Liberty Interactive Corporation ("Liberty Interactive") (Nasdaq:
QVCA, QVCB, LVNTA, LVNTB) today reported third quarter 2016
results. Highlights include(1):
Attributed to QVC Group
- QVC consolidated revenue down 3% to
$1.9 billion
- Local currency sales gains in all
consolidated international markets
- QVC consolidated mobile penetration was
59% of QVC.com orders, a 603 basis point increase
- QVC US mobile penetration was 58% of
QVC.com orders, a 578 basis point increase
- zulily revenue grew 14% to $359 million
and operating loss was $52 million, primarily as a result of
approximately $60 million of amortization of intangible assets
recognized in purchase accounting
- zulily adjusted OIBDA(2) grew 20% to
$18 million
- From August 1, 2016 through October 31,
2016, repurchased 9.2 million QVCA shares at an average price per
share of $20.50 and a total cost of $188 million
Attributed to Liberty Ventures Group
- Completed the split-off (“Split-off”)
of Liberty Expedia Holdings (“Expedia Holdings”) (Nasdaq: LEXEA,
LEXEB) on November 4, 2016
- Expedia Holdings distributed $300
million to Liberty Interactive in connection with Split-off, which
was attributed to Liberty Ventures Group
“QVC did well internationally and just launched Beauty iQ, a new
multiplatform network dedicated to beauty, while zulily again
posted impressive results,” said Greg Maffei, Liberty Interactive
President and CEO. “At Liberty Ventures, we completed the tax-free
split-off of Expedia Holdings, resulting in a distribution of $300
million that was attributed to Ventures.”
QVC GROUP – For the quarter, QVC Group's revenue
increased 15% to $2.3 billion, operating income decreased 37% to
$167 million, adjusted OIBDA decreased 4% to $406 million, net
income decreased 60% to $61 million, and adjusted net income(3)
decreased 27% to $148 million. QVC Group’s reported GAAP results
include the zulily acquisition beginning in the fourth quarter of
2015 (see the “zulily” section below for a further discussion of
the impact of the acquisition).
Subsequent to quarter end, on October 5, 2016, Liberty
Interactive LLC (“LI LLC”) paid $345 million to holders of
substantially all of its 1% Exchangeable Senior Debentures due 2043
(the “1% Exchangeables”) that chose to exercise a purchase option
requiring LI LLC to repurchase the 1% Exchangeables for a price
equal to the adjusted principal amount per debenture plus accrued
and unpaid interest. LI LLC funded this payment by drawing on the
QVC bank credit facility.
QVC
“We are benefiting from our diversified global model,” said QVC
President and CEO Mike George. “While we are facing sales pressures
in our US business, we delivered local currency sales gains in
every non-US market in the quarter. We are responding to the
immediate domestic challenges through a series of strategies to
drive more balanced growth across our categories, consistently
deliver exceptional customer experiences, offer outstanding values,
accelerate new customer acquisition, and lower operating costs. And
last week we were thrilled to launch Beauty iQ, the first
multi-platform shopping network dedicated exclusively to beauty.
These actions demonstrate our confidence in the long-term health of
our unique retail model.”
QVC's ONE Q organizational structure is allowing it to better
leverage its global scale and capabilities, to enhance its
competitive position and to create operational efficiencies.
Beginning in the first quarter of 2016, QVC began allocating
certain corporate costs for management reporting purposes
differently. Historically, QVC allocated these costs to the market
from which the services were provided. Now, as more of QVC's costs
support initiatives in multiple markets, QVC is allocating costs to
the markets that will benefit from the expenditures. These
management cost allocations are related to certain functions, such
as merchandising, commerce platforms, information technology, human
resources, legal, finance, brand and communications, corporate
development and administration. The cost allocations (from QVC US
to QVC International) totaled approximately $8 million in the third
quarter and are expected to approximate $32 million in 2016. As a
result of the allocations, the US segment's operating income and
adjusted OIBDA margins were each positively impacted 60 basis
points and the international segment's operating income and
adjusted OIBDA margins were negatively impacted 131 basis points in
the third quarter. There was no impact to consolidated operating
income and adjusted OIBDA margins. With the completion of the ONE Q
implementation, QVC's financial disclosure is consistent with the
way it evaluates its business performance and manages its
operations.
QVC's consolidated revenue decreased 3% in the third quarter to
$1.9 billion. eCommerce revenue increased 2% to $882 million and
grew to 45% of consolidated revenue in the quarter from 43% a year
ago. Mobile orders were 59% of total eCommerce orders in the
quarter, compared to 53% a year ago. Operating income decreased 18%
to $231 million and adjusted OIBDA decreased 9% to $393 million.
Operating income margin and adjusted OIBDA margin decreased 209 and
126 basis points, respectively.
US Dollar denominated results were slightly impacted by exchange
rate fluctuations in the third quarter. The Dollar weakened against
the Japanese Yen 20%, strengthened versus the British Pound 15%,
and was essentially flat compared to the Euro. On a constant
currency basis(4), consolidated revenue, operating income and
adjusted OIBDA decreased 4%, 18% and 9%, respectively, compared to
a 3%, 18% and 9% decrease in US Dollars, respectively.
QVC's US revenue decreased 6% to $1.3 billion in the third
quarter. Average selling price per unit ("ASP") decreased 7% to
$54.75, units sold decreased 1%, and returns as a percentage of
gross product revenue improved 170 basis points. The US experienced
declines in the electronics, beauty, jewelry and accessories
categories, which were partially offset by gains in home and
apparel. eCommerce revenue increased 1% to $684 million and grew
342 basis points to 51% of total US revenue. Operating income
decreased 18% to $175 million, operating income margin declined 199
basis points, adjusted OIBDA decreased 8% to $308 million and
adjusted OIBDA margin declined 43 basis points. The third quarter
included the aforementioned cost allocations from ONE Q, which were
mostly offset by approximately $7 million of severance expense. The
results primarily reflect lower product margins and higher
warehouse costs, which were partially offset by favorable inventory
obsolescence and lower bonus and benefit expenses of approximately
$10 and $8 million, respectively, and higher credit card
income.
QVC's international revenue increased 4% to $610 million in the
third quarter. The revenue performance included the net impact of
favorable exchange rate fluctuations. On a constant currency
basis(4), international revenue increased 2% in the quarter,
reflecting gains in all consolidated markets. Units sold increased
2% and ASP in constant currency declined slightly. QVC
International experienced growth in the beauty, accessories and
electronics categories, which were partially offset by declines in
apparel, jewelry and home. International eCommerce revenue
increased 8% to $198 million and grew approximately 120 basis
points to 32% of total international revenue. Operating income
decreased 15% to $56 million and adjusted OIBDA decreased 12% to
$85 million. On a constant currency basis(4), operating income
decreased 17% and adjusted OIBDA decreased 13%, reflecting the cost
allocations from ONE Q. Excluding the cost allocations, operating
income and adjusted OIBDA declined 5% on a constant currency basis,
primarily due to lower product margins, higher inventory
obsolescence and freight expenses, which were partially offset by
lower customer service and, in the case of operating income,
depreciation expenses. Start-up expenses pertaining to QVC France
resulted in an operating loss of $9 million for the third quarter
of both 2016 and 2015 (the associated adjusted OIBDA loss was also
substantially similar on a year over year basis at $8 million in
the third quarter of 2015 and $7 million in 2016).
CNR Home Shopping Co., Ltd. ("CNRS"), QVC's joint venture in
China, reported revenue decreased 17% in local currency in the
third quarter. CNRS' operating loss and adjusted OIBDA deficit in
local currency increased 166% and 241%, respectively, primarily due
to lower product margins, which were partially offset by lower
freight, customer service and fixed costs. This joint venture is
being accounted for as an equity method investment, and as a
result, QVC reported a $2 million reduction in net income for the
quarter.
QVC's total debt, net of original issue discount, was $5.3
billion at September 30, 2016, flat versus June 30, 2016.
zulily
“We continued to see strong revenue growth and, while we had an
operating loss for the quarter, adjusted OIBDA grew to $18 million
in the third quarter,” said zulily President and CEO Darrell
Cavens. “We continue to see significant opportunities to offer up
fresh and unique products with incredible prices and at a great
value for our customers every day. In addition, QVC remains an
invaluable partner as we continue to test and roll out new growth
opportunities between our two companies.”
Liberty Interactive acquired zulily on October 1, 2015. Prior to
the acquisition, zulily utilized a retail calendar, whereby each
fiscal year ended on the Sunday closest to December 31 and each
fiscal year consisted of four 13-week quarters, with one extra week
added in the fourth quarter every five to six years. Upon
acquisition by Liberty Interactive, zulily changed to a calendar
year end on a prospective basis. zulily’s results for the three
months ended September 30, 2015 are not included in Liberty
Interactive’s condensed consolidated results for the three months
ended September 30, 2015. Although zulily’s results are only
included in Liberty Interactive’s results since October 1, 2015, we
believe a discussion of zulily’s standalone results promotes a
better understanding of the overall results of its business. zulily
has reclassified certain costs between financial statement line
items to conform with Liberty Interactive’s reporting structure for
ease of comparability for all reporting periods. zulily's
stand-alone operating results for the three months ended September
30, 2015 and 2016 were as follows:
(amounts in millions)
Three Months
Ended September 30, 2015 2016 Net revenue $ 314
359 Cost of sales 226 257 Gross profit 88 102
Operating expenses 10 12 SG&A expenses (excluding stock-based
compensation) 63 72 Adjusted OIBDA 15 18
Acquisition related expenses 30 — Stock-based compensation 5 5
Depreciation 5 5 Amortization of intangible assets 1
60 Operating income (loss) $ (26 ) (52 )
zulily revenue increased 14% to $359 million in the third
quarter driven by strong growth in total orders. Mobile orders
maintained positive growth and drove 66% of total orders placed in
the quarter, compared to 59% in the year prior.
Operating loss was $(52) million in the third quarter as
compared to a $(26) million loss in the same period last year.
zulily’s third quarter operating loss includes $60 million of
amortization of intangible assets, primarily recognized in purchase
accounting.
Adjusted OIBDA increased 20% in the third quarter to $18
million, up from $15 million a year ago. Adjusted OIBDA margin
increased 23 basis points, primarily attributed to improved
operational efficiency, offset somewhat by higher freight
costs.
Share Repurchases
From August 1, 2016 through October 31, 2016, Liberty
Interactive repurchased approximately 9.2 million Series A QVC
Group shares (Nasdaq: QVCA) at an average cost per share of $20.50
for total cash consideration of $188 million. Since the creation of
the QVC Group stock (including its predecessor, Liberty Interactive
Group) in May 2006, Liberty Interactive has repurchased shares for
aggregate cash consideration of $6.7 billion, representing
approximately 44% of the shares outstanding at the time of the
creation of the QVC Group stock. All repurchases up to August 9,
2012, the date on which the QVC Group stock was recapitalized to
create the Liberty Ventures Group stock, were comprised of shares
of the combined stocks. On October 26, 2016, the Board of Directors
authorized the repurchase of an additional $300 million of either
the QVC Group or the Liberty Ventures Group. The remaining
repurchase authorization as of November 1, 2016 for QVC Group stock
was $331 million (excluding the $300 million to be used at either
QVC Group or Liberty Ventures Group).
QVC Group has attributed to it Liberty Interactive’s
subsidiaries, QVC, Inc. and zulily, llc, and Liberty Interactive’s
interest in HSN.
LIBERTY VENTURES GROUP – During the quarter, LI LLC
repurchased substantially all of LI LLC’s remaining 0.75% Senior
Exchangeable Debentures due 2043 (the “0.75% Exchangeables”) for
$641 million cash. The 0.75% Exchangeables were attributed to the
Liberty Ventures Group. LI LLC funded these purchases through cash
on hand, new borrowings, including the issuance of its 1.75% Senior
Exchangeable Debentures due 2046 (the “1.75% Exchangeables”), and
the sale of substantially all of its TIME and TWX shares. As of
September 30, 2016, the outstanding adjusted principal amount of
the 0.75% Exchangeables was debentures is $2 million.
On August 24, 2016, LI LLC issued $750 million original
principal amount of its 1.75% Exchangeables in a private offering.
The 1.75% Exchangeables are attributed to the Liberty Ventures
Group. The debentures will be exchangeable at the option of holders
during specified periods. Upon the exchange of $1,000 original
principal amount, LI LLC may, at its option, deliver 2.9317 shares
of Charter Communications, Inc. (“Charter”) Class A common stock,
implying a strike price of $341 per Charter share, the equivalent
value in cash, or a combination of Charter shares and cash. As of
October 31, 2016, there are 5.4 million Charter shares attributed
to Liberty Ventures Group, of which 2.2 million underlie the 1.75%
Exchangeables.
Subsequent to quarter end, on November 4, 2016, Liberty
Interactive completed the Split-off of Expedia Holdings, which is
comprised of, among other things, Liberty Interactive’s interest in
Expedia, Inc. (approximately 16% equity interest and approximately
52% voting interest as of September 30, 2016), its subsidiary
Bodybuilding.com, $350 million of debt and $50 million of cash. The
Split-off was accomplished through the redemption of 40% of the
shares of each series of Liberty Ventures common stock outstanding
at 5:00 p.m. New York City time, on November 4, 2016 for 100% of
the outstanding shares of Expedia Holdings. Accordingly, (i) 0.4 of
each outstanding share of Series A Liberty Ventures common stock
(“LVNTA”) was redeemed for 0.4 of a share of Series A Expedia
Holdings common stock (“LEXEA”) and (ii) 0.4 of each outstanding
share of Series B Liberty Ventures common stock (“LVNTB”) was
redeemed for 0.4 of a share of Series B Expedia Holdings common
stock (“LEXEB”), in each case, with cash paid in lieu of fractional
shares. Following the Split-off, 0.6 of each share of LVNTA and 0.6
of each share of LVNTB remains outstanding as Liberty Ventures
common stock, and there are now 81.1 million shares of LVNTA, 4.3
million shares of LVNTB, 54.1 million shares of LEXEA and 2.8
million shares of LEXEB. In connection with the Split-off, Expedia
Holdings distributed $300 million to Liberty Interactive, which is
attributed to the Liberty Ventures Group.
Share Repurchases
There were no repurchases of Liberty Ventures Group common stock
(Nasdaq: LVNTA) from August 1, 2016 through October 31, 2016. On
October 26, 2016, the Board of Directors authorized the repurchase
of an additional $300 million of either the QVC Group or the
Liberty Ventures Group. The total remaining repurchase
authorization for Liberty Ventures Group stock as of November 1,
2016 was $650 million (excluding the $300 million to be used at
either QVC Group or Liberty Ventures Group).
Including the impact of the Expedia Holdings Split-off, the
businesses and assets attributed to the Liberty Ventures Group are
all of Liberty Interactive's businesses and assets other than those
attributed to the QVC Group, including its interests in Liberty
Broadband Corporation, Lending Tree and FTD, Liberty Interactive’s
subsidiary Evite, and minority interests in Charter and Interval
Leisure Group.
FOOTNOTES
1) Liberty Interactive's President and CEO, Greg
Maffei, will discuss these highlights and other matters in Liberty
Interactive's earnings conference call which will begin at 12:00
p.m. (E.S.T.) on November 8, 2016. For information regarding how to
access the call, please see “Important Notice” later in this
document. 2) For a definition of adjusted OIBDA and applicable
reconciliations and a definition of adjusted OIBDA margin, see the
accompanying schedules. 3) For a definition of adjusted net income
and applicable reconciliations, see the accompanying schedules. 4)
For a definition of constant currency financial metrics and
applicable reconciliations, see the accompanying schedules.
QVC GROUP
FINANCIAL METRICS – QUARTER
(amounts in millions) 3Q15 3Q16 % Change
Revenue QVC
US $ 1,420 $ 1,338 (6 ) % QVC International(1) 587
610 4 % Total QVC revenue 2,007 1,948 (3 ) %
zulily(2) NA 359 NA Intergroup eliminations NA
(4 ) NA
Total QVC Group Revenue $ 2,007
$ 2,303 15 %
Gross Margins QVC US 36.4 % 35.2 % QVC
International(1) 38.4 % 37.0 % zulily(2) NA % 28.4 %
Operating Income QVC US(3) $ 214 $ 175 (18 ) % QVC
International(1)(3) 66 56 (15 ) % Total
QVC operating income 280 231 (18 ) % zulily(2) NA (52 ) NA
Corporate and other (16 ) (12 ) 25 %
Total
QVC Group Operating Income $ 264 $
167 (37 ) % Adjusted
OIBDA QVC US(3) $ 333 $ 308 (8 ) % QVC International(1)(3)
97 85 (12 ) % Total QVC adjusted OIBDA
430 393 (9 ) % zulily(2) NA 18 NA Corporate and other (9 )
(5 ) (44 ) %
Total QVC Group Adjusted OIBDA $
421 $ 406 (4 )
% Net Income and Adjusted Net Income Total QVC
Group net income $ 154 $ 61 (60 ) % Total QVC Group adjusted net
income(4) $ 203 $ 148 (27 ) %
China JV(5)
Revenue $ 45 $ 36 (20 ) % Adjusted OIBDA $ (2 ) $ (3 ) (50 ) %
(amounts in millions)
QVCA Shares
Outstanding
10/31/2015 10/31/2016 Outstanding A and B shares 497
467 (amounts in millions)
Quarter ended Quarter
ended
QVCA and QVCB
Basic and Diluted Shares
9/30/2015 9/30/2016 Basic weighted average shares
outstanding ("WASO") 460 473 Potentially dilutive shares 6
5
Diluted WASO 466
478
(1)
Includes QVC France, QVC Germany, QVC Italy, QVC
Japan and QVC UK.
(2)
Includes zulily as of the beginning of the fourth quarter 2015.
(3)
Includes the reallocation of $8 million in corporate costs from QVC
US to QVC International for the third quarter 2016.
(4)
See reconciling schedule 4.
(5)
This joint venture is being accounted for as an equity investment.
QVC OPERATING
METRICS – QUARTER
(amounts in millions) 3Q15 3Q16 % Change
QVC -
Consolidated Total eCommerce revenue ($) $ 861 $ 882 2 % Total
eCommerce revenue (%) 42.9 % 45.3 % 238 bps Mobile % of total
eCommerce(1) 53.0 % 59.0 % 603 bps LTM total customers(2) 12.6 12.7
1 %
QVC - US US eCommerce revenue ($) $ 678 $ 684 1 %
US eCommerce revenue (%) 47.7 % 51.1 % 342 bps Mobile % of US
eCommerce(1) 52.2 % 58.0 % 578 bps LTM total customers(2) 8.1 8.1 0
% Return rate 19.2 % 17.5 % (170 ) bps
zulily Mobile
% of total orders 58.7 % 65.5 % 680 bps LTM total customers(2) 4.9
5.0 2 % (1) Based on gross US Dollar orders.
(2) LTM: Last twelve months.
NOTES
Unless otherwise noted, the foregoing discussion compares
financial information for the three months ended September 30, 2016
to the same period in 2015.
The following financial information with respect to Liberty
Interactive's equity affiliates and available for sale securities
is intended to supplement Liberty Interactive's condensed
consolidated statements of operations which are included in its
Form 10-Q.
Fair Value of Public Holdings
(amounts in millions)
6/30/2016
9/30/2016 HSN(1) $ 979 $ 797
Total Attributed QVC
Group $ 979 $ 797 Charter(2)
$ 1,225 $ 1,447 Expedia(3) 2,509 2,755 FTD(4) 255 210 Liberty
Broadband(5) 2,561 3,051 Tree.com(6) 245 269 Other public
holdings(7) 479 295
Total Attributed Liberty
Ventures Group $ 7,274 $ 8,027
(1) Represents fair value of the investment in
HSN attributed to QVC Group. In accordance with GAAP, this
investment is accounted for using the equity method of accounting
and is included in the attributed balance sheet of QVC Group at
historical carrying value which aggregated $182 million and $184
million at June 30, 2016 and September 30, 2016, respectively. (2)
Represents fair value of the investment in Charter attributed to
Liberty Ventures Group, which is accounted for at fair value. (3)
Represents fair value of the investment in Expedia attributed to
Liberty Ventures Group until the completion of the Split-off. In
accordance with GAAP, this investment was accounted for using the
equity method of accounting and is included in the attributed
balance sheet of Liberty Ventures Group at historical carrying
value which aggregated $888 million and $922 million at June 30,
2016 and September 30, 2016, respectively. Following the Split-off,
Liberty’s former interest in Expedia is held by Expedia Holdings.
(4) Represents fair value of the investment in FTD attributed to
Liberty Ventures Group. In accordance with GAAP, this investment is
accounted for using the equity method of accounting and is included
in the attributed balance sheet of Liberty Ventures Group at
historical carrying value which aggregated $259 million and $251
million at June 30, 2016 and September 30, 2016, respectively. (5)
Represents fair value of the investment in Liberty Broadband
attributed to Liberty Venture Group. In accordance with GAAP, this
investment is accounted for using the equity method of accounting,
but fair value treatment has been elected. (6) Represents fair
value of the investment in Tree.com attributed to Liberty Ventures
Group. In accordance with GAAP, this investment is accounted for
using the equity method of accounting and is included in the
attributed balance sheet of Liberty Ventures Group at historical
carrying values which aggregated $28 million and $30 million at
June 30, 2016 and September 30, 2016, respectively. (7) Represents
other public holdings attributed to Liberty Ventures Group which
are accounted for at fair value.
Cash and Debt
The following presentation is provided to separately identify
cash and liquid investments and debt information.
(amounts in millions) 6/30/2016
9/30/2016
Cash and Liquid Investments Attributable to: QVC
Group $ 394 $ 348 Liberty Ventures Group 116
157
Total Liberty Consolidated Cash and Liquid
Investments $ 510 $ 505
Debt: Senior notes and debentures(1) $ 791 $
791 Senior exchangeable debentures(2) 345 345 QVC senior notes(1)
3,550 3,550 QVC bank credit facility 1,675 1,625 Other 76
178
Total Attributed QVC Group Debt
$ 6,437 $ 6,489 Unamortized discount,
fair market value adjustment and deferred loan costs (39 )
(37 )
Total Attributed QVC Group Debt (GAAP) $
6,398 $ 6,452 Senior
exchangeable debentures(2) $ 1,419 $ 1,961 Margin loans 375 — Other
29 26
Total Attributed Liberty
Ventures Group Debt $ 1,823 $ 1,987
Fair market value adjustment 6 (284 )
Total
Attributed Liberty Ventures Group Debt (GAAP) $
1,829 $ 1,703 Total
Liberty Interactive Corporation Debt (GAAP) $
8,227 $ 8,155 (1)
Face amount of Senior Notes and Debentures with no reduction
for the unamortized discount. (2) Face amount of Senior
Exchangeable Debentures with no reduction for the fair market value
adjustment.
Total cash and liquid investments attributed to the QVC Group
declined $46 million in the third quarter. Share repurchases, net
debt repayments and capital expenditures were partially offset by
cash provided by operations. Total debt attributed to the QVC Group
increased by $52 million, primarily due to the financing obligation
pertaining to the new west coast distribution center, partially
offset by repayments on QVC’s credit facility.
Total cash and liquid investments attributed to the Liberty
Ventures Group increased $41 million, primarily due to proceeds
from dispositions offset by net debt repayments. Total debt
attributed to Liberty Ventures Group increased by $164 million due
to the issuance of the 1.75% Exchangeables, offset by repurchases
of the 0.75% Exchangeables and repayment of the margin loan.
Important Notice: Liberty Interactive (Nasdaq: QVCA,
QVCB, LVNTA, LVNTB) President and CEO, Greg Maffei, will discuss
Liberty Interactive's earnings release in a conference call which
will begin at 12:00 p.m. (E.S.T.) on November 8, 2016. The call can
be accessed by dialing (844) 307-2219 or (678) 509-7635 at least 10
minutes prior to the start time. The call will also be broadcast
live across the Internet and archived on our website. To access the
webcast go to http://www.libertyinteractive.com/events. Links to
this press release and replays of the call will also be available
on Liberty Interactive's website.
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements about business strategies, market
potential, future financial prospects, market conditions, sales
demand, the expected benefits and synergies from the acquisition of
zulily, the implementation of new marketing and fulfillment
processes at zulily, new service and product offerings, the
monetization of our non-core assets, the continuation of our stock
repurchase program, the estimated liabilities under exchangeable
debentures 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, competitive issues, regulatory matters affecting our
businesses, continued access to capital on terms acceptable to
Liberty Interactive, changes in law and government regulations that
may impact the derivative instruments that hedge certain of our
financial risks, the availability of investment opportunities, and
market conditions conducive to stock repurchases. These
forward-looking statements speak only as of the date of this
presentation, and Liberty Interactive expressly disclaims any
obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any
change in Liberty Interactive's expectations with regard thereto or
any change in events, conditions or circumstances on which any such
statement is based. Please refer to the publicly filed documents of
Liberty Interactive, including the most recent Forms 10-K and 10-Q,
for additional information about Liberty Interactive and about the
risks and uncertainties related to Liberty Interactive's business
which may affect the statements made in this presentation.
NON-GAAP FINANCIAL MEASURES
This press release includes a presentation of adjusted OIBDA,
which is a non-GAAP financial measure, for Liberty Interactive, the
QVC Group, QVC (and certain of its subsidiaries), zulily and the
Liberty Ventures Group together with a reconciliation to that
entity or such businesses’ operating income, as determined under
GAAP. Liberty Interactive defines adjusted OIBDA as revenue less
cost of sales, operating expenses, and selling, general and
administrative expenses, excluding all stock based compensation,
and excludes from that definition depreciation and amortization and
restructuring and impairment charges that are included in the
measurement of operating income pursuant to GAAP. Further, this
press release includes adjusted OIBDA margin which is also a
non-GAAP financial measure. Liberty Interactive defines adjusted
OIBDA margin as adjusted OIBDA divided by revenue.
Liberty Interactive believes adjusted OIBDA is an important
indicator of the operational strength and performance of its
businesses, including each business' ability to service debt and
fund capital expenditures. In addition, this measure allows
management to view operating results and perform analytical
comparisons and benchmarking between businesses and identify
strategies to improve performance. Because adjusted OIBDA is used
as a measure of operating performance, Liberty Interactive views
operating income as the most directly comparable GAAP measure.
Adjusted OIBDA is not meant to replace or supersede operating
income or any other GAAP measure, but rather to supplement such
GAAP measures in order to present investors with the same
information that Liberty Interactive's management considers in
assessing the results of operations and performance of its assets.
Please see the attached schedules for applicable
reconciliations.
In addition, this presentation includes references to adjusted
net income, which is a non-GAAP financial measure, for QVC Group.
Liberty Interactive defines adjusted net income as net income,
excluding the impact of purchase accounting amortization (net of
deferred tax benefit).
Liberty Interactive believes adjusted net income is an important
indicator of financial performance, in particular for QVC Group,
due to the impact of purchase accounting amortization. Because
adjusted net income is used as a measure of overall financial
performance, Liberty Interactive views net income as the most
directly comparable GAAP measure. Adjusted net income is not meant
to replace or supersede net income or any other GAAP measure, but
rather to supplement such GAAP measures in order to present
investors with a supplemental metric of financial performance.
Please see the attached schedules for a reconciliation of adjusted
net income to net income (loss) calculated in accordance with GAAP
for QVC Group (Schedule 4).
This presentation also references certain financial metrics on a
constant currency basis, which is a non-GAAP measure, for QVC
Group. Constant currency financial metrics, as presented herein,
are calculated by translating the current-year and prior-year
reported amounts into comparable amounts using a single foreign
exchange rate for each currency.
Liberty Interactive believes constant currency financial metrics
are an important indicator of financial performance, in particular
for QVC Group, due to the translational impact of foreign currency
fluctuations relating to its subsidiaries in the UK, Germany,
Italy, Japan and France, as well as its JV in China. We use
constant currency financial metrics to provide a framework to
assess how our businesses performed excluding the effects of
foreign currency exchange fluctuations. Please see the attached
schedules for a reconciliation of the impact of foreign currency
fluctuations on revenue, operating income and adjusted OIBDA
(Schedule 5).
SCHEDULE 1
The following table provides a reconciliation of QVC Group's
adjusted OIBDA to its operating income calculated in accordance
with GAAP for the three months ended September 30, 2015, December
31, 2015, March 31, 2016, June 30, 2016, and September 30, 2016,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 3Q15
4Q15 1Q16 2Q16
3Q16
QVC Group Adjusted OIBDA(1)(2) 421
620 433 487 406 Depreciation and amortization (141 ) (215 ) (209 )
(214 ) (219 ) Stock compensation expense (16 ) (20 )
(18 ) (19 ) (20 )
Operating Income
$ 264 $ 385 $
206 $ 254 $ 167
(1) Includes zulily beginning with the
fourth quarter of 2015. (2) zulily’s results for the fourth quarter
2015 include the impact of a $17 million non-cash, one-time
reduction in deferred revenue.
SCHEDULE 2
The following table provides a reconciliation of adjusted OIBDA
for QVC (and certain of its subsidiaries) and zulily (beginning
with the fourth quarter of 2015) to that entity or such businesses'
operating income (loss) calculated in accordance with GAAP for the
three months ended September 30, 2015, December 31, 2015, March 31,
2016, June 30, 2016, and September 30, 2016, respectively. As there
are no material reconciling items between adjusted OIBDA and
operating income for the QVC China joint venture for the referenced
periods, no reconciliation has been provided.
QUARTERLY SUMMARY
(amounts in millions) 3Q15
4Q15 1Q16 2Q16
3Q16
QVC
Group
QVC Adjusted OIBDA QVC US $ 333 $ 479 $ 326 $ 363 $ 308 QVC
International 97 129 89 100 85 Consolidated QVC adjusted
OIBDA 430 608 415 463 393 Depreciation and amortization (141 ) (146
) (148 ) (146 ) (154 ) Stock compensation (9 ) (7 )
(6 ) (10 ) (8 )
Operating Income
$ 280 $ 455 $
261 $ 307 $ 231
zulily Adjusted OIBDA(1) $ NA $ 21 $ 23 $ 31 $
18 Depreciation and amortization NA (69 ) (61 ) (68 ) (65 ) Stock
compensation NA (5 ) (5 ) (6 )
(5 )
Operating Income $ NA $ (53
) $ (43 ) $ (43 )
$ (52 ) (1) Includes
zulily as of the beginning of the fourth quarter 2015. Fourth
quarter 2015 adjusted OIBDA includes the impact of a $17 million
one-time, non-cash purchase accounting reduction in deferred
revenue.
SCHEDULE 3
The following table provides a reconciliation of adjusted OIBDA
for QVC Group and the Liberty Ventures Group to the Liberty
Interactive Corporation operating income (loss) calculated in
accordance with GAAP for the three months ended September 30, 2015,
December 31, 2015, March 31, 2016, June 30, 2016, and September 30,
2016, respectively.
QUARTERLY SUMMARY
(amounts in millions) 3Q15
4Q15 1Q16 2Q16
3Q16 QVC Group adjusted OIBDA $ 421 $
620 $ 433 $ 487 $ 406 Liberty Ventures Group adjusted OIBDA
13 14 4 8
(4 )
Consolidated Liberty Interactive Corp. Adjusted OIBDA
$ 434 $ 634 $
437 $ 495 $ 402
Depreciation and amortization (150 ) (224 ) (217 ) (221 )
(225 ) Stock compensation (37 ) (46 ) (31 )
(24 ) (20 )
Consolidated Liberty Interactive Corp.
Operating Income $ 247 $ 364
$ 189 $ 250
$ 157
SCHEDULE 4
The following table provides a reconciliation of QVC Group's
adjusted net income to its net income calculated in accordance with
GAAP for the three months ended September 30, 2015, December 31,
2015, March 31, 2016, June 30, 2016, and September 30, 2016,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 3Q15
4Q15 1Q16 2Q16
3Q16 LTM
QVC Group
Net income(1) $ 154 $ 223 $ 90 $ 127 $ 61 $ 501
QVC purchase accounting amort., net
deferred tax benefit(2)
49 50 50 50 50 200
zulily purchase accounting amort., net
deferred tax benefit(3)
— 39 36 38 37 150 QVC
Group adjusted net income $ 203 $ 312 $ 176 $ 215 $ 148 $ 851
QVCA/B shares outstanding as of October 31, 2016 467
Adjusted LTM earnings per share $ 1.82 (1)
Includes the results of zulily beginning in the fourth quarter of
2015. zulily’s results for the fourth quarter 2015 include the
impact of a $17 million non-cash, one-time reduction in deferred
revenue, net of book deferred tax benefit. (2) Add-back relates to
non-cash, non-tax deductible purchase accounting amortization from
Liberty Interactive’s acquisition of QVC, net of book deferred tax
benefit (gross non-cash, non-tax deductible purchase accounting
amortization is expected to be $316 million for the twelve months
ended December 31, 2016, and is applied ratably across the four
quarters in each year). (3) Add-back relates to non-cash, non-tax
deductible purchase accounting amortization from Liberty
Interactive’s acquisition of zulily, net of book deferred tax
benefit.
SCHEDULE 5
The following table provides a comparison of the year over year
percentage change in QVC Inc.'s constant currency revenue,
operating income, adjusted OIBDA and ASP to the comparable figures
calculated in accordance with GAAP for the three months ended
September 30, 2016.
Percent
Change for Three Months Ended 9/30/2016
QVC
As Reported Constant Currency
Consolidated revenue (3 %) (4 %) Consolidated operating income (18
%) (18 %) Consolidated adj. OIBDA (9 %) (9 %) International revenue
4 % 2 % International operating income (15 %) (17 %) International
adj. OIBDA (12 %) (13 %) International ASP 1 % (1 %)
LIBERTY INTERACTIVE CORPORATION
BALANCE SHEET INFORMATION
September 30, 2016 -
(unaudited)
Attributed QVC Ventures
Inter-group Consolidated Group Group
Eliminations Liberty amounts in millions
Assets Current assets: Cash and cash equivalents $ 348 157 —
505 Trade and other receivables, net 809 39 — 848 Inventory, net
1,148 41 — 1,189 Other current assets 149 5 — 154
Total current assets
2,454 242 —
2,696 Investments in available-for-sale securities and other
cost investments 4 1,815 — 1,819 Investments in affiliates,
accounted for using the equity method 226 1,319 — 1,545 Investment
in Liberty Broadband measured at fair value — 3,051 — 3,051
Property and equipment, net 1,185 26 — 1,211 Intangible assets not
subject to amortization 9,399 107 — 9,506 Intangible assets subject
to amortization, net 1,120 27 — 1,147 Other assets, at cost, net of
accumulated amortization 54 3 — 57 Total assets
$ 14,442 6,590 — 21,032
Liabilities and Equity Current liabilities: Intergroup
payable (receivable) $ 127 (127 ) — — Accounts payable 724 8 — 732
Accrued liabilities 579 37 — 616 Current portion of debt 13 887 —
900 Other current liabilities 157 10 — 167 Total
current liabilities
1,600 815 —
2,415 Long-term debt 6,439 816 — 7,255 Deferred income tax
liabilities 1,145 2,733 — 3,878 Other liabilities 180 2
— 182 Total liabilities
9,364 4,366
— 13,730 Equity/Attributed net assets
(liabilities) 4,956 2,233 — 7,189 Noncontrolling interests in
equity of subsidiaries 122 (9 ) — 113 Total liabilities and
equity
$ 14,442 6,590 —
21,032
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended September 30, 2016 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Total revenue, net $ 2,303 109 2,412
Operating costs and expenses: Cost of sales 1,504 71 1,575
Operating 152 13 165 Selling, general and administrative, including
stock-based compensation 261 29 290 Depreciation and amortization
219 6 225 2,136 119
2,255 Operating income (loss) 167 (10 ) 157
Other income (expense): Interest expense (73 ) (19 ) (92 ) Share of
earnings (losses) of affiliates, net 8 10 18 Realized and
unrealized gains (losses) on financial instruments, net (6 ) 612
606 Other, net 6 (14 ) (8 ) (65 ) 589
524 Earnings (loss) before income taxes 102 579 681 Income
tax benefit (expense) (32 ) (171 ) (203 ) Net earnings
(loss) 70 408 478 Less net earnings (loss) attributable to
noncontrolling interests 9 — 9 Net
earnings (loss) attributable to Liberty stockholders $ 61
408 469
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended September 30, 2015 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Total revenue, net $ 2,007 146 2,153
Operating costs and expenses: Cost of sales 1,266 92 1,358
Operating 144 16 160 Selling, general and administrative, including
stock-based compensation 192 46 238 Depreciation and amortization
141 9 150 1,743 163 1,906 Operating income (loss) 264
(17) 247 Other income (expense): Interest expense (70) (18)
(88) Share of earnings (losses) of affiliates, net 13 18 31
Realized and unrealized gains (losses) on financial instruments,
net 30 40 70 Gains (losses) on dispositions, net — (1) (1) Other,
net 14 11 25 (13) 50 37 Earnings (loss) before income
taxes 251 33 284 Income tax benefit (expense) (89) 3 (86)
Net earnings (loss) 162 36 198 Less net earnings (loss)
attributable to noncontrolling interests 8 — 8 Net earnings
(loss) attributable to Liberty stockholders $ 154 36 190
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Nine months ended September 30, 2016-
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 313 631 944 Adjustments to reconcile net earnings
to net cash provided by operating activities: Depreciation and
amortization 642 21 663 Stock-based compensation 57 18 75 Cash
payments for stock based compensation — (92 ) (92 ) Share of
(earnings) losses of affiliates, net (38 ) 41 3 Cash receipts from
return on equity investments 21 20 41 Realized and unrealized gains
(losses) on financial instruments, net 2 (944 ) (942 ) (Gains)
losses on dispositions — (9 ) (9 ) Deferred income tax (benefit)
expense (167 ) 588 421 Other, net 31 (65 ) (34 ) Intergroup tax
allocation 301 (301 ) — Intergroup tax payments (224 ) 224 —
Changes in operating assets and liabilities Current and other
assets 312 37 349 Payables and other current liabilities
(357 ) (27 ) (384 ) Net cash provided (used) by operating
activities 893 142 1,035 CASH
FLOWS FROM INVESTING ACTIVITIES: Cash proceeds from dispositions —
350 350 Investments in and loans to cost and equity investees — (67
) (67 ) Capital expended for property and equipment (158 ) (19 )
(177 ) Purchases of short term and other marketable securities —
(264 ) (264 ) Sales of short term and other marketable securities
12 1,162 1,174 Investment in Liberty Broadband — (2,400 ) (2,400 )
Other investing activities, net (11 ) (3 ) (14 ) Net cash
provided (used) by investing activities (157 ) (1,241 )
(1,398 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of
debt 1,143 1,545 2,688 Repayments of debt (1,340 ) (2,289 ) (3,629
) Repurchases of QVC Group common stock (603 ) — (603 ) Withholding
taxes on net settlements of stock-based comp (15 ) (1 ) (16 ) Other
financing activities, net (6 ) (22 ) (28 ) Net cash provided
(used) by financing activities (821 ) (767 ) (1,588 )
Effect of foreign currency rates on cash 7 — 7
Net increase (decrease) in cash and cash equivalents
(78 ) (1,866 ) (1,944 ) Cash and cash equivalents at beginning of
period 426 2,023 2,449 Cash and cash
equivalents at end period
$ 348 157 505
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Nine months ended September 30, 2015 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 442 166 608 Adjustments to reconcile net earnings
to net cash provided by operating activities: Depreciation and
amortization 442 37 479 Stock-based compensation 40 41 81 Cash
payments for stock based compensation — (11 ) (11 ) Share of losses
(earnings) of affiliates, net (46 ) (75 ) (121 ) Cash receipts from
return on equity investments 21 21 42 Realized and unrealized gains
(losses) on financial instruments, net (28 ) (70 ) (98 ) (Gains)
losses on dispositions — (110 ) (110 ) Deferred income tax
(benefit) expense (103 ) 105 2 Other, net 16 (1 ) 15 Intergroup tax
allocation 90 (90 ) — Intergroup tax payments (51 ) 51 — Changes in
operating assets and liabilities Current and other assets (39 ) 4
(35 ) Payables and other current liabilities 2 (51 )
(49 ) Net cash provided (used) by operating activities 786
17 803 CASH FLOWS FROM INVESTING
ACTIVITIES: Cash paid for acquisitions — (20 ) (20 ) Cash proceeds
from dispositions — 271 271 Investments in and loans to cost and
equity investees (4 ) (122 ) (126 ) Cash receipts from return of
equity investments 200 50 250 Capital expended for property and
equipment (132 ) (32 ) (164 ) Purchases of short term and other
marketable securities (154 ) (1,040 ) (1,194 ) Sales of short term
and other marketable securities 160 1,020 1,180 Other investing
activities, net (48 ) — (48 ) Net cash provided
(used) by investing activities 22 127 149
CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of
debt 1,470 486 1,956 Repayments of debt (1,638 ) (462 ) (2,100 )
Repurchases of QVC Group common stock (531 ) — (531 ) Withholding
taxes on net settlements of stock-based comp (17 ) — (17 ) Other
financing activities, net 2 (18 ) (16 ) Net cash
provided (used) by financing activities (714 ) 6 (708
) Effect of foreign currency rates on cash (4 ) —
(4 ) Net increase (decrease) in cash and cash equivalents
90 150 240 Cash and cash equivalents at
beginning of period 422 1,884 2,306
Cash and cash equivalents at end period $ 512 2,034
2,546
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Liberty Interactive CorporationCourtnee Chun,
720-875-5420
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