Liberty Media Corp (LLYVA) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to the Liberty Media Corporation's second-quarter earnings call. Today's conference 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, community service and product launches, the proposed spin-off of Liberty Broadband, and the related Series C rights offering, the Series C stock issuance 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 to regulatory issues, our ability to satisfy the conditions to the proposed spin-off, and continued access to capital at 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, and Schedules 1 through 3 can be found at the end of this presentation. And now I'd like to introduce Greg Maffei, President and CEO of Liberty.

Thank you, Courtnee, and welcome to all of you out there. Good morning. Today besides myself we will have Chris Shean, Liberty Media's Chief Financial Officer.

So let me address some of the structural progress we made during the quarter, which I think was good work. First, we completed a distribution of our Series C shares on July 24. We're very pleased with the market response to those new shares. The two issues of Liberty A and Liberty C are basically trading on top of each other, very tight spread under 1%.

We also filed the S1 for our previously announced spin-off of Liberty Broadband. We anticipate completing this spin in Q4. We do plan to have debt at Broadband in the range of $300 million to $350 million when we've begun working on that financial aspect of the deal. We also anticipate a rights offering as a part of this spin which, if the stock trades about where it is now, would raise something on the order of $700 million. The mechanics that we anticipate for this rights offering will be similar to the mechanics we utilized in the Liberty Ventures rights offering.

Now let me turn to the operational details. We also made good progress during the quarter on all of our major businesses from an operating perspective. SiriusXM reported strong Q2 results. Subscribers increased to over 26.3 million, Q2 revenue was up 10% to $1 billion, Q2 adjusted EBITDA was up 31% to a record $370 million. SiriusXM bought back $1.6 billion so far in 2014 and increased its repurchase authorization by another $2 billion. Cumulative authorization to date is $6 billion. And as a result of their share repurchases and our not participating in their repurchases, Liberty's ownership stake has now been increased to 56%.

At Live Nation they continue to make significant progress both in their operating performance and on mobile and resale. Mobile ticket sales were up nearly 40% in the first half of the year. 17% of all the tickets that they sold were purchased on a mobile platform. Ticketmaster resale, the effort to sell previously sold tickets, is now up 30% for the first half of the year and we're excited about that progress. We expect that Live Nation will have another record year for full-year 2014.

Charter also had a strong quarter. A third of the customer base at Charter now subscribes to Triple Play service, a big improvement. The all digital launch and upgrade of their network is on plan and is now offered to 60% of all video customers, and by year end we expect that the network will be fully digital, all customers will have access to Charter Spectrum, which is our complete suite of all digital products and services. With that let me turn it over to Chris Shean to talk about our financial results.

Thanks, Greg. Just a reminder that even though SiriusXM financial results are consolidated in the Liberty financial statements, for analysis purposes we suggest that you use their separately filed documents for that work.

At quarter end Liberty had cash and liquid investments of $806 million along with principal amount of debt of $5.9 billion, which includes the debt balances of SiriusXM and a portion of margin loans entered into as part of the Charter Communications investment. Included in the $806 million in cash and liquid investments at June 30 is $170 million of cash held at SiriusXM. Liberty's cash and liquid investments excluding that cash, the Sirius cash, was $636 million. Now with that quick summary, I'll turn it back over to Greg.

Thanks, Chris. To our audience we appreciate your continued interest in Liberty Media, and I'd now like to open it up for questions. Operator?

Thank you.

(Operator Instructions)

Barton Crockett, FBR Capital Markets.

Okay. Thanks for taking the question. I was curious about the share repurchase stance at Sirius. You guys are not currently participating. You have participated in the past. Under what circumstances would you consider participating again? What keeps you on the sidelines at this point?

If the stock gets to $10 I would anticipate that if they were doing some share repurchase we might be willing to do some of that. But short of that, Barton, I think we like the business, we are enthused about their prospects, thought they had a strong quarter and continue to make good progress on a bunch of both operating and strategic fronts.

We did, as you rightly point out, participate in one structured buyback at a price above the current market price, and in part that was to refund capital and get it back to the mothership. Some of that's been accomplished so we have no current plan or intent to sell.

Okay. And then if I could follow-up on Sirius with one other question about feature set, so you know the industries changed a lot I think with Apple buying Beats and bringing subscription music to the forefront, Spotify is getting bigger, might IPO if you read some press reports.

Do you think that it would be important for a service like Sirius to include this kind of on demand music feature at some level? And do you see any potential to get there given some of the music rights licensing difficulties in the US?

I think that is a great question. It's one that the SiriusXM folks and even some people here at Liberty spend a lot of time thinking about.

First I would note that we do have a streamed offering and you can get a streamed version of SiriusXM already. Secondly, there is -- it's clear that over time all services including ours will become more device independent and be able to be reached across a range of devices and a range, whether it be satellite or wireless or wired, lots of ways to reach the product and I think that's going to happen when we grow.

Complicating that is some issues I think around whether people are paying for this service, as they are for our subscriptions, or whether they are for subscriptions at Spotify, or whether they are utilizing free services like Pandora, which also has a subscription but in the main is an ad-based product. And Spotify has a very strong free version too. Their free version is something like four times as big as their subscription version.

Lots of complicating factors. I'm confident that you will see movement and direction from us about how we anticipate playing, as I mentioned we do already, but you'll see further efforts in that area. But as you rightly point out the rights issues, how to make an attractive business out of that are still open questions.

Okay. Great. I will leave it there. Thank you.

Jeff Wlodarczak, Pivotal Research Group.

Good morning, Greg. I'll stick with SIRI as well. Now that you have the experience of pushing through two official price increases, I guess ignoring the license fee increases, what's your comfort level about SIRI taking additional potential bigger price hikes in the medium and the long term?

And then any thoughts, your latest thoughts about potential M&A at SIRI? You mentioned at a conference that SIRI could possibly win some through organically telematics businesses. That what we should be focusing on going forward there? Thanks.

Well I think you rightly noted that SIRI, after a long period of not taking any price increases for many, many years took a couple over the last few years. And fortunately churn is down or flat to down in every case.

It's really been a testimony to the product and service desirability among customers that churn has not wavered or increased through that. It is clear that we have a highly committed group of customers who appreciate the product and service and are willing to find value in it and pay what we charge. I'm not going to comment on any further price increases, but I would note that there is this group that is very committed to the product.

Around acquisitions, I don't think the telematics space is one where we need to enhance the SiriusXM offering. There are a relatively few handful of competitors out there, most of them are now in the hands of large companies. There are certainly things we could do and I suspect if we bought a service that already had a bunch of customers, but in the main they are like us, relatively small trying to get larger. We have the technology we need, we have the offering and relationship that we want with the OEMs, and I think SiriusXM is very well positioned in the telematics space. So I don't see that as front and center.

Some have speculated on Sirius in the streaming space. I think we would have to first figure out exactly how that's going to be an attractive business, a flanker brand, how does it fit with our current offering? So I think there's a bunch of work done there before you'd anticipate doing something there.

Thanks. And then one other one as it relates to Liberty Broadband's holdings and Time Warner Cable. Is there any reason hypothetically that you can't trade the $400 million stake you have in Time Warner Cable post to close of the Comcast Time Warner Cable deal with Comcast? Some sort of tax reason or is that something you could do immediately after the deal closed?

Well by the terms of that deal it's going to convert right into Comcast stock and cash. So could we figure a way to swap for more shares or more subs or something along those lines?

Maybe, but I think it's a fairly complicated tax question to jigger their whole deal. So I would be cautious in anticipating that we would be able to do that. Albert, could you add anything to that answer?

We will get some stock in Charter out of the transaction.

Right. As a part of the transaction we will net get some Charter stock as well.

Okay. Thanks very much.

Thank you. Amy Yong, Macquarie.

Thanks. One question on SIRI and then another question on broadband. First on SIRI, you tried consolidating SIRI earlier this year. I guess what's your urgency in pursuing a transaction like that at this point? And should we view the distribution of your C shares as a way to keep that option on the table? And then I have a follow-up on broadband.

Okay. So I'm never able to hold two questions in my mind at one time, so let me try and answer this one first.

Look, I think Liberty is highly opportunistic and changes its direction and tune depending on our mindset and market conditions all the time. But I believe we've been pretty consistent here, which is we control SiriusXM. We like SiriusXM. We consolidate it already from an accounting perspective. We don't yet consolidate it from a tax perspective.

If the right set of circumstances arose on the relative valuations and we thought that an offer would be well received by the SiriusXM shareholders, we would anticipate that we might very well make that offer again. But it doesn't seem to be that time and place right now. The issuance of the C shares, the fact that they now trade probably makes that simpler, but I think we'll wait and see what happens in the future. And we'll see how the stock trades.

Thanks. And then on Liberty Broadband, does it at all change your opportunity, your appetite to take your stake and charter up to 35% through 2016?

I don't think so. What the creation of Liberty Broadband might allow us do that more efficiently because you now have a set of investors who are just believers in the cable asset and who will follow along in our hopefully. If we want to increase our stake there will be capital raise for that, and so in that sense perhaps.

But we like the Charter asset. We've increased our stake in Charter once already. I could anticipate we might do it again but we'll see what time and place brings. We remain very interested and very excited about Charter's prospects.

Thank you.

Vijay Jayant, ISI Group.

Hey, Greg. A couple. First on cable M&A broadly, given the prevailing transactions, can you sort of comment what's the appetite at five times levered at Charter and also at Liberty Broadband once the separation is done to do more M&A. Is there a real opportunity out there? Are they real sellers out there, given the broad consolidation in cable?

And second on Sirius, according to my math if Liberty does not sell pro rata into the buyback, Sirius could be set up private effectively in four years. Is that the more logical path rather than doing some sort of a swap or maybe get out of step at the and to take all of Sirius in? Can you talk like where do you see Sirius as an investment within the Liberty Media umbrella in 3 to 5 years?

First on cable M&A. I think the Liberty family has broadly been an espouser of the benefits of consolidation in cable, and Liberty Media certainly in that thought process. And we remain excited not only about the transaction that was announced but is not yet closed, the swapping with Comcast, the purchase of the Time Warner subs, and then the effectively management and putting our foot on the SpinCo. We think that's a very appealing transaction.

But I think there are other transactions out there. If you are a non-aligned, meaning non-Comcast, non-Charter cable company, you are at somewhat of a competitive disadvantage in the video space if you do not have a quote-unquote big brother who is helping lower your cost of content. And so as these things naturally turn because they're in the hands of private equity or there's generational changes, I think Charter is probably the natural acquirer given Comcast's market position and regulatory challenges and will have the largest number of synergies.

I also think the demonstrated operating success of Tom, of John Bickham, the team there at Charter suggests that a lot of people would feel very comfortable having them run their assets. We remain interested, optimistic, and hopeful.

You alluded to Liberty Broadband. I think anything we did highly likely would be through Charter rather than outside of Charter, but never say never. But I would say highly likely through Charter.

Turning to SIRI, depending on your projections of free cash flow and your projections of their buyback rate and your projections of their stock price, like all Excel spreadsheets work we will sooner or later own the whole thing if we don't participate. But that has a lot of assumptions between here and there, and I don't think there's any meaningful difference between us being at 53% and 56% or even 66%, it's probably not until you get to about 80% and you start to have to figure out what to do about the tax sharing that something becomes a meaningful change.

We'll see how this goes. Our history is that in general we have preferred not to chase companies, happy to sit with large, even control positions and not necessarily 100% because closing out the last dollar and getting an agreement from the last shareholder is an expensive way to clean up the process. So we'll see how this goes not pursuing that cleaning out the process strategy.

Great. Thank you.

James Ratcliffe, Buckingham Research.

Good morning. Thanks for taking the question. Two if I could.

First of all, following up on the SIRI commentary, probably can you talk about the desire to actually get cash out of SIRI and how important additional cash sitting at the LMCA is versus having it sitting and then SIRI are used to shrink your SIRI equity stake? If you're feeling at all liquidity-constrained at LMCA?

And secondly you mentioned that you think pretty much anything you'd do in cable acquisition would be through Charter. In terms of funding that and the like is there anything preventing you once the broadband split is done from say doing a margin load against the existing Charter position, if there were something you wanted to do at the broadband level? Thanks.

I'll take the second one's first because it's easier. No, there's nothing preventing us and we could margin that Charter stock and get incremental capital. As we know we're planning to raise $300 million to $350 million. That may very well be in the form of a margin loan. And then the $700 million-ish that we anticipate through the rights offering should mean that Liberty Broadband starts out with at least $1 billion of cash out of the blocks.

At the cash level at LMCA we're sitting at about $800 million. It really depends on what we want to do. There's clearly an ability if we so chose to generate capital out of SIRI and still hold our position. Quite easily we could get $1 billion out of it and still hold more than 50% of the company. And if they increase their leverage, which they publicly announced they're willing to do or intending to do, that number would be much higher. So I don't think it's that challenge.

There would be some tax leakage if we did it versus owning the 100%. That's one of the reasons we talked about the appeal of owning greater than 80%, that there would be no tax leakage from moving cash back and forth. But in general we could get capital out of there.

And frankly we've been lucky or blessed that our track record over the last few years has been good. And when most of these transactions have come along we've been approached by fellow travelers who are interested in investing alongside us. And I think depending on the opportunity we could raise incremental capital in quite large size for the right opportunity not only in the capital markets, but perhaps from larger institutions who play alongside us. So while I don't see a lot of cash in the balance sheet I acknowledge, I think I see ways to get cash.

Great. Thank you.

Ben Swinburne, Morgan Stanley.

Thanks. I had a couple. Greg, any update on your plans, your contract is up at the end of this year? I think at the beginning of the year you said you felt you had a lot of time to get a new contract done and then no rush and here we are in August. Any update for us on that process and how it's going?

I think my comments from the beginning of the year still remain. Had good discussions and we're going along. John you want to add anything?

Work in progress, right?

Work in progress. From the Chairman. Next question.

Sure. There's some language in the S1 around keeping the spin tax free. I just wanted to ask you if you had any specifics on the buyback piece at Liberty Broadband? I think you'd be unlikely to buy back stock for a period of time, but any sort of specific timeframe on how long you'd want to wait to make sure you were in the clear on that?

I'm going to throw it to Albert who's looking perplexed.

I don't think there's any limitations on us if the stock price were appropriate and we wanted to do buybacks that we could do so.

Okay. Great. And then I may be the first person to ever ask a TruePosition question, but since there's a lot of good information in here about that is -- (laughter).

You're trying to show off, Ben, I know.

Well it's a business that I don't think anyone really knows how to value. There's a couple interesting things in here. One, there's apparently some FCC focus on mandating in-building coverage, which might help TruePosition's position, excuse the phrase. So I wonder if you could comment on that?

And then second, you make the point in here that there's one customer representing the vast majority of the revenue. I think that contract is up in a couple years, so any color on the outlook for the business, if it's expected to grow, if there's any sort of big things we should be focused on that could move that business around?

Well let me just give a second and frame it. They have a technology which enables GSM devices to be located in-building because it tracks off the cellular towers. That is a far more accurate way and far more precise way to find a device than GPS, particularly in-building. There's some attempts to boost GPS capabilities, but in general that is not sufficient.

So there have been a series of tests run by different parts, the FCC is overseeing some, Homeland Security has been interested because the E911 mandate says you're supposed to be able to find a phone and find a person with a phone. There are -- there are security and homeland security implications, but there also just EMT implications.

So the power of TruePosition is this mandate to try and be able to find a device. Some of its customers have tried as much as possible to weaken that mandate because they are not interested in leasing or utilizing the technology and paying the money. And that is the fight.

To the degree that we receive further strengthening of the E911 mandate, True Position's prospects are dramatically improved, and to the degree that we don't they are weakened. So that is the basic business [hot] case for TruePosition.

Got it. That's helpful. Thanks guys.

Tom Eagan, Telsey Advisory Group.

Great. Thank you. Following the broadband spin, is there any reason why LBRDA wouldn't support LBTYA in its efforts to consolidate cable systems or content? And if so would that be outside of Charter? And I then have a follow-up. Thanks.

Well I think LBRD is unlikely to be investing alongside LBTYA, just because at the moment Liberty Global has been focused overseas and we've been focused domestically. And John's going to --

My only input on that would be close cooperation on technology developments across the whole global cable industry. I think we will be very interested in encouraging Charter and others who work together with Comcast and with LGI.

And in that regard one of our Directors on Charter today is the LGI Chief Technical Officer, Balan Nair, and so we think there is an enormous amount of cooperative synergies. In terms of financial combination, I think it's highly unlikely.

Okay. And in terms of cable consolidation, what is your experience and your numbers tell you about the relative return or value of acquiring small systems? They are ones that have fewer than 1 million subscribers.

Extremely accretive.

Any comment about how those returns compare with larger system M&A? Thanks.

It's a lot of work, but they're very accretive typically. Especially if they're within your management area.

Depend a lot on the footprint, location.

Right. Okay. Thank you.

Kannan Venkateshwar, Barclays.

Thank you. Greg, you mentioned the creation of the broadband entity, one of the reasons is to create a currency to allow investors to co-invest with you in cable assets and so on. And you'll end up with $1 billion in cash once the process is over in that [DWACO]. But then you also mentioned that Charter will be your main [WACO] for M&A for cable. So what kind of optionality does the broadband entity provide when it comes to investing in cable systems?

Well I think I suggested it could be our main way, but I didn't -- it's not limited. There might be other alternatives.

The other thing is Liberty Broadband will be making decisions about how to help Charter do incremental deals if they need capital. And Liberty Broadband will make decisions about how much more Charter it wants to invest in. So I think it's got a couple of optionality pieces.

Including co-investing, by the way, which could be an interesting way to stretch Charter's firepower and provide superior returns to Broadband.

So it might invest in -- alongside Charter as well as through Charter, right?

Okay. All right. Thanks.

Matthew Harrigan, Wunderlich Securities.

Thank you. Tom Rutledge and his team have a pretty nice algorithm for bending the curve on growth and systems. It isn't instantaneous, but it's pretty fast.

I was curious, you've got a pretty prominent guy, Michael Willner over at SpinCo, are there strategies on bundling and pricing and promotion necessarily going to emulate Charter's? And could you hypothetically try to do some deals with some more smaller guys along the terms of SpinCo? I know some of that is driven by the specifics of the Comcast transaction, but it still seems like an interesting angle for folding some other guys into the team.

Well the relationship between SpinCo and Charter will be aligned to a degree because there is a management contract for many of systems. I think about 90% of the systems will actually be managed by Charter. Michael Willner I think is of like mind to Tom and his team in terms of what he expects to do. He obviously has fiduciary obligations to his SpinCo shareholders, including Charter who owns one-third, but also the non-Charter shareholders. And I'm sure that will be run in a thoughtful way.

As I said, about 90% of the systems will be managed by Charter, but about 10% will be managed directly. And could it be the case that SpinCo, which I think it's been announced that I will be a Director of, would look for cable acquisitions that are synergistic and fit well with it? I'm sure it will. A little pursue way to maximize it's shareholder value, and there may be systems that they find logically fit much better with them than Charter and I'm sure they'll be the ones to try and do the purchase.

Thank you.

Thank you. Thank you all for joining us this morning and your continued interest in Liberty. I'll speak with you next quarter if not sooner.

Thank you. That does concludes today's conference. Thank you for your participation.