Qurate Retail, Inc. (NASDAQ:QRTEA) Q2 2023 Earnings Call Transcript

Qurate Retail, Inc. (NASDAQ:QRTEA) Q2 2023 Earnings Call Transcript August 4, 2023

Qurate Retail, Inc. misses on earnings expectations. Reported EPS is $ EPS, expectations were $0.11.

Operator: Welcome to the Qurate Retail, Inc. 2023 Q2 Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference will be recorded, August 4. I would now like to turn the call over to Shane Kleinstein, Vice President of Investor Relations. Please go ahead.

Shane Kleinstein: Good morning. Before we begin, we’d like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Form 10-K and 10-Q filed by our company and QVC with the SEC. These forward-looking statements speak only as of the date of this call and Qurate Retail expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Qurate Retail’s expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is based.

Please note that we have published slides to accompany this earnings release. On today’s call we will address certain non-GAAP financial measures, including adjusted OIBDA, adjusted OIBDA margin, free cash flow and constant currency. Information regarding the comparable GAAP metrics along with required definitions and reconciliations including preliminary notes in schedules one through three can be found in the earnings press release issued today or our earnings presentation, which are available on our Web site. Today, speaking on the earnings call we have Qurate Retail, President and CEO, David Rawlinson; Qurate Retail Group’s CFO, Bill Wafford; and Qurate Retail Executive Chairman, Greg Maffei. Now, I will hand the call over to David Rawlinson.

David Rawlinson: Thank you, Shane, and good morning, everyone. Thank you for joining us today and for your interest in Qurate Retail. As we’ve discussed, Project Athens is our strategic multiyear framework to transform Qurate Retail, focused on double-digit growth in OIBDA, free cash flow, and stabilized revenue through 2024 off of the 2022 baseline. We are executing on this plan with a focus on cost and margin initiatives in 2023. Our top line results in the second quarter were largely in line with the discretionary retail industry. Consumers are still mindful of their budgets. Inflation remains a factor, particularly in Europe, and now in Japan. And the home industry continues to be quite promotional, which impacted all of our businesses, most notably Cornerstone.

According to the University of Michigan Survey, consumer sentiment in the U.S. declined sequentially in Q2, and remained well below the past decade’s average. This contributed to softened top line results against a difficult retail backdrop, offset by moderation, and our adjusted OIBDA decline and improved cash flow. We progressed on our turnaround plan and delivered four important points within the Athens framework through Q2. First, we increased free cash flow $423 million year-over-year in the first six months of 2023. Approximately half of this increase was from the receipt of insurance proceeds, while the other half was a result of our working capital improvements. Consistent with our communication at Investor Day, last November, this cash flow improvement reflects favorable working capital from inventory reduction efforts and the subsequent benefit to our accounts payable.

As we look to the second-half of 2023, we expect to generate additional gains in adjusted OIBDA from our Athens work streams, which will continue to benefit cash flow. Second, we divested Zulily, in May. One of the pillars of Athens is to optimize our portfolio. Zulily was challenging from a revenue perspective and was a significant contributor to our OIBDA pressure, with a $97 million OIBDA loss in 2022. The divestiture simplifies our portfolio, allows management to focus on our core business, and benefits our ongoing liquidity profile. Zulily is included in our Q2 results through May 23. Third, the rate of adjusted OIBDA decline moderated compared to the first quarter primarily driven by higher gross margins at our video commerce businesses.

QxH saw an increase in gross margin for the first time in 24 months, and QVC International for the first time in 18 months. These gains were mostly from increased initial product margins due to higher average selling prices driven by pricing, and better merchandize mix. We also benefited from lower inventory obsolescence and freight costs because of our inventory reduction and other cost management actions. Fourth, we retired a portion of our near-term QVC debt maturities. We repurchased $177 million or 30% of our outstanding 2024 notes, and $15 million of our 2025 notes. We also settled $94 million in principal amount of exchanges of the Liberty Interactive charter exchangeable debentures. Now, let me discuss each of our businesses, starting with QxH.

I’m pleased to report that we finalized our insurance clam related to the December 2021 fire at our former Rocky Mount, North Carolina fulfillment center. At the end of June, we received $225 million in proceeds primarily related to business interruption, which takes our total insurance proceeds received to $660 million. The fire had a material downstream impact at QxH that has impacted our financial results over the past 18 months. We have worked through many of these pressures. Our order-to-delivery times have improved from pre-Rocky Mount levels, but there is still room to improve our service promise and operating efficiencies given Rocky Mount was our most efficient fulfillment center. From a merchandise perspective, our top line performance indexed to the broader industry, and was affected by the macro factors I mentioned earlier.

Both QxH and other retailers experienced softness from a cold Easter, with the holiday being earlier than in 2022. In addition, QxH inventory was too light in certain areas like apparel and kitchen electrics in Q2. We have bolstered our inventory position across key categories going into the back-half of 2023. At QxH, gross margins expanded 130 basis points in Q2, which was the first quarter of expansion since Q2, 2021. Average selling price increased 5% primarily due to price increases and our elevated product strategy. We continue to act on cost management. QxH reduced its operation’s direct labor force by 8%, in May, which is expected to generate approximately $15 million of savings in the second-half of 2023. This is in addition to the headcount reductions we did in February, which are expected to generate $50 million of savings in 2023.

In addition, we recently signed a new multiyear agreement with our primary domestic small-parcel shipping vendor. The new rate took effect in late July, and based on forecasted volumes, we anticipate significant savings on our delivery and return costs. QxH total customer count declined 13% in the last 12 months, while average spend per customer increased 6% in both the last 12 months, and in Q2. The growth in average spend per customer reflects our efforts to reengage our existing and most loyal customers. While we undergo efforts to attract and retain customers, we are focusing, in the near-term, on levers to increase spend. As shown on slide seven in our presentation, QxH existing customers were a little more than half of our customer base, but accounted for nearly 90% of our shipped sales.

They increased their average spend to more than $1,500, the highest since we formed QxH. At QVC, we defined our best customers as those who purchase 20 or more items in a year. While their count is down, they have largely performed better than the overall customer file in the last 12 months. As we said on our last call, we have many efforts underway to attract, retain, and reactivate customers, especially these best customers. In June, QVC created its Customer Hub, a cross-functional taskforce that comprises the Business President and heads of Merchandise, Programming, Planning, Marketing, and Digital. The team meets weekly to review business performance through the lens of the customer. We completed an in-depth customer segmentation and identified target cohorts across our new, existing, and most loyal customers.

We are conducting pilots for engagement, including making proactive calls to reduce churn, providing samples of beauty products to prospective customers, mailing letters from popular hosts with special offers to emerging loyal customers, and sending timely emails to incent repeat purchases. While early, we believe we are making progress. HSN is taking a similar approach in developing more sophisticated customer analytics to better service customer cohorts with the right product and offer. Innovative and differentiated content continue to be hallmarks of our QVC and HSN brands. At QVC, we debuted Sizzling Summer, with hosts Rick Domeier, and Shawn Killinger, a six-week series, airing on Thursday nights, that drove increased productivity and viewership trends.

We are planning a fall version that launches this month. We also launched, In the Afternoon with David, a five-week series designed to leverage the strength of our popular host, David Venable. Given the success of both, we are creating more limited series to drive excitement, urgency, and sales. At HSN, we collaborated with Wheel of Fortune on a weeklong shopping spree that included apparel, accessories, and games, broadcast on HSN, HSN.com, and HSN+. Vanna White wore HSN vendor Christian Siriano’s dress and select HSN Signature programs were featured as Wheel of Fortune puzzles. HSN posted its best week of 2023 during this collaboration. We continue to advance our strategic initiative to expand reach across new media and digital platforms.

In the second quarter, we initiated our streaming experience as QVC+, and HSN+ on VIZIO smart TVs, combining the five QVC and HSN linear broadcast channels with three digital-only channels and original streaming-only content. We also launched QVC and HSN linear channels on Amazon’s Freevee, offering approximately 40 hours a day of live video commerce programming. We are bringing our first FAST channel to Freevee, called, The Big Dish, which will provide more focused experiences for culinary fans. Moving to QVC International, in Q2, we saw gross margin expansion for the first time since Q2 2021, driven by improved initial product margins that reflect a 5% increase in average selling price and improved product mix. QVC International is implementing a transformation plan, similar to Athens, that is anticipated to generate approximately $45 million to $55 million of run rate OIBDA saving, by Q1 2025.

One piece of this effort is a workforce reduction in Europe that recently took affect. We expect this will create $9 million of run rate saving, of which $3 million is anticipated to benefit 2023. Additionally, the transformation plan is focused on optimizing the organizational structure, driving margin opportunity, and improving our current broadcast and content strategies. QVC, U.K., launched the integrated experience in April. This scalable initiative aims to turn QVC International into the ultimate shopping destination for specific categories with the U.K.’s initial focus on gardening. This launch demonstrates our content creating capabilities across platforms and early signs have been encouraging. In July, QVC, Germany began its version of integrated experience with a concentration of kitchen and food.

Moving to Cornerstone, the overall home sector remains highly promotional and demand for most home categories was soft. We also incurred increased fulfillment cost related to opening a new fulfillment center in Arizona and fixed cost related to opening new retail stores in the past year. While the rate of OIBDA decline moderated compared with Q1, it was below our expectations. The Arizona fulfillment center opened in June. So, we are no longer incurring the startup and duplicate fulfillment center cost. Like our video commerce business, Cornerstone is diligently managing cost. In Q2, it eliminated 100 positions which is expected to drive $10 million in annual savings. Of which, $4.5 million is anticipated to benefit 2023. In closing, I want to reiterate our Project Athens expectations for stable revenue in a double digit CAGR for OBIDA and free cash flow through 2024 compared to a 2022 base year.

Our 2023 initiatives are primarily cost driven and weighted towards the back-half of the year, reaching run rate in 2024. We do not anticipate incurring the same level of cost for outside services in 2024. We also expect more revenue driven opportunities in 2024. We are on-track with these expectations. Thank you. And now, I’ll turn the call to Bill to discuss the financial results of each business in more detail.

Bill Wafford: Thank you, David, and good morning, everyone. Unless otherwise noted, my comments compare financial performance for the three months ended June 30, 2023 to the same period in 2022. Starting with QxH. Revenue declined 8% primarily on lower unit volume, reflecting fewer customers and reduced shipping and handling revenue. These pressures were partially offset by a 5% growth in average selling price resulting from price increases and an elevated product assortment. From a category perspective, QxH experienced declines in home, electronics, accessories, and apparel. Partially offset by growth in beauty. As David said, QVC U.S. inventory was light in certain categories such as apparel and kitchen electrics. Home revenue declined 11% as we experienced lower demand largely for cookware and seasonal.

These headwinds were partially offset by continued growth in food. Apparel was down 4% which was modestly lower than in Q1. In Q2, we experienced softness in classic apparel and swimwear, partially offset by strength in denim and dresses. As I mentioned, we were also light on apparel inventory which impacted category performance. Beauty grew 4% which is the first quarter of growth since Q4 ’21. This performance was mainly due to gains in bath and body and colors and nails. At QVC, beauty’s rebound was driven by TSVs as well as the successful digital sales event in May. Electronics revenue declined 27%, in part due to category softness in the market. We continue to strategically pull back on electronics airtime as we focused on higher margin fashion categories where our best customers over-index.

We were pleased to complete our insurance claim from the Rocky Mount Fire. In late June, we received $225 million of proceeds which is included in QxH operating income, but excluded from adjusted OBIDA. As we have said previously, we intend to use access cash flow and insurance proceeds to reduce debt. In July, we used proceeds from the claim to pay down a portion of the QVC revolver. Adjusted OBIDA declined $47 million or 20%. Of which, $20 million is Athens’ transformation related cost and $12 million is rent expense from the sale leaseback transactions for our fulfillment centers and headquarters completed in 2022. We lapped the incremental rent expense headwind after Q2 and expect the transformation related cost to tapper down in the back-half of the year.

While adjusted OBIDA margin decreased 180 basis points, it was a significant improvement from the 480 basis points decline in Q1. Looking at the second quarter performance in more detail, gross profit grew 130 basis points, mainly due to favorable product margins, fulfillment and inventory obsolescence expense. Product margins increased 70 basis points driven by price increases and a mix shift to higher margin products. These gains were partially offset by unfavorable returns and reduced shipping and handling revenue due to lower volume. Fulfillment expenses improved 35 basis points due to lower freight cost reflecting less detention and demurrage costs and lower volume. These gains were partially offset by higher freight and labor rates and approximately $8 million of fulfillment center rent.

Inventory obsolescence favorability was a result of a 37% year-over-year inventory reduction at QxH. Operating expenses were unfavorable by approximately 50 basis points due to commissions which is mostly reflected in expanded linear distribution. SG&A was unfavorable by approximately 270 basis points. Majority of the pressure is from transformation related costs associated with Project Athens. In addition, we had 65 basis points of sales deleverage. Marketing expense is essentially flat, but de-levered 25 basis points. These headwinds were partially offset by lower bad debt expense reflecting provisional adjustments and lower installment counts. Moving to QVC International, my comments will focus on constant currency results. Revenue declined 3%, primarily on lower unit volume and reduced shipping and handling revenue.

QVC Japan and U.K. were essentially flat and were offset by declines in Germany and Italy. QVC International increased average selling price 5% due to price increases and favorable product mix. From a category perspective QVC International experienced declines in electronics, jewelry, and apparel. Beauty grew modestly. And home was flat. Adjusted OIBDA decreased 15%. And adjusted OIBDA margin declined 220 basis points, primarily driven by higher administrative costs. Gross margin increased 60 basis points, mainly due to improved product margins and lower inventory obsolescence. Fulfillment was unfavorable 35 basis points, primarily due to a $4 million of rent from the sale leaseback transactions in January and increased labor cost. SG&A was unfavorable mostly due to higher fixed costs from wages, outside services, and management incentives accruals.

As David mentioned, QVC International has implemented workforce reductions and is executing a transformation plan that is expected to regenerate material OBIDA opportunities by Q1 of ’25. Moving to Cornerstone, revenue declined 7% in the quarter, which is a moderation in the rate of decline from Q1. The broader home industry remained highly promotional in the second quarter, requiring Cornerstone to offer promotions to stay competitive. We experienced softness in most home categories as well as in apparel at Garnet Hill. Adjusted OIBDA decreased $19 million, mainly due to increased promotional activity, higher fulfillment expenses associated with the opening of its new fulfillment center in June as well as higher fixed cost overhead, reflecting the opening of three new stores in the past year.

Expanding Cornerstone’s retail footprint has been successful, and we plan to open three additional retail stores by early 2024 and will bring the total to 32 stores. These headwinds were partially offset by lower inbound logistics costs. Now turning to the balance sheet, all year-to-date capital expenditures were $105 million. For all of 2023, we continue to expect capital expenditures to be approximately $260 million. We spent $107 million on renewals of our TV distribution contracts in the first-half of 2023. Our TV distribution payments can fluctuate year over year depending on renewal cycles, but we expect the two-year average to be approximately $100 million. We have covered the majority of our 2023 payments already through June. Total free cash flow for the first six months of 2023 was a source of $286 million versus a use of $137 million last year.

The year-over-year improvement was primarily attributable to increased cash flow from operations, partially offset by higher TV distribution payments. The operating cash flow increase was largely driven by working capital improvements from inventory and payables, as well as insurance proceeds. In the second-half of the year, we anticipate generating additional year-over-year OIBDA gains which will continue to benefit cash flow. Looking at our debt profile, on June 30, we had $1.4 billion drawn on a QVC revolver, with $1.8 billion in available capacity. Looking at our cash balances, as of June 30, 2023, Qurate Retail had total cash of $1.5 billion, of which $649 million was at QVC Inc., $442 million was the Liberty Interactive LLC, and $358 million was at Qurate Retailing.

We reduced debt at Qurate Retailing by $201 million in the second quarter, while we increased cash $197 million. Our leverage ratio as defined by the QVC revolving credit facility was 2.3 times. As a reminder, pursuant to Zulily’s divestiture, it is no longer a co-borrower under the credit facility. Zulily repaid its $80 million of outstanding borrowings in the quarter using cash contributed by Qurate Retail. The removal of Zulily will benefit liquidity and leverage going forward. Note that covenant OIBDA includes the adjusted OIBDA of QVC and Cornerstone, as well as the gains on sales leaseback transactions for the four quarters following such transactions, and as of the beginning of this year, also includes a portion of the next 12 months of expected cost savings.

During Q2, we repurchased $177 million of the QVC Senior Secured Notes, due in 2024, and $15 million of the QVC Senior Secured Notes, due in 2025. We made open-market purchases at a discount, totaling $182 million of cash spent. We took action throughout 2022 and 2023 to create liquidity and position ourselves to execute Project Athens. We are making significant progress towards improving OIBDA and cash flow, and feel confident in delivering OIBDA growth in the balance of the year. With that, I’ll turn the call over to Greg.

Greg Maffei: Thank you, Bill. I hope, as you can see, Athens’ initiatives are benefiting the financial results, and we believe there is more to come. We saw improvements in cash flow year-over-year, largely though due to working capital benefits plus insurance proceeds. But as OIBDA losses moderate consistent with the plan David and team outlined, we expect more OIBDA-related operating cash flow in the second-half. We did divest Zulily, which we think will benefit future liquidity and focus management on our core operations. We do continue to assess incremental opportunities to improve the balance sheet. As was noted, we repaid $192 million of near-term QVC bonds, at 95% of par picking ups in discount there. We settled $94 million of exchanges on the one-and-three-quarter charter bonds.

These bonds have an October ’23 put call date, which pull the — exchange was pulled forward in this timing when we settled those recent exchanges. We have $77 million of prints remaining on those, including a $2 million additional exchange which was done subsequent to quarter-end. As was noted, we closed out our insurance claims on our warehouse fire with the $225 million final payment, received in June, and that was applied to our revolver paid out, in July. Our current leverage is running 2.3 times, and that’s a sufficient cushion relative to the 4.5 times covenant revolver. We do expect to maintain long-term leverage of 2.5 times. And in the near-term, we expect free cash flow will be applied to debt repayment. And with that, operator, I’d like to open up for questions.

Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Hale Holden with Barclays. Please proceed with your question.

Hale Holden: Hi, good morning. I had two questions. The first one is, I guess you alluded to it in your final comments there. But as you’re thinking about the back-half or a typical seasonal fourth quarter, there isn’t any reason to expect that you shouldn’t have a more normalized margin and free cash flow profile dropdown this year, like we would have seen historically?

David Rawlinson: Yes, it’s David. Thank you for the question. Yes, we think you’ve seen some of the gross margin and cost [to work] (ph). And obviously, the fourth quarter last year was relatively exceptional, both because of downstream supply chain impact and because we were working through a fair amount of inventory reduction efforts through clearance. And so, we had some, I would call them, extraordinary margin headwinds in the fourth quarter of last year that we don’t expect to repeat. So, we do think there is some margin opportunity as we go through the second-half.

Hale Holden: Great. And the second question I had was, on some of the recent weakness in Japan, I was just hoping maybe if you could give us some puts and takes there in terms of what we should be thinking about and how that business performs in QVC International generically?

David Rawlinson: Yes, we’ve seen some elevated inflation in Japan that’s come a little bit later than it has for the rest. We’ve had some merchandizing hits and misses that have been perhaps as little consistent than we’ve seen previously. But we’re mostly continuing to see strength in that business, and we don’t see any reason, going forward, while we should have — be off the long-term trend in terms of the strong performance of the Japanese business. And nothing structural or underlying that’s very concerning there. And that’s historically been one of our strongest performers.

Hale Holden: Thank you, David, I appreciate it.

Operator: Our next question comes from the line of Jason Haas with Bank of America. Please proceed with your question.

Jason Haas: Hey, good morning, and thanks for taking my questions. I was curious, David, if you could talk about what pressures continue to weigh on customer count, and when you see that improving?

David Rawlinson: Yes, thank you. So, a few things, the first is, we reiterate Athens’ objectives today. There’s nothing I see happening in our customer file that would preclude that. Just a reminder and I know you know this, Jason, the last 12-month data that we report both reflect slower quality customers who came in during the pandemic who were still falling out of the file. The other thing is that it still hasn’t, and a lot of the Rocky Mount buyer impact where, I think, we frankly didn’t have the capacity to serve some of our customers the way they deserve. What we have seen is a stabilization in the average daily customer counts, which is what we spend most of our time looking at, how many purchasing customers do we have every day.

And that’s actually been pretty stable as we’ve gone throughout this year. One way to start to see that in the reported figures is I think if you look at the last quarter versus this quarter, we’re just down low-single digits from Q1 to Q2. So, you are starting to see very real stabilization in the customer count as we reset, having shed some of the excess pandemic customers. I would also tell you that 35% to 40% of our new customers we acquire in the fourth quarter. So, we’re putting a lot of effort into what the fourth quarter will look at. And then finally, just a reminder about the way our customer file works, right. Our existing customers are half of the count in 90% of the sales. So, how they perform matters a lot more than the total aggregate customer file.

And when you look at our existing customers, they’ve continued to be extraordinarily strong. Their average spend was up to more than $1,500. That’s the best since QxH was formed, in 2018. They increased their average spend 6% in the last trailing 12 months, ending June 30. And, in Q2, our retention rate for our existing customers was 87%, so still extraordinarily strong, one of the strongest numbers you can find in retail. And then if you double-click on our existing customers, what we call our best customers at QVC. So, our best customer is somebody who purchases more than 20 times a year. Our best customers are about 18% of our account, and about 75% of our sales. And when you look at the best customers, our retention rate with them is in the high — is in the 90s, if you count them in our total file, it’s in the very high 90s, and their spend has continued to grow as well.

So, we’re doing a lot to concentrate on our existing customers and our best customers, and we think that gives us, in addition to the sequential moderation you’re seeing in the customer file, we think that the strength with those customers gives us a lot of the strength we need as we seek to deliver the second-half of 2023, and as we go through 2024. Finally, just on new, I mentioned a little bit of this in my prepared remarks, but we have a lot of efforts going, again, how we attract new customers. Our streaming service is continuing to grow. We’ve seen some good results from new streaming episodes and new streaming programs are bringing in some new customers. We formed the customer hub at QVC. That hub is focusing on 17 different, focused customer segments prioritized in the seven different groups by new existing and our most loyal customers.

We’re doing proactive calls out to customers who we’ve seen churn. We’re sending letters from hosts with special offers. So, we have an all-hands-on-deck full-scale effort going against our customer file in the second-half. And like I said, I think you can already start to see some of that working if you just look sequentially at the customer file.

Jason Haas: That’s great, thank you. And can you talk about the relative performance of HSN versus QVC?

David Rawlinson: Yes, so HSN, I would say, is if you — you really have to start the story going back to last year. We started with the inventory efforts. HSN was a much bigger part of that effort than QVC on a percentage basis. And so, that business has had the more significant swings, both in terms of clearance and margin, and in terms of inventory, and getting the right inventory for the right time. And so, I would say, they lagged QVC. We’ve had some real inventory and merchandise improvements at QVC in the first-half. I think HSN is on a similar path, but tracking a little bit behind because it took them a little bit longer to get clean on inventory, and so to bring in new inventory. And so, we’re expecting HSN to have stronger performance in the back-half, both on a margin perspective but also on a sales perspective as we get to the type of merchandise we want.

The other thing that’s been true about HSN is we’ve seen bigger positive variation when we do large events. I talked about Wheel of Fortune event, we had a Foodies Fest event, we’ve had some nice celebrity collaboration, Lionel Richie, Debbie Gibson, that we’re going to continue in the second-half. So, we actually feel pretty good. Though it’s been a bit weaker than QVC in the first-half, we actually feel pretty good about the momentum going into the second-half of HSN.

Jason Haas: Great to hear. Thank you.

Operator: Our next question comes from the line of Carla Casella with JPMorgan. Please proceed with your question.

Carla Casella: Hi, thank you. So, cash at Liberty Interactive moved up about $67 million in this quarter. Is that from the Zulily sale or was it some other source of cash at that entity?

Bill Wafford: That was from the sale of our stake in Comscore.

Carla Casella: Okay. And then, it sounds like this is the final insurance payment, is that correct?

David Rawlinson: Correct.

Carla Casella: Okay. And then you mentioned you’d use some proceeds after quarter-end to pay down the revolver. Can you give us how much that was, and let us know if you bought back any bonds after the quarter-end?

David Rawlinson: It was immaterial, Carla.

Carla Casella: Okay.

Greg Maffei: Well, Bill, I’ll let you answer on the revolver, but it was the insurance claim proceeds that were applied to the revolver pay-down, Carla.

Carla Casella: Okay, but was it — did you all of the proceeds?

David Rawlinson: No, we paid the revolver down by; I think it was, in the $177 million range.

Carla Casella: Okay, that’s great. And then there was some comment about the — well, on the media rights spend, there was comment about one, I guess, right or agreement that you exited. Can you just give us any more color on that proceeds and/or why exit is the way you think about that media rights changing?

Bill Wafford: Can you say that again, Carla?

Carla Casella: I thought I heard comments about there was a media — in your discussion in the media rights, there was one contract, it sounded like you exited and took into proceeds from. Did I misunderstand that? And just wondering if there’s any change in how you think about the media business just given the increased move to online spending or online consumer spending?

David Rawlinson: Yes, I’m not exactly sure what you’re referring to. Maybe we can clarify if you send us a note. Our basic go-to-market on the media rights side hasn’t change substantially. Our commission structure remains the same. There is some variability now that streaming is becoming a bigger part of that. And we have some variability in the go-to-market now that ecommerce remains a big part of our go-to-market. And so, we have digital marking spend variations, but no big changes to structurally our commission structure with our carriers, and that sort of thing.

Carla Casella: Okay, great. That’s actually what I was looking for, and my question was very poorly worded. Just one last one, international and the domestic, seems to be a lot of similarities between the business, I’m just wondering how intertwined each of your international businesses are? Do you do all of your programming in each market or are they — do you use a lot of the shared resources between the U.S. and international markets?

David Rawlinson: Yes, thank you for that. I’d say it’s a mixture. So, we’re doing a lot more with how we understand our programming, how we understand our pricing, how we view things like product strategy. Obviously, in the context of Project Athens, we’ve built substantial amounts of new analytical capability across all of those. And so, we have multiple ways of sharing, learning, both across QVC and HSN in the U.S., and with all of the international businesses. And so, that’s why you’ve seen, I think, some things like gross margins going up and basic concert average sale price going up, and basic concert. Each market has a number of things that make it differentiated. And so, most of the day-to-day operating decisions are made closer to the customer within the market, while we continue on the big structural strategic choices and moves to operate across to make sure we’re getting scale across the full franchise, and we’re getting best practices spread throughout all of the markets.

Only other thing I would say is, one thing we’re started doing a lot more of that I think has proven effective, is using some of the smaller market as a test bed, AI is a good example of where we’re doing that. And then, as we see success and as we perfect whatever the new disciple is, then scaling that back across the U.S. And so, that’s been the other way we’ve tried to use some of the international markets, especially the U.K.

Carla Casella: Great, thank you very much.

Operator: Our next question comes from the line of William Reuter with Bank of America. Please proceed with your question.

William Reuter: Good morning. The first is you did some bond repurchases during the quarter. You mentioned opportunities for the balance sheet. Do you expect that you’ll continue to complete open-market repurchases of those? Do you have hopes of refinancing those if financial results improve? What are your thoughts for the 2024s?

David Rawlinson: Ben, do you want to answer that?

Ben Oren: Yes, sure. It’s Ben Oren. I think we’ll be consistent with what we’ve said in the past which is that we expect to handle those with some mixture of free cash flow and revolver. And as we kind of move forward into 2024, see where rates are and where funding costs are. At this time, we’ve got very attractive coupons. And so to the extent of cash, can handle those maturities or revolver draw which is our best funding source. We are going to lean towards that. And then, turn around when things get better.

William Reuter: Great. And then, there is clearly some pretty massive diversions of category performance. I guess can you talk a little bit about your lead times and your ability to shift your inventory mix to areas like beauty that are doing better? And away from categories like home that are suffering right now?

David Rawlinson: Yes. Thank you. It’s a great question. General lead times in this business, they are six to nine months. I think we are — in some categories we are able to do a bit better than that. I think the good thing about where we are going into the second-half is we’ve actually — the larger trends are not a surprise. So, beauty has been relatively strong in the broader market all of this year. And so, we’ve been able to see that as it’s developed likewise electronics has been relatively weaker as we’ve gone through this year. So, while there is variability, it’s not — at this point, it’s not unpredictable variability. And differentiation, I think we’ve seen relative stability in how the categories have performed relative to each other.

And so, we think we have a fair amount of insight going into the second-half about what’s happening in the broader market. The one other thing I would say is that you probably can’t pick up one just by looking at the category performance. There is actually much more variation going in within categories or across categories. So, far as what we are seeing is a trade down to necessities where people care a lot about price. But then, a trade up if people still really want things. It’s the hollowing out of the middle within categories. The sort of barbell effect that’s probably been the most notable thing we’ve seen as we’ve gone throughout the first-half.

William Reuter: All right. And then, just lastly for me, David, you gave some helpful commentary on stabilization of customers and those COVID cohorts starting to roll off. I guess you also talked a little bit about what you are doing in terms of new customer acquisition. Do you expect that we will at a — is there a date when you believe maybe we will see an increase in the number of actively engaged customers? Do you think that by the end of the year, we could actually see growth?

David Rawlinson: Yes. It’s a good question. I would certainly expect to see moderation over the next quarter or two on the type of [designs] (ph), you are seeing in the 12 months. It makes it little bit hard to get you full detail in the full 12-month trailing because things just have to cycle through. I would say what we have seen is real ability to move the needle across specific initiatives with new customers. Some of those are still relatively small. And so, we are just beginning to scale some of them. But there is no reason to believe based on the data we are seeing and the reaction we are having to some of our early initiative that we can’t eventually get to new customer growth. I think in all brands but especially in the QVC and HSN, U.S. brands.

William Reuter: Great. That’s all from me. Thank you.

Shane Kleinstein: All right, operator, I think we are done with those questions. Thank you investors for your interest in Qurate, and we look forward to speaking with you next quarter if not sooner.

Greg Maffei: Excellent.

David Rawlinson: Thank you.

Bill Wafford: Thank you, everyone.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.