Formula One Group
Q4 2021 Earnings Call Transcript

Published: 25 Feb 2022

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation 2021 Q4 Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded February 25. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer. Please go ahead.

[Courtnee Chun:]

Good morning. Before we begin, we'd like to remind everyone this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in Liberty Media's most recent Forms 10-K and 10-Q or Liberty Media acquisitions form S-1 registration statement filed with the SEC. These forward-looking statements speak only as of the date of this call and Liberty Media and Liberty Media Acquisition 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 Media or Liberty Media Acquisition'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 for Liberty Media and SiriusXM, including adjusted OIBDA and adjusted EBITDA. The required definitions and reconciliations for Liberty Media and SiriusXM Schedules 1 and 2 can be found at the end of the earnings press release issued today, which is available on Liberty Media's website. Now I'd like to turn the call over to Greg Maffei, Liberty's President and CEO.

[Greg Maffei:]

Thank you Courtnee, and good morning to all of you. Today speaking on the call, we will also have Formula One's President and CEO, Stefano Domenicali; and Liberty's Chief Accounting and Principal Financial Officer, Brian Wendling. So, beginning with Liberty [Audio Gap] special dividend. We expect our share though to be about $770 million net of a pass-through to bondholders. We did continue during the quarter repurchasing shares, buying back $189 million across LSXMA and LSXMK shares from November through January. As you know, the discount remains and we therefore were able to repurchase our shares at a look-through price of -- on SIRI of just over $4. We will continue to take advantage of the discount opportunity. We also settled the exchange of our 2.25% Live Nation exchangeable in January for a consideration of $664 million using cash and some margin loan draws. Looking at the underlying business SiriusXM, they recorded record results for the year record high subs revenue and adjusted EBITDA. And also experienced the fifth straight year of improving churn. New car penetration is up to 82% from 78% in the prior year. And we launched 360L in more than 30 new vehicle models across various OEMs in 2021. Now more than 25% of SiriusXM-equipped vehicles sold in the fourth quarter incorporated our new 360L opportunity. We also teamed up with Apple and Discovery during the quarter adding 12-month subscriptions Apple Music and Discovery Plus for new and existing Platinum VIP plan subscribers. We introduced AudioID powered by AdsWizz a listener identity solution enabling marketers to reach and connect with consumers at scale. Stitcher went live with distribution and monetization of popular Crime Junkie podcast in January. We launched new exclusive artist channels including Alicia Keys, David Bowie and Neil Young and we had Small Stage Series of intimate live performances which featured premier artist spanning music generations, including Ed Sheeran, The Go-Go's, H.E.R., J. Cole and John Mayer and more. So a busy quarter. At Live Nation, a great quarter as well. Fan attendance at outdoor events in the U.S. and U.K. in the last five months of 2021 was up 25% versus the same period in 2019. On-site spend the per cap continues to grow at a double-digit rate versus 2019 and ticket sales in October, November and December were the top three months ever in terms of GDP. We have expanded our venue portfolio as well adding 31 new venues in 2021 half through the OCESA acquisition. Every leading indicator in the business reports -- points to a record 2022. Confirmed show count through February is up 30% versus 2019. We sold 45 million tickets for shows this year already and no-show rates are back down to their 2019 levels. Live Nation is entering its strongest multiyear growth chapter in a concert history. Looking at the Formula One Group. On the corporate side, we effectively repurchased 2.2 million FWONA and FWONK shares at an average per share price of $58.59. That included both FWONA share repurchases and an effective share repurchase of FWONK shares due to the purchase of the underlying $64 million of FWONK cash convert that we bought. And now let me turn to F1 and first address the circumstances in Russia. I'm sure you saw our statement this morning. As we said, we are watching the situation with sadness and shock and it's impossible to hold the Russian GP in the current circumstances. Turning back now to 2021. What a cliffhanger ending to a thrilling season. And since then we've had a month of announcements coming out of F1 with more to come. Fans are attending and tuning in. Even with COVID affecting a good chunk of the season we saw very strong attendance, and tuning across many platforms 1.55 billion of cumulative TV viewers with the highest race viewership being 109 million in Abu Dhabi, which rivals that of the Super Bowl. Average attendance was up 14% on like-for-like races. And once again we saw great growth in social media followers, making F1 once again the fastest-growing major sport on social media. We signed numerous race renewals at desirable locations, showing continued strength in our contracted revenue and we continue to further our sustainability initiatives. F1 came in at number two of 102 Global Motor Sports championships evaluated by the FIA on a Sustainable Championship Index, ahead of many such as Extreme E, MotoGP and NASCAR. We are ready to kick off our record-breaking 23-race 2022 Season and we hope to see you at some if not all of the races this year. Turning now to the Braves. We capped off an incredible 2021 with our World Series title. But in addition to that, we had 239 home runs, which ranked second in the National League. We had a 3.88 ERA, which was second best in the annual leagues and there are too many player accolades to even name. The World Series trophy tour will visit 151 stops, celebrating the 151 Seasons of Braves baseball. And we will start 2022 with the highest number of season ticket holders in 22 seasons since 2000. We are sold out of our premium seats for the first time in Truist Park history including all the suites -- the premium seats including all the suites. And Truist Park will hold five stadium concerts in 2022, its highest ever. TK Tower and Innovation Center grand opening took place on February 9th. And in 2021, the Battery had close to nine million visitors including 330,000 during the three World Series games. We also did close on the sale of the Minor League teams in January. The geographic alignment of the teams is important and the Major League reorg of Minor League last year ensured that this will continue. The teams do remain affiliates for future player development. Let me just address the CBA for one moment. We are certainly aware of the latest developments in our discussions with Braves management but are obviously prohibited from commenting any further. We continue to review opportunities for LMAC and SPAC. As I've said before, we do believe the turbulence in the SPAC market has made deals more difficult but actually will benefit Liberty and our strength. And with that let me turn it over to Brian for more financial results.

[Brian Wendling:]

Thank you Greg, and good morning, everyone. As Greg mentioned in January, we settled exchanges on the 2.25% Live Nation exchangeable bonds for a total consideration of $664 million. This was funded with cash and margin loan draws including drawing in part on our newly amended Live Nation margin loan, which had upsized in Q4 reflecting appreciation in the underlying Live Nation share price. Pro forma for the exchanges, Liberty SiriusXM Group had attributed cash, liquid investments and liquid public debt and equity securities of approximately $143 million, which excludes $191 million of cash held at SiriusXM. We also had $925 million of undrawn margin loan capacity at the parent level. As of yesterday's close, the value of the SiriusXM stock held at Liberty SiriusXM Group was $19.4 billion. And the value of the Live Nation stock held was $8.7 billion. We have $3.1 billion in principal amount of debt against these holdings pro forma for the exchanges of the Live Nation exchangeable bonds. Total pro forma Liberty SiriusXM Group attributed principal amount of debt is $13.1 billion, which includes $8.9 billion of debt held directly at SiriusXM. Formula One Group had attributed cash liquid investments and liquid public debt and equity securities of $1.6 billion at quarter end which excludes $709 million of cash held at Formula One. Total Formula One Group attributed principal amount of debt was $3.4 billion, which includes $2.9 billion of debt at F1 leaving $455 million at the corporate level. As Greg mentioned in the fourth quarter, we repurchased $64 million face value of 1% FWONK converts effectively retiring 1.7 million of underlying FWONK shares. Formula One's $500 million revolver remains undrawn. And Formula One's leverage at the end of the quarter was 4.4 time and we are revising our target leverage range down to be less than 5 times on a go-forward basis. Note, we are still in a period of covenant waiver until March of this year. As previously disclosed beginning in January of 2021, F1 began reclassifying certain components previously reported in other F1 revenue into primary F1 revenue to better align with the way it currently evaluates the business. Components reclassified in the primary F1 revenue include F1 TV subscriptions, F2 and F3 related fees, broadcast origination and support fees, as well as digital advertising, amongst other items. Additional detail including the impact of the revenue reclassification for the years ended 12/31/19 and 2020 can be found in Schedule four of our earnings release posted on our website. At quarter end the Braves Group had attributed cash and liquid investments of $142 million, which excludes $102 million of restricted cash that's on their balance sheet. Braves Group had attributed principal amount of debt of $700 million. At the end of the year, Liberty and all of our consolidated subsidiaries are in compliance with their debt covenants. With that I'll turn it over to Stefano to discuss Formula One.

[Stefano Domenicali:]

Thanks, Brian. The 2021 season will be discussed for decades to come as one of the greatest. It came down to not just the final race, but to the final match for Max Verstappen to edge pass Lewis Hamilton and win his first World Championship. We look forward to this continued rivalry in 2022, between Max and Lewis, who will be returning to pursue his eighth World Championship and we hope to see new drivers moving up the field to challenge for poses more regularly. The action on and off the track brought in fans in-person and across all platforms. We sold 2.6 million stands in Grandstand around the globe even sold we were limited in our capacity due to COVID. This includes three events with attendance of over 350,000 in US, Great Britain and Mexico. 11 events attracted crowds of over 100,000 people. Our total Cumulative TV audience over the season was 1.55 billion, an increase of 4% over 2020. The average audience per race was 70.3 million with our biggest audiences of 108.7 million tuning in for the season finale in Abu Dhabi. Markets that saw significant growth in cumulative audiences were the Netherlands, Italy, the UK, Spain and the US. Our Sprint events proved to be a draw with a TV average audience uplift of 70% for the weekend. Looking only at markets where like-for-like broadcasting arrangement well maintained across 2020 and 2021, the average audiences was 60.3 million up to plus 13% year-on-year and the best since 2013. Please note that in 2021, despite our broadcasting arrangement in Germany and Brazil changing significantly, we saw positive developments. In Brazil, we are now enjoying far more in-depth coverage and more hours of F1 being broadcasted than 2020. In Germany, Sky's cumulative audiences in 2021 have seen significant growth of plus 55% year-on-year. Our digital reach was very strong. In 2021, social media followers grew 40% to 49.1 million once again making Formula One their fastest-growing major sport league in follower growth. We tallied 1.5 billion engagements with the seven billion video views. F1 web and app unique users video views and page views were all up double digit. The digital share of video minutes consumed increased from 10% in 2020 to 16% in 2021. We look forward to the start of the season of March 2020 in Bahrain. We have a record 23-race Season plan and are scheduled to return to many tracks we could not visit in 2020 and 2021. We are extremely excited to welcome the Miami Grand Prix to the calendar in May and again reached a unanimous agreement with the teams and the FIA to again have the Sprint at three venues this year; Imola, Austria and Brazil. On the driver front, we look forward to the new pairing of Lewis Hamilton and George Russell that have turn over Alex Albon and we welcome a new driver from the grid with Guanyu Zhou joining Alfa Romeo who would provide excitement opportunity to engage and grow our fan base in China. Speaking of the 2022 season, there are many changes to the cars and regulation, all aimed at improving racing and increasing relevance to road car technology. The most visible change will be the switch from 13 inches to 18 inches tires with covers. This along with the other changes to the regulation have the goal of reducing their dynamic way coming off the cars with the aim of allowing for closer racing and more overtaking. Safety is also a focus and the new 2022 cars will be able to absorb more impact at the front and laterally. Additionally, more components of the car are now standardized, which should help keep cost down and promote closer racing. In addition changes will also include the implementation of E10 fuel in the F1 cars comprising 10% ethanol which will reduce CO2 emission and a free zone performance development for the Power Unit from March 1st. We have recently made many exciting announcements driving future growth for our sport. On the racing front, we extended race agreements in China through 2025; Singapore until 2028; Abu Dhabi until 2030; Spain through 2026; Bahrain until 2036; and Circuit of America through 2026. Each of these locations brings something unique to the calendar and we appreciate this long-term partnership in which our sustainability goals will feature prominently. On the sponsorship front, it is a busy time with robust interest and a very strong pipeline of discussion ongoing. We expect to announce further details soon on a number of opportunities that have been progressing in the past few weeks. On media rights, due to the closure of business Fox Sports channels in October 2021, we successfully concluded nine new partnerships across Southeast Asia, securing new broadcaster in Hong Kong, Singapore, Indonesia, Malaysia, and Brunei, Papua New Guinea, the Philippines, Thailand, Vietnam, and Myanmar. We also extended our existing partnership with Disney Japan and India. In addition to this we will also have a new partnership in the Netherlands for the start of 2022 Championship Season with the Viaplay, NENT's new streaming platform. The 2021 F1 Esports Series Pro Championship presented by Aramco also had a thrilling season. Mercedes' Jarno Opmeer clinched a second consecutive title and secured the Team Championship for Mercedes. The 2021 F1 season audience and the attendance figures broke viewership and engagement records, building upon the huge momentum gathered in 2020. The full series which went through out 2021, achieved over 23 million views across digital platforms, a 103% year-on-year increase. We are already on to the second step of qualifying for 2022 Esports Series and look forward to another fantastic season ahead. We continue to invest in our ESG initiatives to address the biggest issue facing our sports and global communities. Sustainability is a major focus for Formula One and many of our promoters' partners targeting areas where we can have greatest environmental and social impact. Our initiatives can take many forms including 100% sustainable fuels in the 2026 hybrid engine, renewable energy sources, targets around net-zero carbon emission, reducing the capital footprint, increasing recycling efforts, significant savings on overall energy costs and a large initiative working with our promoters partners on event sustainability. A comprehensive ESG briefing note is posted to our website. I encourage you to read it. We recently announced our extended funding commitment to the Formula One Engineering Scholarship Program for underrepresented group through 2025 part of our drive to increase diversity within the sport. This program was launched in 2021 with the selection of 10 scholars in the UK and Italy. And their scholarship covers the full cost of a student's tuition and living expenses for the full duration of their degrees. As part of a wider program of diversity and inclusion initiatives Formula One has also committed to creating apprenticeships and internship across our business. In advance of the Miami Grand Prix, we launched the F1 in School STEM Programme in Miami Gardens. F1 in School is the largest STEM program in the world, operating in over 50 countries and providing hands-on interactive experience to develop key engineering and social skills. We were proud to announce that the W Series will continue to join us at eight Formula One races in 2022. The series will visit five new venues in 2022 including making a step in Asia. We believe in the importance of providing everyone the opportunity to reach the highest level of sport and our partnership with the W Series demonstrates our result to build greater diversity across Formula One. It seems like we just concluded our thrilling 2021 season, but we are ready for the 2022. We believe in the new regulation and the changes to the cars. Combined with old rivalries and new drivers will provide more drama on and off the track. Get ready by watching Season four of Drive to Survive, which airs on Netflix on March 11. I wanted to tell full speed ahead. And now I will turn the call back over to Greg. Thank you. Bye-bye.

[Greg Maffei:]

Thanks, Stefano and Brian. And to the listening audience, we appreciate your continued interest in Liberty Media and look forward to a productive 2022. And with that operator I'd like to open the line for questions.

[Operator:]

Thank you. [Operator Instructions] We will take our first question from Vijay Jayant. Please go ahead. Your line is open.

[Operator:]

We will now take our next question from Ben Swinburne. Please go ahead. Your line is open.

[Operator:]

We will now take our next question from David Karnovsky. Please go ahead. Your line is open.

[Operator:]

We will now take our next question from Jason Bazinet. Please go ahead. Your line is open.

[Operator:]

We will now take our next question from David Joyce. Please go ahead. Your line is open.

[Operator:]

We will now take our next question from Stephen Laszczyk. Please go ahead. Your line is open.

[Operator:]

We will take our next question from Doug Mitchelson. Please go ahead. Your line is open.

[Operator:]

We will take our final question…

[Operator:]

Yes, we will take our final question from Matthew Harrigan. Please go ahead. Your line is open.

[A - Greg Maffei:]

Happy to help. With that operator, I think, we're done for the day. Thank you everyone for your interest in Liberty Media. And we hope to see you next quarter, if not sooner.

[Operator:]

This concludes today's call. Thank you for your participation. You may now disconnect.