Formula One Group (FWONK) on Q1 2022 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation’s First Quarter 2022 Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded May 6. 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 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 Liberty President and CEO, Greg Maffei.
Greg Maffei: Thank you, Courtnee, and good morning to all of our listeners. Today. Speaking on the call we'll also have Formula One's President and CEO, Stefano Domenicali and Liberty's Chief Accounting and Principal Financial Officer, Brian Wendling. So I'll begin with Liberty SiriusXM, we received $872 million of gross dividends from SIRI tax free in the first quarter including the special and regular dividend. We, because of the nature of our convertible bonds, we had to pass through a $30 million of that special dividend. We continued our share repurchases repurchasing $182 million across LSXMA/K from February to April. We repurchased those at a look through price on Siri of about 356 a share. We of course remain disappointed with the discount and attack it as much as we can. We are very focused on long-term value creation for our shareholders. Now looking at SiriusXM itself, solid start to the year, continue to perform well financially despite a challenging auto market. Revenue was up 6%, monthly churn was wonderful down at 1.6%. And we had record ARPU up 9%. New car penetration for SiriusXM is now at 83% and is enabled a fleet of 146 million cars here in the US. As expected self-pay net ads were down slightly due to challenges in the auto market. This was partially offset by strength in digital, and we had a 50% increase in the subs listening digitally to our on demand content. I'd also note we launched our first ever streaming channel [Freakanomics] dedicated to podcasting and available across all the SXM platforms. SXM media was named the number one podcast ad network according to Edison Research, and we represent four of the top 15 podcasts in the country with the addition of Crooked Media in this month. Also beginning with this year's masters, SiriusXM is the exclusive audio provider for the [Indiscernible] and providing excellent programming across all four rounds. Turning the Live Nation, by Live’s first best quarter ever, including give another record quarter and ticket master and compare to 2019 AOI is up 2x, transacted GTV is up 39% and sponsorship AOI is up 75%. We expect a record 2022, we've already sold 70 million concert tickets and expect double digit fan growth versus 2019. Concert ticket pricing is up double digits over 2019 due to fan demand for the best seats. And over 90% of our plan sponsorship net revenue is already committed. Turning to Formula One Group, on the corporate side we repurchase 348,000 FWONA shares for $20 million or $56.14 a share and looking at F1 itself thrilling start to the 2022 season. So far we've had battles back and forth on who will be on the podium each weekend. The spread event in Imola brought exciting qualifying results and the format is working well with the new regulations and producing strong viewership numbers. The sprint audience is up 28% versus the qualifying last year at Imola. We also see record demand in the US early in the season on ESPN viewers for the Sunday race in both Saudi and Bahrain were up 56% and that was the most viewed race since ESPN required the Formula One race in 2018. The momentum in the United States continues with this weekend's inaugural Miami GP. And of course, you can't have not heard about the announcement of our Las Vegas GP for November 2023. As we've noted before, that'll be a night race down the strip. And notably in differently than most places, Formula One and Liberty Media are self-promoting the race in partnership with local stakeholders and Live Nation. The build out for this track will require increased CapEx and OpEx to develop and it’s too early to provide you with numbers but we intend to update you later this year. I would note that Liberty Media did enter an agreement to acquire 39 acres east of the strip to lock in circuit design and create capacity for the pit and paddock. Among other hospitality and race support venues, I expect that transaction will close in the second quarter and the purchase price was $240 million, it will be funded by cash on hand at the Formula One Group level. We announced numerous commercial announcements including on the media right side extension with Foxtel group in Australia and Canal+ in France. Sponsorship is off to an exciting start this year with several new deals including two new global partners, MSC and Salesforce, and we look forward to more announcements as the year progresses. We also look forward to seeing some of you this weekend in Miami. Turning the Braves. We started the season with a weeklong World Series Champion’s celebration, including delivering World Championships rings to the players. We've completed less than 27% of the season. It's a long way to go and last season showed how far things can change over this 162 games. We are hovering at around the same record as last year. And we all know how that turned out. At least we did manage a split with the maps over the last couple of days. We are excited about our roster. We signed [Indiscernible] a 27 year old Atlanta native, we strengthen the [bullpen with Janssens] addition, and we're thrilled to welcome Ronald Acuna Jr. Back in the lineup this week. While it's still in the season, financial performance has already been incredible. Going into the season, we had the highest season ticket sales in more than two decades. We sold out all of our multiyear premium seats for the first time ever, and open our renovated delta club. And retail and concession sales have been strong for the first few home stand including selling out most of our Gold program jerseys. As you undoubtedly know, a new CBA was signed in March. There'll be minimal impact from the late start since the last games were away games, and we still expect a full 162 game season. In January, we also completed the sale of three minor league teams. And in final exciting news. We, Braves debuted the Digital Truist Park in April for future Metaverse fan opportunity engagement. Turning briefly to LMAC, nothing to report today. Obviously, we’ll announce when we have something but I would note the environment which is very difficult, as many of, I think does favor us. And we continue to look at some interesting opportunities. And with that, I'll turn it over to Brian Wendling for more on our financial results.
Brian Wendling: Thank you, Greg and good morning, everyone. In January, we settled exchanges of the 2.25% Live Nation exchangeable bonds for total consideration of $664 million, funded with cash and margin loan draws. At quarter end, Liberty SiriusXM Group has attributed cash and liquid investments of approximately $634 million, which excludes $76 million of cash held at SiriusXM. There's also $1 billion of undrawn margin loan capacity at the parent level related to our SiriusXM and Live Nation margin loans. As of May 5th, the value of the SiriusXM stock held at Liberty SiriusXM Group was $19.7 billion and the value of the Live Nation stock held was $6.6 billion. We have $3 billion in principal amount of debt against these holdings. Total Liberty Sirius XM Group attributed principal amount of debt is $13.9 billion, which includes $9.9 billion of debt at SiriusXM. Formula One Group had attributed cash liquid investments and monetizable public holdings of $1.6 billion at quarter end, which excludes $834 million of cash held directly at Formula One. Total Formula One Group attributed principal amount of debt was $3.4 billion, which includes $2.9 billion of debt Formula One, leaving $454 million at the corporate level. F1’s $500 million revolvers undrawn and Formula One leverage at the end of the quarter was 3.7x meaningfully within our target leverage range of less than 5x. As of quarter end, we are no longer in a period of covenant waiver. Looking at a few cash items on Formula One, Formula One estimates its cash tax rate in 2022 to be single digit, a single digit percentage of adjusted OIBDA, increasing modestly to low double digits in 2023, and thereafter, as a result of the UK tax rate increase, effective next year. Additionally, Formula One is currently undergoing a project to refurbish and upgrade. Its UK based media and technology center at Biggins Hill in the UK, which broadcasts production and other technical activities and related staff are based. Formula One expects to incur about $40 million in incremental CapEx associated with this project, approximately half of which will be recognized in 2022 and the remainder next year. This elevated CapEx excludes any CapEx necessary just to support the launch of the Las Vegas Grand Prix in 2023. And as Greg mentioned, we'll provide updates on that later in the --later in the year. As a reminder, under the current Concorde Agreement, Team payments now take the form of an entirely variable price bond which is now calculated based on F1's adjusted EBIT rather than adjusted EBITDA. The adjusted EBITDA measure that was used in previous agreements such that the calculation now takes account CapEx which is incurred through including depreciation costs in the calculation. Finally, at the Braves Group, at quarter end, they have attributed cash and liquid investments of $311 million, which excludes $26 million of restricted cash. Braves Group had attributed principal amount of debt of $678 million. As Greg mentioned, the Braves completed their sale of three minor league teams in January. Proceeds are included in our financial results as a disposition in the first quarter and you can see additional details on that in our 10-Q which will get filed later today. Liberty and our consolidated subsidiaries are in compliance with the debt covenants at quarter end. And with that, I'll turn it over Stefano to discuss Formula One.
Stefano Domenicali: Thanks, Brian. I'm thrilled to be in Miami this morning. As we have set for the inaugural Miami Grand Prix. The seat is buzzing with excitement, and we are looking forward to the weekend. The 2022 season is off to a phenomenal start. The many changes to the cars and regulation have resulted in improved racing. The cars now follow more closely, enabling greater opportunities for wheel to wheel racing with drivers trading position multiple times, making them think more strategically about the moves. The sprint is back and we held our first event of the season in Imola that came down to the final few laps. It turned out to be a Grand Slam weekend for Red Bull heading qualifying before winning both the race and the sprint and securing extra point for the fastest lap. The first sprint of the season recorded a total audience of 8.4 million, at 28% versus qualifying at the same Grand Prix in 2021. With strong growth in Brazil, and in the US. The Imola weekend on this Sky Sport Italy website recorded that 74% increase in unique user compared to the Emilia GP in 2021. On F1 social platforms, we saw one 149 million video view, up 36% versus Imola in 2021 and 45 minutes engagements, a 43% increase versus 2021. However, the start of the season so far is Ferrari, which has shown real strength with the car and ensures [Indiscernible] leading the Driver’s Championship by 27 points. Red Bull are catching up, and we expect the season to continue to create great racing and close battle at the front. As the construction has continued to refine the new cars. We expect more surprises during the season and opportunities for great racing across the grid. As confirmed on our last earnings call, we will not be racing in Russia in September. We are currently considering the options for the spot and hope to announce more information soon. The action on the track is certainly drawing in the audience through Imola, the average oldest Grand Prix across the main Saturday and Sunday sessions is $23.8 million and is up 10% versus 2021 season average. In the US, The Saudi Arabian Grand Prix brought in over 1.4 million average of viewers, the ninth highest of all times and second highs on cable and other race themselves, the fans are back in huge numbers. We had record attendance in Bahrain, in Saudi, we had 140,000 fans over the weekend with full capacity. Melbourne was the largest weekend ever in Australian sporting history with 420,000 fans. Strong advance ticket sales almost everywhere suggests we may continue to see sell outs of the races for the remainder of the season, including here in Miami. We were thrilled with the response to season four of drive to survive, the series most popular season yet. On the opening weekend, fans consumed 28 minutes hours of drive to survive, and the show was ranked number one in 33 countries. Looking towards the 2023 season, we announced that the debut of the Las Vegas Grand Prix in November 2023. This will be a Saturday night race down the iconic strip, we cannot think of a more perfect marriage of speed and glamour. Staging operation US demonstrates the huge appeal and growth of our sport here. In fact, in the 24 hours following the official announcement wins Las Vegas and anchor resort, so more requests for hotel room reservation than any other one day period in their history. He also saw the announcement generate four times more social media activity than the 2024 Vegas Super Bowl announcement. It is precisely these opportunities that lead us to take on the promoter role for this race. We believe acting as promoted will provide us with valuable insight across the globe. As Greg mentioned that this will require investment on both the CapEx and OpEx side, and we plan to share more on this later this year. Additionally, on the race side, we announced that we extended the Emilia Romagna Grand Prix as they started to gain more track through 2025. We are pleased with the progress made in the other commercial areas, especially with our new sponsors, including several in the technology space, Salesforce has joined us as global partner in a multiyear deal. In addition to the growing and deepening engagement with our fan base, we will gain actionable insight around our carbon footprint as we march toward our goal of net zero emission by 2030. Tata Communications return as the official broadcast connectivity provider of Formula One, they will facilitate the transfer are more than 100 video feeds and 250 audio channel between the venues and the F1 medias and Technology Center in the UK in under 200 milliseconds, enabling us to reach over 500 million fans in 182 territories. We've already made great strides here on the ESG front as our move to remote broadcasts operation in 2020 allowed us to reduce our volumes of traveling freight and stuff at the racetrack. We also worked on the Lenovo as an official partner and we will use their technology across our operation. We will leverage their extensive selection of premium hardware innovative next generation technology such as augmented and virtual reality. Additionally, we will work together with Lenovo on projects around diversity and inclusion. We were also pleased to announce the renewal and expansion of our partnership with Workday, a leader in enterprise cloud application for finance and human resources. Outside of the global space, we announced a multiyear deal with MSC Cruises as a global partner and they plan to bring the cruise ship portside during selected Grand Prix weekends. And AlphaTauri, Red Bull’s premium fashion brand has become the official premium fashion apparel supplier of Formula One. On the broadcast front, we renewed our partnership with Canal+ until 2029. We have seen significant viewership growth in France. The 2021 average viewership for each Grand Prix was up 18% over 2020 and up 50% compared to 2019. And the first two Grand Prix of the season already ranked among the top five racing of old times for F1 events for Canal. As part of the distance partnership, Canal+ subscribers will now get access to F1 TV pro through My Canal. We also renew our partnership with the Foxtel Group in Australia in a multiyear deal. Every Grand Prix will be available in 4K and Foxtel will integrate the F1 TV app into its set top boxes. From 2023, the F1 TV app will be available free to Foxtel subscribers and will provide multiple live in race feed, comprehensive life timing data and exclusive programming on the end of the track. F1 TV continues to see significant growth accelerating into 2022 from an already strong 2021 as the first race of the season in Bahrain, the platform gained 427k new users and concurrent viewers were up to 144% compared to 2021. We continue to evolve on the gaming front and feeding F1 Management 2022, the first management simulation game as part of a long term, multi title agreement that will be released this summer. The game allows you to be the team principal. Choose your drivers and engineers and balanced budget as you manage your team to victory. Find out if you are Toto or Christian or may even a Guenther. As you can see from our recent commercial announcement, our ESG goals are a major focus not only for us, but also for our partners. We are moving towards our goal of being net zero carbon as a sport by 2030. For the Bahrain Grand Prix, we exceeded our target to offset our emissions. Our experienced promoter, the Bahrain International Circuit demonstrate vision and speed by completing a major solar project that more than covered the energy requirements of the entire Grand Prix weekend. This successful [Indiscernible] shows what we can do as a supporting community to make a positive contribution to reduce emission and our carbon footprint. We hope you enjoy this weekend of racing as much as we plan to. [Indiscernible] And now I will turn the call back over to Greg. Thank you.
Greg Maffei: Thank you, Stefano and Brian. We hope you'll tune into our inaugural Miami GP this weekend. We do appreciate your continued interest in Liberty Media and look forward to a healthy and productive 2022. And with that operator, I'd like to open the line for questions.
Operator: [Operator Instructions] We'll go first to David Karnovsky with JPMorgan.
Operator: We will take our next question from Bryan Kraft with Deutsche Bank.
Operator: We'll take our next question from Vijay Jayant with Evercore.
Operator: We'll take our next question from Stephen Laszczyk with Goldman Sachs.
Operator: We'll take our next question from Barton Crockett with Rosenblatt securities.
Operator: We'll take our next question from David Joyce with Barclays.
Operator: We'll go next to Jason Bazinet with Citi.
Operator: We'll take our final question from Matthew Harrigan with Benchmark.
Greg Maffei: Operator, I think that we're done. To listening audience, again, thank you for your interest in Liberty Media. As we said, we hope to see some of you here in Miami. And for those who are not able to get to Miami, we do encourage you to watch and hope to speak to you again next quarter.
Operator: Thank you. Now we'll conclude today's call. We appreciate your participation.
