Liberty Media Corporation — Q1 2020 Form 10-Q Summary
Business context and reporting period
Liberty Media Corporation is a media, communications and entertainment holding company with interests in Sirius XM Holdings, Formula 1, Braves Holdings and Live Nation. The filing covers the unaudited three months ended March 31, 2020, compared with the three months ended March 31, 2019. The company reports three tracking-stock groups: Liberty SiriusXM, Liberty Braves and Liberty Formula One. These groups are not separate legal entities, and holders of tracking stock remain subject to the risks and liabilities of Liberty Media as a whole.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $2,013 million | $2,012 million | Flat |
| Operating income | $246 million | $200 million | +$46 million |
| Operating margin | 12.2% | 9.9% | Improved |
| Adjusted OIBDA | $564 million | $614 million | -$50 million |
| Adjusted OIBDA margin | 28.0% | 30.5% | Declined |
| Net earnings (loss) | $2 million | $(127) million | Improved |
| Net earnings (loss) attributable to Liberty stockholders | $(76) million | $(158) million | Improved |
| Cash flow from operations | $557 million | $649 million | -$92 million |
Revenue consisted of $1,952 million from Sirius XM Holdings, $39 million from Formula 1 and $22 million from Braves Holdings and other activities. Sirius XM Holdings revenue increased $208 million, largely reflecting Pandora and higher subscriber and advertising revenue. Formula 1 revenue declined $207 million because no races occurred during the quarter. Braves revenue was unchanged at $22 million.
Sirius XM Holdings had approximately 34.8 million subscribers, Pandora had approximately 6.3 million subscribers and Pandora had approximately 60.9 million monthly active users at March 31, 2020. Sirius XM Holdings generated $639 million of Adjusted OIBDA versus $590 million on a pro forma basis in the prior-year comparison. Formula 1 generated negative Adjusted OIBDA of $32 million versus positive Adjusted OIBDA of $65 million, while Braves Holdings generated negative Adjusted OIBDA of $25 million versus negative $31 million.
Other expense was $208 million versus $269 million in the prior-year period. Interest expense was $164 million, share of losses from affiliates was $62 million, and realized and unrealized gains on financial instruments were $1 million versus a $98 million loss in Q1 2019. The 2020 results included a $16 million reversal of a pre-acquisition royalty reserve and a $7 million Sirius XM Holdings lawsuit settlement recorded in other income.
Cash and cash equivalents were $1,801 million at March 31, 2020, compared with $1,222 million at December 31, 2019. Including restricted cash, period-end cash was $1,835 million. Total assets were $43,918 million and total equity was $21,702 million.
Total debt was $15,446 million, including $590 million classified as current, compared with total debt of $15,476 million at December 31, 2019. Long-term debt was $14,553 million. Debt included $9,298 million attributed to the Liberty SiriusXM Group, $698 million to the Braves Group and $5,450 million to the Formula One Group. The company and its principal subsidiaries were in compliance with debt covenants at March 31, 2020.
Available borrowing capacity included $1,000 million under the Sirius XM Holdings margin loan, $270 million under the Live Nation margin loan and $1,749 million under Sirius XM Holdings’ secured revolving credit facility. Liberty had $228 million of unencumbered marketable equity securities. Formula 1 had $475 million outstanding under its $500 million revolving credit facility, classified as current debt based on planned repayment in May 2020.
Material changes versus the prior comparable period
- Sirius XM Holdings revenue increased approximately 12% on a reported basis, supported by the Pandora acquisition, higher Sirius XM subscriber revenue and higher Pandora advertising revenue.
- Sirius XM advertising revenue declined approximately 4% as live sporting events were cancelled or disrupted by COVID-19.
- Sirius XM subscriber acquisition costs declined approximately 8%, partly because of lower automaker installations and hardware subsidies.
- Formula 1 revenue fell from $246 million to $39 million, and Formula 1 operating loss increased from $47 million to $137 million, because the 2020 race calendar was postponed and no events occurred during the quarter.
- Braves Holdings’ baseball revenue declined from $14 million to $12 million because the 2020 Major League Baseball season was postponed; development revenue increased from $8 million to $10 million.
- Consolidated operating income improved despite lower Adjusted OIBDA, primarily because of the prior-year $76 million of acquisition-related costs and the current-year $16 million reserve reversal.
- Cash flow from operations declined to $557 million from $649 million. Investing cash flow changed to an outflow of $58 million from an inflow of $254 million, while financing cash flow improved to an inflow of $38 million from an outflow of $685 million.
- Liberty repurchased $138 million of Liberty SiriusXM stock, and subsidiaries repurchased $243 million of shares during the quarter.
Guidance, outlook, risks and unusual items
The filing does not provide formal quantitative full-year guidance. Management stated that COVID-19 is expected to materially affect Formula 1, the Atlanta Braves and Live Nation, and that the ultimate effects on revenue, cash flow and financial condition could be significant but could not be reasonably estimated at the filing date.
The Formula 1 season and Major League Baseball season were postponed, while Live Nation suspended large-scale events. The filing notes risks from cancelled or postponed events, limited attendance, refunds, reduced sponsorship and advertising demand, lower discretionary spending, supply-chain disruptions, reduced automobile sales, increased customer bad debt and possible delays in Sirius XM satellite deliveries.
On April 22, 2020, after quarter-end, Liberty approved a reattribution of assets and liabilities between the Formula One Group and Liberty SiriusXM Group. The reattribution included Liberty’s Live Nation stake, certain convertible and exchangeable debt, the Live Nation margin loan and a $1.4 billion cash transfer. Liberty also planned a $750 million rights offering of Series C Liberty SiriusXM common stock to repay a related $750 million intergroup loan. The reattribution was expected to be reflected prospectively beginning in Q2 2020, and the rights offering was subject to conditions and termination rights.
Subsequent to March 31, 2020, Liberty drew $400 million under the Sirius XM Holdings margin loan in connection with the reattribution. The filing also identifies legal and regulatory uncertainties, including the Copyright Royalty Board proceeding for 2021–2025 webcasting rates and litigation concerning pre-1972 sound recordings.
Most important facts for investors to verify
- Assess the duration and financial impact of COVID-19-related postponements, cancellations and attendance restrictions on Formula 1, the Braves and Live Nation.
- Verify the completion, pricing and proceeds of the planned $750 million Liberty SiriusXM rights offering and the related repayment of the intergroup loan.
- Monitor Formula 1’s liquidity, covenant compliance and repayment of the $475 million revolving facility balance.
- Evaluate consolidated leverage, maturity dates, margin-loan collateral requirements and exposure to changes in Sirius XM, Live Nation and other public-company share prices.
- Distinguish GAAP operating income and cash flow from non-GAAP Adjusted OIBDA, particularly given the reserve reversal and prior-year acquisition costs.
- Track Sirius XM subscriber trends, automobile sales, advertising demand, royalties and satellite-delivery schedules.
- Review the potential outcomes and rate changes from the Copyright Royalty Board proceeding and other outstanding litigation.