Liberty Broadband Corp (LBRDK) 2015 Q2 法說會逐字稿

Welcome to the Liberty Media Corporation 2015 second-quarter earnings call.

(Operator Instructions)

As a reminder, this conference is been recorded, Wednesday, August 5, 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 would 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 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, 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 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 Private -- 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 for 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, 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 turn the call over to Greg Maffei, Liberty's President and CEO.

Thank you and good morning. Today, speaking on the call besides myself we will have Liberty CFO, Chris Shean. During the Q&A, we'll also take questions on Liberty Broadband, as it will have its own separate call. Note that in a new practice, we are not distributing slides to accompany the call today, because all of the material on those slides that we historically had is referenced in the morning's press release.

So first, looking at Liberty Media, we continued our buybacks during the quarter, repurchased a total of $208 million worth of LMCA and LMCK shares from May 1 to the end July. That fully utilized all the funds distributed in conjunction with the LBRD spin-off, but I would note that the Board of Directors also increased the buyback authorization at Liberty Media by an incremental $1 billion. We have noticed, as I suspect some of you on the call have, that the discount from the NAV at Liberty Media has expanded. Some analysts have the discount anywhere from the low to the high teens and some have even imagined higher numbers. Depending on how you look at it, that discount is potentially the value -- below the value of just our publicly traded Sirius shares, and it's either getting everything else for free or at least very cheap. We have noticed it as well, as I said, and are thinking of ways and considering ways to take advantage of that discount.

On to some of our operational highlights. First, at Sirius. They reported truly outstanding results, increasing subscribers to 28.4 million; adding 692,000 new -- net new subscribers, up 46% from the adds in the second quarter of 2014. They recorded a churn of 1.6%; that is the lowest churn rate since the merger in 2008. Revenue grew 8% to $1.12 billion, adjusted EBITDA grew 12% to a record $415 million, and because they continue to have an active share repurchase program, Liberty's ownership stake stood at 59.4% as of July 24, when they reported to the number. Altogether, a pretty outstanding quarter. Live Nation will report next week on Monday, so I'm somewhat limited in my ability to communicate on their progress during the quarter. I would note, however, that they had continued momentum on festivals in North America and globally. They announced the formation of Live Nation's Concert Germany earlier this week. That partnership with Marek Lieberberg, the fifth-largest promoter in the world, will add over 700 new shows and 2 million fans to the LYV platform. They also announced a new TV event, Live Nation Music Awards, which will air on October 1. Last, looking at the Liberty Media assets, major assets, the Braves, our stadium and mixed-use real estate project progresses well. Cobb County's financing cleared; the latest legal hurdle in our stadium bond financing will proceed as planned. We have agreed upon terms with the hotel partner for our mixed-use space, and we're working on with incremental partners on an entertainment venue. Looking at the club itself, it has retooled the organization at all levels, via free agent signings and trades in exchange for prospects and draft picks. We have added veterans like Gomez, and at the end of July, we completed a 13-player trade with the Dodgers and Marlins. I'd also note we extended the contract of Fredi Gonzalez through 2016 with an option for 2017.

Turning now to Broadband. Charter's second-quarter results continued to demonstrate the success of their strategic focus on delivering a superior service at competitive prices. Residential customers were up 34,000; residential high-speed data customers were up 70,000, a 43% increase year over year. Revenue was up an industry-leading 7.6% year over year, EBITDA grew 6.8%, and excluding some transaction costs related to our upcoming merger with Time Warner, would have been up 8.9% year over year, truly impressive numbers. We at Liberty Broadband remain excited about Charter, Time Warner Cable, and the Bright House transactions and our incremental investments. With the transaction blended reference price for Charter at about $176.40 in Charter, though it bounced around a little this morning, having traded over $190. We find this incremental investment by Liberty Broadband to be very appealing, and we'd note our revenue estimates, driven primarily by subscribers and ARPU, are similar to those described in the Charter proxy.

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

Thank you, Greg. Given our ownership of over 50% of SiriusXM, as we had said in previous quarters, they are consolidated in our financial statements. They are the dominant component of our financial statements. But for analysis purposes of SiriusXM, we would recommend going directly to their filings, which are on their website and in publicly filed document places. At quarter end, Liberty had cash and liquid investments of $841 million and principal amount of debt of $6.7 billion, which includes $5.2 billion at SiriusXM and a margin loan at Liberty. Included in the $841 million of cash and liquid investments balance, at June 30 is $294 million held at SiriusXM. Liberty's cash and liquid investments, excluding cash held at SiriusXM was $547 million.

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

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

(Operator Instructions)

Ben Swinburne, Morgan Stanley.

Thank you, good morning. Two questions, none on the Braves, although the Mets are making moves. I wanted to ask you about the music business. Greg, you have talked about focusing in on opportunities there. At Liberty Media/Siri. I'm wondering if the CRV process that's coming at the end of this year around streaming rights impacts how you think about the opportunities. In other words, if that breaks one way or the other, does that make things more or less interesting for you on the technology side? And just any other color maybe around Vivendi, or are there other things you think you could do that might be interesting to create value? And then I just had one quick follow-up.

Sure. Well we run today a very attractive music service, which is distributed with other exclusive content and more broad content, audio content, on satellite and through streaming. One of the questions in my mind, and I think the mind of the Sirius management, is over time how much of an opportunity do we have to extend that business by moving to a younger demographic, a mobile demographic, and an international demographic, one that is less driven by the car and to other devices, though it may also include the car.

This -- most of the business that we've looked at in that space have had, in some cases, interesting growth of subscribers or users, in many cases not paid subscribers, but free users. But it had very or relatively unattractive economics, given their cost of content and their ability to monetize it. That is true both of some of the ones that are ad supported and some of the ones that are more subscription-oriented. We've looked at all of those businesses, many of which have been available for sale and/or investment. And we remain interested, but not yet convinced how to play it. And we have looked at everything, as I said, from partnership to investment acquisition. We are very lucky to be at the most attractive part of the monetization, in terms of how our ability to monetize audio content. Older audiences in the car in the US. The question is how much opportunity is there for us outside those markets?

Got it, and then just I'm sure there are things we aren't aware of around complexities here. So I'm wondering if you could help educate us. There's a lot of people who wonder why not have Sirius by LMCA, LMCK shares, because they're essentially buying their own stock at a discount, and their numbers are obviously quite strong. What are the reasons beyond maybe just optics that that's maybe more confident than we all think.

Well, I think that is something probably more to be addressed, because obviously we have some conflicts issues around that, the SiriusXM management team. I can tell you, I don't think I'm giving away any confidences, that idea has been discussed both by Liberty and by Sirius. There is some logic and appeal to that.

I think one of the questions for them would be what is their eventual liquidity path on those shares and how do they eventually collapse that? If you imagine an impending merger, which we tried once between Liberty XM -- Liberty and SiriusXM, then that solves the problem, but that is not guaranteed. So that is why they might be reluctant.

Right. Thank you.

Vijay Jayant, Evercore.

Thank you. I have got a couple of questions. Greg, you're talking about opportunities and how you could probably close the discount apart from Liberty -- Sirius buying back Liberty stock. Can you talk about other strategies? Is there an opportunity to sell Sirius stock and buyback Liberty Media stock as a way to close -- can you just talk about that?

And second, on Liberty Broadband, again, really putting the cart before the horse here. But you got a proxy to get to 25% as part of this transaction. So should we be expecting, once the transaction closes that the Charter is going to be a big part of the stock? And given you wouldn't be a seller, that your ownership gets about 25% in five years, so that is the way it plays out. Thank you.

I will address the issues around the discount. I think, I will -- first I'll comment, and we all have our potential observations on why the discount exists. I would note it got as tight as 2% when we had a more complicated Company and set the Charter, now Liberty Broadband shares were inside of Liberty Media, the discount tightened about 18 months ago to 2% and now it's widened certainly the mid to high teens. That seems illogical. There are two potential explanations I can come up with; I'm sure there are others, but two that seem most likely to me. One is the idea -- the fact that SiriusXM has been repurchasing shares at a larger percentage of its float than we have [as of ours], probably creating a, if not artificial, more upward pressure on their stock than our stock. And second, the expectation that we might (inaudible) discount currency and in a negative cycle pay, more for the stock of SiriusXM with a discounted Liberty currency.

I have noted we are thinking about ways to attack both of those, but I can at least jawbone the second part and say we're not going to do that. I think if you looked at our history, we've shown patience. SiriusXM is repurchasing at an aggressive rate already, and increasing our ownership every day and doing it at no premium. And so why we would go and spend a -- our valuable currency, which is trading at a discount, and pay a significant premium, it seems like an illogical path and one that we probably won't pursue.

If you need a witness on that, look at what we've done with HSN where we -- when stock was weak, we bought more. We bought right up to our limit, and we have not pursued with a relatively less valued, in our judgment, QVC currency and an acquisition of that. So that's more an observation. There are lot of financing techniques we could use to look at to tighten this. But the reality is we are long-term holders and to the degree the discount gets big enough, we'll treat it as an opportunity to buy, not something that needs to be jawboned.

On Liberty Broadband, I can't project, as you are jumping a little bit ahead. But if you look at most of the projections -- I can't forecast, but if you look at the projections put forward in the proxy, you'll note that the Company significantly delevers based on the cash flows generated post the Time Warner and Broadband -- Bright House transactions. And I would expect that, all things being equal, Charter has shown an ability and a desire to maintain relatively higher rates of leverage than are forecast there. And the logical way, assuming no other acquisitions would become some level of share repurchase, and that might lead to our increasing our stake. Alternatively, we've shown an ability, as witnessed by the transactions that we announced back in May, an ability to find capital, that's alongside us in Liberty Broadband. And if that was a way to increase our stake, we could go that way as well. But I am not sure that will be necessary.

Great. Thank you.

Matthew Harrigan, Wunderlich Securities.

Thank you. I actually have a Braves question. You had a big announced with MLB Advanced Media yesterday, and the NHL, that [cereal] was interesting on the sports streaming side. How do you think that really affects the sports market longer term? When you think of the value of the Braves, it's always been kind of a set piece value off Forbes or whatever. And obviously, all of us are aware of the issues and the TV rights and all that. Is that something you think could actually have a pretty wide collar, with a lot of upside depending on how circumstances out? Thank you.

Yes, Matthew, look I think you first have to tip your hand to the job that Bob Bowman and the BAMA team have done in building an unbelievable platform. Some people look at baseball as the less advanced, more the stodgy old guys. And the reality is in the technology side, the digital side, they are ahead of all the other major sports and have taken advantage of that technology not only to build a great business for themselves, but to provide the technology to third parties and people, including people like HBO.

Now they've taken the next step and potentially are looking at not just distributing other people's rights for then, but owning those rights and building a broader service. I think that's something that is very appealing. Could potentially be -- in fact if not completely, the Netflix of sports in some sort of subscription service. And it's something that accrues quite a lot of value to the owners of baseball.

Thank you, Greg.

Bryan Kraft, Deutsche Bank.

Hi, good morning. I just had a couple questions. Greg, on -- following up on Vijay's question on Liberty Media on the discount, for some smaller stakes, do you think there is also an embedded tax liability on some of those stakes that's driving the discount? And can you talk about what tax assets or offset you have that we should be thinking about that could shield any of that potential tax leakage? And then I had one after that on the Broadband side, if you don't find.

Sure. Well one could certainly, I think that's a fair guess, and I wouldn't claim to have a crystal ball on all the reasons for the discount. I try and point out the market's lack of respect for us on that. Our history has been not to find those or liquidate those assets other than a tax efficient manner. I think we noted that we did some liquidity on some of our smaller stakes during the first half of this year, all in a tax-efficient manner. I don't think we're going to tip our hand to all of the potential future attributes we have on the tax side, but I think it's fair to say we will find ways to liquidate those over time in a more tax-efficient manner. Or if we do it in a way that is tax-inefficient, it's because we find the need for the capital and the reason for investing the capital pretty damn compelling. We found exactly the right opportunity. Might we do something? Sure, but it would be have to be a heck of an investment. So I don't think we are going to do something that is tax irrational here; that has not been our history.

Okay. Great. And then on the Broadband side I had two question. One, just wondering how you think about Altice as a potential competitor for additional cable acquisitions? And then also, I was wondering just on the Starz side, given how Starz is trying to be a bigger, friendly premium network to the cable industry, and your ownership of Charter, is there any -- are you trying to cultivate more of a working relationship there? Do you think that there is an opportunity for Starz and Charter to do something that is innovative that could be value-added for both sides?

So first on Altice, I think you have to give your pat to Patrick Drahi and Dexter Goei, how they've done a heck of a job rolling up the things that they've done. One may argue or contest some of the prices they pay. They certainly pushed us perhaps, a little bit higher on Time Warner than we would have liked. But you have to say they're acting quite rationally, given the power of their currency and the model that they've developed and their ability to find chief financing. So I think that they are a fearsome competitor, and I tip my hat to both of them. Could they be a competitor for future acquisitions? We've got two big ones on the table right now, so we are not exactly looking at the future ones. We'd like to get these two cleared. But you have to tip your hand to what -- on both - in Europe, Latin America, and here in the US.

On the question around Starz, I think there is a lot of potential for Starz to be, if not the house brand, a more friendly brand to cable MSOs. Why? We're not pulling a long chain of other channels. We are -- we have acted quite friendly in terms of we are moving our Netflix relationship. We've acted quite friendly in terms of investing in content that is -- we think has demand and is valuable. And I would love to see, and I think Chris Albrecht would too, us do more with all of the cable MSOs, and particularly Charter, given our relationship. I think that is possible and I think it would be beneficial to both parties.

Great. Thank you, Greg.

Tom Eagan, Telsey Advisory Group.

On the changing negotiating leverage between the cable operators and the programmers, while the operators may have more leverage if --

I didn't -- you were cut off in the first of that. I didn't hear you. Could you start from the beginning of the question?

Of course. Is this better?

Yes. It was just the three or four words. It like jumped into the question. I didn't hear the beginning.

Okay. Curious for your thoughts on the changing negotiating leverage between the cable operators and the programmers. So while the operators may have more leverage if the programmer is launching over the top service like HBO, CBS, doesn't the operator lose that leverage if the programmer blocks access to their site to the data subs. Thank you.

I think that the continuing dance between the leverage on operators and programmers is usually dependent on the strength of the programmer versus the strength of the operator. And if you have particularly strong content, you're pretty compelling. If you are an operator with a larger market share, you probably have more -- and against a smaller programmer with less powerful content, less compelling content, you probably have more leverage. The fact that more of this content is being distributed in other places does certainly tend to give the more leverage to the operator, because there are alternative ways to find that. And I think the practice of blocking Broadband subscribers from open sites is really hard to see how that continues forward in the world, because it seems pretty prejudicial. I'm not talking from a legal standpoint, but certainly from any PR standpoint, a cable -- an operator which decides whether a programmer would decide they can block access to that site for a certain class of customers, that is a pretty prejudicial, at least in the public statement, if not legally. So we'll see how that goes.

It looks as though, in terms of the FCC, waiting to start the clock on the Charter deal with Time Warner Cable. It seems as though there is some difference of opinion between the Republicans and the Democrats at the FCC. A lot of it has to do with the changing of the privacy laws on the information flow. Any thoughts on that?

No. I'm going to stay away from that.

Okay, thank you.

Thank you.

Amy Yong, Macquarie.

Thank you. Two questions. In the past, I think you've expressed interest in raising your stake in Live Nation. What is your appetite for that asset at this point, and how do you view valuation from here on out? And then what is the latest on your litigation with Vivendi? I think it is been reported that you have looked at the Universal Music Group. Might that still be in the equation? Thank you.

We think Live Nation is a great asset. I think a while ago, we reported we had an open forward. We've not yet reported on any change in that, but that must speak to some degree our desire or interest in further investment in Live Nation. But obviously we're -- as we go back to my comments about SiriusXM, it's all price dependent. We try to show some discipline. And then on Vivendi, I think put aside rumors. I'll comment directly. We have a lot of things going on with Vivendi. We are -- SiriusXM is a large consumer of its content. There are relationships with Live. We have a judgment against then which has not yet been affirmed. And there's potential other things we can do with Vivendi -- or rather with Universal Music, that are interesting. So we'll see where it goes.

Great. Thank you.

James Ratcliffe, Buckingham Research.

Good morning. Thank you for taking the question. One on Media and one on Broadband if I could. First of all on Media, are there any limitations on your ability to say, borrow against the Sirius stake, should you, say, want to accelerate the buyback at LMCA, given the discount? And secondly, on Broadband, your TWC colors are pretty much in the red at this point. How do we think about what happens when the Charter TWC deal closes? Do those roll forward or do they get paid out in cash? And are there tax consequences? Thank you.

Okay. So on the -- what we can do against our borrowings, I don't think there's any legal limitations; there are market limitations and practicalities, that is the thing that would constrain us in some way. And on Broadband, I believe we have now disclosed that we are out of those colors. Those are terminated.

Oh. Okay. Great. Thank you.

Thank you.

Barton Crockett, FBR Capital Markets.

Okay, thank you for taking a question. I was wanting to ask about the ownership, the creeping ownership at SIRI. As you're at 59; I think you were at 57 last quarter. In a year or so, you'll be up pushing 70 at this pace. At what point, do you think, Greg, it becomes incumbent upon SIRI to maybe stop buying back shares as your ownership accretes. And can you run through some scenarios that tell us how we would get out of that situation once we get there?

Well, I think that's one you're going to have to address more to the independent directors and counsel at SIRI; it is not our challenge, per se. I would state that shear math would say for Liberty's perspective, if they wanted to pay a big one-time special cash dividend because they got too high on the buyback and remembering our discounted LMC, we wouldn't probably complain. Because even after the tax at the moment that we would pay on that kind of a distribution, we would be effective at buying our own stock back and still be able to capture more value. I think there other things they can do. They are a cash-flow generating machine; there are other ways they can deliver value to their shareholders at some point if our ownership gets too high because of liquidity concerns or other concerns.

Okay. Great. And then one other quick thing, just a follow-up here. There was a question about Vivendi. But where are we in the litigation process right now?

I'm going to turn that over to our esteemed General Counsel, Mr. Baer.

The matter has been fully briefed before the Second Circuit, and we're waiting for the Second Circuit to set oral argument, which we hope to occur this year and then a decision sometime in the first half of next year.

And the interest rate?

There are two issues. Richard, probably worth nothing there are two issues on the table: the judgment and then the interest.

Yes. So of course, Vivendi is attempting to overturn the judgment, but we also are appealing an issue as to what is the applicable prejudgment interest. And the court imposed a very low interest rate, and we thought -- and we believe and are confident that the New York State interest rate of 9% applies for prejudgment interest, which has a significant impact on the overall amount we can recover.

Okay great, thank you.

Thank you.

Your last question comes from the line of Mike Mitchell with Locust Wood.

Sorry, guys. Question has been answered. Thank you very much.

Okay. I think we're done then. Operator, thank you very much and audience thank you very much again for your continued interest in Liberty Media. I hope to speak with you next quarter, if not sooner.