Formula One Group (FWONK) on Q4 2022 Results - Earnings Call Transcript
Operator: Welcome to the Liberty Media 2022 Year-End Conference 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 will be recorded today, March 1. I would now like to turn the call over to Shane Kleinstein, Vice President, Investor Relations. Please go ahead.
Shane Kleinstein: Thank you. Good morning. Before we begin, we'd like to remind everyone that 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 Form 10-K filed with the SEC. These forward-looking statements speak only as of the date of this call. Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Media's expectations with regard thereto 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 scheduled one through three can be found at the end of the earnings press release issued today, which is available on Liberty's website. Now I'd like to introduce Greg Maffei, Liberty President and CEO.
Gregory Maffei: Thank you, Shane, and good morning to all of you. Today speaking on the call, we will also have Formula One's President and CEO, Stefano Domenicali; and Liberty's Chief Accounting and Principal Financial Officer, Brian Wendling. First, let me start with an update on the split-off of the Braves and the creation of Liberty Life Tracker. We filed the amended S-4 and we still expect completion in the second quarter. Let me turn to Liberty Sirius XM. We expect we will have a simplified structure following the recapitalization of LSXM and the creation of Liberty Life Tracker, and we are focused on rationalizing this structure in the near-term. Looking at SiriusXM, the underlying asset, reported strong fourth quarter results with record high ARPU and EBITDA and record low churn. Management did give more cautious forward-looking commentary given multiple headwinds we're experiencing here in the early part of 2023. The top of the funnel in terms of new subscribers is still pressured as the SAAR has dropped from about $17 million in 2019 to something like $13.5 million last year. The ad market remains soft, especially in the first half of 2023, and we are seeing moderating marketing spend ahead of the fourth quarter app revamp. Plus we've had some cash impacts. We expect peak satellite CapEx in 2023, and we are now a taxpayer, something which previously we had not fit. We do expect these incremental satellite CapEx will moderate in 2024 with nearly no incremental satellite CapEx by 2027 by the end of the year. We are also stepping up some tech investments for long-term success. We are building improvements around commerce and identity to reduce friction, and the new app will have more personalization as it has within 360L. We do expect these negative trends in the ad market and the SAAR will turn, and we have a resilient business model with meaning free cash flow, so we still remain optimistic about our longer-term prospects. Turning to Live Nation. We continue to see incredible demand. 2022 attendance was up 24% over 2019. We are at an all-time high for concert attendance despite many markets still being closed during part of the year. We've seen especially strong international markets with 70% of net new tickets sold in 2022 were to international clients and we expect another record year of demand in 2023. Ticket sales in 2023 are up 20% versus the same time last year. And last year, it also benefited from 20 million of tickets that were rescheduled from prior periods due to COVID. Formula One Group, right into the 2022 year, attendance records were set, we were up 36% over 2019. Our fan base is increasing diverse with new fans being younger, and the share of females within the fan base 40% larger than the share in the established fan base. That's been the new fan base. The U.S. is especially strong. One in three fans globally started following F1 in the last four years in the U.S., it's even higher at one in two. This is a result of many efforts and most of them related to our efforts to drive the access to -- our drivers across all channels, not only Drive to Survive, but the driver preference on social pages, coverage in larger use publications, late-night comedy appearances on people like Jimmy Kimmel. And it's interesting to note, for example, look at our Instagram followers and comparing GOATS (ph), Lewis Hamilton has 31.5 million versus Tom Brady at 13.6 million. F1 is clearly getting into the mentality of America. And looking at the younger talent, Leclerc has almost 10 million and Luka Doncic is at 8 million. Again, we're doing pretty well. We will have three U.S. races in 2023, the second year of Miami, capitalizing on the first year success with several improvements around hospitality and security. We expect the sporting world to be super excited as we are for the inaugural Las Vegas GP. F1 Las Vegas social media garnered over 170 million impressions and over 5 million engagements since September of 2022. And we launched LBGP TikTok last weekend. The first post had over 535,000 views in the first 24 hours. Let me turn to the Braves. We reiterate that we believe the split-off will better highlight the value of the Braves. We grew baseball revenue in 2022 even though we had experienced less post-season gains, capitalizing on the tailwinds from our 2021 World Series win. We had year-over-year growth across ticket sales, sponsorship, concessions and retail. We sold 3.1 million tickets and led Major League Baseball with 94% of our inventory being sold. Demand for the season and single-ticket ticket remains high for the 2023 season. Bleacher Report called the Braves front office, the number one in Major League Baseball for the 2023 season, and we tend to agree. We were happy to extend Manager Brian Snitker through 2025. And GM Alex Anthopoulos invested smartly in the off-season, adding to the already core talent we have by locking them up in multiyear deals. This team is built on young talent and is positioned for long-term success and we very much look forward to the opener on March 30. And with that, let me turn it over to Brian to talk a little bit more about our financial results.
Brian Wendling: Thank you, Greg, and good morning, everybody. At quarter end, Liberty SiriusXM Group had attributed cash and liquid investments of approximately $305 million, which excludes $57 million of cash held at SiriusXM. There's also a $1.3 billion of undrawn margin loan capacity at the parent level related to our SiriusXM and Live Nation margin loans. As of February 28, the value of our SiriusXM stock held at Liberty SiriusXM Group was $14.1 billion, and the value of the Live Nation interest was $5 billion. We have $2.8 billion in principal amount of debt against these holdings. Total Liberty SiriusXM Group attributed principal amount of debt is $13.1 billion, which includes $9.5 billion of debt that's down at the SiriusXM level. Formula One Group had attributed cash, liquid investments and monetizable public holdings of $1.8 billion at quarter end, which includes $752 million of cash at Formula One. Total Formula One Group attributed principal amount of debt was $3 billion, and this includes $2.4 billion of debt down at the Formula One level, leaving $565 million at the corporate level. During the quarter, F1 refinanced its term loan and revolver at attractive rates and an extended maturity. F1 repaid $477 million of its term loan B in connection with this refinancing, using cash on hand. And at year end, Formula One's $500 million revolver is undrawn. Formula One's leverage at the end of the year was 2.7 times. On the F1 operating business, given quarterly variability in the year-over-year rate calendar, a reminder that this business is best analyzed on an annual basis. Total revenue grew 20% in 2022 with growth across all primary revenue streams. Other F1 revenue grew 63% or $180 million with approximately $110 million of the revenue growth coming from hospitality and experiences and approximately $55 million coming from increased freight. Team payments as a percent of the pre-team OIBDA as reported was 66% in 2022, down from 68% in the prior year, benefiting from the team -- the terms of the 2021 Concorde agreement. As a reminder, other costs of Formula One revenue are largely variable in nature and relate to both primary and other F1 revenue opportunities. Other costs increased from 20% of total revenue in 2021 to 23% of total revenue in 2022. Primarily driven by compression in freight margins with significant air charter cost inflation during the year as well as increased cost of servicing our additional hospitality offerings. SG&A as a percent of total revenue was basically in line with historical averages in 2022. As mentioned in Q3, we did have some modest increases in personnel costs due to the change in the company's LTIP from a stock to a cash based long-term bonus program and increased headcount to support growth. Also included in SG&A in 2022 was $19 million of costs from the Las Vegas Grand Prix, mostly related to personnel and marketing initiatives. Looking at 2023, we look forward to a record '23 rates calendar. The calendar will consist of 14 flyaway races compared to 12 flyaway races in 2022. As we've discussed before, flyaway races typically pay higher fees than the European races. And on Las Vegas, as previously communicated, we expect total revenue approaching $500 million. Looking at total rate specific economics, Vegas is projected to be in the top five of all races in year one in terms of total profit to the company. Hepatic (ph) building is progressing on schedule, and the concrete structure will be completed by the end of March. CapEx related to the Hepatic (ph) building will be incurred at the Formula One corporate level and track-related CapEx is expected to be incurred at the F1 Opco level. The majority of our CapEx spend will be incurred at the corporate level, primarily because year-round activations of hepatic building will be separate from Formula 1. We will not be providing a forward-looking allocation between F1 Opco and Formula One corporate CapEx, but you'll be able to see it in our historical numbers as they get reported. LBGP will pay rent and other fees out of Formula One Opco to the Formula One corporate for use of the building during the raise period, which will show up in our financial statements as revenue at the corporate level but will eliminate in consolidation. We also expect the receipt of advanced payments primarily related to ticket sales to impact year-over-year comparability and working capital flows in the first year of the Vegas race. Nearly all LBGP revenue will be recognized in the fourth quarter when the rate takes place. We'd expect grandstand and GA tickets as well as sponsorship revenue to be recognized in primary F1 revenue as rates promotion and sponsorship revenue, respectively. We expect hospitality tickets will be recognized within other Formula One revenue. On cost recognition, we expect the vast majority of the rates related to costs also be recognized when the rate takes place as cost of F1 revenue. So there will be some SG&A incurred throughout the first few quarters of 2023. Finally, at the Braves Group at quarter end, they had attributed cash and liquid investments of $151 million, which excludes $22 million of restricted cash. Braves Group had attributed principal amount of debt of $546 million at the end of the year. Liberty and our consolidated subsidiaries are in compliance with their debt covenants at quarter end. And with that, I'll turn it over to Stefano to discuss Formula One.
Stefano Domenicali: Thanks, Brian. 2022 was a fantastic season on track, commercially with our partners and financially in our results. Maxwell's top and 15 wins broke records with the most wins in a single season. The Red Bull team won their first Constructor Championship since 2013. And the [indiscernible] competition battle down to the last race without Alpine and McLaren both tightened for fourth place. The feedback from the drivers made it clear. The new regulation meant that cars could raise more closely, and we saw some great results on the track. This action during the season fueled our growing fan engagements. 2022 show record attendance of Grand Prix events. We welcomed more than 5.7 million fans to raise weekend, up 36% compared to 2019. Demand is continuing in 2023 with sellout crowd expected at a number of races decisions. Formal One was once again the fastest-growing major sports league on the planet in 2022 in terms of social media followers. We have 60.6 million total followers, up 23% from 2021 and saw significant growth in markets like the U.S. where social followers were up 42% versus 2021 to 4.5 million. Additionally, across f1.com and the F1 app, unit users were up 11% versus 2021 to 125 million. On viewership cumulative TV audiences for the 2022 season was 1.54 billion, an average viewership raise was 70 million. U.S. viewership was up 36% compared to 2021 with an average of 1.2 million viewers tuning in on raise days. Looking at some other markets. Italy viewership grew 22%. Australia was up to 20% and Germany viewership grew 9%. With our newer younger demographic, the digital share of F1 video minutes consumed grew from 16% in 2021 to 24% in 2022. As an endorsement of F1 growing global popularity, technological relevance and sustainability efforts, Ford announced the return to F1 from 2026 in a new partnership with Red Bull. Ford is a celebrated name in Motor Sport with a storied F1 history getting (ph) back into the '60s, and they are the third most successful engine manufacture in F1 history. We expect Ford involvement as a technical engine provider will bring value not only to Red Bull, but to the sport. The growing fan engagement has benefited both new and renewed commercial agreements. F1 grew revenue across all primary sources: promotion, media right and advertising and sponsorship. In addition, our Paddock Club hospitality product performed especially well in 2022, its first full season of operations since the onset of the pandemic. We welcomed 50,000 guests over the season with sellout up 12 out of 19 events. In 2023, we are focused on optimizing the value of our Paddock Club by expanding the premium services we offer, continue to enhance the guest experience and adjusting pricing. Turning to recent updates on our commercial agreements. On race promotion, we extended our [indiscernible] from 2024 and 2025, and the '23 Dutch Grand Prix is already sold out. The promoter has focused on sustainability from travel with 99% of general admission ticket holdage in 2022 arriving by public transportation, bike or on foot. We signed a number of large broadcast agreements throughout 2022, including renewing our partnership with Sky, a major European markets and with ESPN in the U.S. More recently, we entered into a multiyear media rights agreement with BeIN Sports to exclusively broadcast F1 in 10 territories across Asia. Our FOX Sport agreement in Mexico was extended through 2025. We also renewed our partnership with Play Sports in Belgium for 2023 and 2024. And our agreement with DAZN in Japan through 2025. F1 TV continues to grow in popularity among new and heritage fans. The product is now available in 120 countries. On sponsorship, just last week, we announced the addition of Qatar Airways as a global airline partner under multiyear agreement. They will also be the Title sponsor at three races. Looking forward, there are a number of areas we continue to explore for additional sponsorship opportunity, including travel, financial services, food and beverage, telecommunication and more. Our team is continuously building fan engagement opportunities to capitalize on our momentum. The fifth season of Drive to Survive [indiscernible] on February '24. The 2023 F1 is four (ph) qualified round is being held through May 25, and we hope to build on the strong engagement from last year when 1.3 million players attempted to qualify. The new license program, F1 RK (ph) launched its first location in London in December, hosting over 600 F1 guests and celebrities at the official launch party, who experienced the excitement on F1 with 60 full motion racing simulator. The second venue will open in Birmingham in the UK in the fourth quarter 2023, with additional locations planned to follow. A new F1 exhibition will also launch in Madrid later this month and remain there before moving to Milan in time for the Italian Grand Prix. This is a 90 minutes immersive experience guiding visitors through the past, present and the future of the sport. And it's planned to visit 25 cities around the world over the next decade. We are counting down to the start of 2023 season. Bahrain testing finished last week and with another year of improvements to the track, we are expecting even fiercest competition on the track. Ferrari and Mercedes are certainly eager for their come back. There will be new phases on the grid with Nyck Debris, Oscar Piastri and a promising young and American driver Logan Sargeant as well as the return of Nico Hulkenberg. The '23 race calendar is a wake up for Formal One. We made the decision not to replace China on the calendar at the most economic benefit of a replacement race was not worth the logistical and sustainability consideration for F1 and our teams. There will be six sprint events held in Azerbaijan, Austria, [indiscernible], Qatar, Austin and Brazil. The Sprint series have been successful in driving attendance and engagement across the entire weekend for our promoters and broadcast partners. The 2023 calendar will feature three races in the U.S. including taking to the street of Las Vegas for a night race in November. We announced Heineken Silver as the Title sponsor and T-Mobile as the exclusive wireless provider. The plan to deploy an advanced 5G public network and race we can that will power our customer app and enhance the efficiency of the fan experience. Our second wave of public ticket sales will launch soon. And in spring, the world begins on resurfacing the track roads with digital plans in place to minimize disruption to the Las Vegas flow of traffic in the process. We have made a long-term investment in Las Vegas, which we expect to set us up to the race for day gets to come. And finally, we made several announcements furthering our efforts in sustainability, diversity and inclusion. F1 recently announced a global charity partnership with UNICEF to help bring quality education to the world's most vulnerable children, building on F1 long history of promoting STEM education worldwide. We also look forward to the Women (ph) F1 Academy in 2023. This series intend to maximize the potential of young female drivers to reach the highest level in motorsport, providing those currently in go-cart [indiscernible] with access to the fundamental experience needed before racing in F3 and working up to Formula One. The series will be consist of five teams run by current [indiscernible] teams each entry fee cash to make up our 15 cars grids. The first season will comprise 21 total races ending as a support event at the Austin Grand Prix in October. I'm delighted that today we have announced Susie Wolff as the Managing Director of the F1 Academy. She has a wealth of experience as a driver and team principle and will provide huge value to the project. Wrapping 2022 and looking to 2023, I think F1 is the strongest position it has ever been. This year, we launched a new brand campaign demonstrating F1 place in the sporting and entertainment world, giving new fans reason to actively engage with the 2023 season and keep coming back for more. F1 is an admissible and extraordinary spectacle and adrenaline field and intoxicating world of action, innovation and entertainment, both on and off the track. We have the extraordinary potential of technology until work comes together to make the difference between winning and being forgotten. This is not ordinary sport. This is Formula One. I wanted to tell, so full speed ahead. And now, I will turn the call back over to Greg. Thank you.
Gregory Maffei: Thank you, Stefano, and thank you, Brian. And to our listening audience, 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: Absolutely, thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Vijay Jayant with Evercore. Please proceed with your question.
Operator: Our next question is from Ben Swinburne with Morgan Stanley. Please proceed with your question.
Operator: Our next question is from Barton Crockett with Rosenblatt Securities. Please proceed with your question.
Operator: Our next question comes from Stephen Laszczyk with Goldman Sachs. Please proceed with your question.
Operator: Our next question is from Peter Supino with Wolfe Research. Please proceed with your question.
Operator: Our last question is from Jason Bazinet with Citi. Please proceed with your question.
Gregory Maffei: So operator, I think we are done. So to our listening audience, thank you for your interest in and for our support for Liberty Media. We hope to speak with you next quarter, if not sooner. And I think operator, we can end the line there.
Operator: Thank you. This concludes today's conference. We thank you for your time. You may now disconnect your lines.
