Liberty Media Corporation — Q2 2015 Form 10-Q Summary
Business context and reporting period
Liberty Media reported results for the three and six months ended June 30, 2015. Its primary consolidated operating business is SIRIUS XM, a subscription-based satellite radio and connected-vehicle services provider. Other activities include the Atlanta Braves, corporate operations, investments in Live Nation and SIRIUS XM Canada, and publicly traded securities. The 2014 Liberty Broadband spin-off removed Charter, Time Warner Cable and TruePosition from the current-period operating results.
Key financial metrics
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $1,222 million | $1,160 million | $2,303 million | $2,171 million |
| Operating income | $171 million | $231 million | $416 million | $386 million |
| Net earnings | $99 million | $106 million | $118 million | $178 million |
| Net earnings attributable to Liberty stockholders | $61 million | $50 million | $42 million | $72 million |
| Adjusted OIBDA | $418 million | $372 million | $791 million | $666 million |
| Operating margin | 14.0% | 19.9% | 18.1% | 17.8% |
| Adjusted OIBDA margin | 34.2% | 32.1% | 34.4% | 30.7% |
| Basic EPS attributable to Liberty | $0.18 | $0.15 | $0.12 | $0.21 |
SIRIUS XM reported 28.4 million subscribers at June 30, 2015, including 23.4 million self-pay and 5.0 million paid promotional subscribers. SIRIUS XM generated $1,119 million of Liberty-reported revenue and $420 million of Adjusted OIBDA in the quarter.
- Six-month operating cash flow was $682 million, compared with $564 million in the prior-year period.
- Six-month investing cash flow was positive $117 million, versus negative $269 million in 2014, reflecting investment sales and lower acquisition and investment funding, partially offset by $139 million of capital expenditures.
- Six-month financing cash flow was negative $690 million, including $300 million of Liberty share repurchases and $1.084 billion of subsidiary share repurchases.
- Cash and cash equivalents increased to $790 million at June 30, 2015, from $681 million at December 31, 2014.
- Total debt principal was $6.656 billion, with $6.299 billion classified as long-term debt and $258 million as current debt. Debt carrying value increased from $5.852 billion at December 31, 2014 to $6.557 billion.
- Liquidity included $496 million of corporate and other cash, $294 million of SIRIUS XM cash, and $252 million of unencumbered corporate and other fair-value-option securities. SIRIUS XM had $1.750 billion of availability under its amended revolving credit facility, and the Liberty margin loan had $750 million of undrawn availability.
Material changes versus the prior comparable period
- Revenue increased 5.3% in the quarter and 6.1% year to date, primarily from SIRIUS XM subscriber and ancillary revenue growth. SIRIUS XM stand-alone revenue rose approximately 9% in the quarter and 8% year to date.
- Adjusted OIBDA increased 12.4% in the quarter and 18.8% year to date. SIRIUS XM Adjusted OIBDA increased to $420 million from $369 million in the quarter and to $824 million from $704 million year to date.
- Quarterly operating income declined $60 million because of the $108 million pre-1972 sound-recording settlement expense. Year-to-date operating income increased $30 million.
- Net earnings attributable to Liberty stockholders increased in the quarter but declined year to date, partly because 2014 included a $32 million income tax benefit, while 2015 included $121 million of tax expense.
- Interest expense increased to $83 million in the quarter and $160 million year to date, primarily due to higher average SIRIUS XM and subsidiary debt.
- Liberty repurchased approximately $300 million of its common stock during the first six months. During the second quarter, it repurchased 2.5 million Series A shares and 3.8 million Series C shares.
- SIRIUS XM issued $1.0 billion of 5.375% senior notes due 2025 and amended its revolving credit facility, increasing capacity to $1.750 billion and extending maturity to June 2020.
Guidance, outlook, risks and unusual items
- The filing does not provide a specific consolidated earnings or revenue guidance range. Management expects to fund projected uses with cash on hand, operating cash flow, asset monetizations and available borrowing capacity.
- Liberty expected approximately $140 million of additional 2015 capital expenditures for the Atlanta Braves ballpark and adjacent mixed-use development, excluding amounts funded by the public authority. The ballpark facility was estimated at $672 million, with approximately $169 million spent to date on the ballpark and mixed-use development.
- SIRIUS XM settled the Capitol Records pre-1972 recording case for $210 million. Liberty recorded $108 million as current-period expense and deferred $102 million for amortization through December 2017. The settlement provides rights to use the covered recordings through December 2017, with potential licensing from 2018 through 2022 subject to negotiated or arbitrated royalties.
- Other pre-1972 recording litigation and Telephone Consumer Protection Act class actions remain pending. The filing states that reasonably possible losses, other than the Capitol settlement, are not reasonably estimable and could materially affect results.
- Liberty reported a jury judgment of approximately €945 million against Vivendi, but recovery remains uncertain and no recovery is recognized until final resolution.
- Principal risks include dependence on automakers, subscriber retention and acquisition costs, rising music royalties, competition, technology or satellite failures, cybersecurity and privacy issues, regulatory changes, litigation, market-price volatility in public investments, interest-rate exposure and substantial indebtedness.
- Management stated that Liberty and SIRIUS XM were in compliance with debt covenants and that disclosure controls were effective as of June 30, 2015.
Important facts for investors to verify
- Whether SIRIUS XM subscriber growth, self-pay mix, churn and revenue trends continued after June 30, 2015.
- The cash impact and future royalty economics of the $210 million Capitol Records settlement, including the remaining $102 million deferred amount.
- Refinancing or repayment of the $250 million Liberty margin loan maturing October 28, 2015 and the value of pledged collateral.
- Funding requirements, cost overruns and reimbursement timing for the Atlanta Braves ballpark and mixed-use development.
- The outcome and potential exposure from remaining pre-1972 recording, SoundExchange and TCPA proceedings.
- The effect of Liberty’s approximately 41% SIRIUS XM noncontrolling interest on cash access and earnings attributable to Liberty stockholders.
- Valuation changes in Liberty’s public securities, Live Nation and SIRIUS XM Canada investments, and related derivative positions.