Qurate Retail, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Curate Retail, Inc. 2022 Q2 earnings call. During the presentation, all participants are in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star 1 on your telephone. As a reminder, this conference is being recorded August 5th. I would now like to turn the conference over to Courtney Chun, Chief Portfolio Officer. Please go ahead.

Thank you. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent forms 10-K filed by our company and QVC with the SEC. These forward-looking statements speak only as of the date of this call, and Curate Retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein. to reflect any change in Curate Retail's expectation with regard thereto, or any change in events, conditions, or circumstances on which any such statement is based. Please note that we have published slides to accompany the earnings release. On today's call, we will discuss certain non-GAAP financial measures including adjusted OIBDA, adjusted OIBDA margins, free cash flow, and constant currency. Information regarding the comparable GAAP metrics along with required definitions and reconciliations including preliminary notes and Schedules 1 through 4, can be found in the earnings press release issued today or our earnings presentation, which are available on our website. Today, speaking on the earnings call, we have Curate Retail President and CEO David Rawlingson, Curate Retail Group CFO Jeff Davis, and Curate Retail Executive Chairman Greg Maffei. Now I'll hand the call over to David.

Thank you, Courtney, and good morning to everyone. Thank you for joining us today and for your interest in Curate Retail. We are continuing to experience the weakness in the macro environment that is affecting all of retail, as well as some particular issues that uniquely impact our business model. We are also gaining a better understanding of the many ways that the Rocky Mount fire affected our operations and are working our way through those issues. Total company revenue declined 13% and constant currency in Q2. Macro headwinds of inflation, The war in Ukraine and rising interest rates impacted consumer sentiment. Supply chain challenges and the downstream impacts from the Rocky Mount fire continued to force us to change planned product offerings on short notice and affected the availability of quality merchandise and our operational efficiency. In the U.S., QVC and HSN shifted approximately 75% and 60% of their today's special values, or TSVs, and today's specials, or TSs, respectively. Our TFDs and TSs are the driver of engagement around which today's programming is built, so changes at short notice have an outsized effect. Given the supply chain and Rocky Mountain challenges, our order-to-delivery times were elongated, which does impact our customer satisfaction, although those challenges are moderating. Total company adjusted EBITDA declined 38% in constant currency at Q2, primarily reflecting lower unit volume. This pressure was heightened by cost inflation for freight, labor, and marketing, as well as our inventory reduction actions. The simple truth is that we have been experiencing cost deleverage in an inflationary environment and are just now able to start to push the counter some of the deleverage. Jeff will discuss each of our four businesses in more detail shortly. While it will take time to show up in the numbers, I do want to talk about four key developments that demonstrate the progress of our turnaround. First, at our June investor event, we unveiled Project Athens, a three-year plan to establish revenue stability, EBITDA margin expansion, and incremental free cash flow generation. We established fiscal 2022 as our base year, where we set the foundation for top and bottom line progress through 2024 while navigating the current challenging environment. We are already starting to make progress here, which I will discuss in more detail shortly. Second, we have very substantially augmented our executive staff and talent with the addition of a president of our streaming business and a chief merchandise officer for QVC US. We'll have more to say about these additions at Liberty's Investor Day in November. These hires further validate our business model as the leader in human-centric retail and show that our story is attracting top talent. Third, our free cash flow improved materially from Q1's use of $244 million to positive free cash flow of $107 million. We reduced debt and leverage ratio as well. Operating cash flow increased $300 million sequentially from a use of $179 million in Q1 to a positive $121 million in Q2, driven primarily by working capital improvements. These gains were bolstered by certain discrete items that Jeff will discuss in more detail. Fourth, as I look at our Q2 performance, we see some initial signs of stabilization at QXH. The rate of revenue decline moderated within the quarter. We also saw the rate of decline in our customer count stabilize compared to Q1. Clearly, we have much work to do, and we do not anticipate our recovery will be a straight line, but the early signs of declines in the rate of revenue decline are encouraging, particularly considering the challenging macro environment. We are making early progress at correcting executional weaknesses throughout the organization and have started to implement several initiatives laid out in Project Athens. We've started to see some tangible progress and are confident in our go-forward strategy for Curate to create engaging and deeply personalized shopping experiences for our customers while enhancing returns for our shareholders. Let me now provide a progress update on the five pillars of Project Athens. I'll start with pillar one, which is to improve customer experience and grow relationships. In Q2, QVC and HSN customers remained engaged as average daily reach and total minutes views increased year-over-year and sequentially from Q1. Our reach and attention are as strong as ever, evidence of our powerful and unique retail assets. Re-engaging with our incredibly loyal and powerful customer base is key to our success. QXH customer count declined to 9.5 million for the last 12 months ending June 30th. As detailed on slide eight, we experienced a meaningful increase in customer count during the pandemic. Compared with the pre-pandemic period, June 2019, 75% of the customer count decline is attributable to new and reactivated customers. Those reductions are primarily due to low product availability in categories such as consumer electronics and home subcategories that are highly correlated with new customer acquisition. The pressure in these cohorts was also due to marketing cost inflation and reduced marketing efficiency. Our existing customer cohorts look strong across a number of metrics, including frequency of purchases, viewership, and spend per customer. When we introduced Athens, we said that we had underserved our best customers. In April, we began making proactive outbound calls to our top-tier customers to reinforce their importance to us and gain their perspective on how we can better serve them. In June, we celebrated QVC's 36th birthday by providing 10,000 of our top customers with a $20 account credit, valid during our birthday week. At HSN, April was Customer Appreciation Month and featured weekly VIP savings for our HSN cardholders, and in July, we celebrated HSN's 45th anniversary with a new, simpler exchange policy. We've started to improve personalization efforts as well. We installed a new recommendation engine on our web, mobile web, and in our apps to improve the level of personalized product suggestions. At QVC, we launched our first trigger push notifications in June, which sends a tailorized, personalized notification through our push messaging based on a user's activity on our app. And finally, we ran semi-personalized campaigns on our website to drive urgency and impulse. We sent messages to people who added an item to their cart that the TSV price would end that day, and as a result, we experienced a low to mid single digit increase in conversion in June. We also expanded the customer relationships by capitalizing on our newly signed ION distribution agreement, which reaches 15 million additional homes. Moving to pillar two, which is to rigorously execute core processes. With respect to pricing, we had multiple pricing tiers between sale and TSV pricing, which confused customers. As a result, The customer's value perception of the TSV and TS was eroded. In July, we began putting the today and the special back in the TSV and TS by shortening their availability to only one day and offering our best price, driving a greater sense of urgency. We are reclaiming that deal feeling by establishing and communicating clear rules so our customers know our TSV and TSs are the best price. In support of our strategy, we will also be adjusting our programming with new hosts and the return of guests to our studios in Q3. We are also actively working to freshen our assortment. In Q2, we demonstrated the ability to expand our assortment by leveraging our in-house capabilities and intellectual property, adding third-party brands, and developing brands with celebrity talent. We added new brands at QVC that performed well, including Studio Park, Land's End, Sports Savvy, and Encore by Dena Menzel. We also benefited from expanding Kim Gravel into swimwear and beauty. We are excited to announce a new agreement with Fanatics, which will start on HSN with plans to expand to QVC US as well. This agreement provides us access to a broad selection of merchandise from Fanatics across sports, styles, and sizes on a dropship basis. One-third of the merchandise Fanatics provides us will be exclusive to HSN and QVC over a five-year period, and we will have two Fanatics TSs or TSVs per year. Why is Fanatics interested in working with our female-focused brands? Because their customer base is remarkably diverse. They have the industry's best selection of products for women, and because we have historically had an extraordinarily strong sports business around unique events like the Super Bowl, where mom often seeks to outfit the full family. Pillar three is to lower the cost to serve. Project Athens is a transformational program designed to improve gross and operating margins and cash generation. We identified multiple avenues to generate hundreds of millions of dollars in net adjusted OIBA dot dollars over the next two to three years. Many of these programs are already underway and others will be implemented in the second half of the year. We expect to see the impact of these efforts flow through in 2023 and pick up momentum in 2024. We have taken a series of actions to optimize our balance sheet and improve liquidity. In June, we completed a cash tender offer for over 70% of our 2023 senior notes. We financed the tender offer with cash on hand and capacity under QVC's senior secured revolving credit facility, an efficient funding source given the dislocation we've seen in the bond markets. Project Athens is a three-year plan and includes strategic initiatives to improve our balance sheet leverage and cash flow. to make long-term decisions in the best interest of the company and our shareholders. In June and July, we entered into several sale-leaseback agreements for real estate assets, including our Studio Park corporate headquarters and broadcast studios, as well as our fulfillment centers in Ontario, California, Piney Flats, Tennessee, Florence, South Carolina, and Suffolk, Virginia. We raised after-tax proceeds of approximately $685 million and entered into long-term operating leases at attractive rates that will continue to serve our needs while maintaining operational flexibility. We reduced debt with the proceeds from the sale leasebacks. As we previously communicated, we made the decision not to rebuild our Rocky Mountain Fulfillment Center. We are now redesigning our next generation network that will satisfy consumer expectations, leveraging a node-based delivery system with more balanced geographic dispersion and adding 3PL fulfillment capacity. We expect our in-state network will be more efficient and less expensive to operate, while also delivering on the improvements we need to see on our customer shift times. Over the next 24 to 36 months, we expect to materially reduce order-to-delivery times. At full execution, our objective is for more than 90% of orders to be delivered in five days, and the vast majority in three days or less. Importantly, we intend to use insurance proceeds from Rocky Mount towards funding our ongoing fulfillment center network optimization. Pillar four is to optimize our brand portfolio. As we've stated, the best way we can create value in the short term from our broader portfolio is to return Zulily to growth and profitability, as well as to sustain Cornerstone's momentum. We have strong leaders at both businesses and each is focused on executing their individual plans. We'll be open-minded as to what unlocks the most value for our brands and our shareholders. At Zulily, Terry Boyle, its new president and CEO, is already making an impact. In the second quarter, the team executed cost actions across multiple fronts with a focus on resetting the unit economics and the business. We reduced corporate headcount in May approximately 15%, including open roles, which is expected to generate annual savings of approximately $18 million. Zulily completed its planned closure of its Pennsylvania fulfillment center in early July. This action is anticipated to generate $10 million of annual savings. We also reduced marketing spend given dramatic cost inflation and diminishing returns, and we are actively working to redeploy that in a more efficient manner across more diverse channels, including influencers, top of the funnel TV advertising, and search engines. I believe we are pivoting from a period in retail with historic supply shortages to one of excess inventory, and we expect Zulily will be a beneficiary. The team has had extensive conversations with numerous brands interested in establishing a relationship with Zulily, some of which you may already have seen on our site. including Eddie Bauer, Kenneth Cole, Keen, Sweaty Betty, and Third Love. Cornerstone sustained revenue growth with record revenue at each of its four brands. This growth was driven by strength in the bath, case goods, home furniture, soft textiles, and apparel categories. We remain excited about the momentum of this business and look forward to opening three additional retail stores this year. Pillar five is to build new high-growth businesses anchored in our strengths. This is about participating in the fastest-growing segments of our addressable market, streaming on the big screen, and live stream shopping focused on the small screen. Earlier this year, we established the Video Commerce Ventures Group, vCommerce Ventures, which now owns our streaming experience. We recently introduced QVC Plus and HSM Plus, our new streaming service experience designed to reach new and existing customers via the web. Through these new websites, we will reach more customers across digital platforms and link them straight to the streaming experience, which features great content, daily deals, and exclusive offers that in turn will hopefully drive them to engage on our streaming apps on TVs. We continue to experience strong growth in monthly active users of our streaming service. And we continue to expand distribution. We are pleased that we have signed a new deal to bring HSN to YouTube TV, a leading streaming platform with more than 5 million subscribers and trialers as of the end of Q2. HSN will join QVC on YouTube TV. To wrap up, we are pleased with the initial signs of declines moderating at QXH, the addition of key talent to our leadership team, and the initial progress on Project Athens initiatives at QVC, HSN, and Zulily, as well as the sustained momentum at Cornerstone and QVC Japan. Importantly, we fortified our balance sheet and increased our liquidity position. We recognize there is much work to be done, and we are motivated and confident on our ability to deliver on Project Athens. We look forward to reporting our progress and future calls. Now, I'll turn the call over to Jeff for a more detailed review of each of our businesses.