Ladies and gentlemen, thank you for standing by. Welcome to the Qurate Retail Incorporated 2020 Quarter Two 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, today, August, 10. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer and Senior Vice President of Investor Relations. Please go ahead, ma’am.

Thank you. Before we begin, we’d like to remind everyone 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 forms 10-K and 10-Q filed by our company and QVC with the SEC. 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 statement contained herein to reflect any change in Qurate Retail’s expectation 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 OIBDA margin, free cash flow and constant currency. Information regarding the comparable GAAP metrics, along with required definitions and reconciliations, including preliminary notes and Schedules 1 through 3 can be found in the earnings press release issued today on – or the earnings presentation, which are available on our website. Today speaking on the call, we have Qurate Retail Executive Chairman, Greg Maffei; President and CEO, Mike George; and Qurate Retail Group CFO, Jeff Davis. Please note, we published slides to accompany the earnings release. These slides are available on our website. Now I’d like to turn the call over to Greg.

Thank you, Courtnee, and welcome to all of our listening audience. Let me also start by thanking the Qurate Retail team members on their exceptional results, truly reflective of their dedication and perseverance. Mike and Jeff will be on shortly to provide more details. Begin with some corporate updates. We know capital return strategy has been ongoing topic among our investors as we paused buybacks last year. Our historical buybacks have not been as successful as we’d liked, largely due to the market’s more negative outlook of Qurate Retail’s terminal value. While our view may differ on management board, we have explored alternative approaches for return of capital to deliver sustained benefits to shareholders. Given the strength in Qurate free cash flow and our confidence in this business fundamentals, we intend to return capital to shareholders via special dividend consisting of two pieces: A onetime cash dividend of $1.50 a share; and a preferred stock dividend of $3 a share. The proposed onetime cash dividend will total approximately $633 million, and we arrived at this amount in reviewing the projected 2023 free cash flow, the expected proceeds from the sale of our Solana Green Energy asset and cash built in part from our pause and share buybacks over the past year. This could be important also because – in terms of having this dividend now because it might be optimal timing in the event tax rates increase in the coming years. The preferred stock dividend will have a total base of approximately $1.3 billion. Why did we choose a preferred stock dividend? Well, effectively, we’re dividing few common stock into a more bond-like instrument and a more levered common equity. In line with many of the other things we’ve done in terms of providing investor choice, this should increase investor…

Thank you, Greg, and good afternoon, everyone. Thank you for joining us. We are certainly living through a period of unprecedented challenge, fueled by the ongoing impacts of the global pandemic and the need outcry for racial and economic justice. I want to start today’s call by summarizing the actions we’ve taken in response to these extraordinary events, and then I’ll review our results and our outlook for the future. In terms of our actions, first, our primary focus remains on protecting the health and the financial well-being of our team members. All team members who can work from home will continue to do so until at least early next year, and some will work from home permanently, most notably in customer service. Social distancing, mandatory mask requirements and stringent cleaning regimes are in affect all of our sites. And we’ve provided a variety of special pay, leave and medical and other benefits, along with work from home allowances, to our team members. Second, we continue to support our local communities. We’re especially proud of our small business spotlight, giving small businesses impacted by COVID visibility across QVC, HSN and Zulily. And we’ll shortly launch a new series focused on black owning small businesses. Our record-setting duty with benefits program on QVC and HSN, delivered a projected $2.5 million for Cancer and Careers with $500,000 directly supporting COVID-related grants and programs, and we donated over $1 million to the Equal Justice Initiative. All together, the COVID relief commitments facilitated in support of our communities, for our team, along with our commitments to combat racial justice, totaled $40 million. Third, we rapidly put in our product programming, events and marketing to be in tune with what consumers most care about now. We aspire to be her reference a place for advice,…

Thank you, Mike and good morning – good afternoon, everyone. As Mike mentioned, QRI’s net revenue grew 10% for the quarter, the will all segments delivering mid-single to high teen growth. OIBDA improved 10% and included several discrete items, including an incremental $10 million of severance across all business segments and $5 million inventory provision at cornerstone, partially offset by a $10 million reduction in sales tax accrual at Zulily that was originally recorded at the time of acquisition. Let’s start with QXH. QXH returned to net revenue growth on a foundation of new customer growth and strong e-commerce performance. As Mike said, we have a broad product portfolio, which enabled us to meet customer demand. As you’ll see on Slide 11 in the earnings presentation, we experienced a sizable shift in category mix from apparel, accessories and jewelry to home and electronics. While the team responded well to these changes in customers’ demand to drive revenue growth, it deploys substantial gross margin pressure. For the quarter, QXH, total customer grew 14% with existing customers up 4%, reactivated customers at 29% and new customers growing 74%. We’re encouraged by early indicators of our new customers behave. 30 and 60-day retention rates have increased, while 30 and 60-day post initial purchase spend is largely consistent with prior year levels. Let me provide additional detail on individual category performance. Home increased 22%. Demand for our gourmet food offering is underway, nearly doubling. We also experienced strong growth in gardening, fitness, floor care, cleaning and personal care. Consumer electronics grew 25%, driven primarily by increased interest in home office, entertainment and gaming. Trends moderated later in the quarter, as we reduced the installment payment options available to manage bad debt risk. Beauty returned to growth up 2%. We continue to see success with…

Thank you. [Operator Instructions] We’ll take our first question from Edward Yruma with KeyBanc Capital Markets. Please go ahead. Kaseylyn O’Brien: Hi. This is Kaseylyn O’Brien on for Edward Yruma. First, what plans do you guys have in place to retain the new customers you’ve acquired? And then looking at that cohort of new customers, are there any differences in profile or consumer behavior you’ve observed thus far?

Thank you for the question. This is Mike. We’re thrilled with the quality of the new customers we’re seeing, and we do have multiple initiatives underway to keep them. So when we start with kind of the quality and the profile. And broadly, I would say, these new customers looking at like new customers in past years, we just have a lot more of them. We grew new customers in every single product category. We grew new customers both in our off-air business as well as our on-air business. So she is engaging and coming to us both with sort of a more traditional TV programming as well as digital programming. The key metrics we look at to assess value like potentially to keep those customers at the 14, 30, 60-day mark while at or above the prior year performance. We even look at what percentage of new customers become best customers in their very first couple of months. And on an update measure, we’ll look as good or better than prior classes. Probably the only modest differences, she’s slightly younger, maybe a year or two younger than we typically see with new customers. But other than that, this looks like a very strong profile. That said, we don’t want to take it for granted. So we’ve got a number of programs underway to mark it back to her, a variety of sort of personal outbound marketing programs to present her with – she’d be interested in based on our purchase profile. We’re doing some programs through Facebook to expose the kind of product carousels of products that would – again, the data would say should be interested in. So kind of encouraged by the team’s efforts to have a full-court press on retaining these new customers. Kaseylyn O’Brien: Thank you.

And we’ll go ahead and take our next question from Oliver Wintermantel with Evercore. Please go ahead.

Yes, thanks. Good afternoon guys. My question was regarding inventory growth or inventory decline, I should say. It was down about 14% in the quarter. So it looks like your inventory is clean heading into the third quarter, which probably there’s not a lot of discounting going on into back-to-school or the second half. But I was just wondering, did you have problems acquiring inventory into the third quarter? Or was that deliberate because of what you expect in the end of the third quarter? So just a little bit commentary about the decline in inventory would be helpful.

Yes, I would say the decline reflects a couple of things. First suggest that, obviously, sales exceeded our expectations. So we are able to move through a lot of inventory. And then we also do think a fairly thinking of the cautious past year just to make sure we weren’t overbought in a very uncertain time, but it was balanced because we did want to make sure we have fresh receipts going through the year at a time when other retailers could probably cutback more substantially. So I think they can get a really nice job of managing those dynamics through Q2. And now we’re gradually rebuild the inventories to make sure we’re fully assorted during the fall and holiday season as Jeff mentioned. And that’s so good that we’ll have fresh receipts [indiscernible] as an example, in case she does start to want to reengage with the payroll product, which is the only category that might be a modest watch out for us is we are seeing the pressures really from the first phase of the pandemic in China, which really disrupted supply in consumer electronics, coupled with the high demand for consumer electronics. And I would say we’re working hard with our partners to make sure we’ve got a full assortment in electronics for the holiday season. A little bit of risk there, but we’re a preferred partner for many, and I think we’ll be able to navigate that. But that will be the one area where we might have some modest risk. Otherwise, we do think the inventories are clean and will help us sort of maintain this conservative posture on promotions through the year.

Got it. And if I may – maybe a second question regarding e-commerce. The growth this quarter was very strong. If you could maybe talk a little bit about where that growth is coming from e-commerce. Is your – how much of that is organic – inorganic I mean, directly through the website without people watching the program? Or is the majority really driven by people watching the program and then offering? If you could give us a little bit of details there, that would be helpful. Thank you.

Yes, sure. As you know, it’s hard for us to be able to perfectly ascertain positive effects between TV and e-commerce. But probably the metrics are most important to us on that question would be looking at the mix of sales on e-commerce, how much of it is the core products we’re featuring on video, and how much of the products though not featuring on video, so the – which we call our off-air [ph] products. So as I mentioned in my remarks, those off-air products were up north of 20%. So it grew much faster than the overall business results. And they represent roughly 30% of total sales and – total sales for the business unit and a substantial share of the sales for e-commerce. So that doesn’t mean that the e-commerce customer isn’t engaging with the TV product in any names, but we’re certainly getting a lot of sales, majority of sales on items that aren’t featured on air. Those sales are growing rapidly. We’re certainly seeing a disproportionate e-commerce performance with new customers. So we do think we’re seeing a lot of new customers come in and make their first purchases through a more conventional e-commerce experience, and then some of them becoming more broad-based of the brand.

Got it. Thanks very much. Good luck.

Can I add one thing here, which is, although, when you say that the organic, it’s funny because I would argue to flip it on its head. Organic for us is people who see the TV. It’s a fixed cost, early fixed cost that we run, a huge brand builder, a huge royalty builder and a huge, continuous promoter for us. For us, inorganic is where we have to buy online, Google, Facebook, cost per click, and frankly, that’s where it has a variable cost and it’s less attractive. So I don’t most flip it on its head. We love the stuff we can promote from a TV, right? We’ve already paid for that once.

Got it. Thank you very much

Thank you.

We’ll go ahead and take our next question from Jason Bazinet with Citi. Please go ahead.

I just had a couple of questions for Mr. Maffei. I appreciate the choice that you have given your investors with preferred, I suspect a lot of investors are going to look at this move and say that it sort of lays the groundwork for you to go private, actually. So can I just ask three questions. Day one when this preferred, if it goes through, is it right to say your $4.8 billion market cap will go down by $1.3 billion for the preferred and then go down $630-some-odd million for the special and so the market cap sort of date…

So Jason so let me take it one at a time. Our hope would be no. Our hope is our equity market capital decline are less than the combined value of those because we’ve shown not only the earning capability of the business, but that we can sustain preferred and that some of the excess benefit will prove to come.

Understood. Second, what happens to your basis in the asset after this preferred gets issue if it goes through?

So if I could just add on the first point, I know you suggest in the past, that when actions were taken, we were doing to take the business private, some of them which would have been illegal. And we try not to do things very legal, very assiduously try hard to think they’re illegal. So again, we certainly didn’t do this with we intend to take it private. And if you take the first point that I made, which we truly do intend that the combined value would go up, it’s probably not in our interest to do this as well, if that was our intent to take it private. So I just want to say that is not our intent. Our intent is to create shareholder value for all shareholders. Sorry, go ahead.

No, that’s great. So, what happens to your basis in the asset after this preferred is issued.

Depending on who you are, generally, it’s complicated, but it will generally split between the two entities. There may be some cases in which it goes to the more of the common, this is one that would say, I would say, consult your tax adviser.

Okay. And my last one, what happened in 2031 when the preferred sunsets like mechanically, what happens at that juncture?

We pay it off or we issue some other kind of instrument, I guess, and exchange it but generally like most debt securities, we would pay it off.

Okay. Thank you.

Thank you.

Go ahead and take our next question from Carla Casella with JP Morgan. Please go ahead.

Hi. I’m wondering if you could give us some color on as we’re coming out of COVID if you’re seeing much change in the big business segment, meaning home versus personal care, et cetera?

Thanks Carla for the question. It’s been surprisingly consistent. So I would say that the categories that are doing well have been largely consistent through the pandemic. The specifics within those categories obviously change with the seasons, but home just remains very dominant. You can see that in Cornerstone business, which is all home continuing to grow at the same rates that it grew through Q2. So, she shifted from gardening and outdoor stuff to now indoor furniture and kind of getting ready for the fall. But very much a strong focus across all home categories, probably the only are that have shifted somewhat is the consumer electronics is much softer for us. That’s a little bit self imposed because the promotional pullback that I mentioned most severely impacted the consumer electronics business, which tends to be the most promotionally driven category. So that’s probably a little bit more on us than the broad market. But otherwise, we’re seeing pockets of positive performance in apparel and some of the more comfort in casual wear. But I would say in the main, apparel and jewelry remain challenged. Accessories and beauty are okay. And across the home with the exception of consumer electronics, we’re continuing to see strength.

Okay, great. And then just one follow-up on, given the transactions you mentioned with the stock, any view – any change in your view on how much leverage you’re comfortable with the QVC entity?

Greg, do you want to take that or Jeff?

I think – sure. And I’ll let Ben [indiscernible] our new Treasurer, can comment as well. We’ve set forth ratings at the two level. I believe at two and a half times. We also have some three and a half times, not maintenance covenants but covenants on our bonds, some of our bonds. So those are certainly targets we’re trying to stay within. I don’t know, Ben, what would you add?

Yes, I would repeat that our stated leverage target for QVC is two and a half times. In addition, just to be specific, our aggregate family leverage, our ability to draw on our revolver is subject to a three and a half times leverage. So we currently retain most, if not all of the QVC revolver capacity.

Okay, great, thank you very much.

Those are certainly impacted on targets but we do believe the business can actually maintain higher leverage given its high free cash flow capabilities, but we obviously want to access, may want to access at various times to that revolver.

Okay, great, thank you.

Thank you.

Thank you. And we’ll take our last question from Elliot Alper with D.A. Davidson. Please go ahead.

Great. Thanks. Could you talk more about what drove the strong performance in Zulily for the quarter, as well as what drove the new customer growth. Curious if you’re seeing this new customer being correlated with the continued push into your OTT distribution efforts. And then secondly, to what extent, if at all, are you seeing any correlation between geographies that are reopening and traffic trends? Thanks.

Thanks for the question. I’m really proud of that team’s work. You’ve been – after having had a pretty tough year and kind of off the track record, you’ve been on – the team really put the time to use them in all aspects of the value proposition. They just get refocused on the core mom target. He probably strayed away from a little bit in the last, in the pursuit of growth, really refocused marketing, and going after new customers as opposed to trying to get more out of existing customers and with a number of innovations across marketing, new outbound marketing programs building up a kind of influencer network to reach into new audience segments, to influencers, a lot of hard work with Facebook to remove some inefficiencies in the Facebook interface. All of which I think we’re seeing the benefit of, number of sort of reforms to the score from just to make it a little bit more exciting, energizing, more self-service capabilities to improve the service levels of the brand. And then just a huge focus on new brands. And while we’re excited about mentioning specific names with department stores being closed, I think the team did a really nice job getting a lot of products that might’ve always been in a specialty or department store channel. Because Zulily and you think about benefits can maintain. So clearly it was an overall, tailwind of e-commerce growing and other e-commerce retailer has grown, but I think the kind of 40-point swing sides. So really from the declines in Q1 to the growth in Q2 is absolutely benefited from that broad tailwind of e-commerce that got intersected with just the number of his fundamental efforts to improve and strengthen the value proposition. On the question of what’s the…

I agree. This is Greg. I want to thank everyone. And I know there will surely be questions about preferred, which is a new instrument. We look forward to trying to educate you. We think it’s a high volume instrument and we hope we can convince you as well. Thank you very much.

Once again, that does conclude today’s conference. Thank you very much for your participation. You may now disconnect.