Please stand by, we're about to begin. Ladies and gentlemen, thank you for standing by. Welcome to the Qurate Retail Incorporated 2018 Q1 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, May 10. I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning. 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, the integration of HSN and expected benefits and synergies, future impacts of accounting changes and the impact of recent tax reforms, expected benefit from the sale of ILG, future expenses at QVC, sales demand, customer growth, 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 availability of acquisition opportunities, competitive issues, regulatory issues and continued access to capital on terms acceptable to Qurate Retail. These forward-looking statements speak only as of the date of this call, and Qurate Retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Qurate Retail'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 Note and Schedules 1 through 3, can be found in the earnings press release issued today which is available on our website. Today, speaking on the call, we have Qurate Retail's President and CEO, Mike George; CFO, Mark Carleton; and Executive Chairman, Gregory Maffei. Before we begin, we recognize this is a very complicated quarter for our reports given a few things. It's the first full quarter with HSN results, the reattribution and GCI split up occurred intra-quarter on March 9 and the impact of accounting adjustments. We provide comparable results in the press release and note relevant adjustments throughout. We'll do our best help you work through these adjustments on this call and are happy to follow-up as needed. And with that, I'll hand the call over to Mike George.

Thank you, Courtnee. We were pleased to complete our first quarter as Qurate Retail. We've continued to work on the integration of HSN. I also state more broadly about how we operate as a global organization, offering engaging shopping experiences across our brand and geographies. We'll share more at our Investor Day. And rest assured, we remain focused on broadly long-term shareholder value, by first focusing on the fundamentals of instilling strong operating practices and principles across the companies in capturing the targeted cost synergies. Second, making sure we deliver every day on our brand promises, bringing joy to our customers, through compelling and differentiated products and inspiring shopping experiences; and then, finally, accelerating growth by expanding our relevance and our reach to new customers and new platforms. We were pleased to deliver another quarter of positive customer growth and positive sales by QVC along with outstanding top and bottom line performance at zulily. While the HSN and Cornerstone results remain challenged, we are confident in our ability to affect a turn-around at both. Similar to our comments about QVC US when we experienced the disruption in 2016, we expect this turnaround process will be a matter of quarters, not months, and not years. As discussed on the yearend call, the adjusted revenue recognition in accordance with new accounting standards related to recognizing revenue at the time of shipment, rather than delivery, and second, recognizing branded credit card income as revenue rather than as an offset to SG&A expense. We've also excluded transaction costs related to HSNi from our adjusted OIBDA as presented in our earnings release and discussed on this call. Throughout my comments, unless noted, I'll discuss Q1 results for QVC US, HSN and zulily, as if the credit card income remained and offset SG&A expenses as it…

Thank you, Mike. We've discussed on the last call, and as Mike mentioned a bit today, there were quite a few accounting updates impacting 2018. And I think, we had to go over those to make sure everyone are clear. They are: first, recognition of branded credit card income for QVC, HSN and zu as revenue rather than an offset to SG&A. We've highlighted these amounts in the press release. And during 2018, we'll discuss quarterly comparisons as if the income were still an offset to SG&A. Second, we've also began recognition QVC and zulily revenue at the time of shipment rather than delivery. This had a modest positive impact of QVC, with bigger impact to zulily in Q1, which we expect will be neutral on an annual basis. We've not adjusted number for this change. Lastly, we've changed our methodology for incentive compensation accruals at QVC in 2018. We'll now accrue incentive compensation more equally throughout the year, which will result in a headwind to margins in the first half of 2018. Four other items, I'd like to point out. First, we've included pro forma results in the press release to reflect HSN and Cornerstone's historical results for the prior period to help with comparability. We've also reflected the impact of the reattribution 1/1/2018 in certain tables for comparability purposes. Two, we expect our effective tax for 2018 to be in the range of 20% to 23%, excluding the impact of one-time items. Three, we've included revised adjusted EPS in our earnings press release excluding the impact of purchase accounting amortization, net of deferred tax benefit, mark-to-market adjustments on certain public debt and equity securities and other one-time adjustments. Please look at Schedule 3 for more details. And fourth, unallocated corporate costs were modestly elevated in quarter one due to legal costs as we completed the split-off. Now let's take a look at the liquidity picture. At the end of the quarter, Qurate Retail had attributed cash and liquid investments of $1.1 billion and $8.4 billion in principal amount of debt. QVC's total debt to adjusted OIBDA ratio as defined in QVC's credit agreement was approximately 2.5 times, which includes zulily's adjusted OIBDA to a maximum allowable leverage ratio of 3.5 times. Total leverage for the Qurate Retail Group, which includes QVC, zulily, HSN and Cornerstone was also 2.5 times. Now I'll hand it over to Greg for some final comments.

Thanks, Mark. We're pleased to complete the GCI Liberty split-off create an asset-backed stock, which as you know, we've now renamed Qurate Retail. From the period of February 1 through April 30, we repurchased $231 million of that Qurate Retail stock. And I'd like to note that, post-quarter, Marriott Vacations Worldwide announced the acquisition of ILG. And from that, we expect after tax cash proceeds of approximately $200 million and approximately $325 million of Marriott Vacations equity. When it's done, we expect to have a stake in Marriott Vacations of just under 6% on a pro forma basis. We are hosting investors at QVC's headquarters next week May 22, a week and a - I guess, little more than a week, Tuesday May 22. If you'd like to join us in person, please reach out to IR, and as always, we appreciate your continued, if new interest, by name in Qurate Retail. And with that, operator, we'd like to open up for questions.

Thank you. [Operator Instructions] And we'll take our first question from Ed Yruma with KeyBanc Capital Markets.

Hi, good morning and thanks for taking my questions. I guess, first on the H side, I know you categorize return there as quarters, not months, not years. I know you also indicated that there were some low orders done or low inventory levels. I guess, will results deteriorate in your opinion from here before they get better or is this indicative of kind of a bottoming of the business. And then as a follow-up, you've had a couple of key management departures at the Q level. I guess, kind of any progress on how we should think about replacements and were there any benefits from any incentive comp accrual reversals? Thanks a lot.

Hey, Ed, on the HSN performance, I don't want to necessarily put specific numbers against it. But we would hope that we're certainly close to a bottom. It will take a little while to get certainly deposited growth. But our goal is try to make every quarter better than the prior quarter. I think we'll start to have a sort of a better feel on the impact of our action by Q3. But don't see the situation materially worsening before it gets better. On leadership replacements, kind of no news announced today, but we continue to make good progress on a couple of the key openings and we'd expect to have news sometime over the next several weeks. And did you have a third question, Ed?

I think it was on incentive comp, Mike. And I think there was not any kind of material impact of any reversals in incentive comp from the headcount changes.

Thanks, guys.

And we'll take our next question from David Gober with P. Schoenfeld Asset Management.

Hi, it's Richard Bilotti and David. And I guess, two questions inter-related. First, when we look at HSN, how different will the product mix be when the integration of HSN and the revitalization of the business? How different will be from what it was historically and how should we benchmark that progress going forward in order to be able to calibrate for ourselves how you're doing in terms of hitting your integration target? And second, given the tremendous amount of free cash flow the company produces, I mean, we calculate that it's more than 12% yield on the stock. If the integration is progressing according to plan at what point would you consider potentially changing your debt to EBITDA ratio targets with the idea of either making accretive acquisitions to fill in on the business or more importantly to accelerate stock repurchases, because it look pretty damn attractive to buy back stock at this price level. So two integrated questions and by the way, thanks very much for letting us ask it.

Thanks. I'll take the product mix question. I'll let Greg or Mark replying on the other. On product mix, it will certainly evolve and it will evolve in a few ways. We're looking to a better, trying to find a better balance across categories. So as an example, the HSN business has a relatively small fashion mix, a relatively large electronics mix. We'd like to see a better balance. We'd like to see a bigger beauty business as well. And so there is some kind of rebalancing across the portfolio, so that we're both attracting new customers and getting higher levels of engagement from existing customers. You will also see us pushing on out of the QVC playbook, just kind of more items in a day, more new items in a day, more brands in a day. But also, maybe more methodically building reorder businesses where you really can do very well. And I think in all of those areas, there will be some evolution of the assortment structure. That we'll see over time. And then I think you'll see some sharing of brands between the two networks. Again, we want to keep them fairly distinct, but I mentioned some examples where it's a broadly distributed national brand where we think we can get more total sales by putting the brand on both networks. You'll also see us introducing more QVC suppliers, but those suppliers would be bringing different kinds of brands to HSN. But we think - I shared an example on the last earnings call of a very big food business we built at QVC. HSN doesn't have as established food business. There is a lot of supply chain complexity to managing food. So we're working with our partners to develop unique brands and offers for HSN customer. So expect evolution in the mix of categories, expect more balance over the course of the day. And some leverage across QVC kind of vendors and partners, as well just introducing other new brands to the company. And, Mark…

Thank you, Mike, and - yeah, Mike, I will chime in on this one. Thanks, Rich. So I think you are right. You noted couple of things. One, this is obviously a very high free cash flow generating business particularly for a retailer. We are in the midst as Mike has noted, a transition of H, some of the things we're doing and we do expect that there is going to be some quarters of pain ahead while we do that. We are also somewhat constrained or aware of what the rating agencies' expectations are, where our leverage level. That having been said, I think our philosophy has been pretty clear. We've been a big returner of capital historically to the stock market and to our investors, primarily via buyback. We have looked for creative acquisitions and probably put that near the top of the list. We'd like to think H and zulily qualify and are consistent with our view of experiential shopping, discovery-based shopping that is differentiated, and if we see other acquisitions in that space that are consistent with our thinking, we'll be there. There is a goal to retire some of our debt of different flavors, because of the nature of the deductibility that it has and our lack of deductibility out of the new tax law. So we weigh some of that as well. But I think you're right to point out, our biggest use of free cash flow over the last 12 years, since this becoming a separate company has far and away been retirement of equity. And I expect that's going to continue to be the largest source of - or use, rather for our cash given - if we can find other acquisitions we do it, but unlikely to find ones that we think fit as well in the portfolio. So we like to be large retires of equity.

Thank you.

And we'll take our next question from Alex Fuhrman with Craig-Hallum Capital Group.

Great. Thank you for taking my question. I wanted to ask a little bit more about the jewelry category, it's sound like you've been having some success there, just like pulling back on airtime getting more productivity. With Qurate side, it - what extent you think the increase in productivity has been driven the reduction on airtime is there some amount of just stable demand in jewelry or is it just better selections of brands and curating of the assortment? And what are your plan, I guess, going forward in terms of airtime for different categories? Or are there any category that you think could be showing enough good signs that you're ready to put more airtime behind them?

Alex, I would say on jewelry, it's a little bit of all, what you just described. I think, we know that our core customer loves our jewelry offering. It just isn't as important overall in her lifestyle as it used to be. And so we have - they're trying over the last few years to find that level having been a very probably over penetrated business historically at QVC. And so I think the team has done a really nice job trying to understand what the customer would respond to. There's a fair amount of newness in the assortments. The team has done a nice job kind of programming the jewelry events. Because one of the challenges is when airtime falls too much, the customer doesn't quite know when to tune in to find jewelry. Some of her old favorite programs have gone away over the years. And so, the team really focused in Q1 on trying to kind of concentrate some of the airtime and events that would be destination events for that jewelry customer. So I think all of that is working to help stabilize and grow the business at tleaste from a productivity standpoint. In terms of going forward airtime mixes, we're always trying to stay probably flexible with airtime. So I wouldn't say necessarily a specific direction where we want to take airtime, we revisit it online going basis, kind of leaning to what's working, but also trying to maintain healthy balance across the category. We are pleased that most of the categories are working right now. And so, I think, the call for us is more to maintain that balance. But over lean into any one category.

Great. That's helpful, Mike. Thank you very much.

And we'll take our next question from Barton Crockett with B. Riley FBR.

Okay, great. Thanks for taking the question. I guess, a couple of things I was very interested in. One, I think, last quarter, you guys gave some very interesting color on time viewing new customers, which were kind of a positive metric. We're not hearing that this quarter. I was wondering if you could elaborate if there's any meaningful change from what we were seeing last quarter on those counts.

I'm sorry. I missed that. What - say again what you're referring to?

So you were talking about time people spent viewing, which I think was a constructive metric from the fourth quarter, as well as the number of new customer additions, which were near historic highs. And I was wondering if you could update us on what you're seeing now. Is that - has those positive trends changed this quarter versus last quarter?

No. Those have continued positive, I did mentioned we're seeing viewing minutes of - total time spent viewing QVC is up 6%. So it's actually one of the steeper growth we've seen. So we feel very good about time viewing QVC and that 6% is just on our two main platforms of QVC and QVC2. If you added in Beauty iQ, which we don't currently have data on, and if you added in OTT, you - that 6% would be a bigger growth rate, so very good about viewership engagement. And then on new customers, up about 2% in the quarter, and so continues to see nice new customer momentum that we now have for about a year.

Okay. That's helpful. And then a question about the margins. You quantified some of the margin impacts, but the delever, how much of an impact on the ASP declines, how much of an impact on margin OIBDA was that in the quarter? And additionally, you talked about the expectation for the synergies. How much of that did you have this quarter? And how much is still to come?

So on the margin impact from ASP deleverage if you see - the principal impacts are, as you would expect on a distribution costs or freight costs - or warehouse costs or freight costs than a little bit just on the credit card line is your paying transaction fees on the cards were more units. It's hard to give a really precise major of all those impacts, but a little bit on how you look at it. But I think it's safe to say in the range of around 40 basis points, the impact across those line items.

And in terms of the synergies, how much have you realized in this quarter versus what's to come?

We're looking at $35 million to $40 million for the full year, and I believe in this quarter was $4 million.

Okay. So a lot yet to come. Yeah, I think that's good for now. Thank you very much.

All right. Thanks, Barton.

We will take our next question from Tom Forte with D.A. Davidson.

Great. Thanks for taking my question. So Mike, I wanted to ask you the question that I get asked most by investors. There were some speculation in the quarter that Amazon might be considering looking at Amazon Live. Would love your thoughts on that? Thanks.

Thanks, Tom. We did see that speculations. It's - I don't really want to speculate on what Amazon is or isn't going to do. As I said many times, in response to all questions Amazon-related, we feel good about our strategy, good about our unique positioning. We play in a different space with a different kind of strategy than Amazon. I don't really see Amazon - it's hard for me to believe that Amazon would want to acquire a small competitor to compete directly with what we do. But again, I hate to speculate on what others are thinking. I suspect they would have other uses for broadcast capacity, if they ever did choose to go that direction. I would note - and we're subject to these various Amazon rumors and pronouncements, few years we saw big one day wall-up in the stock price when there was an article published about Amazon launching Style Code Live, which was sort of a video, internet, shopping experience had fairly short life at Amazon. So these sorts of speculations come with the territory. We're kind of unwavering in our confidence at our business and the direction we're going and don't see those kind of issues as being material to us.

Great. Thanks, Mike.

Thanks, Tom.

We'll take our next question from Victor Anthony with Aegis Capital.

Thanks, guys. So, Mike, you successfully right-size or turned around the QVC US business, surprising most of the skeptics, including myself as well. So I'm wondering if you are seeing the same level of challenges at HSN that you saw at QVC. Whether or not this - the turnaround will be more difficult than you anticipated versus what you saw at QVC US? That's it for me. Thanks.

Thanks for question. I'm glad we're able to disprove you on the QVC US. I guess, I would describe it - the HSN situation as probably some - maybe bigger challenges than we fully anticipated, but equally offset by bigger opportunities than we expected. So while we're encouraged by it, you just - there are number of kind of indicators of kind of assortment, business health, brand health that we look at carefully at QVC. You see big gaps at HSN that we can go tackle. So the bad news is that there are those gaps, but the good news is there are those gaps. And we are confident that as we go after them in a methodical way you will see similar results to what we have seen when we had bump in QVC US, when we had a bump in Japan few years back. A few year before that when we had a bump in Germany. So I think we know how to go at these things. The difference is obviously that hasn't operated under traditional model and there are traditional model in the past. We don't want to by any means totally convert HSN to a QVC model. There are many good things that the team does. But I've been encouraged by the responsiveness that kind of level of energy we're seeing with that team to really learn from each other, great collaboration across QVC US and HSN teams to figure it out and to go for it. And so, it's early enough that I'm hesitant to put a very tight timeline on that turn, but I would say our confidence in the turn as we see these sort of gaps or differences that we can go fill is quite high.

Thank you very much.

And we'll take our final question today from Matthew Harrigan with Buckingham Research.

Thanks for taking my question. Yeah, I was curious. Your Chinese JV is basically around the area, even though you had a pretty healthy revenue quarter. But just being present in that market, you just kind of - Mike George, word the learnings you can extract when you look at that market in AI, devices for retailing and voice interaction and all that. Is there something to set for just being there to monitor how that retailing market is developing? And is that some sort of precursor for some of the changes in some of the other markets including the U.S. and Japan and Europe. And when you look at aspects of retailing like that, do you see any real major differences or distinctions across the major markets that you operate in indirectly? Thank you.

I just I'd be like - I definitely see it that way. It is a very low cost option to be in an important and to learn. It's a business where to your point it's not meaningful in our total P&L. But we put in a fairly modest investment when we went into the JV several years ago and never added another cent to that investment. And now we actually are a few quarters of breakeven or better. So it's a kind of no cost way to be in that market, to learn. Is there a potential down the road to see a really big up-shift in the growth of that business and have it be more meaningful? It's possible. That's a very - that remains a very immature and fragmented market with many, many competitors. And so as we just sort of stick with it, I suspect you'll see some of that lessen over time. But equally importantly, it is a way to be in the market to see what other innovative retailers are doing to see what's happening on social platforms. Long before we got engaged in Facebook Messenger we had a very innovative WeChat application in China. And so - and to see some of these different kinds of models like WeChat. It's something you try to learn from and hopefully we can take forward to - take all of the learnings forward to our other businesses.

Thanks, Mike, Congratulations for the quarter.

Thank you.

Thank you, operator, and thank you to all the questioners. And thank you for your continued interest in Qurate Retail. As we noted, in a little under two weeks we're going to have an Investor Day in Westchester. If you are so inclined, please reach out to the IR department. If you are otherwise, we hope to speak with you next quarter, if not sooner. Thank you very much.

Thank you. And that conclude today's conference. Thank you for your participation. You may now disconnect.