Liberty Interactive Corporation ("Liberty Interactive") (Nasdaq:
QVCA, QVCB, LVNTA, LVNTB) today reported second quarter 2016
results. Highlights include(1):
Attributed to QVC Group
- Grew QVC consolidated revenue by 3% and
operating income by 4%
- QVC consolidated adjusted OIBDA(2) grew
by 4%, excluding QVC France start-up expenses
- Grew QVC US revenue by 2% and operating
income by 4%(3)
- QVC US adjusted OIBDA(2) increased by
4%(3)
- QVC consolidated mobile penetration was
58% of QVC.com orders, a 850 basis point increase
- QVC US mobile penetration was 57% of
QVC.com orders, a 900 basis point increase
- zulily revenue grew 23% to $366 million
and operating loss was $43 million, primarily as a result of
approximately $62 million of amortization of intangible assets
recognized in purchase accounting
- zulily adjusted OIBDA(2) grew 121% to
$31 million
- From May 1, 2016 through July 31, 2016,
repurchased 5.7 million QVCA shares at an average price per share
of $25.75 and a total cost of $146 million
Attributed to Liberty Ventures Group
- Closed $2.4 billion investment in
Liberty Broadband Series C shares (LBRDK) on May 18, 2016, at a
price of $56.23 per share
- Completed the spin-off of CommerceHub,
Inc. (“CommerceHub”) on July 22, 2016
- Filed amended form S-4 announcing
split-off of Liberty Expedia Holdings (“Liberty Expedia”) on June
10, 2016; refiled on July 19, 2016
“QVC continues forward in a choppy retail environment,” said
Greg Maffei, Liberty Interactive President and CEO. “Activity has
been high at Liberty Ventures. With the closing of the Charter and
Time Warner Cable transaction, we closed the investment in Liberty
Broadband and have seen an increase in value of over $300 million.
We completed the spin-off of CommerceHub and are pleased with the
market interest and response. We continue to make progress on the
split-off of Liberty Expedia and filed amended S-4’s in June and
July.”
QVC GROUP – For the quarter, QVC Group's revenue
increased 21% to $2.4 billion, operating income decreased 11% to
$254 million, adjusted OIBDA increased 9% to $487 million, net
income increased 13% to $127 million and adjusted net income(4)
increased 34% to $215 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).
QVC
“We reported solid second quarter results, with good sales
growth in most markets,” said QVC President and CEO Mike George.
“Late in the quarter, we experienced a deceleration in demand in
the US that has continued. As a result, our near-term perspective
is more cautious. Longer term, we remain well-positioned with our
highly differentiated retail model, strong customer retention, and
our ability to deliver compelling experiences across immersive
commerce platforms.”
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
centralized 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 $7 million in the second quarter and are expected to
approximate $34 million in 2016. As a result of the allocations,
the US segment's operating income and adjusted OIBDA margins were
each positively impacted 49 basis points and the international
segment's operating income and adjusted OIBDA margins were
negatively impacted 110 basis points in the second 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 increased 3% in the second quarter to
$2.1 billion. eCommerce revenue increased 11% to $939 million and
grew to 46% of consolidated revenue in the quarter from 42% a year
ago. Mobile orders were 58% of total eCommerce orders in the
quarter, compared to 49% a year ago. Operating income increased 4%
to $307 million and adjusted OIBDA increased 3% to $463 million.
Operating income margin increased 17 basis points and adjusted
OIBDA margin was essentially flat.
US Dollar denominated results were favorably impacted by
exchange rate fluctuations in the second quarter. The Dollar
weakened against the Japanese Yen and Euro 12% and 2%,
respectively, and strengthened versus the British Pound 6%. On a
constant currency basis(5), consolidated revenue, operating income
and adjusted OIBDA increased 2%, 4% and 2%, respectively, compared
to a 3%, 4% and 3% increase in US Dollars, respectively.
QVC's US revenue increased 2% to $1.4 billion in the second
quarter. Units sold increased 4%, average selling price per unit
("ASP") decreased 3% to $56.60 and returns as a percentage of gross
product revenue improved 82 basis points. The US experienced growth
primarily in the apparel and accessories categories, which was
partially offset by declines primarily in jewelry and electronics.
eCommerce revenue increased 11% to $727 million and grew more than
400 basis points to 51% of total US revenue. Operating income
increased 4% to $236 million and adjusted OIBDA increased 4% to
$363 million. Operating income margin and adjusted OIBDA margin
increased 46 and 60 basis points, respectively, reflecting the
aforementioned cost allocations from ONE Q. Excluding the cost
allocations, operating income increased 1% and operating income
margin was essentially flat, while adjusted OIBDA increased 2% and
adjusted OIBDA margin increased 11 basis points. These results
reflect lower bonus and benefit expenses of approximately $16
million and $4 million, respectively, favorable inventory
obsolescence expense and higher credit card income, which were
partially offset by higher bad debt expenses of approximately $15
million (of which approximately two-thirds represents an increase
in accruals for prior periods), increased freight expenses and
lower product margins.
Beginning in early June QVC’s US sales began to experience
significant headwinds, which have continued. The sales declines, as
compared to prior periods, have averaged in the mid to high single
digit percentages. QVC has developed many initiatives intended to
reverse the negative trends and QVC is optimistic, although there
is no guarantee, that these actions will have a positive effect.
However, even if these initiatives begin to reverse these trends,
it is believed that QVC’s US net revenue and adjusted OIBDA will
likely experience negative growth rates for the third quarter.
QVC's international revenue increased 7% to $635 million in the
second quarter. The revenue performance included the net impact of
the aforementioned favorable exchange rate fluctuations. On a
constant currency basis(5), international revenue increased 4% in
the quarter, reflecting strong gains in all markets except Japan.
Units sold increased 4% and ASP in constant currency was
essentially flat. QVC International experienced growth in all
categories except accessories. International eCommerce revenue
increased 10% to $212 million and grew approximately 80 basis
points to 33% of total international revenue. Operating income
increased 4% to $71 million and adjusted OIBDA was flat at $100
million. On a constant currency basis(5), operating income
decreased 1% and adjusted OIBDA decreased 5%, primarily due to the
cost allocations from ONE Q and France start-up costs. On a
constant currency basis and excluding the cost allocations and QVC
France’s operating income and adjusted OIBDA losses of $9 million
and $8 million, respectively, in Q2-16 and $5 million in Q2-15,
international operating income increased 15%, operating margin
increased 133 basis points, adjusted OIBDA increased 5% and
adjusted OIBDA margin increased 15 basis points, primarily due to
favorable fixed costs and inventory obsolescence and lower
depreciation and amortization, which were partially offset by lower
product margins and higher freight expenses.
CNR Home Shopping Co., Ltd. ("CNRS"), QVC's joint venture in
China, increased revenue 4% in local currency in the second
quarter. CNRS' operating loss and adjusted OIBDA deficit in local
currency decreased 33% and 43%, respectively, reflecting lower
freight, improved product margins and lower marketing costs, which
were partially offset by higher carriage expenses. This joint
venture is being accounted for as an equity method investment, and
as a result, QVC reported a $1 million reduction in net income for
the quarter.
QVC's total debt, net of original issue discount, was $5.3
billion at June 30, 2016, a decrease of $0.2 billion from March 31,
2016.
zulily
“We accelerated our revenue growth in the second quarter,” said
zulily President and CEO Darrell Cavens. “Our merchandising and
operational execution are driving strong growth in our business. As
we look to the back half of 2016 and beyond, we remain obsessed
about offering fresh new products and experiences every day that
strengthen our brand and market presence. Additionally, we continue
to find valuable new ways to expand our customer reach and leverage
the collaboration with QVC to deliver incremental growth
opportunities.”
Liberty Interactive acquired zulily on October 1, 2015. Prior to
the acquisition, zulily utilized a retail calendar, whereby 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 its fiscal year
to a calendar year end on a prospective basis. As a result, the
following discussion of zulily’s results for the three months ended
June 30, 2016 includes comparisons to zulily’s results for the
three months ended June 28, 2015. In addition, 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 June 28, 2015 and June
30, 2016 were as follows:
(amounts in millions)
Three Months
Ended June 28, 2015 June 30, 2016 Net
revenue $ 297 366 Cost of sales 212 257 Gross profit
85 109 Operating expenses 9 11 SG&A expenses (excluding
stock-based compensation) 62 67 Adjusted OIBDA 14 31
Stock-based compensation 5 6 Depreciation 4 6 Amortization of
intangible assets — 62 Operating income (loss) $ 5
(43 )
zulily revenue increased 23% to $366 million in the second
quarter driven by strong growth in total orders and a slight
increase in average order value. Mobile orders maintained positive
growth and came in at 63% of total orders placed in the quarter,
compared to 56% in the year prior.
Operating loss was $(43) million in the second quarter as
compared to $5 million of income in the same period last year.
zulily’s second quarter operating loss includes $62 million of
amortization of intangible assets, primarily recognized in purchase
accounting.
Adjusted OIBDA increased 121% in the second quarter to $31
million, up from $14 million a year ago. Adjusted OIBDA margin
increased 376 basis points, primarily attributed to improved
operational efficiency in transportation and fulfillment and a
decrease in SG&A expenses as a percentage of revenue due to
top-line revenue growth over a partially fixed cost base.
Share Repurchases
From May 1, 2016 through July 31, 2016, Liberty Interactive
repurchased approximately 5.7 million Series A QVC Group shares
(Nasdaq: QVCA) at an average cost per share of $25.75 for total
cash consideration of $146 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 $6.5 billion, representing
approximately 42.8% 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. The remaining repurchase authorization as
of August 1, 2016 for QVC Group stock was approximately $518
million.
QVC Group consists of Liberty Interactive’s subsidiaries, QVC,
Inc. and zulily, llc, and Liberty Interactive’s interest in
HSN.
LIBERTY VENTURES GROUP – On May 13, 2016, a wholly owned
subsidiary attributed to Liberty Ventures entered into a margin
loan agreement which provides for $450 million of available
borrowings. Pursuant to the margin loan agreement, approximately 5
million shares of Charter Communications, Inc. (“Charter”) were
pledged as collateral. The margin loan matures on November 13, 2017
and had $375 million outstanding as of June 30, 2016.
On May 18, 2016, Liberty Interactive completed a $2.4 billion
investment in Liberty Broadband in connection with the merger of
Charter and Time Warner Cable, Inc. The proceeds of this investment
were used by Liberty Broadband to fund, in part, its acquisition of
$5 billion of stock in the new public parent company, New Charter,
of the combined enterprises. Liberty Interactive, along with third
party investors, all of whom invested on the same terms as Liberty
Interactive, purchased newly issued shares of Liberty Broadband
Series C common stock at a per share price of $56.23, which was
determined based upon the fair value of Liberty Broadband’s net
assets on a sum-of-the-parts basis at the time the investment
agreements were executed. Liberty Interactive’s investment in
Liberty Broadband was funded using cash on hand and is attributed
to the Liberty Ventures Group.
On June 10, 2016, Liberty Interactive filed an amendment to its
registration statement disclosing that the previously announced
spin-off of Liberty Expedia (comprised of, among other things,
Liberty Interactive’s interest in Expedia, Inc., Liberty
Interactive’s subsidiary Bodybuilding.com, LLC and $400 million of
debt) would be changed to a mandatory redemptive split-off. The
transaction is subject to, among other conditions, shareholder
approval and is expected to be completed at the end of the third
quarter or early in the fourth quarter of 2016.
Subsequent to June 30, 2016:
- Holders of the 0.75% Exchangeable
Senior Debentures exchanged approximately $148 million principal
value and Liberty Ventures Group elected to make cash payments
totaling approximately $173 million to settle the obligations,
which are expected to be funded through a combination of cash on
hand, margin loan capacity, as well as the sale of Time, Inc.
(“TIME”) and Time Warner, Inc. (“TWX”) shares. Pro-forma for these
exchanges, there are approximately 1.2 million shares of CHTR, 2
million shares of TWX and 0.25 million shares of TIME underlying
the remaining 0.75% Exchangeable Senior Debentures.
- Liberty Ventures Group entered into a
margin loan agreement which provides for $300 million of available
borrowings. Pursuant to the margin loan agreement, Liberty
Ventures’ shares of Expedia were pledged as collateral. The margin
loan matures on the earlier of the Expedia Holdings split-off date
or December 31, 2016.
- On July 22, 2016, Liberty Interactive
completed the previously announced spin-off of CommerceHub and
distributed to holders of Liberty Ventures Series A and Series B
common stock (i) 0.1 of a share of the corresponding series of
CommerceHub common stock and (ii) 0.2 of a share of CommerceHub
Series C common stock, in each case, for each share of Liberty
Ventures common stock held through the distribution date, July 22,
2016. CommerceHub began regular-way trading on July 25th under the
tickers CHUBA, CHUBB and CHUBK. CommerceHub will be conducting its
Q2 quarterly earnings conference call on August 22nd.
Share Repurchases
There were no repurchases of Liberty Ventures Group common stock
(Nasdaq: LVNTA) from May 1, 2016 through July 31, 2016. The total
remaining repurchase authorization for Liberty Ventures Group stock
as of July 31, 2016 was $650 million.
Including the impact of the CommerceHub spin-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 Expedia,
Liberty Broadband, Lending Tree and FTD, its subsidiaries
Bodybuilding.com and Evite, and minority interests in Charter, Time
Warner and Interval Leisure.
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 12:15
p.m. (E.D.T.) on August 5, 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) Including the impact of the new cost
allocations associated with ONE Q. (4) For a definition of adjusted
net income and applicable reconciliations, see the accompanying
schedules. (5) For a definition of constant currency financial
metrics and applicable reconciliations, see the accompanying
schedules.
QVC GROUP
FINANCIAL METRICS – QUARTER
(amounts in millions) 2Q15 2Q16 % Change
Revenue QVC
US $ 1,406 $ 1,428 2 % QVC International(1) 592
635 7 % Total QVC Revenue 1,998 2,063 3 %
zulily(2) NA 366 NA Intergroup eliminations NA
(5 ) NA
Total QVC Group Revenue $ 1,998
$ 2,424 21 %
Gross Margins QVC US 38.0 % 37.6 % QVC
International(1) 38.7 % 38.0 % zulily(2) NA % 29.8 %
Operating Income QVC US(3) $ 226 $ 236 4 % QVC
International(1)(3) 68 71 4 %
Total QVC Operating Income 294 307 4 % zulily NA (43 ) NA Corporate
and Other (10 ) (10 ) - %
Total QVC Group
Operating Income $ 284 $ 254
(11 ) % Adjusted OIBDA
QVC US(3) $ 349 $ 363 4 % QVC International(1)(3) 100
100 - % Total QVC Adjusted OIBDA 449 463 3 %
zulily(2) NA 31 NA Corporate and Other (4 ) (7 ) 75
%
Total QVC Group Adjusted OIBDA $ 445
$ 487 9 %
Net Income and Adjusted Net Income Total QVC Group Net
Income $ 112 $ 127 13 % Total QVC Group Adjusted Net Income(4) $
161 $ 215 34 %
China JV(5) Revenue $ 38 $ 38 -
% Adjusted OIBDA $ (5 ) $ (1 ) 80 % (amounts in millions)
QVCA
Shares Outstanding
7/31/2015 7/31/2016 Outstanding A and B shares 461
476 (amounts in millions)
Quarter ended Quarter
ended
QVCA and QVCB
Basic and Diluted Shares
6/30/2015 6/30/2016
Basic Weighted Average Shares Outstanding
("WASO")
469 479 Potentially dilutive Shares 7 6
Diluted WASO 476 485
(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 $7 million in corporate costs from QVC US to QVC International
for the second quarter 2016. (4) See reconciling schedule 4. (5)
This joint venture is being accounted for as an equity investment.
QVC OPERATING
METRICS – QUARTER
(amounts in millions) 2Q15 2Q16 % Change
QVC -
Consolidated Total eCommerce revenue ($) $ 848 $ 939 11 % Total
eCommerce revenue (%) 42.4 % 45.5 % 310 bps Mobile % of total
eCommerce(1) 49.4 % 57.9 % 850 bps LTM Total Customers(2) 12.5 12.7
2 %
QVC - US US eCommerce revenue ($) $ 655 $ 727 11
% US eCommerce revenue (%) 46.6 % 50.9 % 430 bps Mobile % of US
eCommerce(1) 47.6 % 56.6 % 900 bps LTM Total Customers(2) 8.1 8.2 1
% Return Rate 19.3 % 18.5 % (80 ) bps
zulily Mobile %
of total orders 56.0 % 63.2 % 720 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 June 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)
3/31/2016
6/30/2016 HSN(1) $ 1,047 $ 979
Total Attributed QVC
Group $ 1,047 $ 979
Charter(2) $ — $ 1,225 Expedia(3) 2,545 2,509 FTD(4) 268 255
Liberty Broadband(5) — 2,561 Tree.com(6) 271 245 Other Public
Holdings(7) 1,662 479
Total Attributed Liberty
Ventures Group $ 4,746 $ 7,274
(1) Represents fair value of QVC Group's
investment in HSN. In accordance with GAAP, QVC Group accounts for
this investment using the equity method of accounting and includes
this investment in its attributed balance sheet at its historical
carrying value which aggregated $180 million and $182 million at
March 31, 2016 and June 30, 2016, respectively. (2) Represents fair
value of Liberty Ventures Group’s investment in Charter. Liberty
Ventures Group accounts for this investment at fair value. (3)
Represents fair value of Liberty Ventures Group's investment in
Expedia. In accordance with GAAP, Liberty Ventures Group accounts
for this investment using the equity method of accounting and
includes this investment in its attributed balance sheet at its
historical carrying value which aggregated $894 million and $888
million at March 31, 2016 and June 30, 2016, respectively. (4)
Represents fair value of Liberty Ventures Group's investment in
FTD. In accordance with GAAP, Liberty Ventures Group accounts for
this investment using the equity method of accounting and includes
this investment in its attributed balance sheet at its historical
carrying value which aggregated $261 million and $259 million at
March 31, 2016 and June 30, 2016, respectively. (5) Represents fair
value of Liberty Ventures Group’s investment in Liberty Broadband.
In accordance with GAAP, Liberty Ventures Group accounts for this
investment using the equity method of accounting, but has elected
fair value treatment. (6) Represents fair value of Liberty Ventures
Group's investment in Tree.com. In accordance with GAAP, Liberty
Ventures Group accounts for this investment using the equity method
of accounting and includes this investment in its attributed
balance sheet at its historical carrying values which aggregated
$28 million and $28 million at March 31, 2016 and June 30, 2016,
respectively. (7) Represents Liberty Ventures Group's other public
holdings which are accounted for at fair value. This figure
includes Liberty Ventures Group’s investment in Interval, which was
reclassified as available for sale during the second quarter. For
the period ended March 31, 2016, Interval Leisure was classified as
an equity method security with a historical carrying value of $118
million.
Cash and Debt
The following presentation is provided to separately identify
cash and liquid investments and debt information.
(amounts in millions)
3/31/2016
6/30/2016
Cash and Liquid Investments Attributable to: QVC
Group $ 440 $ 394 Liberty Ventures Group(1) 2,904
116
Total Liberty Consolidated Cash and Liquid
Investments $ 3,344 $ 510
Less: Short-term marketable securities -
Liberty Ventures Group $ 601 $ —
Total Liberty
Consolidated Cash (GAAP) $ 2,743 $
510 Debt: Senior notes and
debentures(2) $ 791 $ 791 Senior exchangeable debentures(3) 346 345
QVC senior notes(2) 3,550 3,550 QVC bank credit facility 1,894
1,675 Other 72 76
Total Attributed
QVC Group Debt $ 6,653 $ 6,437
Unamortized discount, fair market value adjustment and deferred
loan costs (38 ) (39 )
Total Attributed QVC Group
Debt (GAAP) $ 6,615 $ 6,398
Senior exchangeable debentures(3) $ 2,040 $ 1,419
Ventures margin loan — 375 Other 33 29
Total Attributed Liberty Ventures Group Debt $
2,073 $ 1,823 Fair market value adjustment
188 6
Total Attributed Liberty
Ventures Group Debt (GAAP) $ 2,261
$ 1,829 Total Liberty Interactive
Corporation Debt (GAAP) $ 8,876 $
8,227 (1) Includes $601 million
of short-term marketable securities with an original maturity
greater than 90 days as of March 31, 2016. (2) Face amount of
Senior Notes and Debentures with no reduction for the unamortized
discount. (3) 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 second quarter. Share repurchases, debt
repayment and capital expenditures were partially offset by cash
provided by operations. Total debt attributed to the QVC Group
decreased by $216 million, primarily due to repayments on QVC’s
credit facility.
Total cash and liquid investments attributed to the Liberty
Ventures Group declined $2.8 billion, primarily due to the
investment in Liberty Broadband as well as net repayment of certain
debt obligations.
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 12:15 p.m. (E.D.T.) on August 5, 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, the satisfaction of the conditions to the proposed
split-off of Liberty Expedia 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.
Additional Information
Nothing in this press release shall constitute a solicitation to
buy or an offer to sell shares of the split-off entity or any of
Liberty Interactive’s tracking stocks. The offer and sale of shares
in the proposed split-off will only be made pursuant to Liberty
Expedia’s effective registration statement. Liberty Interactive
stockholders and other investors are urged to read the registration
statement and the joint proxy statement/prospectus regarding the
transaction (a preliminary filing of which has been made with the
SEC) and any other relevant documents filed with the SEC, as well
as any amendments or supplements to those documents, because they
contain important information about the split-off. Copies of these
SEC filings are available free of charge at the SEC’s website
(http://www.sec.gov). Copies of the filings together with the
materials incorporated by reference therein are also available,
without charge, by directing a request to Liberty Interactive
Corporation, 12300 Liberty Boulevard, Englewood, Colorado 80112,
Attention: Investor Relations, Telephone: (720) 875-5420.
Participants in a Solicitation
The directors and executive officers of Liberty Interactive and
other persons may be deemed to be participants in the solicitation
of proxies in respect of proposals to approve the split-off.
Information regarding the directors and executive officers of
Liberty Interactive is available in its definitive proxy statement,
which was filed with the SEC on July 8, 2016, and certain of its
Current Reports on Form 8-K. For other information regarding the
participants in the proxy solicitation and a description of their
direct and indirect interests, by security holdings or otherwise,
see the joint proxy statement/ prospectus (a preliminary filing of
which has been made with the SEC). Free copies of this document may
be obtained as described in the preceding paragraph.
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 valuable 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 June 30, 2015, September
30, 2015, December 31, 2015, March 31, 2016, and June 30, 2016,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 2Q15
3Q15 4Q15 1Q16
2Q16
QVC Group Adjusted OIBDA(1)(2) 445
421 620 433 487 Depreciation and amortization (149 ) (141 ) (215 )
(209 ) (214 ) Stock compensation expense (12 ) (16 )
(20 ) (18 ) (19 )
Operating Income
$ 284 $ 264 $
385 $ 206 $ 254
(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 June 30, 2015, September 30, 2015, December 31,
2015, March 31, 2016 and June 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) 2Q15
3Q15 4Q15 1Q16
2Q16
QVC
Group
QVC Adjusted OIBDA QVC US $ 349 $ 333 $ 479 $ 326 $ 363 QVC
International 100 97 129 89 100 Consolidated QVC adjusted
OIBDA 449 430 608 415 463 Depreciation and amortization (148 ) (141
) (146 ) (148 ) (146 ) Stock compensation (7 ) (9 )
(7 ) (6 ) (10 )
Operating Income
$ 294 $ 280 $
455 $ 261 $ 307
zulily Adjusted OIBDA(1) $ NA $ NA $ 21 $ 23 $
31 Depreciation and amortization NA NA (69 ) (61 ) (68 ) Stock
compensation NA NA (5 )
(5 ) (6 )
Operating Income $ NA
$ NA $ (53 ) $
(43 ) $ (43 ) (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 June 30, 2015,
September 30, 2015, December 31, 2015, March 31, 2016 and June 30,
2016, respectively.
QUARTERLY SUMMARY
(amounts in millions) 2Q15
3Q15 4Q15 1Q16
2Q16 QVC Group Adjusted OIBDA $ 445 $
421 $ 620 $ 433 $ 487 Liberty Ventures Group Adjusted OIBDA
14 13 14 4
8
Consolidated Liberty Interactive Corp. Adjusted
OIBDA $ 459 $ 434
$ 634 $ 437 $
495 Depreciation and amortization (161 ) (150 ) (224
) (217 ) (221 ) Stock compensation (29 ) (37 )
(46 ) (31 ) (24 )
Consolidated Liberty Interactive
Corp. Operating Income $ 269 $
247 $ 364 $ 189
$ 250
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 June 30, 2015, September 30, 2015,
December 31, 2015, March 31, 2016 and June 30, 2016,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 2Q15
3Q15 4Q15 1Q16
2Q16 LTM
QVC Group
Net income(1) $ 112 $ 154 $ 223 $ 90 $ 127 $ 594 QVC purchase
accounting amort., net deferred tax benefit (2) 49 49 50 50 50 199
zulily purchase accounting amort., net deferred tax benefit (3)
— — 39 36 38 113 QVC
Group Adjusted net income $ 161 $ 203 $ 312 $ 176 $ 215 $ 906
QVCA/B shares outstanding as of July 31, 2016 476 Adjusted
LTM earnings per share $ 1.90 (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 was $316 million for the twelve months ended December
31, 2015, 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 Group's constant currency revenue,
operating income, adjusted OIBDA and ASP to the comparable figures
calculated in accordance with GAAP for the three months ended June
30, 2016.
Percent Change for Three Months
Ended 6/30/2016
QVC
As Reported Constant Currency
Consolidated Revenue 3 % 2 % Consolidated Operating Income 4 % 4 %
Consolidated Adj. OIBDA 3 % 2 % International Revenue 7 % 4 %
International Operating Income 4 % (1 )% International Adj. OIBDA —
(5 )% International ASP 1 % —
LIBERTY INTERACTIVE CORPORATION
BALANCE SHEET INFORMATION
June 30, 2016 - (unaudited)
Attributed QVC Ventures
Inter-group Consolidated Group Group
Eliminations Liberty amounts in millions
Assets Current assets: Cash and cash equivalents $ 394 116 —
510 Trade and other receivables, net 861 52 (1 ) 912 Inventory, net
1,043 45 — 1,088 Other current assets 190 14 —
204 Total current assets
2,488 227
(1 ) 2,714 Investments in available-for-sale
securities and other cost investments 4 1,766 — 1,770 Investments
in affiliates, accounted for using the equity method 225 1,300 —
1,525 Investment in Liberty Broadband measured at fair value —
2,561 — 2,561 Property and equipment, net 1,194 36 — 1,230
Intangible assets not subject to amortization 9,396 128 — 9,524
Intangible assets subject to amortization, net 1,274 39 — 1,313
Other assets, at cost, net of accumulated amortization 49 7
— 56 Total assets
$ 14,630 6,064
(1 ) 20,693 Liabilities and
Equity Current liabilities: Intergroup payable (receivable) $
221 (221 ) — — Accounts payable 622 19 — 641 Accrued liabilities
586 48 — 634 Current portion of debt 356 1,431 — 1,787 Other
current liabilities 126 27 (1 ) 152 Total current
liabilities
1,911 1,304 (1
) 3,214 Long-term debt 6,042 398 — 6,440 Deferred
income tax liabilities 1,226 2,531 — 3,757 Other liabilities
273 15 — 288 Total liabilities
9,452
4,248 (1 ) 13,699
Equity/Attributed net assets (liabilities) 5,066 1,826 — 6,892
Noncontrolling interests in equity of subsidiaries 112 (10 )
— 102 Total liabilities and equity
$ 14,630
6,064 (1 ) 20,693
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended June 30, 2016 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Net retail sales $ 2,424 139 2,563
Operating costs and expenses: Cost of sales 1,538 83 1,621
Operating, including stock-based compensation 157 20 177 Selling,
general and administrative, including stock-based compensation 261
33 294 Depreciation and amortization 214 7 221
2,170 143 2,313 Operating income
(loss) 254 (4 ) 250 Other income (expense): Interest expense
(71 ) (21 ) (92 ) Share of earnings (losses) of affiliates, net 9
(9 ) — Realized and unrealized gains (losses) on financial
instruments, net 5 338 343 Gains (losses) on dispositions — 2 2
Other, net 20 79 99 (37 ) 389
352 Earnings (loss) before income taxes 217 385 602
Income tax benefit (expense) (79 ) (136 ) (215 ) Net
earnings (loss) 138 249 387 Less net earnings (loss) attributable
to noncontrolling interests 11 — 11 Net
earnings (loss) attributable to Liberty stockholders $ 127
249 376
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended June 30, 2015 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Net retail sales $ 1,998 254 2,252
Operating costs and expenses: Cost of sales 1,234 175 1,409
Operating, including stock-based compensation 142 24 166 Selling,
general and administrative, including stock-based compensation 189
58 247 Depreciation and amortization 149 12
161 1,714 269 1,983
Operating income (loss)
284 (15 ) 269 Other income (expense): Interest expense (70 )
(20 ) (90 ) Share of earnings (losses) of affiliates, net 9 78 87
Realized and unrealized gains (losses) on financial instruments,
net 8 24 32 Gains (losses) on dispositions — 111 111 Other, net
(31 ) 2 (29 ) (84 ) 195 111
Earnings (loss) from continuing operations before income taxes 200
180 380 Income tax benefit (expense) (80 ) (42 ) (122 ) Net
earnings (loss) 120 138 258 Less net earnings (loss) attributable
to noncontrolling interests 8 8 16 Net
earnings (loss) attributable to Liberty stockholders $ 112
130 242
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Six months ended June 30, 2016 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 236 222 458 Adjustments to reconcile net earnings
to net cash provided by operating activities: Depreciation and
amortization 423 15 438 Stock-based compensation 37 18 55
Cash payments for stock-based
compensation
— (91 ) (91 )
Excess tax benefit from stock-based
compensation
(7 ) (1 ) (8 ) Share of (earnings) losses of affiliates, net (30 )
51 21 Cash receipts from return on equity investments 14 13 27
Realized and unrealized gains (losses) on financial instruments,
net (4 ) (332 ) (336 ) (Gains) losses on dispositions — (9 ) (9 )
Deferred income tax (benefit) expense (94 ) 390 296 Other, net 22
(85 ) (63 ) Intergroup tax allocation 274 (274 ) — Intergroup tax
payments (104 ) 104 — Changes in operating assets and liabilities
Current and other assets 369 23 392 Payables and other current
liabilities (491 ) (17 ) (508 ) Net cash provided (used) by
operating activities 645 27 672
CASH FLOWS FROM INVESTING ACTIVITIES: Cash proceeds from
dispositions — 129 129 Investments in and loans to cost and equity
investees — (42 ) (42 ) Capital expended for property and equipment
(110 ) (15 ) (125 ) 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 (2 ) 1 (1
) Net cash provided (used) by investing activities (100 )
(1,429 ) (1,529 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt 778 587 1,365 Repayments of debt (923 ) (1,096 )
(2,019 ) Repurchases of Liberty common stock (417 ) — (417 ) Min.
withholding taxes on net settlements of stock-based comp (13 ) —
(13 ) Excess tax benefit from stock-based compensation 7 1 8 Other
financing activities, net (13 ) 3 (10 ) Net cash
provided (used) by financing activities (581 ) (505 ) (1,086
) Effect of foreign currency rates on cash 4 —
4 Net increase (decrease) in cash and cash equivalents (32 )
(1,907 ) (1,939 ) Cash and cash equivalents at beginning of period
426 2,023 2,449 Cash and cash
equivalents at end period
$ 394 116 510
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Six months ended June 30, 2015 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 280 130 410 Adjustments to reconcile net earnings
to net cash provided by operating activities: Depreciation and
amortization 301 28 329 Stock-based compensation 24 20 44 Cash
payments for stock based compensation — (10 ) (10 ) Excess tax
benefit from stock-based compensation (14 ) (2 ) (16 ) Share of
losses (earnings) of affiliates, net (33 ) (57 ) (90 ) Cash
receipts from return on equity investments 14 13 27 Realized and
unrealized gains (losses) on financial instruments, net 2 (30 ) (28
) (Gains) losses on dispositions — (111 ) (111 ) Deferred income
tax (benefit) expense (91 ) 61 (30 ) Other, net 25 7 32 Intergroup
tax allocation 43 (43 ) — Intergroup tax payments (55 ) 55 —
Changes in operating assets and liabilities Current and other
assets 283 4 287 Payables and other current liabilities (208
) (38 ) (246 ) Net cash provided (used) by operating activities
571 27 598 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 (2 ) (96 ) (98 ) Cash receipts from
return of equity investments 200 — 200 Capital expended for
property and equipment (80 ) (24 ) (104 ) Purchases of short term
and other marketable securities (80 ) (546 ) (626 ) Sales of short
term and other marketable securities 93 584 677 Other investing
activities, net (47 ) — (47 ) Net cash provided
(used) by investing activities 84 169 253
CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of
debt 1,098 369 1,467 Repayments of debt (1,288 ) (340 ) (1,628 )
Repurchases of QVC Group common stock (377 ) — (377 ) Min.
withholding taxes on net settlements of stock-based comp (14 ) 1
(13 ) Excess tax benefit from stock-based compensation 14 2 16
Other financing activities, net (4 ) (20 ) (24 ) Net cash
provided (used) by financing activities (571 ) 12
(559 ) Effect of foreign currency rates on cash (9 ) —
(9 ) Net increase (decrease) in cash and cash equivalents 75
208 283 Cash and cash equivalents at beginning of period 422
1,884 2,306 Cash and cash equivalents at end
period $ 497 2,092 2,589
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Liberty Interactive CorporationCourtnee Chun, (720) 875-5420
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