Liberty Media Corporation — Q3 2020 Form 10-Q Summary
Business context and reporting period
Liberty Media reported unaudited consolidated results for the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods. The company operates through three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One. Principal businesses include Sirius XM Holdings and Pandora, Formula 1, and the Atlanta Braves and related mixed-use development. Liberty also holds equity-method investments, including Live Nation.
COVID-19 materially affected Formula 1, the Braves and Live Nation. The 2020 Formula 1 season was delayed and reduced to 17 events from 21 events in 2019, while the Braves played a 60-game season without fans and the minor-league season was cancelled.
Key financial metrics
| Amounts in millions, except per-share data | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $2,732 | $2,856 | $6,654 | $7,673 |
| Operating income | $320 | $507 | $780 | $1,168 |
| Operating margin | 11.7% | 17.8% | 11.7% | 15.2% |
| Adjusted OIBDA | $667 | $854 | $1,780 | $2,283 |
| Adjusted OIBDA margin | 24.4% | 29.9% | 26.7% | 29.8% |
| Net earnings attributable to Liberty stockholders | $(114) | $193 | $(516) | $151 |
| Basic EPS: Liberty SiriusXM / Braves / Formula One | $0.03 / $(0.61) / $(0.41) | $0.43 / $0.24 / $0.18 | $0.42 / $(0.31) / $(2.75) | $1.12 / $(0.65) / $(0.80) |
- Sirius XM Holdings revenue increased to $2.025 billion in Q3 and $5.851 billion for nine months. Sirius XM Holdings Adjusted OIBDA was $661 million in Q3 and $1.915 billion for nine months.
- Formula 1 revenue declined to $597 million in Q3 and $660 million for nine months; Adjusted OIBDA fell to $14 million and negative $34 million, respectively.
- Braves revenue declined to $110 million in Q3 and $143 million for nine months; Adjusted OIBDA was $5 million and negative $49 million, respectively.
- Net losses reflected a $187 million share of losses from affiliates in Q3 and $442 million for nine months, including significant losses associated with Live Nation, as well as other fair-value and market-related items.
Cash flow, debt and liquidity
- Net cash provided by operating activities was $1.056 billion for the first nine months of 2020, down from $1.770 billion in 2019.
- Capital expenditures were $316 million, compared with $338 million in the prior-year period. Investing activities used $309 million, versus $410 million provided in 2019.
- Financing activities used $78 million, compared with $1.854 billion used in 2019. Financing included $3.038 billion of borrowings, $2.595 billion of debt repayments, $204 million of Liberty SiriusXM repurchases and $754 million of proceeds from the Liberty SiriusXM rights offering.
- Cash and cash equivalents were $1.936 billion at September 30, 2020, compared with $1.222 billion at December 31, 2019. Including restricted cash, total cash was $1.974 billion.
- Total debt was $15.510 billion at September 30, 2020, including $15.414 billion of long-term debt and $96 million classified as current. Debt was $15.476 billion at December 31, 2019.
- Cash by tracking-stock group was approximately $137 million for Liberty SiriusXM, $213 million for the Braves and $1.586 billion for Formula One. Access to subsidiary cash may be restricted by noncontrolling interests, debt covenants and restricted-payment tests.
- Available borrowing capacity included $600 million under the Sirius XM Holdings margin loan, $270 million under the Live Nation margin loan and $1.749 billion under Sirius XM Holdings’ revolving credit facility.
Material changes versus the prior comparable period
- Consolidated revenue decreased 4% in Q3 and 13% for nine months, primarily because of Formula 1 and Braves declines, partly offset by Sirius XM growth.
- Operating income declined 37% in Q3 and 33% for nine months. Adjusted OIBDA declined 22% and 22%, respectively.
- Sirius XM subscriber revenue increased, but advertising revenue declined 24% in Q3 and 28% for nine months because of reduced advertising spending during the pandemic. Pandora advertising revenue declined 3% and 11%, respectively.
- Formula 1 revenue was reduced by fewer events, limited or absent fan attendance, lower race-promotion and broadcasting fees, and reduced sponsorship and hospitality activity.
- Braves baseball revenue declined because of the shortened season, lack of fans, lower ticket and concession sales, and lower broadcasting revenue. Operating expenses also declined because player compensation and game-related costs were reduced.
- Liberty completed a reattribution effective April 22, 2020, moving its Live Nation stake, certain debt, convertible-note-related instruments and other assets and liabilities between the Formula One and Liberty SiriusXM groups.
- The Liberty SiriusXM rights offering was fully subscribed, issuing approximately 29.6 million LSXMK shares for approximately $754 million. Proceeds repaid the intergroup loan and accrued interest.
- Sirius XM issued $1.5 billion of 4.125% senior notes due 2030 and used the proceeds to redeem $1.5 billion of senior notes due 2023 and 2025. The redemptions produced a $40 million loss on extinguishment of debt in Q3.
- Sirius XM acquired Simplecast for $28 million and terminated the Automatic connected-services product, recording $24 million of restructuring expense for the first nine months. After quarter-end, Sirius XM acquired Stitcher for $272 million, with potential contingent payments of up to $60 million.
Outlook, commentary, risks and contingencies
- Management stated that COVID-19 would continue to materially affect Formula 1, the Braves and Live Nation through event cancellations, reduced attendance, lower sponsorship and advertising demand, and potentially weaker operating cash flow.
- Management believes available liquidity is sufficient for projected uses of cash. Sirius XM did not expect the pandemic to impair its access to capital, liquidity or debt-covenant compliance in the near term.
- Formula 1’s net leverage covenant was suspended through the quarter ending March 31, 2022, subject to conditions including minimum liquidity of $200 million and restrictions on dividends, payments and additional debt.
- Braves Holdings expected to be out of compliance with certain covenants on one mixed-use loan as of December 31, 2020 and was seeking waivers and modifications. Other Braves covenant requirements were temporarily waived, subject to liquidity and other conditions.
- All entities were reported to be in compliance with applicable debt covenants as of September 30, 2020, but covenant waivers and expected future compliance remain important considerations.
- Braves Holdings had $332 million of guaranteed player, coach and executive contract obligations as of September 30, 2020.
- The Copyright Royalty Board is determining 2021–2025 webcasting royalty rates. An initial determination was expected in the first half of 2021; higher rates could increase Sirius XM and Pandora costs.
- Key risks include COVID-19, dependence on automakers and subscriber retention, music royalties, leverage and refinancing, interest-rate and stock-price volatility, technology and satellite failures, cybersecurity, regulation, litigation and the availability of cash from subsidiaries.
Most important facts for investors to verify
- Whether Formula 1 and Braves event schedules, attendance restrictions and related contractual revenue reductions improve or worsen after September 30, 2020.
- Braves Holdings’ ability to obtain covenant waivers or modifications and maintain required liquidity.
- Formula 1’s liquidity, restricted-payment capacity and compliance with conditions attached to its covenant waiver.
- The effect of future webcasting royalty rates on Sirius XM and Pandora margins.
- Live Nation’s financial recovery and the valuation and collateral implications of Liberty’s equity-method investment and margin loan.
- Debt maturities, variable-rate exposure and the transition away from LIBOR.
- The sustainability of Sirius XM subscriber growth, advertising trends and cash dividends amid pandemic-related economic effects.
- The treatment of Liberty’s tracking stocks, including the fact that they are not separate legal entities and holders do not have a direct claim on the assets of the attributed group.