Liberty Media Corp quarterly report, Q2 FY2023

Liberty Media Corporation 10-Q Summary

Business context and reporting period

Liberty Media Corporation reported unaudited consolidated results for the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. Its principal businesses were Sirius XM Holdings, Formula 1 and Braves Holdings, with Live Nation accounted for under the equity method. At June 30, 2023, the company used Liberty SiriusXM, Liberty Braves and Liberty Formula One tracking stocks.

Subsequent to quarter-end, Liberty completed the Atlanta Braves split-off on July 18, 2023, distributed certain Atlanta Braves Holdings shares to Formula One stockholders on July 19, and reclassified its common stock into Liberty SiriusXM, Liberty Formula One and Liberty Live tracking stocks on August 3, 2023.

Key financial metrics

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue	$3,244 million	$3,258 million	$5,800 million	$5,827 million
Operating income	$523 million	$556 million	$863 million	$1,019 million
Net earnings	$303 million	$674 million	$355 million	$970 million
Net earnings attributable to Liberty stockholders	$253 million	$622 million	$268 million	$862 million
Adjusted OIBDA	$877 million	$876 million	$1,565 million	$1,654 million
Cash flow from operating activities	Not separately provided	Not separately provided	$1,198 million	$1,221 million

Q2 operating margin was approximately 16.1%, net margin attributable to Liberty stockholders was approximately 7.8%, and Adjusted OIBDA margin was approximately 27.0%. Six-month operating margin was approximately 14.9% and Adjusted OIBDA margin was approximately 27.0%.

Sirius XM Holdings revenue was $2,250 million in Q2, essentially flat year over year, and $4,394 million for the first six months, down 1%. SiriusXM had approximately 34.0 million subscribers and Pandora had approximately 6.2 million subscribers at June 30, 2023.
Formula 1 revenue was $724 million in Q2, down 3%, and $1,105 million year to date, up slightly. Formula 1 Adjusted OIBDA was $155 million in Q2 and $272 million year to date.
Braves Holdings revenue was $270 million in Q2, up 4%, and $301 million year to date, up 6%. Six-month operating income was a loss of $18 million, compared with break-even in the prior-year period.
Share of earnings from affiliates increased to $90 million in Q2 and $80 million year to date, primarily reflecting stronger contribution from Live Nation.
Interest expense increased to $200 million in Q2 and $396 million year to date, driven principally by higher interest rates and higher average debt balances.

Liquidity, cash flow and debt

Cash and cash equivalents were $1,931 million at June 30, 2023, down from $2,246 million at December 31, 2022. Including restricted cash, total cash and cash equivalents were $1,991 million.
Cash provided by operating activities was $1,198 million for the six months. Investing cash flow was $(711) million, including $544 million of capital expenditures and $214 million of investments. Financing cash flow was $(774) million, reflecting $2,641 million of debt repayments, $2,064 million of borrowings and $199 million of subsidiary share repurchases.
Total debt was $16,143 million at June 30, 2023, including $787 million classified as current and $15,432 million classified as long term. Debt decreased from $16,632 million at December 31, 2022.
Liberty repurchased approximately $662 million of the 1.375% cash convertible notes due 2023 principal during the first six months and paid approximately $387 million to repurchase the remaining 2.125% exchangeable debentures due 2048. Liberty also issued $575 million of 3.75% convertible notes due 2028.
Available borrowing capacity included $1,075 million under the Sirius XM Holdings margin loan, $400 million under the Live Nation margin loan and $1,527 million under Sirius XM Holdings’ revolving credit facility. Formula 1 had no borrowings under its $500 million revolving facility.
Liberty, Sirius XM Holdings, Formula 1 and Braves Holdings were in compliance with their debt covenants at June 30, 2023. Liberty stated that available liquidity sources were sufficient for projected uses of cash.

Material changes versus the prior comparable period

Q2 revenue declined $14 million and six-month revenue declined $27 million, while six-month operating income fell $156 million.
Q2 Adjusted OIBDA was essentially unchanged, but six-month Adjusted OIBDA declined $89 million, primarily due to lower Sirius XM Holdings, Braves Holdings and Formula 1 results.
Net earnings attributable to Liberty stockholders declined $369 million in Q2 and $594 million for the first six months. The principal driver was the swing in realized and unrealized financial instrument results from a $380 million gain in Q2 2022 to a $96 million loss in Q2 2023, and from a $439 million gain to a $142 million loss for the six-month periods.
Sirius XM’s six-month Adjusted OIBDA declined $42 million despite lower selling, general and administrative costs, reflecting weaker revenue and higher service and operating costs. Sirius XM also reduced its workforce by approximately 475 roles, or 8%.
Formula 1’s 2023 calendar included 22 events after the Emilia-Romagna Grand Prix was cancelled because of severe flooding. The cancellation reduced events recognized in the first half, although contractual fee increases and sponsorship growth supported six-month primary revenue.
Braves Holdings benefited from higher attendance, ticket demand and additional home games, but player salaries, shared MLB expenses and other baseball operating costs increased significantly.

Outlook, commentary, risks and unusual items

Management expects to fund future corporate uses with cash on hand, margin-loan capacity, debt financing, asset monetizations and dividends or distributions from operating subsidiaries. Sirius XM Holdings is expected to continue paying quarterly dividends; Liberty received $155 million of Sirius XM dividends during the first six months.
Formula 1 distributed $300 million to Liberty after quarter-end after satisfying its restricted-payment test. Access to Formula 1 cash may be limited if leverage conditions are not met.
Unusual Q2 items included $24 million of legal settlements and reserves and $19 million of impairment, restructuring and acquisition costs. Six-month charges were $24 million and $51 million, respectively.
Financial results remain sensitive to changes in equity prices, interest rates, foreign exchange, subscriber trends, advertising demand, music royalty rates and the fair value of exchangeable and convertible instruments.
Major risks include leverage and refinancing needs, Sirius XM subscriber and advertising performance, Formula 1 event cancellations or broadcast interruptions, competition and regulatory changes, litigation, tax matters, geopolitical events and the ability to realize anticipated benefits from the split-off and reclassification.
The filing states that Pandora’s pre-1972 sound-recording litigation was dismissed in the company’s favor on July 25, 2023, although the appeal period had not expired as of the filing.

Most important facts for investors to verify

Post-quarter-end effects of the Braves split-off and August 3, 2023 tracking-stock reclassification, including the creation and financial attribution of Liberty Live.
Near-term repayment, conversion or refinancing requirements for debt maturing in 2023 and 2024, including the Sirius XM and Pandora obligations.
Sirius XM subscriber trends, advertising revenue, churn and the sustainability of quarterly dividends.
Formula 1 event calendar, contract economics, cancellation exposure and compliance with restricted-payment and leverage tests.
Cash accessibility by tracking-stock group, noncontrolling interests and the pledged collateral supporting margin loans.
Volatility and non-cash effects from fair-value accounting for convertible debt, exchangeable debentures, bond hedges, warrants and interest-rate swaps.
Remaining litigation, tax contingencies and the status of any appeal related to the Pandora sound-recording case.