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Aug 10, 2020
Qurate Retail, Inc. Reports Second Quarter 2020 Financial Results

Board of Directors Announces Intent to Declare Special Dividend of $1.50 Per Share and Preferred Stock Dividend of $3.00 Per Share

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Aug. 10, 2020-- Qurate Retail, Inc. ("Qurate Retail") (Nasdaq: QRTEA, QRTEB) today reported second quarter 2020 results (1).

“We generated strong growth in revenue, OIBDA, and free cash flow in the second quarter, with every business unit and geographic market achieving meaningful sales gains and significant new customer additions,” said Mike George, President and CEO of Qurate Retail. “Our agile teams responded to the ongoing shifts in consumer needs during this challenging time to deliver engaging and relevant experiences across our eCommerce, video and social platforms. While economic uncertainty remains, our recent results give us confidence that we can generate sustained growth by continued execution of our strategies to offer unique differentiated products and immersive and trusted shopping experiences across all the digital platforms relevant to today’s consumer, while keeping the health and well-being of our team members and communities our top priority.”

Second quarter operating results:

  • Total Qurate Retail revenue increased 10% to $3.4 billion
    • Revenue increased 10% in constant currency(2)
    • eCommerce revenue grew 19% to $2.2 billion or 64% of total revenue
  • Qurate Retail reported diluted EPS of $0.53
    • Adjusted diluted EPS(3) of $0.54
  • QxH revenue increased 7% to $2.0 billion
  • QVC International revenue increased 11% to $713 million
    • Revenue increased 12% in constant currency
  • Zulily revenue increased 16% to $422 million
  • Cornerstone revenue increased 18% to $277 million

Corporate updates:

  • Anticipate approximately $262 million pre-tax proceeds from sale of green energy investment to be received in August
  • Board of Directors announced their intent to return capital to shareholders via a potential dividend, subject to official declaration, consisting of:
    • Special dividend of cash equal to $1.50 per share of common stock
    • Special dividend of preferred stock equivalent to $3.00 in initial liquidation value per share with 8.0% dividend rate subject to mandatory redemption in the first quarter of 2031

“Qurate posted tremendous results, utilizing the flexibility of its operating model to meet customers’ changing demands,” said Greg Maffei, Qurate Retail Chairman. “These solid operating results, along with the pending sale of one of our green energy investments, is driving a high level of free cash flow. With increased confidence in the strength of the business, we are pleased to announce our intended return of capital to shareholders in two forms: a one-time cash dividend and a one-time preferred stock dividend. We believe the preferred stock dividend will be an efficient, ongoing instrument to return capital to our shareholders. Qurate will continue to seek the most effective solutions for delivering free cash flow to shareholders on an ongoing basis while maintaining our stated leverage target.”

Key actions in the quarter:

  • Focused on protecting the health and financial well-being of team members. Team members who can work from home will continue to do so, until at least early 2021, with some working from home permanently. Social distancing, mandatory mask requirements and stringent safety and sanitation protocols are in effect at all sites. Qurate Retail provided special pay and work from home allowances and continues to provide leave, medical and other benefits.
  • Committed over $40 million to community support and team member relief. The company facilitated significant support for those impacted by the pandemic, including contributions to Meals on Wheels, No Kid Hungry, Cancer and Careers and a variety of other organizations around the world; partnered with the National Retail Federation to support and celebrate small businesses; established a team member relief fund; elevated its commitment to racial and economic justice within the company and around the world, including support for the Equal Justice Initiative.
  • Rapidly adapted product offerings, merchandising, marketing, and on-air and online programming to be in tune with what customers most cared about throughout the various stages of the pandemic. Achieved meaningfully improved sales and new customer growth trends across business segments in the second quarter.
  • Executed a significant, strategic pull back on promotional activity across all businesses, to provide a better foundation for healthy, sustainable product margins while also managing elevated demand.
  • Took a variety of actions to simplify and streamline its operating structure as it accelerated its strategic plan and incorporated key operational learnings from its COVID response. This necessitated separating with approximately 450 team members in July, incurring $20 million of severance costs in the second quarter. Qurate Retail also closed QVC customer contact centers in San Antonio, Texas and Chesapeake, Virginia and the Zulily customer contact center and digital studio in Gahanna, Ohio as the businesses shifted to permanent work from home positions in those locations.
  • Further strengthened its balance sheet with prudent inventory reductions, more conservative credit practices and a new trade payables program.

Corporate Updates

Qurate Retail today announced that its Board of Directors intends to distribute a special dividend consisting of (i) cash in the amount of $1.50 per common share, for an aggregate cash dividend of approximately $633 million and (ii) newly issued 8.0% fixed rate cumulative redeemable preferred shares (the “Preferred Shares”) equivalent to $3.00 in initial liquidation value per common share, for an aggregate issuance of approximately $1.3 billion aggregate liquidation preference. The dividend has not yet been declared and is subject to formal approval by a committee of the board, but is currently expected to be payable on September 14th to holders of record of Qurate Retail’s Series A and Series B common stock as of the close of business on August 31st. Holders of the Preferred Shares are expected to receive quarterly cash dividends at a fixed rate of 8.0% per year. The Preferred Shares are expected to be non-voting, to be subject to mandatory redemption in the first quarter of 2031 and to trade separate from the common shares on the Nasdaq Global Select Market under the ticker symbol QRTEP following the date of distribution. The distribution of the Preferred Shares is intended to be tax-free to shareholders. John Malone, a member of Qurate Retail’s board of directors, and Greg Maffei have indicated their intention to be long-term holders of the preferred, which will collectively represent approximately 8% of the Preferred Shares outstanding on the distribution date.

As of July 31, 2020, there are 387.5 million shares of QRTEA common stock and 29.4 million shares of QRTEB common stock outstanding. Additional detail regarding the aforementioned potential dividend and its formal declarations are expected to be announced by press release at a later date, including details on when-issued trading.

Discussion of Results

Unless otherwise noted, the following discussion compares financial information for the three months ended June 30, 2020 to the same period in 2019.

SECOND QUARTER 2020 FINANCIAL RESULTS

(amounts in millions)

2Q19

 

 

2Q20

 

 

% Change

 

% Change
Constant
Currency(a)

 

Revenue

 

 

 

 

 

 

 

 

 

 

QxH

$

1,874

 

 

$

2,010

 

 

7

%

 

 

 

QVC International(b)

 

640

 

 

 

713

 

 

11

%

 

12

%

Zulily

 

363

 

 

 

422

 

 

16

%

 

 

 

Cornerstone

 

234

 

 

 

277

 

 

18

%

 

 

 

Total Qurate Retail Revenue

$

3,111

 

 

$

3,422

 

 

10

%

 

10

%

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

 

 

 

 

 

 

 

 

QxH

$

292

 

 

$

280

 

 

(4

)%

 

 

 

QVC International(b)

 

73

 

 

 

101

 

 

38

%

 

39

%

Zulily(c)

 

(23

)

 

 

20

 

 

187

%

 

 

 

Cornerstone

 

6

 

 

 

13

 

 

117

%

 

 

 

Unallocated corporate cost(d)

 

(12

)

 

 

(9

)

 

25

%

 

 

 

Total Qurate Retail Operating Income

$

336

 

 

$

405

 

 

21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted OIBDA

 

 

 

 

 

 

 

 

 

 

QxH

$

395

 

 

$

388

 

 

(2

)%

 

 

 

QVC International(b)

 

106

 

 

 

119

 

 

12

%

 

13

%

Zulily(c)

 

7

 

 

 

45

 

 

543

%

 

 

 

Cornerstone

 

14

 

 

 

21

 

 

50

%

 

 

 

Unallocated corporate cost(d)

 

(9

)

 

 

(8

)

 

11

%

 

 

 

Total Qurate Retail Adjusted OIBDA

$

513

 

 

$

565

 

 

10

%

 

 

 

a)

For a definition of constant currency financial metrics, see the accompanying schedules.

b)

Includes QVC Japan, QVC Germany, QVC UK and QVC Italy. QVC France terminated its operations on March 13, 2019 and recorded an approximately $17 million operating loss and $2 million adjusted OIBDA loss in the second quarter of 2019 primarily from the incurrence of closure costs.

c)

Zulily’s operating income and adjusted OIBDA in the second quarter of 2020 benefited from a $10 million reduction in a sales tax accrual, which was originally recorded at the time of acquisition.

d)

Includes corporate costs incurred at Qurate Retail, Inc. but not allocated to any business segment.

SECOND QUARTER 2020 NET INCOME AND ADJUSTED NET INCOME(3)

(amounts in millions)

2Q19

 

2Q20

 

Net income (loss)(a)

$

118

 

$

220

 

Adjusted net income(b)

$

206

 

$

226

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding ("WASO")

 

428

 

 

417

 

Potentially dilutive shares

 

—

 

 

1

 

Diluted WASO

 

428

 

 

418

 

 

 

 

 

 

 

 

GAAP EPS(a)

$

0.28

 

$

0.53

 

Adjusted EPS(b)

$

0.48

 

$

0.54

 

a)

Represents net income (loss) and diluted net income (loss) per share attributable to Series A and Series B common stockholders as presented in Qurate Retail’s financial statements.

b)

See reconciling schedule 3.

QxH

QxH reported revenue growth in the home, electronics and beauty categories, which were partially offset by declines in apparel and jewelry.

Product margins decreased primarily due to category mix shifts and pricing and promotional offers early in the second quarter. Gross margin decreased primarily due to higher fulfillment (warehouse and freight) costs mainly associated with COVID-related premium pay in our fulfillment centers, lower productivity due to COVID-related protocols, reduced pack factor and general freight rate increases. These factors were partially offset by favorable customer returns. Operating income and adjusted OIBDA margin(3) were also impacted by $9 million of incremental severance expense, higher marketing expense and incentive compensation accruals, partially offset by favorable TV commissions.

QVC International

US Dollar denominated results were slightly negatively affected by exchange rate fluctuations, primarily due to the Dollar strengthening 3% versus the British Pound and 2% against the Euro, offset by weakening 2% versus the Japanese Yen. The financial metrics presented in this press release also provide a comparison of the percentage change in QVC International’s results in constant currency (where applicable) to the comparable figures calculated in accordance with US GAAP for the second quarter of 2020.

QVC International constant currency revenue increased, driven by increases in units shipped across all markets. Gross margin decreased due to higher inventory obsolescence expense and lower product margins from product mix shifts primarily to home. Operating income and adjusted OIBDA margin increased primarily due to lower administrative costs and leverage of operating expenses, partially offset by higher incentive compensation accrual. Operating income margin also benefited from comping approximately $17 million of costs incurred in the second quarter of 2019 related to the closure of QVC France, which terminated its operations on March 13, 2019.

Zulily

Zulily revenue increased on higher unit volume and average selling price. Gross margin increased primarily due to higher product margins and sales leverage of warehouse expense, partially offset by higher freight costs. Operating income and adjusted OIBDA margin increased primarily due to lower marketing and administrative expenses, partially offset by higher incentive compensation accrual. Additionally, Zulily recognized a $10 million reduction in a sales tax accrual during the second quarter of 2020, which was originally recorded at the acquisition date and is included in selling, general and administrative expense.

Cornerstone

Cornerstone revenue increased due to strong demand in its home brands (Frontgate, Ballard Designs, and Grandin Road), partially offset by weakness in apparel at Garnet Hill. Cornerstone re-opened most of its retail stores by the end of the second quarter.

Operating income and adjusted OIBDA margin increased primarily from the strength of the home brand’s revenue and gross margin expansion as well as leverage in marketing expense, partially offset by higher incentive compensation accrual and organizational restructuring expense. Gross margin expansion was mainly driven by higher product margins, which were partially offset by an inventory obsolescence provision for Ryllace (marketing for this new business has been paused due to the pandemic, while future plans are reassessed) and higher fulfillment expense.

SECOND QUARTER 2020 SUPPLEMENTAL METRICS

(amounts in millions unless otherwise noted)

 

2Q19

 

2Q20

 

% Change

 

% Change
Constant
Currency(a)

 

QxH

 

 

 

 

 

 

 

 

 

 

Cost of Sales % of Revenue

 

 

63.2

%

 

64.1

%

90

bps

 

 

 

Operating Income Margin (%)

 

 

15.6

%

 

13.9

%

(170

)bps

 

 

 

Adjusted OIBDA Margin (%)

 

 

21.1

%

 

19.3

%

(180

)bps

 

 

 

Average Selling Price

 

$

53.00

 

$

53.38

 

1

%

 

 

 

Units Sold

 

 

 

 

 

 

5

%

 

 

 

Return Rate(b)

 

 

17.1

%

 

14.9

%

220

bps

 

 

 

eCommerce Revenue(c)

 

$

1,040

 

$

1,204

 

16

%

 

 

 

eCommerce % of Total Revenue

 

 

55.5

%

 

59.9

%

440

bps

 

 

 

Mobile % of eCommerce Revenue(d)

 

 

67.6

%

 

65.0

%

(260

)bps

 

 

 

LTM Total Customers(e)

 

 

10.7

 

 

11.1

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QVC – International

 

 

 

 

 

 

 

 

 

 

Cost of Sales % of Revenue

 

 

61.2

%

 

62.6

%

140

bps

 

 

 

Operating Income Margin (%)

 

 

11.4

%

 

14.2

%

280

bps

 

 

 

Adjusted OIBDA Margin (%)

 

 

16.6

%

 

16.7

%

10

bps

 

 

 

Average Selling Price

 

 

 

 

 

 

(1

)%

 

-

%

Units Sold

 

 

 

 

 

 

11

%

 

 

 

eCommerce Revenue(c)

 

$

261

 

$

337

 

29

%

 

31

%

eCommerce % of Total Revenue

 

 

40.8

%

 

47.3

%

650

bps

 

 

 

Mobile % of eCommerce Revenue(d)

 

 

75.6

%

 

73.2

%

(240

)bps

 

 

 

LTM Total Customers(e)

 

 

4.7

 

 

4.8

 

2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zulily

 

 

 

 

 

 

 

 

 

 

Cost of Sales % of Revenue

 

 

74.4

%

 

73.0

%

(140

)bps

 

 

 

Operating Income Margin (%)

 

 

(6.3

)%

 

4.7

%

1,100

bps

 

 

 

Adjusted OIBDA Margin (%)

 

 

1.9

%

 

10.7

%

880

bps

 

 

 

Mobile % of Total Orders

 

 

73.9

%

 

74.5

%

60

bps

 

 

 

LTM Total Customers(e)

 

 

6.2

 

 

5.3

 

(15

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cornerstone

 

 

 

 

 

 

 

 

 

 

Operating Income Margin (%)

 

 

2.6

%

 

4.7

%

210

bps

 

 

 

Adjusted OIBDA Margin (%)

 

 

6.0

%

 

7.6

%

160

bps

 

 

 

eCommerce Revenue(c)

 

$

169

 

$

223

 

32

%

 

 

 

eCommerce % of Total Revenue

 

 

72.2

%

 

80.5

%

830

bps

 

 

 

a) 

For a definition of constant currency financial metrics, see the accompanying schedules.

b) 

Measured as returned sales over gross shipped sales.

c) 

Based on net revenue.

d) 

Based on gross US Dollar orders.

e) 

LTM:  Last twelve months.

Taxes

Qurate Retail estimates that its average annual effective tax rate over the next three years will be in the range of 15% - 18% including federal, state and foreign taxes, net of tax credits generated by Qurate Retail’s green energy investments. This estimate excludes the impact of one-time items and is subject to adjustment.

Share Repurchases

Qurate Retail did not repurchase shares from May 1, 2020 through July 31, 2020. The remaining repurchase authorization for Qurate Retail is approximately $497 million as of August 1, 2020.

FOOTNOTES

1)

Qurate Retail’s President and CEO, Mike George, and Executive Chairman, Greg Maffei will discuss these headlines and other matters on Qurate Retail’s earnings conference call which will begin at 5:30 p.m. (E.D.T.) on August 10, 2020. For information regarding how to access the call, please see “Important Notice” later in this document.

2)

For a definition of constant currency financial metrics, see the accompanying schedules. Applicable reconciliations can be found in the financial tables at the beginning of this press release.

3)

For definitions and applicable reconciliations of Adjusted OIBDA, Adjusted OIBDA margin, adjusted net income and adjusted EPS, see the accompanying schedules.

NOTES
Cash and Debt

The following presentation is provided to separately identify cash and debt information. 

 

 

 

 

 

 

 

 

 

(amounts in millions)

 

3/31/2020

 

6/30/2020

 

Cash and cash equivalents (GAAP)

 

$

555

 

 

$

948

 

 

 

 

 

 

 

 

 

 

 

 

Indemnification Asset(a)

 

$

180

 

 

$

215

 

 

 

 

 

 

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

 

 

 

QVC senior notes(b)

 

$

4,450

 

 

$

4,450

 

 

QVC bank credit facility

 

 

525

 

 

 

—

 

 

Total Qurate Retail Group Debt

 

$

4,975

 

 

$

4,450

 

 

 

 

 

 

 

 

 

 

 

 

Senior notes(b)

 

 

791

 

 

 

791

 

 

Senior exchangeable debentures(c)

 

 

1,417

 

 

 

1,417

 

 

Corporate Level Debentures

 

 

2,208

 

 

 

2,208

 

 

Total Qurate Retail, Inc. Debt

 

$

7,183

 

 

$

6,658

 

 

Unamortized discount, fair market value adjustment and deferred loan costs

 

 

(138

)

 

 

(17

)

 

Total Qurate Retail, Inc. Debt (GAAP)

 

$

7,045

 

 

$

6,641

 

 

 

 

 

 

 

 

 

 

 

 

QVC, Inc. leverage(d)

 

 

2.4x

 

 

 

2.0x

 

 

a)

Indemnity from GCI Liberty, pursuant to an indemnification agreement with respect to the 1.75% exchangeable debentures due 2046 (the “Charter exchangeable debentures”) issued by Liberty Interactive LLC (“LI LLC”), as described in this press release.

b)

Face amount of Senior Notes and Debentures with no reduction for the unamortized discount.

c)

Face amount of Senior Exchangeable Debentures with no reduction for the fair market value adjustment.

d)

As defined in QVC, Inc.’s credit agreement. Includes QxH, QVC International and Zulily.

Cash at Qurate Retail increased $393 million in the second quarter as cash from operations more than offset debt repayments and capital expenditures. Total debt at Qurate Retail decreased by $525 million in the second quarter driven by the repayment of QVC’s bank credit facility.

QVC’s bank credit facility is undrawn as of June 30, 2020 with available capacity of $2.9 billion, net of letters of credit. The credit facility matures on December 31, 2023. Qurate Retail does not have any maturity of senior secured notes until 2022 and believes that it will be able to repay these notes with available cash on hand, cash generated from operations, borrowings under its revolving credit facility or through refinancing in the public debt market. Qurate Retail is in compliance with all debt covenants, and QVC, Inc.’s leverage ratio as defined in its credit agreement was 2.0x as of June 30, 2020.

Qurate Retail benefits from an indemnification agreement with GCI Liberty with respect to its Charter exchangeable debentures. The indemnification agreement compensates Qurate Retail for any payments made in excess of the adjusted principal amount of the debentures to any holder that exercises its exchange right on or before the put/call date of October 5, 2023. This indemnity is supported by a negative pledge in favor of Qurate Retail on the 1.0 million reference shares of Class A common stock of Charter held at GCI Liberty that underlie the Charter exchangeable debentures. The indemnification asset on Qurate Retail’s balance sheet is valued based on the estimated exchange feature in the Charter exchangeable debentures. As of June 30, 2020, a holder of the Charter exchangeable debentures has the ability to exchange, and accordingly, the exchangeable debentures and indemnification asset were both classified as current as of June 30, 2020. There is $332 million principal amount of the Charter exchangeable debentures outstanding as of June 30, 2020.

Important Notice: Qurate Retail, Inc. (Nasdaq: QRTEA, QRTEB) President and CEO, Mike George, and Executive Chairman, Greg Maffei, will discuss Qurate Retail’s earnings release on a conference call which will begin at 5:30 p.m. (E.D.T.) on August 10, 2020. The call can be accessed by dialing (800) 458-4121 or (323) 794-2093, passcode 2681043, 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://ir.qurateretail.com/events-and-presentations. Links to this press release and replays of the call will also be available on Qurate Retail’s website.

This press release includes certain forward-looking statements, including statements about business strategies and initiatives and their expected benefits, market potential, future financial performance and prospects (including results for current and future periods stemming from COVID-19 impacts), Qurate Retail’s estimated ongoing annual tax rate, the impact of COVID-19, market conditions, the indemnification by GCI Liberty, future repayment of debt, the continuation of our stock repurchase program, the anticipated cash and preferred stock dividend, including the declaration and timing thereof and the issuance and timing thereof, the amount of cash portion of the dividend, the amount of preferred stock portion of the dividend, the terms of the preferred stock 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 Qurate Retail, changes in law and government regulations, the availability of investment opportunities, general market conditions (including as a result of COVID-19) and market conditions conducive to stock repurchases. These forward-looking statements speak only as of the date of this press release, and Qurate Retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Qurate Retail's expectations with 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 Qurate Retail, including the most recent Forms 10-K and 10-Q, for additional information about Qurate Retail and about the risks and uncertainties related to Qurate Retail's business which may affect the statements made in this press release.

NON-GAAP FINANCIAL MEASURES

To provide investors with additional information regarding our financial results, this press release includes a presentation of Adjusted OIBDA, which is a non-GAAP financial measure, for Qurate Retail, QVC (and certain of its subsidiaries), Zulily and Cornerstone together with a reconciliation to that entity or such businesses’ operating income, as determined under GAAP. Qurate Retail defines Adjusted OIBDA as operating income (loss) plus depreciation and amortization, stock-based compensation, separately reported litigation settlements, restructuring, acquisition and other related costs and impairments. Further, this press release includes Adjusted OIBDA margin which is also a non-GAAP financial measure. Qurate Retail defines Adjusted OIBDA margin as Adjusted OIBDA divided by revenue.

Qurate Retail believes Adjusted OIBDA is an important indicator of the operational strength and performance of its businesses by identifying those items that are not directly a reflection of each business’ performance or indicative of ongoing business trends. 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, Qurate Retail 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 Qurate Retail'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 press release includes references to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures, for Qurate Retail. Qurate Retail defines adjusted net income as net income, excluding the impact of acquisition accounting amortization (net of deferred tax benefit), mark to market adjustments on certain public debt and equity securities and other one-time adjustments. Qurate Retail defines adjusted earnings per share as diluted earnings per share plus the diluted per share effects of certain adjustments, net of tax.

Qurate Retail believes adjusted net income and adjusted earnings per share are important indicators of financial performance due to the impact of purchase accounting amortization, mark to market adjustments and other one-time items identified in Schedule 3 below. Because adjusted net income and adjusted earnings per share are used as measures of overall financial performance, Qurate Retail views net income and diluted earnings per share, respectively, as the most directly comparable GAAP measures. Adjusted net income and adjusted earnings per share are not meant to replace or supersede net income, diluted earnings per share 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) and adjusted earnings per share to diluted earnings per share, in each case, calculated in accordance with GAAP for Qurate Retail (Schedule 3).

This press release also references certain financial metrics on a constant currency basis, which is a non-GAAP measure, for Qurate Retail. 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.

Qurate Retail believes constant currency financial metrics are an important indicator of financial performance, in particular for QVC, due to the translational impact of foreign currency fluctuations relating to its subsidiaries in the UK, Germany, Italy and Japan. 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 financial tables at the beginning of this press release for a reconciliation of the impact of foreign currency fluctuations on revenue, operating income, Adjusted OIBDA and average selling price.

SCHEDULE 1

The following table provides a reconciliation of Qurate Retail’s Adjusted OIBDA to its operating income calculated in accordance with GAAP for the three months ended June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020 and June 30, 2020, respectively.

CONSOLIDATED OPERATING INCOME AND ADJUSTED OIBDA RECONCILIATION

(amounts in millions)

 

2Q19

 

3Q19

 

4Q19

 

1Q20

 

2Q20

Qurate Retail, Inc. Operating Income (Loss)

 

$

336

 

$

(727

)

 

$

287

 

$

231

 

$

405

Depreciation and amortization

 

 

158

 

 

146

 

 

 

149

 

 

142

 

 

144

Stock compensation expense

 

 

18

 

 

17

 

 

 

17

 

 

11

 

 

16

Impairment of intangible assets

 

 

—

 

 

1,020

 

 

 

147

 

 

—

 

 

—

Operating company level transaction related costs

 

 

1

 

 

—

 

 

 

—

 

 

—

 

 

—

Qurate Retail, Inc. Adjusted OIBDA

 

$

513

 

$

456

 

 

$

600

 

$

384

 

$

565

SCHEDULE 2

The following table provides a reconciliation of Adjusted OIBDA for QVC, Zulily and Cornerstone to that entity or such businesses' operating income (loss) calculated in accordance with GAAP for the three months ended June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020 and June 30, 2020, respectively.

SUBSIDIARY ADJUSTED OIBDA RECONCILIATION

(amounts in millions)

 

2Q19

 

3Q19

 

4Q19

 

1Q20

 

2Q20

QVC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

365

 

 

$

330

 

 

$

306

 

 

$

270

 

 

$

381

Depreciation and amortization

 

 

124

 

 

 

112

 

 

 

114

 

 

 

114

 

 

 

116

Stock compensation

 

 

11

 

 

 

10

 

 

 

9

 

 

 

6

 

 

 

10

Impairment of intangible assets

 

 

—

 

 

 

—

 

 

 

147

 

 

 

—

 

 

 

—

Transaction related costs

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

Adjusted OIBDA

 

$

501

 

 

$

452

 

 

$

576

 

 

$

390

 

 

$

507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QxH Adjusted OIBDA

 

$

395

 

 

$

346

 

 

$

443

 

 

$

293

 

 

$

388

QVC International Adjusted OIBDA

 

 

106

 

 

 

106

 

 

 

133

 

 

 

97

 

 

 

119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zulily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

(23

)

 

$

(1,042

)

 

$

(13

)

 

$

(20

)

 

$

20

Depreciation and amortization

 

 

26

 

 

 

26

 

 

 

26

 

 

 

20

 

 

 

20

Stock compensation

 

 

4

 

 

 

4

 

 

 

3

 

 

 

2

 

 

 

5

Impairment of intangible assets

 

 

—

 

 

 

1,020

 

 

 

—

 

 

 

—

 

 

 

—

Adjusted OIBDA

 

$

7

 

 

$

8

 

 

$

16

 

 

$

2

 

 

$

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cornerstone

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

6

 

 

$

(5

)

 

$

3

 

 

$

(11

)

 

$

13

Depreciation and amortization

 

 

8

 

 

 

8

 

 

 

9

 

 

 

8

 

 

 

8

Stock compensation

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

 

 

—

Adjusted OIBDA

 

$

14

 

 

$

4

 

 

$

12

 

 

$

(2

)

 

$

21

SCHEDULE 3

The following table provides a reconciliation of Qurate Retail’s net income (loss) to its adjusted net income and diluted earnings (loss) per share to adjusted earnings per share, in each case, calculated in accordance with GAAP for the three months ended June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020 and June 30, 2020, respectively.

ADJUSTED NET INCOME AND ADJUSTED EPS RECONCILIATION

(amounts in millions)

 

 

2Q19

 

 

3Q19

 

 

4Q19

 

 

1Q20

 

 

2Q20

 

Qurate Retail, Inc. Net Income (Loss) (GAAP)

 

$

118

 

 

 

(770

)

 

 

141

 

 

$

(20

)

 

$

220

 

 

Purchase accounting amort., net of deferred tax benefit (a)

 

 

34

 

 

 

32

 

 

 

33

 

 

 

29

 

 

 

24

 

 

Operating company level transaction related costs, net of tax benefit

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

Impairment of intangible assets, net of tax impact

 

 

—

 

 

 

881

 

 

 

113

 

 

 

—

 

 

 

—

 

 

Non-recurring tax items(b)

 

 

(34

)

 

 

—

 

 

 

(11

)

 

 

—

 

 

 

—

 

 

Mark-to-market adjustments, net(c)

 

 

87

 

 

 

34

 

 

 

8

 

 

 

105

 

 

 

(18

)

 

Adjusted Net Income

 

$

206

 

 

$

177

 

 

$

284

 

 

$

114

 

 

$

226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share (GAAP)

 

$

0.28

 

 

$

(1.85

)

 

$

0.34

 

 

$

(0.05

)

 

$

0.53

 

 

Total adjustments per share, net of tax

 

 

0.20

 

 

 

2.27

 

 

 

0.34

 

 

 

0.32

 

 

 

0.01

 

 

Adjusted earnings per share

 

$

0.48

 

 

$

0.42

 

 

$

0.68

 

 

$

0.27

 

 

$

0.54

 

 

a)

Add-back relates to non-cash, non-tax deductible purchase accounting amortization from Qurate Retail’s acquisitions of QVC, HSN, Zulily and Cornerstone, net of book deferred tax benefit.

b)

Includes impact of US tax reform and other one-time tax items.

c)

Add-back includes realized and unrealized gains/losses on financial instruments, net of tax.

QURATE RETAIL, INC.

BALANCE SHEET INFORMATION

(unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2020

 

2019

 

 

 

amounts in millions

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

948

 

673

Trade and other receivables, net

 

 

1,324

 

1,854

Inventory, net

 

 

1,304

 

1,413

Other current assets

 

 

618

 

636

Total current assets

 

 

4,194

 

4,576

Investments in equity securities

 

 

71

 

76

Property and equipment, net

 

 

1,292

 

1,351

Intangible assets not subject to amortization

 

 

9,742

 

9,744

Intangible assets subject to amortization, net

 

 

830

 

955

Other assets, at cost, net of accumulated amortization

 

 

568

 

603

Total assets

 

$

16,697

 

17,305

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

 

936

 

1,091

Accrued liabilities

 

 

1,146

 

1,173

Current portion of debt

 

 

1,452

 

1,557

Other current liabilities

 

 

216

 

180

Total current liabilities

 

 

3,750

 

4,001

Long-term debt

 

 

5,189

 

5,855

Deferred income tax liabilities

 

 

1,746

 

1,716

Other liabilities

 

 

726

 

761

Total liabilities

 

 

11,411

 

12,333

Equity

 

 

5,157

 

4,840

Non-controlling interests in equity of subsidiaries

 

 

129

 

132

Total liabilities and equity

 

$

16,697

 

17,305

QURATE RETAIL, INC.

STATEMENT OF OPERATIONS INFORMATION

(unaudited)

 

 

Three months ended

 

 

June 30,

 

 

2020

 

2019

Revenue:

 

 

 

 

 

Total revenue, net

 

$

3,422

 

 

3,111

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

Cost of retail sales (exclusive of depreciation shown separately below)

 

 

2,217

 

 

1,996

 

Operating expense

 

 

209

 

 

197

 

Selling, general and administrative, including stock-based compensation

 

 

447

 

 

424

 

Depreciation and amortization

 

 

144

 

 

158

 

 

 

 

3,017

 

 

2,775

 

Operating income (loss)

 

 

405

 

 

336

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

 

 

(95

)

 

(93

)

Share of earnings (losses) of affiliates, net

 

 

(28

)

 

(23

)

Realized and unrealized gains (losses) on financial instruments, net

 

 

23

 

 

(113

)

Other, net

 

 

(12

)

 

(7

)

 

 

 

(112

)

 

(236

)

Earnings (loss) before income taxes

 

 

293

 

 

100

 

Income tax benefit (expense)

 

 

(59

)

 

30

 

Net earnings (loss)

 

 

234

 

 

130

 

Less net earnings (loss) attributable to noncontrolling interests

 

 

14

 

 

12

 

Net earnings (loss) attributable to Qurate Retail, Inc. shareholders

 

$

220

 

 

118

 

QURATE RETAIL, INC.

STATEMENT OF CASH FLOWS INFORMATION

(unaudited)

 

Six months ended

 

June 30,

 

2020

2019

 

amounts in millions

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net earnings (loss)

$

225

 

196

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

286

 

311

 

Stock-based compensation

 

27

 

37

 

Share of (earnings) losses of affiliates, net

 

64

 

68

 

Realized and unrealized gains (losses) on financial instruments, net

 

115

 

194

 

Deferred income tax expense (benefit)

 

1

 

(21

)

Other, net

 

4

 

9

 

Changes in operating assets and liabilities

 

 

 

Decrease (increase) in accounts receivable

 

531

 

544

 

Decrease (increase) in inventory

 

108

 

(38

)

Decrease (increase) in prepaid expenses and other assets

 

37

 

62

 

(Decrease) increase in trade accounts payable

 

(152

)

(352

)

(Decrease) increase in accrued and other liabilities

 

(48

)

(417

)

Net cash provided (used) by operating activities

 

1,198

 

593

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Investments in and loans to cost and equity investees

 

(55

)

(76

)

Capital expenditures

 

(108

)

(167

)

Expenditures for television distribution rights

 

(10

)

(124

)

Other investing activities, net

 

7

 

—

 

Net cash provided (used) by investing activities

 

(166

)

(367

)

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Borrowings of debt

 

753

 

1,909

 

Repayments of debt

 

(1,477

)

(1,912

)

Repurchases of Qurate Retail common stock

 

—

 

(296

)

Withholding taxes on net settlements of stock-based compensation

 

(2

)

(8

)

Dividends paid to noncontrolling interest

 

(30

)

(28

)

Other financing activities, net

 

2

 

(25

)

Net cash provided (used) by financing activities

 

(754

)

(360

)

Effect of foreign currency rates on cash, cash equivalents and restricted cash

 

(3

)

1

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

275

 

(133

)

Cash, cash equivalents and restricted cash at beginning of period

 

681

 

660

 

Cash, cash equivalents and restricted cash at end period

$

956

 

527

 

 

Qurate Retail, Inc. 
Courtnee Chun, 720-875-5420

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