Qurate Retail, Inc. (NASDAQ:QRTEA) Q4 2022 Earnings Call Transcript

Qurate Retail, Inc. (NASDAQ:QRTEA) Q4 2022 Earnings Call Transcript March 1, 2023

Operator: Welcome to the Qurate Retail, Inc. 2022 Year-End Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. . As a reminder, this conference will be recorded March 1. I would now turn the call over to Shane Kleinstein, Vice President, Investor Relations. Please go ahead.

Shane Kleinstein: Good morning. Before we begin, we’d like to remind you 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 the number of risks and uncertainties, including those mentioned in the most recent Form 10-K 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 note and schedules one through four can be found in the earnings press release issued today or our earnings presentation, which are available on our website. Today, speaking on the earnings call we have Qurate Retail, President and CEO, David Rawlinson; Qurate Retail Group’s Interim CFO, Jim Hathaway; 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 to everyone. Thank you for joining us today and for your interest in Qurate Retail. 2022 was a challenging year for our company. We announced and began our work on Project Athens, a multi-year strategic plan aimed at material financial improvement in the coming quarters. We are taking aggressive cost action and have new processes in place inducing cost discipline in the company. Yesterday, we announced headcount reductions at QxH that I will outline shortly, on top of the restructuring action at Zulily, we took last year. Importantly, we worked through downstream impacts of the Rocky Mount Fire and took aggressive action to address excess inventory balances. We stood up multiple new business units to capitalize on future growth opportunities and streaming and live shopping, and we bolstered our balance sheet and increased liquidity with attractive sources of financing in various sale and leaseback transactions.

We also made critical additions to our leadership team including today’s announcement of our new Qurate Retail Group CFO, and we have the talent needed to execute our plan. When I announced Project Athens, we best — based everything off of a 2022 base year. We are on track to deliver on these financial outcomes, which I’ll speak more about. I would like to thank all of our teams for their hard work amidst what I know was a challenging retail backdrop. Focusing on Q4 results, today, company revenue declined — I’m sorry, total company revenue declined 10% in constant currency primarily due to lower unit volume and less shipping and handling revenue. Our top-line was impacted by inventory reduction efforts and receipt management primarily at QxH, as well as continued macroeconomic challenges weighing on consumer sentiment.

In addition, I’ll remind you that QxH experienced an increase in advanced orders in Q3 of 2021 that were shipped in Q4 of 2021. This shipment timing benefited Q3 2022 reported revenue and was a slight headwind in Q4 2022. Total company adjusted OIBDA declined 60% in constant currency in Q4, nearly half attributed to lower product margins from promotions and clearance, as well as fulfillment center challenges as we work to reduce our inventory. Adjusted OIBDA in the quarter was also pressured by higher fixed expenses and continued supply chain inefficiencies, including inflationary pressures and fulfillment, detention and demurrage charges, as well as sales deleverage throughout the P&L. Jim Hathaway, our Interim CFO, will provide more details for each of our four business units momentarily.

Project Athens is key to our strategy and represents a path to better customer relationships, operating discipline, cost control, margin expansion, and streaming growth over the 2023 to 2024 period. We identified hundreds of initiatives that are anticipated to generate material, net run rate OIBDA opportunities through cost savings, margin enhancements, and revenue. Our efforts in 2023 mainly focused on cost savings and gross margin initiatives, which will impact financial results more materially in the back half of the year and reach full impact in 2024. We expect revenue initiatives will be implemented and impact results more significantly in 2024 and beyond. This year, we are focused on building capabilities to drive customer loyalty and eventually customer file growth, enhance near-term pricing and assortment selection, reducing freight cost, improving vendor agreements to generate efficiency and improved margins across categories, and advancing our analytics capabilities to optimize on-air programming.

Starting with additional detail on cost actions. We actively managed our inventory balances down in the fourth quarter, which was necessary to improve our operating position for 2023, but did impact financial results. From a top-line perspective, leaning into clearance impacted our ability to put fresh product on-air as we dedicated airtime to inventory reduction. We know product over rotation, impacts demand, as well as customer counts, particularly among best customers who are key drivers of our business and drawn to the thrill of discovery. Throughout 2022, we pulled back on receipts due to a lack of space in our fulfillment centers following the fire at Rocky Mount. This receipt management impacted our ability to offer customers fresh merchandise.

In Q4, it affected several categories, but particularly on home, accessories, and apparel at QVC; and apparel, accessories and jewelry at HSN; and on our top customers who index to these categories. In addition, promotion and clearance pricing had a material impact on product margins on top of substantial, detention and demurrage cost that we incurred. I’m happy with the team’s work to rebalance our inventory position. At our June Investor Day last year, I said we had an effort underway to improve networking capital over the next 18 months and reduce QVC U.S. and HSN inventory by 20% to 30%. We delivered well ahead of plan on our inventory reduction commitments. QVC U.S. and HSN ended the year down 27% from June 30, hitting the goal a year ahead of our commitment and the year — and year-over-year, we reduce this inventory balances 25% or $270 million.

We are beginning 2023 in a significantly cleaner, healthier, inventory position. This enables us to be more flexible with our product offering, re-infuse fresh merchandise, and operate our fulfillment centers more efficiently. Cleaner inventory benefits both the top and bottom line. While early, we are starting to see this translate into better demand. We have been taking aggressive action to control costs and improve adjusted OIBDA. We are undertaking an organizational cost reduction and yesterday announced layoffs at QVC U.S. and HSN as well as in certain global functions. While we recognize headcount reductions are hard decisions, we know rebalancing our workforce is right for our business going forward. We’re eliminating over 400 positions primarily at QVC U.S. and HSN or about 12% of corporate headcount.

We expect this plan will generate $60 million of fully loaded run rate savings, of which approximately $50 million will benefit in 2023. Since these actions do not take effect until March, we do not anticipate they will have a meaningful impact on quarterly results until the second quarter. We have committed resources to supporting impacted team members with fair severance and other transition services, as well as resources for our remaining employees who will be impacted by this loss as well. We have implemented a discipline process to manage non-merchandise discretionary costs. While we are in the early innings, we anticipate the process will generate meaningful savings over time. More importantly, it has added a heightened discipline towards cost management into our company culture.

Free cash flow is a key metric. As we laid out in the 2022 Investor Day, our free cash flow in 2022, was burdened by several discrete items, including approximately $150 million to $200 million in working capital headwinds from payables catching up to prior year inventory purchases. We expect this headwind to reverse in the first half of 2023 from our inventory reduction actions. On top of this, we anticipate that Project Athens initiatives will continue to benefit working capital and lead to run rate free cash flow growth. Although, some initiatives will take time to show up in the P&L. For example, our work with vendor partners to acquire fresh merchandise at better prices can take several quarters to flow through the P&L. We continue to believe we are positioned to generate $300 million to $500 million of run rate free cash flow due to Project Athens initiatives.

We expect these will ramp in the second half of 2023 and reach full scale in 2024 as articulated in November. The other piece of Project Athens is revenue and margin enhancements, driven by better serving our very loyal customer base. QxH customer count declined 14% to $8.9 million for the last 12 months ended December 2022. The biggest drivers of our customer count decline are continued impacts of core cutting on the numbers of linear homes we reach and customer experience relative to competition, especially shipping and product availability, which was impacted by Rocky Mount, and more recently, the impact of dampened consumer sentiment on discretionary spending. We have done extensive work on our customer file, understanding their pain points and where we have fallen short.

The demographic and loyalty of our customer base remains a huge differentiator in retail. We are hyper-focused on re-energizing our customer acquisition and retention. First, we are investing in our video commerce and streaming offerings and the addition of free over-the-air homes as an offensive and defensive play against core cutting. Efforts here focus both on expanded platform distribution as well as boosting engagement and retention on these new platforms. Our streaming services now have a larger distribution reach than our linear TV. We are generating revenue through our streaming platforms from both existing and new customers, and while early are pleased with the results. The total minutes viewed for our app-based streaming services on Roku, Amazon Fire, Apple TV, Comcast, Android TV, Samsung TV, Cox, and our QVC+ and HSN+ websites increased 10% sequentially in quarter four.

As we continue to expand distribution in quarter four, launching on two of the largest free ad supported streaming TV are fast channels, the Roku channel and Pluto TV. Second, we have moved to dedicated merchandise leads at QVC and HSN focused on curating a fresh, relevant merchandise portfolio, differentiated by brand. This is critical to keeping our loyal customer base engaged. Stacy Bowe, our new Chief Merchant at QVC joined in September and we are very pleased with her progress and encouraged by early signs of demand improvement in 2023. Merchandising work will take time to fully impact our results due to product lead times and curating newer merchandise. In January, we worked tenaciously to bring fresh receipts to customers. During our premier week, we launched a campaign around new shows, brands and items.

We brought back excitement to our studios with a 24-hour Master Beauty Class that included a 360 degree marketing campaign across streaming, digital, linear, and social platforms. We hosted the first live audience show in two years with the In the Kitchen with David show, which exceeded sales expectations. We are also seeing strength in newer subcategories, including color blazers, French Terry, and private label sweaters and apparel, heeled sandals, pumps and wedges and footwear, leather handbags and accessories, gourmet food and diamonds, gemstones and earrings and jewelry. Finally, but importantly, now that we have meaningfully advanced our inventory reduction and cost management actions, we can focus more directly on the customer experience and operational execution.

We are using advanced analytics to better align product, price and airtime to bolster real-time pricing and promotion adjustments occurring at the product level. We’re also reducing order to delivery times by increasing fulfillment center efficiency with enhanced systems and more optimized inventory and leaning more heavily into personalization. We’re tracking the success of these efforts across cohorts and through multiple time periods. In closing, 2022 was a challenging year in which we made hard but necessary decisions that leave us better positioned to execute. As we look forward, we are intensely focused on executing Project Athens in our own track to deliver the 2023 and 2024 outcomes. Before I turn it to Jim to discuss each of our businesses, we are excited to welcome Bill Wafford who has been named Chief Financial Officer of Qurate Retail Group starting March 20.

Bill brings more than 25 years of experience in corporate finance, management consulting, and executive leadership across retail, consumer goods, and digital commerce businesses. He joins Qurate from Everlane, a digitally native apparel, footwear and accessories brand where he was CFO. Prior to that, Bill was CFO of JCPenney and the Vitamin Shoppe, and previously served in various executive management, consulting and finance roles. We will leverage his strategic insights, deep experience with transformations, financial discipline, and executive leadership. We are excited to add Bill’s experience and talent to lead our finance team. I want to thank Jim Hathaway for a service as Interim CFO and maintaining a high-level of focus and attention to the business as we have pursued Project Athens.

Once Bill joins Qurate, Jim will become CFO of QVC U.S. our largest operating division. Now, I’ll turn the call over to Jim to discuss the details of each business unit. Thank you, Jim.

Photo by Memento Media on Unsplash

Jim Hathaway: Thank you, David, and good morning, everyone. Unless otherwise noted my comments compare financial performance for the three months ended December 31, 2022, to the same period in 2021. Starting with QxH, revenue declined 11% primarily on lower unit volume and reduced shipping and handling revenue. eCommerce revenue declined 12% essentially in line with overall revenue performance. We took action to reduce our inventory in Q4 through promotions and clearance actions, as well as reduced receipts. We pulled back on receipts, which affected our ability to offer customers fresh merchandise. This affected demand in several categories, but primarily impacted the home, accessories, and apparel categories at QVC and apparel accessories and jewelry categories at HSN.

Home revenue declined 13%. In Q4, we experienced lower demand primarily for seasonal home improvement, décor, and vitamins and supplements, partially offset by growth in floor care. Apparel declined 15% against 19% growth in Q4 of 2021 last year. The Q4 softness was primarily in classic and contemporary apparel. Beauty declined 6% against a 4% gain in Q4 of last year. I’d also like to note that Q4 2022 performance was an improvement from the second and third quarters. The decline was primarily due to weakness in hair care and bath and body, partially offset by gains in colors and nails. Accessories declined 10%, primarily due to lower demand for loungewear and casual footwear. Electronics revenue declined 14%, primarily due to softness for computers, home office, smart home and tablets, partially offset by growth in audio.

Adjusted OIBDA experienced material pressure declining 60% with adjusted OIBDA margin decreasing 810 basis points. Looking at the main components of the margin compression, gross margin declined 430 basis points, primarily reflecting unfavorable product margins. Product margins decreased largely due to promotional activity to clear through the excess inventory and remain price competitive in a promotional landscape. Lower shipping and handling revenue also contribute to the decline as they ran increased shipping and handling promotions at both QVC and HSN. These pressures were partially offset by favorable returns. Fulfillment expenses reflect higher freight rates, fuel and surcharges largely due to inflation, $16 million of incremental rent from the sale and leaseback transactions in Q4, detention and demurrage costs and sales deleverage.

These headwinds were partially offset by savings from decommissioning our Lancaster, Pennsylvania, and Roanoke, Virginia fulfillment centers, as well as lower wages as we didn’t have the same incentive pay in our fulfillment centers in 2022. Inventory obsolescence pressure has improved sequentially, but still increased year-over-year, primarily due to reserves on remaining inventory balances, not yet liquidated, partially offset by reduced inventory levels. Operating expenses were unfavorable 70 basis points primarily due to commissions, which reflected expanded over-the-air distribution Ion, Tonga, Scripts and Nexstar. SG&A was unfavorable approximately 300 basis points. Fixed cost pressure was primarily due to sales deleverage, investments in video commerce ventures, and $7 million of corporate rent post the sale and leaseback.

Marketing expense increased year-over-year, primarily due to retention marketing and investments to expand our commerce platforms, which were partially offset by reduced advertising spend. Moving on to QVC International. My comments will focus on constant currency results. Revenue declined 4%, primarily on lower unit volume and reduced shipping and handling revenue. Our largest European businesses, Germany and the UK declined in the low-double-digits, and experienced weaken consumer sentiment from historic inflation, particularly energy. QVC Japan was less impacted by these factors and grew mid to high-single-digits. Like QxH, inventory reduction actions impacted sales, particularly in the home categories. QVC International experienced declines across all categories except for apparel.

Adjusted OIBDA decreased 26% and adjusted OIBDA margin declined 510 basis points. The primary factors for the margin compression were lower gross margin and higher fixed costs. Gross margin declined 290 basis points. Product margins declined reflecting inventory reduction actions and lower shipping handling revenue due to reduced unit volume and free shipping and handling promotions. Fulfillment cost reflects sales to leverage and higher labor costs caused by an increased minimum labor rates and COVID-related staffing challenges, as well as higher freight rates in European markets. Inventory obsolescence reflected higher provisions for aged inventories in our European markets. Operating expenses were unfavorable reflecting deleverage of commissions.

SG&A was unfavorable primarily due to sales deleverage and higher fixed costs, which rose due to higher wages and benefits, as well as software and IT project costs. Moving to Cornerstone. Revenue declined 3% reflecting softness in certain categories such as outdoor furniture, seasonal Halloween products, and women’s apparel. These pressures were partially offset by record fourth quarter revenue at Ballard Designs. It’s noteworthy to mention that for the full-year Cornerstone generated record revenue at each of its brands. Adjusted OIBDA decreased $41 million due to higher inbound transportation costs and detention and demurrage fees for storage and handling, which are largely driven by delays in the construction of our new Phoenix fulfillment center at Cornerstone.

We expect that this fulfillment center to be operational by the end of the second quarter. Looking at Zulily. Revenue declined 28%, primarily due to lower unit volume and shipping and handling revenue, reflecting decreased traffic to the site. These pressures were partially offset by improved availability of national brand product in the fourth quarter. Adjusted OIBDA declined $26 million, primarily due to lower project — product margins, higher marketing expenses, and deleverage of fixed costs. These pressures were partially offset by lower fulfillment costs. Turning to the balance sheet and cash flow. Total capital expenditures were $268 million for 2022, and we’ve spent $45 million on renewals of our TV distribution contracts. Total free cash flow for the year ended December 31, 2022, was a use of $9 million versus a source of cash of $611 million last year.

The year-over-year decline was attributed to lower cash from operations driven by our weaker operating results, as well as unfavorable working capital headwinds, partially offset by lower payments for TV distribution rights. As David said, 2022 free cash flow included approximately $150 million to $200 million of working capital headwinds related to payables aligning with prior year inventory purchases. With the inventory actions we have taken, we anticipate a working capital benefit from the normalization of our accounts payable in the first half of 2023. Our 2022 free cash flow includes $693 million of sale and leaseback proceeds, and $280 million of insurance proceeds related to Rocky Mount. While 2022 cash flow was pressured, we are in a better starting position going into 2023.

I want to reiterate that we are confident in our ability to generate $300 million to $500 million of run rate free cash flow opportunities driven by Project Athens workstreams. We expect they will ramp in the second half of 2023 and reach scale in 2024. We anticipate capital expenditures of approximately $260 million in 2023, representing a reduction from 2022, even after necessary investments and Project Athens related IT initiatives. 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. Looking at our debt profile. On December 31, 2022, we had $1.1 billion drawn on the QVC revolver with $215 billion of incremental availability. Our leverage ratio as defined by the QVC revolving credit facility was 2.8x.

We took significant action throughout 2022 to create liquidity and position ourselves to execute on our strategic priorities. We believe our debt level is manageable and have sufficient cushion relative to the 4.5x maximum net leverage covenant threshold in our credit facility. This net leverage covenant includes the adjusted OIBDA of QVC, Cornerstone, and Zulily, and also includes the gains on sale and leaseback transactions for the four quarters following such transactions. As of December 31, 2022, Qurate Retail has total cash of $1.3 billion. With that, I’ll turn the call over to Greg.

Greg Maffei: Thank you, Jim. So there’s no doubt that in 2022, this business navigated a lot. Somewhere outside of control like the Rocky Mountain Fire and the continued downstream impacts, supply shortages, which quickly turned into excess inventory, record inflation and freight, and a enduring negative consumer sentiment around retail and the changing macro environment. Some were definitely under our control, including underserving our core and best customers, over rotating product and overbuying with constrained inventory capacity. We acknowledge this is a turnaround story. 2022 was a horrible year. First, we’ve taken action as Jim noted on the balance sheet to clean up and provide us more room. We had $693 million of total sale and leaseback proceeds in 2022 and an additional $182 million in 2023 from our European properties.

We also took a series of actions in the fourth quarter resulting in a redistribution of our cash, $875 million at the corporate level, excluding a modest incremental cash at Zulily and CBI. Of which $500 million is a QRI to satisfy multiple years of corporate level obligations and $375 million is at LI LLC for debt service. We also have $357 million at QVC, Inc. We are — as I said in a turnaround story, we believe this team has taken hundreds of actions, some of which have been mentioned here, to address cost controls, including the headcount actions that were taken, which are waiting for this year, and other revenue opportunities, which will be for 2024 and the years ahead. We think we’ve bought ourselves time to implement this turnaround story.

And with that, we’ll open it up to the questions.

See also 11 High Growth UK Stocks to Buy and 12 High Growth SaaS Stocks that are Profitable.

Q&A Session

Operator: Thank you. The floor is now open for questions. . The first question today is coming from Jason Haas of Bank of America. Please go ahead.

Jason Haas: Hey, good morning, and thanks for taking my questions. So maybe starting with the long-term guidance for I believe it’s relatively stable revenue growth and double-digit OIBDA growth for this year and next year. Is that a good framework to use for this year, or is the cadence going to be I don’t know if it’ll be softer than that in this year and then get better in 2024. And then any help by segment would also be great. I know you’re entering this year with a lower customer count at least in the main segment QxH, so just curious about sort of like the cadence through this year as well. Thank you.

David Rawlinson: Yes. Thank you, Jason. I appreciate both questions. So the cadence we set out for the Project Athens initiative I think you can apply stable revenue double-digit OIBDA for this year and next year. So I think you had it right in your interpretation. On the customer count, I want to talk through that just a little bit. I imagine it’s a question a number of people have. So as we’ve discussed before, we reported customer counts on a trailing 12-month basis. What you actually see in the last 12 months is we have the last really big crop of pandemic customers. And so the biggest driver of our decline in the 12-month trailing was actually Q1 2022 over Q1 2021. Q1 2021 was one of the strongest Q1s in recent years. Total customers in Q1 2021 grew 10%, new customers grew 32%.

And in fact, it was the largest year-over-year decline in customer count for Q1 in 2022 than any other quarter. And so the biggest driver was this abnormally big increase in Q1 2021 versus Q1 2022. Obviously that will fall off the next time we report 12 months trailing. So that’s hiding a lot of the moderation we’ve had in the customer count decline since then. And I think now we’re seeing customer counts decline around or at little bit ahead of the improvement that we see and revenue declines. The second thing I’d say about customer count is that our existing customer count has been more stable than our new customer count. What we are seeing in the existing — customer count is continued nice stabilization especially at QV — QVC. The new customer count is partially explainable by what we did with our advertising and marketing budget.

We took down brand advertising in the fourth quarter by 27%, which we know disproportionately brings in new customers. And we instead reprogrammed some of that market — those marketing and advertising dollars into targeting existing and returning customers. And so the drop in new customers, the new customer year-over-year decline was partially a result of a conscious decision we made in the fourth quarter to concentrate on existing customers, especially because we were doing so much clearance actions. And so we weren’t going to have a lot of the ideal merchandise that new customers who we attracted would want to see. Final note I’ll make is that over the course of the year, we saw sequential improvement in existing customers, new customers and reactivating customers.

And we’re continuing to see that moderation continue into 20 — the beginnings of 2023. So I think the customer story is a little bit better than you can read looking at the trailing 12 months.

Jason Haas: Thank you. That’s helpful. Just to follow-up on the first part of my question, just to make sure I understood correctly is flat revenue and double-digit OIBDA the right framework to use for 2023? And then what if so what’s the cadence of that through the year? Is it revenue down in the beginning and then up in the second half?

David Rawlinson: Yes. So I think we said — I don’t think we said flat. I think we said stable. And so I think stable revenue in 2023 is the right way to think about it, and I think you’ll see some relative improvement on the year-over-year compares as we go through the year.

Jason Haas: Got it. Thank you. That’s helpful. And then I wanted to follow-up, I think you gave the sequential quarter-over-quarter number for streaming minutes viewed, but I know in the past you’ve given sort of like an overall minutes viewed number. So I was curious how that trended. And ultimately, a question I get a lot is just on how much of the revenue declines has been, is it a core cutting issue versus is it something else is the merchandising or supply chain issue that you faced? So if you could — yes, just kind of help parse it out, it’d be helpful for a lot of people. Thanks.

David Rawlinson: Yes. That’s great. So we have in the past talked in streaming about monthly active users. I think we’ll selectively talk about that. One of the things we’ve seen is that the monthly active users’ numbers we get from a lot of our mainstreaming apps things like Roku and Amazon Fire. Increasingly what we’re seeing growing is our fast channels and we don’t get monthly active users from the fast channels. The most common metric across all the streaming platforms is minutes viewed. And so that’s why I talked about a minutes viewed number here. We’re — we’ve continued to see encouraging signs on monthly active users as well as we’ve gone through the year as that’s also been on a growth path. In terms of the drivers of the decline, I would say core cutting has definitely been there and obviously we have to eventually get the customer count up.

I would also say in terms of revenue, we didn’t get a lot of price this year and that was partially impacted by clearance actions and so, on the revenue — on the revenue line that was also a headwind. I would say in the last 12 months to 18 months, given the supply chain challenges, our business is so sensitive to driving a purchase occasion. At the moment, you’re looking at the television screen, or at the moment you’re looking at a computer or a mobile screen of something you want. And so we are disproportionately — have been disproportionately impacted in 2022 by some of the supply chain challenges. And as I think I’ve admitted to before, I think we over the past periods did get not as crisp in executing some of the core pieces of our value proposition, which we’re working on improving now.

So I wouldn’t put percentages to it, but I think all of those are drivers — have been drivers.

Operator: Thank you. The next question is coming from Carla Casella of JPMorgan. Please go ahead.

Carla Casella: Hi, a couple of housekeeping items. You typically disclosed the deferred tax liability at year-end. Can you just give us where that or approximately where that sits today?

David Rawlinson: I believe what we disclosed at year-end was approximately $850 million.

Carla Casella: Okay. Great. And then —

David Rawlinson: I’d refer you to the Investor Day fine.

Carla Casella: Okay. And then I think I heard you correctly, you said you have $1.3 billion of cash, but I missed the timeframe of that. And I’m wondering how much of it is at QVC and versus Qurate and/or the parent company and how you think about do you hold more cash — do you plan to hold more cash at the parent level giving you have the potential for this charter debenture payment in October or anything else? Or will that cash go down to pay down the heavy drawing on the revolver at QVC?

Ben Oren: Sure, Carla, it’s Ben Oren. So just to clarify, we’ve got after some actions we took in Q4, $875 million of cash at the corporate level. That’s split into $500 million at the QRI level, $375 million at Liberty Interactive, and some small amounts at Cornerstone and Zulily as of 12/31. The benefit of having that cash in various tiers is to address our various debt obligations and contractual obligations at each tier. We expect to continue to use cash and borrowings at the QVC level or the QRG level to fund debt service at Liberty Interactive. And we actually did have some exchanges of the 1.75% charter exchangeable in Q1. We have, as of today, exchanged or satisfied conversions of $157 million in face value for $182 million of market value. That $157 million was funded by cash and additional borrowings at the QVC, Inc. level after 12/31. And the premium above the face value was funded by the indemnification from Liberty Broadband.

Carla Casella: Okay. And then did you say where the cash to those numbers that you gave, that wouldn’t include the proceeds from the sale leaseback that was completed in UK and Germany? Have you — did you give the pro forma cash?

Ben Oren: We did not give the pro forma cash. The cash that was received for the sale leaseback was used to repay revolver debt.