Liberty Media Corporation — Q1 2019 Form 10-Q Summary
Business context and reporting period
Liberty Media reported unaudited consolidated results for the three months ended March 31, 2019, compared with the same period in 2018. Its principal businesses are SIRIUS XM Holdings, including Pandora from February 1, 2019, Formula 1, and Braves Holdings. Liberty 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 liabilities of Liberty as a whole.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $2,012 million | $1,517 million | +$495 million |
| Operating income | $200 million | $227 million | -$27 million |
| Adjusted OIBDA | $614 million | $489 million | +$125 million |
| Net earnings (loss) | $(127) million | $213 million | $(340) million |
| Net earnings (loss) attributable to Liberty stockholders | $(158) million | $131 million | $(289) million |
| Operating cash flow | $649 million | $624 million | +$25 million |
| Capital expenditures | $113 million | $89 million | +$24 million |
Revenue increased 33%, while operating income declined because of higher depreciation and amortization, stock-based compensation, acquisition costs, and a $25 million legal settlement reserve. Adjusted OIBDA increased 26%; as a percentage of revenue, it was approximately 30.5% versus 32.2% in the prior-year quarter. The filing does not provide a consolidated GAAP net margin measure; net loss attributable to Liberty stockholders represented approximately 7.9% of revenue compared with a 8.6% profit margin in Q1 2018.
- SIRIUS XM Holdings revenue: $1,744 million versus $1,375 million; Adjusted OIBDA of $590 million versus $530 million; operating income of $316 million versus $407 million.
- Formula 1 revenue: $246 million versus $114 million; Adjusted OIBDA of $65 million versus $3 million; operating loss improved to $47 million from $109 million.
- Braves Holdings revenue: $22 million versus $28 million; Adjusted OIBDA improved to a $33 million loss from a $35 million loss.
- Cash and liquidity: Cash and cash equivalents were $633 million at March 31, 2019, compared with $358 million at December 31, 2018. Cash, cash equivalents, and restricted cash totaled $671 million.
- Debt: Total debt was $14,039 million at March 31, 2019, including $13 million classified as current; long-term debt on the balance sheet was $14,026 million. Liberty reported compliance with applicable debt covenants.
- Equity and assets: Total assets were $43,910 million and total equity was $23,195 million at quarter-end.
Material changes versus the prior comparable period
- SIRIUS XM Holdings acquired Pandora on February 1, 2019, for total consideration of approximately $2.9 billion, primarily through issuance of SIRIUS XM Holdings common stock and cancellation of Liberty’s preferred-stock investment. Pandora contributed $251 million of revenue and a $122 million net loss to Liberty’s Q1 results.
- The Pandora acquisition added $1,541 million of goodwill and $331 million of non-amortizing intangible assets. The purchase-price allocation remained preliminary at March 31, 2019.
- Formula 1 benefited from two events in the quarter versus one in Q1 2018, increasing revenue and Adjusted OIBDA. Formula 1’s results remain seasonal, with most events occurring from March through November.
- Consolidated realized and unrealized losses on financial instruments were $98 million, versus a $153 million gain in Q1 2018. The 2019 loss primarily reflected a $162 million loss on debt measured at fair value, partly offset by a $51 million gain on bond hedges.
- Interest expense increased to $159 million from $150 million, primarily due to higher average debt in the Liberty SiriusXM Group.
- Liberty repurchased 5.6 million Series C Liberty SiriusXM shares for $222 million during the quarter. Approximately $589 million remained available under the authorized repurchase program at March 31, 2019.
- Liberty adopted ASC 842 lease accounting on January 1, 2019. At March 31, 2019, it reported $476 million of operating lease right-of-use assets and $492 million of operating lease liabilities.
Guidance, outlook, commentary, risks, and unusual items
Management stated that available liquidity is expected to be sufficient for projected uses, including investment, debt service, potential share repurchases, and subsidiary operating needs. Expected funding sources include cash on hand, operating cash flow, asset monetizations, dividends, and available borrowing capacity. Liberty had $550 million of availability under the SIRIUS XM Holdings Margin Loan and $600 million under the Live Nation Margin Loan.
SIRIUS XM Holdings had approximately 34.2 million subscribers, while Pandora had approximately 6.9 million subscribers and 66.0 million active users at March 31, 2019. SIRIUS XM Holdings expected regular quarterly dividends with an aggregate annual rate of $0.0484 per share; a quarterly dividend of $0.0121 per share was declared on April 23, 2019.
- Acquisition integration: Management identified risks that Pandora integration may not produce expected synergies, cost savings, or growth, and stated that Pandora internal controls were under review following the acquisition.
- Legal matters: SIRIUS XM Holdings recorded a $25 million reserve for a proposed Telephone Consumer Protection Act settlement. The settlement remained subject to definitive documentation and court approval. Pandora also faces stayed litigation concerning pre-1972 sound recordings; the filing does not provide a clear estimate of potential exposure.
- Debt and market risk: Liberty and its subsidiaries have substantial leverage, including approximately $13.9 billion of principal debt. Debt is exposed to interest-rate and market-value movements, and significant Sirius XM and Live Nation holdings are pledged as collateral for margin loans.
- Operating risks: Key risks include competition for listeners and advertising, subscriber churn, dependence on automakers, music royalties, satellite or technology failures, cybersecurity and privacy incidents, regulatory changes, third-party performance, and the ability to integrate Pandora.
- Contingencies: Braves Holdings had $205 million of guaranteed player and coach contracts at March 31, 2019, including $133 million payable during the remainder of 2019. The filing states that other litigation and tax contingencies are not expected to be material, but loss estimates were unavailable for certain matters.
- Seasonality: Formula 1 and Braves Holdings generally recognize greater revenue and expenses later in the year, limiting the usefulness of first-quarter results as a full-year indicator.
Important facts for investors to verify
- Whether Pandora integration delivers the anticipated revenue growth, cost savings, and operating improvements, and how the preliminary purchase-price allocation changes.
- The sustainability of SIRIUS XM subscriber growth, Pandora user monetization, advertising revenue, and the impact of rising music royalty rates.
- Debt maturities, interest-rate exposure, covenant compliance, and the availability and collateral requirements of the margin loans.
- The final terms and court approval of the $25 million TCPA settlement and developments in the pre-1972 sound-recording litigation.
- The effect of fair-value changes in exchangeable debt, bond hedges, derivatives, and public investments on reported earnings.
- The distinction between Liberty’s consolidated liquidity and cash held at subsidiaries, particularly given noncontrolling interests and restrictions on access to subsidiary cash.
- Formula 1 event timing and Braves Holdings seasonality when extrapolating first-quarter performance to the full year.