Liberty Broadband Corp (LBRDK) 2015 Q1 法說會逐字稿

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

(Operator Instructions)

As a reminder, this conference is being recorded, Friday, May 8, 2015. I would now like to turn the conference over 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 limitations, possible changes in market acceptance of new products or services, the ability of our businesses to attract and retain customers., competitive issues, regulatory issues, 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 adjusted OIBDA. The required definitions and reconciliations, preliminary note and schedules 1 through 4 can be found at the end of the presentation for today's call 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.

These forward-looking statements speak only as of the date of this call, and 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, Liberty's President and CEO.

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

Turning first to Liberty Media. We continued buybacks during the quarter, repurchasing $74 million from February 1 through the end of April.

And looking at some of the operational highlights, SiriusXM reported excellent first-quarter results, increasing subscribers to 27.7 million and increasing their expected net adds for the year. Revenue was $1.08 billion, up 8%, and adjusted EBITDA grew 19% to just under $400 million, $399 million. Liberty's ownership stake stood at 57.8% as of April 24, and given that we're not selling and I expect they're buying, I would guess it's higher today.

Live Nation is off to a strong start for 2015. And though the shape of the calendar was not particularly friendly through the first quarter, the indicators for 2015 ticket sales are solid. Live Nation has made great strides in the North American festival market, an important business for them, and we now have four of the top five festivals.

Live Nation has also made great strides at monetizing its fan base through its both sponsorship and advertising. They've continued and expanded their Yahoo live relationship. And this summer, we look forward to launching Live Nation TV with Vice.

With that, I'm going to turn it over to Chris to talk about some of our financial results.

Thanks, Greg.

As in the previous few quarters, given now that our ownership is over 50% of Sirius, we consolidate Sirius but recommend that you review their financial statements directly, which you can find on their website and in their publicly filed documents.

At quarter end, Liberty had cash and liquid investments of $1.2 billion. And principal amount of debt of $6.5 billion, which includes $5.2 billion of debt at SiriusXM, and a margin loan at Liberty.

Included in the $1.2 billion in cash and liquid investments balance at March 31, 2015, is $482 million held directly at Sirius. Liberty's cash and liquid investments, excluding cash at SiriusXM, was $763 million.

Now we'll turn it back over to Greg for Q&A.

Thank you, Chris. To the audience, we appreciate your continued interest in Liberty Media. And, operator, I think we'd now like to open the floor for questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of James Ratcliffe, Buckingham Research.

Good morning. Thanks for taking the question. One on Liberty Broadband if I could.

On the LMCA side, with nearly $800 million in cash at this point, are there thoughts about working cooperatively, for example, with Broadband. Since it seems like if the Bright House deal had gotten done, or that essentially all of Broadband's cash would have been used up in that. So putting -- working together on cable acquisitions and having stakes in cable businesses ending up at LMCA as well?

I guess secondly on Broadband, the Bright House transaction seemed to be structured to ensure that the voting stake in Bright House stayed above 25%. Is there anything specific about that 25% number as a bright line for anything? Is there anything where owning or voting 25.01% is meaningfully different than 24.99%? Thanks.

Thank you, James. On the first part, we spun off Liberty Broadband to separate it from Liberty Media's assets, and to create better clarity around Liberty Media's purpose and Liberty Broadband's purpose. And while I can't say there's no way we would ever use Liberty Media cash or venture's cash, I think it's unlikely, in particular, we would use media cash.

It doesn't have that much, and it has other things we have in mind to do there. So that seems to me a less likely prospect. And the clarity we've achieved by splitting Liberty Broadband perhaps makes it easier if we want to raise incremental cash related to cable to raise it there.

On the second point. There are some rules around the Investment Company Act, which are not a death sentence, but which we'd prefer to avoid. And 25% voting is one of the things that is a test that's useful for us to be above.

Great. Thank you.

Thank you. Your next question comes from the line of Ben Swinburne, Morgan Stanley.

Good morning. Just picking up on that comment, Greg. You said you have things you want to do at Liberty Media.

You've been buying back stock, taking advantage of the NAV discount. Anything strategic that you're focused on, or are you just referring to the buyback on that point?

Well, I think if you look at the assets in Liberty Media, they're mostly music related. They're mostly related to those audio businesses.

And I think we'd like to focus on that, and I think we'll see opportunities there. But I don't have any I'm going to enunciate this morning.

Got it. Great. And then the decision to sell some Viacom shares, I guess any comment there?

And then if you look at the -- I think it's $600 million of other public holdings, how much of that could you shield with taxes from here? And I was just wondering if there's a time frame around that.

I don't think we've gone public on our NOL position at any one time on that. But we've been able to, through the magic work of Albert, been able to generate some shield, and take advantage of market conditions to make liquid some of our positions.

And that's part of the reason why our cash balance is up at Media. But we're not going to prognosticate on how much that will able to generate today.

Okay. And then lastly, just On Liberty Broadband, can you just walk us through some ways you think you could raise a lot of capital there? We've all looked at the idea of you helping Charter with TWC, and at least if you're going to stay around 25% that could be a decent number. Just what are the things you could do to raise capital at Liberty Broadband as we think about the scenarios?

I think there's a wide range of things we could do there, starting with obviously the $700 million of cash on the balance sheet. But incrementally, we have the ability to raise both equity capital through rights offerings.

We've been approached by many, several, probably more like many partners, potential partners, who would be interested in investing alongside with us, if Charter were to need more capital and Liberty Broadband were to participate in that. And there are some other ways we've gone out in the marketplace before and shown our ability to, through hedges and the like, to increase our stakes at relatively low cost.

Okay. Thanks a lot.

Your next question comes from the line of Barton Crockett, FBR Capital Markets.

Okay. Great. Thank you for taking the question. I was interested in a couple of things.

First is the comment about an interest in doing more in the audio space. I was wondering if you could -- I realize you're not going to give us specifics, obviously, of what you plan to do, but I was wondering if you could be a little bit more detailed in terms of why you want to do more there?

Is it a question of perhaps you need to diversify? If you look at Sirius, revenue growth was driven right now more by subscribers, and less by monetization per sub.

If there's an addressable market question longer-term, maybe diversification is important. Maybe there's additional feature sets that both Sirius and Live Nation need, or maybe you just see opportunities because you're in the space. I was wondering if you could elaborate.

First, Barton, I think the fact that Sirius is growing its net adds at a more aggressive rate, more attractive rate, yet holding its ARPU constant, is a pretty attractive thing of the business. I'd be more worried if they were -- not more worried. I'd be less enthused if it was through rate increases.

That fact that they're able to hold rate and grow subs is pretty attractive. So that revenue growth is particularly appealing to me. And those who suggest Sirius' growth days are behind it seem to be mistaken.

And that addressable market at Sirius. Given how many cars are on the road that are SiriusXM enabled but are not currently subscribers is one of the most attractive features of that business. The opportunity is large.

I think there are places where Sirius has got plenty of cash flow to do things on its own, and I don't think we're needed there. There are potentially places where we might help Live Nation, who doesn't have quite as much financial might, and there are places where we might want to fill in between the two. But I think it's mostly because we have a strong position through two anchors, Sirius and Live Nation, that will generate opportunities for us in the future.

Okay. Great. And then just a separate question on the Vivendi litigation.

I was wondering if you could clarify one thing, which is, if you do prevail and get cash out of that, who would own that cash? How much would go to Liberty Media versus other entities that have been separated over time? And then just where do we sit with that litigation at this point?

The bulk of the money comes to us, but we do have both legal firms, law firms, which will get a piece of it, and Liberty Global has a small piece as well. The timing of that, Mr. Baer, would you like to comment?

Sure. It's in the briefing process right now. And we hope to have oral argument in front of the Second Circuit Court of Appeals in mid to late fall of this year.

Okay. Great. Thank you.

Our next question comes from the line of Amy Yong, Macquarie.

Thanks. Two questions. One on Media, one on Broadband.

First, on Media, I guess a lot of us look at SiriusXM's buyback potential, and the pace has been a little bit lighter than a lot of -- a little bit lighter than we expected. Are there any levers you can actually pull to accelerate the buyback? And then I have one on Broadband.

Sure. Amy, I'm not sure what levers other than buying more in the market. You're saying that Liberty could pull rather than Sirius? I'm not sure I understand.

I guess are there any -- can you pressure the Board to accelerate the buyback or potentially increase your leverage?

They have a high-quality problem. And that problem is, is that they have grown EBITDA and generated so much free cash flow that when they set that target of roughly $2 billion a year, that doesn't actually increase their net leverage too much. But I think they are -- have been opportunistic.

They've done more than $2 billion last year. And I wouldn't be surprised if they end up doing more than $2 billion this year.

Got it. And then with everything that's been happening in DC, has your view on cable consolidation changed at all? And what gives you the level of confidence that a Comcast -- I'm sorry, that a Charter, Time Warner Cable deal could get done?

Well, I certainly don't believe that I'm a regulatory lawyer. But I would hope that any regulator would look very favorably upon Charter's participation in the industry.

If you're looking at Broadband as really the direction of the future, and speeds over 25 mg as being the most appealing, the fact that Charter has the highest beginning packaging at 60 or 65 mg, and has really raised the speeds at Charter I suspect faster than any other major cable company, would hopefully make them be viewed favorably by any regulator.

But I obviously can't speak to that. Can't speak to what the regulators will look at. But certainly people would be judicious and thoughtful before any deal went forward.

Thank you.

Thank you. Your next question comes from the line of Kannan Venkateshwar, Barclays.

Thank you. Greg, just one question, which is last year when you were looking at Time Warner Cable, the whole process was a little bit more hostile. And given what's played out in the interim period, how has your thoughts changed in terms of how you can approach the process?

Can you still go back to the kind of process you were looking at last year in terms of the whole proxy process, replacing the Board and so on? Or are you looking at a different process where you need to work with Time Warner Cable now compared to what you did last year? Thanks.

I think the -- and this is obviously driven by Charter, not by Liberty Broadband, though, through our ownership and obviously John's position in the industry, we have some voice.

But I believe any transaction that goes forward, if there one were to occur, would be a friendly transaction. Looking for the best of breed in both management teams, and trying to drive an improved experience, both for consumers and shareholders going forward.

Great. Thank you.

Your next question comes from the line of Vijay Jayant, Evercore ISI.

Thanks. Greg, on the fact that LMCA has still a pretty substantial discount to the underlying Sirius, any thoughts on the prospect of Sirius actually buying back LMCA shares as part of the buyback? If you believe eventually they're going to be one in the same.

Have you been talking to John Malone? That's John's favorite idea. But I think the issue there is, what would happen to the [hibow] chairs in some transaction like that, and it's not clear that that solves all the needs.

It really is about trying to minimize those discounts going forward, and have them be aligned. Look, I think it's not -- it's a nice to have we said to consolidate 100% of SiriusXM. It's not a need to have.

If we continue at the current pace, we're going to get larger and larger percentage of that company because we're not sellers today. And I don't anticipate us being sellers in the near term. And so most of our strategic objectives can be solved by the current situation, and in fact, it's getting better and better for us in terms of ownership.

On Liberty Broadband and this Charter prospect with Bright House. Can you confirm that Bright House deal is dead right now, or is there still speculation?

You know I'm not going to confirm or deny that one. Come on.

Okay. Great. Thanks so much.

Thank you.

Our next question comes from the line of John Tinker, Maxim Group.

Thank you. The Live Nation put out a convert. You've bought forward some stock against that.

Is there any way we could get an idea as to what your position could go to? So I think you're at 27%. And secondly, could you remind everybody exactly why there's a cap at 35%, and could that change? Thanks.

John, our position could go to 35%, I think as you rightly noted. And that cap placed agreements that were with the former parent of Live Nation, Ticketmaster. We agreed to a cap of 35% in our holdings at the time that -- the entity was spun from its former parent.

And could that be changed?

Yes, I believe by a vote of the Board it could.

Thank you.

Your next question comes from the line of Matthew Harrigan, Wunderlich Securities.

Question, when you look at the music business, a lot of these different national markets tend to mirror each other a lot structurally. You could really have an anomaly where SiriusXM, listen to you and Jim Meyer, you've got a great satellite business. You've got a unicast streaming business.

And then offshore, big markets, the UK, Japan. You've got a very different market structure, there's nothing analogous to SIRI, Spotify, some of these other streaming players probably get more power. Other guys start up, these big integrated tech companies, the market just looks really, really different.

Do you think that's a point of stress? People -- years ago, people constantly asked SiriusXM about going overseas. But is it -- do you think you can be the gorilla here, and not even be in Brazil or China or Germany?

I think a couple things, Matthew. First, the streaming business, or the way it's currently described as a streaming business, is really kind of a misnomer. We today at SiriusXM have streaming technology, domestic only, I acknowledge.

But we have a model that we think is the more important. We have a business model that works with a lot of differentiated content, and not just relatively commoditized music. Now, do I think scale is important and will be important ultimately for us? Yes.

I think the business model of what is called these pure streamers over-the-top music companies with relatively commoditized music has not been attractive. And we've not found an entry point to be in that part of the business that is appealing.

I would note, however, that to your point about international, Sirius has real potential through its connected vehicle relationships that it is building with all the car companies to build that kind of a global product. And I wouldn't be surprised if somewhere down the road something arose from those relationships.

So could you even be a streaming company offshore, just a streaming company, given your overall expertise in the business?

Well, again, we are a Company that's both somewhat unusual in that we're a content Company with a lot of differentiated content, and a distribution Company here in the United States that owns our own distribution through the satellites. We also, as I said, have distribution through other means, whether it be into your home or into your office, over the internet, over-the-top.

Do I think outside the United States it's possible if not likely that we could become a player through over-the-top and not own the distribution? That seems like the most likely path. Though again, it may very well involve our strong relationships with the OEMs, the car companies.

Great. Thanks, Greg.

Your next question comes from the line of Tom Eagan, Telsey Advisors.

Hello, this is [Mara] on for Tom. Thanks for taking the question. First, we just saw Spotify looking to get into web based video.

Could you talk about if Sirius has any plans for video in the car or anywhere else? And then for Broadband, how does the M&A landscape with Charter, Time Warner Cable and Bright House change how you're thinking about the portfolio? Thanks.

Let me ask on the second one first. What do you mean change how we're thinking about the portfolio? I'm not sure I follow.

Just consolidation in the industry, how is it changing the thought process or how are you thinking about that?

Well, I think looking at Charter's results, which continue to be the industry leading in terms of growth, we're very excited about Charter's ability to run the business it has. That having been said, I think we've been articulate on the topic, somewhat vocal, as has Charter, that the opportunity to build scale to combat not only the scale of the content companies, but the scale of potential technology competitors is an attractive optionboth for the shareholders, but I also believe for consumers because the need to make technology investments requires that scale. The need to make improvements in the user interface to make improvements in the product and services delivered. So I think that there's every logic for consolidation to go forward.

Obviously, it has to be done in a way that the regulators find workable. And hopefully we'll be able to find a transaction that makes sense somewhere down the road, if one is appealing from a shareholder perspective as well.

On the first point, I think the short form content, over-the-top content market is a very -- a market in flux. It's one that Liberty has spent a bunch of time looking at.

It's one that Sirius has spent some time with as well. You may recall, for those who are long-time Sirius or XM aficionados, at one point they had a trial with Chrysler to do back seat video. I think they got about 5,000 or 10,000 subscribers at the top, at the max.

Do I imagine that somewhere down the road Sirius could be in the direct content business, including video? I certainly see that as possible, but I don't see that as a near term in the car. That seems more problematic. Are there more questions?

Our final question is from the line of Rich Greenfield, BTIG.

Hello, thanks for taking the question. Given how Time Warner has followed the Charter and even the Comcast blueprint to improve broadband speeds and service, I'm curious what do you think would be the key public interest benefit of a Time Warner, Charter merger?

And then just attached to that, if this current administration is just simply hostile to large scale broadband consolidation, would you reduce your focus on US cable and focus more on overseas cable at Liberty Global and other assets?

Well, on the first point, I think I touched on this a second ago. A lot of what has to happen to build the best experience for consumers in the United States requires large dollars, and large scale, and efficiencies. And the potential combination of some of these players will surely add to that.

Regulators may have their fears, and we need to make sure that they're considered about [monops] and E power in the broadband space. But I think we should be able to, given the relatively small size of Charter today, be able to convince them that is not an issue. But that's a task we'll have to pursue if a deal ever comes to pass.

As far as overseas, I don't believe that's the focus of Charter or Liberty Broadband today. But you never know what the future holds.

Okay. Thanks very much.

Operator, I think that's it. And with that, I'd like to thank you all for your interest in Liberty Media, and hopefully we'll speak to you again next quarter, if not sooner.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.