Liberty Media Corporation — Form 10-Q Summary
Reporting period: Quarterly and nine-month periods ended September 30, 2018, compared with the corresponding 2017 periods. The filing covers Liberty’s media, communications and entertainment interests, including SIRIUS XM, Formula 1, Braves Holdings and equity-method investments such as Live Nation. Results are consolidated and include three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Change |
|---|---|---|---|
| Revenue | $2,315 million | $2,065 million | +12.1% |
| Operating income | $531 million | $382 million | +39.0% |
| Net earnings | $366 million | $261 million | +40.2% |
| Net earnings attributable to Liberty stockholders | $268 million | $168 million | +59.5% |
| Adjusted OIBDA | $811 million | $695 million | +16.7% |
| Operating margin | 22.9% | 18.5% | +4.4 percentage points |
| Adjusted OIBDA margin | 35.0% | 33.7% | +1.3 percentage points |
| Metric | Nine months 2018 | Nine months 2017 | Change |
|---|---|---|---|
| Revenue | $6,031 million | $5,600 million | +7.7% |
| Operating income | $1,132 million | $1,063 million | +6.5% |
| Net earnings | $834 million | $461 million | +80.9% |
| Net earnings attributable to Liberty stockholders | $571 million | $241 million | +136.9% |
| Adjusted OIBDA | $2,027 million | $1,860 million | +9.0% |
| Operating margin | 18.8% | 19.0% | Down 0.2 percentage points |
| Adjusted OIBDA margin | 33.6% | 33.2% | +0.4 percentage points |
Revenue mix: Q3 subscriber revenue was $1,163 million, Formula 1 revenue was $647 million and other revenue was $505 million. Nine-month amounts were $3,419 million, $1,346 million and $1,266 million, respectively.
Cash flow: Net cash provided by operating activities was $1,635 million for the nine months, versus $1,314 million in 2017. Investing cash flow was a use of $382 million, compared with a use of $2,914 million in 2017, primarily because the prior-year period included $1,647 million of cash paid for the Formula 1 acquisition. Financing cash flow was a use of $1,849 million, versus a source of $1,815 million in 2017, reflecting debt repayments, stock repurchases and subsidiary share repurchases.
Liquidity and debt: September 30 cash and cash equivalents were $355 million, plus $96 million of restricted cash. Total debt principal was $13,152 million, with $13,380 million classified as long-term debt on the balance sheet. Liberty reported $800 million of availability under its $1.35 billion margin loan and $150 million under the Live Nation Margin Loan. SIRIUS XM had $1,632 million available under its $1,750 million revolving credit facility. Management stated that available liquidity was sufficient for projected uses of cash.
Total assets were $41,624 million and total equity was $22,369 million at September 30, 2018. Investments in debt and equity securities were $1,406 million, and equity-method investments were $1,730 million.
Material changes versus the prior comparable period
- Consolidated revenue increased $250 million in Q3 and $431 million for the nine months. Growth reflected higher Formula 1, SIRIUS XM and Braves Holdings revenue.
- Q3 Adjusted OIBDA increased $116 million, led by improvements of $52 million in Formula One Group, $40 million in Liberty SiriusXM Group and $24 million in Braves Group. Nine-month Adjusted OIBDA increased $167 million.
- SIRIUS XM subscribers increased approximately 3% from December 31, 2017 to 33.7 million at September 30, 2018, including 28.5 million self-pay subscribers and 5.2 million paid promotional subscribers.
- Formula 1 benefited from 21 scheduled events in 2018 versus 20 in 2017; eight events occurred in Q3 2018 versus six in Q3 2017. Formula 1 revenue increased $146 million in Q3 and $133 million for the nine months on the reported consolidated comparison.
- Braves Holdings revenue increased to $200 million in Q3 from $185 million and to $410 million for the nine months from $366 million. Adjusted OIBDA increased to $74 million and $105 million, respectively.
- Share of earnings of affiliates declined to $58 million in Q3 from $155 million and to $72 million for the nine months from $167 million, primarily reflecting lower contributions from certain affiliates.
- Realized and unrealized gains on financial instruments were a $31 million loss in Q3 2018 versus an $18 million gain in Q3 2017, but a $180 million gain for the nine months versus a $43 million loss in 2017. These results are sensitive to market prices and derivative valuations.
- Liberty adopted ASC 606 effective January 1, 2018 using the modified retrospective method. The filing indicates that the adoption affected reported revenue and expenses but did not have a material effect on the September 30 balance sheet beyond the disclosed opening adjustments.
- SIRIUS XM agreed to acquire Pandora in an all-stock transaction initially valued at $3.5 billion. Completion remained subject to shareholder, antitrust and other customary conditions.
- SIRIUS XM paid $150 million in July 2018 to settle SoundExchange claims covering statutory sound-recording royalties for 2007 through 2017; $69 million of the liability was recorded as a legal settlement expense during the nine months.
- Liberty repurchased 3.23 million Series C Liberty SiriusXM shares during Q3 2018. The remaining authorized repurchase capacity was $909 million at September 30, 2018.
Guidance, outlook, risks and unusual items
The filing does not provide formal consolidated revenue or earnings guidance. Management expects to fund projected corporate uses, including investments, debt service, potential share repurchases and margin-loan repayment, with cash on hand, operating cash flow and available borrowing capacity. SIRIUS XM’s board expected regular quarterly dividends aggregating $0.0484 per share annually.
Management identifies risks related to consumer demand, competition, subscriber acquisition and retention, dependence on automakers, programming and music royalty costs, satellite and information-technology failures, regulatory and antitrust matters, litigation, cybersecurity, interest rates, stock-price volatility, leverage and the integration or realization of benefits from acquisitions. Formula 1 and Braves Holdings are seasonal businesses, making interim results less indicative of full-year performance.
Notable contingencies include a pending Telephone Consumer Protection Act class-action suit against SIRIUS XM; the filing states that class certification was pending and SIRIUS XM believes it has substantial defenses. Braves Holdings had $243 million of guaranteed player and coach contracts as of September 30, 2018. The company also disclosed that it planned to adopt the new lease accounting standard on January 1, 2019; the ultimate balance-sheet impact was still under evaluation.
Market exposure is significant: a 10% decline in marketable debt and equity securities would have reduced their aggregate value by approximately $133 million, while a 10% decline in Live Nation’s share price would have reduced the value of that publicly traded equity-method investment by approximately $379 million.
Important facts for investors to verify
- Reconcile consolidated results with the attributed financial information for the Liberty SiriusXM, Braves and Formula One tracking-stock groups.
- Assess the effect of SIRIUS XM’s Pandora acquisition, including closing conditions, financing, ownership dilution and integration results.
- Review debt maturities, collateral pledged under margin loans, variable-rate exposure and compliance with subsidiary debt covenants.
- Evaluate whether SIRIUS XM subscriber growth and higher ancillary revenue can offset increased royalty, programming and marketing costs.
- Consider Formula 1 event timing, seasonality, foreign-currency exposure and the sustainability of higher event-related revenue and costs.
- Monitor the TCPA litigation, other legal contingencies and any additional tax payments or settlements.
- Confirm the accounting and presentation effects of ASC 606, the Tax Act provisional amounts and the planned lease-standard adoption.
- Distinguish Adjusted OIBDA from GAAP operating income, net income and operating cash flow because Adjusted OIBDA excludes depreciation and amortization, stock compensation and certain unusual items.