Liberty Media Corporation 2019 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2019, with comparative results for 2018 and 2017. Liberty operates through three tracking-stock groups rather than separate legal entities: Liberty SiriusXM, Liberty Braves and Liberty Formula One. Principal assets include Sirius XM Holdings, Formula 1, Braves Holdings and a 33% equity-method interest in Live Nation.
- Sirius XM Holdings owned approximately 72% of Liberty’s consolidated Sirius XM subsidiary at year-end and acquired Pandora on February 1, 2019.
- Liberty Formula One includes Formula 1, Live Nation and certain corporate assets and debt; the Formula One Group held intergroup interests of approximately 15.1% in the Braves Group and 0.2% in the Liberty SiriusXM Group.
- Tracking-stock holders own common stock of Liberty as a whole, not direct ownership interests in the businesses attributed to a particular group.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $10.292 billion | $8.040 billion | +$2.252 billion |
| Operating income | $1.470 billion | $1.511 billion | -$41 million |
| Adjusted OIBDA | $2.931 billion | $2.680 billion | +$251 million |
| Net earnings | $347 million | $865 million | -$518 million |
| Net earnings attributable to Liberty stockholders | $106 million | $531 million | -$425 million |
| Cash flow from operating activities | $2.313 billion | $2.156 billion | +$157 million |
| Capital expenditures | $510 million | $403 million | +$107 million |
| Interest expense | $657 million | $606 million | +$51 million |
Adjusted OIBDA margin was approximately 28.5% in 2019 versus 33.3% in 2018. Operating margin was approximately 14.3% versus 18.8%. The filing identifies Adjusted OIBDA as a non-GAAP measure and reconciles it to operating income.
- Sirius XM Holdings: Revenue was $7.794 billion, including $6.187 billion from Sirius XM and $1.607 billion from Pandora for the post-acquisition period. Adjusted OIBDA was $2.453 billion, up from $2.233 billion. Sirius XM had approximately 35 million subscribers; Pandora had approximately 6.2 million subscribers and 63.5 million monthly active users at year-end.
- Formula 1: Revenue was $2.022 billion, up from $1.827 billion. Adjusted OIBDA was $482 million, up from $400 million, and operating income was $17 million versus an operating loss of $68 million. Formula 1 held 21 events in 2019.
- Braves Holdings: Revenue was $476 million, up from $442 million. Adjusted OIBDA declined to $54 million from $94 million, and operating income declined to a $32 million loss from $8 million of income, primarily due to higher player salaries, baseball operations costs, revenue sharing and stadium costs.
- Balance sheet: Cash and cash equivalents were $1.222 billion, total assets were $44.189 billion and total debt at face amount was approximately $14.964 billion. Long-term debt, including current debt, was $15.476 billion on the balance sheet.
- Liquidity: Cash attributed to the Liberty SiriusXM, Braves and Formula One Groups was approximately $493 million, $142 million and $587 million, respectively. Liberty also reported $1.0 billion of available Sirius XM margin-loan capacity and $470 million of available Live Nation margin-loan capacity.
Material changes versus the prior comparable period
- The Pandora acquisition added $1.607 billion of reported revenue and $303 million of reported net loss to Liberty’s results from February 1 through December 31, 2019. Total consideration was approximately $2.879 billion, including $2.285 billion of Sirius XM stock, $524 million related to Sirius XM’s prior Pandora preferred-stock investment and $70 million of replacement awards.
- Consolidated revenue growth was driven primarily by Pandora and higher Sirius XM, Formula 1 and Braves revenue. Reported operating income declined because Sirius XM and Braves operating results weakened, partly offset by Formula 1’s improvement.
- Net earnings declined materially because of lower operating income, higher interest expense, a $315 million net loss on financial instruments versus a $40 million gain in 2018, and a $166 million tax expense. The 2018 period benefited from favorable tax items and prior-year tax settlements.
- Stock-based compensation increased to $291 million from $192 million, and acquisition-related costs increased to $84 million from $3 million, primarily due to Pandora.
- Liberty repurchased approximately 11.0 million Series C Liberty SiriusXM shares for $443 million during 2019 and authorized an additional $1 billion repurchase authorization in November 2019.
- Sirius XM refinanced or issued debt during 2019, including $1.5 billion of 4.625% notes due 2024 and $1.25 billion of 5.50% notes due 2029, while redeeming its $1.5 billion of 6% notes due 2024.
Guidance, outlook, commentary, risks and unusual items
- Management expects future cash uses to include debt service, investments, share repurchases, Sirius XM capital expenditures and satellite replacement, Formula 1 operating expenses and Braves mixed-use development and spring-training expenditures. Management believes available liquidity is sufficient for projected needs.
- Formula 1’s team agreements and current Concorde arrangements were scheduled to expire at the end of 2020 and were under renegotiation. New arrangements could change governance and prize-fund economics and may be less favorable to Liberty.
- Formula 1 disclosed that the Chinese Grand Prix had been postponed due to the novel coronavirus outbreak. Event cancellations or postponements could reduce race-promotion, broadcasting, sponsorship and hospitality revenue and require refunds.
- Material risks include competition and subscriber churn, Pandora’s declining ad-supported user base, music royalty costs, satellite failures, dependence on automakers, privacy and cybersecurity regulation, technology disruption, Formula 1 contract renewals and team participation, foreign-exchange exposure, Brexit-related logistics, Braves on-field performance and development-project execution.
- Unusual items included the $25 million Sirius XM Do-Not-Call settlement, $84 million of Pandora acquisition and related costs, and $315 million of net losses on financial instruments, including fair-value changes in debt and derivatives.
- Liberty had approximately $3.6 billion of corporate-level debt, while consolidated debt included substantial Sirius XM and Formula 1 subsidiary debt. Cash access is restricted by subsidiary debt covenants, noncontrolling interests and separate-company structures.
- The filing identifies $352 million of guaranteed Braves player, coach and executive contracts, $1.859 billion of programming and royalty commitments and $22.898 billion of total consolidated contractual obligations, including debt, interest, leases and other commitments.
- The SEC filing reported effective disclosure controls and effective internal control over financial reporting. KPMG issued unqualified opinions on the consolidated financial statements and internal controls.
Most important facts for an investor to verify
- Reconcile reported growth with pro forma results because Pandora was consolidated for only eleven months in 2019; pro forma Liberty revenue was $10.419 billion in 2019 versus $9.617 billion in 2018.
- Review Sirius XM’s ability to integrate Pandora, improve Pandora monetization and manage its declining monthly active-user base.
- Assess debt maturities, covenant restrictions, margin-loan collateral and Liberty’s limited direct access to subsidiary cash; significant principal maturities occur in 2023 and 2024.
- Review the outcome of the Copyright Royalty Board proceeding for 2021–2025 webcasting rates and the remaining pre-1972 sound-recording litigation.
- Evaluate Formula 1’s post-2020 team and governance agreements, event-calendar risks and exposure to cancellations, foreign exchange and Brexit-related disruption.
- Assess the Braves Group’s development spending, debt capacity, guaranteed player obligations and dependence on attendance, broadcasting revenue and on-field performance.
- Consider the structural risks of the tracking stocks, including shared liabilities, potential reattribution or conversion of assets, limited separate voting rights and the ability of Liberty’s board to favor the company as a whole over an individual group.