Liberty Media Corporation — Q1 2023 Form 10-Q Summary
Business context and reporting period
Liberty Media Corporation reported unaudited results for the three months ended March 31, 2023, compared with the corresponding 2022 period. The company operates primarily through Sirius XM Holdings, Formula 1 and Braves Holdings, with investments including Live Nation. Its common stock consists of Liberty SiriusXM, Liberty Braves and Liberty Formula One tracking stocks; these groups are not separate legal entities, and holders have claims only against Liberty Media as a whole.
Liberty expected to complete the proposed Braves Group split-off into Atlanta Braves Holdings, Inc. and, subject to approvals and other conditions, the subsequent reclassification into Liberty SiriusXM, Liberty Formula One and Liberty Live tracking stocks during the second quarter of 2023.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $2,556 million | $2,569 million | Down $13 million |
| Operating income | $340 million | $463 million | Down $123 million |
| Operating margin | 13.3% | 18.0% | Down 4.7 percentage points |
| Adjusted OIBDA | $688 million | $778 million | Down $90 million |
| Adjusted OIBDA margin | 26.9% | 30.3% | Down 3.4 percentage points |
| Net earnings | $52 million | $296 million | Down $244 million |
| Net earnings attributable to Liberty stockholders | $15 million | $240 million | Down $225 million |
| Earnings before income taxes | $102 million | $396 million | Down $294 million |
| Net cash from operating activities | $661 million | $551 million | Up $110 million |
| Capital expenditures | $281 million | $111 million | Up $170 million |
Revenue contributions were Sirius XM Holdings $2,144 million, Formula 1 $381 million and Braves Holdings and other $31 million. Sirius XM Holdings had approximately 34.0 million subscribers and Pandora had approximately 6.2 million subscribers at March 31, 2023.
Sirius XM Holdings generated Adjusted OIBDA of $625 million, down from $690 million. Formula 1 generated $117 million, down from $122 million. The Braves Group reported negative Adjusted OIBDA of $31 million, compared with negative $19 million.
At March 31, 2023, cash and cash equivalents were $2,229 million, compared with $2,246 million at December 31, 2022. Cash, cash equivalents and restricted cash totaled $2,267 million. Total assets were $42,333 million and total equity was $19,084 million.
Debt, liquidity and cash flow
- Total debt was $16,508 million, including $706 million classified as current and $15,690 million classified as long-term debt. Total debt declined from $16,632 million at December 31, 2022.
- Liberty SiriusXM Group debt was $13,008 million, Braves Group debt was $542 million and Formula One Group debt was $2,958 million.
- Liberty generated $661 million of operating cash flow, used $415 million in investing activities and used $257 million in financing activities. Cash and restricted cash declined by $9 million during the quarter.
- Liberty had $1,075 million of availability under its Sirius XM Holdings margin loan and $400 million under its Live Nation margin loan. Liberty also had $172 million of unencumbered marketable equity securities.
- Sirius XM Holdings had $1,540 million available under its secured revolving credit facility. Formula 1 had no borrowings under its $500 million revolving facility.
- Liberty, Sirius XM Holdings, Formula 1 and Braves Holdings were in compliance with their debt covenants as of March 31, 2023. Liberty itself does not have a debt rating.
- Liberty stated that available liquidity sources are expected to cover projected uses, including capital expenditures, debt service, investments, taxes and potential share repurchases.
Material changes versus the prior comparable period
- Consolidated revenue was broadly stable, but operating income fell primarily because Sirius XM Holdings operating income decreased $106 million and Braves Holdings operating results decreased $6 million.
- Adjusted OIBDA declined $90 million, primarily reflecting decreases of $65 million at Sirius XM Holdings, $9 million at Braves Holdings and $5 million at Formula 1.
- Interest expense increased $39 million to $196 million, mainly because of higher interest rates on the Sirius XM Holdings margin loan and Formula 1’s Senior Loan Facility.
- Realized and unrealized losses on financial instruments were $46 million, compared with a $59 million gain in Q1 2022. The 2023 loss included a $110 million decline in the fair value of bond hedges, partly offset by a $55 million gain on debt measured at fair value.
- Capital expenditures increased to $281 million from $111 million, while operating cash flow increased to $661 million from $551 million.
- Sirius XM Holdings revenue declined 2% to $2,144 million. Subscriber revenue, advertising, equipment and other revenue all decreased, while royalty and programming costs increased.
- Formula 1 revenue increased 6% to $381 million, driven by higher media rights, race promotion and sponsorship revenue. Higher selling, general and administrative costs reduced Adjusted OIBDA.
- Braves Holdings revenue increased to $31 million from $23 million, but operating expenses rose substantially, resulting in a larger operating loss.
Guidance, outlook, commentary, risks and unusual items
- The filing does not provide consolidated quantitative earnings guidance. Management expects to fund future uses through cash on hand, operating cash flow, debt capacity, asset monetizations and dividends or distributions from subsidiaries.
- Formula 1 had 23 Events scheduled for 2023, compared with 22 Events held in 2022 after the Russian Grand Prix was cancelled. Formula 1 revenue and expenses are seasonal, with comparatively lower first-quarter activity.
- Sirius XM Holdings initiated restructuring actions, including a workforce reduction of approximately 475 roles, or 8%. It recorded $23 million of severance and related costs, a $5 million lease impairment, $2 million of other accrued costs and less than $1 million of fixed-asset write-offs.
- Liberty issued $575 million of 3.75% convertible notes due 2028 and used proceeds in part to repurchase approximately $591 million principal amount of its 1.375% convertible notes due 2023 for approximately $662 million. It also paid approximately $112 million to repurchase part of its 2.125% exchangeable debentures due 2048; the remaining debentures were settled for approximately $275 million in April 2023.
- Liberty paid approximately $47 million to settle the remaining 1% convertible notes due 2023 in January 2023.
- Key risks include high leverage, refinancing and interest-rate exposure, stock-price volatility affecting financial instruments and collateral, restricted access to subsidiary cash, Sirius XM subscriber and advertising trends, music royalty costs, Formula 1 event execution and expansion, Braves operating and development costs, litigation, tax matters, regulatory requirements and the proposed split-off and reclassification.
- Approximately $1,007 million remained payable under Braves player and other employment contracts, including $220 million in 2023.
- The company disclosed pending litigation involving Pandora and pre-1972 sound recordings. Management stated that potential losses from legal and tax contingencies were not estimable but were not expected to be material based on current information.
- Interest-rate exposure remains significant: principal variable-rate debt totaled $2,049 million, with weighted-average rates of approximately 6.8% to 7.6% by tracking-stock group. Formula 1 had interest-rate swaps covering $2.1 billion of its approximately $2.4 billion Senior Loan Facility.
Most important facts for investors to verify
- Completion status, required approvals and tax treatment of the Braves split-off and proposed Liberty Live reclassification.
- Liquidity available at the Liberty parent level versus cash held by subsidiaries and any restrictions on distributions from Formula 1 or Sirius XM Holdings.
- Near-term maturities, refinancing requirements and the effect of higher SOFR-based borrowing costs.
- Sirius XM subscriber trends, advertising demand, royalty costs and the effect of the 2023 restructuring.
- Formula 1’s 2023 event calendar, contractual revenue growth and sensitivity to event cancellations or delays.
- Potential dilution or cash obligations from convertible notes, exchangeable debentures, bond hedges and warrants.
- Developments in the Pandora pre-1972 recording litigation and other unresolved legal, tax and indemnification matters.
- The filing’s non-GAAP Adjusted OIBDA measure should be evaluated alongside GAAP operating income, net income and cash flow.