Liberty Broadband Corp (LBRDA) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation 2015 third-quarter earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded, Wednesday, November 4, 2015. I would now like to turn the conference over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Thank you. 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, including statements about business strategies, market potential, new service and product launches, the future financial performance of SiriusXM, stock repurchases, 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 possible changes in market acceptance of new products or services, the ability of our businesses to attract and retain customers, competitive issues, regulatory issues, and market conditions conducive to buybacks. These forward-looking statements speak only as of the date of this call, and Liberty Media 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'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, including OIBDA. The required definition and reconciliations, preliminary note and schedules 1 through 3 can be found at the end of the earnings press release issued today, which is available on our website.

This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty Broadband. 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 the ability to complete the Charter transaction and Liberty Broadband's related investments. These forward-looking statements speak only as of the date of this call, as Liberty Broadband expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Broadband's expectations with regard thereto, or any change in events, conditions, or circumstances on which any such statement is based.

Now I'd like to introduce Greg Maffei, our President and CEO.

Thank you, Courtnee. And good afternoon to all of you out there. Today, speaking on the call, we will also have Liberty's CFO Chris Shean. During Q&A, we will be available to answer questions related to Liberty Broadband, as well.

Starting with Liberty Media, during the quarter, we completed the hedging period on our previously disclosed Live Nation forward purchase. We will own, when this hedge closes at the end of November, 34.4% of Live Nation. We're acquiring 15.9 million shares at an average price of $24.91, and we're very happy with our increased involvement and investments.

Live Nation announced stellar Q3 results last week. Revenue grew 10% in AOI. Adjusted operating income was up 8%, both in constant currency. And these were driven by a 10% increase in attendance during the quarter. Sponsorship and advertising AOI grew an impressive 16% in constant currency. And in ticketing, Live Nation grew its primary and secondary GTV by 18%.

Digital content is also performing well at Live Nation, with Yahoo Live festival streaming and [Bytes] original programming having now delivered over 100 million streams to date. We continue to focus on mobile, with over 60% of web traffic through mobile at Live Nation. And we're on track to deliver record performance for 2015.

Looking back at Liberty Media itself, we continued buybacks and we repurchased a total of $38 million of LMCK shares from 8/1 through 10/31, taking advantage, in part, of the increased spread between LMCA and LMCK. We also continue to focus on the overall discount in LMCA between its and its constituent components, the NAV. Recent analyst estimates have had this discount somewhere in the mid to high teens. And we continue to look at alternatives to take advantage, including stock repurchases, as you saw in this quarter.

On to a few operational highlights at our subsidiaries. SiriusXM again posted very solid results and increased its guidance for net subscriber growth, revenue and adjusted EBITDA. During the quarter, subscriber count increased to nearly 29 million, revenue was up 11% to $1.7 billion, and adjusted EBITDA grew 17% to a record $447 million. As of 10/20 our ownership in SiriusXM stood at about 60.7%.

Looking at the Braves, our stadium and mixed-use development, is progressing well. In September, we closed on a stadium construction loan of $345 million to fund the remaining Braves portion of the Stadium parking and plaza. And we officially named the new mixed-use development adjacent to SunTrust park, the Battery Atlanta. Additionally, we named John Coppolella as general manager during the quarter.

Over at Liberty Broadband, Charter continued to show excellent results, with very good growth in customer relationships, PSUs, and revenue was up 7.2% year over year, with adjusted EBITDA up 8.5% year over year. And including the transaction costs we incurred during the quarter and transition costs related to our upcoming mergers and acquisitions, we would have been up 9.7% year over year in adjusted EBITDA.

We remain very excited about the Charter Time Warner Cable and Bright House combinations, and the ability to successfully apply the charter strategies across the larger footprint. We look forward to seeing many of you on November 12 in New York for our annual investor meeting when we'll have lots of fun things to talk about.

And with that, I will turn it back over to Chris to talk about our financial results.

Thanks, Greg. Just a reminder, that while SIRI is consolidated in Liberty Media's financial statements, we suggest and we think it would be better to go directly to their website and publicly filed documents for your analysis on that asset.

At quarter end, Liberty had cash and liquid investments of $607 million, and principal amount of debt of $6.9 billion, which includes $5.5 billion of debt at SiriusXM and a margin loan at Liberty. Included in the $607 million in cash and liquid investments balance at September 30, 2015 is $153 million of cash held at SiriusXM. Liberty's cash and liquid investments, excluding cash held at SiriusXM, was $454 million.

Now with that, I'll turn the call back to Greg.

Thank you, Chris. And to the listening audience, we appreciate your continued interest in Liberty Media. And with that, operator, I would like to open the floor for questions.

(Operator Instructions)

Jeff Wlodarczak.

I just wanted to get your latest thoughts on your high basis SIRI shares. And then, separately, now that Sirius has had experience of pushing through a couple of price increases, what's your comfort level around SIRI taking additional price increases? And then I've got a follow-up. Thanks.

First, I think we remain constant in our belief in SiriusXM. For many quarters now, we've not sold any shares. We did, as you recall, increase our stake dramatically from the 40%-ish to well over 50%, and SiriusXM has done the heavy lifting since then. We did sell some shares just to get some of our base back, but I think we're very happy with our position and have no current intent to dispose of any more high basis or otherwise in SiriusXM.

I'm not going to comment on future price increases, other than to say both the churn and customer reaction on an ongoing basis, and in light of prior increases, indicates quite a lot of happiness with the products and quite a lot of price elasticity, at least in my mind. But we'll see where we go with that.

Fair enough. And then on Charter, Greg, how interesting is the idea of Charter offering Wi-Fi First and V&O wireless products to consumers outside of the home?

I'll let them make their announcement but I think our Liberty's belief is probably somewhat consistent with theirs. 75% to 80% of all bits on mobile devices are already delivered through Wi-Fi. We have a unique plant in market to be able to offer customers incremental services that include Wi-Fi.

Whether that is bundled in something which is a Wi-Fi First or whether it's a more broad MVNO or whether ultimately there is a richer offering on a Quad-Play the way there is in Europe, we'll see. I don't think that is known and I think the market could evolve. But clearly the strength of our ability to have the network we have and offer Wi-Fi is very valuable to customers.

Thanks, Greg.

Barton Crockett, FBR Capital Markets.

Okay, great. Thanks. To follow up on your statement that you're interested in hanging onto your Sirius shares, when you look at your view of the value of that business, how much of it is really driven by the core subscription business that they have, and how much of it is potentially driven by the long-term value that they might be able to unlock from spectrum as they move to free up the Sirius spectrum, and you look at the dynamics of the spectrum values in the last auction? Does that really factor in your long-term thinking of the value there?

I think, first and foremost, Sirius is a subscription company and its value will come from that subscription. The Company's done an excellent job of building on the initial leg, First, remember, it was an aftermarket product. Now it became an OEM product. And now adding this next leg, which they've done very well over the last three years of the secondary market, there's not probably as much growth left given what's happened to SAAR in the OEM market. But the potential to see the secondary market grow for as much as 10 to 15 years is very conceivable and very attractive.

But with that comes other sources of value, too, in this Company, including the fact that we're going to have many OEM installed non-subscribers who will never probably want to become subscribers. We don't pretend or believe that every car is a potential subscriber to a paid service, just like not everyone is willing to subscribe to Stars or HBO or Showtime. But we think there's quite a lot of room left to grow in both of those it. But when you're done there's still a huge base of installed cars I think there's opportunities to do things with.

And last and not least, we do have a lot of spectrum value. And some of the actions we're taking to unify our platform are going to create opportunities with that incremental spectrum. I don't view that as the driver of value. I view that as an incremental boost.

And obviously there's another future, as we've talked about, which we haven't really counted here, which is the connected car, another subscription service. So, I think most of these are green shoots, to a degree. I think they've got real potential but we don't know the size of them. And I'd put the spectrum in that category, as well.

Okay. That's helpful. And then if I could switch gears here a little bit, to what extent do you think Liberty Media could be potentially valuable as a consolidation vehicle or acquisition vehicle for emerging music services? There's a lot of innovation in that area. You have stakes in companies that are in that area but have earnings needs to deliver earnings. Liberty Media, as sum of the parts, really doesn't have to focus on earnings. So, to what extent do you think you could get involved in taking stakes or making acquisitions of substance in that area?

That's a great question and you can see to some degree that's already happened. We have, I believe we've disclosed, a small stake, venture capital stake, in a company called Saavn, which is an Indian streaming company. We've looked at virtually -- there isn't a streaming company that we have not spoken with, either Sirius or Liberty or both, and in some cases have imagined that, given the high profitability of Sirius, and, as you rightly point out, more the NAV orientation of Liberty, that perhaps some of it ought to sit, the equities ought to sit inside of Liberty for a period while they bake. Because, in a lot of cases the models, as you have rightly pointed out, for these emerging services are not robust yet and not known, and don't fit very well.

So, that's not a crazy idea. And you've already seen a bit of that with our Saavn investment. And, as I said, we've looked at a bunch.

Okay. Since you threw it out there, do you have a sense of the desirability of businesses like Spotify with their valuation, or Pandora with its evaluation, whether you can look at those types of models, maybe not those specific equities, and see a case where value and you are willing to spend and they are willing to price it could meet? Are you in the ballpark or do you think there's separation there?

I think the biggest issue for us has been the uncertainty around some of the models because of the nature of the variable content costs being very high as a percent of revenue, the potential only for increases in those contents with some rulings or some approaches from the content owners, whether they be the broadcast or the play services or the publishers. All of those have given us uncertainty about what the real cost or what the real potential to earn your cost of content in these businesses are, particularly when you throw on the cost of service and streaming, et cetera. Most of our hesitation has not been -- where does this belong, Liberty or Sirius -- but what is the nature of the business model and what is the sustainability.

Okay. That's great. Thank you very much.

James Ratcliffe, Buckingham Research.

Good afternoon. Thanks for taking the question. If my math is right, once you've completed the live transaction, there's going to be a pretty minimal cash balance hitting at LMCA. Can you talk about other potential sources of liquidity should you desire it there? I assume you could extend the margin loans on Sirius, for example, but are there other options there? Thanks.

I first would note that we believe that there's quite a lot of borrowing capacity. We have the long-term $1 billion exchangeable there, set to mature for another eight years or something like that. We have a margin loan against our SIRI stake in which we had several hundred million dollars drawn. And it's safe to say we have many times that in capacity undrawn. So, I don't worry about that.

We've also shown an ability to raise incremental capital against some of our existing stakes or in our existing company. So, yes, it's always feast or famine in the sense that for the first eight years I was at Liberty all we ever thought about and heard was -- what are you going to do with all that cash on your balance sheet, Now, we're at the other end of the spectrum. But we've been blessed with somewhat of a decent track record, and people have approached us about various ways to finance. And we've always found ways to raise capital for the right opportunity.

Thank you.

Tom Eagan, Telsey Advisory Group.

Thank you very much. I have a broader question on cable for either Greg or John. There's been some talk about cable operators providing video service outside of their footprint, I guess as a video service on the Internet versus based on facilities. My question is, what do you think about that, pros and cons, to the operators? Thanks.

I think, in general, over-builders have had a very tough time in marketplaces. To my knowledge, it's hard to point to a very successful over-builder who's returned their cost of capital.

We have a great opportunity to invest on our own footprint, upgrade speeds, do more with go all digital in the footprint, do a lot with our footprint that we hope to close soon, the combined Charter Time Warner Bright House footprint. And I think that, frankly, is a lot more attractive an opportunity, and potentially adding on services like wireless, than trying to decide we're going to overbuild into other markets.

Great, thank you.

Vijay Jayant, Evercore ISI.

Thanks. I have two. Greg, getting a lot of questions on the spread of LMCA to Sirius and which stock should I buy. I'm trying to understand, is there any urgency at Liberty to close the spread? Obviously you've talked about you have liquidity to do that if you seem to want to do so. Can you just talk about how important it is to close the spread? Or is this just going to be natural and we deal with it when [stack] consolidation probably happens.

And, second, given you being one of the largest investors in cable in the US, and you had Altice come along recently and talk about synergies that are even higher than the synergies on the Time Warner Cable Charter deal for much more assets, can you just talk about, is there something there that they see or you've studied and think there's a real opportunity for US cable operators that we're all missing? Thank you.

On closing the spread, I consider it a personal insult for all investors putting us at a discount because it suggests that they think we're going to overpay for SIRI or do something else that is irrational. I hope we've demonstrated a track record of not doing that. But we'll have to see.

Historically, we've taken advantage of those discounts to NAV to purchase stock or do other things to take advantage of the discount, and then subsequently get fully valued at NAV and outperformed the underlying equities. We'll see if that proves to be the case again, but I would put my money on it.

On the Altice synergies, I view their entry to the marketplace as largely good. If they do something that's highly beneficial and highly attractive and highly effective in running cable plants at much lower cost than existing operators in the US market are able to, I hope we'll go to school on it and learn. We'll either make our business far more profitable or maybe they'll buy us all out because they can run them much better. But either seems to bode fairly well for our equities.

Great. Thank you.

Ben Swinburne, Morgan Stanley.

Thank you. Good afternoon. First question, any update on the Vivendi litigation timing-wise? I think we're coming in on maybe the beginning of a trial here in December. Just any update you have on timing and process would be great.

I'll let Rich Baer, our General Counsel, comment on that.

Yes, the matter has been set for oral argument before the Court of Appeals. So, it's not a trial, it's just an appellate argument. The Second Circuit will consider those arguments in March of next year. And then they typically rule within six to eight months after that.

Okay, great. And do we know what interests you'll be earning on the cash on the settlement -- or, the fine, I guess is the best way to put it -- or is that still also being debated?

There are two parts of that. The first part is what interests we earn from the time the fraud occurred to the ruling of the judge, and that is being in dispute. What we earned from the time the ruling came down until today is not in dispute, and that's a low treasury rate. The dispute is whether we are in that treasury rate from roughly 2002 until 2014, or whether we earn a 9% simple interest rate under New York contract law, which is our aim.

Got it. And then, just lastly, Greg, switching back to the music business, admittedly a bit of a random one, but since you are a big investor in Live Nation, and you've looked at a lot of music businesses, what do you make of Pandora buying Ticketfly? Do you see that as something that might impact Live Nation in any way? I realize they're a much smaller ticketing business today, but do you think the combination there is interesting as it relates to the competitive set for Live Nation, or maybe something that Live Nation might be able to do in that direction to enhance their business?

I think Ticketfly is mostly directed at smaller venues which is not where the bread-and-butter of Live Nation as. Our success and our strength is really in large, global ticketing, large global tours. I don't want to be dismissive of a competitor but they're not really front and center as much of a problem or as much -- they're not as tough as some out there. I think it is interesting to imagine, though, that events and programming are useful for promoting a service because I think it suggests that there are possibilities in the portfolio we have between Live Nation and SiriusXM to work together.

Make sense. Thank you.

Kannan Venkateshwar, Barclays.

Thank you. Greg, just a question of couple questions for me. First is on the cable side of it, if you just look at the footprint for Charter, the initial plan was maybe two years ago versus where it is now. Is there any scope for optimization? Not specifically with respect to Charter but when you look across the ecosystem with Altice in the mix and so on, in terms of assets, going forward.

And the second is, given the kind of pressure the media guys are seeing, is there an opportunity for you at some point to start looking at some media assets, just given everything else that you own in your portfolio? Thanks.

On the first, asset swaps are really one of the most attractive ways to optimize a cable portfolio, I think, as you rightly point out. One of my predecessors, Leo Hindery, had the Summer of Love back in the mid to late 1990s when there was a massive series of swaps, which were hugely beneficial to the industry. Obviously the transactions that we contemplated but were unable to complete with Comcast, because they were unable to complete their Time Warner purchase, were a series of swaps, which we thought were very optimal for both of us. All that's probably off the table for a while but it's certainly not to say that it doesn't ultimately in some cases makes sense to move towards that.

And on the question of media assets, we certainly notice that certain of the media companies have been seeing their valuations come down quite a bit. We're always looking. That's the nature of who we are. But I don't think we're ready to announce anything this afternoon.

All right. Thank you.

Matthew Harrigan, Wunderlich Securities.

Thank you. I was curious, in super mobility and SCTA, there's really a lot more anxiety about how compatible LTE unlicensed and Wi-Fi are. Could you just provide as some thoughts on that and then thoughts on the valuation of the spectrum auction next year? Some of the indications are all over the place in terms of what some of the telecom executives are saying.

Matt, let me make sure I understand your first point. I'll give the second point first. We watch the spectrum auctions, we have some interest. Even SIRI we have some interest given what Charter may want to do. But we're certainly not experts, so I will pass on what's going to happen in those spectrum auctions, the speculation. But make sure I understand the first part of the question?

Yes. There are some technology issues with LTE advanced and Wi-Fi. LTE is very grabby in unlicensed spectrum, and there's some concern that it could affect the QOS on Wi-Fi. Verizon is going ahead pretty aggressively with some things. It feels like overall people were getting lot more bulled up on Wi-Fi, both in terms of the churn reduction and even some more direct monetization possibilities. And there seems to be more and more concern about just interference between the technologies. Wi-Fi is very passive and LTE will just take a swat.

Generally the guys who have licensed investments have more incentive and have been probably more aggressive at standard [spotties] because they've invested more to get there. So, I think that's a natural -- that happens and those fights happen all the time. I'm sure that it'll get sorted out at some point and the FCC will likely be arbitrators of parts of it, so we'll see.

Thanks, Greg.

Thank you. Thank you to all of you out there. And as I said I hope to see many of you next week in New York.