Liberty Media Corp (LLYVA) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Liberty Media Corporation quarterly earnings Q4 2012 earnings call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Good morning. This call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches, 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, competitive issues, regulatory issues, and continued access to capital on terms (inaudible) Liberty Media.

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 notes, and schedules 1 through 3 can be found at the end of this presentation.

Now I'd like to introduce Greg Maffei, Liberty Media's President and CEO.

Thank you, Courtney, and good afternoon. Today speaking on the call besides myself will be Chris Shean, our CFO. If we spin off any more elements, I'm going to be alone on this call. But on to the highlights.

This is the first call since the separation from Starz, which was completed on January 11th. As a part of that transaction, Liberty Media received cash of $1.2 billion. This transaction we think highlighted the value of Starz, which is up about 19% since stock trade began trading. The results as of 12/31 that we can speak to includes Starz, but the commentary about the Starz business was delivered by Chris Albrecht on the prior call, and we're not going to talk any more about Starz on this call.

SiriusXM was a highlight. We receive approval for du jure control from the FCC on January 3rd. We bought some incremental shares, which increased our ownership over 50%. Our stake is now about $10.1 billion based on yesterday's close. As a part of taking that du jure control, we added additional directors to the Board and we continue to search for a new CEO at SiriusXM.

The part of all this, we're very pleased with the strong results there. Subscribers are up to 23.9 million. 2012 revenue was up 13% and 2012 adjusted EBITDA was up 26%.

Turning now to Barnes and Noble, the Nook Media division there received another strategic investment verifying value and I think direction, $89.5 million from Pearson. That's in addition to the prior investments that were made by Microsoft. At Live Nation, they had a very solid quarter, posting results yesterday. Notably, concert sales for 2013 were up 58%.

Back at Liberty Media, we were active on our buyback. We bought $78 million worth of repurchase prior to the spinoff of Starz and another $52 million post the spinoff of Starz. So with that, I'm going to turn over to Chris Shean to talk about our financial results.

Thanks, Greg. Liberty Media's revenue decreased 52% to $467 million in the fourth quarter and 34% to $2 billion for the year. Adjusted OIBDA decreased 76% to $77 million in the fourth quarter and 58% to $450 million for the year. The decrease in revenue and adjusted OIBDA was primarily related to the one-time recognition of deferred revenue and costs at True Position in 2011.

Looking at the liquidity picture at year-end, in our reported results, Liberty had cash and liquid investments of $1.4 billion and debt of $540 million. As Greg mentioned, these results are prior to the separation of Starz from Liberty. At the time of the spin, Starz distributed $1.2 billion of cash to Liberty and all of the debt that gave rise to that cash remained at Starz. Pro forma for this, Liberty had $1.8 billion of cash.

Additionally, since our ownership in SiriusXM is now over 50%, beginning in the first quarter of 2013, we will consolidate the balance sheet and operations of SiriusXM into our numbers and they will be the dominant driver of our financial statements going forward.

With that quick wrap-up, we'll turn it to Greg.

Thanks, Chris. As you know, change has pretty much been a constant at Liberty Media. The two latest changes, the separation from Starz and our taking hard control of SiriusXM we believe will produce significant value for the company and our shareholders. We are pleased with the results of our businesses. We appreciate your continued interest in Liberty Media, and with that, operator, I'd like to open it up for questions.

(Operator Instructions) We'll take our first question from Barton Crockett of Lazard Capital Markets.

Great. Thank you for taking the question. Greg, I was wondering about your current position on the SiriusXM share repurchase. I mean this is ramping up now and they've said that it's no longer required that you participate pro rata to buy back stock, and I was just wondering what your feeling is about that, whether you'd like to participate pro rata or not. A little bit of color on that would be helpful. Thank you.

As you rightly noted, because we were over the 50% mark, the Board deemed term insurance was no longer relevant that we participate pro rata. As you may recall, we had some purchases that drove us over 50% that rolled into the beginning of this year and there were reasons why short swing profit and the like, we would not like to participate in that repurchase for a period of time until we clear that short swing profit problem.

Longer term, we'll see where we go. We like the operations and we've sometimes in the past expressed desires about different thing we might do with the stock, but we'll wait and see.

Okay, and if I could follow-up with one other. As you're leading the CEO search, I was wondering if you could update us on where you are in that process. Any sense of how long it might be before it settles and how it's progressing?

Well, I think I could speak for my fellow committee members, Eddy Hartenstein and Jim Mooney that we've seen strong candidates internally and externally. We're excited about the quality of people we've seen and the responses they've had about the business, which have only confirmed the opportunities for the business and what's ahead. I expect we will wrap up our search in the next few months and I expect the market and we will be gratified with the results.

Okay, great. I'll leave it there. Thank you.

And next we'll take [Visay Sayant] with ISI Group.

Thank you. This is David Joyce for VJ. Is there some optimal ownership level that you could see Liberty Media having for Sirius, kind of related to that prior question? And given that there's some limitations on Sirius to raise capital, how do you see addressing that gap of getting up to the 3.5 times target leverage? Thank you.

I don't think there's an optimal percentage. We'd like increasing our ownership because that's actually been a very attractive economic proposition. Obviously taking control we thought was beneficial, and as I said, we don't have a target number in mind. I would differ with the idea that there are limitations on the amount of capital that can be raised there to get to the 3.5 times level. We believe we can work through those issues and that Sirius can move forward to get the 3.5 times.

Have you got any sort of direction you think those can take, what range of possibilities you can work with there?

I'm not sure I understand the question. If you're asking about -- I think there were perceived structural limitations because of existing issues. I believe those were entirely workable.

Thank you.

Next we'll move to Jason Bazinet with Citi.

Thanks. Since you now have du jure control of Sirius, if I could ask a strategic question on that front. In the past, you talked about the potential attractiveness of Telematix and I was just wondering if you could elaborate on what it is about that business that's attractive, and is that something, if you decide to go down that path, that you can do organically? Or does it by definition necessitate M&A? Thank.

Thanks, Jason. I think there are a couple things and if anybody was at one of your competitor's conferences yesterday, I think Jim Meyer was articulate on some of the opportunities. This is a natural extension of where SiriusXM is now. A trusted supplier to the OEMs, to the car industry, providing already not only entertainment, but already information. You asked about Telematix. We already have at least one OEM to whom we're supplying or contracted supply. Telematix, broader set of information than just entertainment, and I think we already do that in other places like the aviation business and like the marine business, and it's a natural extension of both what we have done in other industries, we, SiriusXM, and what SiriusXM has as a relationship with the car business.

The opportunity to get a recurring revenue stream direct with consumers based on their experience in the car I think is right up SiriusXM's alley. I think they both have an interesting organic opportunity, but that's not to say we wouldn't, if presented with the right opportunity, consider utilizing some of the balance sheet capacity and strong cash flow capabilities of SiriusXM to accelerate our entry.

Thank you.

And we have Matthew Harrigan with Wunderlich Securities.

Thank you. I was just curious what your reaction to the spate of announcements out of Barcelona, Ford, Spotify, the 4G announcement with GM and all that. I know it's been -- the broadcast platform is wonderful, but you, Greg, have been particularly cognizant of competition and how everything develops with the dashboards. I'd just like to get your views as well as the guys at SiriusXM.

Well, I think all the actions, like General Motors working with AT&T, just indicates the increased direction of the connected car and the car manufacturers and General Motors being among the leaders, driving to raise the level of connectedness and intelligence in the car. And that plays in well to where we think the strategy for SiriusXM is, and I think all of those things are good accelerators of the opportunity for Telematix and for SiriusXM and Telematix.

Thank you.

And next we'll take Bryan Kraft with Evercore Partners.

Hi, thank you. Just had two questions. I guess one, which assets did you sell since the end of last quarter to utilize the Starz capital losses of around $400 million of asset sales there? And then also, Greg, just wanted to ask you, I mean strategically now you've got a controlling stake in Sirius. Starz is gone. No substantial operating assets. So does an eventual RMT even make much sense at this point longer term? Or does it make more sense to try to reach some agreement to combine Liberty Media and Sirius since the leftover assets, once you sell the public securities, are pretty minimal anyway?

I'll take the second first and then I'll let Chris Shean answer about the securities sold. If you think about the direction and obviously, we're, as I noted, change is a constant and we're never certain of exactly what our direction will be for the long-term because we're relatively opportunistic. But if you think about the direction, we're less likely to go and try and combine, I think, the securities of Liberty Media. It would still trade at somewhat of a discount to fair value in our minds with SiriusXM and we're more likely, if we wanted to increase our ownership of SiriusXM, to continue to let SiriusXM repurchase stock and draw us up that way with us not participating in a buy back. That seems like a more logical way to go.

I would discount a little bit, or not discount, I would take issue a little bit with the idea that we don't have other operating businesses and we have interesting opportunities around Live Nation, around Barnes and Noble potentially, and obviously there are other operating assets in there like TP and the Braves. But above all, there's still quite a lot of cash, quite a lot of noncore asset securities that we have said are not core to our business, debt securities, equity securities in which we own small minority stakes, have no path control that provide firepower. And we'd like to believe one of our competencies is an ability to reinvest that capital wisely. So we're still out on the hunt for opportunity and I think we, in a, it's a relatively difficult environment today with the low interest rates and relatively high multiples. But we're confident somewhere along the line we'll find something wise to do with that money.

With that, Chris, maybe I'll let you answer the part about what securities we sold.

We lightened the ship in our shares of Time Warner, Viacom, and we got completely out of our Sprint position.

Great. Thank you very much.

And next we'll move to John Tinker with Maxim.

Thank you. Just following up on your Barnes and Noble comments, I think the Chairman, Riggio, filed this week to announce that he's intending to make a buyback offer for the retail stores, but not for Nook. And as you mentioned, Pearson invested $90 million or so in Nook. How are you sort of thinking about which -- do you have any views on which way you'd like to go on that? Or how are you thinking about it?

Well, I would clarify one thing. I believe because he had an existing 13-D because of his large equity ownership position, Len Riggio was required to amend that he might consider making an offer, and no offer has been made. There is an independent committee that's been formed that if something has been done, but I think it's very preliminary and we'll see where Len goes with that. And that seems in line with where Len's heritage and heart have been in the retail stores, while understanding and being very encouraging, meaning Len, of needing a longer-term e-book solution, a tablet solution, a store online. And so it was very logical that he would want to be interested in the retail stores, but supportive of the Nook media business.

As far as where we would go, I think by the terms of our preferred, we have a fair amount of rights to influence or block any sale that we don't see as advantageous, and we'll wait and see what happens, whether a transaction occurs and what the format, and how Nook Media is organized going forward.

Thanks.

Next we'll move to Doug Mitchelson with Deutsche Bank.

Thanks so much. So Greg, I'll be down to ask you a question about the Atlanta Braves soon, but this quarter I'm curious, can you give us a sense of the rate of return you demand from your investments in your Liberty portfolio at this point and whether Sirius is held at that same standard? Does it scale in size, suggest a lower rate of return is acceptable?

Well, I'd be happy to talk about the [Uptons] in the outfield if that's helpful. But I don't think we have a fixed rate of return we seek. We're cognizant of both risks. Certain kinds of securities and transactions have different amounts of risk, and therefore you might be willing to or require a higher rate of return. You might not be able to put as much financial leverage on them because they have operating leverage. And you also need to recognize a low interest rate environment in which the opportunities are clearly less. The marginal rate of return has come down quite a bit of the opportunities we seek. So part of the reason why we sit with that cash is we have not been seeing enough opportunities with a combination of risk, return, financeability to meet that hurdle.

As far as SiriusXM, while by some measures the valuation and multiple are pretty high, by all measures, the company has a strong growth path. We're very optimistic about its positioning in the car with consumers, operating leverage in the business, its ability to extend itself into new markets. We remain quite bullish on the growth prospects for the company and so I -- whatever hurdle we would have internally, I'm competent SiriusXM will meet that.

I was hoping you'd head there only to the extent that buying back your stock is investing further in that asset. And so any sense of your level of patience in terms of trying to find alternative investments outside of Liberty for the cash versus just saying, you know what, we'll buy more Sirius by buying more LMCA?

Well, we're buying more Sirius in two ways. Right now, Sirius is buying itself back, which is increasing our ownership, and we are buying more LMCA. LMCA, candidly, ain't the bargain it was in at least one sense, in two senses. Not only have you already had the enormous up side of SiriusXM, but we are not trading at as large a discount to net asset value as we have at various time. So candidly, we need to be thoughtful, look outside the scale of Sirius and our larger position of Sirius I think could still drive good returns at LMCA. But just the sheer act of our buyback. I think we bought back something like 45% of the original LMCA shares at under $35. Clearly, we're not going to get the kind of leverage on buyback, the pop in NAV that we once did. So we need to look outside. But Sirius is a large enough asset to still grow and be meaningful in the LMCA portfolio.

Got it. Thanks.

We'll take our last question from Martin Pyykkonen with Wedge Partners.

Yes, thanks. One on the Barnes and Noble, Greg. Maybe a little broader you've had the stake for a while. I'm just curious how you're all thinking of the traditional retail brick and mortar side to whatever (inaudible) you think that's undervalued in the market. And then on the Nook, you really haven't done anything yourselves with additional investment. It's obviously a very competitive business. I'm curious how you feel about the Nook business from that standpoint? And then secondly just on Sirius and the search for a new CEO. I know you're not going to say candidates, obviously, but are you looking for any particular traits, industry experience? I'll just throw out kind of the consumer industry as one example. Some of those could be brought up in terms of anything you can say on that, in terms of kind of the background, and experience, and skills you're looking for? Thanks.

Sure. I think since we've been invested in Barnes and Noble, the retail business has probably performed better than most outside observers would have thought, and I think probably at least as well or better than we would have thought. Absorbing the Borders dissolution, moving quickly through that and actually benefiting from that more quickly than anticipated has meant retail has performed pretty well. And we have always been of the view that there will be retail bookstores around for a long time. There's likely to be one retail bookstore around for a long time, called Barnes and Noble, and that has so far proven to pass that the decay rate has been much less than most people would have forecasted.

On the other side of the house, we took an early position in Barnes and Noble, recognizing, we thought, two ideas. One, that the retail would decay less quickly, and two, that the many important partners like a Microsoft or a Pearson would find the Nook Media business strategic. And so we got in early at a valuation, which compared to the valuations, which those partners have come in at, is attractive. It made less sense for us to be involved in the Nook Media business directly because we didn't have some of the elements of distribution and some of the royalty elements and kind of relationships that or content that some of those partners could bring. What we really thought of ourselves, as was seeing value there early on the two parts, and so far, at least on paper, less in the market, that's proven to be so. We'll see if we ultimately are correct.

SiriusXM CEO traits, thank you. I don't think there's an industry we're looking at. If you had to ask the perfect person who doesn't exist, but some of the characteristics that perfect person, he or she would have would include experience with subscription businesses, like cable, like satellite, like the SiriusXM business itself, experience with the changing technologies, recognizing that we both have opportunities and potential threats from IP. And we talked already about some of the opportunities by extending into things like Telematix. I think a technology background would be helpful. A direct marketing knowledge on how to reach out to a new set of customers because we believe there's an untapped reservoir of customers out there for SiriusXM would be helpful.

And finally, some experience with content businesses, because the strength of our content is one of the true differentiators for SiriusXM. We are not a commodity music service. We are many things on top of that and I think someone who understands how to bring exclusive content, differentiated content to SiriusXM would be helpful. So those are, off the top of my head, four things that I would point to as all being strengths that a perfect candidate would have.

Thanks. That's helpful.

And everyone, that does conclude our question and answer session and that does conclude our conference call for today. Thank you all for your participation.