Liberty Media Corporation — Q3 2023 Form 10-Q Summary
Business context and reporting period
Liberty Media is a media and entertainment holding company with principal interests in Sirius XM Holdings, Formula 1 and Live Nation. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
During the quarter, Liberty completed the July 18 split-off of Atlanta Braves Holdings and the August 3 reclassification into three tracking stocks: Liberty SiriusXM, Liberty Formula One and Liberty Live. The tracking-stock groups are not separate legal entities; holders remain exposed to the liabilities and performance of Liberty as a whole.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $3,207 million | $3,247 million | $9,007 million | $9,074 million |
| Operating income | $629 million | $506 million | $1,492 million | $1,525 million |
| Net earnings | $443 million | $434 million | $798 million | $1,404 million |
| Net earnings attributable to Liberty stockholders | $385 million | $391 million | $653 million | $1,253 million |
| Adjusted OIBDA | $932 million | $909 million | $2,497 million | $2,563 million |
| Net cash from operating activities | Not provided for the quarter | Not provided for the quarter | $1,881 million | $1,740 million |
Q3 operating margin was approximately 19.6%, compared with 15.6% in the prior-year quarter. Adjusted OIBDA margin was approximately 29.1%, compared with 28.0%. Nine-month operating margin was approximately 16.6%, compared with 16.8%, while Adjusted OIBDA margin was approximately 27.7%, compared with 28.2%.
- Sirius XM Holdings: revenue was $2,271 million in Q3 and $6,665 million for the nine months, down less than 1% in both periods. Q3 Adjusted OIBDA increased to $748 million from $722 million; nine-month Adjusted OIBDA declined to $2,075 million from $2,091 million. SiriusXM had approximately 34.0 million subscribers; Pandora had approximately 46.5 million monthly active users and 6.1 million subscribers at September 30, 2023.
- Formula 1: revenue increased 24% to $887 million in Q3 and 10% to $1,992 million for the nine months. Adjusted OIBDA increased 26% to $215 million in Q3 and 9% to $487 million for the nine months. Formula 1 held eight events in Q3 and 16 events in the nine-month period.
- Live Nation and affiliates: Liberty recognized $138 million of share of earnings from affiliates in Q3 and $218 million for the nine months. Live Nation was attributed to the Liberty Live Group effective August 3, 2023.
Liquidity, cash flow and capitalization
- Cash and cash equivalents were $2,112 million at September 30, 2023, compared with $2,246 million at December 31, 2022. Total assets were $41,515 million and total equity was $19,239 million.
- Nine-month operating cash flow was $1,881 million. Investing cash flow was $(990) million, including $863 million of capital expenditures. Financing cash flow was $(1,047) million, including $4,308 million of debt repayments and $3,766 million of borrowings.
- Total debt was $15,663 million at September 30, 2023, including $827 million classified as current and $14,836 million classified as long term. Reported debt decreased from $16,632 million at December 31, 2022.
- Cash by tracking-stock group was approximately $327 million for Liberty SiriusXM, $1,470 million for Formula One and $315 million for Liberty Live. Access to subsidiary cash may be restricted or dependent on dividends and other distributions.
- Available borrowing capacity included $1,075 million under the Sirius XM Holdings margin loan, $400 million under the Live Nation margin loan and $1,615 million under Sirius XM Holdings’ secured revolving credit facility. The company and its principal subsidiaries were in compliance with debt covenants at September 30, 2023.
- Liberty stated that available liquidity is sufficient for projected uses. Expected uses include capital expenditures, debt service, investments, operating needs and potential share repurchases. Approximately $1.1 billion remained available under the share repurchase authorization, although no Liberty shares were repurchased during Q3.
Material changes versus the prior comparable period
- Consolidated Q3 revenue decreased $40 million, primarily because Braves Holdings was included only through the July 18 split-off, partly offset by Formula 1 growth. Nine-month revenue decreased $67 million.
- Q3 operating income increased $123 million, led by $106 million of improvement at Sirius XM Holdings and $50 million at Formula 1. Nine-month operating income decreased $33 million, reflecting lower Sirius XM and Braves results and higher corporate costs.
- Q3 net earnings attributable to Liberty stockholders declined $6 million. Nine-month earnings declined $600 million, primarily because 2022 included substantially higher realized and unrealized gains on financial instruments: $545 million in 2022 versus a $131 million loss in 2023.
- Interest expense increased $17 million in Q3 and $95 million for the nine months, driven primarily by higher interest rates on Formula 1, Sirius XM Holdings’ credit facilities and margin debt.
- Liberty repurchased or settled significant debt during the nine months, including the remaining 2.125% exchangeable debentures, portions of the 1.375% convertible notes and 0.5% exchangeable debentures. Liberty also issued $575 million of 3.75% convertible notes and $1.15 billion of 2.375% exchangeable debentures.
Outlook, commentary, risks and unusual items
The filing does not provide clear consolidated financial guidance for revenue, earnings or Adjusted OIBDA. Management expects to fund future needs through cash on hand, operating cash flow, subsidiary dividends or distributions, margin-loan capacity, asset monetizations and debt financing. Sirius XM Holdings declared a quarterly dividend of $0.0266 per share payable November 29, 2023.
- Sirius XM Holdings reduced its workforce by approximately 475 roles, or 8%, and recorded restructuring, impairment and related charges during 2023. Nine-month charges included approximately $31 million of severance-related costs and $15 million of software-project impairments, among other items.
- Formula 1’s 2023 calendar was reduced to 22 events after the Imola race was canceled because of severe flooding. Formula 1 also incurred early-stage costs related to the Las Vegas Grand Prix and F1 Academy.
- Formula 1 had approximately $7.1 billion of remaining contracted performance obligations, including amounts expected to be recognized from the remainder of 2023 through periods after 2030. The filing indicates approximately $606 million is expected in the remainder of 2023, $2,183 million in 2024 and $1,907 million in 2025.
- Key risks include leverage and refinancing needs, variable interest rates, market-value changes in pledged securities, Sirius XM subscriber and advertising trends, music royalty costs, technology and cybersecurity risks, regulatory and consumer-protection matters, Formula 1 event cancellations and competition, foreign operations, tax matters and the structural risks of the tracking-stock arrangement.
- Sirius XM Holdings faces class actions and mass arbitrations concerning subscription pricing, billing, cancellation practices and the U.S. Music Royalty Fee. The filing states that Sirius XM Holdings believes it has substantial defenses but does not provide a clear potential loss estimate.
- Liberty reported that a related Pandora pre-1972 sound-recording case was dismissed in its favor on summary judgment in July 2023, although the appeal period had not expired as of the filing date.
Investor verification items
- Verify the post-split allocation of assets, debt, cash, Live Nation interests and other obligations among the Liberty SiriusXM, Liberty Formula One and Liberty Live tracking-stock groups.
- Review debt maturities, conversion or exchange features, collateral requirements and exposure to changes in Sirius XM, Live Nation and tracking-stock prices.
- Assess whether Sirius XM subscriber trends, advertising revenue, royalty costs and restructuring actions support the company’s future cash generation.
- Evaluate Formula 1’s event calendar, contracted revenue, team-payment obligations and costs associated with the Las Vegas Grand Prix.
- Monitor the Sirius XM dividend, restrictions on access to subsidiary cash and compliance with Sirius XM and Formula 1 financial covenants.
- Review pending consumer litigation and mass arbitrations, tax contingencies and any future developments related to the Atlanta Braves split-off.