HSNi Results for the Third Quarter 2017:
HSN, Inc
. (NASDAQ:HSNI) reported results for the
third quarter ended September 30, 2017 for HSN, Inc. (“HSNi”
or “Company”) and its two operating segments, HSN and Cornerstone.
Table 1 |
|
HSNi SUMMARY RESULTS AND KEY OPERATING
METRICS |
(In millions, except per share and average price point
amounts) |
|
|
|
|
Q3 2017 |
|
Q3 2016 (a) |
|
Change |
Net
Sales |
|
$ |
782.6 |
|
|
$ |
823.0 |
|
|
(5%) |
|
|
|
|
|
|
|
|
GAAP
results: |
|
|
|
|
|
|
|
Operating Income |
|
$ |
32.9 |
|
|
$ |
36.9 |
|
|
(11%) |
|
Net Income |
|
$ |
16.2 |
|
|
$ |
20.2 |
|
|
(20%) |
|
Diluted EPS |
|
$ |
0.31 |
|
|
$ |
0.38 |
|
|
(18%) |
|
|
|
|
|
|
|
|
Non-GAAP
results: (b) |
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
49.4 |
|
|
$ |
62.9 |
|
|
(21%) |
|
Adjusted Net
Income |
|
$ |
19.4 |
|
|
$ |
27.2 |
|
|
(29%) |
|
Adjusted EPS |
|
$ |
0.37 |
|
|
$ |
0.52 |
|
|
(29%) |
|
|
|
|
|
|
|
|
Average
price point |
|
$ |
60.11 |
|
|
$ |
61.75 |
|
|
(3%) |
Units
shipped |
|
14.4 |
|
|
14.9 |
|
|
(3%) |
Gross
profit rate |
|
34.4 |
% |
|
34.0 |
% |
|
40 bps |
Return
rate |
|
14.4 |
% |
|
15.3 |
% |
|
90 bps |
Digital
sales penetration |
|
53.6 |
% |
|
52.7 |
% |
|
90 bps |
Mobile
sales as a % of digital |
|
47.4 |
% |
|
42.5 |
% |
|
490 bps |
|
|
|
|
|
|
|
|
(a) |
The third
quarter of 2016 includes the results of TravelSmith and Chasing
Fireflies, two Cornerstone brands divested on September 8,
2016. |
(b) |
See
reconciliation of GAAP to Non-GAAP measures in Table 4. |
Third Quarter 2017 Results vs Third
Quarter 2016 Results
- On July 6, 2017, HSNi and Liberty Interactive Corporation
("Liberty") jointly announced that they had entered into an
agreement whereby Liberty will acquire the approximately 62% of
HSNi it does not already own in an all-stock transaction.
HSNi incurred $1.3 million in external transaction costs in the
third quarter of 2017. The transaction is subject to HSNi
shareholder approval and is expected to close in the fourth quarter
of 2017.
- In September, HSN implemented its business continuity plan as a
result of the approach of Hurricane Irma. HSN closed its
headquarters, redeployed critical personnel and relocated its
broadcast studios to temporary facilities outside of the storm's
track. These actions resulted in increased operating expenses
and limited program effectiveness which we estimate impacted net
sales and Adjusted EBITDA by $13 million and $5 million,
respectively.
- HSNi’s reported net sales decreased 5%, including the negative
impact of Hurricane Irma of an estimated $13 million, or
1.6%. The company completed the divestiture of two
Cornerstone brands, TravelSmith and Chasing Fireflies, in September
2016. Net sales at these brands during the third quarter of
2016 were approximately $12.5 million, representing 1.5% of the
sales decline. Excluding the impacts of Hurricane Irma and
the divestitures, HSNi's net sales decreased 2%. HSNi's digital
sales penetration increased 90 basis points to 53.6%.
- HSNi's operating income decreased 11% to $32.9 million. Net
income, which includes approximately $3.1 million of additional
income tax expense associated with equity awards that expired
unexercised, decreased 20% to $16.2 million. Diluted EPS was
$0.31 compared to $0.38 in the prior year.
- HSNi’s Adjusted EBITDA decreased 21% to $49.4 million.
Adjusted Net Income decreased 29% to $19.4 million and Adjusted EPS
was $0.37 compared to $0.52 in the prior year.
- HSNi's board of directors approved a quarterly cash dividend of
$0.35 per share payable December 15, 2017 to shareholders of record
as of December 6, 2017.
Table 2 |
SEGMENT RESULTS |
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2017 |
|
2016 (a) |
|
Change |
|
2017 |
|
2016 (a) |
|
Change |
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
HSN |
$ |
536.2 |
|
|
$ |
569.7 |
|
|
(6%) |
|
|
$ |
1,628.9 |
|
|
$ |
1,705.2 |
|
|
(4%) |
|
Cornerstone |
246.4 |
|
|
253.4 |
|
|
(3%) |
|
|
760.5 |
|
|
788.9 |
|
|
(4%) |
|
Total
HSNi |
$ |
782.6 |
|
|
$ |
823.0 |
|
|
(5%) |
|
|
$ |
2,389.4 |
|
|
$ |
2,494.1 |
|
|
(4%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
HSN |
$ |
181.3 |
|
|
$ |
190.0 |
|
|
(5%) |
|
|
$ |
559.3 |
|
|
$ |
586.4 |
|
|
(5%) |
|
Cornerstone |
87.9 |
|
|
90.1 |
|
|
(3%) |
|
|
279.4 |
|
|
295.0 |
|
|
(5%) |
|
Total
HSNi |
$ |
269.2 |
|
|
$ |
280.1 |
|
|
(4%) |
|
|
$ |
838.7 |
|
|
$ |
881.4 |
|
|
(5%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
HSN |
$ |
31.0 |
|
|
$ |
47.0 |
|
|
(34%) |
|
|
$ |
107.7 |
|
|
$ |
151.7 |
|
|
(29%) |
|
Cornerstone |
1.9 |
|
|
(10.1 |
) |
|
119% |
|
|
19.4 |
|
|
(18.8 |
) |
|
203% |
|
Total
HSNi |
$ |
32.9 |
|
|
$ |
36.9 |
|
|
(11%) |
|
|
$ |
127.1 |
|
|
$ |
132.9 |
|
|
(4%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA (Non-GAAP measure) (b) |
|
|
|
|
|
|
|
|
|
|
HSN |
$ |
42.6 |
|
|
$ |
58.0 |
|
|
(27%) |
|
|
$ |
141.7 |
|
|
$ |
185.0 |
|
|
(23%) |
|
Cornerstone |
6.8 |
|
|
4.9 |
|
|
40% |
|
|
33.2 |
|
|
26.1 |
|
|
28% |
|
Total
HSNi |
$ |
49.4 |
|
|
$ |
62.9 |
|
|
(21%) |
|
|
$ |
174.9 |
|
|
$ |
211.0 |
|
|
(17%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The
three and nine month periods ended September 30, 2016 include the
results of TravelSmith and Chasing Fireflies, two Cornerstone
brands divested in September 2016. Adjusted EBITDA (a
non-GAAP measure) excludes a non-cash asset impairment charge of
$20.4 million in the second quarter of 2016 and a $11.2 million
loss on sale of the divested brands in the third quarter of
2016. |
(b) See
reconciliation of GAAP to non-GAAP measures in Table 4. |
Table 3 |
SEGMENT KEY OPERATING METRICS |
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2017 |
|
2016 (a) |
|
Change |
|
2017 |
|
2016 (a) |
|
Change |
HSN: |
|
|
|
|
|
|
|
|
|
|
|
Average
price point |
$ |
52.18 |
|
|
$ |
55.64 |
|
|
(6%) |
|
|
$ |
53.88 |
|
|
$ |
55.65 |
|
|
(3%) |
|
Units
shipped (millions) |
11.6 |
|
|
11.8 |
|
|
(2%) |
|
|
34.2 |
|
|
35.0 |
|
|
(2%) |
|
Gross
profit rate |
33.8 |
% |
|
33.3 |
% |
|
50
bps |
|
|
34.3 |
% |
|
34.4 |
% |
|
(10
bps) |
|
Return
rate |
15.0 |
% |
|
16.5 |
% |
|
150
bps |
|
|
15.3 |
% |
|
16.9 |
% |
|
160
bps |
|
Digital
sales penetration |
46.1 |
% |
|
44.8 |
% |
|
130
bps |
|
|
46.4 |
% |
|
44.1 |
% |
|
230
bps |
|
Mobile
sales as a % of digital |
57.4 |
% |
|
52.6 |
% |
|
480
bps |
|
|
55.7 |
% |
|
51.5 |
% |
|
420
bps |
|
12-month
active customer file (millions) |
4.8 |
|
|
5.1 |
|
|
(6%) |
|
|
4.8 |
|
|
5.1 |
|
|
(6%) |
|
Cornerstone: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
price point (b) |
$ |
93.08 |
|
|
$ |
84.77 |
|
|
10% |
|
|
$ |
96.40 |
|
|
$ |
89.03 |
|
|
8% |
|
Units
shipped (millions) (b) |
2.8 |
|
|
3.1 |
|
|
(11%) |
|
|
8.2 |
|
|
9.1 |
|
|
(10%) |
|
Gross
profit rate |
35.7 |
% |
|
35.6 |
% |
|
10
bps |
|
|
36.7 |
% |
|
37.4 |
% |
|
(70
bps) |
|
Return
rate |
13.2 |
% |
|
12.3 |
% |
|
(90
bps) |
|
|
13.3 |
% |
|
12.7 |
% |
|
(60
bps) |
|
Digital
sales penetration |
69.7 |
% |
|
70.2 |
% |
|
(50
bps) |
|
|
70.3 |
% |
|
70.1 |
% |
|
20
bps |
|
Mobile
sales as a % of digital |
33.0 |
% |
|
27.9 |
% |
|
510
bps |
|
|
30.6 |
% |
|
26.7 |
% |
|
390
bps |
|
Catalog
circulation (millions) (b) |
61.8 |
|
|
73.2 |
|
|
(16%) |
|
|
198.0 |
|
|
237.6 |
|
|
(17%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The
third quarter of 2016 includes the results of TravelSmith and
Chasing Fireflies, two Cornerstone brands, divested on September 8,
2016. |
(b)
Excluding the impact of the divestitures, for the three and nine
month periods ended September 30, 2017, average price point
increased 3% and 1%, respectively; units shipped increased 0% and
3%, respectively; and catalog circulation decreased 3% and 9%,
respectively. The other metrics included in Table 3 were not
significantly impacted by the divestitures. |
HSN Segment Results for the Third
Quarter 2017
HSN’s net sales were $536.2 million, a decrease
of 6% from the prior year. The negative impact of
Hurricane Irma on net sales is estimated to be approximately $13
million. Digital sales decreased 3% while penetration
increased 130 basis points to 46.1%. Sales decreased in
electronics, apparel & accessories and beauty, offset by
increases in fitness and home. Shipping revenues
declined primarily due to the August 2016 changes in the standard
shipping rates. Average price point decreased 6% largely due
to changes in product mix. Units shipped decreased
2%.
Gross profit decreased 5% to $181.3
million. Gross profit rate increased 50 basis points to 33.8%
primarily due to an increase in product margins, partially offset
by higher outbound shipping rates and fulfillment costs.
Operating expenses increased 5% to $150.3
million driven by increases in employee-related costs and bad debt
expense. HSN incurred approximately $1.6 million in expenses
related to Hurricane Irma and approximately $0.9 million in
allocated transaction costs related to the merger.
Operating income decreased $16.0 million, or
34%, to $31.0 million. Adjusted EBITDA decreased $15.4
million, or 27%, to $42.6 million. The impact of
Hurricane Irma on Adjusted EBITDA is estimated to be $5
million. The supply chain optimization implementation
resulted in an additional $1.3 million of costs in the third
quarter of 2017 which impacted gross profit and operating
expenses.
Cornerstone Segment Results for the
Third Quarter 2017
Cornerstone's net sales decreased 3% to $246.4
million. Digital sales decreased 4% with penetration decreasing 50
basis points to 69.7%. Excluding the divestitures, net sales
increased 2% with growth in Ballard Designs, Garnet Hill and
Grandin Road. Excluding the divestitures, digital sales
increased 2%; digital penetration decreased 10 basis points and
catalog circulation decreased 3%.
Gross profit decreased 3% to $87.9 million and
the gross profit rate increased 10 basis points to 35.7%.
Excluding the divestitures, gross profit increased 3% and the gross
profit rate increased 10 basis points.
Operating expenses decreased $14.3 million to
$85.9 million primarily due to the loss on sale of businesses of
$11.2 million and operating results of the divested businesses in
the third quarter of 2016 . Excluding the operating expenses of the
divested businesses, non-cash charges and $0.4 million in allocated
transaction costs related to the merger, operating expenses
increased $3.9 million and were 32.9% as a percentage of net sales
compared to 30.4% in the prior year. The increase was driven
by higher retail store costs associated with new store openings and
employee-related costs.
Operating income was $1.9 million compared to an
operating loss of $10.1 million in the prior year. Adjusted
EBITDA increased $1.9 million to $6.8 million. Excluding the
operating results of the divestitures, Adjusted EBITDA decreased
$1.6 million compared to the prior year.
Liquidity and Capital
Resources
As of September 30, 2017, HSNi had cash and
cash equivalents of $20.6 million compared to $42.7 million at
December 31, 2016 and $67.4 million at September 30, 2016.
Net cash provided by operating activities
for the nine months ended September 30, 2017 decreased $4.6
million to $109.6 million compared to $114.1 million in the prior
year primarily due to a decrease in operating performance
(excluding the impact of non-cash items) partially offset by
changes in working capital.
As of September 30, 2017, total debt was
$476 million, resulting in a ratio of total debt to Adjusted
EBITDA, as defined in HSNi's credit agreement, of approximately
1.8x as compared to a maximum allowable leverage ratio of 3.5x.
HSNi's board of directors approved a quarterly
cash dividend of $0.35 per share payable December 15, 2017 to
shareholders of record as of December 6, 2017.
Effective Tax Rate
The effective tax rate for HSNi was 43.9% for
the third quarter of 2017 compared to 38.7% in the prior
year. The increase in the effective tax rate was primarily
due to the write off of approximately $3.1 million of deferred tax
assets associated with equity awards that expired unexercised
during the current quarter, including $2.4 million associated with
HSNi's former Chief Executive Officer's vested awards. The
increase in the effective tax rate was partially offset by a
decrease of $0.9 million related to the release of tax reserves for
uncertain tax positions for which the statute of limitations has
expired.
OTHER INFORMATION
Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995
This communication includes certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Words such as
“may,” “will,” “could,” “anticipate,” “estimate,” “expect,”
“predict,” “project,” “future,” “potential,” “intend,” “plan,”
“assume,” “believe,” “forecast,” “look,” “build,” “focus,”
“create,” “work” “continue” or the negative of such terms or other
variations thereof and words and terms of similar substance used in
connection with any discussion of future plans, actions, or events
identify forward-looking statements. These forward-looking
statements include, but are not limited to, statements relating to
the future performance and financial condition of HSN, Inc.
(“HSNi”) its operating segments and its consolidated subsidiaries
and statements about the proposed acquisition (the “proposed
acquisition”) of HSNi by Liberty Interactive Corporation (“Liberty
Interactive”), the capitalization of the QVC Group following the
proposed acquisition, the continuation of Liberty Interactive’s
stock repurchase program, the realization of estimated synergies
and benefits from the proposed acquisition, business strategies,
market potential, future financial prospects, new service and
product offerings, the renaming of Liberty Interactive 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, our ability to
attract new and retain existing customers in a cost-effective
manner; our exposure to intense competition and our ability to
effectively compete for customers; changes in political, business
and economic conditions, particularly those that affect consumer
confidence, consumer spending or digital sales growth; changes in
our relationships with pay television operators, vendors,
manufacturers and other third parties; failure to attract and
retain television viewers and secure a suitable programming tier of
carriage and channel placement for the HSN television network
programming; changes to international and national trade laws,
regulations and policies (particularly those related to or
restricting global trade) could significantly impair HSNi’s
profitability; interruption, lack of redundancy or difficulties
implementing new or upgraded technology in our systems or
infrastructure could affect our ability to broadcast, operate
websites, process and fulfill transactions, respond to customer
inquiries and/or maintain cost efficient operations; any
technological or regulatory developments that could negatively
impact the way we do business, including legislation or regulations
regarding income taxes or sales and use taxes; risks associated
with possible systems failures and/or security breaches, including
any breach that results in the theft, transfer or unauthorized
access or disclosure of customer, employee or company information,
or the failure to comply with various laws applicable to HSNi in
the event of such a breach; changes in shipping and handling costs,
particularly if we are unable to offset them; changes in consumer
expectations towards reduced shipping charges and faster delivery
times, particularly if we are unable to meet them; any material
change in HSNi’s business prospects and/or strategy, including
whether HSNi’s initiatives and investments will be effective; our
ability to offer new or innovative products and services through
various platforms in a cost effective manner and consumer
acceptance of these products and services; risks associated with
litigation, audits, claims and assessments; risks associated with
acquisitions including the ability to successfully integrate new
businesses and achieve expected benefits and results; and the loss
of any key member of our senior management team; the expected
timing and likelihood of completion of the proposed acquisition,
including the timing and satisfaction of conditions to the proposed
acquisition that could reduce anticipated benefits or cause the
parties to abandon the transaction, the ability to successfully
integrate the businesses, risks related to disruption of management
time from ongoing business operations due to the proposed
transaction, the risk that any announcements relating to the
proposed transaction could have adverse effects on the market price
of the common stock of HSNi or Liberty Interactive, the risk that
the proposed transaction and its announcement could have an adverse
effect on the ability of HSNi and Liberty Interactive to retain
customers and retain and hire key personnel and maintain
relationships with their suppliers and customers and on their
operating results and businesses generally, market conditions
conducive to stock repurchases, the risk of the amount of any
future dividend HSNi may pay, and other factors. Other
unknown or unpredictable factors that could also adversely affect
HSNi’s business, financial condition and results of operations may
arise from time to time. In light of these risks and
uncertainties, any forward-looking statements may not prove to be
accurate. All written or oral forward-looking statements that
are made or attributable to us are expressly qualified in their
entirety by this cautionary notice. These forward-looking
statements speak only as of the date of this communication, and
Liberty Interactive, QVC, Inc. (“QVC”) and HSNi expressly disclaim
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, QVC’s or HSNi’s
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based. Please refer to the publicly filed documents of
Liberty Interactive, QVC and HSNi, including the most recent Forms
10-K and 10-Q for additional information about Liberty Interactive,
QVC and HSNi and about the risks and uncertainties related to the
business of each of Liberty Interactive, QVC and HSNi which may
affect the statements made in this presentation. Accordingly,
you should not place undue reliance on any forward-looking
statements, which only reflect the views of HSNi management as of
the date of this communication.
No Offer or Solicitation
This communication relates to a proposed
business combination between HSNi and Liberty Interactive.
This announcement is for informational purposes only and nothing
contained in this communication shall constitute an offer to buy or
a solicitation of an offer to sell any securities or the
solicitation of any vote in any jurisdiction. No offer of
securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information
Liberty Interactive stockholders, HSNi
stockholders and other investors are urged to read the registration
statement and the proxy statement/prospectus to be filed regarding
the proposed acquisition and any other relevant documents filed
with the SEC, as well as any amendments or supplements to those
documents, because they will contain important information about
the proposed acquisition. Any definitive proxy statement(s)
(if and when available) will be mailed to stockholders of
HSNi. Copies of these SEC filings are available free of
charge at the SEC’s website (http://www.sec.gov). Copies of
the filings together with the materials incorporated by reference
therein are also available, without charge, by directing a request
to Liberty Interactive Corporation, 12300 Liberty Boulevard,
Englewood, Colorado 80112, Attention: Investor Relations,
Telephone: (720) 875-5420. Copies of documents filed with the
SEC by HSNi will be made available free of charge on HSNi’s website
at http://www.hsni.com or by contacting HSNi’s Investor
Relations Department by phone at 727-872-1000.
Participants in a
Solicitation
The directors and executive officers of HSNi and
other persons may be deemed to be participants in the solicitation
of proxies from the holders of HSNi common stock in respect of the
proposed acquisition. Information regarding the directors and
executive officers of HSNi is available in its definitive proxy
statement for HSNi’s 2017 Annual Meeting of Stockholders, which was
filed with the SEC on April 10, 2017 and in the other documents
filed after the date thereof by HSNi with the SEC. Investors may
obtain additional information regarding the interests of such
participants by reading the proxy statement/prospectus regarding
the proposed transaction when it becomes available. Free
copies of these documents may be obtained as described in the
preceding paragraph.
About HSN, Inc.
HSN, Inc. (Nasdaq:HSNI) is a $3.5 billion
interactive multichannel retailer with strong direct-to-consumer
expertise among its two operating segments, HSN and Cornerstone.
HSNi offers innovative, differentiated retail experiences on TV,
online, via mobile devices, in catalogs, and in brick and mortar
stores. HSN, a leading interactive multichannel retailer which
offers a curated assortment of exclusive products combined with top
brand names, now reaches approximately 90 million homes with live
programming 364 days a year. HSN.com offers a differentiated
digital experience by leveraging content, community and commerce.
In addition to its existing media platforms, HSN is the industry
leader in transactional innovation, including services such as HSN
Shop by Remote®, the only service of its kind in the U.S., the HSN
Shopping App for mobile handheld devices and HSN on Demand®.
Cornerstone comprises leading home and apparel lifestyle brands
including Ballard Designs®, Frontgate®, Garnet Hill®, Grandin Road®
and Improvements®. Cornerstone distributes approximately 275
million catalogs annually, operates five separate digital sales
sites and operates 18 retail and outlet stores.
|
GAAP FINANCIAL STATEMENTS |
HSN, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
|
|
|
(unaudited; in
thousands except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
Net sales |
$ |
782,562 |
|
|
$ |
823,023 |
|
|
$ |
2,389,358 |
|
|
$ |
2,494,096 |
|
Cost of sales |
513,377 |
|
|
542,947 |
|
|
1,550,662 |
|
|
1,612,718 |
|
Gross
profit |
269,185 |
|
|
280,076 |
|
|
838,696 |
|
|
881,378 |
|
Operating
expenses: |
|
|
|
|
|
|
|
Selling
and marketing |
174,019 |
|
|
178,785 |
|
|
518,078 |
|
|
546,002 |
|
General
and administrative |
49,783 |
|
|
42,703 |
|
|
153,812 |
|
|
139,118 |
|
Depreciation and amortization |
11,134 |
|
|
10,518 |
|
|
33,058 |
|
|
31,745 |
|
Loss on
sale of businesses and asset impairment |
— |
|
|
11,195 |
|
|
— |
|
|
31,595 |
|
Transaction costs |
1,305 |
|
|
— |
|
|
6,643 |
|
|
— |
|
Total operating
expenses |
236,241 |
|
|
243,201 |
|
|
711,591 |
|
|
748,460 |
|
Operating income |
32,944 |
|
|
36,875 |
|
|
127,105 |
|
|
132,918 |
|
Interest expense,
net |
(4,017 |
) |
|
(4,001 |
) |
|
(11,726 |
) |
|
(11,988 |
) |
Income before
income taxes |
28,927 |
|
|
32,874 |
|
|
115,379 |
|
|
120,930 |
|
Income tax
provision |
(12,700 |
) |
|
(12,716 |
) |
|
(45,130 |
) |
|
(45,742 |
) |
Net
income |
$ |
16,227 |
|
|
$ |
20,158 |
|
|
$ |
70,249 |
|
|
$ |
75,188 |
|
|
|
|
|
|
|
|
|
Net income per
share |
|
|
|
|
|
|
|
Basic |
$ |
0.31 |
|
|
$ |
0.39 |
|
|
$ |
1.34 |
|
|
$ |
1.44 |
|
Diluted |
$ |
0.31 |
|
|
$ |
0.38 |
|
|
$ |
1.33 |
|
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
Shares used in
computing earnings per share |
|
|
|
|
|
|
|
Basic |
52,555 |
|
|
52,356 |
|
|
52,494 |
|
|
52,376 |
|
Diluted |
52,983 |
|
|
52,844 |
|
|
52,860 |
|
|
52,901 |
|
|
|
|
|
|
|
|
|
Dividends
declared per common share |
$ |
0.35 |
|
|
$ |
0.35 |
|
|
$ |
1.05 |
|
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
HSN, INC. CONSOLIDATED BALANCE SHEETS |
(unaudited; in thousands) |
|
September 30, |
|
December 31, |
|
September 30, |
|
2017 |
|
2016 |
|
2016 |
ASSETS |
|
|
|
|
|
Current
assets: |
|
|
|
|
|
Cash and
cash equivalents |
$ |
20,574 |
|
|
$ |
42,734 |
|
|
$ |
67,442 |
|
Accounts
receivable, net |
216,620 |
|
|
335,005 |
|
|
226,589 |
|
Inventories |
439,034 |
|
|
391,106 |
|
|
450,671 |
|
Prepaid
expenses and other current assets |
48,107 |
|
|
44,173 |
|
|
56,309 |
|
Total
current assets |
724,335 |
|
|
813,018 |
|
|
801,011 |
|
Property and equipment,
net |
212,148 |
|
|
211,106 |
|
|
207,216 |
|
Intangible assets,
net |
253,655 |
|
|
253,623 |
|
|
253,619 |
|
Goodwill |
9,858 |
|
|
9,858 |
|
|
9,858 |
|
Other non-current
assets |
16,187 |
|
|
16,928 |
|
|
12,809 |
|
TOTAL
ASSETS |
$ |
1,216,183 |
|
|
$ |
1,304,533 |
|
|
$ |
1,284,513 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Accounts
payable, trade |
$ |
228,324 |
|
|
$ |
293,816 |
|
|
$ |
241,637 |
|
Current
maturities of long-term debt |
34,375 |
|
|
25,000 |
|
|
25,000 |
|
Accrued
expenses and other current liabilities |
211,073 |
|
|
225,265 |
|
|
191,775 |
|
Total
current liabilities |
473,772 |
|
|
544,081 |
|
|
458,412 |
|
Long-term debt, net of
current maturities and unamortized deferred financing costs |
438,048 |
|
|
484,878 |
|
|
600,687 |
|
Deferred income
taxes |
66,899 |
|
|
59,760 |
|
|
43,145 |
|
Other long-term
liabilities |
20,466 |
|
|
20,328 |
|
|
20,199 |
|
Total
liabilities |
999,185 |
|
|
1,109,047 |
|
|
1,122,443 |
|
Total
shareholders' equity |
216,998 |
|
|
195,486 |
|
|
162,070 |
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY |
$ |
1,216,183 |
|
|
$ |
1,304,533 |
|
|
$ |
1,284,513 |
|
|
|
|
|
|
|
HSN, INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(unaudited;
in thousands) |
|
|
Nine Months Ended |
|
|
September 30, |
|
|
2017 |
|
2016 |
Cash flows from
operating activities attributable to operations: |
|
|
|
|
Net income |
|
$ |
70,249 |
|
|
$ |
75,188 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
|
Depreciation and amortization |
|
33,058 |
|
|
31,745 |
|
Stock-based compensation expense |
|
7,633 |
|
|
14,698 |
|
Loss on
sale of businesses and asset impairment |
|
— |
|
|
27,768 |
|
Amortization of debt issuance costs |
|
1,295 |
|
|
1,329 |
|
Deferred
income taxes |
|
7,188 |
|
|
(1,420 |
) |
Bad debt
expense |
|
18,343 |
|
|
13,664 |
|
Other |
|
23 |
|
|
(52 |
) |
Changes in current
assets and liabilities: |
|
|
|
|
Accounts
receivable |
|
100,042 |
|
|
65,796 |
|
Inventories |
|
(47,928 |
) |
|
(51,935 |
) |
Prepaid
expenses and other assets |
|
(2,059 |
) |
|
(14,347 |
) |
Accounts
payable, accrued expenses and other liabilities |
|
(78,275 |
) |
|
(48,299 |
) |
Net cash
provided by operating activities |
|
109,569 |
|
|
114,135 |
|
Cash flows from
investing activities: |
|
|
|
|
Capital
expenditures |
|
(36,256 |
) |
|
(28,504 |
) |
Other |
|
(807 |
) |
|
(627 |
) |
Net cash used
in investing activities |
|
(37,063 |
) |
|
(29,131 |
) |
Cash flows from
financing activities: |
|
|
|
|
Repayments of term loan |
|
(18,750 |
) |
|
(18,750 |
) |
Borrowings under revolving credit facility |
|
145,000 |
|
|
152,000 |
|
Repayments of revolving credit facility |
|
(165,000 |
) |
|
(142,000 |
) |
Repurchase of common stock |
|
— |
|
|
(16,566 |
) |
Cash
dividends paid |
|
(55,013 |
) |
|
(54,880 |
) |
Proceeds
from issuance of common stock |
|
1,379 |
|
|
1,824 |
|
Payments
of tax withholdings related to stock-based awards |
|
(2,282 |
) |
|
(3,116 |
) |
Net cash used
in financing activities |
|
(94,666 |
) |
|
(81,488 |
) |
Net (decrease)
increase in cash and cash equivalents |
|
(22,160 |
) |
|
3,516 |
|
Cash and
cash equivalents at beginning of period |
|
42,734 |
|
|
63,926 |
|
Cash and cash
equivalents at end of period |
|
$ |
20,574 |
|
|
$ |
67,442 |
|
|
|
|
|
|
|
|
|
|
Table
4 |
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATIONS OF GAAP TO NON-GAAP
MEASURES |
|
|
|
|
|
|
|
|
|
|
|
|
|
HSN, INC. RECONCILIATION OF GAAP TO NON-GAAP DETAILED
SEGMENT RESULTS |
(unaudited; in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2017 |
|
September 30, 2016 |
|
|
HSN |
|
Cornerstone |
|
Total |
|
HSN |
|
Cornerstone |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
$ |
16,227 |
|
|
|
|
|
|
$ |
20,158 |
|
Income
tax provision |
|
|
|
|
|
12,700 |
|
|
|
|
|
|
12,716 |
|
Income before income
taxes |
|
|
|
|
|
28,927 |
|
|
|
|
|
|
32,874 |
|
Interest
expense, net |
|
|
|
|
|
4,017 |
|
|
|
|
|
|
4,001 |
|
Operating
income |
|
$ |
30,999 |
|
|
$ |
1,945 |
|
|
$ |
32,944 |
|
|
$ |
46,963 |
|
|
$ |
(10,088 |
) |
|
$ |
36,875 |
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
2,978 |
|
|
1,048 |
|
|
4,026 |
|
|
3,671 |
|
|
568 |
|
|
4,239 |
|
Depreciation and amortization |
|
7,690 |
|
|
3,444 |
|
|
11,134 |
|
|
7,304 |
|
|
3,214 |
|
|
10,518 |
|
Loss on
sale of business and asset impairment (a) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
11,195 |
|
|
11,195 |
|
Loss on
disposition of fixed assets |
|
(15 |
) |
|
1 |
|
|
(14 |
) |
|
82 |
|
|
— |
|
|
82 |
|
Transaction Costs (b) |
|
921 |
|
|
384 |
|
|
1,305 |
|
|
— |
|
|
— |
|
|
— |
|
Adjusted EBITDA
(Non-GAAP measure) |
|
$ |
42,573 |
|
|
$ |
6,822 |
|
|
$ |
49,395 |
|
|
$ |
58,020 |
|
|
$ |
4,889 |
|
|
$ |
62,909 |
|
TravelSmith and Chasing Fireflies EBITDA loss (c) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,563 |
|
|
3,563 |
|
Adjusted
EBITDA, excluding TravelSmith and Chasing Fireflies (Non-GAAP
measure) |
|
$ |
42,573 |
|
|
$ |
6,822 |
|
|
$ |
49,395 |
|
|
$ |
58,020 |
|
|
$ |
8,452 |
|
|
$ |
66,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2017 |
|
September 30, 2016 |
|
|
HSN |
|
Cornerstone |
|
Total |
|
HSN |
|
Cornerstone |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
$ |
70,249 |
|
|
|
|
|
|
$ |
75,188 |
|
Income
tax provision |
|
|
|
|
|
45,130 |
|
|
|
|
|
|
45,742 |
|
Income before income
taxes |
|
|
|
|
|
115,379 |
|
|
|
|
|
|
120,930 |
|
Interest
expense, net |
|
|
|
|
|
11,726 |
|
|
|
|
|
|
11,988 |
|
Operating
income |
|
$ |
107,722 |
|
|
$ |
19,383 |
|
|
$ |
127,105 |
|
|
$ |
151,745 |
|
|
$ |
(18,827 |
) |
|
$ |
132,918 |
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
5,693 |
|
|
1,940 |
|
|
7,633 |
|
|
11,577 |
|
|
3,121 |
|
|
14,698 |
|
Depreciation and amortization |
|
23,213 |
|
|
9,845 |
|
|
33,058 |
|
|
21,582 |
|
|
10,163 |
|
|
31,745 |
|
Loss on
sale of business and asset impairment (a) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
31,595 |
|
|
31,595 |
|
Loss on
disposition of fixed assets |
|
368 |
|
|
92 |
|
|
460 |
|
|
86 |
|
|
— |
|
|
86 |
|
Transaction Costs (b) |
|
4,657 |
|
|
1,986 |
|
|
6,643 |
|
|
— |
|
|
— |
|
|
— |
|
Adjusted EBITDA
(Non-GAAP measure) |
|
$ |
141,653 |
|
|
$ |
33,246 |
|
|
$ |
174,899 |
|
|
$ |
184,990 |
|
|
$ |
26,052 |
|
|
$ |
211,042 |
|
TravelSmith and Chasing Fireflies EBITDA loss (c) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
12,084 |
|
|
12,084 |
|
Adjusted
EBITDA, excluding the impact of TravelSmith and Chasing Fireflies
(Non-GAAP measure) |
|
$ |
141,653 |
|
|
$ |
33,246 |
|
|
$ |
174,899 |
|
|
$ |
184,990 |
|
|
$ |
38,136 |
|
|
$ |
223,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) As a
result of the sale of TravelSmith and Chasing Fireflies,
Cornerstone recorded an $11.2 million loss in the third quarter of
2016 and asset impairment charges of $20.4 million in the second
quarter of 2016. |
(b) During
the three and nine months ended September 30, 2017, HSNi incurred
approximately $1.3 million and $6.6 million, respectively, in
transaction costs related to the merger. |
(c)
TravelSmith and Chasing Fireflies were divested in September
2016. |
HSN, INC. RECONCILIATION OF GAAP NET INCOME AND GAAP
DILUTED EPS TO ADJUSTED NET INCOME AND ADJUSTED EPS |
(unaudited; in
thousands except per share amounts) |
|
|
|
|
|
|
|
|
Three Months Ended |
|
September 30, |
|
2017 |
|
2016 |
|
Net Income |
|
EPS |
|
Net Income |
|
EPS |
GAAP |
$ |
16,227 |
|
|
$ |
0.31 |
|
|
$ |
20,158 |
|
|
$ |
0.38 |
|
Loss on
sale of businesses and asset impairment (a) |
— |
|
|
— |
|
|
7,077 |
|
|
$ |
0.13 |
|
Transaction costs (b) |
815 |
|
|
0.02 |
|
|
— |
|
|
— |
|
Impact of
CEO stock-based compensation (c) |
2,387 |
|
|
0.05 |
|
|
— |
|
|
— |
|
Non-GAAP
Adjusted |
$ |
19,429 |
|
|
$ |
0.37 |
|
|
$ |
27,235 |
|
|
$ |
0.52 |
|
GAAP diluted
weighted average shares outstanding |
|
|
52,983 |
|
|
|
|
52,844 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
September 30, |
|
2017 |
|
2016 |
|
Net Income |
|
EPS |
|
Net Income |
|
EPS |
GAAP |
$ |
70,249 |
|
|
$ |
1.33 |
|
|
$ |
75,188 |
|
|
$ |
1.42 |
|
Loss on
sale of businesses and asset impairment (a) |
— |
|
|
— |
|
|
19,894 |
|
|
0.38 |
|
Transaction costs (b) |
4,148 |
|
|
0.08 |
|
|
— |
|
|
— |
|
Impact of
CEO stock-based compensation (c) |
(450 |
) |
|
(0.01 |
) |
|
— |
|
|
— |
|
Non-GAAP
Adjusted |
$ |
73,947 |
|
|
$ |
1.40 |
|
|
$ |
95,082 |
|
|
$ |
1.80 |
|
GAAP diluted
weighted average shares outstanding |
|
|
52,860 |
|
|
|
|
52,901 |
|
|
|
|
|
|
|
|
|
(a)
Non-GAAP results exclude a loss of $11.2 million, or $7.1 million
net of tax, related to the sale of TravelSmith and Chasing
Fireflies in the third quarter of 2016. Additionally,
non-GAAP results exclude a non-cash impairment charge of $20.4
million, or $12.8 million net of tax, related to these assets which
were held for sale as of June 30, 2016. |
(b)
Non-GAAP results exclude transaction costs related to the merger of
approximately $1.3 million, or $0.8 million net of tax, in the
third quarter of 2017 and approximately $6.6 million, or $4.1
million net of tax, in the nine months ended September 30,
2017. |
(c)
Non-GAAP results in the current year periods exclude the write-off
of $2.4 million of deferred tax assets associated with HSNi's
former CEO's expired equity awards during the third quarter.
Additionally, non-GAAP results for the nine months ended September
30, 2017 exclude the reversal of $4.5 million, or $2.8 million net
of tax, of stock-based compensation expense as a result of the
former CEO's resignation. |
HSN, INC. RECONCILIATION OF GAAP TO NON-GAAP OPERATING
EXPENSES |
(unaudited; in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2017 |
|
September 30, 2016 |
|
|
HSN |
|
Cornerstone |
|
Total |
|
HSN |
|
Cornerstone |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
$ |
150,332 |
|
|
$ |
85,909 |
|
|
$ |
236,241 |
|
|
$ |
142,998 |
|
|
$ |
100,204 |
|
|
$ |
243,201 |
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
(2,978 |
) |
|
(1,048 |
) |
|
(4,026 |
) |
|
(3,671 |
) |
|
(568 |
) |
|
(4,239 |
) |
Depreciation and amortization |
|
(7,690 |
) |
|
(3,444 |
) |
|
(11,134 |
) |
|
(7,304 |
) |
|
(3,214 |
) |
|
(10,518 |
) |
Loss on
sale of businesses and asset impairment (a) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(11,195 |
) |
|
(11,195 |
) |
Loss on
disposition of fixed assets |
|
15 |
|
|
(1 |
) |
|
14 |
|
|
(82 |
) |
|
— |
|
|
(82 |
) |
Transaction Costs (b) |
|
(921 |
) |
|
(384 |
) |
|
(1,305 |
) |
|
— |
|
|
— |
|
|
— |
|
Operating expenses of divested businesses (c) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,072 |
) |
|
(8,072 |
) |
Adjusted
operating expenses (Non-GAAP measure) |
|
$ |
138,758 |
|
|
$ |
81,032 |
|
|
$ |
219,790 |
|
|
$ |
131,941 |
|
|
$ |
77,155 |
|
|
$ |
209,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) As a result of the sale of TravelSmith and Chasing
Fireflies, Cornerstone recorded a loss of $11.2 million in the
third quarter of 2016. |
(b) HSNi
incurred approximately $1.3 million in transaction costs related to
the merger in the third quarter of 2017. |
(c)
TravelSmith and Chasing Fireflies were divested in September
2016. |
|
HSN, INC.’S PRINCIPLES OF FINANCIAL
REPORTING
HSNi reports Adjusted EBITDA, Adjusted Net
Income and Adjusted EPS, all of which are supplemental measures to
GAAP. These measures are among the primary metrics by which we
evaluate the performance of our businesses, on which our internal
budgets are based and by which management is compensated. We
believe that investors should have access to, and we are obligated
to provide, the same set of tools that we use in analyzing our
results. These non-GAAP measures should be considered in
addition to results prepared in accordance with GAAP, but should
not be considered a substitute for or superior to GAAP results.
HSNi endeavors to compensate for the limitations of the non-GAAP
measures presented by providing the comparable GAAP measures with
equal or greater prominence and descriptions of the reconciling
items, including quantifying such items, to derive the non-GAAP
measures. We encourage investors to examine the reconciling
adjustments between the GAAP and non-GAAP measures contained in
this release and which we discuss below.
Definitions of Non-GAAP
Measures
Adjusted EBITDA is defined as operating income
excluding, if applicable: (1) non-cash charges including: (a)
stock-based compensation expense, (b) amortization of
intangibles, (c) depreciation and gains and losses on asset
dispositions, and (d) goodwill, long-lived asset and
intangible asset impairments; (2) pro forma adjustments for
significant acquisitions; and (3) other significant
items. Significant items, while periodically affecting our
results, may vary significantly from period to period and have a
disproportionate effect in a given period, thereby affecting the
comparability of results. Adjusted EBITDA is not a measure
determined in accordance with GAAP, and should not be considered a
substitute for operating income, net income or any other measure
determined in accordance with GAAP. Adjusted EBITDA is used as a
measurement of operating efficiency and overall financial
performance and HSNi believes it to be a helpful measure for those
evaluating companies in the retail and media industries.
Adjusted EBITDA should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
GAAP. Adjusted EBITDA has certain limitations in that it does not
take into account the impact to HSNi's statement of operations of
certain expenses, gains and losses that are excluded from the
company’s definition of Adjusted EBITDA.
Adjusted Net Income is defined as net income
available to common shareholders excluding, net of tax effects, if
applicable: (1) goodwill, long-lived asset and intangible asset
impairments, (2) pro forma adjustments for significant
acquisitions, (3) discontinued operations and (4) other
significant items. Significant items, while periodically
affecting our results, may vary significantly from period to period
and have a disproportionate effect in a given period, thereby
affecting the comparability of results. We believe Adjusted
Net Income is useful to investors because it represents HSNi’s
consolidated results taking into account charges which are not
allocated to the operating businesses such as interest expense and
taxes, but excluding the effects of goodwill and asset impairments,
significant acquisition-related adjustments, discontinued
operations and certain other significant items.
Adjusted EPS is defined as Adjusted Net Income
divided by diluted weighted average shares outstanding. We
believe Adjusted EPS is useful to investors because it represents,
on a per share basis, HSNi’s consolidated results, taking into
account charges which are not allocated to the operating businesses
such as interest expense and taxes, but excluding the effects of
goodwill and asset impairments, significant acquisition-related
adjustments, discontinued operations and certain other significant
items. Adjusted Net Income and Adjusted EPS have certain
limitations in that they do not take into account the impact of
goodwill and asset impairments, significant acquisition-related
adjustments, discontinued operations and certain other significant
items. Therefore, we think it is important to evaluate these
measures along with our consolidated statement of operations.
Contacts:
Art Singleton (Analysts/Investors)
727-872-4941
art.singleton@hsn.net
Jill Kermes (Media)
727-872-4390
jill.kermes@hsn.net
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