Liberty Broadband Corp (LBRDK) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Liberty Media Corporation 2016 first-quarter earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded, Monday, May 9, 2016. I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead.

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. Including statements about business strategies, market potential, new service and product launches, the future financial performance of SiriusXM, stock repurchases, the construction of the new ballpark for the Atlanta Braves, and the associated mixed-use development, fluctuations in the prices of the tracking stock, the proposed rights offering 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, the satisfaction of conditions to the distribution of subscription rights for the proposed rights offering. And the ability of Liberty Media to realize the expected benefits of the creation of the tracking stocks and the proposed rights offering, 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 statement 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 adjust OIBDA. The required definition and reconciliation to the preliminary note in 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 investment. 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 statements 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 would 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 besides myself, we will have Liberty's CFO, Chris Shean. During Q&A, we will also be available to answer questions related to Liberty Broadband.

So first on to Liberty Media. We were pleased to complete the recapitalization into three tracking stocks of Liberty Media on April 15. Out of the blocks, not unexpectedly, trading has been somewhat volatile, but we are pleased to see that the discount has narrowed at LSXMA. On to a few of the operational highlights. SiriusXM, once again posted very strong operating and financial results. Subscriber account increased to over 30 million to nearly 30.1 million. Q1 revenue was $1.2 billion, up 11%. Adjusted EBITDA grew also 11%, up to $441 million. And as of April 26, Liberty's ownership stake stood at 63.8%.

Live Nation, another very solid quarter. Strong revenue growth, up 10%. Adjusted operating income growth up 7% in constant currency in the first quarter, and lots of exciting indicators through April. Concert ticket sales pacing 10% ahead, a 13% increase in confirmed stadium, arena and amphitheater shows. Contracted online advertising, up 14% and contracted sponsorship up 10%. So we're pleased with the operating performance and what's going on at Live.

Also pleased with what's going on, other than on the field, at the Braves. We were glad that so many of you attended the investor meeting in Atlanta a couple of weeks back. Hope you enjoyed the tour of the new ballpark. Dramatic game, not quite the ending we sought in the ninth there or in the extra innings, but pleased you could come and see us.

We are proceeding with the planned $200 million rights offering. We expect to distribute the rights on May 18, and launch the offering on May 19. They will be issued at a 20% discount to the volume weighted average trading place for the 18-day period ending May 11. We will be file an offering document prior to distribution's date, and plan to issue a press release later this week with additional information. That information will include what we're going to do with LMG, Liberty Media Group, and its ownership in the inter-group interest.

So as we mentioned to some of you at the Braves investor day, where will be a mechanism in place. Whereby, LMG, Liberty Media Group, will be compensated for the fact that it is not receiving rights to purchase incremental [BATRA] shares by receiving a dividend in BATRA shares equal to the intrinsic value of the rights it did not receive. The equity percentage in BATRA that Liberty Media Group owns will be diluted below 20% to a little over 15%, but the intrinsic or fair value of the inter-group interest is intended to remain the same. A lower equity percentage off a larger base once the rights have been exercised. Now that's complicated, and more detail on this mechanism will be available in our Charter. And will be explained in the press release that we intend to issue later this week.

So on to some of the highlights on our investments at the Braves. The ballpark and mixed-use development projects continue a pace, on time, and on budget. We've spent $37 million of capital on the ballpark, and mixed-use during the first quarter. We drew down $70 million incremental on the inter-group note, the proceeds of which went to fund that capital spend and repay other borrowing facilities and add to cash. As of the end of March, the Braves have spent approximately $206 million on the ballpark and mixed-use development. $76 million towards the ballpark, and $130 million on the mixed-use development, including $7 million of costs towards future development phases.

Let me finish up by commenting on Liberty Broadband. Over at Liberty Broadband, Charter's results continue to impress. Strong growth in [TSUs], customer relationships, first quarter revenue up 7.1%. First quarter adjusted EBITDA of 10.4%. I don't think there is a large cable company that's growing nearly as quickly. We continued on all the positive 2015 trends. We grew video subscribers.

And, of course, we remain very excited about the combination of Charter, Time Warner Cable and BrightHouse. Obviously, we see light at the end of the tunnel. We received FCC approval last week. With the Charter shares up significantly over the purchase price at which Liberty Broadband will pay to buy incremental shares in Charter, which is $176.95, Liberty Broadband on an NAV basis is up a little over $1 billion on its investment. And we're pleased to see that Liberty Broadband's stock has also performed well, though there is a significant discount still to the NAV.

With that, let me turn it over to Chris to talk about our financial results in more detail.

Thanks, Greg.

At quarter end, Liberty had cash and liquid investments of $663 million. Included in the $663 million in cash and liquid investments balance at quarter end is $102 million held directly at SiriusXM. Liberty's consolidated cash and liquid investments, excluding cash at SiriusXM, was $561 million.

You will notice in the press release and filings that we included attributed financials as of March 31. However, these attributed financial statements only reflect cash at each entity and do not include any allocation of corporate cash pro forma for the tracking stock creation. Using the March 31 numbers as though the trackers were distributed on that day, this would imply cash and liquid investments at each tracking stock group as follows.

Liberty Broadband SiriusXM $152 million, which includes $102 million of cash directly held by SIRI and $50 million in corporate allocation. Liberty Braves, $94 million, which includes $44 million held directly by the Braves and $50 million in corporate allocation. And then Liberty Media, $417 million, which deducts from the March 31 balance of $517 million, the combined $100 million of corporate cash attributed to the other two trackers. Liberty had a consolidated principal amount of debt of $7.1 billion, which includes $5.8 billion of debt held at SiriusXM. The breakdown of attributed debt by tracking stock group is provided in the press release as of March 31.

Now I'll turn it back over to Greg.

Thank you, Chris. So to the listening audience, we appreciate your continued interest in Liberty Media. Now I'd like to open it up for questions. Operator, please.

(Operator Instructions)

James Ratcliffe with Buckingham Research.

Two, if I could. One on Liberty Media Corporation, and one on Liberty SiriusXM. First of all on Liberty Media corporation, right now as I understand it, the Braves are the only five-year trade or business in there?

And I guess if you get to 80% on Sirius, would it qualify? And if so, would the clock just start running for five years, or would it automatically be a five-year ATB? And I guess secondly, any thoughts on the prospect of Sirius paying a dividend and Liberty's view on that? Thanks.

So on the question of could Sirius be an ATB, it largely will come down to how, if we eventually combine with it, it is combined. In the fullness of time, it could become an ATB in any case. But to make it an ATB quicker, it would need to be done with stock and entirely with stock.

There may be some ways around that on a dividend with a -- did they pay a dividend first or something like that. But it's basically think about it as a stock combination. Albert, did I get that right?

Yes.

Albert has trained me, at least to the degree I'm trainable reasonably well. And then on the second question about Sirius as a dividend, I think the SiriusXM Board, including the Liberty the representatives, spend an awful lot of time thinking about capital allocation, and looking both at the question of Liberty's ownership level, but more importantly what -- is the share repurchase is attractive, what are the alternatives around either a one-time dividend in cash or a continuing dividend in cash. And all of those have been considered, and remain considered as far as I can tell at the SiriusXM Board.

All right. Thank you.

Bryan Kraft with Deutsche Bank.

Good morning. Greg, now that the trackers have been issued and there is still some pretty wide discounts to NAV on them, can you just talk about some of the tools you have at your disposal to decrease those discounts? And if so, how would you think about using those, I guess, to try to drive those discounts lower at this point? Thanks.

That's a fair question, Bryan. I think in general, Liberty stocks have always traded at a discount. Somewhere between 2% and 35%, if memory holds me since I have been at Liberty. And in general, we try to take advantage of that through share repurchase. There have been other methods, but that's the primary one.

And we really don't care about them until the day we want to go get realization. And obviously, some period before we are going to issue stock, we would care more about the fair value and achieving it, other than that realization. So the one that was most pressing or the one you think about is Liberty SXM, and in that case, I think some of the things you could see is share repurchase of LSXM.

You could see probably the fact that Sirius is buying its stock so much more aggressively than we are buying back LSXM is part of what's going to terminate a discount. So you could think about how that ratio works. You could think about some kind of a transaction, for example, where we issued an exchangeable into our SXM stock and bought back LSXM stock.

So selling SIRI effectively forward at some number, and buying our own stock back. So there are other corporate finance techniques which I am sure much aggressive investment bankers will be bringing us tons of ideas after this call.

That's really helpful. Thanks, Greg.

Vijay Jayant with Evercore ISI.

Thank you. It's David Joyce for Vijay. Regarding your investment in Live Nation, what would your appetite be to help fund any potential future consolidation in their industry, given that you're essentially at full equity ownership there? Thank you.

David, we have spent and our corporate finance and corporate development team spent a lot of time working in conjunction with the teams at John Hopman's and the team is obviously Michael Rapino. But also the teams below him at Live thinking about not only potential acquisitions, but how they would get financed.

And certainly if the acquisition were enough scale and it were attractive enough for Live, we would be interested. And frankly have had discussions where we might provide incremental capital to Live. But I think it would really be, depending on Live's needs, not our pushing and what we would do with that 35% cap.

All right. Thank you.

Jeff Wlodarczak with Pivotal Research Group.

Good morning, Greg. I realize your intention is to stick around for a while in Charter. However, all else being equal, isn't the most logical conclusion there in [RMT] between Liberty Broadband and Charter?

And then I wanted to your take overall on the concessions that Charter agreed to, to the deal by regulators. And then realizing this deal hasn't officially closed yet. Is there anything from your perspective, I guess from a regulatory perspective, that would stop Charter from purchasing additional US cable assets? Thanks.

Okay. Jeff, that's really hard. Let's start with the RMT.

I think that's certainly one path that we might pursue on that. We are -- SiriusXM -- excuse me, Charter is going to be a serious cash flow generator in the near term. Whether what they do, how they move forward on their own share repurchase or whether they buy incremental cable assets, we'll see.

I think that's something -- I am attacking your last question first in a way. But that would set up the regulatory environment, and that will somewhat drive our timing about an RMT or anything like that. So we'll see.

I think the concessions that we gave were meaningful. Certainly, no one would like to be seven years on either interconnect or no usage based pricing, realizing there is an effect a five-year look if circumstances change. But no one wants to run their business with that lack of flexibility.

On the other hand, I don't think we had that built into our projections. So from a financial perspective, I don't believe it's totally harmful. I also think it's just reducing optionality, which is not something you'd like to do.

So I think the overbuild is probably something most of which we would likely have achieved, but we will have to be careful to make sure we achieve the million of competitive. Not necessarily cable over bill, but competitive situations. So I think they are meaningful.

As far as what could derail it from a regulatory perspective, I believe there is always a possibility. But I think the PUC in California is now the long pole in the tent, and I think that's -- and I don't want to dismiss their role, but I believe we can meet their concerns that they have fairly relatively easily.

Thanks, Greg.

Thank you.

Ben Swinburne with Morgan Stanley.

Thank you. Greg, just sticking with the cable theme for a minute, do you have any reaction to the NPRM regarding what I guess is technically regarding backhaul and business services, but to me reads like a clear step towards rate regulation? At least in the business data world for cable, given how long you guys are.

US cable assets. I know you've had time to digest that document. But I would love your thoughts if you have any.

I think what you are referring to is what they were calling for a period of about two week special access rights. But now they have a new name for it, and I have forgotten what it is off the top of my head.

I think it's still open to how that's going to play out at NPRM. I also think it's open to interpretation how much it becomes a problem for cable versus other existing telcos. And I think there is a lot between cup and lip where that's going to end up.

But at least one analysis I have looked at suggests it's less of a problem for us than for telcos. But honestly, I think there is a lot to be discerned before we can have a real [view].

Got it. And then last quarter, I think it was last quarter, you talked about one of the motivations for settling with Vivendi an incurring some tax payments was dislocation in the market. I think we interpreted that as being dislocation around the music industry, but maybe that was the wrong interpretation. Maybe you could just update us on your thinking around opportunities out there, since you seem to have seen some, but as far as I know haven't pulled the trigger on anything new since then.

Look, I just think the market got -- two things. The market got a little cheaper in general or certain circumstances and situations. And secondly, since we had less cash, cash got a little more valuable to us.

So both of those were suggested. It was probably some reason why settling had more benefit than trying to fight, which could be several years or in the making of still to be determined what we would get. I don't think we have a -- certainly don't have something we are going to announce this morning on what we intend to spend that money on, but we are looking at a host of opportunities actively and many of which I feel very good about.

Great. And just one last one, it's on mechanics. If Sirius were to buy Liberty Sirius tracking stock because it's a cheaper way to buy their own equity and then you collapse the structure down the road, would any taxable gain they would incur, would they be able to shield that with the NOLs they have? I just wonder if there's any tax reasons why they wouldn't look at this as an opportunity to take advantage of some dislocation in the market.

Without giving you all the inside baseball -- on the SiriusXM Board, it's certainly that has come up and been discussed. I can't say that it will or will not happen. But it's something that has been presented to us by others, and has been noticed and discussed at the SiriusXM Board level.

The decisions about it have not been driven by tax. I don't believe there would be any tax implications that would prohibit or prevent or deter someone from doing that.

Okay. Thanks. Thanks very much.

Yes.

Amy Young with Macquarie.

Thanks. Two questions. It seems like, to follow up on the Vivendi lawsuit, it seems like that lawsuit absorbed a lot of the tax assets that you have left. Can you talk about what you have that's remaining in the portfolio?

And, Greg, as you talk about the host of opportunities in the landscape, I guess there is a lot of press announcements around your interest in Yahoo. Can you comment what appeals to you about this particular asset? And I guess the Street perceives the Liberty family as tax experts, is there something that you could bring to the table? Thank you.

On the first part, you're correct that the Vivendi transaction was a taxable transaction, and we used every available tax asset we had at the Liberty Media family to shield the gain. So the cupboard is relatively bare, but we have found ways, thanks to Albert, of inventing or finding new ones.

And inventing, he is frowning at the word inventing. Uncovering new ones, and maybe we'll find some more. But largely, we are taxable from here forward.

Now there are some shields. For example, the interest paid on the convertible or exchangeable debentures. We have shields that just generate around the place, but they're not enormous.

I am not going to comment on Yahoo specifically. I think, in general, you can say that we believe we have some expertise at tax efficient transactions, including 355s and the like. And a potential interest in situations for us has been where we can come in and either provide some level of expertise, but frankly some level more of credibility both to investors and boards putting our money behind a transaction and saying, yes, we think this can get done.

So again, while I am not comment on Yahoo in particular. Situations in which that expertise credibility and willingness to put money behind a belief about a tax-efficient transactions are ones that are interesting to us.

Thank you.

Thank you.

Barton Crockett with FBR Capital Markets.

Great. Thanks for taking the question. On the topic of things to think about in terms of potential places to allocate some of your capital, I wanted to ask you a little bit about your interest at this point in things around the traditional radio space potentially.

There is clearly a lot of capital opportunities with CBS radio potentially available, and some debt-driven considerations at some of the other big operators. To what extent do you see opportunities in that space or any logical interest in trying to do something in there, given your exposure via Live Nation and SIRI to radio generally?

Interesting question, Barton. I think in general, we have looked at the potential that there might be some synergies between Sirius and traditional terrestrial radio. There are some certain elements of traditional terrestrial radio which have been interesting.

Obviously, they start with the fact that they have free performance rights. Very attractive situation, unlike these quote-unquote streaming companies and unlike SiriusXM. Start with the fact they have something like 93% coverage of the landscape. Pretty (technical difficulty) attractive, couple of potential fears.

On the other side -- and obviously there might be synergies between the ways we could promote them and they could promote us. Couple fears on the other side is most of the bid one, the biggest ones, have got very difficult capital structures. And even though we like working through those things, that they have proven to be very not simple.

And you fear that 93% reach has only one way to go, which is potentially south. So we weigh all those. We look at them with interest, but we certainly haven't moved into anything yet in commercial radio.

Okay. All right. That's helpful. And then just switching gears a little bit.

There was a recent transaction involving in the baseball area, the Mariners. And I was wondering if you had any thoughts about the applicability of that transaction as something of a comparable that we should value potentially the Braves against?

First, I congratulate my friend John Stanton, who is a long-time friend and a long-time Liberty associate. We had an advisory board for a while, John was on. John Malone was on the McCaw Board when John Stanton was one of the senior officers.

So we watched his moves with great interest. And I can -- and he was on the Board of 360 Networks when I was the CEO of it. So we watch John with great interest.

And I think we happy to see a smart guy like him endorsing the value of baseball, whether that's the right valuation for the Braves or not, I'll leave it to others. But it does suggest there is some upside in the current trading price.

Okay, that's great. Thank you.

Tom Eagan with Telsey Advisory Group.

Thank you very much. A follow-up on Liberty SIRI. Assuming a Sirius purchase above $500 million a quarter and Liberty doesn't participate, we estimate that you will own 98% of it by the fourth quarter of 2019.

So I guess the question is, is that a timeframe that Liberty is willing to wait for? And then I have a follow-up. Thanks.

Well, I don't think, Tom, it's a black or white -- it's interesting that -- I assume that has a -- I don't know what you have for an increase in stock price there. But that looks probably -- that sounds aggressive to me. But it's good math for us, and it's one I think the SIRI Board certainly will take up.

It's unlikely that they are going to want to have us cross up that high in percentage, all things being equal. I am not speaking for them, but it's just a common thought that boards would be cautious about both liquidity, they would have to be some negotiation once we cross the 80% mark for tax consolidation. So there are issues around that.

Right.

Whether wait that long or not, I think somebody else will be the judge.

Great. And then a follow-up on Charter and TWC in terms of the FCC concessions. On the cable over build, do you think that might set a precedent for concessions of any other deals? Thanks.

Well, I first want to -- if you wouldn't mind clarify. I wouldn't describe it as cable over build. I think I went out of my way, and I think it's described as a competitive over build.

Yes.

And that could be different. So I don't know whether the FCC will use that as a model for all future transactions. I have only paid cursory interest in what the Cablevision Suddenlink restrictions are.

But I don't believe they have an overbuild condition in that one, to my knowledge. And I could very well be wrong, but I haven't seen that described. So I don't know whether it's a good model or not.

Right. Okay. Thank you.

Matthew Harrigan with Wunderlich.

Thank you. BrightHouse had a trial in Florida with T-Mobile on the [head net] here for mobile using their [small telco] facilities and T-Mobile macro cells that got pretty [ingloriously] pulled late last year.

I was just curious what the Liberty in-house thinking was on the opportunities of mobile even beyond what people are happily doing right now, and since Spectrum valuations are all [scalable] -- relevant in Denver. Do you have you had any thoughts on the auction? Thanks.

Yes. I think, first, Liberty is informed by our Chairman's experience with Liberty Global and the quad nature of the market in Europe. And certainly, John is a firm believer that eventually we will get to a quad market in the United States. How that's done, whether that's through partnership, through MVNO, through Wi-Fi First, through some larger operation, we'll see.

Frankly, Charter has been less vocal and focused on that given its attempt -- desire to get through the process on the regulatory side. So I think we're mindful of what the marketplace is in Europe. We are mindful of how the marketplace is likely to develop in the United States, and we will see where we go from here.

Thanks, Greg.

Thank you to everybody who joined us this morning. Look forward to speaking to you again next quarter, if not sooner. Thank you for your continued interest in Liberty Media.

Thank you. That does conclude today's conference call. You may now disconnect.