Formula One Group (FWONK) on Q2 2022 Results - Earnings Call Transcript
Operator: Please standby. Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation’s 2022 Q2 Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded August 5th. I would now like to turn the conference over to Courtnee Chun, Chief Portfolio Officer. Please go ahead.
Courtnee Chun: Thank you. Before we begin, we'd like to remind everyone this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in Liberty Media's most recent Forms 10-K and 10-Q or Liberty Media Acquisitions most recent Form 10-K and 10-Q filed with the SEC. These forward-looking statements speak only as of the date of this call and Liberty Media and Liberty Media Acquisition expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Media or Liberty Media Acquisitions expectations with regard there to or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures for Liberty Media and SiriusXM, including adjusted OIBDA and adjusted EBITDA. The required definitions and reconciliations for Liberty Media and SiriusXM schedules one and two can be found at the end of the earnings press release issued today, which is available on Liberty Media's website. Now I'd like to turn the call over to Greg Maffei, Liberty’s President and CEO. Greg.
Gregory B. Maffei: Sorry was on mute. Good morning. Today on the call besides myself we will also have Formula One’s President and CEO, Stefano Domenicali and Liberty's Chief Accounting and Principal Financial Officer, Brian Wendling. So let's begin with Liberty’s SiriusXM where we received a $70 million regular dividend from Sirius in the second quarter which was tax free. We also repurchased $93 million across the LSXMA and LSXMK shares from May to July and a look through price on Siri of $2.88 per share. We do understand the discount has widened and it is frustrating. And while the decline of LSXM is in line with the overall market, further widening of the discount has been very disappointing. We still believe repurchases are attractive means to capture that discount but it's becoming clear they are not enough to collapse on their own. We are focused on this. While not a fulsome list, potential actions we might consider include reducing data LSXM to enable a combination and a not overly levered Siri LSXM, steps to better illuminate the value of our live stake, and other potential actions. I would remind you with Liberty Media and some of our various fun entities [ph] we have a long history of corporate action to capture discount and these include structuring the GCI acquisition in such a way it was a mid-lane ATB, the Direct TV RMT and subsequent sale to AT&T, and the subsequent -- the separation of Liberty Expedia and subsequent merger with Expedia. In summary we have options and actions we have taken, we have a history of doing so. So let me turn to Siri itself which I believe is handling the market challenges well and maintaining their financial guidance despite a reduced sub guidance due to a weak SAR, which has been well documented for reasons like chip supply issues. They had robust financial results for the second quarter, including revenue up 4%, churn steady at 1.5%, and new and used car penetrations up to 84% and 51%, respectively. We also announced extensions with important automaker partners, including Mazda and Mitsubishi. We made continued progress on our connected TV platforms like Amazon Fire, Android TV, LG, and Roku. We signed a new agreement to fully integrate and launched SiriusXM audio experience on XFINITY with Comcast with video to come. And on demand music listening in the SiriusXM app is up 41% year-over-year, and that's partly driven by the addition of new, unique, and diverse content. Overall sports listening as up in the app. Our agreement to make Siri exclusive third party platform for NFL games is helpful. And keeping the family we also announced an extension with F1 to cover every race on the World Championship calendar. Lastly, we're very excited about our continuing work in podcasting. Americans listen to audio of 9% last year podcast audio of 9% last year and our podcasting and off platform business revenues were up 50%. We also expanded our agreement with Comscore to release AI powered podcast audience targeting capabilities. So, we turn to Live Nation which announced very strong results. It is clear live events are back on a global scale with yet another quarter of record results. Versus 2019 AOI is up 50%, free cash flow was up 72%, and that rose to $379 million. At Ticketmaster itself AOI was up 86% and the transacted GTV was up 76% again over 2019. Sponsorship AOI was up 81% over 2019 and important new clients included Google, AWS, and Hulu. We had the highest quarterly attendance ever over 33 million fans and our onsite fan spend growth continues across all venues. We have an outlook for a record of 2022 with 100 million concert tickets already sold, fan attendance up 13% in operated venues and almost 30 new venues in the pipeline. And the 2023 August pipeline is the largest we've ever had at this point in the year. So exciting stuff. Turning to Formula One Group, F1 continued to see record attendance and viewership in the second quarter. The Austrian Grand Prix was our second sprint event and viewership was up 39% versus the 2021 Austrian Qualifying. We also are benefiting from the return of coverage on CCTV boosting our audience in China. Suddenly, we've had record in person attendance, four races this year have had over 300,000 attendance with incredible demand for the Paddock Club. The Hungarian weekend attendance for example with 290,000 was the largest ticketed sporting event in history in Hungary. So we've seen strong ticket sales and sell out demand for the rest of the year and to the rest of the calendar as well. The new regulations that were part of the Concorde Agreement are succeeding and enabling closer racing and demonstrably more overtaking. We are continuing to pursue trail with brazen work around sustainable drop in fuel and regenerative engine development. And we think these will have implications across the entire transportation industry. Turning to our most recent work in Las Vegas, we completed the land purchase at the foreign corporate level. We're excited about the potential for this property. We do expect to have year round activations on this site. The main Paddock building, which is estimated to be 900 feet long, was the length of three football fields will be exciting, and we're actively working with potential commercial partners to expand our opportunities there. We are building out the F1 team in Vegas across sales, marketing, race operations, and more. We are leveraging local expertise and talent as well, including the LVCVA and our partners at Live Nation. We're still working through the specifics on capacity but I'd note that our founding partners in Vegas; Caesars, Wynn, and MGM are seeing incredible demand and we haven't even announced the formal date. We will obviously share more details on Vegas over time. While some of you are excited, you don't have to wake up early for time. While some of you are excited, you don't have to wake up early for races over the summer break, we here at Liberty look forward to restarting Formula One at Spa on August 28th. Turning to the Braves. They've been playing excellent baseball over the cap last past couple of months. As of today, we're just under 600 record for the season and since June 1st we have the best record in baseball despite a sad loss to the Mets last night. It's an exciting team and the world's Halo is still driving fans to Truist Park. Braves attendance is up 23% compared to an already strong 2019 season. We've had 24 sellouts to the All Star Break and trending to roughly 50% sellouts for the year. Tickets, parking, concessions, and concert, the Roxy are all performing well. We've had six All Stars named this year, most of the team since 2011 and double the amount from last year. We just signed an extension with Austin Riley, a 10-year deal, a $212 million, the largest in franchise history after outstanding performance by Austin this season including a historic July. Alex Anthopoulos, once again deserves credit for the moves he took to strengthen the team before the trade deadline. We do remember how well this worked out last year, acquiring Grossman in left field and Odorizzi a pitcher, both insurance to our lineup, adding also bullpen capacity. We want to congratulate Snit on his 500th career win after defeating the Phillies last week. And again, we encourage you to tune in to the Mets tonight. We have nothing to report today on LMAC but we do continue to review opportunities and look at the environment, it was difficult for specs as an opportunity for us. And with that, I'll turn it over to Brian for more on our financial results.
Brian J. Wendling: Thanks, Greg and good morning, everyone. At quarter end, Liberty SiriusXM Group had attributed cash, liquid investments, and liquid public debt and equity securities of approximately $368 million, which excludes $126 million of cash held directly at SiriusXM. There's also $1.3 billion of undrawn margin loan capacity at the parent level related to our SiriusXM and Live Nation margin loans. As of August 4th, the value of our SiriusXM stock held at Liberty SiriusXM Group was $21.5 billion, and the value of the Live Nation stock was $6.8 billion. We have $2.8 billion in principal amount of debt against these holdings. Total Liberty SiriusXM Group attributed principal amount of debt is $13.7 billion, which includes $10 billion of debt at SiriusXM. Formula One Group had attributed cash, liquid investments, and monetizable public holdings of $1.1 billion at quarter end, which excludes $935 million of cash held directly at Formula One. Total Formula One Group attributed principal amount of debt was $3.2 billion, which includes the $2.9 billion of debt at Formula One, leaving $306 million at the corporate level. During the quarter, we repurchased $146 million face value of 1% FWONK cash convertible notes due in 2023 for approximately $240 million, effectively retiring 3.95 million underlying FWONK shares at an average price of $59.88. F1’s $500 million revolver is undrawn and Formula One leverage at the end of the quarter was 3 times. As we discussed last quarter, under the current Concorde Agreement team payments now take the form of an entirely variable price fund, which is calculated with reference to a measure of F1's adjusted EBIT rather than the adjusted EBITDA measure used in previous agreements. Such that the calculation now takes into account CAPEX incurred by including depreciation cost. There is an immaterial difference today between Formula One's adjusted EBIT and adjusted EBITDA for purposes of this calculation. Note that our reported F1 depreciation and amortization includes purchase accounting amortization related to the acquisition that is excluded for purposes of the price on calculations. We've quantified this purchase accounting amortization in our earnings release to assist in calculations. Also at Formula One, other F1 revenue was running materially higher than the prior year, up about $80 million in the second quarter and $130 million year-to-date compared to 2021. Increased freight and hospitality income accounts for 98% of the quarter-over-quarter increase. Note that the Paddock Club didn't run until July of last year, while year-to-date through the second quarter, F1 has welcomed over 35,000 guests at the 7 events where we've ran our Paddock Club. Other costs of F1 revenue is higher primarily due to the same factors. These costs were up $76 million in the second quarter, approximately 75% of which is due to freight and hospitality cost variances. Finally, at F1, at last year's Investor Day, we included an appendix slide detailing F1's foreign exchange exposure. These percentages are still accurate with approximately 80% of F1's revenue and cost denominated in U.S. dollars. Finally, the Braves Group at quarter end, they had attributed cash and liquid investments of $207 million, which excludes $66 million of restricted cash. Braves Group had attributed principal amount of debt of $602 million. The Atlanta Braves also announced several new construction projects for 2022, a new office building will be constructed known as 5 Ballpark Center that will house the national headquarters for Truist Securities under a 15-year lease. Construction is expected to begin in the second half of 2022. The Braves estimate their cash contribution will be approximately $20 million. The Braves were also working on a new project with Goldenrod Development Company called the Henry, a luxury apartment building. If completed, the Braves would have a minority equity stake in exchange for two acres of contributed land with no additional cash contribution from the Braves. Additionally, the Braves are evaluating a Phase 2 project with Goldenrod to build an adjacent hotel and condominium complex. This is still in the evaluation phase, but would be another minority investment with a modest cash investment. Our real estate projects have individually and collectively performed ahead of our expectations. The Battery is generating healthy cash flow, which is partially used to support the operations of and future investments in the Battery and partially to support Braves Baseball. Liberty and our consolidated subsidiaries are in compliance with the debt covenants at quarter end. With that, I'll turn it over to Stefano to discuss Formula One.
Stefano Domenicali: Thanks, Brian. For the last earning calls, we were in Miami for the inaugural Miami Grand Prix. It was an incredible weekend as Formula One was welcomed to the city with open arms. The celebrities came out in full force and much of the coverage and helped in the establishment of Formula One in the U.S. It was wonderful to see so many of you in person. We are now over halfway through the 2022 race season, and we have seen unpredictable outcomes and a lot of wheel to wheel racing, especially in the mid field. It is a testament to the new regulation that everything [indiscernible] this season. Carlos Sainz secured his first F1 career race win at Silverstone and Lewis Hamilton marked his 300th race start with a second place finish and first double podium of the season for Mercedes in France. Max Verstappen currently leads the Driver’s Championship over Charles Leclerc of Ferrari has shown incredible speed and the battle between these two is intense. We have seen the fight between McLaren and Alpine, and it is great to see it has beginning to move forward, cornering [indiscernible] championship. And as we said, Mercedes continues to fight back with Lewis and George [indiscernible]. This action on the track has drawn in the fence will set out crowds at our events with 420,000 --; 400,000 at Silverstone; 300,000 in Austria, 300,000 in Hungary, and 338,000 for Canada. And Paddock Club has experienced record sales. We're coming over 35,000 people across nine events this year, including record-breaking attendance of Silverstone where we have 7,500 guests. The TV audiences is also tuning in with the average audience program through France [ph], up to 9% versus 2001 season average. We continue to see tremendous growth on all platforms. We were thrilled to announce that the highly popular network series Drive to Survive has been renewed for the fifth and sixth season. The series is still attracting new fans and Season 4 broke into the weekly top 10 in 56 countries. Bidding on demands for our media rights, we reached a renewal agreement with Bandeirantes in Brazil throughout 2025, which will cover all qualifier session and Grand Prix’s all live free to our bases. Additionally, we secured a strategic partnership with Claro Brasil to be the exclusive distributor of F1 TV Pro in the country. F1 TV Pro has proven to be a compelling product for our fans, so it's worth a brief overview. F1 TV Pro office coverage of every F1 session live on demand as well as live access to all 20 onboard drivers cameras and teams radio channels, session replays and highlights, live streaming of every F2, F3, and F4 super cap session, and a library spending over 2,000 hours of archives and feature programming. The platform was revamped in 2021 and is now more accessible than ever before with the release of the service across many of these streaming platform, enhancing the viewing experience for Formula One fans around the world. On to the racing promotion side, we were pleased to reach a long-term agreement with Melbourne that will have us racing there through 2035. This new agreement will bring F2 and F3 to the track for the first time ever. We were also thrilled to announce Honda as the type of sponsor of the Japanese Grand Prix when we turn to Japan in October. We are focused on the calendar for 2023 and expect to have more details around early October. On the sponsorship front, we announced PATRÓN Tequila as the first-ever official tequila partner of the F1 Paddock Club. We also focused on licenses opportunity and partnering with around Round Room Studios for the first official exhibition in Formula One history. Details, including venues and the sale days for tickets will be announced this fall. We also extended our agreement with the Memento Group through the 2025 season. This already covered authentic certified and licensed F1 memorabilia and now includes the right to sell ex-F1 race and show cars. They recently completed the auction for the 1990 Leyton House CG901, which placed second in the French Grand Prix, sold for over 500,000 Pounds. We continue to push to hit our net zero carbon by 2030 target. F1 is developing a 100% sustainable fuel that will be used in Formula One cars from 2026 in line with the introduction of the next-generation hybrid engine. The fuel is purposely designed to drop in for both internal combustion engines and hybrids. It is already in development with support from our key stakeholders, the FIA, Aramco, and from the F1 global partners, fuel providers, and F1 piston manufacturer. While racing fuel represents only 0.7% of our emission, we believe sustainable fuels where we can have a greatest impact on the global transportation [ph] sector. While we have already instituted significant changes to create the more sustainable sport, we are now focusing on the following areas; exploring carbon reduction measure for fast revenue to Formula One events, sharing the cover induction activities from across our sporting community, taking steps and continue to investigate our measures to deliver more efficient logistics and travel arrangements from air, sea, and land. Furthering our commitment to the environment, we have partnered with Banco Santander to amplify the Santander ex-Global challenge come down to zero, a competition that challenges entrepreneurs to create sustainable solution for the future. We continue to promote diversity in each sport and hosted the F1 Esports Women’s Wildcard Experience Day at the McLaren Technological Center. First launched in 2021, the Women Wildcard represents another route into F1 eSports for female participants. The initiative was born from the desire to create a space that encourage multi-males to take part and submit their time trials via the official F1 video games with the passes securing a spot in F1 Esports pro-exhibition for the chance to be selected by a team for the Pro-Championship later this year. We also announced earlier in the year our extended funding commitment to the Formula One Engineering Scholarship Program for unrepresented group until 2025, continuing its drive to increase diversity within the sport. We hope everyone has enjoyed the first part of the season. While the teams and the drivers enjoy a much deserved break, we will continue to capitalize on the growing popularity of F1 and convert this into opportunities to drive the business forward. Avanti tutta, full speed ahead. And now I will turn the call back over to Greg. Thank you. Bye-bye. Ciao.
Gregory B. Maffei: Thank you, Brian and Stefano. Our Annual Investor Day will be Thursday, November 17th in New York. Please save the date. Additional details will be provided soon. We hope to see many of you there. We appreciate your continued support of and interest in Liberty Media. And with that, operator, I'd like to open the line for questions.
Operator: Thank you. [Operator Instructions]. We'll turn first to Ben Swinburne with Morgan Stanley.
Operator: We'll take our next question from Bryan Kraft with Deutsche Bank.
Operator: We'll turn next to Vijay Jayant with Evercore.
Operator: Next up is David Karnovsky with J.P. Morgan.
Operator: Barton Crockett with Rosenblatt Securities has our next question.
Operator: We'll now move to David Joyce with Barclays.
Operator: Next up is Jason Bazinet with Citi.
Operator: Now we'll move to Matthew Harrigan with Benchmark.
Operator: And with that, we'll conclude today's question-and-answer session. I'll now turn the conference back over to the speakers for the closing remarks.
Gregory B. Maffei: No, I just want to say thank you to all our listening audience for your questions and your attention. And you -- appreciate your interest in Liberty Media. Hope to see you next quarter, if not sooner. And again, at our November meeting for many of you. Have a great rest of your summer. Thank you.
A - Brian J. Wendling: Thank you. Bye-bye.
Operator: With that, we'll conclude today's conference. Thank you, everyone for your participation. You may now disconnect.
