Edited Transcript of FWONA earnings conference call or presentation 7-May-20 2:00pm GMT
Ladies and gentlemen, thank you for standing by.Welcome to the Liberty Media Corporation 2020 Q1 Earnings Call.(Operator Instructions) As a reminder, this conference is being recorded today, May 7.
I would now like to turn the conference over to Ms.Courtnee Chun, Chief Portfolio Officer and Senior Vice President of Investor Relations.Please go ahead, ma’am.
Courtnee Alice Chun, Liberty Media Corporation – Chief Portfolio Officer & Senior VP of IR 
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.Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent forms, 10-K and 10-Q filed with the SEC.
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 placed.
On today’s call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA and adjusted EBITDA.The required definitions and reconciliations for Liberty Media and SiriusXM Schedules 1 and 2 can be found at the end of the earnings press release issued today, which is available on our website.
Now I’d like to turn the call over to Greg Maffei, Liberty’s President and CEO.
Gregory B.Maffei, Liberty Media Corporation – President, CEO & Director 
Thank you, and good morning.Today speaking on the call, we will have Formula One’s Chairman and CEO, Chase Carey; and Liberty’s Chief Accounting Officer, Brian Wendling.
First, let me say, I hope you all are healthy and safe.
Second, I’d like to thank and salute our employees and management teams who have done an impressive job managing through this COVID crisis.
Now on to Liberty Media.We completed the reattribution of our Live Nation stake and other assets and liabilities between the Formula One Group and Liberty SiriusXM on April 22.
We’ve spoken to many of you since this announcement, and obviously, we had a conference call right after that.So I won’t go into detail, but I’d like to reiterate why this was a benefit to both equity shareholders.
For the Formula One Group first, creates a pure play; provided additional liquidity and reduced debt.
And for Liberty SiriusXM, acquiring Formula One Group’s Live Nation interest with the complementary business with us at SiriusXM tracker at a compelling price resulted in ample liquidity.We are pleased with the stock market reaction since.
All the stocks have outperformed the [ads and fees] since we made the announcement.
Turning to Liberty SiriusXM, including the LSXM shares that we acquired as part of the reattribution, Liberty SiriusXM repurchased $98 million of stock from February 1 through April 30 and effectively bought the SiriusXM shares at a $3.73 look-through price over this period including the reattributed shares.Our ownership of SiriusXM as of April 24 stood at 72.2%.I’d note that we have stopped our repurchases prior to the reattribution.But I expect post close of the planned rights offering in early June, we will look to start repurchasing LSXM stock again.
The nagging discount to NAV is an opportunity and one we will continue to take advantage of.
As SiriusXM continue to repurchase stock and we approach 80% ownership of SiriusXM, I expect the opportunity may wane.
Now looking at SiriusXM itself, it continues to operate very well during the COVID crisis.It has launched innovative new programming, including a 24/7 COVID-19-focused channel on Hotline, 9 new limited run channels with iconic artists, including the Prince Channel with music and exclusive content like a never-before-heard demo of a conceptual radio show Prince created for the SiriusXM channel back in 2005.Howard Stern has done great and innovative interviews, including a 2-hour plus session with Tom Brady from Derek Jeter’s house in Florida.
The subscription-based business model we have at SiriusXM has proved resilient.
Self-pay net adds grew 69,000 to nearly 34.8 million total subscribers.And the very strong liquidity and cash flow of SiriusXM has shown through.We still have $1.75 billion of available on our revolving credit facility, which has not been drawn.
Turning to Formula One Group.I’m sure you have all missed the Dubai F1 racing.
Hopefully, you’ve gotten a little taste by watching or rewatching both seasons of Drive to Survive on Netflix.And we expect all of you watched the Virtual GP this past weekend.
There was an epic battle between Alex Albon and Charles Leclerc.They passed and repassed each other several times with Albon finally taking the win.The final results highlighted the next-generation of F1 drivers, Albon, Russell and Leclerc, exciting and going to be thrilling us for years to come.The F1 team has done a great job navigating the crisis and working on the 2020 calendar.They are planning an early July start in Austria, and Chase will talk more about that.
We continue to evaluate the needs of the business but definitely want to be opportunistic and find synergistic assets that we can add.
And we think we are well positioned to do so.
Turning to Live Nation.It does not report until after the market today, so I obviously won’t comment on results, but I want to say we are pleased with the announced actions they have taken to build liquidity.
And on to the Braves.We are working closely with Major League Baseball to see how we can put a season together.We appreciate how the commissioner, teams and players are working together towards that solution.
Everyone is eager to see baseball return.The Braves players are eager, too.They’ve been doing Zoom sessions with the trainers, medical staff and manager, Brian Snitker.They’ve also been in celebration of 25 years since the Braves’ 1994 World Series title.The 95 players joined a Zoom reunion while watching the final Game 6 on FOX Sports Southeast.
Fans were able to watch the Zoom live on YouTube as well.
So with that, I’m going to turn over to Brian for more on our financial results.
Brian J.Wendling, Liberty Media Corporation – CAO & Principal Financial Officer 
Thank you, Greg, and good morning, everyone.The earnings release has our cash and debt balances by tracker as of March 31.Since we completed the reattribution in April, as Greg discussed, and repaid the margin of the F1 revolver today, I’ll walk through liquidity and debt at Liberty SiriusXM and the Formula One Group as of March 31 on a pro forma basis for these 2 transactions.
Liberty Media, SiriusXM, Formula One and the Braves are in compliance with all debt covenants as of March 31.
Given the uncertain impact of COVID-19, F1 and the Braves are monitoring their ability to comply with their debt covenants in future periods, and we are in positive discussions with their respective lenders.On a pro forma basis, Liberty SiriusXM Group had attributed cash, restricted cash and liquid investments of $139 million, excluding $52 million of cash and restricted cash held directly at SiriusXM.And we have $870 million of undrawn margin loan capacity at the corporate level.
The value of the SiriusXM and Live Nation stock held at Liberty SiriusXM as of May 6 was $21 billion, which excludes the value of the Live Nation call spread held at Formula One Group, which was valued at $165 million at the time of the reattribution and will be marked to market quarterly.We have $2.1 billion in principal amount of debt against these holdings.Total Liberty SiriusXM group debt is $11.1 billion, which includes $7.9 billion of debt at SiriusXM.This debt balance excludes the $750 million intergroup loan owed to the Formula One Group, which is expected to be repaid with proceeds from the rights offering, which we intend to launch on May 18.
Today, F1 will fully repay the balance under its revolving credit facility using cash on hand restoring its full capacity of $500 million.
Pro forma for this repayment, Formula One Group had attributed cash and liquid investments of $1.4 billion at the corporate level.This excludes $536 million of cash held directly at Formula One.Total Formula One Group attributed principal amount of debt was $3.6 billion, which includes $2.9 billion of debt at Formula One, leaving $688 million at the parent level.F1’s total net-debt-to-covenant-OIBDA ratio as defined in F1’s credit facilities for covenant calculations was 6x at the end of the quarter as compared to a maximum allowable leverage ratio of 8.25x for both the term loan and the revolving credit facility.
Please note these leverage ratios are for the Formula One operating business, not the Formula One Group.The term loan financial covenant is in current space and not maintenance.We are having positive discussions with the RCF lenders to temporarily move this covenant from an EBITDA based to a liquidity base.Payment of the RCF combined with the reattribution gives us more flexibility in renegotiating the maintenance covenant on the revolver.
Lastly, to the Braves.At quarter end, the Braves group had attributed cash, liquid investments and restricted cash of $343 million and attributed principal amount of debt of $698 million.
With that, I’ll turn it over to Chase to discuss Formula One.
Charles Carey, Formula One Group – CEO 
Thank you, Brian.
We entered 2019 with great momentum, and were ready for our biggest season yet with 22 races.We were ready to race at Australia, but it was necessary to cancel the event at the last minute for reasons related to COVID-19.This global pandemic has had a significant impact on Formula One, and we’re adjusting and responding in numerous ways that are in the best interests of our fans, employees, partners and constituents while focusing on the Formula One business for the long term.Let’s walk through all the actions we’ve taken.
One of the first actions we took as a sport was to move the team’s summer break up to March and April as we wanted to have ultimate flexibility to race during the normal summer break in August.On Tuesday, the 28th of March, the FIA’s World Motor Sport Council approved a further extension of the shutdown period from 35 to 63 days to be taken during the months of March, April, May and/or June.During this break of the season, we were inspired to see several U.K.-based Formula One teams come together for Project Pitlane.
This is part of a larger U.K.industry-wide focus to manufacture and deliver respiratory devices to support the national need.
Formula One has the unique ability to rapidly respond to engineering and technological challenges and is focused on its core skills of rapid design, prototype, manufacture, test and skilled assembly.These efforts have proven fruitful, and the go-ahead has been given for 2 of Project Pitlane’s initiatives, including ventilators that are being produced by several teams plus a breathing aid being manufactured by Mercedes.We’re grateful for the team’s efforts in supporting the national need.
In further actions, F1, the FIA and all 10 teams unanimously agreed to delay the introduction of the 2021 technical regulations until 2022 and to keep the majority of their existing 2020 cars into the 2021 season.This will reduce costs for all teams at this time when they would usually be investing in working on the cars for the 2021 season.We have further been working with the FIA and teams to strengthen the long-term future of Formula One with an array of new technical, sporting and financial regulations that will improve the competition and action on the track and make it a healthier business for all involved, particularly as we work through the issues created by COVID-19.
One of the key areas of focus has been the cost cap on team expenses.We’ve previously implemented a cap of $175 million for 2021 but now expect to move forward with a significantly lower cap.
Just like our teams, Formula One has been evaluating our cost structure.We made some difficult decisions and furloughed over 50% of our workforce on April 1, with senior executives taking a voluntary cut in pay.We froze all hiring and pay review plans and also deferred a number of initiatives we planned to pursue this year.We recognize we may lose a bit of time in implementing some of these plans.However, we felt the current uncertainties warranted the actions.
As Brian mentioned, we’re actively engaged with lenders of our revolving credit facility to address potential issues related to our quarterly leverage covenant.They’ve been very supportive as we work together to identify potential changes to the covenant to enable us to navigate through the possible scenarios, including the remote possibility of no racing in 2020, and we expect to agree to necessary changes in due course.
We’ve been working tirelessly since Australia, and we’re actively engaged with our promoters in putting together a potential 2020 race calendar.
We have 2 primary challenges: Identifying locations where we can hold the race and determining how we transport all necessary parties and their equipment to that location for a race.We’re in discussion with all of our promoters as well as some tracks that are not currently on our 2020 calendar to ensure we explore all options.
Our goal is to launch the season on the weekend of July 4th and 5th in Austria.It is likely that we race the weekend of July 11th and 12th in Austria as well.We’re in the advanced stages of putting together a schedule of additional European races through early September, including races during the traditional August break.We will then plan to race in Eurasia — in Asia and the Americas in September, October and November before finishing in the Gulf in Bahrain and Abu Dhabi in December.
We hope to have a calendar with 15 to 18 races.We expect the early part of the calendar to be races without fans, but we hope to be able to allow fans to attend in the latter part of the year.
We are working with the FIA, local authorities and other experts to determine the steps and procedures necessary to safely transport everyone to each race location and to enable those individuals to operate and be housed in a safe and secure manner.We feel increasingly positive about the number of locations that would be able and want to hold the race this year.
Our work in the travel and other logistical issues related to each country are a work in progress.The economics of races, particularly ones with fans, will clearly vary from existing agreements, and we’re actively engaged on this front, too.We’ve been working closely with the FIA with the consent of all the teams to change the calendar without a formal vote amongst the teams, and this was formally approved by the World Motor Sport Council and Formula One.
This will allow for a stream process as we reshuffle the calendar and appreciate the team’s support.
With the postponement of the season, we are pleased that our teams quickly pivoted and launched a new Formula One Esports Virtual Grand Prix Series featuring a number of current Formula One drivers and celebrities.To date, Charles Leclerc, George Russell, Antonio Giovinazzi, Lando Norris, Alex Albon, Carlos Sainz Jr.and Nicholas Latifi have all been on the grid along with former F1 drivers such as Jenson Button, Johnnie Abraham and Nico Hülkenberg.They’ve been joined by England’s Cricket World Cup winner, Ben Stokes; musician, Liam Payne; professional golfer, Ian Poulter; and 6-time Olympic Gold Medalist, Sir Chris Hoyt, to name a few.These races have run in place of every postponed Grand Prix.
The series utilizes the official Formula One 2019 PC video game developed by Codemasters, and the visuals are impressive.The races have provided great racing and entertainment value with lively commentary.Charles Leclerc won his debut race after receiving the game just 3 weeks earlier.Then he won the next race as well, and we’re exceeded (sic) [excited] to see new rivalries emerge.
The broadcast is available on the official Formula One YouTube, Twitch and Facebook channels as well as marquee TV broadcasters such as Sky Sports in the U.K.and ESPN in the U.S.And we’ve experienced strong engagement.Through the first 3 races, digital cumulative views reached 12.9 million.
And total viewership, including TV estimates, reached 16.3 million.The Virtual Grand Prix even trended #1 on YouTube U.K.We will continue with these virtual GPs until we return to racing.
We were also pleased with the response to the second season of Drive to Survive, which debuted on Netflix at the end of February.The season provided unprecedented access to the teams and drivers.We saw the drama of the driver switch from Gasly to Albon mid-season at Red Bull, behind the scenes action of the wet race in Germany and learned more about Williams’ challenging season.We are in advanced discussions for season 3, and the team is ready to capture footage in 2020.
In news that may have been overlooked due to COVID-19, we welcomed Aramco as a long-term global partner to Formula One.
We announced this agreement on March 10, and Aramco is our sixth global partner alongside DHL, Emirates, Heineken, Pirelli and Rolex.We look forward to sharing our expertise to identify opportunities for the advancement of sustainable fuels, enhanced engine efficiencies and emerging mobility technology.This deal includes trackside branding at most races and title rights to 3 Grand Prixs in 2020, and exposure on our digital platforms.Further in this area, we welcome Ben Pincus as our new Director of Commercial Partnerships at the end of February.Ben joins us from Heineken where he managed their worldwide sponsorship team and partnership with Formula One.
On the distribution front, we announced a multiyear media rights deal extension in Canada with Bell Media’s TSN and RDS, which goes through the end of the 2024 season.Our fan base continues to grow in Canada.
The 2019 season audiences across TSN and RDS grew 19% year-over-year, and coverage across the 2 networks reached nearly 5.3 million Canadian viewers.We’ve been in regular contact with our commercial partners, broadcasters, sponsors and other partners.These partners have almost all been very supportive.Our conversations with them regarding the 2020 season are not as advanced as those of promoters as we need to determine our modified calendar to have more substantive conversations.A number of agreements have provisions related to the number of races, although that number of races is well below our originally planned 22.These are all valued long-term partners, and we expect to resolve any potential contractual issues in a fair and straightforward manner.
We had been in the final stages of completing the Concorde Agreement when the coronavirus crisis turned everything on its head.
We decided to put the Concorde on the back burner for the short term and prioritize addressing issues related to 2020 first.As we move forward with the 2020 calendar and finalize regulatory changes with the teams, we will once again return to completing the Concorde Agreement in the immediate future.
Obviously, we are still dealing with a lot of uncertainty regarding the short term and the coronavirus.We’re increasingly confident, although there are no guarantees that we will have a 2020 championship season.Fan support has been great, and there seems to be an incredible pent-up enthusiasm for racing to begin.
At the same time, we’re also looking beyond this year to a 2021 season.The long-term contractual nature of Formula One helped provide long-term stability at a time of uncertainty.We continue discussions for potential new races or race renewals for ’21 that are going well.We also continue discussions with other new or existing commercial partners.We expect the impact of the coronavirus crisis on the broader world will extend into the future, but we feel we’re well positioned to return to the growth curve we were on a few months ago and look forward to the better future for all of us.
I recognize everyone would like revised projections for 2020.At this point, all we have are sensitivities with a range of potential results based on many variables.What is clear is that 2020 results will be significantly below original expectations, but we believe it is equally clear that we can manage through 2020 with or without racing and more importantly, that our business can quickly return to our prior expectations in 2021 and beyond.
Now I’ll turn it back to Greg.
Gregory B.Maffei, Liberty Media Corporation – President, CEO & Director 
Thank you, Chase, and thank you, Brian.And to the listening audience, we appreciate your continued interest in Liberty Media and hope you all stay safe and healthy.
And with that, operator, I’d like to open up for questions.