Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Interactive Corporation 2017 Third Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, November 9, 2017. I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. 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, including statements about business strategies, market potential, stock repurchases, future financial performance, market conditions, future expenses at QVC, sales demand, customer growth, the proposed acquisition of HSN, the proposed acquisition of GCI, the proposed split-off of Liberty Interactive interest in GCI, and certain Liberty Ventures Group assets and liabilities, and the timing and expected benefits and synergies of these proposed transactions with GCI and HSN, organizational structure and senior executive team changes following the closing of the proposed acquisition of HSN, new service and product launches 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, market conditions conducive to repurchases, the satisfaction of conditions to the proposed transactions involving HSN and GCI, the availability of acquisition opportunities, competitive issues, regulatory issues and continued access to capital on terms acceptable to Liberty Interactive. These forward-looking statements speak only as of the date of this call, and Liberty Interactive expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Interactive's expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA, adjusted net income and constant currency. The required definitions and reconciliations, including preliminary notes and schedules 1 through 4, can be found in the earnings press release issued today, which is available on our website. This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty TripAdvisor Holdings. These forward-looking statements involve any risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These forward-looking statements speak only as of the date of this call, and Liberty TripAdvisor Holdings expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein reflect any change in Liberty TripAdvisor Holdings' expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is based. Now, I'd like to introduce Greg Maffei, Liberty's President and CEO.

Thank you, Courtnee. Good morning to all of you out there on the line. Today speaking on the call, besides myself, we'll have Liberty Interactive's CFO, Mark Carleton; QVC's President and CEO, Mike George; and the President and CEO of zulily, Darrell Cavens. During Q&A, we'll be available also to answer questions related to Liberty TripAdvisor. On to the highlights. We continue to make progress on our pending acquisitions. We expect to close the HSN deal in Q4, but it looks like the GCI deal has moved back into Q1. I'll talk a little bit more about where we are in that in a moment. Therefore, the split-off and creation of the two asset-backed stocks which we began early this year is most likely to be completed in Q1. I would note, we've made a modest change regarding the treatment of the 1.75% Charter exchangeable as a part of the split-off. Mark Carleton will go into that in a little more detail in a minute. QVC, I'm going to talk about them now. Onto the highlights there, QVC grew operating income, constant currency revenue, and adjusted OIBDA in all of its markets. Importantly, U.S. revenue was up 3%. For the quarter, both the U.S. gross margin improved and the primary drag on OIBDA margins was higher incentive comp, which Mike will talk about in a moment. The consolidated mobile penetration reached 64% of all the QVC.com orders, up 530 basis points, confirming our good positions with respect to mobile and mobile phones. Mike will go into that into further detail rather on our holiday plans for Q4 as well. And I'd note, from August 1 through October 31, we repurchased $477 million of QVC shares. Please do recall that once the HSN proxy is mailed and effective, we will not…

Thank you, Greg. And as Greg mentioned earlier, in the proposed split-off, the 1.75% of Charter exchangeables will now be reattributed to QVC Group at the time of the split-off, along with approximately $590 million in cash and an indemnity for any payments in excess of principal and interest, which would be partially offset by any tax benefits associated with an early extinguishment of debt. QVC group will also have a negative pledged reference Charter shares at GCI Liberty. So, Liberty Interactive will use commercially reasonable efforts to repurchase this debt within six months of closing and get this cleaned up. Secondly, we made this change because the combination of the increased price in Charter and our initially proposed exchange offer would have impaired our ability to deduct the interest. And you guys know how we value our tax deductions. So, certainly, we'll talk about that a little more at our Investor Meeting next week, but that's that. Now, let's take a quick look at the liquidity picture. At the end of the quarter, the QVC Group had attributed cash and liquid investments of $383 million and $6.2 billion in principal amount of attributed debt. QVC's total debt to adjusted OIBDA ratio, as defined in QVC's credit agreement, was approximately 2.7 times, which includes zulily's adjusted OIBDA, as compared to a maximum allowable leverage ratio of 3.5. Now, I'll hand it over to Mike George for some additional comments on QVC. Mike?

Thank you, Mark. We're very encouraged by the positive results in the quarter and the traction we're seeing on some of the major strategic initiatives we've been pursuing. Every segment, QVC U.S., QVC International, our China joint venture and zulily, generated year-over-year revenue growth, and the rate of growth across every segment accelerated relative to Q2. We delivered strong operating margin expansion at QVC and achieved our first profitable quarter in China on an adjusted OIBDA basis. And we're seeing a healthy growth in new customers across QVC U.S., QVC International, and zulily. We also made good progress on our integration planning with HSNi and were delighted to announce a few weeks ago the new leadership team that will take us back to the transaction closes expected later this quarter. QVC's consolidated revenue grew 4%, operating income increased 19% and adjusted OIBDA grew 5% on a constant currency basis. Digital penetration rose sharply, with global e-commerce and mobile penetration growing 310 and 530 basis points, respectively. In the U.S., revenue increased 3%, reflecting 9% higher unit volume. That's our highest unit growth in nearly three years. Average selling price declined 4% and largely reflecting mix shift, including in electronics where sales moved from higher price point computers to smartphone products. As we discussed on the prior call, approximately 1% of the revenue reflected shipments that were delayed from Q2 into Q3 as a result of a systems outage in June. Operating income increased 14% and adjusted OIBDA increased 2% in the U.S. OIBDA margin declined 20 basis points, driven by personnel-related expenses that had a net $11 million negative impact. That's $19 million in higher incentive compensation expenses in the quarter, since we did not pay a management bonus in the U.S. in 2016, partially offset by $8 million in…

Thanks, Mike, and thanks, everybody, for joining today's call. We're excited by the momentum we saw in Q3 as we head into holiday. We built particular momentum in August and finished strong in September. Our acceleration, in part, is being driven by our success in growing active customers, which began to accelerate in Q3. After a two-year period of relatively flat customer growth, we added 300,000 net active customers in Q3, bringing us to an all-time high of 5.3 million at quarter-end. This growth is a result of the reorientation of our marketing efforts. We're expanding the reach of our marketing dollars by exploring new channels with more targeted and diversified advertising. We continue to innovate and invest in technology in order to provide each customer with a more personalized site experience, while using urgency drivers such as Deal of the Day and midday marketing pushes to drive shoppers from consideration to purchase. As we continue to innovate on our customer experience, I expect to see our active customers continue to grow. Revenue in the third quarter grew 2% year-over-year. Our momentum picked up in the second half of the quarter, with September growing about 8%. Revenue growth was primarily attributed to a 6% increase in total orders placed, driven by an increase in active customers, partially offset by increased backlog due to the timing of orders within the quarter. In addition, units per order increased, offset by lower ASP. In Q3, our operating loss decreased by 15% year-over-year, with the improvement driven by decelerating amortization of our intangible assets related to purchase accounting. Adjusted OIBDA decreased 33% year-over-year to $12 million, driven by a 250-basis-point reduction in gross margin rate. The decline in gross margin rate was primarily due to higher fulfillment and shipping costs associated with more units…

Thank you, Darrell. Moving on to Liberty Ventures' liquidity. At the end of the quarter, the group had attributed cash and liquid investments of $512 million and $1.9 billion in principal amount of attributed debt. The value of the public equity method securities, including Liberty Broadband and other public holdings attributed to the group was $5 billion and $2.4 billion, respectively, at the end of the quarter. And now, I'll hand it back to Greg.

Thanks, Mike, Darrell and Mark, and to the listening audience. We appreciate your continued interest in Liberty Interactive. And with that, operator, I'd now like to open the call for questions.

Thank you. Your first question comes from the line of Eric Sheridan with UBS.

Thanks for taking the questions. And, Mike, thanks for all the color in terms of the transition over the last 12 months. I want to focus in on digital and mobile. As these new sort of digital-first and mobile-first customers come on to the QVC platform, I want to understand if there's anything new you're calling out for folks in terms of categories they're focused on or shopping tendency of those customers that might be different from the typical QVC customer. And then, second, can you characterize where you are in your digital and mobile efforts in the U.S. versus internationally for folks? Thanks.

Yeah. Thanks, Eric, for the question. What's I think most encouraging about the customers we're acquiring on the digital platforms is, broadly speaking, they look like any QVC customers. So there are certain set of product categories that tend to do a better job of attracting new customers in general. Electronics is a better category, some of the lower priced home products, well-known national brands. And I would say, broadly, the folks joining on mobile or digital platforms are coming in on the same kinds of product categories. And again, the most encouraging part is we just seem to be attracting a high-quality customer with a higher level of average retention. Our retention for many years ran at the 35% to 36% rate, meaning we kept 35% to 36% to get to a second purchase. Now, that's edged up over a couple of years to 40%. It tends to be a leading indicator of lifetime value. So, a healthy, diverse mix of customers we're bringing in on digital platforms, broadly performing the same as the traditional QVC customer. In terms of where we are on our digital efforts, I would say, the U.S. has generally been our lead market both in adoption of digital platforms and in where we tend to deploy innovation first. But we've been doing a lot of work over the last few years to globalize our digital platforms. We're not completely there, but we're probably 80% there, and that enables us to take something like a new mobile app and launch it simultaneously in multiple markets. So we're able to get innovation to the international markets faster. And so, generally speaking, they are kind of keeping up with or even somewhat ahead of the growth that the U.S. has seen on digital platforms, but they do start at a lower base. So their overall e-commerce penetration tends to be lower in the international markets. Within that, their mobile penetration tends to be same or higher than the U.S. So they're fully embracing the mobile platforms.

Thanks.

Next question.

Thank you. Your next question is from the line of Ed Yruma, KeyBanc Capital Markets.

Hey, guys. Thanks for taking my questions. I guess, first on the total customer count at QVC, it does seem like it's ticking down a little bit or has for the last two quarters. You gave some great color on the new customers, but are you seeing any change of behavior at the tail end? And then I guess, second, it sounds like you made some adjustment to shipping and handling. Could you just give us an update on kind of what's free shipping and what's not? And kind of how that progression could change the financials going forward? Thanks.

Sure. Thanks, Ed. So, on total customers, the number we typically report is a rolling 12-month customer count. So how many customers we've brought in – how many customers were active in the business in the last 12 months versus the prior period. So, that is slightly down. That really reflects history, right? That reflects kind of the weakness we had in the business in end of last year, start of this year. If you were to just isolate active customer count in the U.S. in Q3 only, there's how many customers were active in the business in Q3 of this year versus Q3 of last year, that more narrow window, you would actually see a modest growth in total customer count. It's up a couple of percent. So we'll still report on a rolling basis some weakness that reflects kind of the reality of the business 6, 12 months ago, though we were pleased in the current period to actually see overall customer count grow. And that's because we are bringing in the new customers and the retention metrics on the existing customers are absolutely stable, see no erosion at all. So, really happy with the customer picture. In terms of shipping and handling, as you know, we made a big pricing adjustment a couple of years ago, and since then it's been more about just trying to find the right opportunities where we could kind of strategically spend back some of our expense savings in ways that would be exciting to the customers. And that could mean things like including S&H on a TSV. And about half of our TSVs go out with no S&H charges. That also may be funded by the vendors, so that doesn't necessarily directly hit our P&L, although we do, between us and…

Great. Thanks so much.

Your next question comes from the line of Heather Balsky, Bank of America.

Hi. Thank you for taking my question. The first is housekeeping. Did you see any impacts from the hurricane? And then, second, can you just talk about trends in shipping costs? It seems like there's inflationary pressures going into 4Q. How are you managing those? Thank you.

Thanks, Heather. I'll make a couple of comments and, Darrell, if you want to add anything. Hurricane impact was very modest for us, so probably a few million in lost sales at QVC and a few million at the zulily. So, not a material impact on the quarter. A tough week in a few locations and then a fairly quick bounce back. In terms of trends in shipping cost, clearly it's an inflationary shipping environment in all markets, including the U.S., Japan. It depends on a fair amount of inflationary pressure, but certainly it's around the world. We do all we can to offset that. And because of our size and scale and leveraging the combined scope of QVC and zulily and soon HSNi, we're able to create pretty strong partnerships with our freight carriers and manage that inflationary impact reasonably well. We tend not to be subjected to some of the same kind of Q4 surcharges and other pressures that other retailers are. So it's a constant focus. It's both about continuing to try to find win-win ways to lower freight costs between us and our carriers, as well as take on initiatives that we can control. For example, a big focus that zulily championed for a number of years and now QVC is really trying to catch up with of getting multiple items across multiple orders the customer places in the same day and in the same box. So, as we increase our pack factor, that will improve our efficiency. Clearly, as we ramp up our West Coast DC, that will lower our freight cost to ship product to West Coast customers. So our goal is always have enough initiatives in the hopper to try to offset as much of that inflation as we can. Darrell, anything else you would add?

No. I think that's right. I mean, on the hurricanes, we also saw a fairly modest impact there. I mean, we definitely saw it, but it's not a big driver of the quarter. And then, in shipping, I would reiterate what Mike said and say that we have our teams working very closely. I think it's one of the areas from the acquisition side, a synergy perspective, our operations team is working very closely together and really working to drive those networks and technology together that I think over the next couple of years is going to provide us more opportunity there. I mean, just as we've renegotiated our carrier contracts this year, being able to bring those together has been some great long-term savings. And then, I think through the technology platforms, there's a lot more to come I think. But it's going to take us a while to get there, but I feel good we're not going to see big changes here.

Thank you.

Your next question comes from the line of Alex Fuhrman, Craig-Hallum Capital.

Great. Thank you for taking my question. I wanted to talk a little bit about your integration plans with HSN for after that goes through. First of all, I was a little bit surprised to see just in the leadership team announcement that there's not a lot of the top HSN team is going to be with the company going forward. I would be curious to get a little bit more color on where a lot of the top leaders at HSN offered the opportunity to stick around, just kind of the decision-making around how that transpired. And then, just thinking ahead to the deal closing in Q4, do you anticipate that you'll have any ability to direct or coordinate the programming schedules between HSN and QVC in time for some of the peak holiday season days?

Great, Alex. Thanks for the question. So, a couple of thoughts. Overall, we just feel very good about how the integration process is going. It has been a highly collaborative process across the QVC and HSNi teams, and we've really just established a strong partnership and a sense of teamwork going through a very robust and methodical process of both thinking through the synergy opportunities, how we want to operate the businesses, then how we architect the organizational design and a leadership team that will let this combined business realize its potential, which we absolutely think is quite extraordinary. And so I wouldn't want to comment on any individual personnel decision obviously, other than to say we collectively, QVC and HSN, started with a clean sheet of paper and started with how do we want to design this organization to work in the future, and quickly agreed on some core principles of relatively independent business units, but these enterprise-wide growth teams that could add great value and growth potential across all business units, and then bringing together technology and corporate functions and operations in a way that would drive quality, scale, efficiency. And then, we just looked from there to place kind of the right people in the right roles. Had lots of discussions about aspirations and interests with our HSN team members. And depending on what they wanted to do, kind of ended up with the result that we see today. It's a very strong leadership team. Thrilled that Mike Fitzharris is going to be leading the HSN business unit. He is a longstanding QVC team member that has just done an extraordinary job turning around the Japan business, which was something we talked about on many calls, the more challenged business. In the last few calls, we've been…

That's really helpful. Thank you, Mike.

Thanks.

Your next question comes from the line of James Ratcliffe, Evercore.

...taking the question. Two, if I could. First of all, it looks like you restructured how you're handling the 1.75% Charter exchangeables as part of the GCI-Liberty transaction. It seems to me like you're basically ending up where you started, except you have the option to not refinancing the mirror notes. What's the background for the change? And secondly, I hate to jump ahead of a deal that isn't closed yet, but once the GCI-Liberty transaction is done, you're going to have two vehicles with exposure to Charter and one of those vehicles owning a large chunk of the other. Can you talk about how much of a priority it is to rationalize that situation and what any constraints on doing so would be? Thanks.

So, on the 175 exchangeables, I think your analysis is exactly right. We're going through a lot of machinations to end up exactly where we started and that was driven by, as Mark Carleton noted, primarily by some IRS regulations and the adaptability of the interest and the premium that's built into those bonds, which we wanted to ensure that we could achieve. You mentioned the optionality to refinance. It would be our intention to refinance immediately. It's not an obligation but it is our intention. Our goal is to make it as seamless as possible to get back to exactly where we started, but ensure deductibility. On the GCI, being a second vehicle GCI-Liberty, I think you know correctly that they'll be largely similar with the difference that the GCI-Liberty will also have exposure to GCI. It would probably be nice in the fullness of time to merge those if they are appropriately valued because it would just be simplicity. We're having two public vehicles which are largely overlapped, if not completely. But it's not a requirement by any means.

Great. Thank you.

Your next question comes from the line of Barton Crockett, B. Riley FBR.

Okay. Thank you for taking the question. And Mike, I was very interested in some of the commentary around QVC. And I was wondering if you could elaborate a bit on the growth in viewership? What drove that? Was that really just comping kind of all the distractions last year from the political situation or was there some particular programming that really got people excited? And then, I know you guys don't like to guide, but there's been a lot of up-down in the trajectory. And just in general, can you give us your sense of how things feel heading here into the fourth quarter?

Yeah. Thanks, Barton. In terms of the viewership, what we're really pleased with is we are seeing this growth in viewing minutes, and it's been probably consistently improving as we've gone through the year. What you see is the sort of person who has tuned in for 30 or 60 seconds is a very low engaged viewer. You're seeing lots of them. That may be a reflection of cord cutting. Those are folks that probably were never going to make a purchase. So it's sort of artificial viewership. It's someone kind of passing by the network. But folks who are spending any real amount of time on the network are pretty stable and actually spending and are viewing for more minutes than ever before. So we've really seen a big increase in minutes viewed. So what drives that? Yeah, probably some of it is comping some tougher numbers from a year ago, and as you said, the distractions of Olympics and election and all the rest. Some of that I do think is some really good programming. We've really tried to lean in as part of the turnaround initiative this year to just create more programming excitement, more remotes, just leaning into events and trying to make them more special, fun events, like a big promotion for Dale Earnhardt Jr.'s new color scheme on his last car that we not only broadcast on the network, but on his Facebook platform and ours. So, just trying to get creative about ways to get exciting experiences in front of more people. I think all those things are helping. And then I'd also maybe state kind of the obvious, which is sales growth and viewership growth are a little bit of a chicken-and-egg kind of issue in our company, meaning what drives viewership is people like the product that they're seeing and they stick around to see more of it. And what drives sales is more people viewing. So we know that if we are doing all the things I talked about that offer diversity and freshness on the calendar, more new brands, more new items, more items per minute, less time spent on the TSV, fewer minutes per item exposed, all those things build excitement, in the short-term can occasionally create pressures because you're trying a lot of things, but generally tend to drive more engaged viewers, and more engaged viewers tend to drive sales. So I do think easier comparisons certainly help, but I think all those factors are making a difference for us.

Your next question comes from the line of Jason Bazinet, Citi.

I know you guys are focused on free cash, as we are. But I did notice that the D&A stepped down quite a bit in the quarter. And I'm assuming that that has to do with the roll-off of the amort (50:15) related to the purchase of QVC from Comcast years ago, but I thought that was happening later. Did we see part of that in the quarter and it will get bigger as we move into 4Q?

Yes and yes.

Okay. Thank you very much.

Your next question is from the line of Victor Anthony with Aegis Capital.

Thank you very much. A few questions. One, the 3% growth in the domestic market, I was hoping that you could parse out the growth across the three individual months. Just trying to get a sense of when the growth rate began to accelerate. And second to that is, I noticed that traffic to your mobile app in the domestic market jumped quite significantly in the month of October. So I was wondering if you could just kind of give us some sort of color into the fourth quarter trends. I think there was a previous question on that. And third, on zulily, just wanted to get an idea of how zulily is positioned for the fourth quarter, Black Friday, Cyber Monday, and some of the holidays. Thanks.

Thanks, Victor. So I'll kind of dodge on any commentary about Q4. As we have shared, once we kind of got through the early stages of the turnaround, we've reverted back to our traditional policy of just not commenting on the current quarter. In terms of how Q3 unfolded – and I always like to caution when we talk about growth rate by month that we do move the programming schedule around and so it's not always a perfect indicator of the trend in the business. So, with the caution not to over-interpret it, I would characterize Q3 as a very solid July that we were pleased with. That's the month we really leaned into all of our Christmas in July programming, and we're very pleased with that programming, which generally exceeded our expectations. That's not only the perfect indicator of how the whole holiday season will go, but certainly you always feel good when you jump into July and have strong Christmas programming. August was a very disappointing month for us. And in hindsight, I think we probably didn't manage the month right. That obviously is a tricky month in retail. It's a very clearance month. A year ago, we did heavy clearance because we really wanted, as part of our turnaround, to clean our assortments. This year, we didn't need to do that because the inventories were cleaner. We also didn't think it was necessary because we felt we had a very easy comp in August because of the Olympics a year ago. But I think we misread that and, in hindsight, could have had better programming. So, August underperformed our expectations. I think some of that is our own execution. And then we had a really terrific September, just a lot of momentum across the business. Felt really good about the health of the business in September. And Darrell, do you want to talk on zulily?

Yeah. I mean, I think I talked about it a little in the script. But I think we saw something a little different in that July for us was soft and a little disappointing, and I think we kind of accelerated into August and then much more kind of into September. So I think we felt like we had kind of good momentum coming out of the quarter. And I think, as we look at this quarter, I think we continue to do all the things that we do every year and we're focused to make sure that Black Friday and Cyber Monday is strong. But, as Mike said, we're not giving kind of guidance or any information about kind of what we're seeing kind of intra-quarter.

Thank you.

Thank you. Your next question is from the line of Matthew Harrigan, Buckingham Research.

Well, thank you. I'll leave the synergy discussion for next week. But irrespective of any success or progress you're making at QVC France and the merchandising or distribution, how do you feel about your light model evolution? Is that actually getting easier as technology develops and could that prospectively open up some smaller markets? Or is that just kind of an afterthought right now, given everything else you have going on with HSN? Thank you.

Yeah. Thanks, Matthew. I would say it's a bit of an afterthought, honestly. I do think that, over time, that there will be ways we can penetrate more markets with a lighter touch model, as you suggested. It's certainly something we think about. I wouldn't say it's something we're actively exploring right now just because we do think we've got plenty of other priorities. In addition to HSN and zulily, we've really put a focus in our bigger markets on sort of taking advantage of some of the disruption in the carriage environment to expand our presence on traditional broadcast platforms and OTT platforms with more networks and more live experiences. And that feels like kind of the right opportunity for now. But I suspect as we get more experience under our belt with France and continue to look at new ways to extend the model that there will be opportunities that will emerge, but that's probably a little bit down the road.

Thanks, Mike.

Thank you, operator. That was our last question. Thank you all for joining us this morning. And we look forward to seeing many of you next week in New York at our Investor Day. If not, next quarter we'll be on the line again. Thanks very much.

(55:58) your participation and ask that you please disconnect your lines.