Liberty Media Corp (LLYVA) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the Liberty Media Corporation quarterly earnings conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Ms. Courtnee Ulrich. Please go ahead, ma'am.

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 limitation, possible changes in market acceptance of new products or services, competitive issues, regulatory issues, continued access to capital on terms acceptable to 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 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 notes in schedules 1 through 3, can be found at the end of this presentation.

And now I'd like to turn this call over to Greg Maffei, Liberty's President and CEO.

Thank you, Courtnee. Good morning to all of you out there. Today, besides myself, speaking on the call, we will have Liberty's CFO Chris Shean. On to the highlights, starting with SiriusXM. Sirius remains the gift that keeps on giving. Outstanding Q1 results. We increased subscribers to 24.4 million, set record revenue and adjusted EBITDA numbers, and named Jim Myers the CEO no longer on an interim basis. He's done a great job and we look forward to continuing to have him lead the Company.

We closed our Charter Communications investment on May 1, last week. We paid $2.6 billion or 27.3% of the equity. We designated four Board Members. We secured $1.4 billion in financing, in the form of margin loans against the equities that we hold. In a short week we're up about 15% on that deal. I'm not sure that rate of growth is sustainable. They were kind enough to announce very solid results yesterday, and they continue to make progress investing in their network, and pursuing operating strategies that we find effective and are showing great progress.

Live Nation also posted very solid results yesterday. Robust growth in concert ticket sales, for all events, are up about 26% this year, and they made continued progress on their Ticketmaster upgrade. During the quarter we also repurchased $71 million of our shares. I guess that's through April 30, actually. That's a relatively small amount. We've been utilizing the cash and other investments and keeping it for other good things ahead. I'd also remind you, and it does seem like a long time ago, that actually during Q1 we did complete the Starz spin.

With that, I'll turn it over to Chris to talk about our financial results in more detail.

Thanks, Greg. Given that we went over 50% ownership and obtained hard control of SiriusXM for the quarter, their results are now consolidated in Liberty's financial statements. The combination of the consolidation of Sirius, as well as the disposition of Starz through our spinoff, it's made our financial statements and our year-over-year changes a little bit confusing. We would suggest that to review Sirius's results, it's a better idea to look directly to their financial statements, rather than through ours, given that ours, at least for this quarter, only have a partial quarter of the results consolidated. The first 17 days of the quarter are not in our consolidated numbers, as well as our view of SIRI has further clouded by purchase accounting adjustments. So you can obtain that information directly from their website and their publicly filed documents.

At quarter end, Liberty had cash and liquid investments of nearly $2 billion and the principal amount of debt of $2.2 billion, which includes the debt balances for SiriusXM. Post-quarter close Liberty completed its investment in Charter, paying $2.6 billion, part of which was funded through our $1.4 billion in margin loans, as Greg had mentioned.

Now with that I'll turn it back over to Greg for concluding remarks.

So, solid quarter. Pleased with the result of all of our businesses. As we noted, we look forward to our new relationship with Charter. As always, we appreciate your continued interest in Liberty Media.

And with that, operator, I'd like to open it up for questions.

Very good, thank you.

(Operator Instructions)

Doug Mitchelson, Deutsche Bank.

Thanks so much. A couple. One on Charter, then one on -- Greg, you said the share repurchases were modest as you retain capital for other good things ahead, I think, is quote-unquote. So can you give us a sense of the strategy going forward, and what those might entail?

And separately, any background on the Charter investment and the rationale behind it, would be helpful. Thanks.

Well, I would note that we do have a margin loan that has a relatively short tenure. We're looking at different financing alternatives, and we looked at conserving cash as making sense at the moment.

Why do we like Charter? I think there are a host of reasons, starting with what we consider the superior operating management team in the cable business. A business plan that involves upgrades and leveraging a relatively under-invested network. Pursuing triple play and increasing amounts of high-speed data in a relatively less competitive environment, in terms of who they're up against, RLX rather than FiOS, et cetera. And a good environment in general to be in cable. So those were probably the rationales for us, and frankly, the fact that we were able to secure a significant amount of stock, and secure significant influence in the Company in one quick transaction -- all those made it an appealing investment.

Because your Chairman, once upon a time, consolidated up the cable business, and made a lot of money for investors doing that, there's been a lot of discussion around whether there's any intentions to try to push Charter in that direction, to be an aggressive consolidator. Any thoughts around that?

I think the Charter business plan on a stand-alone basis is very attractive. We are enthused about what, as I said, Tom and his team are doing, and can do, in their territories. Whether consolidation occurs, it seems like, in an era of relatively inexpensive money with cash flows that are relatively secure as cable cash flows are, it does lead to a natural effect, that there are synergies around content costs, network costs, box costs and other elements -- does suggest that you could be in for a round of consolidation.

Whether Charter is a consolidator or a consolidatee, we'll see. They've already done one very attractive transaction in the form of Bresnan. Tom Rutledge has gone to buy twice in the last few years. And transactions like that probably make a lot of sense.

He must really like it. All right. Thank you.

John Tinker, Maxim.

Hello. Could you, following up on the Charter, talk about how you see your capital structure, in that most of the companies you're invested in tend to be relatively leveraged. By contrast, Liberty Media has been under-leveraged as you're looking for investment opportunities. Now I think for the first time in a while you have a little leverage. How far would you see that going?

Well, I think you've rightly noted, John, we are fans of judicious leverage, particularly in the environment that we operate in, in terms of very low interest rates. Artificially low in our judgment, because the government pushing them lower with high bond purchases, et cetera. In general, we've tried to maintain low leverage at Liberty, particularly now because we are not free cash flow generators in and of ourselves. We are holders of shares in companies that are free cash flow generators. We do have some leverage, and that's probably part of the reason why we've been judicious about the use of cash. We don't have a program to announce yet on how we're going to change the leverage at Liberty, or how we're going to clean up those margin loans, but we're certainly paying attention.

I think that when Sirius started its stock buyback program, I think it's fair to say you didn't tender, which would suggest that your percentage ownership's gone from 50% to 51% or so. Is that correct?

Yes. I think it's probably over 51%, maybe 51.5%, headed towards 52%, somewhere in that range. We're up, but not by an enormous amount.

Thanks.

Amy Yong, Macquarie.

Thanks. On Charter again, can you talk about timing and the financing that's needed to get to 35%? Would you be willing to take up your stake ahead of the 2016 timing? How are you going to finance the additional $800 million needed to get to 35%?

Well, I think, as you noted, we have the opportunity or option to go up to 35%, and then subsequently down the road, I think it's to 40%. That's not an obligation. And we're not announcing a plan to do that today. We'll be opportunistic, and we'll look at our financial capabilities and means of either financing that, or what we do to achieve that, at such time as we make the decision to go do it.

Got it. Should we assume that you will be participating in secondary offerings? Is that something that you're willing to do?

Well, we're Liberty, so assuming anything's always risky. I think buying in incremental shares for us may have regulatory concerns. For the moment, I'm not sure we're the buyer of first choice.

Got it. Thank you.

Vijay Jayant, ISI Group.

Hi, Greg. Couple questions. On the caps on Charter, is it tied to potentially triggering the NOLs at Charter, and that's really the reason why the cap's 40%? Or is it for shareholder protection, and eventually, post-2016, you will have a plan to get control of Charter? Is that something you could discuss?

Second, on the financing of the original Charter investment, is it fair to assume that you will probably sell pro rata in the Sirius buyback? I think you're limited right now from doing that, but starting in June, I think? Is that a source of funding? Thank you.

So a couple of questions in there. First, on the NOLs, I don't believe there's any issues around that. There's no 382 limitation. All those have been taken at Charter. I should have noted, and the Chairman rightly pointed out to me, our Chairman, that the fact that they have a significant NOL position is a very valuable asset, and one of the things that makes Charter an incrementally attractive investment to us. But those NOLs are probably secure, in the sense they're 382 limited and changes in our ownership will not impact that.

As I noted on the prior questioner, we haven't made any plans, decisions, announcements about going above the 27.3% or 27.4% we're at today, and, as you noted, we have the opportunity to go to 35% and then 40%. We'll see what time holds. And what we do with our financing and how we look at that will all be part and parcel of some of those decisions.

As you rightly noted, we are, for a bunch of reasons, including [wised] to over 50 against potential dilution from the exchangeables, at Sirius, and the risks or issues around short-swing profits, we had some incentive not to divest of some of our high-basis SIRI shares. I don't think we have a plan announced. We've announced we're not participating today. We're not prepared to announce we're not participating or participating in the future. As a Board member and investor in Sirius, I feel very good about Sirius's operating prospects and growth, and so we're not in any rush to divest ourselves of SiriusXM shares.

Great. Thank you so much.

Jeff Wlodarczak, Pivotal Research Group.

Hi, Greg. On SIRI, you all elected to keep the active CEO. Do you foresee any other major senior management changes, or additions I should say, to enhance the team, especially as you focus on new revenue over there? Or are you satisfied with the current management team? And then, can you give us the latest on potentially divesting your non-core assets -- TruePosition and Atlanta Braves? Thanks.

So a couple of things. First, on the management team, I think they have a lot of depth in that management team, and a lot of strength, particularly given from whence Jim came, and where he's hired around, technology, OEM relationships, content. There are some areas, like marketing, that the Company has not had as much focus on historically. It's come from a period where it's marketing was primarily trials converting to self-pay in the OEM environment. Now in a world where things like used cars, or previously owned cars, are an important part of their growth pattern. How they market -- how they go to the consumer is going to change. I think Jim Meyer is the one who will make that call, but I think he's quite cognizant of the need to add and bolster resources there. So, as I said, we're enthused about management, but certainly see the opportunity -- the Company sees the opportunity to add interesting pieces there.

Sorry, the second part of your question, Jeff?

Just the latest on the status on potentially divesting TruePosition, Atlanta Braves?

The Atlanta Braves are in first place. That's the last thing we're going to do right now.

(laughter)

They're not quite as hot as they started out, but we're very happy with the Braves. And frankly, the Braves, for a series of reasons, are proving to be a better financial investment than we might have initially anticipated. On TP, they're in a -- some interesting regulatory and other kinds of discussions, and so I don't think that's front and center, either.

Okay. Thank you.

Barton Crockett, Lazard Capital Markets.

Okay, great. Thanks for taking the question. I wanted to ask about, first about the structure of your Charter acquisition -- the financing of that with the margin loan. I know you're describing this as relatively short term. I was wondering, is there any covenants or stock price ranges at which you would be compelled potentially to give up ownership of the shares that are securing this loan? And how would you describe the risk? I'm sure it's low, but the risk of potentially something happening that could imperil your control of Sirius?

Yes. A couple of things, there. We have a broad basket of public equities, which serve as collateral. Frankly, the loan is structured in two pieces. Some of it is secured against Charter, really in a loan we stepped into. And another piece structured against some of our equities, including Sirius.

I think the risk on both is very low. You never want to say, given the potential for black swans or Six Sigmas or whatever kind of event we're talking about, you don't want to say never, but I think that risk is very low. And given, frankly, that we have a diversity of assets and equities in there, it's made even lower. And given the fact that we could divest of some of them, or we have other sources of capital, or other places that we're comfortable that we could, in a pinch, borrow some money from -- I think the risk of that is all very low.

Okay. Great. And then, I wanted to switch gears a little bit, given that you were able to use, in this instance, Sirius and other shares to borrow against, to finance the transaction, does that argue against the possibility over time of spinning Sirius off through a Reverse Morris Trust? Because by doing that, you'd lose a big asset that you could borrow against, and thus limit your ability to do deals. Is that something that would enter into your calculus?

I think that's an interesting question, Barton. I think we would, if we ever were to spin SIRI, and we have suggested at some point it's not illogical, like many of our other big powerful growth assets, that at some point they would be better as an independent company, completely without our wonderful stewardship, that we would probably want to make sure we cleaned up our own balance sheet and gave as much strength to the mother ship. The mother ship is looking a little less robust than it once did. We had a calculation the other day -- I think we've spun off, since in the last nine years, something like 75%-plus of our value. So we might want to at least secure the mother ship with capital, to your point.

Okay. Great. Thank you.

Bryan Kraft, Evercore Partners.

Hello, good morning. Wanted to ask -- you touched on it a little bit, Greg, but Crestview announced they were selling more Charter shares today, and I was wondering why you didn't choose to increase your stake through that? And you mentioned there may be regulatory issues around increasing your stake? So if that's the reason, I was just wondering if you could elaborate on that?

And also, can you talk about how enthusiastic you are these days on the prospects for two of your smaller strategic investments, Live Nation and Barnes & Noble? Thanks.

So, you never want to predict what regulatory environment we'd see, but it would seem like issues around the SEC de facto control could arise at some point, and we figured we were better not, and probably not, the best buyer for those shares. We're getting up to speed in the Company. We have a lot of confidence in what we've seen. We've secured influence on the Board. And I think at the moment, we roll all those together, we probably weren't the first and best buyer for Crestview shares.

On the prospects for Live and B&N. First looking at Live Nation, as I noted, great operating results, Michael Rapino and his team continue to leverage their strength in the ticket business, leverage their strength in the concert promotion, while pursuing a meaningful and important upgrade of the Ticketmaster systems. So we feel very good about where they're going, what they're doing, and the market has reflected some of that optimism that we see in the recent run in its stock.

Barnes & Noble, lots of good things going, and arguably not an easy market. Three businesses, as you may recall. Retail continues to perform better than I think most analysts and observers would have expected. Our belief that there will be bookstores around for quite a while, seems to be being validated. The College business, which is part of the Nook Media subsidiary continues to perform well. A little bit of a transition there, as you may know, from sale of College books and sale of textbooks and other items into more rental, which is extending the life cycle, but also lowering, slightly retarding, current EBITDA because it's just a longer tail.

And then in the Nook space itself, great partnerships with Pearson and Microsoft. Probably haven't really seen the benefit of that. Obviously a competitive marketplace, but also a growing marketplace. I think good efforts to things like open the tablet up to be a more full Android tablet with Google, and other progress, but clearly also a tough operating environment to be.

Do you think those companies are still companies you might want to increase your stake in at some point?

We always hold that option. On both of them, I think we have attractive positions with influence. In particular, I'd note in Barnes & Noble, we're sitting there in a preferred position with a substantial dividend, so I feel good about where we're sitting. But also, we reserve the right, as is our right, to increase those investments.

Thanks, Greg.

Matthew Harrigan, Wunderlich Securities.

Thank you. On the Braves, we've seen big escalation in value of sports franchises. People are largely conversing on the specific issues that have hamstrung the Braves a little bit in that regard, but nonetheless, as you really play the long game, it looks like it could be a fabulous investment for you. Is that really how you look at it? Sometimes you are very opportunistic on a trading basis, and sometimes it feels like you could let things stick literally for decades.

And then, interesting watching what's going on with Barnes & Noble, as well as SIRI, and competing with some of these companies like Amazon and Apple and all that, that you [prospectively] as people talk about these large ecosystems to use the [can't] of the space. Can you talk about that? How you think about competing against guys who are mega-cap in so many different areas, and trying to leverage their competencies in different areas.

Sure. Starting with the Braves. The Braves have many attractive elements along our lines. They're an ATB. We always love the ATBs. They are continuing to increase in value. They made some modifications to some of their TV arrangements, which are positive. We do have relatively low tax basis on that, which we inherited all the way back from Turner to Time Warner to us. So the disposition had some issues around its attractiveness. And it's an asset that we believe is continuing to grow over time on a tax-deferred basis that's appealing. So we'll see where that all goes.

Barnes & Noble, I think you're right to note that building an ecosystem is important. I think Barnes & Noble is doing that more and more, alignments with Google, and things as I noted like making a fuller-fledged tablet. Obviously the relationships with Microsoft and Pearson were about extending our ecosystem and building edges, and differentiation around our tablets. And I think those are all positive. We are clearly in a world where you have a competitor like Amazon who is full credit, not only tenacious and smart, but able to convince the marketplace that all spending is actually useful investment, something not everybody else gets to do. And that's a hard guy to compete against. But I think the B&N management team understands that, and is working to, as I said, take advantage of its differentiation and strengths.

Thanks, Greg. 15% a week on Charter.

Yes. I don't think that's sustainable. Fairly confident.

Ben Swinburne, Morgan Stanley.

Thanks, good morning. Taking up a little bit on the question earlier on RMT, Greg, at the Investor Day last year, you guys laid out a thought process on SIRI, and you made the point you didn't want to spin out high basis shares, and you wanted to put capital to work at Liberty before you really seriously thought about an RMT spin, and it was probably a ways out. I wonder if, sitting here today, if your thought process has changed, and in particular, of the Charter investment, is that deployment of capital in your mind, in John's mind, that gets you at least that check off the list, as you still have to deal with the timing around selling your stock, I realize, back to them. I was curious if you could update us, there.

Well, I think we're of -- as usual at Liberty, of mixed minds. Clearly you're correct -- we sat with quite a lot more capital back at the Investor Day, un-deployed cash, than we do today. And one of the appeals of Charter, besides the facts that I mentioned about why we think it's a good investment, is it was an opportunity to put a relatively large chunk of capital to work relatively quickly, relatively easily, into a business that we had a lot of confidence in, and that doesn't always occur. So yes, right to say, perhaps, Ben, that we checked one of the boxes.

But the other box there, which is -- do we think SIRI's ready for an RMT? Do we think our shareholders are ready for that RMT? Do we want to divest cash out of SIRI, given the run that it's had, frankly, since then, and we think it can do going forward? That's the mixed minds part. And I don't think we're ready to vote with our feet today.

Okay. Great. And just a couple of follow-ups. Any comment on what the permanent financing is going to look like on these margin loans? I didn't know how you were thinking about, whether it's bank debt or something else that we're not creative enough to think of?

And then, I don't know if you commented earlier, I may have missed it, but do you think SIRI should make a bigger investment in telematics through acquisitions? Do you think they can build organically, based on the stuff they are doing with Nissan? Didn't really get into that space.

Yes. So first, on the permanent financing, we have nothing to say today. Our Treasury Department has had a relatively easy time over the last few years, as we have not needed money at the LMC level. And now they've been put to work. So this is good, they're going to have something to do and to focus on. Neal Dermer will have a laser-like focus on making sure we get the best deal going forward.

And on the question of telematics -- exciting space. I think an important space for SIRI to extend its franchise and a real opportunity, and Jim Meyer is exactly the right guy to do that. As he's noted, and I would firmly agree, we have a great effort there. We have a lot of good things, as you note, begun with some OEMs, and more that are not completely been uncovered yet. I think we can grow that business organically, but we are certainly not averse to accelerating that, if the right acquisition came along at the right price.

Thanks, Greg.

They have, obviously, as you know, SIRI has the luxury of massive cash flow growth, operating leverage and growth, under-leveraged against our target leverage, and as we get that massive free cash flow growth, we will open up incremental leverage capability. So they've got the opportunity to both grow, return capital, and look for strategic acquisitions at the same time. Pretty hard to find businesses that have that mix.

Thank you.

Martin Pyykkonen, Wedge Partners.

Yes, thanks. Two things I want to drill in a little bit more on both Live Nation and Barnes & Noble. Greg, you made a comment about Ticketmaster, they've done a good job there; they've done a good job of dynamic pricing, good seasonal outlook, stocks may be reflecting that. But I want to get your sentiment. I think if I'm right, you can go up to 35% without any further Board approval. The existing concert segment margin that's in that low-, mid-single-digit range, obviously because most of it goes back to the artist -- is that in your mind somewhat of a stumbling block? And in terms of increasing the stake, not to compare it to SIRI because they are different businesses, but there you've got a high-20%s to north of 40% EBITDA margin, and Live is just capped. I'm wondering how much of a fundamental issue that is?

And then secondly on Barnes & Noble, your thoughts, and if John is in the room as well, the tones you've made comments on in recent quarters, it almost sounds like the physical side could be more appealing. You've obviously got a big holder at Barnes & Noble, maybe more so attractive valuation-wise? And the view that there will still always be bookstores maybe less of a footprint relative to the Nook, just in terms of your view on the attractiveness of the investment anyway, going forward from here? Thanks.

Starting with the Live Nation portion -- Live Nation has got good top-line growth and expanding margins. I think the challenge there, and part of the reason why the need for the Ticketmaster upgrade, is not only what they can do for their customers, which is important, both the venues and the end users, but frankly, investing, which has arguably been there's been under-investment is some past years in technology -- investing to improve free cash flow yield. This is a business which is huge, generates relatively low margins, and frankly, somewhat anemic free cash flow growth and free cash flow yield. I think the management team is very aware of that, and very focused on improving that, and we're backing them in that process. But that's the challenge, and that's the opportunity, both. And so that's what we're watching, and that is why we certainly have the option to go up. And I would note, we've gone up from the time just post the merger between Ticketmaster and Live, we were just short of 15%, and now we're just over 27%, so we have increased our stake there. And obviously are pleased with the progress they've made, but that's the challenge for the business.

On B&N, I think our thesis, our investment thesis, was that retail was under-appreciated, and they had a, if not free option, arguably an expensive option, an option around the technology and Nook side. I think so far it's proven to come to pass that retail has performed probably better than most analysts would have forecast, and perhaps even better than we might have forecast. And the Nook side has proved they've developed good products, but it's a very hard space. So that option is still proving to be probably under -- we've gotten, secured some good investment at reasonable valuations, but we haven't really capitalized as much in the marketplace yet. But we think the management team has got the right focus, and we're looking forward to seeing that option be exercised.

Okay. Thanks. And this 35% you could go to on Live Nation without any further Board approval -- is that number right?

That is correct.

Okay. Thank you.

Ladies and gentlemen, this does conclude today's Liberty Media Corporation quarterly earnings conference call. We thank you for your participation, and wish you a wonderful day.