Liberty Media Corp (LLYVA) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to the Liberty Media fourth-quarter 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 Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining us.

Before we begin, we'd like to remind everyone that this call will include certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potential, future financial performance, new service and product launches, the proposed acquisition of the shares of Sirius that's not currently owned by Liberty Media and its subsidiaries, the issuance and trading of the Series C common stock, anticipated benefits of the proposed transaction, 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, the ability of Liberty Media to negotiate mutually satisfactory definitive transaction documents with Sirius, the ability of Liberty Media and Sirius to complete any such proposed transaction, the ability of Liberty Media to complete the distribution of its Series C common shares, the ability of the combined Company to realize the expected benefits, and continued access to capital on terms except 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 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 note and schedules 1 through 6 can be found at the end of this presentation.

And with that, I'd like to introduce Liberty's President and CEO, Greg Maffei.

Thank you, Courtnee, and good morning to all of you. On to some of the highlights for the quarter. SiriusXM announced excellent Q4 and full-year 2013 results, increasing subscribers to 25.6 million.

Q4 revenue was up 12%, and was $1 billion. Q4 adjusted EBITDA was up 41%, a very impressive number. During the year, SiriusXM repurchased $1.8 billion of its own stock, including shares from us. We completed the sale of the first tranche of Sirius shares back to them in November of 2013, for a total of $160 million.

As you likely know, during the quarter, we also announced a proposal to acquire the remaining equity of SiriusXM that we do not own. We are working with the SiriusXM special committee and their advisors, as they conduct their due diligence on our offer.

Turning now to Live Nation, who also announced strong results, their 2013 concert attendance was up 19%. Ticket sales for shows that will occur this year are up 12% as of February 15, as compared to the same time last year. 2013 revenue for the full year was up 11% to $6.5 billion, and 2013 adjusted operating income, AOI, increased 10% to $505 million.

Charter, another important investment, also reported very solid Q4 and full-year 2013 results. Charter continued its improving trend throughout the year, showing the early success of some of its strategies to drive accelerated growth, a key reason we invested in Charter in the first place.

Notably about its Q4 results, our residential revenue pro forma was up 4.9%, and if you exclude cyclical advertising, much of which was driven by politics last year, it was up 6.2%. Commercial revenue on a pro forma basis was up 19.4%, an impressive number, and probably even more interestingly, Q4 reported an increase in PSUs, which is basically their customer relationships, on the residential side over 147,000 on a pro forma basis, and on the commercial side, over 18,000.

Triple play penetration increased sequentially to 57% for the quarter, and 32.6% for the year. And the video subscriber loss stabilized in the quarter, and looks favorable going forward.

So we were pleased with the results of all of our major businesses, and the performance of our major investments. And we appreciate -- with that, I guess we would like to open up to questions. Operator?

(Operator Instructions)

Jeff Wlodarczak, Pivotal Research Group.

I wanted to get your thoughts on if you believe that a Comcast Time Warner Cable deal is going to be approved by regulators. And then your thoughts on the price Comcast ended up paying, and I have one follow-up.

Well, I think on the first point, I'm not either an SEC specialist or an antitrust lawyer. I assume, under some set of conditions, the deal will be approved. The question is how onerous those conditions are, not only for Comcast but for the industry as a whole, and we'll watch with interest as that goes forward.

On the question of the price paid, I guess there are a couple of prices paid. That was the nominal $158.80 something that was agreed upon, and there's the price that's now being offered, without the so-desired cap or color on Comcast stock, or any stock that the shareholders of Time Warner were supposed to receive.

I noticed that price has declined somewhat from the indicated initial price. So we'll see what actually gets paid. I guess it will be a function of where Comcast trades at the time.

Fair enough. And then, going forward, do you feel like that Charter and you all are limited around making large investments, given the need to keep your powder dry to potentially bid on those 3 million subs that Comcast may have to sell, or even the chance that the Comcast Time Warner deal falls through? Thanks.

Well, I think, Jeff, you rightly note that in industry is somewhat in a state of flux, not only on this deal, but any proposed divestitures, if the deal is successful. And some talk of other forms of consolidation. That having been said, we certainly learned in this process that there were many investors who are interested in investing in cable consolidation, either with Charter or alongside Liberty.

And I suspect if a need arises for additional equity for a cable consolidation play, we'll see a lot of interest. Certainly we did in this process.

Thank you.

Amy Yong, Macquarie.

I was just wondering if you could talk about your level of interest in pursuing the deal, the proposed deal with SiriusXM. Are you less or more eager to do the deal now, particularly now that Time Warner Cable has a pending deal with Comcast?

Yes. I think first, our interest in SiriusXM was not driven by our actions or desires, or potential actions at Time Warner Cable, and with Charter. We think that's the right deal, both for Liberty and the SiriusXM shareholders.

We think we put an attractive offer on the table, particularly when you look at the net asset value of our underlying components, and what they would be receiving, and the high proportion of the value that is actually included with XM stock, or SiriusXM itself. So we think we put forth an attractive offer, both for us and for them. As I said, we are in the process of really doing due diligence with the special committees represented, and we'll see where that goes.

All along, I would note our view is that's the right deal. It's a good deal, but it's also a deal that doesn't have to happen. It's a deal that -- we currently control SiriusXM, and whether the deal is successful or not, we will control SiriusXM going forward.

Great. And can you talk about what some of the options are in terms of the fund that you could extract from SiriusXM, whether or not it is a buy back or an acquisition?

I'm sorry. Let me make sure -- you're asking how we could get incremental money out of SiriusXM or --?

No, what would you do with the currency with LMCC? Would -- how would you use the leverage on SiriusXM's balance sheet? Would it be for a buyback, or buyback for Liberty Media? Buyback for SiriusXM, or an acquisition?

I think all of those are open. Really, one of the reasons we like the creation of the C is not only to have a big liquid trading currency to potentially complete a transaction with SiriusXM, but down the road, it gives more flexibility for SiriusXM to do certain kinds of acquisitions.

It may also be the case that we want to use SiriusXM's cash flow for share repurchase, or for strategic acquisitions. As you may know, may recall, they did an acquisition earlier this year of Agero, which strengthened their position in the telematics space. And you can imagine other kinds of acquisitions for stock or cash that would strengthen the SiriusXM business, and give it even greater legs going forward.

Great. Thank you.

Vijay Jayant.

Greg, if the stock, Comcast stock remains weak, and potentially, I think, the market process Liberty might do a low $140-type offer. If that happens, is that opportunity still something you would consider or has the ship sailed on that whole transaction?

Well, I think we will watch with interest how that proceeds, both whether there are divestitures, whether that deal ultimately gets completed, and what it all means. You're certainly not going to take any option off the table, about what we think Liberty thinks is in the best interest of its shareholders, and I suspect the Charter Management team will do the same thing in terms of keeping flexibility, both for acquisitions of other systems or potentially the divestitures out of Time Warner, or if the Time Warner deal is not able to be completed, looking back at the whole thing.

Then on Sirius, do you have any sense on how long you expect the Special Committee to take to come up with a response and potentially after that how long the deal could close?

I think they're doing their due diligence. We have not yet met really to -- we've met to discuss information flows. We've not yet met to discuss an effective barter and negotiate.

Sometimes that's been known to happen with Special Committees, and I suspect it may happen in this case as well. Once that process is done and there's agreement, if we're able to reach agreement, I suspect it's probably 90 to 120 days from that point, but it's too early really to say how long any negotiation process or information process on due diligence is going to take.

Great. Thank you.

Barton Crockett, FBR Capital Markets.

I was noting that the offer for Sirius, when you announced it, it was -- exchange ratio was about 5% premium. Now it looks like about a 5% discount. And so it begs the question of how flexible you would be to adjust the offer that you've initially made?

I know we're early in the negotiation process. There is a limit to what you can say, but I was curious if there's any flexibility on your part on looking at the exchange ratio, or possibly including cash to help get a deal done?

Thanks, Barton.

First, I believe the offer we've put forward is an attractive one, particularly in the context, if you look at the net asset value of the underlying components of Liberty, putting aside the current share price, suggests we're trading at some discount to the underlying components, and therefore value is being transferred already to the SiriusXM shareholders, other than Liberty.

But we also noted, I think early on, that these processes usually involve some negotiation. And we would expect that there will be an ask from the Special Committee, that would not be unusual to see that. And whether we're willing to meet that ask, we'll see.

And whether that ask is in the form of cash or stock, we'll see that as well. I opened the comments -- I think, the first question, by noting this is the deal that is a nice deal, a good deal, we believe a good deal for both sets of shareholders, but it's not a deal that has to happen. It's certainly not a deal we have to chase.

It's certainly not a deal that needs to get done in the sense that we will remain the control shareholder of SiriusXM, regardless of whether it gets done or not. So there certainly are limits to what would be appealing.

Okay. And then if I could switch gears a little bit, shortly after you made you offer announcement, SIRI came out and some subscriber guidance for 2014 that was for a slowdown in growth, 1.25 million versus $1.5 million self-pay in the previous year.

And some investors have been concerned that maybe this suggests that business is slowing and injects an element of uncertainty, I think has been part of what has pressured the stock. What's your view? Does this, in your view, signal any type of slowdown in the business or change in any way your appetite for this business on a fundamental perspective?

Well, I guess the first point would be we certainly knew of the intent to -- that they would make that announcement, and we made our proposal actually in advance, so we would not look like we were pouncing on their bad news, or the perceived perception of bad news in the marketplace. I think Jim Meyer has been articulate about both the challenge, of just the law of large numbers growing the business in new subs, but also some of the tactical factors related to new car sales, and how our existing base is upgrading to new cars, and what that is doing to the sub count or the new sub count.

I think we remain very interested in SiriusXM, believers in SiriusXM. As the majority shareholder of SiriusXM, we're certainly not walking from it, and as I said, we knew when we made our offer that announcement was coming.

Okay. Great. I'll leave it there. Thank you.

Doug Mitchelson, Deutsche Bank.

Greg, can you remind us, just a couple questions, is Liberty locked out of repurchasing Liberty stock, while the SIRI offer is outstanding, given the SIRI Board has yet accepted the offer?

No.

And just trying to gauge potential activity levels, going forward for Liberty. There's been -- have there been other M&A opportunities you've held back from, due to a focus on cable consolidation, that you can now revisit, or the discussion you gave earlier around cable being in limbo for a little while, in terms of M&A activity, suggests that Liberty Media will be in limbo for a little while as well, while that sorts out?

I think our ticker ought to be LIMBO. We're always in a state of some fluctuation. That is the nature of we are, and that's not new.

You're certainly right to note that for most of the time, that I've been here, we always felt like we had excess cash in the balance sheet. That's probably not the case today, where we sit with the huge cash balance and a shortage of opportunities.

We certainly have -- are looking at, continue to look at some things that we think are interesting. I don't think we've held off on any of them because of a shortage of capital, or because of cable consolidation, but it does suggest we may have to do different things to help get them financed. You've seen some of those actions.

For example, the convert that we did last fall, we obviously cleaned up some short-term borrowings. You heard, I think earlier, me state that we had a lot of people approached us about a willingness and a desire to co-invest alongside, in some form or other, in cable consolidation.

We've been lucky or blessed to have a pretty good track record over the last seven or eight years, and we've got people who therefore have been willing to invest alongside us, both in the public markets, or alongside us privately. And I still think that remains the case, that if when we have an attractive opportunity, we can probably get it financed.

Understood. Great. Thank you.

Jason Bazinet, Citi.

Just a quick one for Mr. Maffei.

Jason, how formal.

I would imagine what the reasons you were willing to issue LMCA or LMCC stock for SIRI was, it was trading very close to NAV. As the NAV discount has widened since then, would you say that's consistent with your internal expeditions, or it's widened out more or less?

We're just a bunch of poor guys trying to run a few small companies that are in Colorado. Those market maneuvers, Jason, that's your business. So we watch, with interest, those things, but we don't certainly plan to control them or think we can.

We try and do transactions which benefit our shareholders for the long-term, and we think consolidating SIRI has that benefit. As I stated earlier, it's not one that has to happen, but we think it's beneficial to both us and the SIRI shareholders.

And you're probably right to note, if we were treading at some massive discount to NAV, we would be less likely to issue stock, but it is the nature of the way we're structured, that at some point, we usually have a discount. I think -- at no time in my tenure have we had a premium. And I believe the last time we had a premium was probably back in the days of the bubble of 2000 or something like that.

Okay. Thank you very much.

James Ratcliffe, Buckingham Research Group.

Two, if I could. First of all, can you give us any color about what sorts of requests for information you've been getting from the SIRI Special Committee? Is it mainly delving into the other assets, essentially so they understand what they'd be getting?

And secondly, you didn't pay down much of the margin loan in 4Q. Any particular reason behind that, and how much flexibility do you have to do that, or hold off on it? Thanks.

I think you are -- rightly pointed out the questions that would be probably top of interest for any advisors to a Special Committee. They probably have a pretty good handle on SIRI, or to the degree they don't, they get more information from the SIRI management team.

So they probably most interested in understanding some of the strategies and values around some of the other assets, many of which, if not most of which, are public in terms of the market values. As far as the paydown of the loan, some of our margin loans have some different triggers and make-wholes, and in addition, sometimes we decided we had uses for cash and some combination of those two things kept those balances where they were.

Thank you.

Ben Swinburne, Morgan Stanley.

Maybe just on the telematics business at SIRI, how do you think that the Company's positioned to take advantage of that opportunity? Jim talked on the call -- on their call about vesting a global business and needing to be more global, and obviously thinking about tweaking their product set. With Agero now done and based on what you know, can you give us a sense for how they are positioned, and maybe if there are more acquisitions you think might need to be done over time?

I think Jim articulated some of the opportunity very well, first that it is -- the strength of SIRI is virtually the United States. We have some operations in North America, but when we get to telematics, we really flip the business on its head. It may not be as satellite driven, and it may not be as entertainment-only driven.

There are - our OEM position as a trusted supplier to those OEMs, and our ability to extend our product offering, our service offering, into things like telematics, particularly safety and security. Maybe one of our absolute strengths as we move into markets outside the United States.

I think the telematics area is early. There are a bunch of players out there positioning, but I feel very good about what we've done, where we're positioned, both because our strength as an OEM supplier, and because of the technologies we have and added to with Agero.

Do I -- is this going to be the winner take all business that effectively satellite radio has become with the merger? We'll see. There are a lot of big players so it's unlikely, but we're well-positioned, and I do not think we will need incremental acquisitions to be a very effective competitor.

Got it. And somewhat of a mechanical question, maybe not your favorite topic, but I wanted to ask, if in fact the SIRI offer doesn't play out as proposed, and you thought about an RMT of this asset, would the 40 Act issue come up with your Charter interest, or are you at a level of equity with Charter that you could spin out SIRI, and you'd be fine?

I think between all of the businesses we have, the Braves, Live Nation, Charter, we would not have 40 Act issues.

Got it. Thank you.

Tom Egan, Northland Securities.

First, should the buy-in of SIRI prevail, are there any suit synergies between Sirius and any other companies in the Liberty umbrella? Thanks.

I think there is an opportunity, which has not yet been realized, upon -- between Live Nation and Sirius for certain. There are many both synergies across imagining channels, imagining joint offerings, imagining unique content. But also, many of the places where they're going, in terms of thinking about next-generation technologies and next-generation services, they have common interests and common desires.

So, I would think that no guarantees that even if Sirius is rolled in, that would change, then get it done. But I think there are a lot of places where they should be able to find common ground.

Great. And then at charter, would they give guidance for CapEx for going all digital in 2014? It seems as though their spending per CPE is higher than we've seen with other cable operators, and essentially, because they're actually going to be selling a box. I guess I was wondering --

They're doing -- want to make sure -- Yes. Higher level per CPE is wise, right?

Yes. So they're installing boxes, not just adapters. So I was wondering your take on that decision. Thanks.

I think Tom, John Bickham, et cetera, Tom Rutledge, they are as experienced as it gets, and you are already seeing the benefit of those results in terms of the growth, and the growth appears to be accelerating as we move into 2014. There is an upgrade cycle to becoming an all digital network, which has costs. Those costs have really declined over time, as a percent of what it costs to get stuff done, as you move more things into the cloud.

But nonetheless, getting that right, investing to take full advantage of that digital network is part of the strategy, and it appears to be working. So I'm pretty enthused about where they're headed on their own operating basis.

Great. Thank you.

Matthew Harrigan, Wunderlich Securities.

I'll try to ask this as artfully as I can, so you can frame an answer, but I think when people looked at the Comcast Time Warner Cable situation initially, people were looking at Time Warner Cable, like what's the upside? To me, now from a game theory vantage point, people have to look at what's the downside to me of the deal getting done? If I'm Cablevision, am I an eternal take-out candidate, [surrounded Hades], Apple, there were stories to the fact they were about to work something out with Time Warner Cable on the user interface.

When you talk through strategics and other MSOs, do get more of a sense that some people would almost be tempted to take some sort of preemptive action, because they're afraid of Comcast basically controlling the industry and maybe not being that -- playing that nice? And then secondly, at CES, I was struck by the automotive companies and the connected car Kool-Aid, to the extent that it's Kool-Aid. There was a senior engineer from Ford who is saying that Ford is now a software company.

And you've been talking about SIRI, but they talk about other alternatives on the music side and on the integrated content side, as well. Do you feel like you're still -- is SIRI still as tight with the OEMs as it once was or do you think it's getting to be a worrisomely level playing field with connected cars now?

On the first question about preemptive strikes, I think you're looking at a potentially changed landscape, and people are considering what that means for them. I'm not sure that a preemptive strike. That's a response to how the landscape may change.

One of the things that I note is you see Google announcing new fiber builds potentially, and it was gratifying that not very many of those, I believe actually zero, were in the Charter territory. So I feel pretty good about Charter's own growth plans, own upgrade plans, the reasons that we invest in first place. Strongest management team in the business.

An upgrade cycle around digital. Relatively less competition. An NOL that shields taxes.

An attractive balance sheet and capital structure. All of those factors remain in place.

Surely, we'll watch how the landscape changes, but I still feel there's an awful lot of tailwind, and the reasons we invested remain interesting, and we're seeing those positive results. So while we don't plan to whistle past the graveyard in terms of how the landscape might change, I do feel pretty good about how we're positioned.

On the question of SiriusXM, you're certainly seeing a growth in the car alternatives. And the connected car creates a whole new opportunity, set of opportunities and largely creates a new set of people who wish to enter.

That having been said, I feel very good about where Sirius XM is positioned. I feel very good about the OEM relationships. I feel very good about the ways we've been able to extend those through Agero and the like, and we'll watch and see how the coming announcements around telematics go on.

Now, in no sense do we, I expect, we're going to lock-out anybody. If you're a car company, your first goal is to sell cars, and if consumers want other services, whether they be entertainment or incremental services on top, you're going to supply those, because regardless of how good our relationship is, regardless of how attractive the rev share that we give them, goal and job one is to sell the cars.

So anything that deters from that is not going to be desirable, if you are Ford, or General Motors, or Toyota or anyone else. That having been said, we have the relationship that is central. We have a position in the car that's central, and I think we're only going to extend that position.

Thanks, Greg.

John Tinker, Maxim.

You've commented before on the free cash flow at Live Nation growing at a faster rate than EBITDA, and you highlighted this morning how solid the numbers are. That debt is coming down pretty dramatically, too. Do you have any views on that they should be thinking about a buyback program soon?

I think -- I've seen your notes on that, John. I think that they are -- have some refinance alternatives and options, which are getting better for them.

They've had some high cost debt to eliminate. When they get those refinance alternatives in place, certainly more flexibility gets opened up. And as they grow that free cash flow, more flexibility gets opened up.

They also have and are considering a bunch of strategic alternatives, all the time. Things, not all of which are enormous. The acquisition for example of Insomniac adding to the management company business, through the purchase of basically the management company for U2. So there's lots of little things along the way, and there are a whole bunch of attractive returns associated with them.

So I think they'll weigh and hopefully consult with us on some of those alternatives. They'll weigh that share repurchase versus those alternatives.

If I could have one final question, there's been a lot of discussion that your contract's up for renewal at the end of the year. Can you give us some idea as to the timeline on that? Obviously we hope we hope you continue.

Thank you for that support, John. You can make sure the Board knows.

Look, we've got a lot going on. We keep busy. And I'm sure in the fullness of time that will be worked out to the best of everybody's arrangements, but it's probably not front and center, just compared to some of the things we've been working on.

Thanks.

Thank you. With that, thank you, everybody for your continued interest in Liberty Media. We look forward to talking to you next quarter, if not sooner.

This concludes today's conference. Thank you for your participation.