Liberty Media Corporation 10-Q Summary
Business context and reporting period
Liberty Media Corporation is a media and entertainment holding company with three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One. Principal businesses include Sirius XM Holdings, Formula 1 and the Atlanta Braves; Liberty also owns an equity-method investment in Live Nation. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Tracking stocks represent economic interests in attributed groups rather than direct ownership of separate legal entities or their assets. Holders remain exposed to Liberty Media’s consolidated liabilities and risks.
Financial performance and key metrics
| Amounts in millions, except per-share data | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2,876 | $1,909 | $5,130 | $3,922 |
| Operating income | $622 | $214 | $764 | $460 |
| Net earnings | $528 | $(262) | $514 | $(260) |
| Net earnings attributable to Liberty stockholders | $417 | $(326) | $301 | $(402) |
| Adjusted OIBDA | $813 | $549 | $1,527 | $1,113 |
| Operating cash flow | Not separately provided | Not separately provided | $1,235 | $869 |
- Q2 revenue increased 51%; six-month revenue increased 31%.
- Q2 operating margin was approximately 21.6%, versus 11.2% in the prior-year quarter. Six-month operating margin was approximately 14.9%, versus 11.7%.
- Q2 Adjusted OIBDA margin was approximately 28.3%, versus 28.8% in Q2 2020. Six-month Adjusted OIBDA margin was approximately 29.8%, versus 28.4%.
- Q2 earnings attributable to Liberty stockholders were $417 million, or $1.01 basic EPS for Liberty SiriusXM, $0.48 for Liberty Braves and $0.24 for Liberty Formula One. Six-month basic EPS was $0.97, $(0.65) and $0.04, respectively.
- Cash and cash equivalents were $3.935 billion at June 30, 2021, up from $2.831 billion at December 31, 2020. Cash, cash equivalents and restricted cash totaled $4.006 billion.
- Total debt was $18.269 billion at June 30, 2021, including $1.553 billion classified as current and $17.420 billion classified as long-term debt on the balance sheet. Total debt increased from $17.429 billion at year-end 2020.
- Net cash provided by operating activities was $1.235 billion. Investing activities used $754 million, including $575 million placed in the Liberty Media Acquisition Corporation trust account and $190 million of capital expenditures. Financing activities provided $650 million.
Segment and operating developments
- Sirius XM Holdings: Revenue increased to $2.159 billion in Q2 from $1.874 billion and to $4.217 billion for six months from $3.826 billion. Adjusted OIBDA increased to $699 million in Q2 from $615 million and to $1.381 billion for six months from $1.254 billion. Growth was driven by higher subscriber, advertising and equipment revenue, including recovery in automotive production and advertising from pandemic-affected levels.
- Formula 1: Revenue increased to $501 million in Q2 from $24 million and to $681 million for six months from $63 million. Adjusted OIBDA was $66 million in Q2 versus $(16) million and $132 million for six months versus $(48) million. The improvement primarily reflected seven events in Q2 and eight events year-to-date, compared with no events in the comparable 2020 periods.
- Braves Holdings: Revenue increased to $216 million in Q2 from $11 million and to $232 million for six months from $33 million. Q2 Adjusted OIBDA was $54 million versus $(26) million; six-month Adjusted OIBDA was $34 million versus $(51) million. Results benefited from the 2021 baseball season and home games, whereas the 2020 season was delayed and shortened.
- Live Nation: Liberty recorded a share of loss of $67 million in Q2 and $178 million for six months, compared with losses of $144 million and $144 million, respectively. Live Nation revenue was $576 million in Q2 and $867 million for six months.
Material changes, outlook and unusual items
- The comparable 2020 periods were materially affected by COVID-19 disruptions, including delayed or canceled Formula 1 and MLB events and suspension of large-scale Live Nation events. Management cautioned that future attendance restrictions, cancellations or weaker demand could reduce revenue and cash flow.
- Sirius XM recorded a $220 million impairment for the failed SXM-7 satellite and $25 million of lease restructuring costs during the first six months. Insurance recoveries of $140 million reduced the impairment and $123 million remained receivable at June 30; timing and final recovery amounts were not reliably estimable. The SXM-8 satellite was successfully launched on June 6, 2021 and was expected to enter service in the third quarter.
- Formula 1 had 23 events scheduled for 2021 and Braves Holdings expected approximately 160 regular-season games, but the filing stated that attendance and event restrictions remained uncertain.
- Sirius XM issued $2.0 billion of 4.0% senior notes due 2028. It subsequently priced $1.0 billion of 3.125% notes due 2026 and $1.5 billion of 3.875% notes due 2031, with proceeds intended to refinance existing debt.
- Formula 1’s net leverage covenant was waived through the quarter ending March 31, 2022, subject to conditions including minimum liquidity of $200 million and restrictions on distributions and additional debt. Certain Braves Holdings covenants were also waived or modified through specified periods.
- Liberty, Sirius XM Holdings, Formula 1 and Braves Holdings were in compliance with debt covenants as of June 30, 2021. Management stated that available liquidity was sufficient for projected uses of cash, while noting that cash at subsidiaries may be restricted or inaccessible because of minority ownership, debt covenants or other conditions.
- Liberty repurchased $243 million of Liberty SiriusXM common stock during the first six months and $243 million of Liberty SiriusXM stock during the quarter’s financing cash flows. The filing disclosed $808 million of remaining authorization at June 30, 2021.
- Liberty Media Acquisition Corporation completed a $575 million initial public offering in January 2021; the proceeds were placed in a trust account. The filing did not provide company-wide earnings or revenue guidance.
- Key risks include COVID-19, leverage and refinancing, interest-rate and stock-price volatility, the phaseout of LIBOR, music royalty costs, subscriber and advertising trends, regulatory and litigation matters, Formula 1 and MLB event execution, and the structural risks of tracking stocks.
Investor verification points
- Verify the composition, maturity schedule, covenants and refinancing status of the $18.269 billion debt balance, including the accessibility of subsidiary cash.
- Monitor SXM-7 insurance recoveries and confirm whether the SXM-8 satellite entered service as expected.
- Assess whether Formula 1 and Braves Holdings event schedules and attendance levels support the reported recovery in revenue and Adjusted OIBDA.
- Evaluate Live Nation’s recovery and its effect on Liberty SiriusXM’s equity-method earnings and liquidity.
- Review the impact of the 2021 Copyright Royalty Board rates, which increased statutory webcasting rates approximately 17% for non-subscription transmissions and 8% for subscription transmissions versus 2020.
- Consider the difference between GAAP results and Adjusted OIBDA, particularly the effects of impairment, restructuring, acquisition costs, stock-based compensation and fair-value gains or losses.
- Review the tracking-stock structure, intergroup interests and the July 28, 2021 exchange agreement addressing John Malone’s voting power.