Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Interactive Corporation 2017 Q1 Earnings Call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference is being recorded, May 9, 2017.

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

Thank you.

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, future expenses at QVC, sales demand, the proposed acquisition of GCI, the proposed split-off of Liberty Interactive interest in GCI, and certain Liberty Ventures Group assets and liabilities and the timing and benefits of those proposed transactions, the renaming of Liberty Interactive, 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 involved in GCI, 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 statement contained herein to reflect any change in Liberty Interactive’s expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is based.

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 note 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.

Now, I’d like to introduce Greg Maffei, Liberty Interactive’s President and CEO..

Thank you, Courtnee. Good morning to all of you. Today, speaking on the call, we will have Liberty Interactive’s CFO, Mark Carleton; QVC’s President and CEO, Mike George; and the President and CEO of zulily, Darrell Cavens.

Since TripAdvisor doesn’t report earnings until tomorrow, we will not be taking any questions regarding Liberty TripAdvisor on this call. So on to the highlights. We were very pleased with the improvement in the QVC U.S. business.

Revenue was down about 3% in the first quarter, a great improvement from Q4, even with approximately 1.5% of headwind due to the absence of a leap year this year compared to last year. The extra leap day was costly to that amount. Operating income was flat, and adjusted OIBDA was up 3%.

QVC International grew 2% in constant currency with operating income up 20% and adjusted OIBDA up 15%. Consolidated mobile penetration was 62% of QVC.com orders continuing its pace, that was up 560 basis points. The Q team is doing a very good job driving this business in a difficult retail environment.

zulily grew revenue only 1%, and Darrell will be on to discuss the factors impacting his business in a moment. We repurchased $77 million of QVC A shares from Feb 1 to April 30. I’d like to note that we were out of the market on share repurchases for part of this period due to the previously announced GCI deal.

As we’ve discussed, our buyback strategy is to target annual buybacks to match the free cash flow of QVC, and this remains our strategy. At Liberty Ventures, we are thrilled to announce the planned acquisition of GCI, the largest telecommunications company in Alaska and the combined split-off of Liberty ventures.

Let’s review some of the highlights of that transaction. We are structurally creating real value for the QVC Group and Liberty Ventures’ shareholders by reducing tracking stock discounts through the creation of asset-backed securities and providing greater flexibility for future strategic acquisitions and combinations.

So why GCI? This is the Goldilocks deal, in our mind, for many reasons.

We needed something that fit well with our existing cable assets in Liberty Ventures and was the right size compared to the existing assets and businesses of Liberty Ventures, didn’t want it to (5:30) be too big given share issuance and dilution, nor too small, given structuring and regulatory considerations.

It is very nice to see the market grok (05:41) this deal for LVNTA, but this separation and reattribution are very positive for QVC Group as well. As a part of this transaction, there will be a reattribution of certain assets and liabilities from Liberty Ventures to QVC Group.

We are re-attributing attractive tax shielding assets and liabilities to QVC Group, keeping them within the income tax generating assets, for example, QVC itself. This allows future cash generation from tax savings that can be used for stock repurchases, debt reduction or potentially strategic investments.

Similarly, we are re-attributing cash from Liberty Ventures, which will provide an immediate source of liquidity, and this can also be used for stock repurchases, debt reduction or potential strategic investments. QVC Group will also receive the ILG stake, a potential source of future monetization or other strategic actions.

The value of this reattribution was largely driven by the exchangeable debentures. If you recall, the exchangeable debentures are due in 2029, 2030 and 2031, and they have favorable tax attributes, and this was critical in determining fair value.

With the help of a financial adviser, the same one that advised us in the previous re-attributions of these bonds – these same bonds, we looked at the value of the cash flow provided by these bonds against the principal and tax liability that would be due when these bonds mature.

If tax rates change before the closing, this would factor into our calculation, which will be done at closing, but I would note there is a natural offset, as we said before, between tax deductions taken in the past, and therefore owed and future tax deductions.

Additional information on these bonds is available in our Investor Day deck appendix from November 2016 and our deck from the announcement of the GCI deal in April of 2017. For Liberty GCI, we see the transaction as credit positive over the long-term given the assets of Liberty Ventures.

But out of the gate, the asset coverage goes up from 5 times, from 1.5 times pre-contribution. GCI received consents recently from its bondholders and banks due to – to waive the change of control put and amend other – particular terms of the indentures and credit agreements, respectively. We look forward to this deal closing early in Q1 2018.

So with that, let me turn over to Mark Carleton to discuss the financials in more detail..

Thank you, Greg. Let’s take a little look at the liquidity picture. At the end of the quarter, the QVC Group had attributed cash and liquid investments of $379 million and $6.2 billion in principal amount of attributed debt.

QVC, Inc.’s total debt to adjusted OIBDA ratio, as defined in the credit agreements, was approximately 2.7 times, which includes zulily’s adjusted OIBDA as compared to a maximum allowable leverage ratio of 3.5. So in good position there. Now, I hand it over to Mike George for some additional comments on QVC.

Mike?.

Thank you, Mark. I’d like to start today’s call by just taking a moment to appreciate our more than 17,000 QVC team members around the world who in good times and in bad remain passionately dedicated to our customers and our values and our business.

And their focus and their determination, I think, are beautifully reflected in our results this quarter. While our sales are still not where we want them to be, the substantial improvement in the U.S.

sales trend, the consistent performance internationally, the significant increase in profit margins, despite the promotional environment at retail, the numerous recognitions we’ve recently received for customer service, these are all a wonderful testament to our QVC people, and I’m grateful for their efforts to go above and beyond every day.

We delivered strong improvement in the U.S. sales trend in Q1, and while we won’t be satisfied until we get to positive growth, this is an important progression in the second half of 2016, and we believe the strategies we’ve shared with you on recent calls contributed to our improved results.

We also achieved solid and stable revenue growth in our International segment and strong growth in operating income margin and adjusted OIBDA margins with U.S.

operating income margin up 40 basis points and adjusted OIBDA margin up 130 basis points and International operating income margin up 170 basis points and adjusted OIBDA margin up 180 basis points. And despite the deceleration in sales at zulily, we remain highly confident in its long-term business model.

QVC’s consolidated operating income was up 5%, adjusted OIBDA grew 6%, and revenue declined 1% on a constant currency basis. On a trailing 12-month basis, we served 12.7 million customers, largely flat to last year, excluding our China – that excludes our China joint venture.

The digital engagement increased sharply with global e-commerce and mobile penetration growing approximately 350 basis points and 560 basis points respectively in Q1. Our U.S.

business demonstrated much progress, revenues declined 3% and just 1% adjusting for the 1.5% impact of leap year, a material change in the trajectory from the second half of 2016. A key driver in the sales performance was improvement in average selling price trends. The ASP declined 5% in Q1 compared with an 8% decrease in Q4.

We once again achieved growth in total units sold and in units sold per customer as our customers remain highly engaged with QVC. Our 40-basis point operating income margin and 130-basis point adjusted OIBDA margin improvements in the U.S.

were primarily due to favorable fixed cost that includes a lower severance and an insurance settlement, improved product margins, higher credit card income, customer service efficiencies, and lower marketing and lower bad debt expenses, partially offset by higher warehouse costs due to ASP deleverage and the ramp-up of our Ontario distribution center.

We’re beginning to see the impact from our strategies to return the U.S. business to growth. As we discussed, our first priority is driving more balanced growth across categories. In Q1, we achieved gains in apparel and beauty and good sequential improvement in the five underperforming category segments that pressured our results last year.

Those segments, jewelry, electronics, kitchen/cook, hair care and handbags were approximately 31% of the sales mix in Q1 and declined 11% year-over-year compared to the 19% decline in Q4 and the 24% decline in Q3. To achieve more balanced growth across categories, we’re leaning into our core brand values of discovery, freshness and diversity.

In Q1, we introduced 95 new brands. That’s a 27% year-over-year increase, and we increased the number of new items launched across all brands by 12%. In beauty alone, we’ve introduced 24 new brands year-to-date. Top Q1 launches include Kristofer Buckle, which sold out of all items; the re-launch of Bobbi Brown; and skincare brand, Crepe Erase.

In apparel, we’re seeing a continued strong performance of newer brands, Peace Love World, Belle by Kim Gravel and Hot in Hollywood, along with strength at many of our exclusive lifestyle brands like Lori Goldstein and Isaac Mizrahi Live! In footwear, we launched ED by Ellen DeGeneres in March to strong initial results.

And looking to Q2, we have many additional new brands launching in footwear, accessories, travel and handbags. In particular, we’re excited about the addition of Mephisto and Gentle Souls by Kenneth Cole in footwear and the launch of our leading European handbag line, Kipling.

It’s also worthy that we mention that we introduced Dooney & Bourke on zulily in Q1 to strong results. In home, we’re focused on diversity and discovery. We launched nearly 30 new brands in kitchen/cook and another 26 in household and garden in Q1.

Food, gardening, fitness and mattresses were a leading category segments with particular strength from Fitbit, Total Gym and Serta. And in April, we saw strong performance in home automation with Ring doorbell. In electronics, we reduced airtime and drove improved permanent productivity.

Areas of strength include a smart home with Blink home security and all-in-one and 2-in-1 touch laptops. And Amazon continues to be one of our fastest growing vendors in both Echo and tablets.

In jewelry, having focused last year on clearing out stale inventory to make room for fresh product, we were able to increase the number of new items over 50% in the quarter.

We were especially pleased with the launch of Lola Rose, a top jewelry brand in our UK business as well as the reintroduction of the Imperial Gold brand, which has not been on QVC for 5 years. Our second strategy in the U.S. turnaround is to accelerate new customer acquisition. And while U.S.

new customer growth declined moderately in Q1, the trend improved significantly from full-year 2016. And more importantly, we saw solid growth in new customers per minute in most of our category segments, adjusting for leap year, with those gains offset by unfavorable category mix.

Expanding reach and relevance across broadcast and digital platforms is the third key strategy in our U.S. business. Our actions are designed to increase the number of purchase occasions we capture from existing customers and to increase the number of new customers acquired. We’ve been encouraged by the performance of our second U.S. network.

And on April 1, we renamed and re-launched the channel as QVC2, as a part of our strategy to build QVC2 into a destination network. We introduced a Deal of the Day the QVC2 Big Deal, similar to our main channel, TSV, which has generated strong early results with five sellouts to date.

We’ve doubled the number of live hours per week to 40 to capitalize on the higher productivity of live shows. We’re creating new and unique programming and destination shows that are exclusive to QVC2 such as In the Kitchen with Mary, PM Style with Leah and AM Style with Gabrielle.

And over time, we intend to build a portfolio of brands that are primarily or only available on QVC2. We continue to be pleased with Beauty iQ, our third U.S. network, which was launched last fall and currently reaches more than 40 million homes, including the addition of Verizon HD in Q1 with 20 hours of live programming.

Now, the Beauty’s deal, the networks equivalent of the TSV, has performed well with four sellouts to date. We’re utilizing social programs to extend Beauty iQ’s reach and drive engagement, including launching a monthly blogger program, in which top tier beauty bloggers will create videos, feature new beauty product or topic.

The blogger segments will appear in Beauty iQ and be promoted on their social networks along with ours. We’ve also initiated #QtheBeauty, a monthly trend identified by our beauty buyers.

And we continue to utilize compelling events, remotes and celebrity connections across our business to generate entertaining, engaging programming across networks and to extend our reach. We hosted and inspired style remote broadcast from New York City during Fashion Week.

Last month, we aired a two-hour remote event from Lisa Rinna’s California home to celebrate the fifth anniversary of her product line on QVC. We simulcast the show on Facebook Live, reaching nearly 1 million people, our most popular Facebook Live broadcast to date.

Program host David Venable and QVC vendor Rachael Ray teamed up with a segment on the Rachael Ray Show. And later in May, we’ll broadcast In the Kitchen with David from San Francisco. And for the third year, we’ve teamed up with NBC’s Today Show to give inventors a chance to earn a spot on QVC.

Like the previous year, this year’s winner sold out his product, Frywall, a Silicone Splatter guard, during the on-air broadcast on QVC. And last week, we were really excited to announce a new multiyear agreement for the Martha Stewart brand.

Under this agreement, QVC will launch several categories for the brand, including skincare, fashion apparel and food and beverage.

The new collaboration is expected to launch in the second half of this year and will feature frequent appearances with dedicated programming on QVC, QVC2 and Beauty iQ by Martha and a team of Martha’s favorite experts as they showcase new products and share tips on how to incorporate them into everyday living.

QVC at its core is about the joy of discovery and the power of relationships, and few do a better job of connecting with fans and inspiring them to embrace new ideas than Martha Stewart. And so we really look forward to this new collaboration. Investing in our digital platforms.

In the U.S., e-commerce grew 390 basis points to 54% of sales and mobile rose 520 basis points to 61% of digital orders. And we launched significant changes to the digital experience to highlight all three of our networks and to drive integration across our TV and digital platforms. We have a mobile-first philosophy with a video-centric approach.

In Q2, we’ll launch new iOS and Android apps that provide an enhanced video experience and leverage our global e-commerce platforms. We’re also expanding our product assortment on digital to support discovery, freshness and product diversity.

And in mid-April, we launched StudioQ hosted by zulily, a new, online experience that offers deep discounts on brand names and designer products, that creates more curated assortments by tapping zulily’s personalization strengths while delivering a QVC-branded experience. And finally, on the U.S., it’s worth noting that throughout the U.S.

downturn, we maintained an intense focus, as we always do, on customer service. And so we were especially proud to be recognized for this commitment.

QVC was tied for the number one retailer in the 2017 Temkin Experience Ratings and in the 2017 Stevie Awards, we received a Gold award for E-Commerce Customer Service and a silver for the Retail Customer Service department of the year.

We are further advancing our focus on customer service by combining QVC and zulily’s customer service organizations under a common management structure. And we’re integrating Facebook Messenger under our platform, learning from zulily’s pioneering work with Messenger, giving customers another medium to interact with us for customer service.

Turning now to our International segment, revenue increased 2% and closer to 4%, excluding the leap day impact on a constant currency basis, with unit volume up 4% and ASP down 2% in constant currency. We experienced gains in all categories, except jewelry and electronics. And just as the U.S.

is benefiting from our OneQ structure with the introduction of international brands, our International segment is leveraging the U.S. brands. Since the launch of OneQ, we’ve launched 44 U.S. brands in non-U.S. markets. In Q1, we continued this brand development, introducing some 10 U.S.

brands in our International segment, including Quarks (22:01) and TULA from our global brand portfolio as well as Marc Fisher, Peace Love World and our proprietary brand, AnyBody.

QVC International grew operating income 20% and adjusted OIBDA 15% on a constant currency basis, and operating income margin and adjusted OIBDA margin increased 170 basis points and 180 basis points, respectively.

Primarily due to favorable fixed costs that included lower severance as well as higher product margins, customer service efficiencies and favorable inventory obsolescence and warehouse expenses. Now, these factors are partially offset by higher TV distribution commissions in the UK. Our Japan business was a particular highlight.

It grew local currency revenue in the mid-single digits and delivered strong operating income and adjusted OIBDA improvement. Our European businesses continue to generate solid performance, led by Germany and Italy, which delivered solid top line gains and margin expansion.

The UK’s top line softened, consistent with the overall UK retail sector, but we continue to have a high degree of confidence in that business, which has demonstrated solid results for many years.

Our France launch does continue to underperform our expectations, and we’re continuing to broaden assortments and test heavier levels of ad spend to see if we can accelerate customer acquisition. And in China, we are pleased to deliver local currency sales gains. And as a reminder, our China JV is not in our consolidated results.

Now, I will turn it over to Darrell..

Thanks, Mike, and thanks, everybody, for joining today’s call. As we mentioned during last quarter’s call, we faced tough comps for the first half of 2017 and we are disappointed in our top line growth for Q1.

We continue to focus on our marketing and merchandising efforts and believe our continued investments and initiatives will deliver stronger growth. Revenue for the quarter increased 1%, driven by a 4% increase in the number of orders placed for active customer.

This variance was primarily due to stronger sales later in the first quarter 2017 compared to the prior year. And revenue associated with these sales was deferred until the second quarter of 2017. In Q1 last year, we had some very large sales events from a few national brands that we were challenged to comp this year.

These events impacted our revenue by approximately 300 basis points. Additionally, our results include an approximately 1% impact from the leap year. Operating loss improved 12% to $38 million for Q1 2017 due to decelerating amortization of intangible assets related to purchase accounting in Q1 2016.

Adjusted OIBDA declined 35% to $15 million, so please remember that OIBDA last year grew 475%. So our two-year OIBDA growth was 275%. Gross margin declined 180 basis points as a result of higher supply chain expenses due to an increase in international as well as a variation in our product mix.

We experienced strong growth in our home business, which typically has slightly lower margins. We expect some margin pressure to continue through rest of the year as we invest in technology in our third-party fulfillment service offering at our New Bethlehem, Pennsylvania facility.

Our emphasis on delivering unique products and differentiated brands at great values is what attracts and then keeps our customers coming back to us again and again. Our loyal customers continue to engage with us with 93% of purchases during Q1 of 2017 coming from existing customers, up from 90% last year.

We saw a strong growth in our women’s and home categories, and we’re excited to introduce our customers some great new brands, such as Dooney & Bourke, which we leverage from the QVC brand portfolio and Banana Republic Factory. As we continue to see strong growth in categories like women’s and home, we’ve seen sales softness in our kids business.

Our merchandising and marketing teams are focused on updating our offering to drive growth in this category, which we believe represents a strong long-term opportunity for our business. Last year, our focus was primarily on improving the daily customer experience and driving efficiency in our marketing spend.

This resulted in some pullback in marketing spend, particularly in Q4, which is now resulting in headwinds to demand in Q1. Marketing continues to be an area we’re putting a significant amount of management focus.

During the quarter, we shifted marketing efforts to better align with our internal goals of driving an increase in active customers by making changes across technology and marketing that allow us to optimize to a new set of metrics and spend more efficiently. In Q1, we tripled the number of digital ad tests we are running.

We also continue to diversify our marketing portfolio and invest in content for new emerging platforms such as Facebook Live and Hulu, with an increased focus on driving new customers. We’re seeing the early benefits of these changes through significantly improved customer acquisition costs and new customer growth.

In addition to focusing on new customers, we’re excessively focused on making people passionate fans of zulily. Mobile continues to be a key driver of engagement with 67% of orders during the quarter coming from mobile, up from 62% in Q1 of 2016.

We remain committed to enhancing our customer experience in programs and extending the lifetime value of our customers. I pulled together a group of leaders from across the company to focus on increasing customer retention, and I’m excited to see the early efforts they’re putting in place.

We continue to expand our third-party fulfillment services program. This is a program which vendors pay us to store the inventory on our warehouses for our events or other retail channels they sell-through without bringing inventory onto our balance sheet.

By expanding a number of units readily available in our warehouses, we’re (28:19) able to increase the volume of events that feature products that can ship in one to two days.

In the last few weeks, we’ve launched programs to increase visibility of these products to our customers, which will leap and drive an incremental set of conversions and ultimately increase sales with broader fast ship inventory. We will continue to improve and expand our offerings here.

Additionally, I’m excited to announce that we recently signed an agreement with Synchrony Bank to offer customers revolving credit for purchasing merchandise through zulily-branded credit cards.

We’re able to work with the teams at Synchrony and QVC to learn from their long-term relationship and help us move quickly to get a strong agreement in place for all parties. This will include the ability for us to accept QVC’s QCard on zulily.com. Under the agreement, zulily will receive a portion of the net economics from the credit card program.

We plan to launch the program in late 2017 or early 2018. We continue to be excited about the future we have ahead. For Q2, we’ll continue to face tough comps, but I remain confident in our initiatives that we have underway across the company to drive incremental sales growth.

I believe the investments we’re making in marketing, technology and supply chain will allow us to continue to drive strong growth and profitable growth over time. We look forward to updating you on our progress in the coming quarters. With that, let me turn the call back over to Mark..

Thank you, Darrell. Now, moving on to the Liberty Ventures liquidity, at the end of the quarter, the group had attributed cash and liquid investments of $442 million and a short $2 billion in principal amount of attributed debt.

The value of public equity method securities, including Liberty Broadband and other public holdings attributed to the group was $4.3 billion and $2.1 billion, respectively, at the end of the quarter, so in good shape. And with that, I’ll hand it back to Greg..

Thanks, Mike, Darrell and Mark. To the listening audience, we appreciate your continued interest in Liberty Interactive. And with that, operator, let’s open the floor for questions..

Operator?.

Yes, sir. Your first question comes from the line of Edward Yruma with Pacific Crest..

Hi, thanks very much for taking my question. Nice to see the improvement in QVC. Can you talk a little about the credit business? I know you said that you saw an improvement kind of in delinquencies.

What is the role of credit kind of longer term? If you look back kind of it’s on the difficulty you had, any learnings from that period? And I guess, kind of Easy Pay, has there been any structural changes with the way that you’re applying it? Thanks..

Yeah, thanks for the question. Credit continues to be a important part of the value equation to our customers. And as you know, we had a rise in bad debt a couple of quarters back. Our overall bad debt rates are relatively modest. Our credit write-off rates are kind of at the low end of benchmark, so we feel very good about that program.

I guess the way I would characterize it is, our approach is largely to be kind of stable and not materially increase or decrease the usage of credit as a part of value proposition. And so in Q1, you saw about stable performance in terms of the amount of credit that we offered. And I think that’s what we’ll look at going forward.

Because we’re not a highly promotional retailer, because we don’t offer free shipping on everything. The way we create a unique value proposition is through the Easy Pay program.

Our learning from a year ago is just to keep it stable and make sure we’re monitoring the trends very carefully and able to kind of pull back if we see any wobble in performance. But right now, I’d characterize it as very stable.

The other part, of course, in the credit story at QVC, and Darrell referenced it as well, is our QCard program and soon our zuCard program, that’s a very attractive program that adds meaningful economics to the business as we share in the income generated on the card with our partners at Synchrony..

Great. Thanks so much..

Your next question comes from the line of Victor Anthony with Aegis Capital..

One for Mike, one for Greg. So Mike, of all the, I guess, initiatives that you called out with merchandising programming, I guess new customer acquisition, secondary networks. What would you point to as a primary reason for the improving sales trend in the domestic U.S.

business? And Greg, if you just comment, if you can, on the transaction yesterday with Pandora we’d love to hear your thoughts, what you think about out there?.

I’ll interrupt and go first and note that this is not the Liberty Media call, so you’re going to have to hold that one till later.

Mike?.

So in terms of primary driver, not to dodge the question, but I don’t think we could point to any one of those initiatives as being a primary driver. When the business gets tough as it did in the back half, it’s usually a confluence of multiple factors and to get it better, we need a confluence of positive factors.

So the additional focus on the secondary networks certainly helped with growth. But all the work to just diversify product assortments keep moving to what was working in the business, adding more energy and excitement in the programming, every one of those elements, I think, contributed to the results.

So, I do feel good that we’ve got a team that’s kind of executing well and working on multiple initiatives in what continues to be a challenged retail environment to win in the marketplace. And I think we’ll kind to see that story continue..

And if I could just ask a follow-up in terms of just looking forward in terms of country launches.

Could you give us an update on how you think about expanding internationally?.

Yeah. At this point, we’re not actively focused on international expansion. Our priority is, we like to see the French business get stronger, and we are continuing to work on the China business as well. So we are open-minded about international expansion and we have a team that’s kind of always looking at opportunities.

And so if a really attractive opportunity emerged, we might jump on it. But at this point, I would say our emphasis has shifted more towards what we’re seeing as the strong impact of investing in these secondary networks, which we’ve talked a lot about in the U.S., but we’re also investing in secondary networks in Germany and the UK.

And in some ways we think about those as opening up new markets, same geographic region, but new ways to reach more customers, that feels like it’s more leverageable than the next set of international markets to expand into..

Okay. Thank you very much..

Thank you..

Your next question comes from the line of Alex Fuhrman with Craig-Hallum Capital..

Great to taking my question. I would love for you, if you could size up a little bit for us the magnitude of the improvement in March, just trying to understand some of the comments you made on the last conference call, I think you said that January and February were tracking down roughly 3.5%.

And then considering the impact of the leap year on top of that, it seems like March would have shown some pretty solid growth. So just want to make sure we’re doing that math correctly.

And then as we think about how Easter progressed, can you just give us a sense of how important, or I should say, April, can you give us a sense of how important Easter is to the month of April and if that caused any sort of a shift with Easter being later in the quarter this year?.

Alex, I appreciate the question. I don’t want to get into too much detail on kind of the sequential trends, because there’s so much volatility in our programming schedule. You mentioned the Easter shift, which really makes both March and April not comparable to the prior year.

So I would say – I would probably generally characterize it as we felt that improving trend as more and more of initiatives we put into place started to get traction, but also we’re trying to draw some straight line there, because there are lots of other factors that play into that in the programming calendar.

And I’ll probably kind of shy away from any comments about the current quarter. April is not hugely meaningful to the business, but it has some impact. But I don’t want to get into kind of details about Q2 at this point..

Sure. That makes sense, Mike. And then curious to see, you talked about some of the equivalent of the TSVs being launch on QVC2 and the beauty channel.

Do you feel looking out into the back half of the year? Are there enough TSVs to go around? I mean, could you have a full, robust complement of beauty and QVC2, TSVs, and did you feel that won’t impact or might that have some impact on what you’re able to show as your top deal a day on the primary channel?.

It’s something that we’re watching very carefully and kind of learning as we go. I think it’s all about relative expectations. So certainly, we don’t expect these secondary channel promotions to be anywhere near the magnitude of the TSV.

So, I think of these three very special deals, the TSV will always be the most special, it’s certainly where we’ll get majority of the volume. And we’re going to always kind of reserve our biggest opportunities for that channel. But there’s also an opportunity to be creative with the big deals and the beauty’s deals.

Doing things on those channels that might not make sense on the main channel, might not be a mass enough audience or mass enough idea, but it still be very attractive. So, I think it opens up opportunities to experiment with different kinds of daily deals that kind of earn a spot on the main channel.

So, I think we have a lot of opportunities to expand that program before we really risk cannibalizing the TSV..

That’s helpful. Thank you, Mike..

Your next question comes from the line of Heather Balsky with Bank of America..

Hi, good morning, thank you for taking my call. I was just wondering, in terms of the balance sheet, pre and post GCI, how you’re thinking about capital priorities, just given the fact that you’re taking on eventually the deferred tax liability from the debentures? Thanks..

So, I’ll take the first shot at that, and Mark or Mike certainly can add. We are going to provide both immediate liquidity for QVC Group through the transference of cash, and as we’ve noted, assets which are salable and future tax benefits.

So yes, there is a deferred liability out there, but it is 29, 30, 31, and in the interim, substantially increasing cash flows. And frankly, we’ll continue to evaluate whether we’re going to use that for debt reduction or incremental approaches or if we find something attractive to invest in.

But I would note that our first priority has been maintaining a stable sort of capital structure and using incremental cash flows to share repurchase, and I don’t expect that change. Guys, Mark or Mike, do you want to add anything? No..

Nothing else..

Great..

Okay. Great, thanks..

Your next question is from the line of Tom Forte with Maxim Group..

Great. Thanks for taking my questions. First off, Mike, congrats on the improving trends at QVC.

The question I has for Mike, on consumer electronics, is connected home a big enough category to offset the transition to tablet from desktop/laptop and kind of a lackluster TV? Or is that going to be just a continued challenging category until you see something either in the tablet or TV side? Thanks..

Thanks, Tom. I would say, today, connected home is not big enough to fill in for a declining computer and tablet business. So I would say we’re cautious in the outlook for consumer electronics. As I mentioned, we did further pullback airtime in the quarter and saw improved sales per minute as a result, but not kind of absolute growth.

I would hope that we are passed the worst of the pressure, because we have now kind of anniversaried a very large computer and tablet business. But – and we’ve seen some innovations in some segments, the all-in-ones and 2-in-1s, as I mentioned.

So what I would hope is, as we’ve seen some steep declines in computer and tablet, those start to just sort of naturally moderate, and there’re some innovations in some sub-segments in those categories, and then we’ll start to see some growth for connected home.

But whether all that adds up to top line growth in consumer electronics, we’ll have to see. We’re not necessarily banking on that and believe we have to have other vehicles for growth..

Thanks, Mike..

Thank you..

Your next question is from the line of James Ratcliffe with Evercore ISI..

Good morning. Thanks for taking the question. I’ve two on the Ventures side, if I could. First of all, when you – it looks like you will have about $1.2 billion or $1. 3 billion in cash in the FTD and other stakes once you’re done.

How much cash does GCI actually need, and how much is going to be sort of available potentially for other purposes within that business? And secondly, are there benefits to GCI from being a, call it, cousin of Charter effectively sort of within the Liberty family, even though they’re not part of the same corporate unit? Thanks..

So on the first point, GCI will be a free cash flow generator, not consumer. So we anticipate having shared of cash available for other purposes. And candidly, we’re bullish on Charter.

And if we continue to trade at a discount, GCI at a discount to – and the GCI Liberty complex at a discount to Broadband, and therefore, even bigger discount to Charter, that’s the only opportunity. Whether we can achieve something, because we’re part of a Charter family, we’ll have to work on that.

There is no direct ownership from Charter, so that is probably a second-order opportunity, not a first-order one. But certainly, we’re cognizant of the fact that Charter runs a video business with much higher margins of opportunity compared to smaller cable operators like GCI..

And just a follow-up.

Are there any limits other than tax considerations around the monetization of the LendingTree or FTD effects?.

No. I don’t – I would say not, it’s slightly more complicated, but no – in general, no..

Thank you..

Your next question is from the line of Jason Bazinet with Citi..

Just a question for Mr. Maffei. For many, many years, anytime the investment community asked you about potentially buying a portion of HSNi that you don’t own, you’ve always pointed investors towards the multiple disparity between Q and H.

For some reason, the buy side feels like your narrative has sort of changed on that or maybe less sensitive to that metric than you’ve been in the past.

Is that true?.

No. My philosophy is exactly the same. We weigh the multiple, in particular – no, not just the EBITDA multiple, but the free cash flow multiple, because the EBITDA multiples have converged, but the free cash flow multiples are still fairly far apart.

We weigh those, and clearly that we expect there would be some synergy values, but historically, we have found, in our judgment, that they are not sufficient, the synergies to overcome that multiple differential..

Okay, very helpful. Thanks..

Always evaluate on that basis..

Thank you..

The next question is from the line of Barton Crockett with FBR Capital Markets..

Okay. Thanks for taking the question. I wanted to focus a little bit more on the encouraging trend at QVC in the U.S. And if we do kind of a two-year stack on the ex-leap day kind of growth, and we are up 3%. And I know you don’t really want to guide, but just to kind of push a little bit on that or even talk about initial quarter trends.

But just to push a little bit on that, is there any reason that we shouldn’t think that that to your stack can persist for the balance of the year.

Was there anything unusual in the first quarter that seems like it wouldn’t be repeatable as we go through the year?.

I don’t think there’s anything especially unusual in the first quarter. So to your point we do feel good about the two-year stack and that would suggest opportunity in the back half. But we have to get there and get to the back half to see it. So as you know, Q1 and Q2 were roughly similar in year-over-year growth rates a year ago.

Q2 was more volatile, really strong growth in tough comps in April-May, and then big erosion in June, but the overall quarter kind of ended up similar to Q1. And then we get obviously to much easier comps in the back half.

So once we get to the back half and start to lap those easier comps, I would certainly hope that that pretends very well for the business. We certainly feel very good about the initiatives we’re taking, but not just hope, but to actually have a series of programs that will drive growth.

But beyond that, I don’t want to speculate until we get there and start to earn on the results..

Okay.

And just to understand this a little bit more clearly, is the Easter shift helpful for the second quarter and a headwind for the first quarter or the inverse of that or does it not even really matter?.

I don’t think it’s hugely important. The shift in the April might be just the way the – the way the calendar float altogether, I would say was modestly more favorable for Q1 than for Q2 in terms of the shift of Easter, but also just the timing of it.

I don’t know that I see that as necessarily a big driver of impact at either Q1 or Q2, so if I were to characterize it, I would say was maybe a modest – very modest negative, but not that material..

Okay. And then, if I can put this out to Greg or Mark. You’ve got the extra cash coming or cash capacity coming to QVC, you’ve said that your goal is on repurchase just to use your free cash flow to fund repurchase.

Is there an opportunity maybe to have an exception to that for a period of time as you move the cash over to QVC as you merge ventures into GCI?.

Well, I tried to talk about this a little earlier, Barton. I think we’re going to evaluate that. Clearly, we have incremental cash, and we’re going to have incremental free cash flow because of the tax-sheltering nature of those exchangeables.

And certainly on the – what we do with the one-time and the fact that we’ll have the incremental cash flows, we’re going to evaluate. But I suspect, we’ll certainly use the continuing free cash flow and look at share repurchase carefully..

Okay, great. Thank you..

Your next question is from the line of Matthew Harrigan with Wunderlich..

Thanks for taking my question.

Firstly, Martha Stewart was a pretty big brand back in the MSO days and how much smaller is it now with sequential brands? I mean how much are you limited by working with sequential brands or are there actually opportunities to work with them for other personalities and such? And then the second question, guys like Gartner Group, and this is a little hype here really starting to talk of AI, machine learning for retailing.

I mean, our – some of the European houses, I think, are like, looking at things like visual search and chatbots and all that to try to engage people. I mean, QVC’s wheelhouse has always been personalization.

I’m curious how much you think of that is high – for Mike, moving into the next decade? And how much is, at least preferably, beneficial or challenging to QVC? Thank you..

Thanks. I’ll start with the Martha question. We’re very excited about this partnership with Martha and was sequential. And I think what sequential does is they have a capability in partnership with us to develop product lines across multiple categories. I will tell you that Martha is incredibly engaged and committed to this.

And so we really see this as a kind of a next horizon together, the ability to really combine what Martha does so well in engaging an audience base and helping them understand how to lead a better life and to combine that with commerce.

So we’ll see, but we really feel good about both the product lines, sort of unique take of these products that Martha is bringing, and the commitment that she personally has made and her team has made to really been able to tell that story on QVC. So it’s been a super partnership to-date and kind of we’re all looking forward to launch.

On the hype around AI and machine learning and all the rest, we’ll have to see how things play out. But I do think we’re getting to a point where these are becoming meaningful trends that I think could be helpful to our business, and the whole trend of conversational commerce.

I think these are all interesting places for us to play in that, to your point, take what we’ve always been good at, personalization, we’ve just done it the old-fashioned way, and leverage new technologies.

And I’ll brag on zulily and Darrell and the team for a minute, because there many things we were excited about that acquisition and continue to be excited about is, zulily is a company that launches 10,000 new items a day, three to five images per item.

And through machine learning in 30-second intervals from 6 AM on, the website gets smarter and smarter, geared to every individual customer, and starts to present items, images, offers, events to the customers based on their historic behavior and what segments they fall into. And that’s just the tip of the iceberg.

And so, zulily is ahead of QVC in thinking about machine learning. And we’re talking a lot about how to leverage that capability with QVC. So we think there’s a lot there. We don’t think it’s going to change the world overnight, but we think we’ve got a good partner in zulily to help us figure out how to, kind of, thrive in that environment..

Thanks, Mike. Half year call, congratulations..

Thank you..

So, operator, with that I think we’ve run our course. Thank you to our listening audience. And we hope to hear to you again, speak to you again soon on a Liberty Interactive call..

Ladies and gentlemen, that does conclude today’s conference call. You may now disconnect..