Liberty Media Corporation — 2022 Q2 Form 10-Q Summary
Business context and reporting period
Liberty Media is a media and entertainment holding company with three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One. Key businesses include Sirius XM Holdings, Formula 1, the Atlanta Braves and an equity-method investment in Live Nation. The filing covers the three and six months ended June 30, 2022; amounts are unaudited and presented in millions unless otherwise noted.
Tracking stocks are not separate legal entities. Holders have no direct ownership claim to the underlying businesses or assets and remain subject to the liabilities and risks of Liberty Media as a whole.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3,258 | $2,876 | $5,827 | $5,130 |
| Operating income | $556 | $622 | $1,019 | $764 |
| Net earnings | $674 | $528 | $970 | $514 |
| Net earnings attributable to Liberty stockholders | $622 | $417 | $862 | $301 |
| Adjusted OIBDA | $876 | $813 | $1,654 | $1,527 |
| Cash flow from operations | Not separately provided | Not separately provided | $1,221 | $1,235 |
Consolidated Q2 operating margin was approximately 17.1%, net margin was approximately 20.7%, and Adjusted OIBDA margin was approximately 26.9%. Six-month margins were approximately 17.5%, 16.6% and 28.4%, respectively. Net earnings included substantial non-operating gains, including $380 million of realized and unrealized gains on financial instruments.
- Revenue mix: Sirius XM Holdings generated $2,254 in Q2 and $4,440 year to date; Formula 1 generated $744 and $1,104; and Braves Holdings generated $260 and $283, respectively.
- Sirius XM: Approximately 34.0 million Sirius XM subscribers and 6.3 million Pandora subscribers were reported at June 30, 2022.
- Operating performance: Q2 Adjusted OIBDA increased to $876 from $813. Formula 1 contributed $154 versus $66, Braves Holdings $57 versus $54, while Sirius XM Holdings declined to $679 from $699.
- Cash and liquidity: Cash and cash equivalents were $2,645 at June 30, 2022, compared with $2,814 at December 31, 2021. Including restricted cash, total cash, cash equivalents and restricted cash were $2,719. Liberty reported $106 of unencumbered marketable equity securities.
- Debt: Total debt had a carrying value of $17,882 at June 30, 2022, including $911 classified as current and $16,971 as long term, compared with total debt of $18,590 at year-end 2021. Principal outstanding was approximately $17,531.
- Debt availability: Liberty had $875 available under its Sirius XM Holdings margin loan and $400 available under its Live Nation margin loan. Sirius XM Holdings had $1,240 available under its secured revolving credit facility, and Formula 1 had no borrowings under its $500 revolving facility.
- Capital allocation: Six-month cash uses included $1.3 billion of debt repayments, $241 for land supporting the 2023 Las Vegas Grand Prix, $319 for Liberty SiriusXM stock repurchases and $37 for Liberty Formula One stock repurchases. Liberty also received $942 of Sirius XM Holdings dividends.
Material changes versus the prior comparable period
- Q2 revenue increased 13.3%, while six-month revenue increased 13.6%, primarily from Formula 1, Sirius XM Holdings and Braves Holdings.
- Q2 operating income declined 11% because Sirius XM Holdings operating income fell by $161, partly offset by Formula 1 and Braves improvements. Six-month operating income increased 33% as Formula 1, Sirius XM Holdings and Braves Holdings all improved versus the prior period.
- Q2 net earnings attributable to Liberty stockholders increased $205, and six-month earnings increased $561. The improvement was aided by higher share-of-earnings from affiliates and fair-value gains, rather than solely by operating performance.
- Formula 1 revenue increased 49% in Q2 and 62% year to date. Results benefited from an additional event in the first half, higher attendance, new or renewed broadcasting and sponsorship agreements, and the return of Paddock Club activities.
- Sirius XM revenue increased 4% in Q2 and 5% year to date, but Adjusted OIBDA declined because of higher programming, marketing, personnel, technology and other operating costs.
- Braves Holdings revenue increased 20% in Q2 and 22% year to date, driven by higher attendance, ticket demand, special events and development-related rental income.
- Cash from operations was broadly stable at $1,221 versus $1,235. Investing cash use decreased to $375 from $754, while financing cash use changed to $1,043 from $650 of cash provided, reflecting debt repayments, repurchases and subsidiary dividends.
- Liberty repurchased approximately 2.8 million Liberty SiriusXM shares during Q2 and received authorization for an additional $1 billion stock repurchase program in May 2022.
Guidance, outlook, commentary, risks and unusual items
- Management expected Formula 1 to hold 22 events in 2022 after cancellation of the Russian Grand Prix and expected Braves Holdings to play a full 162-game schedule. No formal consolidated revenue or earnings guidance was provided in the filing.
- Formula 1 reported record attendance during the first six months of 2022, with crowd and hospitality levels above pre-pandemic levels.
- COVID-19 remained a risk to event attendance, venue operations, sponsorship, advertising, live entertainment and cash flow. Cancellations, postponements or reduced attendance could materially reduce revenue.
- Interest-rate exposure is significant. Variable-rate debt includes margin loans, Sirius XM’s credit facility, Formula 1’s loan facility and certain Braves debt. The transition away from LIBOR could increase borrowing costs or create refinancing uncertainty.
- Liberty and its subsidiaries were in compliance with debt covenants at June 30, 2022. Formula 1’s cash may be restricted if its leverage ratio fails the applicable restricted-payment test; no Formula 1 distributions to Liberty had been made as of quarter-end.
- Near-term refinancing and conversion exposure includes Liberty’s $1 billion cash convertible notes due October 2023, Formula 1’s $240 carrying-value cash convertible notes due January 2023 and other debt obligations. Liberty paid approximately $240 to repurchase approximately $146 principal amount of the Formula 1 convertible notes during the first half.
- Fair-value gains were volatile: debt measured at fair value generated a $646 gain for the first half, partly offset by a $269 loss on bond hedges. These amounts may not reflect recurring operating performance.
- Material contingencies include player and executive guarantees at the Braves totaling $553, legal and tax proceedings, indemnification obligations from asset sales and the ongoing Pandora pre-1972 sound-recording litigation. Management stated that expected losses from ordinary-course contingencies were not material, but the filing does not provide a reliable loss estimate for the litigation.
- Live Nation’s equity-method contribution improved substantially, producing $33 of earnings for the first half versus a $178 loss in the prior-year period. Its publicly traded shares remain exposed to market-value volatility not directly reflected in Liberty’s balance sheet.
Most important facts for investors to verify
- Whether Formula 1’s attendance, sponsorship, media-rights and event calendar momentum persists after the 2022 reporting period.
- Whether Sirius XM can offset higher content, marketing, technology and customer-related costs while maintaining subscriber and advertising growth.
- The maturity, refinancing and cash-settlement requirements for Liberty’s 2023 convertible and exchangeable obligations.
- Actual availability and covenant headroom under the Sirius XM, Live Nation, Formula 1 and Braves credit facilities, particularly as interest rates rise.
- How much of reported earnings growth came from recurring operations versus fair-value gains, affiliate results, dividends, tax effects and other unusual items.
- The effect of COVID-19, geopolitical events, labor issues, event cancellations and attendance restrictions on Formula 1, the Braves and Live Nation.
- The status and potential financial exposure of the Pandora pre-1972 recording litigation and other legal or tax contingencies.
- The implications of Liberty’s tracking-stock structure, intergroup interests, noncontrolling interests and the limited access to subsidiary cash.