers should only buy when there is
a deal.
By combining all three of these strategies, I'm
confident that we will again achieve the margins once
enjoyed by this company and its investors. In fact we
have already seen improvements each month since June.
Lastly, we must maintain the momentum established by
collectibles.com. In just seven months we have grown
collectibles.com beyond all market expectations
without any significant expenditures on marketing
other than costs already incurred in the Network. Let
me repeat, virtually zero customer acquisition cost.
Shipping over $2 million of goods in June proves that
we have built a powerful sister channel to the
Network. The benefits of ordering on collectibles.com
include lower return rates, improved database
marketing, opportunities and flexibility that allow
our customers to order 24 x 7, a feature not always
available to them on the Network.
Our efforts have paid off; currently our unique
browsers are averaging over 26,000 every day or over
800,000 every month. We continue to improve on sales
per browsers as well, June grew to $6.76, up 26% from
last quarter's results. Additionally, we continue to
increase time spent on the site from 17 minutes last
quarter end to over 21 minutes ending June.
Another major area of focus is to increase our
conversion rates on collectibles.com. Currently we
experience rates higher than the industry average,
but feel that we can greatly improve on those levels
with our powerful converged platform. We will
accomplish this not only through improved
merchandising, but improved site design as well,
which is currently under construction and due for
implementation in early 2001.
Our new design will be easier to navigate, leverage
our extensive content relationships with Krause and
better reflect our converged platform strategy with
the Network. This new management team's commitment to
our investors, employees and business partners is to
focus on profitability and execute on that
opportunity as quickly as possible. Kent?
K. Lillie: Arthur has some comments on cost reductions and other
initiatives.
A. Tek: Thanks, Kent. As Kent discussed, we had record
revenues last year and our Web Site grew rapidly. In
the final quarter of our fiscal year, however, we
lagged significantly in converting revenue increases
into bottom line results. As a result, we are well
underway in improving profitability by reducing
costs, while continuing to increase our revenues. I'm
going to address four specific cost cutting
initiatives, which you'll find discussed in the
business strategy section of our 10-K, as well as
our press release.
First, we have already reduced head count by 15% from
our peak a few months ago. Apart from seasonal
variations in our workforce, we anticipate annualized
compensation savings of over $1.5 million. This
reduction was accomplished by converging our Web site
and Network personnel and we are also reaping the
benefits of our Oracle Information System, which has
improved productivity.
Secondly, we are reducing our distribution costs.
These are the expenses we incur for carriage of our
television network by cable and broadcast station
affiliates. We have, since July 1, canceled over
300,000 full-time equivalent homes, which were not
profitable for us, and we are renegotiating the rates
for several hundred thousand more homes. So we are
making good progress in lowering our average cost per
home, as well as our total carriage cost as a
percentage of revenues.
Third, we are reducing virtually every aspect of the
cost of shipping merchandise to our customers. We
have already lowered the transportation rates we pay
our major carrier and we will soon reduce the
handling cost we incur, by outsourcing this function
to a large fulfillment center. We anticipate not just
reducing costs but also improving delivery times and
customer service. Annual savings should exceed $1
million when this plan is fully implemented.
Lastly, our fourth cost cutting initiative is the
renegotiation, replacement or cancellation of many of
our major contracts and planned expenditures. We have
already identified $500,000 in fiscal 2001 savings
from this process, and we anticipate at least
doubling these annual savings by year-end.
These four areas of cost reductions, coupled with the
revenue initiatives which Tim Engel outlined, will
turn Shop at Home around. Although we will see
improvement in this current September quarter, the
turnaround is not yet complete, we anticipate a
return to positive cash flow in the December quarter
and we plan to become bottom line net income positive
by the end of the fiscal year.
We believe we have sufficient cash and working
capital to fund the turnaround of our television
network, which had been consistently cash flow
positive for several years before this past quarter.
On June 30, the end of our fiscal year, we had a cash
balance of $27 million and other current assets of
over $10 million, which we specifically intend to
turn into cash, on a permanent basis, by December 31.
We will accomplish this by monetizing our accounts
receivable through the introduction of a private
label credit card funded by a financial institution,
and we will increase cash through the refund to us of
certain escrow balances.
So despite one quarter of disappointing results, we
are executing our turnaround plan with confidence.
Kent?
K. Lillie: Thank you. We'll open the call now to any questions.
Coordinator: Our first question comes from Ned Armstrong.
N. Armstrong: Good morning, gentlemen. I though I'd ask
you to comment on the 700-megahertz auction that's
been in the news quite often recently and has been
associated with the Shop At Home name.
Mr. Lillie: Well, the company owns three television
stations that fall into that 700 megahertz, or the
channel 60's bandwidth; Boston, Houston and
Cleveland. And in fact the aggregation of the
population covered by those three makes us the third
largest holders of 700 megahertz in the country, as
we reach about 12 million people with those three
signals.
We filed comments at the FCC, we believe that it's
important for the FCC to have this auction to clear
the space, for not only the development of wireless
broadband, but to help clarify all of the digital
carriage issues. We believe that there should be a
simultaneous auction for band clearance, we would be
a willing participant and there is the potential for
some financial benefits to the company, for us to
leave that bandwidth before the required date,
presently, which is December 31, 2006, or later
actually.
So there could be some benefits to accrue to the
company, we would it looks like, certainly be able to
maintain our cable carriage on our digital signals if
we should make that change or that move off of the
700 megahertz band. But there certainly could be some
benefits accrued.
N. Armstrong: Approximately how much in revenue do you generate
from the three stations that fall in that channel 60
to 69 range?
Mr. Lillie: Well as you know, our stations account for close to
30% of our total revenue and those three would
account for close to half of that.
N. Armstrong: Okay. Thank you.
Mr. Lillie: You're welcome Ned, thank you.
Coordinator: Our next question comes from, John Ray.
J. Ray: Good morning, gentlemen.
Mr. Lillie: Good morning, John.
J. Ray: I wondered if you could comment and maybe separate
the facts from the rumors and the things that aren't
true about the financing that you did with
Promethean. And specifically, I guess the background
of it, why you felt that you needed to do it, as you
did, maybe the due diligence that you did on
Promethean itself, because there's some controversy
about them and the terms. And I guess maybe clear up
some of the issues that seem to be out there about
where Promethean is shorting your stock, etc.
A. Tek: John, Promethean has not shorted our stock, and we
are protected by covenants within our preferred stock
agreement, in terms of shorting or actually even
protecting us from their converting until the end of
this year. But going beyond that, our due diligence
at Promethean has shown us that they are honorable
folks that have the same goal as us, which is to have
a higher stock price, in that they have six price
warrants. And those warrants become more valuable as
our stock goes up, not down.
So the whole idea of shorting the stock for some
inexplicable reason doesn't ring true for us. And
maybe unlike other companies in which they've
invested, we have a very firm asset base, so that
shorting the stock would be a dangerous thing to do,
in that we believe our asset base is well in excess
of where the market price is right now for our stock.
In any case, we feel confident that Promethean stands
there as our partners. We have checked them out
personally; we've also done research into some of the
articles that are out there. And I can only say that
those articles are incomplete and sometimes
inaccurate and not totally responsible, in terms of
addressing all of the economic implications of doing
a deal like this.
It is a bit complicated, but basically, the variable
convert gives Promethean a neutral risk profile, in
terms of their preferred. They make money by getting
a coupon, and by over time, getting a discount when
they convert. So it behooves them to hold longer
rather than shorter, because the longer they hold the
preferred, the greater the discount they get and the
more they accumulate a coupon.
And of course they would want their warrants to be
worth more rather than less as well. And that's based
on our stock price going up, so if they were shorting
the stock price, that would make their warrants worth
less. All in all, they really see the warrants as
their primary means of making money, and the
preferred is something where they try to take as
neutral a risk posture as possible, by making it
variable with our common stock price. But they're not
betting on the preferred itself that our stock is
going up or down and therefore would have no
incentive to short the stock.
J. Ray: Just one follow-up Arthur, I assume that these
funds that you've received take you out into the
foreseeable future, in terms of your capital
requirements, that plus the other cash raising items
that you mentioned in terms of working capital?
A. Tek: That's right. And as you know, John, you wouldn't
want to go try to do a public offering for only $20
million and we didn't want to sell stock at our
prices back in June when we closed the deal with
Promethean. We didn't want to sell stock at the
price that it was then, which was a little higher
than it is now. We thought the stock was way under
valued then. And we saw this really as a form of
bridge equity, to allow us until the end of the year
before they convert, to get our stock price up
to reflect what we feel is the underlying asset value
and reflect the future potential of our company.
J. Ray: Right. Thank you.
Coordinator: Our next question comes from Dan Jackson.
D. Jackson: Kent, I represent some 50 investors of Shop
At Home, and based on the last quarter's results, I
guess this would mean that you did not meet the
analysts expectations. Is that correct?
K. Lillie: Well, we've got kind of mixed emotions about that
too, Dan. We did miss fourth quarter updated
projections, but what I think is an important part of
this story is that when we went to the market last
June to raise capital, in the public markets, to
raise capital to build out collectibles.com and to
buy our Bridgeport station, we obviously had made
certain forecasts then to fund managers. And analysts
had forecasted year-end results for the company, and
we sold stock into the market at $8 a share, which we
closed last July.
And when we look back on those numbers we beat every
number, in fact we're ahead, particularly in
collectibles.com, we beat every number. We beat the
analysts forecast for year on earnings per share and
revenue, and again used those numbers to help raise
that close to $50 million at $8 a share.
And today, a year later after hitting those numbers,
we're at $3.75 a share, so it's disappointing to us.
But as you indicate, we did miss analysts' revised
forecast for the fourth quarter, which had something
to do, we were off to a very good start early in the
year last year and it slowed down, but we're
regaining that momentum right now with Tim and his
staff.
D. Jackson: Thank you.
K. Lillie: Thank you.
Coordinator: Our next question comes from Scott Jensen.
S. Jensen: Good morning, I have a question. Who is your
third party fulfillment partner? And as a percentage
of revenue, how much would it cost you to employ them
to do that for you?
A. Tek: The third party fulfillment partner is going to
be, it's not yet implemented, this will be a December
quarter implementation, but it's a subsidiary of UPS.
And they have a huge fulfillment operation.
And in terms of detailing the cost of this, I'm a
little concerned about proprietary information there.
We negotiated what we think is a very good deal with
them and they might not want me disclosing that
information. But on a per package basis, what we will
pay them will be significantly less than what we pay
per package for handling fees to our drop ship
vendors, most of what we send now is via drop ship.
S. Jensen: Hence the million dollar savings?
A. Tek: Excuse me?
S. Jensen: Hence the million dollar savings?
A. Tek: Yes, sir.
S. Jensen: Okay, thank you.
A. Tek: And not only that, but much faster delivery
times to our customers. So obviously that results in
more satisfied customers, faster repeat business and
less calls and trauma into our customer service
department.
S. Jensen: Great, thanks.
Coordinator: Our next question comes from John Lawrence.
J. Lawrence: Good morning, guys.
Mr. Lillie: Good morning, John.
J. Lawrence: Arthur, I assume the covenants restrict any type of
stock buy back on the part of the company, correct?
A. Tek: Yes, it would be difficult under our bond covenants
and also under the preferred stock covenants as well.
J. Lawrence: What about insiders, as far as senior management, as
far as this turnaround is concerned?
A. Tek: Well, I think the stock price is very
inexpensive now, and I have been a buyer, John, at
levels significantly higher than the current stock
price and once we're past this release and the
lawyers say we're no longer restricted, at this price
I'm still a buyer. You will see me buying again, I
don't know about the rest of management.
K. Lillie: I'd rather not announce my plans to the
market. We think the stock is really under priced. I
mean it's back to levels of two or three years ago,
when the company is so much stronger and has so many
more fundamental assets and so much great opportunity
right now, so you could put me in a buyer
classification.
J. Lawrence: Okay. Tim, could I have a follow up here?
T. Engle: Fine.
J. Lawrence: Yes, Tim, could you comment a little bit on
the database marketing, is that more of a critical
issue, obviously those are customers that have bought
from you than actually some of the other initiatives.
T. Engle: It's critical, one reason is because we've not really
leveraged that before, so it's a totally new revenue
stream to us. What we're trying to accomplish is to
increase our repeat buying from our customer base.
And that obviously leverages our fixed cost much more
effectively than not.
So if we could increase repeat buying, which we have
shown that if we go out and solicit our customers
more aggressively through direct marketing campaigns,
we've had a lot success with that, through e-mail,
through direct mail, through package stuffers and up
sale programs, even in our call centers.
So we've got a lot initiatives that Debbie's working
on that we feel is going to be a significant,
positive addition to not only revenue, but also
bottom line.
J. Lawrence: And from a competitive standpoint, are you willing to
comment on some of the new products for the fall?
T. Engle: I will just say, watch our network.
J. Lawrence: Okay. I understand. Thanks, guys.
T. Engle: Thank you, John. Watch and buy.
Coordinator: Our next question comes from Ned Armstrong.
N. Armstrong: Yes, I would like to, in view of you and
Value Vision being the two similarly sized home
shopping entities, could you contrast your model with
Value Vision, your business model, and explain why
you think it's better?
Mr. Lillie: Well we've for some years targeted more male
customers. And I think Value Vision is much more
comparable to QVC and Home Shopping Network and their
percentage of female customers is much higher, it's
my understanding is that it's close to 80%. And
Value Vision over the years has had as much as 70% of
their sales as jewelry. At times almost 60% of our
customers have been male and we're the only
competitor in that space, selling to men. So that's
the primary difference.
We have higher price points, as Tim indicated, they
got too high. And we narrowed our customer prospects
and so we're bringing that down quickly and it's a
major focus of Tim and his group's merchandising
strategy going forward.
It's hard for me to comment on Value Vision's present
strategy, I know that they had planned to launch
SnapTV, I think they've settled those plans, which
was to sell more infomercial kind of time, rather
than live direct marketing. That doesn't work for us,
I'm not sure if it works for them or not, but I can't
speak to what they're doing.
But we primarily differentiate ourselves in targeting
men, you know you fish when the fish are biting, we
have lots of males, particularly overnight. We sell
as much sports collectible products as probably
anybody in the world. But we're also improving our
jewelry business, and jewelry is growing now as a
percentage of our total revenues, we've got some
excellent merchandising and lower price points there.
So we're seeing growth out of that female base
customer as well.
N. Armstrong: Just as a follow up, it seems they've
achieved some success with the addition of a
strategic partner. Would you pursue the same type of
arrangement, do you think it could be very successful
for Shop at Home as well?
Mr. Lillie: We're open to any discussion that will
enhance shareholder value, and clearly that appears
to have been a very smart move for Value Vision, we
applaud them on that, NBC looks to have been a great
partner for them. We have capabilities, we have
infrastructure, we have the experience that not many
media companies have.
We think that we could be a great asset and our
stations could be a great asset and our merchandising
could be great assets, particularly as we look
forward into change that enhanced broadcast in
contextual commerce and the opportunities of
overlaying commerce over entertainment programming.
We see the networks doing it more and more and we
think we're very well positioned to be able to
compete in that environment in the future. And that's
forecasted to be a much larger business than the
business that we're competing in today.
And it speaks a lot to what we're accomplishing in
the convergence of our network and Internet
operations, in the interactivity there. And that will
serve us very well into that t-commerce era.
N. Armstrong: Okay, thank you.
Mr. Lillie: Thank you, Ned.
Coordinator: Our next question comes from John Ray.
J. Ray: Just a question for Tim. You've done obviously a
terrific job in assembling a pretty strong collection
of exclusive vendor relationships on
collectibles.com. And I'm wondering, now that you're
really running both sides, the extent to which you
can migrate some of these exclusive vendor
relationships over to the broadcasting side.
T. Engle: Yes, actually it makes it a lot easier, and that's
part of what the convergence platform was all about.
In that now that all of programming and those vendor
relationships fall under my group.
What we're doing now is we are testing more of those
products and those manufacturers on the network, to
try and create that awareness with our current
customer base, that hey we do sell a lot of different
products other than what you used to see on the
Network. And that's one of the things where you have
success with some manufacturers and brands and not as
much with the others. So what we're trying to do is
efficiently and effectively find out where those
hotspots are, and that's one thing Marshall has been
working on since he brought that group over about
eight weeks ago.
J. Ray: One other question, it sounds like everything
you're doing, when you add it all up, is aimed at
improving your sales per household versus really
growing your household much more dramatically. Give
me your comments on that and then maybe what you
anticipate your sales per household to be, maybe a
year from now.
Mr. Lillie: Well as you know John, seven years ago when this
management group took control of this company, we
were essentially in zero cable households, and over
those seven years we've built that to 25 million
FTE's, we finished the year at right around 25
million.
And today, right now the focus is on making those 25
million more efficient, to eliminate the
non-productive and have only profit generating
households. So we expect the FTE count to grow less
fast this year, but to continue to grow, continue to
move up. And naturally we want to convert as much of
our part time carriers to full time carriers as we
can, because there's a lot of benefit accrued to us
on that. And of course a major part of our strategy
is that those households provide a tremendous
promotional platform for collectibles.com.
In the meantime, as I believe the K points out and
the release points out, our same store sales in our
six owned and operated stations continue to grow, and
have in every quarter that we've owned them. So those
continue to be a more and more efficient acquisition
and generate additional cash flow every quarter for
us. But we want to first make that total FTE base
profitable, every household.
So if we have an opportunity to bring in 100,000 new
households, we'll eliminate or renegotiate the bottom
100,000 in terms of productivity and bring the whole
group up in terms of cash contribution and then
margin contribution.
J. Ray: Okay, so again, after you've had a year of this,
what would you anticipate your sales per household to
be, you know on a run rate a year from now? Not
necessarily for the quarter, the fourth quarter of
next year, but what's your goal for a year from now?
A. Tek: Well John, I had mentioned before with my prepared
comments that I believe that we'll get to the bottom
line profitability by the fourth quarter of this
fiscal year. And that's not postulated on a big
increase in the revenue per household, that's
postulated on cost cuts, that's postulated on margin
improvements and there's a moderate increase in the
revenue per household. But it would still be below
our nearest competitor, Value Vision.
I believe in the 10-K you'll see we're in the low $9
range, and to become bottom/bottom line profitable by
the end of the fiscal year, we're looking at around
$10 per home.
J. Ray: So I guess getting further improvements in revenue
per household then to what you'd really like to have
on a long-term basis, are obviously really more
additive.
K. Lillie: That forecast we think is modest, the benefits that
accrue and the profit that accrues to us in increased
revenue per household is astonishing. Just a dollar
more revenue per average household adds another $25
million of total sales to the company, and should be
able to be additive without a corresponding increase
in cost. So it is the most important driver in the
company is revenue per household, clearly. Tremendous
benefits accrue to us as we push that up.
J. Ray: Thank you.
Coordinator: Our next question comes from John Lawrence.
J. Lawrence: Tim, on the database marketing, are we any closer
to seeing any kind of outbound program?
T. Engle: Yes. When you say outbound, what do you define as
outbound?
J. Lawrence: Well, just where you're making the call.
T. Engle: Yes, we actually are testing some outbound programs
now. And not necessarily in house, but we're
looking at ways to make that more effective and
learn that process, but we are doing some of that.
But more effectively, we're finding for cost and
profitability, you're more effective at doing, given
our hot customer database, that we can market to them
in direct mail and e-mail much more efficiently
and bring more profit to the bottom line. That's
where we're focusing in a lot of our time on.
J. Lawrence: Okay, thanks.
Coordinator: At this time sir, I show no further questions.
K. Lillie: Thank you all for joining us then today. We
are going to do a live chat on collectibles.com
beginning at 10 o'clock Central.
A. Amiri: And we will also have an instant replay number for
this conference call. That number is 888-566-0479.
I'd like to thank Mr. Engle, Mr. Tek and Mr. Lillie
and all of you for your time. We wish you a nice
weekend.
K. Lillie: Thank you very much.
Coordinator: Thank you all for participating in today's conference
call, have a good day.