Qurate Retail, Inc.

Welcome to the QVC Group 2024 Q4 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 27th. I would now like to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and good afternoon. 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 QVC Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in QVC Group's expectations with regard thereto, or any change in events, conditions, or circumstances upon 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 EBITDA, adjusted EBITDA margin, free cash flow, and constant currency. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary notes in Schedules 1 and 2, can be found in the earnings press release issued today or our earnings presentation, which are available on our website. Today speaking on the call, we have QVC Group President and CEO David Rawlinson, QVC Group CFO Bill Wofford, and QVC Group Executive Chairman Greg Maffei. Now I'll hand the call over to David.

Thank you, Shane, and good afternoon to all. Thank you for joining us and for your interest in the QVC Group. I'll begin today with the recap of fourth quarter results, then speak to the conclusion of 2024 and Project Athens before going deeper into our growth strategy announced at Investor Day. Total revenue declined 6% in the fourth quarter. Our top line performance saw continued volume pressure similar to the third quarter driven by linear television declines, a cautious consumer environment, and meaningful distractions in our TV viewership due to headline-grabbing events like hurricanes and the election. These events affect our sales far more than other retailers as a video-driven commerce platform, with the need for people to tune into our programming in order to drive sales. QXH TV Minutes viewed declined 4%, while across the TV industry, the number of hours watched for news and information programming increased 11%. QVC International had flat revenue, and Cornerstone Brands continued to experience sales pressure due to a soft housing sector in the fourth quarter. Volume pressures led to sales deleverage in Q4. We continued to actively manage costs, which partially offset some of the sales deleverage in the quarter. with total company operating expenses and SGMA declining 9% and 6%, respectively. At our core businesses, QXH and QVC International, we expanded adjusted OIBADA margin 10 and 170 basis points, respectively. QVC International was our best performing business in Q4, with OIBADA increasing 12% year on year. Cornerstone had a disproportionate impact to the QVC Group's consolidated OEBDA in the fourth quarter. While it was only 10% of total company revenue, Cornerstone's OEBDA declined 22 million, where a consolidated company total OEBDA decreased 28 million, or 8% year over year. Cornerstone made up three-fourths of the decline. Total company EBITDA margin contracted slightly, which included approximately 85 basis points of sales deleverage. Looking at the full year, we achieved several milestones. Importantly, we successfully completed Project Athens. Through 2024, we generated more than $500 million of run rate EBITDA improvement compared to the objective of $300 million to $600 million. We expanded OIBDA margins 220 basis points and improved free cash flow, excluding insurance proceeds over $500 million from 2022 to 2024. We took action to manage our costs while facing challenges from revenue headwinds in 2024, resulting in the second consecutive year of adjusted OIBDA growth. On a reported basis, including Zulily, we expanded gross margins 120 basis points year-over-year in 2024 due to product margin gains. We also reduced operating expenses by 8% and SG&A costs by 9% from lower commissions. We also reduced outside services and personnel costs. QVC International had a solid year, delivering stable revenue and adjusted EBITDA margin up 70 basis points. We drove strong growth in our streaming businesses, with monthly average users up 80%, minutes watched increasing 27%, and attributed revenue up 19%. We shifted our IT model to a managed services approach to improve productivity, increase innovation, and generate savings. We improved the balance sheet and reduced gross debt $442 million while also extending our maturity profile. And importantly, in mid-November, we introduced our social shopping strategy, which I'll discuss in more detail momentarily. Looking at industry data, we were in line with the discretionary market in the first half of 2024. Our revenue performance decelerated, particularly at QXH in the second half of 2024 compared with the first half, in part because of both anticipated and unanticipated headline-grabbing events leading to meaningful distractions in our TV viewership. Also, Cornerstone had continued challenges and the business, which led to an outsized margin impact on our consolidated results in 2024. Ultimately, these top-line pressures were more than anticipated and led to approximately 80 basis points of sales deleverage through the P&L for the full year and on a two-year basis. Looking at QXH customers on a quarterly basis, Total customer count declined 9% in Q4, reflecting a 7% decrease in existing and reactivated customers, as well as a 17% decline in new customers. We reduced performance marketing spend and promotions, particularly for gaming products. As you can see on slide 8 in our presentation, on a 12-month basis, count was down 3% for the 12 months ending December 31st. compared to the 12 months ended September 30th. This reflects the challenges I mentioned earlier, declining linear TV, changes in consumer media consumption, and the disruption of our TV viewership from events in the second half of the year. While count declined, QXH existing customers continue to purchase at healthy levels, spending on average $1,650 and purchasing 32 items in 2024. At QVC, our best customers who buy 20 or more items annually also continue to purchase at very attractive levels. In 2024, they spent $3,980 on average and bought 76 items. From a QXH merchandise perspective, we were pleased to expand product margins more than 100 basis points in 2024 despite the volume pressures. These gains were driven by Project Athens initiatives, including strategic pricing and product mix actions, as well as steps to improve product COGs. Before I review our go-forward strategy, let me reflect on the company during my tenure as CEO thus far. The business has been affected by a number of factors. The tragic fire at our Rocky Mountain, North Carolina fulfillment center cost QXH an estimated 1 million customers and $500 million in revenue. Cord cutting has reduced the number of linear homes we reach. Comparing 2024 to 2018, QVC and HSN's main channel reached 44% and 47% fewer homes, respectively. Through Project Athens, we took action to improve the cost structure, operating discipline, and cash flow capabilities of the company. We enhanced the portfolio with the divestiture of Zulily, while we also successfully improved the profitability under Athens. We did not, however, achieve stable revenue, and that is where we are increasing the focus going forward. In mid-November, we introduced a new strategy aimed at returning the company to growth over the next three years. We are moving faster to become a live social shopping company with a focus on balancing top-line growth with margin and cash flow discipline. Last Friday, we commenced our rebranding, changing our corporate name to QVC Grouping, bringing the household name we are known for back into our everyday language. On Monday, our equity securities began trading under their new ticker symbols. To succeed in social commerce, you not only need a social network and personalities, you also need the ability to create content, source merchandise, distribute product, and provide an end-to-end customer experience at scale. QVC Group is well positioned. We produce about 120 hours of live content daily, which is over 40,000 hours of content annually. We have expertise around brand and merchandising with about 400,000 products in our ecosystem. QVC-US and HSN present about 1,200 products per week on our live programming. And we have an established supply chain to distribute these large quantities of products. Across our businesses, we shipped more than 200 million units from 15 fulfillment centers to 13.5 million customers in 2024. Social commerce is an attractive market and a natural extension of our core capabilities. The social commerce market in the U.S. is projected to nearly double in the next five years based on research estimates. Behaviorally, there are a lot of core similarities between the QVC model and the way consumers engage with social content. Our today's special value is a daily discovery-based purchase that has inspired customers for decades. Similarly, 68% of purchases on social selling platforms last year were made on impulse. In short, Social scrolling is the new channel surfing, and we believe this behavior is very relevant for today's consumer. We are enhancing our core capabilities on social, where we already have a strong presence. QXH has a combined 7 million followers across Instagram, Facebook, TikTok, and YouTube. We are organizing our new strategy around three priorities to win in live social shopping. When is an acronym. W means we are going to drive live shopping content whenever she shops, wherever she shops and spends her time. I stands for inspiring people and products by creating the world leading live shopping content engine to inspire human connection with incredible merchandise. And N is about new ways of working. to unlock efficiency and fund expansion on new platforms. We are implementing our strategy and have taken a series of actions. We have recruited a chief growth officer to extend our sales, content, and celebrity expertise to the largest social platforms and to bolster our streaming app with our partners. This new leader will head up social, streaming, digital, new business development and platform distribution for QVC-US and HSN. We expect to announce more on this very soon. We must build a world-class content engine to be successful in social commerce. Therefore, we are consolidating our QVC-US and HSN operations into Studio Park in Westchester, Pennsylvania, and closing the HSN campus in St. Petersburg, Florida. This will allow us to create efficiencies and better collaboration across common functions, content production, broadcasting, merchandising, operations, technology, and people. Importantly, we will maintain the distinct brand identities of QVC and HSN. We plan to activate this consolidated operation over the coming months, launching HSN live broadcast from Studio Park by Q3. We anticipate our operations in St. Petersburg will wind down by the end of the year. We acknowledge this is a decision that affects many, but believe it is the right step to achieve success. I'd like to thank the St. Petersburg community for its support over many, many years. At the end of January, we realigned our executive leadership team to work more efficiently, build new capabilities, create better customer experiences, and pursue growth faster. Mike Fitzharris now also leads QVC US and HSN broadcast and content production teams, as well as global operations, technology, and people. Mike will also continue to serve as the president of the QVC US brand. We are also consolidating our US merchandising leadership. Stacey Bowe now leads buying, planning, programming, and brand marketing for QVC-US and HSN. She also serves as president of the HSN brand. Having realigned our executive leadership team, we are looking at the rest of the enterprise to fund and build the needed capabilities. We are pursuing $100 million of additional OIBADA opportunity by examining all areas of spending across the company, headcount reductions, while challenging decisions are necessary to fund new capabilities and drive growth. We are focusing this work on QVC-US, HSN, and the global functions. Separately, QVC International is identifying additional cost efficiencies for 2025, and Cornerstone remains focused on this transformation journey. In terms of the financial impact of our wind strategy, we expect to generate 1.5 billion of run rate revenue from social and streaming within the next three years. While we work toward these revenue goals, we plan to sustain a stable double-digit adjusted OEBDA margin. And we commit to at least a two and a half times or better long-term leverage target. In conclusion, we firmly believe that we have a once in a generation opportunity to capture a fast developing and rapidly growing market and live social shopping. Social and streaming are the next frontier for entertainment and retail, and we are well positioned to compete and win in this space. We have a long history of innovation. In the 80s, we invented home shopping on cable TV. In the 90s, we launched our first website and today are an e-commerce leader. We were early adopters on mobile and social. We have built a successful streaming business. We are intently focused on achieving our objectives and positioning the company for future growth, and we look forward to updating you on our progress. Now, I'll turn the call to Bill to review the Q4 financial results of each of our businesses.