Welcome to the QVC Group 2024 Q4 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 will be recorded February 27. I would now like to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and good afternoon. 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 filed by our company and QVC with the SEC. These forward-looking statements speak only as of the date of this call, and QVC Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in QVC Group's expectations with regard thereto or any change in events, conditions or circumstances upon which any such statement is based. Please note that we have 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 notes and Schedules 1 and 2, can be found in the earnings press release issued today or our earnings presentation, which are available on our website. Today speaking on the call, we have QVC Group President and CEO, David Rawlinson; QVC Group's CFO, Bill Wafford; and QVC Group Executive Chairman, Greg Maffei. Now I'll hand the call over to David.

Thank you, Shane, and good afternoon to all. Thank you for joining us and for your interest in the QVC Group. I'll begin today with a recap of fourth quarter results, then speak to the conclusion of 2024 and Project Athens before going deeper into our growth strategy announced at Investor Day. Total revenue declined 6% in the fourth quarter. Our top line performance saw continued volume pressure similar to the third quarter, driven by linear television declines, a cautious consumer environment and meaningful distractions in our TV viewership due to headline grabbing events like hurricanes and the election. These events affect our sales far more than other retailers as a video-driven commerce platform with the need for people to tune into our programming in order to drive sales. QxH TV minutes viewed declined 4%, while across the TV industry, the number of hours watched for news and information programming increased 11%. QVC International had flat revenue and Cornerstone brands continued to experience sales pressure due to a soft housing sector in the fourth quarter. Volume pressures led to sales deleverage in Q4. We continue to actively manage costs, which partially offset some of the sales deleverage in the quarter, with total company operating expenses and SG&A declining 9% and 6%, respectively. At our core businesses, QxH and QVC International, we expanded adjusted OIBDA margin 10 and 170 basis points, respectively. QVC International was our best-performing business in Q4 with OIBDA increasing 12% year-on-year. Cornerstone had a disproportionate impact to the QVC Group's consolidated OIBDA in the fourth quarter. While it was only 10% of total company revenue, Cornerstone - I'm sorry, Cornerstone's OIBDA declined $22 million, where consolidated company total OIBDA decreased $28 million or 8% year-over-year. Cornerstone made up three fourth of the decline. Total company OIBDA margin…

Thank you, David, and good afternoon, everyone. Unless otherwise noted, my comments compare financial performance for the 3 months ended December 31, 2024, to the same period in 2023. Starting with QxH. Revenue fell by 8% due to lower unit volume, average selling price and shipping and handling revenue. From a category perspective, home revenue decreased 8%, driven by reduced demand for culinary and floor care products, partially offset by growth in seasonal items. Apparel revenue grew 2% due to gains from Age of Possibility brands, including Kim Grevel, Jennie Garth, Stacy London and Susan Graver, as well as celebrities Christie Brinkley, Christian Siriano and Johan Sebastian Grey at HSN. These gains were partially offset by lower demand for outerwear. Beauty revenue fell 9% due to lower demand for skin care and bath & body products. Electronics declined 16% due to lower demand for gaming and computers. We reduced online promotions for gaming items and shifted focus to higher-margin products such as audio and portable power, where we experienced gains. Adjusted OIBDA margin expanded 10 basis points. Gross margin declined 40 basis points with higher product margins mitigated by fulfillment pressure. Product margins increased by approximately 90 basis points due to higher initial margins from private label penetration and improved product COGS. Fulfillment expenses were unfavorable 130 basis points due to higher wages and freight rates and sales deleverage. Operating expenses decreased 11% and were favorable by 25 basis points due to lower commissions. SG&A expenses declined 10% and were favorable by 20 basis points, reflecting lower marketing, personnel and outside services expenses, partially offset by sales deleverage. Before moving on to QVC International, as noted in our earnings release, we conducted an annual impairment assessment and recognized a $1.5 billion noncash impairment charge at QXH related to goodwill and…

Thanks, Bill. So in 2024, we had a successful execution of many elements of the balance sheet. Just to reiterate a couple that Bill noted already or David as well, we reduced debt by $442 million during the year, including the repayment of the QVC 2024 notes. After year-end, we also repaid the 2025 notes, and we tendered for 89% of the '27 and '28 notes, which was partially funded with new 2029 notes. These actions extended our debt maturity profile and helped support our anticipated revolving credit facility extension. It's great work from the team in achieving higher margins and free cash flow under Athens. OIBDA was up 4%, including the elimination of Zulily and flat without Zulily. This is pretty solid given the challenging backdrop of accelerated cord cutting. And though it's short of our targeted OIBDA growth rate when we set out for Project Athens, it's still admirable given these conditions. We do recognize the macro pressures of cord cutting and discretionary retail, and we have seen the massive growth in live social shopping and the clear change in consumer behavior, which is continually shifting towards digital. Accordingly, we're moving our businesses towards this opportunity. As our audiences increasingly go on to social, a growing market and they become increasingly comfortable transacting on social, we believe QVC is set up well to win in this space with our content production, our brands and the knowledge of the market. We believe we can balance the growth in this market with maintaining profitability going forward. And with that, operator, I'll open up the line for questions.

Thank you. [Operator Instructions] Our first question comes from Jenna Giannelli with Morgan Stanley. Please state your question.

Hi. Good afternoon. Thanks for taking my question. In terms of the 3-year plan and as it pertains to 2025, how should we think about the cadence of that playing out over the next few years? Should we expect any revenue growth this year, do you think, or at least in the second half? And is the flat EBITDA margin - or OIBDA margin, excuse me, the goal for this year as well? Thank you.

Yeah. I'll start on that, and then I'll let Bill jump in if he wants to for a bit. So I think what you - I think 2025 will be a real transition year. I think you'll see even stronger acceleration of social and streaming revenue than what we've had in the last couple of years. And I think you'll continue to see us experience cord cutting-related declines in some of the core U.S. video commerce businesses. I think you'll see the revenue build from the growing parts of the businesses start to overcome the rate of that decline as we go through 2025 and get into 2026. So I think it will be very much a year of transition, while we grow into that revenue growth over the full 3-year period. In terms of OIBDA margin, I would expect that we will maintain our basic margin levels of profitability comfortably sort of double-digit type OIBDA margins throughout the 3-year strategic period.

Excellent. Thank you. And then I just had one follow-up, if I can. International outperformed pretty notably. I guess maybe what were some of the key differences there, the drivers of that? And is there anything going on there specifically or structurally that you think you can pull back or leverage here in the Americas? Thanks.

Yeah, it's a great question. The biggest difference by far is they are just seeing they're seeing some of the same technology transitions that we're seeing in the U.S., but it's all much delayed. And so they're not seeing anything close to the type of cord cutting that we've seen in the U.S., which is just allowing us to make the technology and platform transition in a more balanced, deliberate way, then I think we're going to have the, the luxury of being able to do in the United States. I think it also helps. We have a very experienced team on that business. We have very strong local brand presence in each of those markets. I would say, on average, our international markets are slightly less competitively intense than what we tend to face on a daily basis in our U.S. markets. And so that's helpful as well. I will say a lot of the core disciplines that we are now perfecting, especially in the social shopping space in the U.S., we think are going to give us even greater competitive advantages in our international markets going forward. This year, the real concentration on building things like the content factory engine and some of the other capabilities is focused on the U.S. But we're really very excited about what it's going to mean as we go through this year and into 2026 and bring some of those capabilities to some of the international markets, which are even if more slowly facing a lot of the same growth opportunities that are emerging here.

Great. Thanks so much.

Your next question comes from William Reuter with Bank of America. Please state your question.

Hi. Good evening. This is Rob Rigby on for Bill. So first question from us. I was just wondering if you could touch on your plans for the St. Petersburg facility. And if your plan is to sell the facility, what proceeds would be used for? Thank you.

Yeah. We're still - I mean, St. Petersburg, obviously, the team is still operating there and will be for a good portion of this year. I think David mentioned that by Q3, we intend to having - consolidating all content production here in Studio Park. We'll work on decommissioning that facility this year. Eventually, a high likelihood, obviously, that we'll dispose the facility via a sale still remains to be seen in terms of what the exact timing of that's going to be and how we use the proceeds.

Got it. Understood. And then regarding tariffs, I was just wondering maybe if you could quantify in any way your exposure to China and then your ability to potentially shift sourcing of certain goods?

Yeah. I mean we've taken sourcing a considerable amount of our source of supply out of China really since 2018 when the last time that you saw a significant tariff action. We don't - the majority of our goods we source through our vendors where we're not the importer of record. We don't quote typically what our complete exposure is. And obviously, we don't control the total exposure. But it's significant on the business. We're continuing to work with our suppliers as we evaluate product pricing and source of supply from country of origin going forward. And obviously, what our pricing situation is here in the U.S. and if we have to pass that on to consumers.

Great. Thanks. And then just one last one quickly. I'm not sure if I missed it, but did you touch on the timing of that $100 million [ph] of adjusted EBITDA savings?

We're targeting that to have a run rate by the end of this year in terms of OIBDA opportunity improvement.

Great. That's all for me. Thank you.

Our next question comes from Karru Martinson with Jefferies Company. Please state your question.

Good afternoon. The anticipated revolver extension, where are we on that? Is that something that's near term here? Or is that closer to maturity?

This is Ben Oren. I think the way we're thinking about that is October 2026 is the maturity. October 2025 is the go current. And so we are in active dialogue with the banks and hope to have something back to you in the next 1 to 2 quarters.

Okay. And then when you look at the headwinds with fulfillment, 130 bps this quarter, what's the ability to kind of see some offsets to that? Is that just the deleveraging on the top line? And I guess, how does that fit in with the maintaining a double-digit OIBDA margin?

Yeah. I mean I think you're a bit episodic in the quarter, right? I mean you've got a bit of deleverage in there, right, on your warehouse costs flowing through. I think you saw a little bit of things that were episodic in terms of small parcel and charges we had in the quarter impacting us. Also, when you look at even the international business, kind of some of the tale of Red Sea disruption that we had that impacted freight and things like that. We don't anticipate that to be systemic going forward outside of any of the potential tariff discussions that are going on, right, that are impacting product COGS. We don't see that being consistent go forward. We've done a very good job of managing that over the last couple of years and continue to actively be doing that now. And one example is we just consolidated two of our distribution centers on the West Coast into one to be able to take some cost out of the equation.

Okay. And just lastly, I realize you don't give guidance, but we've talked with some other retailers saying, hey, there are some storms, some weather, there was a slow start to the year, kind of balance that off with there haven't been as many onetime events. How is the consumer shaping up for 2025?

Yeah. I think it's a little bit hard to read. I think if you look across the consumer sentiment measures, I think they're broadly stable but broadly down. But I don't see anything that suggests demand is collapsing. I think a lot of retailers have remarked that you're seeing value-seeking and deal-seeking behavior among the consumer. I think we continue to see that gravitation towards deals, gravitation towards clearance when there's an opportunity with the good, better, best to choose down towards good or better and to choose away from best. So I think you're continuing to see some of those trends as we go into this year. I think you still continue to see a lot of the income-related trends with buying behavior for upper middle class and greater being more stable than below. So - but I think mostly, I see a relatively stable continuation of trends from '24 into '25 with perhaps a touch of softness in consumer sentiment, but nothing that feels like it's sharp or alarming.

Thank you very much. Appreciate it.

Our next question comes from Hale Holden with Barclays. Please state your question.

Thank you. I had two questions. The first one is when we think about sort of the effect of cord cutting, if that accelerates or as that accelerates, should we think about that as a straight-line decline or linear decline in the sub count? Or are they sort of unrelated? And then for the fourth quarter specifically, I think you mentioned the pullback in promotions on electronics. And I was wondering if that also had an impact on the sub count or not? And then I have a follow-up.

That's great. We tend to look at subs on kind of a year-over-year basis. There's so much variation in quarters. We tend to look at it on sort of a year-over-year or a 12-month lagging trailing 12 basis. What I would say - and I think it's - we've seen relatively consistent losses over - I think in my remarks, I talked about from 2018 to 2024. I think we've seen relatively consistent declines in terms of households during that time. I would say, while it started out in the general market a little bit faster, it was slower to start for us because a lot of our customers were the last to cut the cord because some of our customers are older and more wedded to that platform. I would say what you're starting to see now is all customers are cutting the cord at roughly the same sorts of rates. We have generally overperformed cord cutting. So if you were to do a correlation between our revenue performance in our U.S. video commerce businesses versus loss of households because we've been moving some of those customers to streaming and some of those customers to digital channels, we haven't quite seen some of the reductions in revenue that you would be suggested by the level of cord cutting. But obviously, it has had a pretty direct impact. In terms of spending in the fourth quarter on advertising, you caught that comment correctly. So we pulled some of our normal performance marketing and spending that we would normally have in the fourth quarter. Some of that we reprogrammed in the first three quarters and some of that, we just declined the spend in the fourth quarter. Advertising, given advertising is always a little less effective because more people are in…

Great. Thank you, David. And my second question was really around Cornerstone that was the biggest delta miss on my part in terms of expectations. And I think we have been waiting for that market to turn. It hasn't in terms of home furnishing. So I was wondering if there's any change in strategy there? Or how do you make sure you don't flip EBITDA negative in the meantime while we're waiting for it to improve?

Yeah. It's a great question. I think we've been - I think everybody in the market has been surprised to see the housing market stay at multi-decade lows in terms of moves and to an extent, new builds and those businesses are very highly correlated to the broader market. What's encouraging to me about those businesses today is that this is giving us a lot of opportunity to run something like the program that we ran through Project Athens on QVC and HSN now on the Cornerstone brand. So a lot of the team that drove a lot of the increased profitability because of Athens is now working with Cornerstone brands. And so we know we have techniques that work that are going to help us with margin and profitability in that business over the next 12 to 18 months, and those efforts are now sort of full steam ahead and fully stood up. And so we feel good about our ability to drive some bottom line margin and cost opportunities in that business. In terms of when the - when we get more out of the market itself in the macro, your call is as good as mine. What I would just observe is that there does feel like there's real pent-up demand in the market. And whenever the market gets unstuck, I would not be surprised for us to have a trend that looks very different for a sustained period of time. I think we will go into that into a market turn more profitable, more capable, having established a lot of new capabilities. And I think there's some potential to potentially overperform if we got back to an up market given some of the work we're doing. But it's certainly been - the macro has been depressed for longer than we would have anticipated or than we would have liked.

Great. Thank you very much. I appreciate it.

Thank you. And the last question for today comes from Yaakov Musheyev with JPMorgan Chase & Company. Please state your question.

Hi. Thank you. This is Yaakov on for Carla Casella. First question, you have an initiative to grow social sales about $1.5 billion. Could you just give us a sense for your progress in the quarter? Did social sales grow sequentially? Were there any call-outs was working and what still needs to work on social? And how much lower are the margins on social versus linear?

Yeah. Great questions. So one conversation we're having internally that we'll get back to this community on is how to give you more insight into both social and streaming. And so look for us to try to find ways to be more descriptive there. You're right to the $1.5 billion run rate goal by the end of the 3-year period. We think that's very possible. We already today have hundreds of millions of dollars of revenue across social and streaming. And so we're growing from a not insubstantial base there. And we saw a very good performance in Q4 and for the full year in terms of growth year-over-year. And we expect further acceleration of that into 2025. Both of those businesses have been growing very strongly now for a couple of years. 2025 is the year where we really put more into advertising capabilities, building partnerships. So we'll have a lot more to say on that on the - a lot more to say on that later. But everything we saw in the fourth quarter leads us to believe that it's exactly the right growth agenda to be pushing as we go into the next 3 years.

Great. Thank you so much. And then also just wondering if you could provide the RCF borrowing today or pro forma for the '25 note paydown.

I don't think we've shared what we've done there with respect to cash, but you saw that between 9/30 and 12/31 as we built free cash flow, we did pay down some of that revolver. We'll continue to use cash to pay down the revolver and then draw to pay down debt. So we'll probably be out with the balance in our Q1 results.

Yeah. We don't [indiscernible] we don't go intra-quarter, yes.

Okay. What about cash at LINTA [ph] Cornerstone at the parent level?

Yeah. I think we can get - I mean it's in the press release. I think I quoted it on the call. I can shoot that over to you as well.

Perfect. Great. That puts it for us. Thank you.

Thank you.

All right. Operator, I think with that, we are done for the day. Thank you all for joining on the QVC Group call, and we look forward to speaking with you next quarter, if not sooner.

Thank you. That concludes today's call.

Thank you, everyone.

All parties may now disconnect. Thank you.