Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Interactive Corporation 2017 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. [Operator Instructions] As a reminder, this conference is being recorded, March 1, 2018.

I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead..

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, including statements about business strategies, market potential, stock repurchases, future financial performance, market conditions, the renaming of Liberty Interactive to Qurate, changes in senior management, the integration of HSN, and expected benefits in synergies, future impact of accounting changes and the impact of recent tax reforms, future expenses at QVC, sales demand, customer growth, the proposed transactions involving GCI Liberty and the timing and expected benefits and synergies of these proposed transactions, new service and product launches 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, market conditions conducive to repurchases, the satisfaction of conditions to the proposed transactions involving GCI Liberty, the availability of acquisition opportunities, competitive issues, regulatory issues and continued access to capital on terms acceptable to Liberty Interactive.

These forward-looking statements speak only as of the date of this call and Liberty Interactive expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements 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.

On today's call, we will discuss certain non-GAAP financial measures including adjusted OIBDA, adjusted net income and constant currency. The required definitions and reconciliations, including preliminary notes and schedules 1 through 4 can be found in the earnings press release issued today, which is available on our website.

This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty TripAdvisor Holdings. These forward-looking statements involve any risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

These forward-looking statements speak only as of date of this call, and Liberty TripAdvisor Holdings expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty TripAdvisor Holdings expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

And now, I'd like to introduce Greg Maffei, Liberty Interactive's President and CEO..

Thank you, Courtnee and good morning to all of you out there. Today speaking on the call we will also have Liberty Interactive's CFO, Mark Carleton; and QVC's President and CEO, Mike George. During the Q&A we'll also be available to answer questions related to Liberty TripAdvisor.

So we've got a lot to cover this morning, so let's get started with some of the structural highlights. This morning we introduced our future name, the Qurate Retail Group, the next-generation of the QVC Group. Mike George will go into more detail but we're excited to have a brand that encompasses this unique set of businesses.

Mike, as is well deserved will become the CEO of this company. He has done a tremendous job driving QVC, managing the company through a challenging retail environment and transitioning into the digital mobile era; congratulations to Mike on his new job as CEO of this public company.

We closed the HSN acquisition on December 29, and we do anticipate closing the GCI acquisition on March 9; upon closing we'll complete the reattribution of certain assets and liabilities expected to be valued as of the market close on March 8 and we will provide all those values post close.

I'd note that we expect to reattribute the FTD asset or investment we have to the QVC Group which is a slight change. We will complete the split-off also at that time in resulting two asset-backed stocks, Qurate, as we said the renamed QVC Group and GCI Liberty; so long [ph] that the operating businesses themselves.

At the QVC Group, we had good success, QVC grew revenue in all of its markets; probably, most importantly, this group QVC U.S. revenue was up 4%. Zulily also posted an impressive 11% revenue growth in the fourth quarter, and for the year increased active customers by 16%.

Looking at repurchases in that group, the QVC Group, from November 1 through January 31 of 2018, we repurchased $209 million of QVC Group shares and for the twelve months ended December 31, 2017, we repurchased 766 million in QVC Group shares.

I'd note that this is relatively impressive given that we were out of the market multiple times during 2017 due to pending deals. And for the new Qurate Group, we currently anticipate repurchasing approximately $1 billion of Qurate stock in 2018.

Turning now to Liberty ventures; GCI reported results yesterday, despite the ongoing recession in Alaska the business has continued to perform well. As I noted, we do expect to close on GCI and the subsequent split-offs on March 9.

Looking briefly a TripAdvisor, we were pleased to announce the investment by TCV, Technology Crossover Ventures into add Jay Hog [ph] to the Board; I think this is the fourth Board that Jay and I have served on including Expedia. Jay is a seasoned investor with experience in this sector and I'm sure he will provide valuable input.

Importantly, TripAdvisor beat Q4 expectations with performance good in all segments, and we continue to believe that we're making the right investments at that business in 2018 and we will drive continued growth. And with that, let me turn it over to Mark Carleton to discuss some of the financials in more detail..

Thanks, Greg. Let's take a quick look at the liquidity picture. At the end of the quarter the QVC Group had attributed cash and liquid investments of $330 million and around $6.7 billion in principal amount of attributed debt which includes the HSNi revolving credit facility.

QVC's total debt to adjusted OIBDA ratio as defined in their debt agreement was approximately 2.7x which includes to zulily's adjusted OIBDA as compared to a maximum allowable ratio of 3.4. Take note, that this does not include the debt at HSNi, the HSNi leverage ratio was 1.7x as defined and in their agreement.

Pay attention that HSNi's results are not consolidated in the QVC Group for the fourth quarter as the last two days of the year between closing and year-end were deemed immaterial.

There is however around $30 million of cash severance costs at HSN plus $8 million of some non-stop cash stock comp, and $5 million of severance costs at Cornerstone which do get recognized but that is not the results of operations of HSN for those couple of days.

There will be ongoing expenses to realize the synergies with the deal with HSN, and I think on Slide 43 from our Investors Day presentation, you get a sense for those synergies and what those ongoing costs are. We've got quite a few accounting updates on the Qurate side that will impact 2018, I'll talk briefly about some of them.

Due to the new FASB guidance in quarter 1Q and zu will recognize revenue with the time of shipment rather than delivery.

This will result in a small adjustment in quarter one which really accounts for the items shipped before the end of 2017 but not delivered until 2018; so this will be the only quarter that this happens and the impact of this shift in future quarters is really minimal -- we'll have 90 days of sales in each quarter, the way we did before but we'll quantify any impacts that come out of this as it goes forward.

This change doesn't impact HSN at all as they were already recognizing revenue at the time of shipment. Also starting in Q1, QVC, HSN and zu will begin to recognize their branded credit card fee income as revenue rather than an offset to SG&A expenses, previously we just recorded those fees as a reduction of expense will now be presented broadly.

We'll talk about these amounts as we get throughout the year for comparison purposes to make sure everything's clear. Purchase accounting amortization in 2017 was about $390 million related to QVC and zulily.

In '18 the amortization from the Liberty purchase to QVC will be -- it will be fully amortized and rolled off and done; however, we have purchased amortization associated with zulily and we will have some new amortization associated with HSN.

We expect the HSN and zu counting amortization to be approximately $260 million in 2018, none of which is tax deductible and those numbers will trend downward in subsequent years.

At Q, we also are tweaking a little bit our methodology for recording incentive compensation accruals in 2018; we'll now accrue it a little more evenly throughout the year, and earlier in the year that will give us a headwind of let's call it $8 million to $12 million in the first half of the year given that we have a lower accruals of incentive compensation in the first half of 2017.

So this may have a little bit of an impact in the quarters on OIBDA margins but really will balance out over the year. I want to comment briefly on tax reform and how it will benefit or impact these companies starting in 2018.

For Qurate overall tax reform is a net positive, it's good to have a lower tax rates, we generate a lot of taxable income and have historically been a full tax payer. This is somewhat offset by our inability to immediately recognize tax benefits and all of our interest payments on debt as a result of the 30% cap, especially on the exchangeable bonds.

In 2018, we expect to be restricted on our ability to utilize deductions on $75 million to $125 million of interest expense; note, that this calculation is based on OIBDA for tax purposes which excludes certain international markets and some other adjustments, but that's currently what our estimate is.

We'll continue to look at our capital structure and we'll do what we can do to reduce this negative impact, especially as things get more restrictive in 2022. But we're paying careful attention to our capital structure and really what our after-tax cost of all these different pieces of financing are.

We'd also note the QVC shareholders are being made whole as the reattribution of the exchangeable bonds will be made at fair value, same way we value these and any other transfers and there is additional cash being reattributed to compensate for the increased value for the increased amount of the liability relating to the extremes with bond; so we've calculated that impact in there.

Going forward, we'd expect a low double-digit effective cash tax rate on worldwide OIBDA Qurate which includes federal state and foreign income taxes after taking into account the deductions from interest and from the green energy investments. GCI in general, GCI will continue -- will benefit from a lower tax rate going forward.

At the end of 2017 and due to the tax rate change, we accelerated some onetime tax deductions for stock awards into 2017.

Rather than having those benefits come in at the new rate we accelerated them and got them into 2017 at the old rate, and that resulted in incremental stock comp of $21 million at the QVC Group and $15 million at Liberty ventures and you'll see these amounts included in the corporate level SG&A allocations of $44 million and $23 million for QVC Group and Ventures Group respectively in quarter four and you'll see those numbers in our press release.

So with that, I'll hand it over to Mike George for additional comments on Qurate..

Thank you, Mark. As a Greg mentioned, earlier today we announced the planned introduction of the Qurate's retail group and plus this is much more than just a new name. Qurate captures the essence of who we are and what distinguishes us in the marketplace, and reflects the size and scope of our aspirations for our new company.

At Qurate, we believe that a third way to shock beyond conditional brick-and-mortar or transactional e-commerce. We serve consumers who crave engaging shopping experiences over impersonal transaction and every facet of our business is a service to our customer with a mission that reinforces her passions and her values.

QVC, zulily, HSN, [indiscernible] and improvements; these are all distinct businesses but all united by common beliefs. Across those companies we have procurated collections of unique products and events made personal and relevant by power of storytelling.

We reach our customers through distinctive video and other direct marketing patterns tailored just for them, and we form deep connections with our customers ensuring that we involve with them with faster loyalty [ph], innovation and growth. Our new name reflects our unmatched expertise in curation.

We curate products, we curate experiences, conversations, communities for millions of highly engaged shoppers. And we also curate large audiences across multiple platforms for thousands of brand vendor partners, and all that is thanks to the incredible passion and dedication of our team members.

Who we do all this through a unique platform of extraordinary scale.

In 2017 we generated pro forma revenue of $14 billion, and served 23 million customers; we're the largest video commerce retailer globally reaching approximately 370 million TV homes and 16 networks including our joint venture in China, and we're the third largest multi-category e-commerce and mobile commerce retailer in North America according to international retailer.

Now looking back at 2017, I'm enormously proud of what our team has accomplished. Our U.S. team stayed focused on returning the U.S.

to healthy sales growth, successfully accelerating sales throughout the year and achieved a full year sales growth while also increasing full year operating income margins by 120 basis points and full year adjusted OIBDA margins by 70 basis points once you normalize for about $9 million associated with HSNi integration cost and $26 million associated with sort of refiling our incentive compensation pool in 2017 as we get paid our incentive comp in '16.

Our international teams had a stellar year, we grew local currency revenue in every international market and we significantly expanded operating income margins of 220 basis points and adjusted OIBDA margins up 130 basis points.

Our zulily team built tremendous momentum in the second half of the year and returned to double-digit sales growth with strong customer file expansion in Q4. We successfully closed the HSNi transaction, developed and deployed a rigorous integration plan and significantly increased our cost synergy targets.

And finally, we completed a major reorganization of our leadership team to align with the expanded aspirations and vision we've established as Qurate.

And now looking more specifically on our Q4 results because we were thrilled with the strong sales momentum with QVC U.S., QVC International and zulily, all achieving their highest revenue growth of year. I would note that Mark mentioned that these results do not include HSNi. Looking at QVC U.S.

revenue increased 4% in Q4 on 7% volume growth and 2% lower average selling prices. Operating income was up 21% and adjusted OIBDA declined slightly. Adjusted for $7 million of HSNi integration cost and $6 million in increased incentive compensation, we had adjusted OIBDA growth of about 2% with OIBDA margin down 40 basis points.

That 40 bips erosion in the fourth quarter primarily reflects some of our industry obsolescence charges, higher marketing investment, and ASPD leverage which put some pressure on our warehouse upgrade cost. There were partially offset by lower bad debt expense and by the implementation of a number of great cost reduction actions.

I'm proud of our teams success to return U.S. to healthy growth and understood several highlights behind that growth in the quarter. First we grow balanced growth across categories while keeping our commitment to increase newness and diversity in our assortments. Second, every important measure of customer engagement increased.

And third, we successfully deployed a heavier level of marketing spend to profitably acquire high quality new customers and digital platforms. The result was an outstanding new customer class and solid growth of existing customers as well. So let me go through each of these in a little more detail. You will recall that when our U.S.

business had turned down in Q3 of '16, I pointed out to this perfect storm of -- largely we felt independent pressures affecting five businesses; electronics, kitchen, jewelry, hair care and hand bags. Those businesses represented about one-third of our sales and declined approximately 20% back in the second half of '16.

Through focused efforts in each of those categories, they are collectively now growing largely in line with the rest of the business. In fact sales gains -- where sales gains at all categories except jewelry in Q4.

We have bigger strength at home led by top pitch cook brands, Copper Chef, kitchen aid [indiscernible] and Northern Lights, and households items for Shark and Philips.

In Fashion, we saw strength in footwear from [indiscernible] as well as long standing brand Susan Craver, as it was Rocky Live and Joan Rivers [ph], and more developing brands like [indiscernible]. Beauty delivered solid growth led by Quantifi, MD [ph] and Peter Thomas Locke.

Electronics generated gains for the second consecutive quarter, direct from Amazon, Apple, Bose and RIG. And while jewelry did decline in Q4, the rate of decline slowed significantly from Q3 and productivity increased as we reduced airtime.

And as part of growing these categories, we do continue to lead into freshness and discovery, we added 166 new brands in Q4, that's a 41% increase over prior year including the wildly popular hatch-mall [ph] in toys, five footwear and handbag fabulous brand for us; and glued to item crackers for Tommy.

Our customers also had a very positive response to the mark the Stuart launch in the second half of last year, we continue to add to it, add new culinary food categories, garden, fashion, skincare and we're continuing to expand in the new items as we move into 2018. We also continue to increase consumer engagement with the QVC brand across platforms.

On Black FTV total viewing minutes on QVC and QVC2 increased 3% in Q4, so that viewership growth we believe validates our connection with our loyal customers and lower risk of core cutting that we face given our government demographics and given their behavior.

Further, this viewership does not include our third network PVIQ [ph] which reached approximately 45 million homes.

Viewership also grew dramatically on digital and interactive platform; the number of net installations of our work ramp exceeded 1 million at year end, the number of minutes are Live and video-on-demand content was screened on World [ph] increased nearly 300% in Q4.

On safe [ph], we cast 700 hours of live video per month for about 400 hours in the prior quarter, and the number of video views and minute views I think increased 220% to 360% respectively.

And on our own digital platforms the number of unique visitors increased 9%, digital sections rose 8% and the number of live streaming minutes across our mobile and e-commerce platforms increased 290% in the quarter. Overall, e-commerce sales continue to hit record levels. With e-commerce representing 59% of U.S.

sales and mobile representing 54% of all e-commerce orders in the quarter. These viewership successes along with spectrum marketing investment allowed us to drive near record levels of new customer acquisition. We attracted 912,000 new customers in the U.S.

in Q4, that's the second largest quarterly new customer class in our history, a 5% year-over-year increase and just 5,000 customers below our all-time record. And nearly 84% of the new customers made their first purchase on digital platforms, also a record with 47% on mobile.

And the combination of strong new customer growth and increased engagement from our existing and reactivated customers had 3% increase in total customers in the quarter. Now turning to QVC International; our team delivered another stream of outstanding quarter's, strong growth in revenue profits and customer served.

Revenue grew 6% in constant currency with unit volume up 5% and ASP up 2%. We've generated revenue growth in every market and sales growth in every category except electronics. And we increased the number of new and the number of total customers, 4% each in Q4.

The number of total customers was a quarterly record and the number of new customers was the third best quarter ever. Our Japanese business continued it's momentum growing local currency revenue for the sixth consecutive quarters. Our U.K.

business rebounded after a softer start to the year with strong sales gains, and our German and Italian businesses generated especially strong margin gains. And then our China joint venture, we grew local currency revenue 12% and we generated positive OIBDA for the second consecutive quarter.

Turning to zulily; for the quarter revenue increased 11% and 12% order growth, that strong sales momentum is largely due to the team success growing the customer base; and then the year with a record 5.8 million active customers, that's 16% year-over-year increase.

This 800,000 customer increase is the largest annual increase since 2014 driven by a shift in marketing focus from member sign-ups to driving customer purchases and remarketing to existing members and customers, as well as improving the customer experience and building customer royalty.

Also encouraged by early results from the zulily credit card; launched in late September leveraging the success of QVC's proprietary Q-Card program. Total accounts exceeded expectations reaching over $100,000 by year end.

Importantly, we saw higher average order values at increased overall spend from customers with zulily card compared with non-card customers.

Now as expected, we did experience a number of gross margin pressures in the quarter including higher supply chain cost as we ramped our recently automated Pennsylvania fulfillment center, a higher mix of international business driving increased shipping cost, deleverage from lower average selling prices and higher marketing promotions.

Our supply chain teams remain focused on optimizing zulily pro forma network and we are confident that we'll see improving cost performance as we move to 2018. In addition, the merchandising team is focused on increasing ASPs with the ASP trend improving month-over-month through the quarter.

The improving momentum in sales and customer counts this summer is a real credit for the innovative sphere to drive on the zulily team, and we are absolutely delighted that Laurie [ph], zulily's chief merchant took on the additional role of Interim President of zulily as Daryl took his new role leading our new Ventures team.

We believe shop the team to build on the team's good momentum, our leadership capability, our passion for the customer, and her passion for great product is a really powerful combination to grow the business. Finally, let me turn to HSNi. We successfully closed our acquisition at the end of December and we saw revenue decline 8% in Q4.

They did experience decelerating performance through the year. These difficult trends, reflect both underlying challenges in the business and undoubtedly the distractions of the acquisition. Excluding transaction-related costs, operating income and adjusted OIBDA increased despite the sales erosion.

These gains primarily reflect the anniversary in about $16 million of costs that were incurred in Q4 of the prior year related to problems with the automation of HSN's performance center in Piney [ph], Tennessee. HSN also benefited from improved product margins and 5% lower operating costs.

We believe Mike [ph], our HSN team have developed to turnaround the performance, we'll focus on improving the business fundamental as we always, building more balance in the worst product assortments, introducing a higher mix of new items and brands, carrying more items and brands per hour a day and moderating promotional intensity.

We'll also work on strengthening the on-air presentation and continuing to build on the online advances the team has implemented in recent years. Finally, we'll ensure we're managing costs consistent to the size and performance of the business.

At core's own brand which consists of front age grand road, valor designs, corner pill and improvement, sales and adjusted OIBDA declined 7% and 5% respectively in Q4.

Now excluding the prior year impacts of a 53rd week and excluding the divestiture of travel smith and chasing fireflies, sales declined 1%, primarily driven by softness [ph], ousted by growth [indiscernible].

Cornerstone catalyst circulation decreased 8% consistent with the teams ongoing efforts to rebalance investments towards the digital and retail segments to better fuel with world demand.

The Cornerstone retail store footprint expanded with Q4 opening of valor design, South Park Mall and Charlotte, as well as the relocation of Frontgate to Pitts Mall [ph] in Atlanta; this will bring the total town fuel line stores to 10 with additional valor design stores planned in 2018.

Cost of sales as a percent of revenue improved 70 basis points to prior year on improved product and chipping margins, as well as selective price increases in lower promotional stimulus across the brands.

Claire [ph] who led an impressive turnaround of the Garnet pool business is now leading Cornerstone at force and is focusing with her team on creating a clear and concise positioning for each brand, providing innovative and differentiated products to our customers, and ultimately increasing customer acquisition and retention rates while driving more efficient marketing and improved gross profit enhancement through more full price volume and increases in direct sourcing.

As we've shared in our Investor Day, we have to make expect with operating profits synergies in the range of $200 million to $220 million from the HSNi acquisition, ramping over the next three to four years, those consist of procurement phasing's, reductions into corporate functions, business process integration and MSO distribution and marketing spend optimization.

And we've recognized that the turnaround of HSN and Cornerstone will take time, however our new leadership teams are in place, we're off to a start integrating our companies, and we are highly optimistic about the long-term opportunities.

Net capital spending; QVC's CapEx in 2017 was $152 million, that's down from our original estimate of $180 million to $190 million. So the CapEx was about $50 million in '17, that's up from their typical run rate primarily due to investments to automated Pennsylvania fulfillment center.

For 2018, we anticipate CapEx of about $290 million to $300 million and that's for all the companies in the new Qurate rate group. So in closing, we are excited about the formation of Qurate as we combine the best of retail, media and social; we'll continue to distinguish ourselves from other retailers.

Across our new company we're focused on five shared priorities. First, to engage and inspire our teams to make a difference every day. Second, to drive product leadership to highly curated, differentiated and proprietary assortments.

Third, we create the most engaging and sparing shopping experience across all customer touch points; online, on-air, in catalog, in-store and through our amazing customer service representatives, and fulfillment team.

Fourth, to go wherever the consumer is going, ensuring we're accessible on the newest and most popular digital and video platform and highly personal, and increasingly personalized ways.

And finally, as we launched a new company, we're focused on unifying our technology operations, people practices, corporate support across our global footprint and across all our retail brands to ensure we can operate at the best costs, the best quality, with the highest ethical standards.

And to achieve these big goals, we're fortunate to have one of the best teams in retail. At the conclusion, the moment is here for our company, I do want to extend my welcome and appreciation to all of our new team members joining us from HSN and Cornerstone.

The engagement, the commitment and the enthusiasm that all of you have demonstrated for what you do and for the possibilities on lease priority company has been absolutely infections.

And you join as you know equally dedicated teams at QVC and zulily, and together we will play an outsized role in the transformation of retailing for coming generations. And with that, I'll turn it back to Mark..

Thank you, Mike. At the end of the quarter, talking about the Liberty Ventures liquidity, the group had attributed cash and liquid investments of $573 million and $1.9 billion in principal amount of attributed debt.

As previously mentioned, as part of the GCI transaction, reattribution and the split off we've put in place through $1 billion margin loan against some of our Liberty broadband shares and you will see that as a part of the capital structure of GCI Liberty starting in quarter one.

The value of the public equity method securities including Liberty broadband and other public holdings attributed to the group was $4.7 billion and $2.3 billion respectively at the end of the quarter. And with that, I will hand it back to Greg..

Thank you, Mike and Mark. As this will be our last Liberty Interactive earnings call, I'd like to thank our shareholders who have been loyal in Liberty Interactive. We hope you have your continued interest in the Liberty family with Qurate and GCI Liberty. And with that operator, we'd like to open it up for questions..

[Operator Instructions] We will start with Eric Sheridan from UBS. Your line is open..

On HSN and Cornerstone, those results were maybe just little bit worse than we thought but historically you've seen as you go into some of these closings; maybe the business has slowed down a little.

How should we think about the integration of HSN and Cornerstone and how that will be reflected in the results of those units as you look out over the next couple quarters, Mike? And then on the corporate SG&A, I wanted to understand how much of that allocation at the end of the year was onetime versus ongoing? And then on tax rate, just wanted to make sure I understood the message that the cash tax rate will be low double-digit percentages but what that might mean also for the effective tax rate on the P&L? Thanks everyone..

HSN and Cornerstone, it's certainly hard to exactly attribute the impact of the acquisition as we were obviously making massive changes with our HSN and partners through the last few months of the year, so I do think some of the new acceleration reflects all the distractions of going to that kind of a process.

That doesn't overnight for sure, as we have our buying cycles and as we sort of evolved the business to the model that we think makes the most sense; I'm hesitant to put a timeframe on how long it takes to turn or exactly what the impact of the first half is.

I think what you can assume is that as you've seen over the years when occasionally the QC business struggles and has a few quarters of struggle as we did in the U.S. and another times with that in Germany or Japan.

We take a pretty methodical approach to just let's make sure we're building much more healthy assortments and usually over a few quarter you can see a meaningful impact from that.

So we're confident about where HSN and Cornerstone are headed, we're very excited on the Cornerstone side which is a big opportunity to just accelerate the performance of Front Gate, biggest part of the portfolio by moving to a much more proprietary and direct source model, lots of opportunities, those locations wants to play out but that we feel really good about where we're can take them.

And we do think there is opportunities to continuing manage the cost side tightly as well as we kind of affect a healthy turn in the revenue line..

On the one timers Mark, maybe you can reiterate how much of it was due to the acceleration of options?.

And that total was $21 million at the QVC Group and $15 million at Liberty Ventures that is really one-time on the acceleration of those options..

Last one on the tax rate going forward. I just want to make sure, Mark, that I understood the messaging on tax and what it also might mean for the P&L tax rate at QVC as well..

What we're saying is we have excess interested options that exceed the 30% of EBITDA and how -- what to think about going forward to some degree will depend on our ability to mitigate that through actions with either by debt reduction or generation of more income.

Part of this relates to the accreditation of the exchangeable bonds overtime that they'd become larger tax shields overtime. And so this is somewhat of a moving target.

Albert, do you want to add anything?.

No, I think that's it. The one thing to remember is, to the extent RSSs deductions we'll be able to claim those in the future. But otherwise I think it's -- we're continuing to work through what numbers are going to be..

Mark, do you want to add anything?.

No, I think -- effectively the statutory rate will go down just because of what the effective tax rates are from what the statutory rates were before but it's -- it will be impacted by amortization and by limits on what the interest is and all of those will drive the components on it.

But I think overall, it will be down just because the statutory effective rate is down..

We'll go to our next question from Heather Balsky from Bank of America. Your line is open..

Can you talk about QVC U.S.

gross margin in the quarter; what was in that inventory obsolescence? And how -- I know you guys don't guide but just how to think of pressure from warehouse and distribution costs next year?.

What I would think about it is, we -- the inventory obsolescence charge that's sort of based on the rate of change in inventory, as well as the usage of liquidation activity, and it tends to be fairly sensitive to both your prior period growth in inventory and your current period growth of inventory. So I don't think the U.S.

number -- a decent amount of that charge really just reflects the fact that we had an unusually level charge in Q4 of '16 and that we anniversaried and a little bit of it reflects some inventory growth.

I would say looking forward, we're not especially concerned about inventory, thought we always pay attention to but we don't see inventory obsolescence as inherently a long-term drive on the business, it does tend to bounce around a fair amount from quarter-to-quarter and had unusually big impact in Q4 that would be indicative of what you would expect overtime.

The other impact on gross margin as you touched on was just -- when we do have ASP declines, you're shipping out lots of units for fewer dollars and so you inherently have some deleverage on the crate and warehouse line.

So those were the two things that pressures gross margins, the latter -- you know, we'll continue to the extent that you have ASP declines, it will reverse when you're in the period of driving ASPs, we've seen both; and the inventory obsolescence should be somewhat more neutral over the mid to long-term.

And then we've felt actually very good about the fact that our net product margins we're very stable in the quarter. And into the underlying kind of product health of the business felt just out with us [ph]..

A fair number of retailers are talking about reinvesting some of the tax reforms benefit into their business; how are you thinking of spending any of those incremental dollars?.

The way we think about it is, we've been one of the fortunate few retailers to have a wonderfully healthy balance sheet and cash flow. So we've never been shy about investing where we think there is a healthy return for that investment and the tax reform further enables that.

But I would independent of tax reform -- you will see this kind of continue to do what we've historically done, which is we're [indiscernible] to investments, we will, certainly we're leading into technology investments, leading into e-commerce investments, really building up more resources in those areas, as an example, we're leading in the marketing.

And I've seen some of that over the last several months, it's working for us and we want to continue that. And then beyond that it's really just a matter of paying attention to the marketplace and I think it's general price competitive in the market.

We feel good about the teamwork attracted to the business and we'll kind of make those decisions as they come..

And if I could add, if you look historically to reiterate Mike's point; we've been a huge free cash flow generator, we've reinvested that not only in share repurchase but also in acquisitions like the cash that we spent on buying zulily.

Like the money that was effectively reinvested alongside in the Liberty Ventures effort which came originally from QVC cash generation has fueled the charter investment; so I think there is an opportunity to do a lot of things with that cash flow that are attractive.

I think we've done well with that in the past and as Mike said first and foremost, we look at the business for things that have a great rate of return but we'll find other things if we can't find it in the business..

And next we have Ed Yruma from KeyBanc Capital Markets..

Mike, obviously a very impressive multi-quarter trend of QVC; when you look at some of the issues at H; do you see any similarities? And is there any risk that some of the strength at Q is driven by share gains from H? And then as a follow-up; EasyPay, it's been a little while since you've spoken about it.

I know you've made some adjustments over the past kind of 18 months, how do we view that, use the tool and how it's performance been? Thank you..

So as we look at QVC performance versus HSN, I don't think share gains tends to be a major store for us, we historically believe that and now that we see inside the numbers we continue to believe it.

We were actually pleased that we moved through the acquisition process to find that the customer overlap between QVC and HSN was less than we expected; so ours is the largest majority of both companies businesses are consumers who don't cross shop.

And so we've always believed that in this fairly niche business we're in it's more about growing the total category, if you will, and getting more people to be attracted to our way of shopping as opposed to share shift between H and Q.

So I'm not at all worried but there is a sort of fixed high and that we were able to grow H at all per Q or vice versa.

We think it's a chance to just introduce more customers to the two brands to do all the things we've talked about to leverage the combined scale and resources to be that much more effective in attracting vendors and serving customers and to grow the total pie.

I think the issues that interest inflation [ph] is somewhere some of the things we've seen at QVC over the years somewhat more unique to HSN but also like things that are impressible and we're sort of excited to partner with the terrific team we have at HSN to move the business forward.

On EasyPay, I would say that the headline message on EasyPay for a few quarters now has been to keep it relatively stable and I think that's a fair characterization of Q4. Whether slight increase in the number of payment but pretty modest so I would say on balance, we've been stable and we're going to keep it pretty stable going forward.

And of course, as you've seen, we've now had three or four quarters -- I think four quarters of improved bad debt rates that have been good guidance of P&L. So I think we're managing it very tightly..

And our next question comes from Alex Fuhrman from Craig-Hallum Capital Group..

I'd be curious to hear what feedback you've gotten from the vendors that sell to HSN; if you have a lot of interest in some of those brands and personalities perhaps, introducing some product on QVC or appearing on the network and particularly with QVC's international properties?.

I can safely say that every HSN vendor almost has after about getting on QVC and most QVC vendors have after that getting on HSN, so there is definitely lot of interest and excitement as you would expect in the vendor community. And to approach the pathway, we do want to keep the product portfolio of QVC U.S.

and HSN fully discrete and separate so that again, we're growing the total pie, not just creating off vendors across the two businesses. But there is a big opportunity internationally as you mentioned, so both looking at QVC vendors that are international but for whatever reason haven't made sense in Q-U.S., they could go on HSN.

And similarly looking at HSN vendors that could be on the QVC International; and we already have some of that with probably a way to accelerate it.

But there is lots of other opportunities, there is opportunity to work with -- we've built, just give a couple of micro examples but we've built a really strong food business, gourmet food business at QVC, much stronger than what has been built at HSN.

We don't want to say products appeared in both networks but some of the vendors behind those products who know how to build great compelling, good assortment for QVC; they are now excited about going and building a new gourmet for HSN.

We think that's going to be a real -- just immediate opportunity, and I think we'll go through a dozen examples like that.

Included in our own proprietary score sheet capability where we're going to launch in the back half of the year three new fashion brands at HSN that are all developed by -- that are all being developed and sourced by QVC's direct sourcing team, the team that has had enormous success building great business with [indiscernible], one of our more successful recent launches they allow be introducing new product to HSN.

So I think we're going to find lots of good ways to get leverage from our vendors and direct sourcing capabilities but still keep the product portfolios very separate..

Our next question comes from James Ratcliffe from Evercore ISI. Your line is open..

First of all, on FTD being left behind at QVC; what's the rationale for that? And looks like the only non-cable asset and that's going to be at GCI Liberty is the Lending Tree stake; so why not we allocate that as well in less cash? And I guess second, more broadly, once the GCI Liberty transaction is complete you're going to have two standalone vehicles out there which are primarily charter driven.

Is there a rationale for having the stake separate? And if not, can you talk about what any barriers would be to putting them together?.

On FTD, frankly, as the value of the FTD has declined in the marketplace, it has become less of a meaningful asset and putting it over at Q where it's more rational and frankly, if we ever have taken a tax loss because of our investment being higher than the current market there is more capital gains offset at QVC, so it's more attractive.

As far as Lending Tree, we like the business, it does not necessarily fit particularly well with either, we've done a hell of a job, Doug [ph] and his team.

There are some reasons why from regulatory perspective having what we call good assets over at the Venture side -- well, formally Ventures side will become GCI Liberty side makes sense, and Lending Tree qualifies with that and given our ownership position over 25% as the largest holder.

On the back that we will have GCI Liberty and Liberty broadband in the marketplace, it's probably suboptimal on management time and board time to have two. We have no obviously current plan or intent to merge them but after a year passed, they have enough common ownership, it's not inconceivable that could happen.

My understanding is that they have 50% common ownership, it could happen in less than a year but as I said we have no plan or intent, we've just explored and understand the options..

And our next question comes from Barton Crockett from B. Riley FBR. Your line is open..

I was curious about whether the QVC and HSN customers seem to be reacting at all to the tax cuts.

Are you seeing any energy -- spending energy from that? Do you expect to see anything from that over the year?.

I don't want to comment on in-period performance or customer response. So I would say we'll have to see overtime how the customer responds to those tax cuts but I think it would be premature make any -- have any expectation around what that might look like..

All right, so let me try a different question then. One of the things I think that is an opportunity that you guys have not yet tapped is putting QVC on skinny bundles like the swings and the YouTube TVs.

And I know in the past you've said your customers aren't really there but I do know that if you guys got on those bundles, I think your equity, at least investors I think would like some of the future proofing there.

And I was just wondering if you could update us on what you see in terms of the timing of being able to move there, the potential to do some innovation on those platforms could be interesting.

Just how long do you think it is before you get there -- is there any reason those guys wouldn't want you or any resistance they've had to putting you on there if it's just that it's not been worth your while yet because your customers aren't there?.

We definitely -- we're intrigued by that space, how big these skinny bundles will get, we all need to see but we'd like to be there. There is no reason we can't be there, I do think we could some innovative things on those bundles.

So while I don't have any specific needs to update you on, I would say we know all of the players in that space and we're in ongoing discussions with them, there's nothing that we've heard in all of those discussions that would suggest it's anything other than a matter of when as opposed to it.

Clearly, some of those bundles -- with sling it would be a good example, swing bundle have been a little more targeted at a male audience, maybe more targeted at a younger audience. So less strong fit, at least as plus today but that could evolve overtime whereas other bundles or maybe a little more aligned with our customer.

That said, where we stand is, at a special high priority of ours or the providers because it really isn't where our customer is today. We know that with absolute confidence that as soon as our customer migrate for those kind of platforms, it will be a compelling economic reason for both, us and the providers to put us on those platforms.

So we've always looked at those platforms as only an opportunity, not all a risk, I think there is simply no economic rationale -- cannot be on them, just a matter of when. If the customer chooses to buy crate [ph] to them and then I think we'll be there..

And our next question comes from Jason Bazinet from Citi. Your line is open..

I just had two questions related to tax. Between the Investor Day and year-end, you guys I think put out a release sending about $400 million more to QVC to compensate QVC holders for the drop in the federal tax rate that made the tax shield on the exchangeables worth less.

Was any of that money be to compensate QVC for the interest deductibility cap that's going to get more punitive [ph], particularly after 2022 or is that just a federal rate dropping?.

Albert, do you want to comment on this?.

Sure. In connection with the amount that will be reattributed, both the change and the rate and the limitations they've built on infrastructure prospectively were taken into account and terming the amount to be paid in connection with the reattribution..

And then might my second question is, as you guys think about your leverage -- as we go through time and this cap becomes more relevant; are you just looking at -- is it important, let me put it this way, for every dollar of interest to have a tax shield associated with it or you're just looking more about whatever your net cost of debt is relative to whatever you think you can do with that capital?.

I think it's -- I do not believe it is as black and white is that because I think there are issues around the fact that what is the rate on the debt, what is the alternative use of proceeds you could do if you're going to talk about repurchasing the debt, purchasing other income streams to make sure that you have a sufficient amount of income since you have non-deductibility and the fact that it's only deferral of the deduction, not an elimination deduction; I don't think you can sit there and say it's a one shot, here is the calculation.

I think there are many factors that are going to weigh how exactly -- how much of it we try and fix real-time in any one period or defer the deduction.

Albert, do you want to add anything else?.

The one thing that we do is, to the extent we make future acquisitions or directly grow the business will have incremental deductions which are available to offset that income. So something that will kind of monitor as we go forward..

And you can be certain that we look at the after-tax cost of whatever financing we're using against whatever returns we're projecting. So the impact of that -- of those restrictions we factor into what the best way to finance a particular company or an acquisition or a division might be..

And our last question comes from Victor Anthony from Aegis Capital. Your line is open..

Two questions. One on the international business which performed way above expectations; so I'm wondering if you could just talk to the different countries, which one has performed better, which ones performed any.

And on the viewership, I think this is the second quarter in a row that you've seen an improvement in viewership; correct me if I'm wrong on that one. I was wondering if there is anything specifically that you're doing to drive with the minutes on the broadcast TV platforms..

In terms of the International profile, one thing we've been excited about is just how balanced the performances has been across the international markets. The target we get every market working well at the same time, and keep where we did, have growth in every single market.

So on balance I would say we feel good about the performance across the Board. I would say Japan was particularly standout and it has been now for a few quarters, U.K.

came back very strongly after our over the top [ph] start to the year; so those two in particular I would say were our strongest performance but I think that the big takeaway on internationals by more the balance and the kind of consistency of growth across the businesses.

And growth rate was not quite as strong in Germany and Italy, it was still good and we saw very nice margin performance in those markets; so we like to balance.

On viewership, you're right, it is the second quarter where we're seeing absolute increase in viewing minutes on traditional broadcast TV platforms before taking into account all these other ways that we get viewing minutes on live stream platform.

So it's great to see the traditional broadcast platforms working, it's hard to point in one thing; if there is -- very much this; kind of cause [ph] effect where we both need people to turn on their TVs but we know what we're operating compelling products engaging program means they're going to stick around and being aged and view, and when they view they buy.

So to me it's as much a reflection of just getting the business stronger, getting an exciting and diverse product mix, getting more newness on the networks, continuing to lean into what we call our destination programming where we attract large audiences around certain kind of tune-in shows that are on every week.

I think all those things are helping to contribute what's been some very nice viewership performance..

I have a follow-up and it's on the two media events in the current quarter which is the Olympics [ph], as well as the Florida school shooting.

Just curious what the impact is on -- I guess on viewership in minutes?.

Again, I can't comment on anything related to the current quarter. We've shared on past calls that when you have big externalities like that there's only some impact on viewership but I wouldn't want to be specific about that or connected to that kind of current events..

Operator, I believe we're through with our question. I want to -- as I said, this is the last Liberty Interactive earnings call.

We announced the formation of Liberty Interactive in November of 2005, it was actually in the earnings call in which I announced I was joining the Company; so it's been a pretty good run I want to thank you all for your participation. I hope you will have continued interest in Liberty and both, Qurate and GCI Liberty going forward..

That concludes today's conference. Thank you for your participation. You may now disconnect..