Liberty Interactive Corporation (LINTA) Q2 2012 Earnings Call August 8, 2012, 10:00 a.m. ET Executives Courtnee Ulrich – VP, IR Gregory B. Maffei – President, CEO Christopher W. Shean – SVP, CFO Mike George – QVC, President, CEO Claire Watts – QVC U.S. CEO Analysts David Gober – Morgan Stanley Jason Bazinet – Citi Trisha Dill – Wells Fargo Securities Tom Forte (James) – Telsey Advisory Group Matthew Harrigan – Wunderlich Securities Presentation Operator Operator
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Gregory MaffeiThank you, Courtnee, and good morning to all of you. Today speaking on the call besides myself we’ll have Liberty’s CFO Chris Shean, QVC’s CEO Mike George and QVC U.S. CEO Claire Watts. On to our highlights. At QVC, we had very solid results, especially in the U.S. and Japan. A little weaker in Germany, but overall quite solid. We’re very pleased with, we received government approval in China and finalized our joint venture with China National Radio, and are investing in that partnership. We also raised $500 million in a 10-year senior secured note at very favorable terms, 5 1/8, and set the capital structure at QVC at an even more solid footing. We do note that in the marketplace, there have been several recent transactions with international video commerce companies, which point to very favorable multiples. Bain Capital agreed to buy 50% of Jupiter Shop Channel in Japan. Providence Equity Partners is purchasing a majority of HSE 24 Video Shopping Channel, based in Germany, with operations in Germany, Italy, Austria and Switzerland. There’s limited financial information available on how these private companies are doing, but what we can glean suggests that the EBITDA multiples are well in excess of what LINTA is trading at today. Later this morning, we’re going to have a vote of the shareholders of LINTA, that will create Liberty Ventures, if the vote is affirmative as we expect. Liberty Ventures will begin trading on Friday. We’re quite excited for this, as we hope it will highlight the strong operations of our digital commerce companies attributed to the new Liberty Interactive tracking stock group, and we will increase shareholder value thereby. I’d also note that during the quarter, we made significant repurchases of our shares, buying back $257 million of LINTA stock, even though we were out of the market for all of July due to having a proxy out.
With that, let me turn it over to Chris Shean to discuss the financials at LINTA.Christopher Shean Thanks, Greg. Liberty Interactive’s revenue increased 5% in the second quarter, while adjusted OIBDA increased 1%. QVC increased total revenue by 4% for the quarter, while adjusted OIBDA increased 5%. Liberty Interactive’s other e-commerce businesses grew revenue at 13%, while adjusted OIBDA decreased 36%. Regarding this decline in adjusted OIBDA, we had some hiccups in the second quarter, with negative impacts occurring at most of our e-commerce businesses. These included some unusual and hopefully nonrecurring items such as legal settlements and a compensation arrangement that we had put in place due to some turnover at one of our e-com subsidiaries. The rest of the decline was due to operating decisions to increase spending and paid search as a percentage of revenue, and to be more promotional to move out seasonal inventory. Now let’s take a quick look at the liquidity picture. At the end of the quarter, we had cash balances of $790 million and $6.4 billion in debt. QVC’s total debt-to-adjusted-OIBDA ratio, as defined in their credit agreement, was approximately 1.3 times, as compared to a maximum allowable leverage of 3.5 times. Now with that, I’ll hand the call over to Mike George for additional insights on QVC. Mike George Thank you, Chris. We were very pleased with our results in the quarter, with consolidated revenue up 4% and adjusted OIBDA up 5%, despite the difficult economic situation that we face in most of our markets, and every market achieved positive OIBDA growth after adjusting for the one-time cost of our U.K. headquarters transition. Read the rest of this transcript for free on seekingalpha.com