Liberty Broadband Corp (LBRDK) 2016 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation 2016 second-quarter earnings call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded August 5, 2016.

I would now like to turn the conference over to Courtnee Chun, Senior 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 Sirius XM, stock repurchases, the construction of the new ballpark for the Atlanta Braves, and the associated mixed-used development, and other matters that are not historical facts.

These forward-looking statements involve many risks and uncertainties that could cause the 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 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 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 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 expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is based.

And with that, 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'll be happy to answer any questions you have about Liberty Broadband as well as the Liberty Media entities.

We really won't be able to talk about Charter's 2Q results, because Charter has not yet released those, so our Liberty Broadband comments, by definition, will be somewhat limited. So, on to Liberty Media.

As of yesterday's market close, the composite NAV discount of our three tracking stocks stood approximately at 13%, more or less evenly spread across all three. It's wider than we would have anticipated, especially at LSXM, but we will move forward and think about our options.

On to the operational highlights. At Sirius XM first, once again they had an outstanding quarter. Subscribers increased to more than 30.6 million. Q2 revenue was $1.2 billion, up 10%, a quarterly record high. Adjusted EBITDA grew 13% to $468 million. As of the 22nd of July, our ownership stake stood at about 64.8%. We're pleased with their continued progress.

Live Nation also had an exceptional results. Revenue was up 23%, adjusted operating income was up 28% for the quarter, and the business is on track to produce record results for the full year 2016. There are lots of exciting indicators through mid-July, which give us confidence in some of those numbers and results for the full year. Concert ticket sales were pacing at 17% ahead. We have had an 18% increase in confirmed stadium, arena and amphitheater show count. Our contracted sponsorship and advertising was up 17% -- all good numbers.

Turning now to the Braves, we completed the rights offering, raising $203 million, and those proceeds were used to repay the note that the BATR entity had to the Liberty Media group. We have had some disappointing on-field results this season. We are a little better: five and five in our last 10, but the Braves do have the top-ranked farm system entering the draft, international signing periods, and we've enjoyed great success in both of those draft and international signing markets. We signed six of the top 25 international prospects, including the number one-rated prospect, Kevin Maitan. And he's been dubbed the best international prospect in a decade. Battery Atlanta, the associated mixed-usage real estate project we have adjoining the new stadium, announced eight new retail restaurant and entertainment concepts that will be completed by opening day of 2017.

Let me turn over to Liberty Broadband briefly. We were excited to finally close during the quarter the Time Warner Cable and Bright House transactions. And with that we completed an additional investment in -- from Liberty Broadband, in those combined entities. With the Charter share price up, or up on an NAV basis over $1 billion on our incremental $5 billion investment, a pretty quick, good result. As I mentioned, Charter's not going to report till next week, so we're limited as to what we can say as to operating results.

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

Thanks, Greg. As we've pointed out in prior quarters, we do consolidate Sirius XM, given our ownership, our control stake. However, we recommend that you go directly to their site and to their publicly filed documents as you evaluate that investment for us.

At quarter-end, Liberty had cash and liquid investments of $1.2 billion. Included in the $1.2 billion in cash and liquid investments balance at quarter-and is $476 million held directly at Sirius XM. Liberty's consolidated cash and liquid investments, excluding the cash at Sirius XM, was $753 million. Liberty had a consolidated principal amount of debt of $7.6 billion, which includes $6.2 billion of debt held directly at Sirius XM. A breakdown of attributed debt by tracking stock group as of June 30th is provided in the press release.

In the second quarter, Liberty Media Group tracking stock incurred $9 million of SG&A expense, including stock compensation, which excludes amounts that were allocated to each of the Liberty Sirius tracker and the Liberty Braves tracker, following the recapitalization on April 15th. For the period following the recapitalization, approximately $7 million of SG&A expense was allocated to Liberty Sirius XM Group, and approximately $3 million of allocated to the Liberty Braves Group.

Now, with that, I'll turn the call back over to Greg for Q&A.

Thank you, Chris. Well, to the audience out there, we appreciate your continued interest in the Liberty Media entities. I'd now like to open the floor for questions. Operator?

Yes, sir. (Operator Instructions). Ben Swinburne, Morgan Stanley.

Greg, you mentioned the discount to NAV across the trackers; I don't think you guys bought any stock back in the quarter. Wondering if you could just lay out your thoughts on that opportunity. And related to that, do you think liquidity, or lack of liquidity, is part of why we're seeing this discount for some or all of the trackers? And I was going to ask you about the Yankees' farm system versus the Braves, but we can take that off-line.

(laughter) The only thing I know about the Yankees is, their payroll is surely higher.

As regarding the discount, I think if you look at LSXMA and the underlying Sirius XM stock, we actually have more liquidity at LSXMA today. That's a more liquid stocks than the Sirius stock, because we are holding 65%-plus of the entity. I think one of the primary -- the are a couple of reasons for the discount. One of the primary ones is the expectation that we might someday pay for that stock of Sirius with LSXMA stock, and so you're better holding that and getting a premium.

I think we've shown financial discipline on that point and are unlikely to overpay. Secondly, and I think this is the one that's actually the biggest factor, there's a $13-plus billion market cap in LSXMA, and as you rightly point out, we bought back no stock. There is a 7-ish value, 7.5 value in Sirius XM, and their bought back $2 billion over the last 12 months; they are basically at a $2 billion run rate.

Which one has got demand pressure, at least in the short term, that doesn't necessarily reflect long-term value, because theoretically long-term value between the two is zero; the long-term difference in the value. So, I think that's the primary reason.

Are there market mechanics out there on some of these discounts around liquidity on more complicated securities because hedge funds have had less-than-exciting performance in 2016? You can conjure up lots of conspiracy theories, but I think those are the primary reasons.

Yes, that makes sense. And then just -- I was wondering if you could comment, if you look at the music business broadly, been a lot of activity in the last quarter or two around YouTube's relationship with the labels and what the labels are thinking vis-a-vis Spotify. Any of these changes -- and there's also a big decision by the Department of Justice around the publishing rights. Any of these things change how you're thinking about the economics of music distribution, either for Sirius as they head into their next rate-renewal process for next year, or more broadly as you look at opportunities in the marketplace to look at different kinds of businesses in the digital music space?

Well, I think the overwhelming drive in the digital music space is that you have several in what we consider the stream subscription space -- is you have several big players who are entering and are likely to further commoditize the market. Spotify did something, like, for the last year, $3.54 of ARPU per month, and had 82% or 84% content costs. That sounds like a very hard business to me. And that is with Apple, Amazon, Google entering more deeply and more strongly. And Apple appears to be doubling down on their efforts on music and being more aggressive, and obviously have other ways to get paid for their music business through the sale of devices and iTunes and the like.

And Amazon I think is a wholly unknown variable that fully hasn't been realized, in the sense that Prime has an enormous amount of music if you are a subscriber that is embedded in that $99 annual fee. That is surely a commoditization of music. I'm not sure most Prime subscribers understand how much music they have, but as Alexa and Amazon Echo get further out there -- and that's a music-discovery device -- I think that is another hugely disruptive influence on the market.

And so, I think that subscription space is very hard. We watch it very carefully. We look at some of the entities that are playing. We look at ways that we can play. Obviously some of the things where we have differentiation around ease-of-use and around our unique content are nice moats. Are they impenetrable against that commoditized music service? We surely will be affected, and we think hard about how to create that moat and create value for customers that they are willing to pay for.

Great. Thanks for the thoughts. Thank you.

Vijay Jayant, Evercore ISI.

Greg, just trying understand some of the tax issues across the Liberty Media structure. So, if Braves is the only ATB, do you need to get to 80% of Sirius to -- you will have been merged at some time in the future? And then, given that Braves is the only ATB, does that limit your ability to ever sell Braves without having massive tax leakage? And then, I know you don't want to talk about Charter's numbers, obviously. Charter's synergies are heavily tied to their programming step-downs on the Time Warner Cable rate card, and there's been a couple of challenges to that. Anything you could talk about that? We would much appreciate it. Thanks.

So, on that ATBs, we maintain a hothouse flower plant here where we grow ATBs. And Albert's whole job is to make sure they are maturing with appropriate time. Look, I don't think we've disclosed are limitations on what we can or cannot do. Suffice it to say, more ATBs is better; it creates more flexibility, but we surely are aware of the difficulties around some of the new regulations that the IRS has put forward that may constrain our ability to go -- move going ahead. Nothing is impossible. We could actually even sell something taxably, but we try and maintain as much flexibility and be as tax efficient and as clever and smart and appropriate as we can here.

Albert, is there anything you'd like to add?

Nope. That's good.

Okay. On the question of Charter, I wouldn't claim to have spent for anything like my entire career around the cable network and cable MSO business, but the one thing I have seen in my almost 11 years at Liberty is, there are always head-butting, there is always banging heads on the -- what the cable networks get paid and how much the MSOs pay, and those MVPDs pay. And that process -- whether it was Direct or whether it was Charter and always changing, and the more there's consolidation, the more there are changes in ownership. There are surely points of friction that are going to be caused there. So, I have no commentary other than that's all to be expected, that people are going to try and re-contract as favorably as they can on both sides.

Great. Thank you.

Barton Crockett, FBR capital markets.

Just a couple of questions, if I could. The first is, there's so much, I think, interest right now among investors in the possibility of Sirius maybe starting a dividend. I was wondering if you could remind us again on the tax implications of that for you guys. If you were to get some type of dividend from Sirius, how taxable would it be? And just your thoughts, generally, about the wisdom of that form of distribution of capital from Sirius.

Well, I guess I would not limit it to Sirius. In general, Liberty is not in favor of dividends; and not to say there's no condition in which we would not find that appropriate. In general, if we have an attractively priced equity, we prefer share repurchase. Why? A dividend is a forced distribution to all shareholders, not necessarily tax efficiently; perhaps tax-efficiently for some, perhaps tax-inefficiently for others. Whereas share repurchase is an optimal distribution in the sense that only those shareholders who wish to take the distributions can decide that they want to take it.

So in general I think we start out with a predilection against dividends. Not to say we would never pay a dividend, but that's our view of the world. I guess there are situations where if you had no good use of capital and you didn't think your shares were attractively priced, and you had some view in tax-change policies going forward, yada yada yada, you wanted to get the cash out, I could see imagining it, but I don't -- it's not to say we would never do it, but it just start out with a couple of strikes against it.

Albert, will you want to talk about tax treatment?

Right. On the tax treatment, it's probably an effective, say, 8% tax rate. So it's not prohibitively expensive to do so, but just as Greg pointed out, not something we are necessarily inclined to, for other reasons.

Okay. And then, if I could switch gears a little bit, I want to just see if there's some level that you can provide some perspective on some of the thoughts out there, that there could be some interest in consolidation around the Internet radio space. And I realize that you can't comment specifically on any press report, but just generally, given the skepticism about on-demand you've expressed, are there models out there that could be interesting and could make sense in some form of consolidation in this industry, do you think?

Well, I think we -- Jim Meyer and we've expressed a belief before that the on-demand space is a very competitive space. There are other ad-supported models which may have protections on content costs, which under some scenarios could be more attractive. That's kind of our general view, because the case where you can have the record labels dictating the full price of what the content is, rather than have it set by a regime; and they are able to ramp that up, and the case where there's a lot of similar players offering on-demand services, doesn't sound very attractive. Where there are fewer players and you're competing perhaps against terrestrial radio, that may be a more attractive space to be; we'll see.

Okay. All right. I'll leave it there. Thanks a lot.

Amy Yong, Macquarie.

Greg, I was wondering if you can talk about Starz. I think previously you have referred to Starz as being perhaps a house-branded cable; I wonder what your thoughts are on that particular asset now, and what the relationship of MVPDs are, post-merging with Lionsgate, or the pending merger with Lionsgate.

Yes, I think what you're seeing is that there are new forms of distribution for these premium services in particular. And you're seeing new forms of distribution for the non-basic cable. You watch how Netflix is being distributed by Comcast, how Sling is being distributed by some of the other cable companies. You watch how Starz and Showtime are able to be distributed by, and have traction with Amazon as an upsell from Prime. I think you're seeing a world where services which are not tied to the basic bundle have an opportunity to find new distribution, including with MPVDs, which could be interesting.

There are an increasing number of broadband-only households who may not choose to get the whole cable package, who may not choose to sign up for $30 or $40 worth of sports or even -- whatever the basic package is; and the opportunity to get premium services is an opportunity that MPVDs recognize, and I think will increasingly go after.

Got it. And then, if a transaction were to happen with a streaming music service, should we assume that it happens at the LMCA level or at the SiriusXM level?

I don't know how I could have been more negative on streaming services. But that having been said, Amy, I think it's highly unlikely that anything would happen at the Liberty level. Sirius is our play for the online play for music, whether it's distributed through satellite or, as Sirius already does, through the online system.

Got it. Thank you.

James Ratcliffe, Buckingham research group.

Thanks for taking the question; two, if I could. First of all, on the topic of taxes, surprise, surprise. Once you -- if you get to 80% ownership of Sirius, as I understand there would be tax consolidation; are there ways to make use of the Sirius tax shields at the Liberty Media Corporation level? Or would they still be generally applied to shielding SiriusXM income?

And secondly, how much -- if you wanted to generate liquidity at the Liberty Media Corporation/Liberty Sirius level, how much do you think you could reasonably borrow against the value of the Sirius stake, under terms, say, comparable to what you have on the current margin loans? Thanks.

So I'll comment on the first one, then I'll let Albert add. Once we got -- if we were to get to an 80% tax consolidation, we could utilize those tax losses anywhere in the consolidated tax group. A couple of caveats, first. The other shareholders would probably expect to be compensated for that, to the degree we were using them for non-SiriusXM-related activities. Secondly, if you look across the rest of the group, we don't really have much taxable income. Most of the entities we hold are non-tax-consolidated, other than the Braves, who are not huge taxpayers. And so shored-up capital gains, which we try hard to avoid in terms of paying taxes on, we're not generating tons of taxable income at the Liberty Media Corporation.

And so it would be less of a factor. And as I said, there would be a negotiation of sorts between how those were recognized between the non-Liberty/SiriusXM shareholders, and Liberty itself. I think we have quite a lot of borrowing capacity at Sirius, against the Sirius stake. I'll ask Neal Dermer, our Treasurer, if he would like to add any thoughts.

Sure. Today we have $1 billion of capacity under our margin loan, and we think we can maintain that. There are also other equity-linked financing options where we could raise a decent amount of incremental capital.

Great. Thank you.

Jason Bazinet, Citi.

Thank you. A question on the Braves. There were some press reports a couple months ago -- and I lost track of it, to be honest -- about MLB Advanced Media maybe selling a stake. And I wasn't sure if that was something that has actually occurred, or if that was just press reports and nothing's been confirmed. And then second, to the extent that the Braves own one of the MLB teams, do you know how the economics would essentially flow if an asset is sold at a higher level? Is it just distributed among the various teams, or is there's some more complicated mechanism?

Well, a couple of thoughts. Thank you, Jason. First, a stake in BAM Tech, which is the non-baseball-streaming arm, but it effectively -- in the technology arm, which in addition has gone out and cut some third-party deals, for example, with the NHL -- has been agreed to be sold. I don't believe it's yet been closed -- with Disney, valuing the BAM Tech -- not all of BAM, but just the Tech part -- at $3.5 billion. And that Disney is buying about a third; and I believe there are some, and I don't think it's all -- I'm not giving you inside information; I believe it's been publicly disclosed -- that BAM Tech, there are certain ways Disney can increase its stake over time.

So, that's a pretty fulsome valuation I believe for the asset, and that's pretty attractive. And it suggests obviously greater value for BAM as a whole, because the business of streaming baseball online is not included in that. As far as how any proceeds would be distributed, I don't know of any plan. We are a 1/30th owner of all these things. My belief is that most of that capital that Disney is investing is intended to help grow BAM Tech and add value, rather than provide cash distributions to the teams. And that's my expectation.

Okay. Thank you very much.

Kannan Venkateshwar, Barclays.

Greg, just wanted to get your thoughts on -- now that the consolidation cycle on cable is more or less done with, with just a few small companies remaining, is there any logic in looking at vertical integration at entities like Charter, specifically in terms of acquiring more content? Thanks.

I think Charter is -- changed its permission dramatically from where it was when it was a 4 -- 0.3 million cable video sub company to a 17-plus and 23 million streaming household company. And its ability to impact and drive new kinds of relationships with consumers, including around content, is very different. So I would expect not necessarily that Charter will go out and buy lots of cable networks, but that Charter will think long and hard, and is thinking long and hard, about the attractive opportunities that having that scale will create for it.

I'm not sure that the traditional play, which frankly was pioneered really by our Chairman and TCI, of having a flywheel of positive of content and an MSO, if that traditional flywheel still exists and has the same opportunities. I think Comcast did a great job buying NBC; I'm not sure there are that many opportunities out there like that, to go buy individual cable networks or even exclude, that would be as attractive. But I do think there are going to be changing relationships between content companies.

I think you're going to see people look to always do exclusives and do things that are differentiated and weigh whether they have enough scale to make that work. Examples being DirecTV and the NFL, but there are others out there. And I suspect you'll see Charter use its improved and scaled relationship with consumers to provide interesting new ways to look at content.

All right. Thank you.

With that, operator, I think we're done. Thank you again to the audience for their continued interest in Liberty Media and its entities, and we look forward to talking to you next quarter, if not sooner. Thank you.

Thank you. Ladies and gentlemen, that does conclude today's conference call. You may now disconnect.