The Liberty SiriusXM Group
Q4 2020 Earnings Call Transcript
Published:
- Operator Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation 2020 Year End Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded today February 26.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 Form 10-K 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 disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Media or Liberty Media Acquisition Corporation 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 Sirius XM, including adjusted OIBDA and adjusted EBITDA. The required definitions and reconciliations for the Liberty Media and Sirius XM 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 new President and CEO, Stefano Domenicali; and Liberty’s Chief Accounting Officer and Principal Financial Officer, Brian Wendling. I’d once again like to recognize and thank our management teams and employees for the tremendous job they have done manning through COVID in difficult circumstances.Beginning with Liberty SiriusXM, I’d note we continued our share repurchases repurchasing $99 million across both LSXMA/K shares in the November to January timeframe. As you know, the discount persists and we repurchased at a look-through price on SIRI of about $3.70 per share. We do expect to continue to take advantage of the discount opportunity in part driven by some recent balance sheet improvements we have at LSXMK. In November, we raised $929 million of a live exchangeable bond at 50 bps to repay our live exchangeable maturing later this year and from the call spread between LSXMK and FWONA that originated when we did the reattribution. In tandem, we amended the live margin loan and unencumbered a substantial portion of our live equity. Also at the quarter end, we admitted our SIRI margin loan increasing our borrowing capacity from $1.35 billion to $1.75 million.Accordingly, we have generated substantial incremental borrowing capacity to go after that discount and we continue to take advantage of it. Our ownership of Sirius XM as of January 29 stood at 76.4%. We do expect to get 80% ownership in this year and we recently announced a tax sharing agreement between Sirius XM and Liberty SiriusXM. The SIRI Board of Directors evaluate the capital return strategy every quarter and will continue to do so if Liberty gets to the 80% ownership level, as we expect later this year.So looking at Sirius itself, we welcome Jennifer Witz, who assumed her new CEO role in January. The new car penetration at SIRI hit 80% in the fourth quarter, and we have line of sight to get to 82% in 2021. Sirius XM hardware is now in one out of every two cars on the road and the number continues to claim.[indiscernible] and self-pay households listening in the digital environment, i.e., out of the car grew 40% in 2020, and Stitcher has the largest share of U.S. podcast listening audience available to advertisers. Please do make sure you’ve listened to the podcast of the year Office Ladies. If you have been to our Investor Day’s you know how much we love the Office.Turning to Live Nation. We continue to have great demand for concerts, perhaps notably The Weeknd sold over 1 million tickets worldwide for his 2022 Tour just one week after announcing the tour. Clearly there is robust demand as we noted for live music. Live also acquired a majority stake in Veeps a ticketed live stream platform. I encourage you to check out the series they have on Rufus Wainwright.Turning to the Formula One Group. As I mentioned, we have a new CEO there, Stefano Domenicali from whom you’ll hear in a minute. We are planning for a record 23 races this year. Notably the Orange Army is ready to welcome the Dutch GP and local hero, Max Verstappen, in September at Zandvoort. 2020 show, we have ample demand for hosting races, even on short notice from both new and historic tracks.And now for many of you, who have seen everything you want to see streamed online this year, get ready to tune in for Season 3 of Drive to Survive, which drops on Netflix on March 19. In January, we introduced LMAC with SPAC. We raised $575 million, that’s the largest corporate SPAC to-date. According to banks who are involved and maybe they’re biased. It was the most oversubscribed SPAC of all time, and the first trade at $1,320 was the highest initial trade for any SPAC to-date. SPAC has continued to trade well, but admittedly on pinned volume. We are actively in discussions with a number of targets in the TMT space. The 20% interest in LMAC is attributed to the Formula One Group. And I would remind you that the Formula One Group has committed to forward purchase $250 million and $10 per unit in connection with the initial business combination when it occurs.Turning to Braves. We sadly lost some icons at the Braves in this off season, and we’d like to start by paying tribute to them. Notably, Phil Niekro and of course Hank Aaron. We started a fund named after Hank Aaron with $1 million from the Braves plus $1 million from Major League Baseball and the Major League Baseball Players’ Association to help grow diversity in baseball. We are excited about our enhanced 2021 roster coming off a winning the NL East for our third straight season. We did resign Marcell Ozuna to a four-year deal. As you may recall, we came within one year – one win rather from going to last year’s World Series. So our guys are ready to go. Freddie Freeman coming off of his 2020 NL MVP, Acuna, Albies and more are hungry and ready. Spring Training did start recently on Tuesday and our first Spring Training game is this Sunday. We expect fans to be attending the 25% capacity.Turning back to the home front at Three Ballpark office tower, we are near completion and 70% leased, both TicknCook and Papa John’s will fully occupy their space by the summer of 2021. 97% of the Battery’s tenants are operational, which speaks to the relative Cobb County, Georgia, and we believe bodes well for fans at Truist this year. We do expect to have fans in the sands, but are not yet sure of the seating capacity restrictions. And we do have significant demand for both tickets at Truist and Spring Training. As I noted, we look forward to a great 2021 season and including hosting the MLB All-Star game on July 13.So with that, let me turn over to Brian for some more financial results.Brian Wendling Thanks, Greg, and good morning, everyone. At Liberty SiriusXM Group, we’ve taken a number of steps to boost liquidity and strengthen the balance sheet. In the fourth quarter, we issued $920 million of Live Nation exchangeable bonds and amended our Live Nation margin loan, unencumbering substantial Live Nation equity value as part of the amendment, decreasing the shares underlying the loans from $53.7 million to $9 million.Subsequent to quarter end, we amended our SIRI margin loan, increasing borrowing capacity to $1.75 billion, up from $1.35 billion at year end and borrowing an additional $125 million. Inclusive of this additional margin loan draw, Liberty SiriusXM Group had attributed cash, restricted cash and liquid investments of $1.1 billion, excluding $83 million of cash and restricted cash held directly at Sirius XM. We also had $1.1 billion of undrawn margin loan capacity at the parent level.Note that approximately $860 million of our cash will be used in 2021 to settle the call spread between the Formula One Group and the Liberty SiriusXM Group and to repay our 2.25% Live Nation exchangeable bonds, this value is based on estimates of the fair value of both liabilities at year-end. As of February 25, the value of the Sirius XM stock held at Liberty SiriusXM Group was $19 billion and the value of our Live Nation stock was $6 billion, excluding the value of the Live Nation call spread held at Formula One valued at $371 million at year end.We've $3.2 billion in principal amount of debt against these holdings. Total Liberty SiriusXM Group attributed principal amount of debt was $12.8 billion, which includes $8.6 billion of debt at SiriusXM directly. Formula One Group had attributed cash and liquid investments of $1.4 billion, which excludes $265 million of cash-held at Formula One and total Formula One Group attributed principal amount of debt was $3.6 billion, which includes $2.9 billion of debt at F1, with $727 million the corporate level.At year-end Formula One $500 million revolver remains undrawn. At quarter end, Braves Group had attributed cash and liquid investments and restricted cash of $185 million and attributed principal amount of debt of $674 million. They are currently in compliance on all debt covenants across the portfolio.With that, I'll turn it over to Stefano to discuss Formula One.Stefano Domenicali Thank you, Brian. I am thrilled first of all and honored to lead Formula One. Thank you to Liberty, the FIA, the teams and all of our partners for the warm welcome. Before I start, I want to thank Chase for his tireless work over the past four years in building our organization that gives us the very strong foundation for the growth in the decades ahead. Last year was a challenge for everyone around the globe, and every business on the sport felt the impact of pandemic.Formula One delivered what many thought was impossible, a 17 races calendar delivered safely and with huge enthusiasm from our fans. 72% think that F1 has improved over the past two years. 68% believe F1 is in good hands under Liberty Media. 71% rate their satisfaction with being an F1 fan, as eight or higher. Furthermore, fans believe Formula 1 handbook is safely very, very well during the global pandemic, with 90% believing the swift measure put in place to allow races to go ahead have been handled well. 81% believe in F1 has communicated well with fans during the shutdown and 73% believe in F1 has handbook the absence of fans of the race as well and 88% thinking positive about the calendar in 2020.We all continue to navigate the challenge of COVID-19 this year. However, that will not preclude us [Audio Gap] and opportunities we see in front of us, which are:
- number one, put in the drivers at the center of F1, as they represent the soul and are the ambassador of the sport. The level of talent we have today on the grade is one of the highest in F1 history, and we should celebrate that. Number two, delivering an incredible product that strengthen, its competition and action on the track included 23 races this year. Number three, enhancing the long-term prospect of sport and ensuring it's an attractive business model for all participants and attracting new participants. And number four, remaining committed through our action to our We Race As One platform, focus on sustainability, diversity and inclusion and community.To reflect on 2020, we were extremely proud to complete a successful 17 race season. The last few races brought some new faces to podium, including the Sakhir GP, which saw Sergio Perez claiming his first win alongside Esteban Ocon and Lance Stroll in the same time, in the same race, we were relieved to see Romain Grosjean walk away from a fiery crash, a testament to Romain, his support teams on the track and improved safety measure in the sport.Max Verstappen secured the win of our last Grand Prix in Abu Dhabi, which capped a very successful season for Red Bull, who placed second in the constructor standing. On the financial fronts clearly, we were impacted by COVID-19, but working in collaboration with our partners to mitigate these impacts. Due to the reduced number of races, duration of the season, and almost no fan attendance, unsurprisingly primary revenue declined in all categories. However, we worked with our promoters to extend contracts where mutually agreed and worked with certain sponsor to defer selective rights into future years. We approached these agreements with the spirit of partnership and largely isolated the old contract to impact 2020.The spirit of collaboration, together with the ongoing terms of our account, leave us well positioned with all of our material commercial partners as we enter in 2021. For the full season, we are pleased with the reaction from our fans across multiple platforms. We made significant gains across social platforms, making us the second fastest-growing major support league in term of follower across the four major social platform ahead of major sport, such as NFL, NBA, PGA Tour and WWE.We have seen the fastest growth in the digital engagement, compared to all our major sport with a 99% decrease in 2020. On TV, our average orders for Grand Prix was $87.4 million, very marginally down on 2019, but still higher than the average order in 2018, are compared favorably to other major sports with an international footprint that's experienced deep decline in 2020 due to the pandemic. We plan to engage more fans in 2021, and we have set for an exciting 23 races calendar. This includes the addition of Saudi Arabia and much anticipated race in the Netherlands.We will navigate the challenge of pandemic, but are pleased with how we have already been working with our partners. We were able to reschedule Australia later in the year and announced the return of Imola and Portimao to the schedule. All conversations with promoters have been positive since the start of the year. And every one of them has made it clear that the events should be going ahead as scheduled.We'd love to welcome fans back on the track and we'll be working with the local organizing and governments on that approach. We are also grateful for the efforts made by the government to allow Formula 1 to continue to travel to our events during a time of global quarantine. Our highly robust safety procedure have proven we can travel and race safely.Furthermore, we have evaluated the race weekend with a proposal to try a new Saturday's sprint races format of some races in 2021, the result of which would that reminds the group for the main events on Sunday. This was supported by the teams in principle at the meeting a few weeks ago, and we will work with them and the FIA to finalize the details before the start of the season. On the sporting side, we are expecting an exciting season with Lewis Hamilton and Mercedes fighting for the unique and historic 8th World Championship.We hope to see Ferrari, with that all the history in the sport been they have fight back and are excited for all the new pieces and lines up on the grid. For most of the season, we were wondering where Sergio Perez would find a driver's seat, and we can't wait to see him pair up with Max Verstappen.McLaren, who had spectacular 2020 season finished third in constructor standing. We'll see Daniel Ricciardo and Lando Norris up together. We welcome Aston Martin, an iconic brand with a seasonally champion Sebastian Vettel behind the wheel. We also welcome the return of Fernando Alonso to remain Alpine team. He is doing well, by the way, following his recent accident and looking forward to seeing him at the start of the season in Bahrain. And of course, the world will be watching the major season of Mick Schumacher at Haas.Last year was momentous for Formula One signing the new Concorde Agreement and reaching agreement on the introduction of a cost cap taking effect this year in 2021. The next major area to cover relates to the power unit to our engine. In a demonstration of a collaboration, the FIA, Formula One and the teams have voted to freeze power unit development from the start of 2022. A high level of working group has been established, we think whose power unit manufacturer and food supplier.As we look to the next generation of the power units for 2025, the key objective are