Liberty Interactive Corporation Reports Second Quarter 2013 Financial Results

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- Liberty Interactive Corporation (“Liberty”) (Nasdaq: LINTA, LINTB, LVNTA, LVNTB) today reported second quarter 2013 results. Highlights include⁽¹⁾:

Attributed to Liberty Interactive Group

• Grew QVC US revenue by 3% and adjusted OIBDA by 2%
  • QVC US operating income decreased by 3%
  • QVC.com revenue as a percent of total US revenue increased to 42%, a 3 point increase
  • QVC US mobile penetration was 28% of QVC.com orders
• eCommerce group grew revenue by 12% and adjusted OIBDA by 13%
  • Operating income decreased by 100%
• Repurchased $220 million of LINTA shares from May 1 to July 31

Attributed to Liberty Ventures Group

• TripAdvisor posted strong Q2 results
• Liberty Ventures stock posted new all-time high of $94.86 on July 25

“QVC posted solid results in the US, while the international markets proved more challenging and were negatively impacted by the currency fluctuations in Japan and the UK. Our eCommerce companies built on their strong Q1 performance with continued revenue and adjusted OIBDA growth in Q2,” stated Greg Maffei, Liberty President and CEO. “We repurchased $220 million of Liberty Interactive stock from May 1 to July 31, and $551 million year to date. Attributable to Liberty Ventures, TripAdvisor posted strong results as they successfully rolled out their hotel metasearch display.”

LIBERTY INTERACTIVE GROUP - Liberty Interactive Group's revenue increased 1% to $2.4 billion in the second quarter, adjusted OIBDA was relatively flat at $455 million and operating income decreased 8% to $268 million. The increase in revenue was due to favorable results at the eCommerce companies driven by increased marketing efforts driving additional traffic, greater conversion resulting from investments in site optimization, increased shipping charges, and broader inventory offerings.

QVC

QVC's consolidated net revenue decreased 1% in the second quarter to $2.0 billion. During the same period, adjusted OIBDA decreased 1% to $434 million and operating income decreased 5% to $285 million. On a constant currency basis, consolidated net revenue increased 2% and adjusted OIBDA grew 2% in the second quarter as US denominated results were negatively impacted by exchange rate fluctuations, primarily the strengthening of the US Dollar against the Japanese Yen which decreased 19%.

“Second quarter results showed growth in new customers and continued strength in our digital platforms, despite a cautious consumer spending environment,” said Mike George, QVC President and CEO. “eCommerce has grown to represent 37% of QVC's global revenues, and of that, 30% of our eCommerce orders are from mobile devices. QVC has grown to become one of the world's largest mobile commerce retailers, which is the result of how we're working to change the way the world shops by reimagining shopping, entertainment and social as one.”

QVC's US revenue increased 3% to $1.3 billion in the second quarter primarily as a result of strength in the beauty and home categories. Average selling price per unit (“ASP”) increased 3% from $54.84 to $56.39, while units sold declined 1% compared to the prior year second quarter. Returns as a percent of gross product revenue improved 72 basis points due primarily to changes in prior period estimates based on actual experience. In the same period, QVC US's eCommerce revenue increased 10% to $550 million and grew to 42% from 39% as a percentage of total QVC US net revenue. Adjusted OIBDA increased 2% to $320 million and adjusted OIBDA margin⁽²⁾ decreased 22 basis points in the second quarter. Adjusted OIBDA margin decreased primarily due to higher inventory obsolescence and personnel costs as well as lower credit card income. These unfavorable drivers were partially offset by improved product margins.

QVC's international revenue in US Dollars decreased 6% in the second quarter to $649 million. The second quarter results included the negative impact of the strengthening of the US Dollar against the Japanese Yen, and to a lesser extent, the UK Pound Sterling, which were somewhat offset by the weakening of the US Dollar against the Euro. Adjusted OIBDA decreased 7% to $114 million and adjusted OIBDA margin decreased 15 basis points in the second quarter. In constant currency, QVC's international revenue and adjusted OIBDA increased 2% and 4%, respectively.

QVC Japan's revenue grew 3% in local currency in the second quarter primarily due to growth in apparel. QVC Japan's ASP in local currency decreased 3%, but units sold increased 9% in the second quarter. QVC Japan's second quarter returns as a percent of gross product revenue in local currency increased 160 basis points due primarily to the increased apparel mix that returns at a higher rate as well as higher return rates in accessories, apparel and jewelry. QVC Japan's adjusted OIBDA in local currency increased 1% and adjusted OIBDA margin decreased 66 basis points in the second quarter. The decrease in adjusted OIBDA margin was primarily due to lower product margins driven, in part by, additional anniversary promotional offerings; a cost step up in one of the TV carriage contracts; and higher operating costs associated with the new headquarters.

In US Dollars, QVC Japan's revenue and adjusted OIBDA decreased 16% and 19%, respectively. The decrease in revenue and adjusted OIBDA during the quarter was driven by a 19% decline in the Japanese Yen which created significant pressure on US Dollar denominated results.

QVC Germany's revenue decreased 3% in local currency in the second quarter. QVC Germany's ASP in local currency remained flat, while units sold increased 5% in the second quarter. The increase in units sold was primarily due to growth in apparel and accessories. This was more than offset by QVC Germany's second quarter return rate as a percent of gross product revenue in local currency that increased 524 basis points from the prior year due primarily to changes in prior period estimates based on actual experience, the greater mix of apparel that returns at a higher rate as well as higher returns in almost all categories. QVC Germany's adjusted OIBDA in local currency decreased 14% and adjusted OIBDA margin decreased 166 basis points for the second quarter. Adjusted OIBDA margin decreased primarily due to higher inventory obsolescence, higher freight costs due to the greater returns processing and higher personnel costs. These unfavorable drivers were partially offset by higher product margins primarily as a result of the increased mix of apparel.

QVC UK's revenue grew 2% in local currency in the second quarter primarily due to sales in the home and beauty categories. QVC UK's ASP in local currency increased 5%, while units sold decreased 3% in the second quarter. QVC UK's second quarter return rate as a percent of gross product revenue in local currency decreased 34 basis points primarily due to the increase in the beauty and home product mix that typically return at lower rates. UK's adjusted OIBDA in local currency increased 29% and adjusted OIBDA margin increased 353 basis points in the second quarter. The increase in adjusted OIBDA margin was primarily due to lease cancellation costs and duplicate overhead costs that were incurred in the prior year related to the move to the UK's new headquarters and improved product margins.

QVC Italy's revenue increased 59% in local currency in the second quarter. QVC Italy's sales were primarily from the cooking and dining, beauty and apparel product categories. QVC Italy's ASP in local currency decreased 2%, but units sold increased 64% in the second quarter. In the same period, the adjusted OIBDA deficit in local currency improved by 51%.

CNR Home Shopping Co., Ltd. ("CNRS"), QVC's joint venture in China, experienced a revenue increase of 42% in local currency in the second quarter. In the same period, CNRS' adjusted OIBDA deficit improved by 9%. This joint venture is being accounted for as an equity method investment.

QVC's outstanding bank and bond debt was $3.8 billion at June 30, 2013, an increase of $406 million since December 31, 2012. On April 17, 2013, QVC completed the redemption of the remaining $376 million principal amount of its 7.125% Senior Secured Notes due 2017, fully retiring these notes.

eCommerce Businesses

In the aggregate, Liberty Interactive Group's eCommerce businesses increased revenue 12% to $439 million for the second quarter. Adjusted OIBDA increased 13% to $26 million and operating income decreased 100% to a loss of $2 million. The increase in revenue and adjusted OIBDA were the result of increased marketing efforts driving additional traffic, greater conversion resulting in site optimization, increased shipping charges, and broader inventory offerings partially offset by the shift in the Easter holiday falling during the first quarter of 2013 (which typically is a second quarter holiday). The decrease in operating income was due to greater amortization and depreciation and stock compensation expense during the quarter.

Share Repurchases

From May 1, 2013 through July 31, 2013, Liberty repurchased approximately 9.6 million Series A Liberty Interactive shares (Nasdaq: LINTA) at an average cost per share of $22.77 for total cash consideration of $219.6 million. Since the creation of the Liberty Interactive stock in May 2006, Liberty has repurchased approximately 206.5 million shares at an average cost per share of $19.33 for aggregate cash consideration of $4.0 billion. These repurchases represent approximately 29.4% of the shares outstanding at the time of creation of the Liberty Interactive stock. All repurchases up to August 9, 2012, the date on which the Liberty Interactive stock was recapitalized to create the Liberty Ventures stock, were comprised of shares of the combined stocks. The total remaining repurchase authorization for Liberty Interactive Group stock is approximately $704 million.

Liberty Interactive Group holds controlling interests in companies that are engaged in digital commerce, including QVC, Provide Commerce, Backcountry.com, Bodybuilding.com, Celebrate Interactive, CommerceHub, and also owns an interest in HSN.

LIBERTY VENTURES GROUP - As of June 30, 2013, the fair value of the equity method securities and AFS securities attributed to the Liberty Ventures Group was $1,767 million and $917 million, respectively. When compared to March 31, 2013, the fair value of Liberty Ventures Group's equity method securities decreased 2%. The Liberty Ventures Group's AFS securities balance decreased 52% primarily due to sales of certain AFS securities during the second quarter. Total outstanding principal of debt attributed to Liberty Ventures Group decreased by $285 million as a result of debt repayments in excess of borrowings.

Share Repurchases

There were no repurchases of Liberty Ventures Group stock (Nasdaq: LVNTA) from May 1, 2013 through July 31, 2013. The Liberty Ventures Group does not have an outstanding stock repurchase authorization at this time.

The businesses and assets attributed to the Liberty Ventures Group are all of Liberty's businesses and assets other than those attributed to the Liberty Interactive Group and include its subsidiary TripAdvisor, its interest in Expedia, and minority interests in Time Warner and Time Warner Cable. TripAdvisor is a separate publicly traded company and additional information about TripAdvisor can be obtained through its website and filings with the Securities and Exchange Commission.

FOOTNOTES

NOTES

Unless otherwise noted, the foregoing discussion compares financial information for the three months ended June 30, 2013 to the same period in 2012.

The following financial information with respect to Liberty's equity affiliates and available for sale securities is intended to supplement Liberty's consolidated statements of operations which are included in its Form 10-Q.

Cash and Debt

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

Total cash and liquid investments attributed to the Liberty Interactive Group remained relatively flat during the second quarter. Cash flows from operations were offset by capital expenditures and stock repurchases. Total debt attributed to the Liberty Interactive Group increased by $53 million, primarily due to debt restructuring during the quarter, resulting in increased borrowings on the QVC bank credit facility, partially offset by repayments on QVC senior notes and debentures and repayment of the 5.7% senior notes held by Liberty Interactive.

Total cash and liquid investments attributed to the Liberty Ventures Group increased $85 million, primarily due to cash proceeds from dispositions, debt issued during the quarter and tax payments from Liberty Interactive Group. These cash inflows were partially offset by debt repayments and stock repurchases during the quarter. Included in the second quarter total cash and liquid investments attributed to the Liberty Ventures Group is $616 million held at TripAdvisor, which is comprised of $200 million of cash, $196 million of short-term marketable securities and $220 million of long-term marketable securities. Although TripAdvisor is a consolidated subsidiary, they are a separate public company with a significant noncontrolling interest, therefore Liberty may not have ready access to those cash and liquid investments. Total debt outstanding attributed to the Liberty Ventures Group decreased by $285 million from the first quarter to the second quarter, primarily due to repayments made on senior exchangeable debentures.

Important Notice: Liberty (Nasdaq: LINTA, LINTB, LVNTA, LVNTB) President and CEO, Greg Maffei will discuss Liberty's earnings release in a conference call which will begin at 1:00 p.m. (ET) on August 6, 2013. The call can be accessed by dialing (888) 312-3051 or (719) 785-1748 at least 10 minutes prior to the start time. Replays of the conference call can be accessed until 1:00 p.m. (ET) on August 13, 2013, by dialing (888) 203-1112 or (719) 457-0820 plus the passcode 9911968. 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 will also be available on Liberty'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, expansion of QVC's international operations, new service and product offerings, QVC’s mobile commerce platform, QVC's social media platform, interface upgrades at TripAdvisor, the continuation of our stock repurchase program, 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 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.

SUPPLEMENTAL INFORMATION

As a supplement to Liberty's consolidated statements of operations, which are included in its Form 10-Q, the following is a presentation of quarterly information and operating metrics on a stand-alone basis for the largest business owned by Liberty (QVC) at June 30, 2013, which Liberty has identified as a reportable segment.

Please see below for the definition of adjusted OIBDA and a discussion of why management believes the presentation of adjusted OIBDA for QVC provides useful information for investors. Schedule 2 to this press release provides a reconciliation of adjusted OIBDA for each identified reportable segment to that segment's operating income for the same period, as determined under GAAP.

QUARTERLY SUMMARY

NON-GAAP FINANCIAL MEASURES

This press release includes a presentation of adjusted OIBDA, which is a non-GAAP financial measure, for Liberty, QVC (and certain of its subsidiaries), and the eCommerce businesses together with a reconciliation to that entity's operating income, as determined under GAAP. Liberty 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 defines adjusted OIBDA margin as adjusted OIBDA divided by revenue.

Liberty 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 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's management considers in assessing the results of operations and performance of its assets. Please see the attached schedules for applicable reconciliations.

SCHEDULE 1

The following table provides a reconciliation of Liberty Interactive Group's adjusted OIBDA to its operating income calculated in accordance with GAAP for the three months ended June 30, 2012, September 30, 2012, December 31, 2012, March 31, 2013 and June 30, 2013, respectively.

QUARTERLY SUMMARY

SCHEDULE 2

The following table provides a reconciliation of adjusted OIBDA for QVC (and certain of its subsidiaries) and the eCommerce businesses to that entity or such businesses' operating income (loss) calculated in accordance with GAAP for the three months ended June 30, 2012, September 30, 2012, December 31, 2012, March 31, 2013 and June 30, 2013, respectively.

QUARTERLY SUMMARY

Liberty Interactive Corporation
Courtnee Ulrich, 720-875-5420

Source: Liberty Interactive Corporation

Released August 6, 2013