Liberty Media Corp (LLYVA) 2014 Q1 法說會逐字稿

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

Good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potential, future financial performance, new service and product launches, the issuance and trading of the Series C common stock, the proposed spinoff of Liberty Broadband, 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; our ability to satisfy the conditions to both the proposed spinoff and the distribution of our Series C shares; and continued access to capital in terms acceptable to Liberty Media.

These forward-looking statements speak only as of the date of this call. 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 6 can be found at the end of this presentation.

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

Thank you, Courtnee. Good morning. Today, speaking on the call, we will also have Liberty's CFO, Chris Shean.

This morning we announced our plan to distribute via dividend two shares of Series C non-voting stock, ticker LMCK, for each share of LMCA and LMCB. We expect to distribute these C shares early in the third quarter. We also plan to spin off Liberty Broadband Group into a newly formed public trading company to be called Liberty Broadband. This supersedes our prior plan to create a Liberty Broadband tracker.

Our rationale: We hope to offer investors greater choice, provide enhanced transparency, and believe it is well timed with Charter's recent agreements with Comcast. Each A, B and C shareholder of Liberty Media will receive one Liberty Broadband share for every four Liberty Media shares that they own. In addition, we will give a subscription right to acquire one share of Liberty Broadband C share for every five shares of Liberty Broadband received in the spinoff.

I know that math is complicated, and we will have plenty of time to work through it as we first do the dividend, then complete the Liberty Broadband spinoff. We expect to get this spinoff done prior to the end of this year.

In addition, I'd note that Liberty Media bought 879,000 incremental Charter shares for $124.5 million, resulting in our owning 26.4% of the beneficial ownership of Charter's equity. Those incremental shares will also be attributed to the Liberty Broadband Company.

On to the operational highlights: At SiriusXM, we reported strong Q1 results. They increased subscribers to 25.8 million. Q1 revenue was up 11% to just under $1 billion. Q1 adjusted EBITDA was up 28% to a record $335 million.

In addition, they repurchased 158 million shares from January 1 through April 25, as they resumed their buyback, including $340 million worth of shares from Liberty Media. They also issued $1.5 billion of 6% senior notes due in 2024. I'd note: Even with this incremental debt issuance, Sirius leverage today is about 2.8 times, well below their 4 times target.

At Live Nation, they reported very solid Q1 results across all lines of business. Concert attendance was up 11%, revenue was up over 22% to $1.1 billion, and AOI, adjusted operating income, was up over 56%. They, and we, are very excited about the launch of the Live Nation Channel, a collaboration with Yahoo, which is expected to debut this Summer.

Charter reported strong Q1 operating results, as well as a series of transactions with Comcast. Highlights from the first quarter include: residential revenue being up 6.5% on a pro forma basis; commercial revenue being up 20% on a pro forma basis; and blended total revenue was up 7.5%, again, pro forma, to $2.2 billion. Adjusted EBITDA was up 7.3% pro forma, and residential PSUs were up 206,000 units pro forma, driven by continued strength in internet and video. Video turned positive to the tune of 18,000 in the quarter. Commercial PSUs were up 14,000 pro forma, again, driven by internet and phone strength, offset by modest video losses of about 5,000.

Charter's agreement with Comcast was very exciting, and notably includes that Charter will acquire 1.4 million existing TWC subs for about $7.3 billion. Charter and Comcast will execute a tax-efficient asset transfer of 1.6 million subs each, and Comcast will spin off 2.5 million subs into a new public entity, which Charter will manage and own a third of.

In aggregate, these transactions will make Charter the second largest cable company in the US, owning or managing 8.2 million subs. We were very excited about this transaction for the improved clustering, the reduced competition with FiOS, the relative lessening of exposure to RSNs, and the attractive price at which the deal is to be executed. These transactions are subject to various closing conditions, including, but not limited to, the completion of the Comcast TWC merger.

Turning internally to Liberty Media: During the quarter, we paid down $670 million of our outstanding margin loans. Additionally, after the quarter end, we announced the sale of our 90% stake in Barnes & Noble. We completed, as we previously noted, our sale of shares back to SiriusXM.

Chris Shean will detail how these actions have improved our liquidity. Chris?

Thanks, Greg. Just a reminder that even though we consolidate SiriusXM, perhaps a better view of their results and a better place to do your analysis is in their publicly filed documents and on the information that's included on their website.

At quarter end, Liberty had cash and liquid investments of $377 million, and principal amount of debt of $4.7 billion, which includes the debt balances of SiriusXM and a portion of the margin loans entered into as part of the Charter Communications investment. Included in the $377 million in cash and liquid investments at March 31 was $121 million held at SiriusXM. Liberty's cash and liquid investments, excluding that amount, was $256 million. Then, if you pro forma adjust for the sale of our 90% stake in Barnes & Noble, and the SiriusXM share sales that occurred subsequent to the end of the quarter, Liberty's corporate balance of cash and liquid investments was $846 million.

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

Thank you, Chris. We were quite pleased with the results of all of our businesses, and the performance of our investments. We appreciate your continued interest in Liberty Media.

With that, operator, I'd like to open it up to questions. Thank you.

(Operator Instructions)

Jeff Wlodarczak, Pivotal Research.

I wanted to get your thoughts on the attractiveness of Sirius current evaluation in outlook after the 25% pullback off ties? Can you also comment on the fact that Siri, by taking leverage to their target of 4 times as mentioned and using free cash flow at least on my numbers, could retire the vast majority of their float over the next three or so years? Even if they take out your high base of shares, is that an attractive alternative or does Siri need to keep its powered offer deals? I have one follow up. Thanks.

Thanks, Jeff. I think the Siri management team has noted, and the Siri Board has noted, the pullback and I think you've seen increased activity on the repurchased, which had been stalled because of our potential transaction with them, which had caused them to freeze their repurchases. Now the door is open. They have, as you know, released some of the restrictions they had around leverage, both because of the creation of the holding company and because they were unable to make two of the issues investment grade. They've gone out and created incremental liquidity through the issuance of that $1.5 billion of debt. I think they are very aware of the relative attractiveness of the stock and have refueled their capability to execute on that thought.

The outlook for the business, you feel confident?

I think the business is doing quite well. By all measures, Q1 was an excellent quarter. The only one which did not meet some analyst expectations was new subscribers from new cars. I think in general, Management has well articulated why some of those things are happening, including some of the reasons that it's related to the GM contract switching. Maybe that needs to be absorbed in the marketplace. I think as we head into Q2, those numbers about new subscribers feel very good.

Great. As you think about monetizing your high basis Siri's shares, is it reasonable to assume that you would think about selling those down on a pro rata basis? Maybe as part of a more aggressive series share repurchase? Then just to confirm, your remaining high basis Siri's shares are about $1.25 billion at current share price levels? Thanks.

Jeff, we first have announced no income until plans to sell. I have to say right now, given what their liquidity we've created through a series of actions at Liberty I don't see that as being our first priority. Not to say we could choose, but if we did, I think it's highly unlikely to imagine that we would do any more than pro rata, i.e. we would not increase our ownership percentage from here whatever happened. I think it's more likely that we will be having our ownership percentage go up because of their more aggressive buyback actions and our lack of action.

Great. Then the $1.5 billion, is that the right number for what you've got left of the high basis shares?

At market or cost?

At market.

It's around there. I think it's a little higher than that, but $1.3 billion, maybe $1.4 billion at market. Less obviously then costs.

Thanks very much. Very helpful.

Barton Crockett, FBR Capital Markets.

I wanted to probe a little bit more on the structure change here. The core of it is really going from a tracking stock for Broadband to an actual stock. You guys obviously have more experience with tracking stocks than just about anyone on the planet. In your opinion, what does that functionally do to both equity's ability to do anything in terms of raising capital doing transactions? What in your opinion should it do in terms of investor sentiment? How material do you think that elimination of tracking stock overhang can be?

Good question, Barton. I think there's some things we can think but not yet know. In general, we've been very enthusiastic with tracking stocks and found them to be quite efficient and effective in achieving some of our goals. There are investors who find them less attractive. So, theoretically removing the negative halo, at least in some people's minds, on the tracking side should be a positive on valuation. It does point out that a trend that we have been doing over time and continue to move forward on, which is when we think they sustain well on their own, would trade well on their own, would benefit from having in their own currency, we attempt to create those, whether it be DirecTV or Liberty Interactive or Stars and now Charter Liberty Broadband primarily representing our Charter stock.

Capital raising, if the evaluations are more complete and full, should be more effective as well. You're seeing some of that in our actions to create incremental capacity via the subscription right at Liberty Broadband. You're also seeing us trying to create flexibility on incremental capital raising, whether it be through in the marketplace or through acquisition, by the creation of the non-voting C or K shares. I think that combination of asset-backed securities that represent cleaner representations of the businesses below and inside and those K shares should give us quite a lot of flexibility on capital raising.

Okay. To go back to the topic of essentially combining with Siri, does this separation, full separation into separate companies, does that make it easier to maybe revisit that idea at some point in the future?

Perhaps, to the degree our evaluation more accurately reflects the net asset value underlying of the underlying components, that's a positive. I think, frankly, it's most important to get Siri moving again, that it's difficult to transact with Siri when it's well below its all-time high. Some of the actions that Siri will take, I think Jeff previously noted, if Siri continues to repurchase and we just hold still, much of what we were seeking to achieve in the proposed merger will be accomplished anyway. We'll see how that goes.

Great. If I could just have one other detailed question? The new structure for Broadband as a separate stock, it would seem to have everything that you said was going to be in the tracker with maybe one small difference, which is before you had envisioned, I think, some type of note payable between the tracker and Liberty Media. Here that doesn't seem to exist. Am I correct saying that that's the only change?

That is the only change and that's largely because inside of tracker it's easier to affect some of those transactions than within separate equity, so it's as much tax motivated and what's permitted inside a spin as not.

Okay. Great. Thank you.

As usual, we're going to blame Albert.

Thank you.

James Ratcliffe, Buckingham Research.

Just a follow up on structural questions around Broadband versus new Liberty Media. Have you thought about and can you talk about the allocation of liquidity between the two entities? It sounded like in the previous structure you'd have a lot of cash and a lot of inter-company debt sitting at Broadband so you could move it back. Now that you're going to essentially have to make that allocation and stick with it between the two, where do you think the liquidity needs to be concentrated? Thanks.

I think you have hit upon one of the reasons why we like trackers. The ability to move liquidity more easily across if there's a reason, is actually one of the flexibilities we like. Here, you have to put a pin in it. We're doing that as of the date with the no note and then creating the subscription right below to create incremental liquidity at Liberty Broadband. Our belief is, is that the incremental liquidity we've outlined here will be sufficient for the needs of Liberty Broadband. We don't anticipate incremental capital raising at Liberty Broadband today. Candidly, to the degree that Charter, who very well could become the natural acquirer of pretty much any cable assets that gets sold, we will now have -- we Charter, will now have probably, assuming Comcast is not going to be the further acquirer, will probably be the most likely and first stop for most other cable sales.

There may be some reason or desire on our part to help scale up and invest in that. We'll see how that goes. That's only speculating on where Charter will go and what Liberty Broadband would do and what incremental capital will be raised. All of those probably made more easy by having a separately traded Liberty Broadband stock.

Thank you.

Vijay Jayant, ISI.

On this Liberty Broadband, given that it's still on company, I'm assuming that you will true up your ownership above 25% pro forma for the spin co transaction's going to limit you down a little? Given that's a stand-alone company and as you've said you think consolidation going forward in cable, Charter will be the only game in town, but can Liberty go off on their own and do cable acquisition? Or, is it always going to be through the Charter equity story? Then, I think on the spin co transaction with Comcast with Charter, Liberty also has the right to buy the remaining stake after I think there's a two-year and a four-year requirement. Can you talk about that? How the decision are between Charter or Liberty doing their own thing on cable?

A couple points there, Vijay. First of all, there's some reasons why 25% might be attractive, but we're not committed today to stay above 25%. There may be some ramifications for that, but we'll make those decisions as time goes on. As far as Charter, we do not have a non-compete that would prohibit us from going into cable outside of Charter. But, the reason we invested in Charter in the first place is we have a lot of respect for that management team. We see the benefits of scale. We see the progress that they're making. The synergies that they are likely to be able to generate through incremental cable acquisitions make it, to my mind, unlikely that we would go outside of them inside the US. Obviously, outside the US or different places where they don't have synergies, you could imagine something. Inside the US they seem to be the best game in town in our mind.

As far as spin co, both we and Charter are prohibited for a period of time, to ensure the tax-free nature of the spin, from acquiring incremental shares of spin co. As far as how that goes after that, we'll see. I can't say we would never acquire spin co shares. One would expect or hope, certainly, the goal was the ultimate resolution that this spin co might be someday combined with Charter. In conjunction with that we might find it attractive to own more spin co shares to ultimately own more Charter, so I'm not going to say no way. I suspect most of our actions are through Charter, because as I said, we have a lot of respect for what that management team is doing and a lot of belief in the synergies they can create.

Great. Thank you.

Ben Swinburne, Morgan Stanley.

I'm just wondering as you look out at the landscape if you think we're at a state where asset values are a little inflated or a lot inflated? We've been in this low rate environment for a long time and we're seeing a big pickup in M&A across T&T really, accelerating even this year. A lot of stuff like in online video, YouTube networks, is being snapped up with billion dollar price tags. When you look at what you guys have in front of you, and I'm sure you see everything, is this an attractive environment or do you look at this one you think you want to sit back and wait for some kind of pullback?

Ben, I think it really depends. Surely, in some cases, asset values have been inflated, but I'd note the air has come out on an awful lot of things as well more recently. We're living in a time where you have to very low-cost financing. The high-yield market, both the underlying 10-year has come back down and then the spreads have come down as well. You're seeing us undertake both at in our sister company, too, at Liberty Interactive QVC do $1.2 billion of financing, Siri do $1.5 billion. You'll see, I think, a lot of guys try and take advantage of that low-cost financing. A lot of that has also led to a push-up of asset values. If you're able to finance with 5.5% money, pretax, sub 4% after-tax, a lot of things look a lot more attractive if they have real cash flows, including the acquisition that Charter is making, the proposed acquisition. You'll see a lot of, to the degree the financing markets continue to create supply, you'll see a lot of push on asset prices, is our view.

For us, we have tried to execute here and there, but have kept a lot of our powder dry where we didn't see synergies. In our mind in a lot of cases you need those synergies to justify those prices. Straight up acquisitions are very tough, entering new spaces where if you don't bring synergies to the table. In general, we found it better to wait till the market's a little more bloody and ugly before you commit to going to something new, but we'll see.

Yes. Along the financing lines, the creation of these non-votes shares, some of the Liberty sister companies have used these to do large acquisitions with stock without diluting the vote and stating the obvious. Should we be keeping our eyes open for more of that from Liberty than we've seen historically? I can't remember the last equity related deal Liberty Media did. It's been a while. I don't view the Siri exchange as that, but maybe you do?

If you look, TCI, our former parent, and Liberty have in their history done something like three stock new issuance deals and then immediately bought back all the equity. I wouldn't -- over 40 years John is pointing out to me. It's been a lot of history of us not doing that. On the other hand, look, if asset values rise, and you want to have flexibility, having a C share is a useful tool in our shed. We're going to create it for that reason.

Thank you.

Bryan Kraft, Evercore.

Wanted to ask about your interest level in Vevo, and how that might fit into a broader strategy with respect to music, which you're obviously involved in to your other positions? Thanks.

We have two really interesting music assets. They're not an exclusively music asset, but assets to compete in music space in Live Nation and Sirius. Live Nation is probably ultimately in an experience going to a concert. Serious is more of lean back experience. There are a host of experiences online in over-the-top radio or over-the-top music, just the way that over -the-top video is occurring, that are interesting. Whether it be Vevo or Pandora or Spotify, and we watch all of those, or the many other variations out there from Rdio to Beats to whomever, we watch all those with interest and think about how they might fit well in the stable of music and entertainment assets we have today. We have no plans, but we certainly know that they're out there and there's obviously been a lot of speculation about movement in those kind of assets and we would look hard.

I think there's some reports you've made an offer for Vevo. Any comment on that or -- ?

We don't comment on any offers or acquisition talk like that. As far as the space, we certainly are watching and think it's an interesting space.

Okay. Thanks, Greg.

Matthew Harrigan, Wunderlich.

I'm sorry. I was going to ask the Vevo question. I'm not agile enough at this point to come up with anything else, so I'll take a pass. Sorry.

We appreciate the brevity. Thank you, Matthew.

John Tinker, Maxim.

A couple quick questions. If I remember correctly, the Atlanta Braves valuation was capped because you sold -- the TV rights are owned by Time Warner Cable. Now that Sun Time Warner Cable is going to be in different hands, is that perhaps then, given your close to the new owner, is that perhaps something you could do with Atlanta Braves to make it more interesting?

Well, you're not exactly right, John, on the TV rights. The TV rights were really divided into three buckets, some that went to the regional sports network, and that regional sports network was sold to News Corp, and is now part of Fox. Then another bucket that was really with Turner, TWX, not TWC. We, last year, through a long series of convoluted reasons, were able to -- and those rights originally ran out to 2027, I believe. We knew that when we bought the team and the team price reflected that. Of course, we also had some of the positive elements in the tax-free nature of the transaction.

Last year, through some good work of the management at the Braves and a confluence of events, we were able to renegotiate positively a bunch of those rights and received probably on the order of $500 million of incremental revenue over the life of the contracts, of value to us. That's been very positive. Nothing related to the TWC deal impacts that. That's just the standalone, something that occurred, and that added a lot of value on a present-value basis to the Braves.

The Braves have also done many things well over the last few years. They have not been a cash consumer. They have not been an enormous payroll company. They've created a great product with a controlled payroll, and accordingly have been a profitable team. Most recently, the actions that they are taking to create the new stadium and the complex around it, which the ancillary facilities many of which will be owned by the Braves or have a participation in, are going to create a lot of value for the Braves.

That asset has gone up quite nicely in value over the last several years. I expect the completion of the stadium will continue that trend.

Okay. One last detail question. Given, obviously, you're holding in Barnes & Noble wasn't that material, why did you only sell 90% and not 100%?

We wanted to continue to have a tie with the company. We did it to remain involved and endorse what Mike Huseby and Lynn Riggio are doing there. Another reason is why, we have left Mark Carlton behind as a director, so we still have an interest in watching what they're doing there. You never know what the future holds.

Thank you.

So that's it. Thank you very much for your interest in Liberty Media. We hope to talk to you next quarter if not sooner.

This does conclude today's program. You may now disconnect. Have a wonderful day.