Business Context and Reporting Period
Liberty Media Corporation filed an unaudited Form 10-Q for the three months ended March 31, 2022. The company operates through three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One. Principal businesses include Sirius XM Holdings, Formula 1, Braves Holdings and an equity-method investment in Live Nation. Tracking-stock groups are not separate legal entities, and holders remain subject to the risks and liabilities of Liberty Media as a whole.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $2.569 billion | $2.254 billion | +$315 million, +14% |
| Operating income | $463 million | $142 million | +$321 million |
| Operating margin | 18.0% | 6.3% | +11.7 percentage points |
| Adjusted OIBDA | $778 million | $714 million | +$64 million, +9% |
| Adjusted OIBDA margin | 30.3% | 31.7% | Down 1.4 percentage points |
| Net earnings | $296 million | $(14) million | +$310 million |
| Net earnings attributable to Liberty stockholders | $240 million | $(116) million | +$356 million |
| Cash flow from operating activities | $551 million | $497 million | +$54 million |
Sirius XM Holdings generated $2.186 billion of revenue and $690 million of Adjusted OIBDA. Formula 1 generated $360 million of revenue and $122 million of Adjusted OIBDA. Braves Holdings generated $23 million of revenue and negative $17 million of Adjusted OIBDA.
- Sirius XM Holdings had approximately 34.0 million Sirius XM subscribers and 6.3 million Pandora subscribers at March 31, 2022.
- Formula 1 held two Events in the first quarter of 2022 versus one in the prior-year quarter. Formula 1 revenue doubled year over year, while operating income improved to $34 million from a $33 million loss.
- Live Nation revenue was $1.803 billion versus $291 million in the prior-year quarter; Liberty’s share of Live Nation losses improved to $21 million from $111 million.
- Cash and cash equivalents were $3.286 billion at March 31, 2022, compared with $2.814 billion at December 31, 2021. Cash, cash equivalents and restricted cash totaled $3.320 billion.
- Total debt was $19.051 billion at March 31, 2022, including $2.584 billion classified as current and $16.467 billion classified as long-term. The balance-sheet carrying amount of total debt was $17.977 billion.
- Liberty group cash balances were approximately $710 million for the Liberty SiriusXM Group, $311 million for the Braves Group and $2.265 billion for the Formula One Group.
- Available borrowing capacity included $875 million under the Sirius XM Holdings margin loan, $150 million under the Live Nation margin loan and $769 million under Sirius XM Holdings’ revolving credit facility.
- All reported debt covenants were in compliance at March 31, 2022.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by Formula 1, which benefited from two Events, higher media-rights and sponsorship revenue, and reduced COVID-19 disruption. Sirius XM revenue also increased 6%.
- Operating income increased materially because the prior-year period included $245 million of impairment, restructuring and acquisition costs, including a $220 million impairment of the SXM-7 satellite and $25 million of lease restructuring costs. No comparable charge was recorded in Q1 2022.
- Consolidated Adjusted OIBDA increased despite higher Formula 1 costs, Sirius XM selling, general and administrative expenses, and content and technology costs.
- Realized and unrealized gains on financial instruments changed to a $59 million gain from a $49 million loss, primarily reflecting fair-value changes in debt, bond hedges and other instruments.
- Share-of-affiliate losses improved by $81 million, largely because Live Nation’s operating recovery reduced its losses.
- Liberty repurchased approximately 4.9 million shares of its tracking stocks for approximately $239 million during the quarter. The company’s board later authorized an additional $1 billion repurchase capacity in May 2022.
- Debt increased from $18.590 billion at December 31, 2021 to $19.051 billion at March 31, 2022, while cash and cash equivalents increased by $472 million.
Guidance, Outlook, Risks and Unusual Items
- Management stated that available liquidity is expected to be sufficient for projected uses of cash, including debt service, investment activity, share repurchases and operating-company requirements.
- Subsequent to quarter-end, a Liberty subsidiary committed to purchase land adjacent to the Las Vegas Strip for approximately $240 million in support of the 2023 Las Vegas Grand Prix.
- Sirius XM Holdings declared and paid quarterly and special dividends totaling $1.073 billion during the quarter, of which Liberty received $872 million. A subsequent quarterly dividend of $0.0219615 per Sirius XM share was declared for payment in May 2022.
- Formula 1 had 22 Events scheduled for 2022 after cancellation of the Russian Grand Prix and was evaluating alternatives. The business remains seasonal, with generally lower first-quarter revenue and expenses.
- COVID-19 could continue to affect event attendance, cancellations, venue operations, advertising, sponsorship and demand for entertainment services, particularly at Formula 1, Braves Holdings and Live Nation.
- Supply-chain constraints, semiconductor shortages and the war in Ukraine could reduce vehicle production, Sirius XM subscriber acquisition and access to components for future satellites.
- LIBOR phaseout creates potential refinancing and interest-cost risk for variable-rate margin loans and subsidiary credit facilities. Formula 1 also had interest-rate swaps covering $2.1 billion of its $2.9 billion Senior Loan Facility.
- Market-price changes affect Liberty’s public investments, exchangeable debt and derivatives. A 10% decline in marketable equity securities would have reduced their value by approximately $16 million; a 10% decline in Live Nation’s share price would have reduced the value of Liberty’s related holding by approximately $819 million.
- Material contingencies include legal and tax proceedings, indemnification obligations, guaranteed Braves employment contracts totaling $549 million, and ongoing litigation involving Pandora and pre-1972 sound recordings. Management stated that expected losses, if any, were not material based on information available at filing.
Investor Verification Points
- Verify the sustainability of Sirius XM subscriber, advertising and average-revenue-per-subscriber trends, including the impact of automotive supply shortages.
- Assess whether Formula 1’s 2022 Event calendar, attendance levels, sponsorship growth and cost structure support continued year-over-year improvement.
- Reconcile consolidated debt with debt attributed to each tracking-stock group and review maturities, conversion conditions, collateral values and covenant headroom.
- Evaluate the accessibility of subsidiary cash, particularly Sirius XM dividends and Formula 1 cash subject to restricted-payment tests.
- Monitor Live Nation’s recovery and its effect on Liberty’s equity-method earnings and market exposure.
- Review the impact of the $240 million Las Vegas land commitment, ongoing Braves development spending and player-contract obligations.
- Consider the non-GAAP nature of Adjusted OIBDA and the effect of fair-value gains and losses, stock-based compensation, depreciation and amortization, and unusual impairment charges on reported earnings.
- Confirm the implications of Liberty’s tracking-stock structure, intergroup interests and the absence of direct ownership claims by tracking-stock holders over the attributed businesses or assets.