Formula One Group
Q2 2021 Earnings Call Transcript

Published: 5 Nov 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation 2021 Q3 Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, November 4, 2021. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer. Please, go ahead.

[Courtnee Chun:]

Thank you. Good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 Acquisition's 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 Corporation'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. This quarter, no surprise, we're going to start with the Braves. World Champions for the first time since 1995. As Hank Aaron said, “In playing ball, and in life, a person occasionally gets the opportunity to do something great. When that time comes, only two things matter

[Brian Wendling:]

Thank you, Greg. Hard to follow that, but we'll give it our best try. Good morning everyone. Liberty SiriusXM Group has attributed cash and liquid investments of approximately $165 million, plus $50 million in public debt and equity securities at the corporate level. This excludes, $164 million of cash held directly at SiriusXM. We also have $1.1 billion of undrawn margin loan capacity at the parent level. Note that a portion of our cash will be used in early 2022 to repay our 2.25% Live Nation exchangeable bonds. We issued the redemption notice on these bonds, just after the quarter. Based on the fair value of the liability at quarter end, the amount of cash used would be $532 million. As of November 3rd, the value of our SiriusXM stocks held at Liberty SiriusXM Group, pro forma for the exchange and announced today was almost $20.8 billion and the value of Live Nation stock held was $7.3 billion. We have $3.2 billion in principal amount of debt against these holdings. Total Liberty SiriusXM Group attributed principal amount of debt is $13.1 billion, which includes $8.9 billion of debt at SiriusXM. As you saw in our earnings release, the Liberty SiriusXM Group outstanding share count as of 10/31 pro forma for the exchange would have been 336 million shares. Formula One Group had attributed cash and liquid investments of $1.6 billion at quarter end which excludes $585 million of cash at F1. F1 Group also had $194 million of public debt and equity securities. Total Formula One Group attributed principal amount of debt was $3.4 billion, which includes $2.9 billion of debt at F1, leaving $546 million at the corporate level. F1's $500 million revolvers undrawn and Formula One leverage at the end of the quarter was 5.6 times very near our target range of five times to 5.5 times. Note that we are still in a period of covenant waiver until March of 2022. Please also note, that beginning January 1 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. Bonus reclassified in the primary F1 revenue include F1 TV subscriptions, F2- and F3-related fees, broadcast origination and support fees and digital advertising among others. Additional detail including the impact of the revenue reclassification for the years ended December 31 2019 and 2020 can be found in Schedule three of our earnings press release posted to our website. At quarter end, Braves Group had attributed cash and liquid investments of $134 million which excludes $83 million of restricted cash. Braves Group had attributed principal amount of debt of $721 million. Liberty and our consolidated subsidiaries are in compliance with their debt covenants at quarter end. And with that, I'll turn it over to Stefano to discuss Formula One.

[Stefano Domenicali:]

Thanks Brian. The 2021 season continues to underline F1 position, as the undisputed pinnacle of Motorsport. Hamilton and Verstappen are still battling for the championship with the lead going back and the fourth almost every race. This continues to produce breathtaking moments such as, in Monza, where they're coming together. So, Max' car end-up on the top of Lewis, and in Austin, where we witnessed a spirited race to emerge ahead, after Towa. Fierce battle extends further down the field. We continue to see varied phases on the podium, including our one and two for McLaren and Monte. Checo finally has tried Red Bull and Ferrari's return to the podium as such. In the Constructors' Championship Mercedes is managing to retain slightly [Indiscernible] with the fight for the third between McLaren and Ferrari even close. We held our second sprint event in Monza which was again well received and certainly impacted the Sunday race outcome. We will hold our third and final sprint event in Brazil and are actively collecting feedback to make the sprint events even better in 2022. As restrictions have started to be easier, we have seen the return of large crowd to our races many ad capacity and the public clap is operating fully once again. We were thrilled as Formula One returned to Zandvoort for the first time since 1985. The Orange Army came out in full force to see Max win and the promoter over delivered in every aspect. In Austin, we welcomed 140,000 fans on Sunday and set a new attendance record with 400,000 over the weekend. We finalized the 2021 calendar with Qatar, still in the weekend of November 19 2021 thereby creating a three-race run in the Middle East to the end of 2021 season. This agreement is part of a longer 10-year deal starting in 2023 after Qatar hosts the FIFA World Cup in 2022. The draw and popularity of Formula One has never been greater. This is reinforced by a recently published Nielsen and Motorsport survey covering 187 countries. Participants identified that exciting is Formula One number one brand attribute with competitive and entertaining also making the top five for the first time. The sample of response was the largest and more diverse ever with female participation doubling and the average age decreasing 4 years to 32. We know we are moving in the right direction and engagement remains strong across all platforms. On the digital front unique users across the F1 website and app this year are up 56% compared to 2020. Social engagement continues to grow reaching nearly 35 million social interaction for the US GP, 52% higher than last U.S. GP n 2019. An 80 million social interaction for the Italian GP a record number for Formula One. The total number of those following F1 on social media now stands at over 45 million. The TV audience are tuning in and we have seen strong growth over 2020 and 2019 in many markets notably France, the Netherlands, Greece, Spain, Hungary and the United States. F1 TV remains a great way for us to catch all the action of the race weekends. The concurrent view for race days have consistently been more than 2.7x higher than 2020 season average. We were excited to announce our 23 race calendar for 2022. It is a great mix of historic and newer venues and we will welcome Miami which will be our second race in the United States. We look forward to this calendar which when paired with the new regulation and car design to create closer racing should produce another framing season. We do hope that 2022 feels more normal than the last two years, but we can draw on the skills we have owned to deal with any challenges we continue to face. Due to the ongoing pandemic condition China will not be included on the 2022 calendar, but will be restored to the calendar as soon as conditions allow and we look forward to our long-term partnership. We remain in the enviable position of demand of races continue to exceed the available supply of weekends. In the area of media rights, we made two announcements. Following the news that the FOX Sport channels in Asia would close. We have reached agreement with multiple broadcaster partners across the region through the end of 2022 season. This ensures that our fans in Singapore, Thailand, the Philippines, Malaysia, Brunei, Indonesia, Vietnam, Myanmar and the Chinese administrative region of Hong Kong can watch the conclusion of the 2021 season and every race in 2022. We also extended agreements with the Disney in Japan and India's Star India. On the other side of the world, we extended our successful broadcast partnership with Canal Plus in France until 2024 which includes their dedicated F1 channel. Session from four Grand Prix weekends will be broadcasted live and free-to-air along with event highlights throughout the third. We continue to work with our commercial partners and announced the Crypto.com overtake award in addition to their title's sponsorship of our sprint events. It will be awarded to the driver who has completed the most overtakes throughout the entirety of the 2021 season which concurrently is a battle between two veteran drivers battle and a loss. The 2021 F1 Esports Series Pro Championship presented by Aramco is now two events in following our highest ever number of fans attempted to qualify. Drivers continue to race remotely, but they're hugely popular. The competition is broadcasted from the Gfinity Esport terrain in London along with the live shows that include Natalie Pinkham, Tom Deacon and Nick Hamilton. The action in the Pro Championship is middle in the action of the track with multiple podium finishes across the first six races. This year qualification now opened through a challenging official F1 2021 video game developed by Codemasters. In line with our goal of being net zero carbon by 2030, we are aiming to help develop a 100% sustainable fuel for our new generation of Formula One hybrid engines. The focus is on a drop in fuel that can be used as a standard internal combustion engines without any modification to the engine with a target to achieve greenhouse gas emission savings of at least 65% relative to fossil derated petrol. The impact of this development could be enormous with 1.8 billion cars estimated to be on the road by 2030 with only 8% of those being pure battery electric vehicles. Internal combustion engine and hybrid will continue to be essential to air and sea travel, as well as the holy industry. Our partners are all focused on ESG initiatives. William set an ambitious target to be climate positive by 2030. They have launched a comprehensive sustainability strategy that encompasses the climate, biodiversity stewardships, sustainable innovation industry access for all the purpose-driven leadership. On the promoter side, the Grand Prix of the France became the first Grand Prix organizer to receive the highest level of certification by the FIA. Their commitment to a sustainable development approach includes the elimination of single-use plastics. Our mobility plan does significantly reduce the carbon footprint of spectator travel and a strong commitment to social responsibility. With 17 races completed and well on our way to delivering a championship record of 20 to the season despite the ongoing pandemic I'm so incredibly proud of the F1 team and all our partners. The flexibility and the perseverance display all year is truly impressive and it has been so rewarding to see a huge number of fans backup races celebrating our sport. We all see the enormous opportunity in front of us and we are committed to our vision and strategy to grow and continue to evolve our sport. Avanti tutta full speed ahead. And now I will turn the call back over to Greg. Thank you. Bye-bye. Thank you all.

[Greg Maffei:]

Thanks Stefano and Brian and to our listening audience. We look forward to seeing you on Thursday, November 18 at our Annual Investor Meeting. The full experience will be offered in person at the New York Times Center and virtually. The link to register can be found on our home page. Please note all in-person attendees must be fully vaccinated against COVID-19. We appreciate your continued interest in Liberty Media, and hope you all stay safe and healthy. And with that, operator, I'd like to open up for questions.

[Operator:]

Thank you. We take our first question from Bryan Kraft with Deutsche Bank. Please go ahead. Your line is open.

[Operator:]

Thank you. We take our next question from Vijay Jayant with Evercore. Please go ahead. Your line is open.

[Operator:]

Thank you. And we take our next question from Jeffrey Wlodarczak with Pivotal Research. Please go ahead. Your line is open.

[Operator:]

And we take our next question from Doug Mitchelson with Crédit Suisse. Please go ahead. Your line is open.

[Operator:]

Thank you. We take our next question from Ben Swinburne with Morgan Stanley. Please go ahead. Your line is open.

[Operator:]

Thank you. We take our next question from David Karnovsky with JPMorgan. Please go ahead sir. Your line is open.

[Operator:]

Thank you. We take our next question from David Joyce with Barclays Capital. Please go ahead. Your line is open.

[Operator:]

Thank you. We take our next question from Matthew Harrigan with Benchmark. Please go ahead. Your line is open.

[Operator:]

Thank you. We take our next question from Jason Bazinet with Citi. Please go ahead, your line is open.

[Operator:]

Thank you. We take our next question from Stephen Laszczyk with Goldman Sachs. Please go ahead, your line is open.

[Operator:]

It appears so, yes sir.

[Operator:]

And that will conclude our Q&A session today. I would now like to turn the call back over to your host for any additional or closing remarks.

[Greg Maffei:]

Thank you for your interest in Liberty Media. We do hope to see you on November 18th in person or virtually at our Investor Day. Until then, have a good one.

[Operator:]

And ladies and gentlemen that concludes today's conference call. Thank you for your participation. You may now disconnect.