Liberty Media Corp quarterly report, Q3 FY2022

Liberty Media Corporation — Q3 2022 Form 10-Q Summary

Business context and reporting period

Liberty Media reported unaudited consolidated results for the three and nine months ended September 30, 2022, with comparable periods ended September 30, 2021. The company operates through three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One. Major businesses include Sirius XM Holdings, Formula 1, Braves Holdings and an equity-method investment in Live Nation.

Tracking stocks reflect attributed economic performance but are not separate legal entities. Holders have claims against Liberty Media as a whole, not direct ownership of the underlying businesses or assets.

Financial performance and key metrics

Metric	Q3 2022	Q3 2021	9M 2022	9M 2021
Revenue	$3,247 million	$3,100 million	$9,074 million	$8,230 million
Operating income	$506 million	$702 million	$1,525 million	$1,466 million
Net earnings	$434 million	$400 million	$1,404 million	$914 million
Net earnings attributable to Liberty stockholders	$391 million	$328 million	$1,253 million	$629 million
Adjusted OIBDA	$909 million	$946 million	$2,563 million	$2,473 million
Cash flow from operations	Not separately provided	Not separately provided	$1,740 million	$1,673 million

Revenue increased 4.7% in Q3 and 10.3% for the first nine months. Operating margin was approximately 15.6% in Q3 2022 versus 22.6% in Q3 2021, and 16.8% for the first nine months versus 17.8% in the prior-year period. Net margin attributable to Liberty stockholders was approximately 12.0% in Q3 versus 10.6% in the prior-year period, and 13.8% for the first nine months versus 7.6%.

Sirius XM Holdings: Revenue was $2,280 million in Q3 and $6,720 million for the first nine months, up 4% and 5%, respectively. Adjusted OIBDA was $722 million in Q3 and $2,091 million year to date. Sirius XM had approximately 34.2 million subscribers and Pandora had approximately 6.3 million subscribers at September 30, 2022.
Formula 1: Revenue was $715 million in Q3 and $1,819 million year to date, up 7% and 35%, respectively. Adjusted OIBDA was $170 million in Q3 and $446 million year to date. Sixteen Events occurred in the first nine months of 2022 versus 15 in the comparable period.
Braves Holdings: Revenue was $252 million in Q3 and $535 million year to date, up 8% and 15%, respectively. Adjusted OIBDA was $41 million in Q3 and $81 million year to date.
Live Nation: Liberty recognized $111 million of share of affiliate earnings in Q3 and $158 million year to date, compared with $9 million and a $134 million loss, respectively, in the prior-year periods. Live Nation revenue, presented for segment information but eliminated from consolidated revenue, was $6,154 million in Q3 and $12,391 million year to date.

Balance sheet, debt and liquidity

Total assets were $43.235 billion at September 30, 2022, versus $44.351 billion at December 31, 2021. Total equity was $18.466 billion versus $18.262 billion.
Cash and cash equivalents were $2.542 billion, down from $2.814 billion at year-end. Including restricted cash, total cash, cash equivalents and restricted cash were $2.565 billion.
Total debt was $17.492 billion, compared with $18.590 billion at December 31, 2021. Current debt was $499 million and long-term debt was $17.066 billion.
Cash by tracking-stock group was approximately $264 million for Liberty SiriusXM, $159 million for Liberty Braves and $2.119 billion for Liberty Formula One. Access to subsidiary cash may be restricted by minority ownership, debt covenants and Formula 1’s restricted-payment test.
Available borrowing capacity included $875 million under the Sirius XM Holdings margin loan, $400 million under the Live Nation margin loan and $1.329 billion under Sirius XM Holdings’ revolving credit facility. Liberty had $108 million of unencumbered marketable equity securities.
For the first nine months, operating cash flow was $1.740 billion, investing cash flow was $(506) million and financing cash flow was $(1.580) billion. Capital expenditures were $555 million.

Material changes versus the prior comparable period

Formula 1 was the primary year-to-date operating growth driver: revenue increased $470 million and Adjusted OIBDA increased $134 million, supported by an additional Event, higher attendance, sponsorship, media-rights revenue and reduced COVID-19 disruption.
Consolidated Q3 operating income decreased $196 million, primarily because Sirius XM operating income fell $166 million and Braves Holdings operating income fell $22 million. The decline included $74 million of impairment, restructuring and acquisition costs versus a $95 million recovery in Q3 2021.
Sirius XM revenue grew, but its Q3 operating income declined to $444 million from $610 million. Higher programming, subscriber acquisition, selling and administrative costs and restructuring charges offset revenue growth.
Consolidated year-to-date net earnings attributable to Liberty stockholders nearly doubled, primarily reflecting improved affiliate earnings, favorable fair-value changes on financial instruments, gains on debt extinguishment and stronger Formula 1 results.
Liberty repurchased $395 million of its common stock during the first nine months, including approximately $358 million of Liberty SiriusXM stock and $37 million of Liberty Formula One stock. The company repurchased 1.024 million Liberty SiriusXM shares during Q3 and had approximately $1.1 billion remaining under its repurchase authorization at September 30.
Liberty issued $475 million of 2.25% convertible senior notes due 2027 and repurchased portions of existing convertible debt. It also paid approximately $284 million to repurchase $210 million principal amount of the 1.375% convertible notes during Q3 and $630 million to repurchase $359 million principal amount of the 1% Formula One convertible notes during the first nine months.

Guidance, outlook, commentary and risks

Formula 1 expected 22 Events in 2022 after cancellation of the Russian Grand Prix. Management reported record attendance during the first nine months, with crowd and hospitality levels above pre-COVID-19 levels.
Management stated that available liquidity was sufficient for projected uses, including debt service, investments, share repurchases and operating needs. Expected funding sources include cash on hand, operating cash flow, subsidiary dividends, margin-loan capacity and debt financing.
Management did not provide specific consolidated revenue or earnings guidance in the supplied filing text.
COVID-19 remained a risk to event attendance, venue operations, sponsorship, advertising and demand. Future cancellations, capacity limits or renewed disruptions could materially reduce revenue and cash flow.
Interest-rate exposure is significant. Variable-rate debt included approximately $2.797 billion for the Liberty SiriusXM Group, $169 million for the Braves Group and $832 million for the Formula One Group. Formula 1 had interest-rate swaps covering $2.1 billion of its $2.9 billion Senior Loan Facility.
The transition away from LIBOR could increase borrowing costs or otherwise affect debt instruments that reference LIBOR. The company and subsidiaries were in compliance with applicable debt covenants at September 30, 2022.
Unusual Q3 items included $68 million of Sirius XM restructuring and impairment charges, approximately $5 million of Braves property impairment from hurricane damage, and $106 million of net realized and unrealized gains on financial instruments.
Liberty Media Acquisition Corporation determined that an initial business combination was not feasible by its January 26, 2023 deadline and sought stockholder approval for an early unwind and redemption of public shares before December 30, 2022.
Atlanta Braves guaranteed player, coach and executive contracts totaled $912 million at September 30, 2022, including $207 million payable in 2022 and $171 million in 2023.
The Pandora pre-1972 sound-recording litigation remained pending. Pandora planned to file a motion for summary judgment by November 18, 2022; the filing states that a loss estimate cannot be made.

Important facts for investors to verify

Review the attributed financial information for each tracking-stock group, including group-level cash, debt, intergroup interests and cash-flow restrictions.
Assess Sirius XM subscriber trends, churn, pricing, advertising performance, content costs and the effect of restructuring and semiconductor-related cost pressures.
Evaluate Formula 1’s event calendar, attendance, sponsorship and media-rights growth against higher team payments, freight costs and interest expense.
Reconcile reported net earnings and Adjusted OIBDA with the substantial fair-value gains, affiliate earnings and debt-extinguishment gains that affect comparability and cash conversion.
Review upcoming debt maturities, including 2023 convertible obligations, variable-rate exposure, collateral requirements and covenant headroom.
Monitor Live Nation’s market value because Liberty’s equity-method investment is not carried at fair value; a 10% decline in the Live Nation share price would have reduced the value of Liberty’s interest by approximately $530 million at September 30, 2022.
Confirm the outcome and timing of LMAC’s proposed early unwind, the Pandora litigation and any continuing effects of COVID-19, inflation, geopolitical events or event cancellations.