Qurate Retail(QRTEA) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents Qurate Retail, Inc.'s unaudited condensed consolidated financial statements for Q3 2023, covering financial position, performance, and cash flows Condensed Consolidated Balance Sheets Total assets and liabilities decreased as of September 30, 2023, leading to an increase in total equity from $525 million to $693 million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $3,485 | $4,275 | | Cash and cash equivalents | $1,099 | $1,275 | | Inventory, net | $1,229 | $1,346 | | Total assets | $11,437 | $12,571 | | Total current liabilities | $2,456 | $3,099 | | Long-term debt | $4,835 | $5,525 | | Total liabilities | $10,744 | $12,046 | | Total equity | $693 | $525 | Condensed Consolidated Statements of Operations Q3 2023 saw net earnings of $12 million, a significant turnaround from a $2,736 million net loss in Q3 2022, despite declining revenue Q3 2023 vs Q3 2022 Statement of Operations (in millions, except per share) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Total revenue, net | $2,479 | $2,744 | | Operating income (loss) | $151 | $(2,607) | | Net earnings (loss) | $12 | $(2,736) | | Diluted EPS | $0.00 | $(7.21) | Nine Months Ended Sep 30, 2023 vs 2022 Statement of Operations (in millions, except per share) | Metric | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | | Total revenue, net | $7,772 | $8,580 | | Operating income (loss) | $693 | $(2,083) | | Net earnings (loss) | $164 | $(2,502) | | Diluted EPS | $0.33 | $(6.69) | - The significant improvement in operating and net income year-over-year is primarily due to the absence of the $3.08 billion impairment of intangible assets recorded in Q3 2022[17] Condensed Consolidated Statements of Comprehensive Earnings (Loss) The company reported a comprehensive loss of $34 million for Q3 2023, a substantial improvement from a $2,847 million loss in the prior year Comprehensive Earnings (Loss) Summary (in millions) | Period | Net earnings (loss) | Other comprehensive earnings (loss) | Comprehensive earnings (loss) | | :--- | :--- | :--- | :--- | | Q3 2023 | $12 | $(46) | $(34) | | Q3 2022 | $(2,736) | $(111) | $(2,847) | | YTD 2023 | $164 | $(1) | $163 | | YTD 2022 | $(2,502) | $(140) | $(2,642) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $602 million for the nine months ended September 30, 2023, with overall cash decreasing by $173 million Nine-Month Cash Flow Summary (in millions) | Cash Flow Activity | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $602 | $(37) | | Net cash provided (used) by investing activities | $18 | $704 | | Net cash provided (used) by financing activities | $(776) | $(571) | | Net increase (decrease) in cash | $(173) | $37 | Condensed Consolidated Statement of Equity Total equity increased from $525 million to $693 million as of September 30, 2023, primarily due to $164 million in net earnings Changes in Total Equity (in millions) | Description | Amount | | :--- | :--- | | Balance at January 1, 2023 | $525 | | Net earnings (loss) | $164 | | Other comprehensive earnings (loss) | $(1) | | Stock-based compensation | $36 | | Distribution to noncontrolling interest | $(35) | | Balance at September 30, 2023 | $693 | Notes to Condensed Consolidated Financial Statements Notes detail the Zulily divestiture, Rocky Mount fire settlement, debt status, and segment performance, showing improved Adjusted OIBDA despite revenue declines - Zulily, LLC was divested on May 24, 2023, resulting in a recognized loss of $64 million in the second quarter. Zulily's results are included in 'Corporate and other' through May 23, 2023[39] - In June 2023, QVC reached a final insurance settlement for the Rocky Mount fulfillment center fire. For the nine months ended Sep 30, 2023, the company received $280 million in insurance proceeds and recorded net gains of $208 million related to the fire[106] - As of September 30, 2023, QVC's consolidated leverage ratio was greater than 3.5 to 1.0, restricting its ability to make certain dividends or other restricted payments under its senior secured notes, though payments to service parent debt are still permitted[74] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 2023 financial performance, highlighting a 9.7% revenue decrease but a 54.1% increase in Adjusted OIBDA, and the 'Project Athens,' turnaround plan - The company's five-point turnaround plan, 'Project Athens,' is focused on stabilizing core businesses (QxH, QVC International) by improving customer experience, executing core processes, lowering costs, optimizing the brand portfolio, and building new high-growth streaming commerce businesses[142] Consolidated Revenue by Segment - Q3 2023 vs Q3 2022 (in millions) | Segment | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | QxH | $1,617 | $1,663 | (2.8)% | | QVC International | $577 | $554 | 4.2% | | CBI | $285 | $327 | (12.8)% | | Corporate and other | $0 | $200 | (100.0)% | | Total | $2,479 | $2,744 | (9.7)% | Consolidated Adjusted OIBDA by Segment - Q3 2023 vs Q3 2022 (in millions) | Segment | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | QxH | $201 | $143 | 40.6% | | QVC International | $77 | $62 | 24.2% | | CBI | $11 | $10 | 10.0% | | Corporate and other | $(4) | $(30) | 86.7% | | Total | $285 | $185 | 54.1% | Results of Operations—Businesses Detailed review of Qurate's business segments shows QVC's revenue decreased 1.0% in Q3 2023, with QxH declining 2.8% and QVC International growing 4.2% - QxH's Q3 revenue decreased 2.8% due to a 2.7% decline in units shipped, though ASP increased by 1%. Shipped sales grew in accessories, jewelry, and home but declined in other categories[209] - QVC International's Q3 revenue grew 4.2% (1.5% in constant currency), driven by a 2.7% increase in units shipped, particularly in the U.K[208][210] - CBI's Q3 revenue declined 12.8% due to a 7% decrease in ASP from higher promotions and a 5% drop in units shipped, reflecting softness in home and apparel categories[224] Material Changes in Financial Condition The company maintains strong liquidity with $1,099 million in cash and $2,145 million credit facility availability, despite recent debt credit rating downgrades Liquidity Position as of Sep 30, 2023 (in millions) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $1,099 | | Credit Facility borrowing capacity | $2,145 | - During the first nine months of 2023, the company's credit ratings were downgraded by Fitch, S&P Global, and Moody's, reflecting business challenges[190][192] - Projected uses of cash for the remainder of 2023 include $80-$110 million in capital expenditures and approximately $50 million for interest payments[195] Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from interest rate and foreign currency fluctuations, holding $995 million in variable rate debt and $5,159 million in fixed rate debt Debt Structure by Interest Rate Type (in millions) | Debt Type | Principal Amount | Weighted Avg. Interest Rate | | :--- | :--- | :--- | | Variable Rate | $995 | 6.8% | | Fixed Rate | $5,159 | ~5.4% | - The company is exposed to foreign exchange risk from QVC's international operations. A hypothetical 1% change in foreign currency exchange rates relative to the U.S. Dollar would have impacted the nine-month 2023 Adjusted OIBDA by approximately $2 million[231] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to a material weakness, with a remediation plan underway - The CEO and Principal Financial Officer concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to a material weakness in internal control over financial reporting identified in the 2022 10-K[235] - A remediation plan is underway to address the material weakness, focusing on enhancing IT general controls (ITGC), risk assessment, training, and implementing user activity monitoring[237][238] PART II—OTHER INFORMATION Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company reported no repurchases of its Series A or Series B common stock during Q3 2023, nor any share surrenders for tax payments - There were no repurchases of QRTEA or QRTEB common stock during the three months ended September 30, 2023[240] Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the fiscal quarter ended September 30, 2023 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023[241] Exhibits This section lists exhibits filed with the quarterly report, including CEO and CFO certifications and various Inline XBRL documents