含羞草传媒

含羞草传媒. Reports Fourth Quarter and Year End 2019 Financial Results

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- 含羞草传媒. ("含羞草传媒") (Nasdaq: QRTEA, QRTEB) today reported fourth quarter and year end 2019 results. Headlines include ⁽¹⁾:

Fourth quarter and full year 2019 operating results:

• Total 含羞草传媒 revenue decreased 5% to $4.2 billion in Q4 and 4% to $13.5 billion in full year 2019
  • Revenue decreased 5% in Q4 and 4% in full year 2019 in constant currency⁽²⁾
  • eCommerce revenue of $2.6 billion or 62% of total revenue in Q4 and $8.0 billion or 60% of total revenue in full year 2019
• 含羞草传媒 reported diluted EPS of $0.34 in Q4 and $(1.08) in full year 2019
  • Adjusted diluted EPS⁽³⁾ of $0.68 in Q4 and $1.93 in full year 2019
• QxH revenue decreased 3% in both Q4 and full year 2019
• QVC International revenue increased 1% in Q4 and decreased 1% in full year 2019
  • Revenue increased 1% in Q4 and 1.5% in full year 2019 in constant currency
• Zulily revenue decreased 18% in Q4 and 14% in full year 2019
• Cornerstone revenue decreased 6% in Q4 and 7% in full year 2019
  • Revenue increased 1% in Q4 and was flat in full year 2019 excluding closed Improvements business

Corporate updates:

• Repurchased approximately 112,000 of Liberty Interactive LLC鈥檚 3.50% MSI exchangeable bonds in 2019 for $98 million
  • Hedged remaining MSI exposure through total return swaps
• For full year 2019, repurchased 24 million QRTEA shares at an average price per share of $16.13 and total cost of $392 million
• Completed QVC, Inc. bond issuances
  • $500 million 6.25% senior secured notes due 2068
  • $575 million 4.75% senior secured notes due 2027

"Our fourth quarter results were in line with full-year trends, notably we experienced pressure on revenue and margins from the investment in network optimization at QxH. Despite these challenges, we were encouraged with our ability to grow free cash flow in 2019 on an operating basis," said Mike George, President and CEO of 含羞草传媒. "We are accelerating the execution of our strategic priorities as we work to return to profitable growth. We continue to lead the curation of special products at compelling values across multiple platforms, providing customers an important third way to shop.鈥�

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months and year ended December 31, 2019 to the same periods in 2018. During the first quarter of 2019, 含羞草传媒 changed its reportable segments to combine QVC US and HSN into one QxH reportable segment and is presenting prior period information in this press release to conform to this change.

QxH

In the fourth quarter, QxH reported revenue declines in all categories. For the full year, QxH realized declines in all categories except Electronics. Operating income declined in the fourth quarter and full year primarily due to an increase in impairment charges at HSN, partially offset by the absence of transaction-related expenses incurred in 2018. Operating income included non-cash impairment charges related to the fair value of HSN鈥檚 tradename of $147 million in the fourth quarter of 2019 and $30 million in the fourth quarter of 2018.

For the quarter and full year, adjusted OIBDA margin⁽³⁾ contracted primarily due to cost of sales pressure, which included higher fulfillment (freight and warehouse) expenses related to the network optimization plan and general freight rate increases as well as inventory management including costs associated with the exit from Ingenious Designs. For the full year, these headwinds were partially offset by a favorable product mix impact. Adjusted OIBDA margin benefited in the fourth quarter and full year from TV distribution commissions, which were partially offset by higher marketing expenses. The fourth quarter also benefited from lower incentive compensation. Lower TV distribution commissions were in part associated with the accounting treatment for certain renewed HSN carriage agreements (described below), as well as favorable renegotiated rates at HSN.

Beginning in the third quarter of 2018, HSN began renewing TV carriage agreements with certain distribution partners, which provided multi-year upfront payments that are amortized over the life of the agreements, versus its previous convention of expensing quarterly payments as incurred. In the quarter and full year, this accounting change had a positive impact on QxH鈥檚 adjusted OIBDA⁽³⁾ with a corresponding increase in QxH鈥檚 amortization expense, which is neutral to operating income each period and cash neutral over the life of the agreements.

QVC International

For the quarter, US Dollar denominated results were essentially unaffected by exchange rate fluctuations, primarily due to the Dollar strengthening 2% versus the Euro, offset by the Dollar weakening 3% versus the Japanese Yen and British Pound. For the full year, US Dollar denominated results were negatively impacted by exchange rate fluctuations, primarily due to the Dollar strengthening 5% versus the Euro and 4% against the British Pound, partially offset by the Dollar weakening 1% versus the Japanese Yen. The financial metrics presented in this press release also provide a comparison of the percentage change in QVC International鈥檚 results in constant currency (where applicable) to the comparable figures calculated in accordance with US GAAP for the fourth quarter and full year 2019.

For the quarter and full year, QVC International constant currency revenue growth was driven primarily by Japan. For the quarter and full year, operating income and adjusted OIBDA margins expanded, reflecting the closure of operations in France, which was partially offset by lower product margins due to lower shipping and handling revenue and unfavorable returns, as well as higher inventory obsolescence expense. As previously announced, QVC closed its television and digital platforms in France on March 13, 2019, which benefited the fourth quarter and full year due to losses incurred in the prior year. The fourth quarter was also impacted by higher freight and fixed costs, which included expenses associated with centralizing certain elements of the QVC International operating model. Fourth quarter operating income benefited from the absence of transaction-related expenses incurred in the prior year. Full year operating income included higher depreciation for the disposition of long-lived assets in France, which was partially offset by lower transaction-related expenses.

Zulily

For the fourth quarter and full year, Zulily revenue declined primarily due to lower unit volume driven by a decrease in new customers and lower purchasing frequency from existing customers. Zulily鈥檚 results were also negatively affected by less efficient customer acquisition spend on certain digital marketing channels. For the fourth quarter and full year 2019, operating loss increased and adjusted OIBDA declined primarily due to the revenue decline combined with deleverage across the supply chain and fixed costs, partially offset by reduced marketing spend. Zulily鈥檚 operating loss for the full year was impacted by a $1.0 billion non-cash impairment charge related to its tradename and goodwill which was incurred in the third quarter of 2019.

Cornerstone

Cornerstone results presented in this press release include the Improvements catalog business until it was shut down effective December 2018. Excluding Improvements, revenue increased 1% in the fourth quarter and was essentially flat for the full year 2019, mainly due to strength at Ballard Designs and Grandin Road. Operating income and adjusted OIBDA improved primarily due to gross margin expansion in the home brands, as well as lower marketing expense and the absence of one-time costs related to the closure of Improvements incurred in the prior year.

Taxes

含羞草传媒 estimates that its average annual effective tax rate over the next three years will be in the range of 15% - 18% including federal, state and foreign taxes, net of tax credits generated by 含羞草传媒鈥檚 green energy investments. This estimate excludes the impact of one-time items and is subject to adjustment. 含羞草传媒鈥檚 book tax rate in 2019 was impacted by the tax loss generated by the sale of 含羞草传媒鈥檚 investment in FTD in the second quarter, the goodwill impairment recognized at Zulily in the third quarter, which is not deductible for tax purposes, the U.S. tax write-off of its investment in QVC France in the fourth quarter and a change in 含羞草传媒鈥檚 state tax rate used to measure its deferred tax liabilities in the fourth quarter. The goodwill impairment and state rate change have no impact on 含羞草传媒鈥檚 current cash taxes.

Share Repurchases

含羞草传媒 did not repurchase shares from November 1, 2019 through January 31, 2020. For the year ended December 31, 2019, 含羞草传媒 repurchased approximately 24.3 million shares of Series A common stock (Nasdaq: QRTEA) at an average cost per share of $16.13 for total cash consideration of $392 million. Since the creation of our existing common stock (including its predecessors, the QVC Group and the Liberty Interactive Group) in May 2006, 含羞草传媒 has repurchased shares for aggregate cash consideration of $9.0 billion, representing approximately 60% of the shares outstanding in May 2006. All repurchases up to August 9, 2012, the date on which the QVC Group stock was recapitalized to create the Liberty Ventures common stock, were comprised of shares of the combined stocks. The remaining repurchase authorization for 含羞草传媒 is approximately $497 million as of February 1, 2020.

NOTES

Cash and Debt

The following presentation is provided to separately identify cash and debt information.

Cash at 含羞草传媒 increased $68 million in the fourth quarter as cash from operations more than offset net debt reduction and capital expenditures. Total debt at 含羞草传媒 decreased by $94 million in the fourth quarter due to the partial repayment of QVC鈥檚 bank credit facility and the repurchase of a portion of Liberty Interactive LLC鈥檚 3.50% MSI exchangeable bonds.

On November 26, 2019, QVC, Inc. completed a registered debt offering for $435 million of 6.25% senior secured notes due 2068. QVC granted an option for underwriters to purchase up to an additional $65 million of 2068 notes, which was exercised on December 6, 2019. Net proceeds from the offering were used to repay a portion of borrowings outstanding under QVC鈥檚 credit facility and for general corporate purposes.

Subsequent to quarter end, on February 4, 2020 QVC, Inc. issued $575 million of 4.75% senior secured notes due 2027. Net proceeds from the offering were used to repay a portion of the borrowings outstanding under QVC鈥檚 credit facility and for general corporate purposes.

含羞草传媒 benefits from an indemnification agreement with GCI Liberty with respect to its Charter exchangeable debentures. The indemnification agreement compensates 含羞草传媒 for any payments made in excess of the adjusted principal amount of the debentures to any holder that exercises its exchange right on or before the put/call date of October 5, 2023. This indemnity is supported by a negative pledge in favor of 含羞草传媒 on the 1.0 million reference shares of Class A common stock of Charter held at GCI Liberty that underlie the Charter exchangeable debentures. The indemnification asset on 含羞草传媒鈥檚 balance sheet is valued based on the estimated exchange feature in the Charter exchangeable debentures. As of December 31, 2019, a holder of the Charter exchangeable debentures has the ability to exchange and, accordingly, the indemnification asset is included as a current asset in our consolidated balance sheet as of that date. There is $332 million principal amount of the Charter exchangeable debentures outstanding as of December 31, 2019.

Important Notice: 含羞草传媒. (Nasdaq: QRTEA, QRTEB) President and CEO, Mike George, and Executive Chairman, Greg Maffei, will discuss 含羞草传媒鈥檚 earnings release on a conference call which will begin at 8:30 a.m. (E.S.T.) on February 26, 2020. The call can be accessed by dialing (800) 458-4121 or (720) 543-0206, passcode 8800238, at least 10 minutes prior to the start time. The call will also be broadcast live across the Internet and archived on our website. To access the webcast go to . Links to this press release and replays of the call will also be available on 含羞草传媒鈥檚 website.

This press release includes certain forward-looking statements, including statements about business strategies and initiatives and their expected benefits, market potential, future financial prospects and performance, 含羞草传媒鈥檚 estimated ongoing effective tax rate, market conditions, statements about the indemnification by GCI Liberty, the continuation of our stock repurchase program and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, possible changes in market acceptance of new products or services, competitive issues, regulatory matters affecting our businesses, continued access to capital on terms acceptable to 含羞草传媒, changes in law and government regulations that may impact the derivative instruments that hedge certain of our financial risks, the availability of investment opportunities and market conditions conducive to stock repurchases. These forward-looking statements speak only as of the date of this press release, and 含羞草传媒 expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in 含羞草传媒's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Please refer to the publicly filed documents of 含羞草传媒, including the most recent Form 10-K, for additional information about 含羞草传媒 and about the risks and uncertainties related to 含羞草传媒's business which may affect the statements made in this press release.

NON-GAAP FINANCIAL MEASURES

To provide investors with additional information regarding our financial results, this press release includes a presentation of adjusted OIBDA, which is a non-GAAP financial measure, for 含羞草传媒, QVC (and certain of its subsidiaries), Zulily and Cornerstone together with a reconciliation to that entity or such businesses鈥� operating income, as determined under GAAP. 含羞草传媒 defines adjusted OIBDA as operating income (loss) plus depreciation and amortization, stock-based compensation, separately reported litigation settlements, restructuring, acquisition and other related costs and impairments. Further, this press release includes adjusted OIBDA margin which is also a non-GAAP financial measure. 含羞草传媒 defines adjusted OIBDA margin as adjusted OIBDA divided by revenue.

含羞草传媒 believes adjusted OIBDA is an important indicator of the operational strength and performance of its businesses by identifying those items that are not directly a reflection of each business鈥� performance or indicative of ongoing business trends. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. Because adjusted OIBDA is used as a measure of operating performance, 含羞草传媒 views operating income as the most directly comparable GAAP measure. Adjusted OIBDA is not meant to replace or supersede operating income or any other GAAP measure, but rather to supplement such GAAP measures in order to present investors with the same information that 含羞草传媒's management considers in assessing the results of operations and performance of its assets. Please see the attached schedules for applicable reconciliations.

In addition, this press release includes references to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures, for 含羞草传媒. 含羞草传媒 defines adjusted net income as net income, excluding the impact of acquisition accounting amortization (net of deferred tax benefit), mark to market adjustments on certain public debt and equity securities and other one-time adjustments. 含羞草传媒 defines adjusted earnings per share as diluted earnings per share plus the diluted per share effects of certain adjustments, net of tax.

含羞草传媒 believes adjusted net income and adjusted earnings per share are important indicators of financial performance due to the impact of purchase accounting amortization, mark to market adjustments and other one-time items identified in Schedule 3 below. Because adjusted net income and adjusted earnings per share are used as measures of overall financial performance, 含羞草传媒 views net income and diluted earnings per share, respectively, as the most directly comparable GAAP measures. Adjusted net income and adjusted earnings per share are not meant to replace or supersede net income, diluted earnings per share or any other GAAP measure, but rather to supplement such GAAP measures in order to present investors with a supplemental metric of financial performance. Please see the attached schedules for a reconciliation of adjusted net income to net income (loss) and adjusted earnings per share to diluted earnings per share, in each case, calculated in accordance with GAAP for 含羞草传媒 (Schedule 3).

This press release also references certain financial metrics on a constant currency basis, which is a non-GAAP measure, for 含羞草传媒. Constant currency financial metrics, as presented herein, are calculated by translating the current-year and prior-year reported amounts into comparable amounts using a single foreign exchange rate for each currency.

含羞草传媒 believes constant currency financial metrics are an important indicator of financial performance, in particular for QVC, due to the translational impact of foreign currency fluctuations relating to its subsidiaries in the UK, Germany, Italy and Japan, as well as its JV in China. We use constant currency financial metrics to provide a framework to assess how our businesses performed excluding the effects of foreign currency exchange fluctuations. Please see the financial tables at the beginning of this press release for a reconciliation of the impact of foreign currency fluctuations on revenue, operating income, adjusted OIBDA and average selling price.

SCHEDULE 1

The following table provides a reconciliation of 含羞草传媒鈥檚 adjusted OIBDA to its operating income calculated in accordance with GAAP for the three months ended December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 and years ended December 31, 2018 and 2019.

SCHEDULE 2

The following table provides a reconciliation of adjusted OIBDA for QVC (and certain of its subsidiaries), Zulily and Cornerstone to that entity or such businesses' operating income (loss) calculated in accordance with GAAP for the three months ended December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 and years ended December 31, 2018 and 2019.

SCHEDULE 3

The following table provides a reconciliation of 含羞草传媒鈥檚 adjusted net income to its net income and adjusted earnings per share to diluted earnings per share, in each case, calculated in accordance with GAAP for the three months ended December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 and years ended December 31, 2018 and 2019.