Ladies and gentlemen, thank you for standing by. Welcome to the Qurate Retail Incorporated 2021 Q1 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star, one on your telephone. As a reminder, this conference is being recorded February 25. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer. Please go ahead.

Thank you, good morning. Before we begin, we’d like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Form 10-K 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 expectations with regards thereto or any change in events, conditions or circumstances on which any such statement is based. Please note we published slides to accompany the earnings release. 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 note in Schedules 1 through 4 can be found in the earnings press release issued today on our earnings presentation, which are available on our website. Today speaking on the earnings call, we have Qurate Retail President and CEO, David Rawlinson, Qurate Retail Group CFO, Jeff Davis, and Qurate Retail Executive Chairman, Greg Maffei. Now I’ll hand the call over to David.

Thank you Courtnee, and good morning to everyone. Thank you for joining us today and for your interest in Qurate Retail. For the full year, total company revenue declined 1% and adjusted OIBDA declined 5%, reflecting the weakness in the back half of the year primarily related to supply chain constraints, product scarcity, and cost actions. Today we’ll mainly discuss our fourth quarter performance. This earnings release follows our pre-release in January. During the initial weeks of the fourth quarter, QxH experienced improved performance from Q3 and we expect that trend to continue. QxH revenue increased low single digits in October as we benefited from carry-in of advanced orders as well as from consumers starting their holiday shopping earlier than normal. November revenue softened a bit and was down low single digits due to supply chain challenges and the underperformance of our replacement product choices. In December, we saw a meaningful deterioration as revenue declined mid-teens. December’s weakness reflected ongoing supply chain constraints and customers concluding their holiday shopping earlier than normal. According to internal surveys, in early December nearly half of QVC and HSN’s customers indicated they had already completed or nearly finished their holiday shopping. December results were also impacted by uncertainty around the omicron variant and the fire at Rocky Mount, which affected our ability to ship product and meet guaranteed gift delivery times. We did not expect our fourth quarter results to deteriorate at this rate and thought it was important to issue the pre-release for transparency. As we enter this turnaround, we will continue to try to help the markets understand our progress. Obviously we are not pleased with our Q4 performance. The team and I are focused on the turnaround of this business that will modernize the value proposition, stabilize the core flagship brands,…

Thank you David, and good morning everyone. Unless otherwise noted, my comments compare financial performance for the three months ended December 31, 2021 to the same period of 2020. Starting with QxH, revenue of $2.5 billion declined 7% primarily on lower unit volume. Overall customer counts declined in comparison to the strong growth we experienced in 2020; however, the average spend and number of items purchased per customer increased 12% and 11% respectively. Ecommerce revenue of $1.6 billion declined 6% though increased 40 basis points in penetration. As shown on Slide 6, we experienced a shift in category mix primarily into apparel and beauty and a reduction in home and electronics. Apparel increased 19% driven by best customers in combination with our largest exclusive and proprietary brands, with strength in classic and contemporary wear. Beauty returned to growth, up 4%. We shifted more air time to beauty, as discussed in our Q3 call, and experienced growth in skin care and devices. Home declined 14% versus Q4 last year but was up slightly from Q4 2019. Compared to last year, demand was lower, most notably in fitness and wellness, kitchen electrics, cookware and kitchen accessories. Electronics declined 12% with demand challenges primarily in audio and gaming related to product availability. Prolonged supply chain challenges, longer term macro cost pressures, and fewer new and reactivated customers suppressed our home and electronics businesses. In the fourth quarter, we typically over-index in the categories which attract more new and reactivated customers than our fashion categories. This contributed to the tough comps to 2020 in new and reactivated customer count. Adjusted OIBDA of $374 million declined 23% and adjusted OIBDA margin decreased 310 basis points. Looking at the main components of the margin compression, gross margin was unfavorable 180 basis points primarily due to higher…

Thank you Jeff. I want to echo David’s comments. We were extremely disappointed by the Q4 and full year results; nonetheless, I think we’re all excited by David’s leadership and the changes he is spearheading across the organization. He is already taking action, and expect more to come. Despite the disappointing results to the year, we did return meaningful capital to shareholders during 2021, including the $480 million dividend, special cash dividend we paid in November, about $100 million of interest payments to the holders of the Qurate preferred, and the repurchase of about 10% of our share count in 2021 based on the shares outstanding at the beginning of the year, including total repurchases in the fourth quarter of $168 million. We also continue to improve Qurate’s debt profile, as you heard, and we took action at both the holdco level and the opco level to manage our debt, including the exchange and redemption I just mentioned of the 3.5% MSI exchangeables in the fourth quarter. Qurate does still benefit from a strong free cash flow profile despite navigating a challenging execution environment, and we remain committed to delivering value to our shareholders, including through the return of capital and proactive management of our debt and tax liabilities. We will continue to chip away at the remaining exchangeables to manage that holdco debt. In summary, we are committed to shareholder returns as David leads this business into the next chapter of digital innovation and the return to growth. Thank you to the listening audience for your continued interest in Qurate Retail, and now Operator, we’ll open the line for questions. Thank you.

[Operator instructions] We’ll take our first question from Oliver Wintermantel with Evercore. Please go ahead.

Yes, good morning guys. I had a question--thanks for giving us the cadence throughout the fourth quarter. Could you maybe--I know you don’t guide, but because this is--the trends in December were very weak, so could you maybe give us a little bit of update on how the business is trending year to date? We are almost two months into the quarter, that would be helpful.

Yes, thank you Oliver. It’s good to hear from you. I don’t think we want to guide to the quarter. I would say that we--I noted in my comments that December was down mid single digits before bottoming out, and so that changed as we went through the month of December, so I would not read ahead what happened in December to think that it continues into future quarters. But other than that, I don’t think we want to get into too much more casting of Q1 or guidance.

Okay, thanks. Then the other question I had was, David, you mentioned three impacts in QxH, temporaries and execution, but then I think the third one you mentioned, increased competition. Could you maybe expand on that a little bit, what you’re seeing there in the competitive space?

Yes, absolutely. Part of what we saw through the fourth quarter among competitors, of course we saw them taking some price in regard to inflation, but we also saw store traffic go back up. We saw a lot of brick and mortar either reopen or advertising campaigns driving people back to stores. You also saw an increase in digital marketing which drove some digital marketing inflation throughout the market, and then finally click-and-collect, order online and pick-up at store also grew substantially, so you saw the market sort of rebalancing from online back to a more natural mix, probably, of offline, and I think you also saw people getting out of the house and getting offline a touch in terms of how they balance their shopping. We definitely saw those trends and I think it just makes for, once again, a richer competitive environment than what we faced as the pandemic concentrated some of the trends.

Got it. Thanks very much, and good luck.

Thank you.

Our next question will come from Jason Haas with Bank of America. Please go ahead.

Thanks, good morning, and thanks for taking my questions. David, I’m curious, now that you’ve been here for some time and had the chance to assess the business, I’m curious as you start to think about the go-forward strategy, what areas of the business you’re looking at, what changes are you thinking to making to improve performance.

Yes, I appreciate the question. I would say a number of things. I think first, we just have to continue getting better every day in terms of execution. Some of that is about a culture of accountability, some of that is about structure and making sure that we have the people who can make decisions in real time at all levels in the organization, so we’re thinking carefully about organizational design to make sure we can act with accountability but also urgency and speed, and that only becomes more important as the world gets more dynamic. Part of the reason those things, by the way, are important is because we do still have very strong core assets to take advantage of, so if you look at the past year, actually minutes viewed was up every quarter this year. We had over $65 billion minutes viewed in 2021 in QxH, and that was a number that was up well over 4%, almost 5% for the year, and so at the core, our core assets are still very strong. We have to be able to convert those core assets into sales, and so an awful lot of that is about execution. I think part of the execution challenge also is making sure we have the right products at the right time. Some of that is supply chain, but also some of that is product vision, and so we’re really taking a look at our merchandising operations and what needs to be true for how we operate there, to make sure we’re getting in front of consumer demand and consumer trends. From there, I would say we know that outside of linear TV, the opportunity in live stream shopping, social shopping is very substantial, and we are under-indexed to those areas relative to…

Thanks, that’s helpful. You mentioned TV minutes viewed being up, and I know we’ve talked a lot about on previous calls about the fact you picked up a lot of customers through the pandemic, so I’m curious what you’re seeing now in terms of retention rates. Do you still feel good about your ability to keep those customers, or now that maybe post-omicron things are starting to open up a little bit more, are you starting to see any sort of higher churn in that customer base?

Yes, thank you for that. There are a number of pieces to that answer, so let me walk through a few different components. The first is I think we believe that newly acquired digital customers, some of those bumper crops of customers that we got during the pandemic were less invested in our core video content, and the increased competition from brick and mortar reopening and the buy online pick-up at stores did change the retention dynamic slightly among that customer group. I would also say that historically once we have a customer, retaining them is highly dependent on getting a second and third purchase, after which they basically become customers for life. Usually a new customer purchases in the same category for their second and third purchase that they did for their first purchase. Often the first purchase is a home purchase or an electronics purchase because those are the categories that are best for attracting new customers, and of course both home innovations and electronics were down sharply, so what that often means is you bring in somebody early on in the home or electronics category and then you de-emphasize those categories so you don’t get a second purchase, and that increases the churn dynamics, and we certainly saw some of that in those increased customer profile basis. In terms of the quarter and how it played out, we think about 60% of the shipped sales decline in QxH in Q4 was attributable to the relative weakness in new and reactivated customers. The last piece that I would point out in that regard is that we saw real inefficiencies in digital marketing. Digital marketing costs in Q4 were up 30% to 40%. On some days like Black Friday and key weekends in December, we actually saw digital marketing costs up something like 50%. Part of how we get a customer to repeat is by reaching them through our digital marketing channels, and in a world where that’s more expensive, we’re making different return on investment tradeoffs, and we weren’t able to hit them with quite as much activity to encourage long term behavior as we might typically do. I think looking back at those customer cohorts, I think there are a number of reasons why we have seen a little bit of an elevated churn dynamic among that customer base. I guess I would be encouraged by two things. The first is we have continued to see those customer--new customer demographics, for those that stay, they are maturing into our best customers at something close to historical rates, and once they become best customers, they’re continuing to be as loyal and as prolific in terms of their shopping behaviors as our historical best customers always have been, and so we are still filling the funnel of best customers with some of those bumper crops of pandemic-fueled new customers.

Thanks, that’s good to hear. Appreciate the color.

The next question will come from Edward Yruma with Keybanc Capital Markets. Please go ahead.

Hey, thanks very much for taking the question. I guess two from me. First, you outlined a lot of initiatives you’re working on. Some seem to be maybe more easy to rectify in the short term - merchandising issues missteps, and then maybe some more structural issues where you have to maybe augment the talent pool. I guess as you dimensionalize the timing around the turn, and I know you’re not guiding, but how should we think about the sequencing of things you can affect quickly, that we should see the responses for, versus what’s going to take longer? Then as a follow-up, you guys have done a good job of returning capital to shareholders. With the stock down here, I guess how do we think about your openness to stock buybacks? Thank you.

Yes, I’ll take the first part and then let Greg also comment on the second part of the question. I think there’s basically three time horizons, so there’s some things that are purely temporary that we would expect to see get better in the near to medium term. I think supply chain challenges, we expect to abate in the second half of the year. Obviously we’re dealing with some things like the fire at Rocky Mount, where we’re having to restructure the supply chain a bit, and that’s had an impact. I think some of the near term execution challenges, like you said, some of the structural changes we’re making should lead to some incremental improvement over time, and so I think those things we can hit relatively quickly. There are longer term things, like the rebalancing of our sales composition to new and growing media, and augmenting away from our linear TV dependence, which is still a very good, profitable business for us, but making sure that we have the right mix of revenue between linear and new media, over the top, other types of streaming. That will take more time, and we’ll have to build that over time. I think there’s some things we can do in the short term. I also think we’ll get some help in the short term as the world returns to a bit of a more normal pace, but I think changing the overall architecture of the composition for how we drive revenue and how we generate demand in the business and ultimately produce profits, that will take a little bit more time, although I will say we don’t believe we have forever. We’re in a dynamic market, we have competitors who are trying to figure this space out, and so while we recognize it’s going to take some time, we’re moving every day like it has to be done tomorrow. Greg, do you want to say anything about capital allocation?

Sure, thank you David, and thank you for the question. Look, I made my statement, I think you heard some words from David and Jeff which reinforce that. This business has a strong cash flow, this business has been a strong performer for a long time. We were extremely disappointed with what occurred in 2021 and the fourth quarter in particular, so we will be cautious and watch some of that. I do expect we have an opportunity to return to growth and pursue some--particularly growth in some of the new lines around digital that David mentioned. We were certainly surprised with the volatility of our working capital, that also had an impact on our free cash flow obviously, and we’re watching our debt levels, so we’re going to put that mix together, all of those factors and look forward to potentially returning to return of capital via share repurchase as we have done historically, but we’re going to weigh those factors and make that decision at the right time.

Thanks so much.

Our next question will come from William Reuter with Bank of America. Please go ahead.

Hi, so just a follow-up on that last question. It sounds like you will not be repurchasing shares in the near term. Is that the short answer to that?

I think you heard my answer, and you can interpret it as you wish. I didn’t say that. I said we’re going to watch the business and as it improves or moves, or we get comfort and certainty, we’ll probably lean in harder.

Okay, sorry. There was a little bit of a discussion there about as things improve and as those things improve, then you’d weigh those factors, so I kind of thought that that was referring to the fact that it wasn’t near term in nature. Okay. The second question is on a lot of these challenges, you guys gave pretty helpful comments on a first half outlook, even if it wasn’t guidance. A lot of those things aren’t changing in the first half of the year. There are some things, such as the customer mix in terms of new customers and their over-indexing to the home category, as well as electronics - those will obviously change in the first half. Is it fair to say that the first half in a lot of ways will look like the fourth quarter, though?

It’s David. I’m not sure exactly how to answer that question without giving guidance. I think we’ve said what we can say.

Okay, thanks for taking the questions.

Next we’ll hear from Michael Coppola with JP Morgan. Please go ahead.

Great, thanks for taking our questions. You guys redeemed some of those exchangeable notes this quarter, I think the net cost, you guys said it was $315 million. Was curious, do you guys expect to repurchase a similar amount, kind of every quarter or so going forward as part of your ongoing liability management? Then kind of in conjunction with that, can you remind us what the tax liability associated with that is as well, and where that stood as of year-end?

I’ll let Ben Oren, our Treasurer handle that.

Sure. I would say the MSI exchangeable was a refinancing, there was a unique opportunity going into year end and potential changes to the tax regs in 2022. On a go-forward basis and similar to what we did with the T-Mobile or Sprint exchangeables, we look to try to proactively manage those depending on our cash balance, depending on other needs for cash, and depending on the amount of capacity we have for deductions and for interest expense, and so we will continue to do that if liquidity allows on a regular basis. To the extent that we do more than that, it would just be taking a look at it opportunistically.

Okay great, thank you. Then another question we had was on the fewer customer count. Can you guys elaborate a little bit on the breakdown of that between online versus TV, and if there’s any particular differentiation among the key age cohorts there as well?

Yes, sure. We don’t break out new customers by online versus television. I think I’d make two observations, though. The first is online new customer growth is disproportionately impacted by our performance marketing, and when performance marketing experiences the type of inflation that we saw in the back half of 2021, our ability to effectively bring new customers into online is hampered. I would also say that product portfolio does make a difference online as well as people do branded and product-specific searches, and if you don’t have those, you don’t have the opportunity to drive sales and traffic to your website. A lot of the ways that we normally drive new customers online, I think were especially difficult. I would say on the linear TV broadcast side, the story is a little bit more stable. People find us over time and the value proposition attractive, and so we do see spikes depending on the product portfolio that we’re showing on Today’s Special Value or Today’s Special on the linear TV side for sure, but I would say the number and type of acquisitions that we did from that side of the house tends to be a little bit more stable and predictable over time to what we’ve seen digitally.

Yes, the only thing I would add to that, while it’s not a direct correlation, we did see a higher penetration of ecommerce sales in our overall net revenue this particular quarter, which is an indication of how that customer is really engaging with us through digital media. There is some indication that as you think about online versus potentially direct linear customers, that there is a higher penetration on the online side.

Great, thank you. That’s all from us. Happy to pass it off.

Our last question will come from Jason Bazinet with Citi. Please go ahead.

I just had a question for Mr. Maffei. You mentioned that the working capital was a little bit of a surprise to you, and I didn’t know if that was a commentary on the quarter or the year, and if you had any suggestions for us in terms of what surprised you - was it receivables or payables or inventory?

Yes, I’ll comment, and certainly David and Jeff can. If you look, working capital was a large source of free cash flow in 2020 and it was a large use in 2021, and particularly in the fourth quarter. Jeff commented on some of that, in that inbound freight in particular was so high during 2021 due to the well described and well known problems around shipping from places like China, and we had a large amount of inbound freight costs which got caught up in working capital and in inventory. That’s one example of the volatility we had there. I think that was larger than as many years past, and as I said, a source in ’20 and a use in ’21 which had an impact on free cash flow. David or Jeff, what might you add?

Yes, what I would add to that comment, and Greg, I think you hit the nail on the head, the only other component was that we had a higher percentage of our--a higher level of inventory in transit as a result of these delays coming into the country as well as getting it ultimately to the fulfillment centers. The inventory of course wasn’t available for us for the particular airing time - we’ve now carried that into 2022. We feel very comfortable with the quality of that inventory and the customer reactions to these particular products. Then offsetting on the imbalance is that these inventories came in, we had to of course pay for them, and many times we didn’t have the opportunity to get them in their appropriate time slots for sales, so you have this imbalance of payables being lower and carrying a little higher inventory levels as a result of some of these delays.

If I can just have one quick follow-up, does that mean--you said the supply chain issues you expect to persist through the first half of this year, is the corollary that this will likely continue to be a use of cash until things normalize and then become a source?

You know, without giving any guidance on this, our expectation is that we will continue to adjust our purchasing behaviors to account for some of the delays that we’re seeing, and as we work through our inventory levels and adjusting some of the relationship payable terms with our customers, this is something that we could see persist through the first half of the year.

Okay, thank you.

Thank you for the question, Jason, and thank you to all the other listeners and questioners. Thank you again for your continued interest in Qurate Retail. We look forward to speaking with you next quarter, if not sooner. I think we’re done, Operator.

Thank you, and everyone, this concludes today’s call. We thank you again for your participation. You may now disconnect.