Qurate Retail, Inc.

Welcome to the Curate Retail, Inc. 2023 Q2 earnings call. During the presentation, all participants will be 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 will be recorded August 4th. I would now like to turn the call over to Shane Kleinstein, Vice President of Investor Relations. Please go ahead.

Good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Security of 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 and 10-Q 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 expectations 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 margin, free cash flow, and constant currency. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary note and schedules one through three, 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 Rawlinson, Curate Retail Group CFO Bill Wofford, and Curate Retail Executive Chairman Greg Maffei. Now I'll hand the call over to David Rawlinson.

Thank you, Shane, and good morning, everyone. Thank you for joining us today and for your interest in Curate Retail. As we've discussed, Project Athens is our strategic multi-year framework to transform QRA retail, focused on double-digit growth in EBITDA, free cash flow, and stabilized revenue through 2024 off of a 2022 baseline. We are executing on this plan with a focus on cost and margin initiatives in 2023. Our top line results in the second quarter were largely in line with the discretionary retail industry. Consumers are still mindful of their budgets. Inflation remains a factor, particularly in Europe and now in Japan, and the home industry continues to be quite promotional, which impacted all of our businesses, most notably Cornerstone. According to the University of Michigan survey, consumer sentiment in the U.S. declined sequentially in Q2 and remained well below the past decade's average. This contributed to softened top-line results against a difficult retail backdrop, offset by moderation in our adjusted OIDA decline and improved cash flow. We progressed on our turnaround plan and delivered four important points within the Athens framework through Q2. First, we increased free cash flow $423 million year-over-year in the first six months of 2023. Approximately half of this increase was from the receipt of insurance proceeds, while the other half was a result of our working capital improvements. Consistent with our communication at Investor Day last November, this cash flow improvement reflects favorable working capital from inventory reduction efforts and the subsequent benefit to our accounts payable. As we look to the second half of 2023, we expect to generate additional gains in adjusted OIVDA from our Athens workstreams, which will continue to benefit cash flow. Second, we divested Zulily in May. One of the pillars of Athens is to optimize our portfolio. Zulily was challenging from a revenue perspective and was a significant contributor to our OIVDA pressure, with a $97 million OIVDA loss in 2022. The divestiture simplifies our portfolio, allows management to focus on our core business, and benefits our ongoing liquidity profile. Zulily is included in our Q2 results through May 23rd. Third, the rate of adjusted EBITDA decline moderated compared to the first quarter, primarily driven by higher gross margins at our video commerce businesses. QSH saw an increase in gross margin for the first time in 24 months and QVC International for the first time in 18 months. These gains were mostly from increased initial product margins due to higher average selling prices driven by pricing and better merchandise mix. We also benefited from lower inventory obsolescence and freight costs because of our inventory reduction and other cost management actions. Fourth, we retired a portion of our near-term QVC debt maturities. We repurchased $177 million, or 30 percent, of our outstanding 2024 notes and $15 million of our 2025 notes. We also settled $94 million in principal amount of exchanges of the Liberty Interactive Charter exchangeable debentures. Now let me discuss each of our businesses, starting with QXH. I'm pleased to report that we finalized our insurance claim related to the December 2021 fire at our former Rocky Mountain, North Carolina fulfillment center. At the end of June, we received $225 million in proceeds, primarily related to business interruption, which takes our total insurance proceeds received to $660 million. The fire had a material downstream impact at QXH that has impacted our financial results over the past 18 months. We have worked through many of these pressures. Our order-to-delivery times have improved from pre-Rocky Mount levels, but there is still room to improve our service promise and operating efficiencies given Rocky Mount was our most efficient fulfillment center. From a merchandise perspective, our top-line performance indexed to the broader industry and was affected by the macro factors I mentioned earlier. Both QXH and other retailers experienced softness from a cold Easter with the holiday being earlier than in 2022. In addition, QXH inventory was too light in certain areas like apparel and kitchen electrics in Q2. We have bolstered our inventory position across key categories going into the back half of 2023. At QXH, gross margins expanded 130 basis points in Q2, which was the first quarter of expansion since Q2 2021. Average selling price increased 5%, primarily due to price increases and our elevated product strategy. We continue to act on cost management. QXH reduced its operations direct labor force by 8% in May, which is expected to generate approximately $15 million of savings in the second half of 2023. This is in addition to the headcount reductions we did in February, which are expected to generate $50 million of savings in 2023. In addition, we recently signed a new multi-year agreement with our primary domestic small parcel shipping vendor. The new rates took effect in late July, and based on forecasted volumes, we anticipate significant savings on our delivery and return costs. QXH total customer count declined 13 percent in the last 12 months, while average spend per customer increased 6 percent in both the last 12 months and in Q2. The growth in average spend per customer reflects our efforts to re-engage our existing and most loyal customers. While we undergo efforts to attract and retain customers, we are focusing in the near term on leverage to increase spend. As shown on slide seven in our presentation, QXH existing customers were a little more than half of our customer base, but accounted for nearly 90% of our shift sales. They increased their average spend to more than $1,500, the highest since we formed QXH. At QVC, we defined our best customers as those who purchase 20 or more items in a year. While their count is down, they have largely performed better than the overall customer file in the last 12 months. As we said on our last call, We have many efforts underway to attract, retain, and reactivate customers, especially these best customers. In June, QVC created its Customer Hub, a cross-functional task force that comprises the business president and heads of merchandise, programming, planning, marketing, and digital. The team meets weekly to review business performance through the lens of the customer. We completed an in-depth customer segmentation and identified target cohorts across our new, existing, and most loyal customers. We are conducting pilots for engagement, including making proactive calls to reduce churn, providing samples of beauty products to prospective customers, mailing letters from popular hosts with special offers to emerging loyal customers, and sending timely emails to incent repeat purchases. While early, we believe we are making progress. HSN is taking a similar approach in developing more sophisticated customer analytics to better service customer cohorts with the right product and offer. Innovative and differentiated content continue to be hallmarks of our QVC and HSN brands. At QVC, we debuted Sizzling Summer with hosts Rick Domiere and Sean Killinger, a six-week series airing on Thursday nights that drove increased productivity and viewership trends. We are planning a fall version that launches this month. We also launched In the Afternoon with David, a five-week series designed to leverage the strength of our popular host, David Venable. Given the success of both, we are creating more limited series to drive excitement, urgency, and sales. At HSN, we collaborated with Wheel of Fortune on a week-long shopping spree that included apparel, accessories, and games broadcast on HSN, HSN.com, and HSN+. Vanna White wore HSN vendor Christian Seriano's dress and select HSN signature programs were featured as Wheel of Fortune puzzles. HSN posted its best week of 2023 during this collaboration. We continue to advance our strategic initiative to expand reach across new media and digital platforms. In the second quarter, we initiated our streaming experiences QVC Plus and HSN Plus on Vizio Smart TVs. combining the five QVC and HSN linear broadcast channels with three digital-only channels and original streaming-only content. We also launched QVC and HSN linear channels on Amazon's Freebie, offering approximately 40 hours a day of live video commerce programming. We are bringing our first fast channel to Freebie called the Big Dish, which will provide more focused experiences for culinary fans. Moving to QVC International, in Q2, we saw gross margin expansion for the first time since Q4 2021, driven by improved initial product margins that reflect a 5% increase in average selling price and improved product mix. QVC International is implementing a transformation plan similar to Athens, that is anticipated to generate approximately 45 to 55 million of run rate over the dot savings by Q1 2025. One piece of this effort is a workforce reduction in Europe that recently took effect. We expect this will create $9 million of run rate savings, of which 3 million is anticipated to benefit 2023. Additionally, The transformation plan is focused on optimizing the organizational structure, driving margin opportunities, and improving our current broadcast and content strategies. QVC UK launched the Integrated Experience in April. This scalable initiative aims to turn QVC International into the ultimate shopping destination for specific categories, with the UK's initial focus on gardening. This launch demonstrates our content creation capabilities across platforms and early signs have been encouraging. In July, QVC Germany began its version of integrated experience with a concentration on kitchen and food. Moving to Cornerstone, the overall home sector remained highly promotional and demand for most home categories was soft. We also incurred increased fulfillment costs related to opening a new fulfillment center in Arizona, and fixed costs related to opening new retail stores in the past year. While the rate of OIDA decline moderated compared with Q1, it was below our expectations. The Arizona Fulfillment Center opened in June, so we are no longer incurring these startup and duplicate fulfillment center costs. Like our video commerce business, Cornerstone is diligently managing costs In Q2, it eliminated 100 positions, which is expected to drive $10 million in annual savings, of which $4.5 million is anticipated to benefit 2023. In closing, I want to reiterate our Project Athens expectations for stable revenue and a double-digit CAGR for OIDA and free cash flow through 2024 compared to a 2022 base year. Our 2023 initiatives are primarily cost-driven and weighted towards the back half of the year, reaching run rate in 2024. We do not anticipate incurring the same level of cost for outside services in 2024. We also expect more revenue-driven opportunities in 2024. We are on track with these expectations. Thank you, and now I'll turn the call to Bill to discuss the financial results of each business in more detail.