Qurate Retail, Inc.

Ladies and gentlemen, welcome to the Curate Retail, Inc. 2023 year-end 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 February 28th. I would now like to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead.

Thank you and 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 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 Form 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 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 gap 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 turn the call over to David Rawlinson. David Rawlinson.

Thank you, Shane, and good morning to everyone. Thank you for joining us today and for your interest in Curate Retail. 2023 was a transformative year for Curate with a number of key achievements. In mid-2022, we were facing substantial challenges across the business and announced Project Athens to improve our execution, reinvigorate our core value proposition, and return to significant OIVDA and free cash flow generations. We implemented initiatives to refresh our assortment, sharpen our pricing, enhance our programming, improve our productivity, and reduce our cost to serve. I'm thrilled to say that the initiatives we put into action have yielded strong, positive results, as evidenced by the adjusted OIVA dot growth we experienced in the second half of 2023 and the free cash flow generation over the year. We are encouraged by these results and look forward to continuing the momentum into 2024. Let me share several highlights from 2023. First, as anticipated, we generated strong adjusted OIVDA growth in the second half of the year with Q4 adjusted OIVDA of 73% as reported. This was primarily due to meaningful gross margin expansion of more than 200 basis points in 2023 with gross margin expansion for the last three consecutive quarters. We substantially improved our merchandise assortment with higher quality products, which resulted in higher average selling prices and product margins. Fulfillment expense was favorable as a result of renegotiating ocean shipping and in-market freight rates and executing a number of productivity enhancements. We reduced our inventory balance 22% year over year making room for a pressure assortment and newer products, which benefited inventory obsolescence expense for the year. We also took down administrative costs at each of our businesses. Second, we divested Zulily in May, delivering on pillar four of Project Athens to optimize our portfolio. Zulily had negatively impacted our profitability and cash profile with a $97 million adjusted OIVA loss in 2022. The divestiture simplifies our portfolio and benefits our go-forward liquidity while allowing management to focus on our remaining businesses. Third, we increased free cash flow $586 million in 2023. In the first half of the year, this was mainly driven by working capital improvements from accounts payable and inventory reduction actions. In the back half of the year, our free cash flow generation was from significant adjusted EBITDA growth. Finally, we reduced gross debt by approximately $1 billion in 2023, fortifying our balance sheet. This proves the business's ability to deliver on our commitments. We have fundamentally improved our execution capability through our transformation initiatives. As we enter 2024, We have confidence in our ability to sustain momentum in creating a more streamlined, profitable, cash-producing, and relevant company. Taking a closer look at fourth quarter performance, we built on continued momentum coming out of Q3 with strong adjusted EBITDA growth and gross margin expansion of 550 basis points. At QXH, revenue declined 4%. Units declined as we comped significant inventory liquidation sales from last year and from continued industry softness and consumer electronics. We also made deliberate choices to drop higher average selling prices and gross margins and to shift the category mix. This reduced revenue, but the resulting revenue had higher initial margins, which offset lower volume. In the U.S., similar to our retail peers, we did see customers start their shopping later in the holiday season. However, when the shopping did kick off, we had strong sell-throughs and key events which drove sales. We are pleased that QXH grew market share as top-line performance largely outpaced discretionary retail for the second consecutive quarter. Throughout the year, we have maintained focus on obtaining new, higher-quality inventory that would excite our customers and provide them with value. We reinvigorated our programming and honed the special relationship our customers have with hosts, which led to continued high engagement, growing total linear minutes viewed 15% compared to the prior year. Moving to QVC International. We are proud to report QVC International grew constant currency revenue and adjusted OIDA for the second consecutive quarter in Q4. We experienced particular strength in the UK as inflation in Europe is stabilizing. Adjusted EBITDA growth was driven by improved product margins, rate efficiencies, and inventory management. Bill will provide more details. As we've said previously, QVC International is executing a series of initiatives that are on track to deliver substantial adjusted EBITDA improvement, reaching run rate through 2025. These initiatives include workforce reductions taken in Europe in the second half of 2023, as well as steps to optimize the organizational structure, draw margin opportunities, and improve broadcast and content strategies. One of the key initiatives in 2023 was the launch of integrated experience. It aims to turn QVC International into a seamless, integrated, and immersive digital experience. In the UK, Our initial focus is gardening, and in Germany, food and kitchen. Both have shown positive customer engagement and driven increased sales in their respective categories, and we believe we can scale to other category segments and markets over time. At Cornerstone, our businesses are focused on furniture and home decor, both of which are driven by new housing starts and household moves. With housing starts and home sales at historically depressed rates, Cornerstone's top line has been persistently impacted. In this difficult environment, we maintained our focus on cost management and generated substantial adjusted order die growth in the fourth quarter. The improvement was primarily due to favorable supply chain costs, as well as lower catalog and personnel expenses. Expanding physical retail presence has been a successful tool for driving sales, deeper customer engagement, and better access to design services and improved conversion. We opened two new retail stores in Columbus, Ohio, and Denver, Colorado, and relocated one in Q4. Back in the U.S., we saw strong performance in our streaming services, QVC+, and HSN+, in Q4, and throughout the year. Total minutes viewed on our own platforms and fast channels increased 23%, to $3.6 billion, representing 5% of our total U.S. minutes viewed in 2023. We see real opportunity in our streaming business. Though still a small percent of our overall revenue base, streaming revenue grew more than 50% in 2023. We see similar growth rates continuing into 2024 as the business begins to scale. Let me now address our customer count. As I will describe, we have seen substantial stabilization in our customer count and encouraging signs of customer behavior. We believe that we have the customers we need to execute on Project Athens. Consistent with historical averages, QXH existing customers made up half of total customer count that generated 90% of 2023 sales. They purchased 31 items in 2023, and spent $1,600 on average. The strength of engagement is even more evident in our best customers at QVC-US, who are defined as purchasing at least 20 times a year. They were 17% of the count, but generated 76% of the sales in 2023. They purchased on average 76 items in the year and increased their average spend 9% year-on-year to $3,900. We substantially moderated the rate of decline in the customer file as we progressed through 2023. We've moderated the sequential decline of our trailing 12-month count to down less than 100,000 from Q3, compared to down nearly 400,000 from the same period last year. Lastly, we began acquiring more new customers. New customers grew for the second consecutive quarter in Q4, with growth accelerating to 21%. We are utilizing several channels to incentivize additional purchases among our new customers. To share just a few examples, we are sending welcome emails to introduce our hosts, top deals, and frequently purchased items. We are leveraging improved analytics to expose new customers to personalized content, brands, and categories based on their interactions with us. And we have developed a next purchase direct email piece that features our top national brands in various ways to watch and engage with QVC. Rather than growing the file with expensive to obtain and hard to retain transient customers, for now, we are concentrating on stabilizing our customer file, retaining our best customers, and returning to new customer growth year over year that will contribute to customer file growth over time. We believe this is the prudent and profitable path and gives us the stability we need to continue to deliver on Project Athens in 2024. We also believe it sets us up nicely for customer file growth in 2025. Now, I would like to touch again on why Curate's business model is differentiated across retail and the value we bring to customers, vendors, and celebrities. Starting with vendors. Our platform continues to be very attractive to both new and existing vendors. We move meaningful volume and provide a scaled platform to connect with customers on a personal level and share product stories. We had impressive sell-through rates in Q4 across a range of price points, and in particular on higher-end products where we were able to demonstrate compelling value for unique products. For example, at QVC, We offered firelight lab-grown diamonds from two carats to nine carats, ranging in price from $1,300 to $5,000. The entire collection was well-received, selling out across sizes and products, including a sold-out non-carat tennis bracelet. We also sold $5.7 million of a Ninja wood-fire electric smoker and outdoor grill, moving 19,000 units priced at $300 apiece. At HSN, we sold out of a Day Mac e-bike with a price point in excess of $1,000 over Black Friday weekend. At Home Decor, we sold $6 million of a Barefoot Dreams luxury throw on Cyber Monday. In Beauty, we sold 40,000 units of an Elemis cream in one day and 114,000 units of a Beatman and Philosophy gift set in two days. The scale of this platform is very difficult to replicate and attractive to existing and new vendors. We debuted a new brand in tights, Sheertex, selling 2.4 million in just a couple of hours. We introduced a new leather handbag and luggage brand, Halkin, that sold $340,000 in 11 minutes. QVC and HSN have always been a home for celebrities, engaging personalities, and entrepreneurs. We welcome many familiar and new faces in the fourth quarter with a great pipeline plan for 2024. At QVC, Lawrence Zarian launched Beautiful, an exclusive fashion collection of dresses, outwear, and accessories. In connection with the launch, we conducted a satellite media tour with a nationally syndicated segment on Extra. At HSN, we teamed up with legendary singer Dolly Parton for the presale of her debut rock album, Rockstar. Iconic singer Chaka Khan launched her own perfume. Singer Catherine McPhee debuted her jewelry line, Radiance, by Absolute. Aaron Andrews launched her sportswear line. Wolfgang Puck celebrated his 25th year with HSN with a new cookware line. During his time with HSN, he has generated more than $600 million in sales. Numerous other celebrities have teamed up with us recently, and our 2024 celebrity lineup is fantastic. In January, Scarlett Johansson debuted a new beauty line called Outset. Actress Christina Ricci came on air as the new brand ambassador for Lancer Skincare. In March, self-taught cake artist and social media influencer Yolanda Gamp who has 4.5 million YouTube subscribers and 2.8 million Instagram followers, will introduce a new bakeware line. Many other celebrities will join us this year, and we look forward to sharing more on future calls. And finally, we continue to provide value to customers through compelling product values, exposure to their favorite hosts and celebrities, and importantly, our engaging programming. Our programming is enhanced by destination and must-see events, especially around the holiday season. We hosted a 49-hour nonstop holiday party across channels and platforms with fun holiday shopping and special pop-in personalities. 680,000 customers shopped the weekend, including more than 40,000 new customers. The event generated 81 million views across social platforms. It features several live streams, including Holiday Guide to Get-Togethers with Jenny Garth, Holiday Head to Toe Style with experts, Sandra Lee's Hot Chocolate Cocktails, and Holiday Recipes in 30 Minutes with Fabio Bovani. We have also appeared on other powerful platforms to fuel engagement. QVC hosts presented gift ideas on popular talk shows, including the Drew Barrymore Show and the Tamron Hall Show, to promote our holiday gift-a-thon. We remain excited about the value proposition that makes QVC and HSN unique and will continue leveraging this model as we expand across platforms. Finally, I want to discuss an organizational change we announced yesterday. I'm pleased to announce that Stacey Bowe will be taking over as the president of HSN. Stacey has been serving as the chief merchant at QVC US since joining the company in 2022 and has been one of the driving forces behind the improvement at QVC, including rapidly recalibrating our buying program, improving our inventory levels, and bringing freshness and newness to the assortment. Prior to QVC, Stacey had a decorated career at G3 Apparel Group and Macy's. I would like to thank Rob Muller, for his distinguished 23 years of extraordinary contributions to the company, including serving for the last two years as president of HSN. In summary, our business reached an inflection point in the third quarter of 2023. We have made substantial progress in stabilizing revenue and growing cash flow and profitability. We look forward to continuing to drive improved results in 2024 while preparing the business for its future of multi-platform growth. Now I'll turn the call to Bill to discuss the financial results of each of our businesses in more detail.