Formula One Group (FWONK) on Q1 2023 Results - Earnings Call Transcript
Operator: Welcome to the Liberty Media Corporation's 2023 Q1 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, May 05. I would now like to turn the conference over to Shane Kleinstein, Vice President of Investor Relations. Please go ahead.
Shane Kleinstein: Thank you and 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 Forms 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 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 turn the call over to Greg Maffei, Liberty's President and CEO.
Greg Maffei: Thank you, Shane, and good morning. Today speaking 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. I'm going to first update you on the split up of the Braves and the creation of the new Liberty Live Tracker. We filed the amended S-4 and are pleased with the speed of the SEC review. We believe we are nearing the end of that SEC process and we are still targeting completion before the end of the second quarter. Turning first to Liberty SiriusXM. We continued our efforts to delever and simplify the balance sheet there. We raised $575 million of 3.75% LSXMA converts and we used the proceeds to repurchase $703 million principal amount of LSXMA debt including $591 million of the 1.375% basket convert and $112 million of the two – 2.125% Siri exchangeables. We also repaid the remaining balance of those in April. That was a reduction in gross debt just over $400 million year-to-date, including the April activity. The reclassification of the LSXMA tracker without the Live stake will simplify our structure further and we continue to be focused on rationalizing Siri and LSXM's structures in the near-term. Let me look at SiriusXM itself. As expected, they had a challenging first quarter due to the SAAR and ad market trends. We expect this is the low point of the year on net pay – net self-pay net ads, due to the lower Q4 trial starts, the seasonal Q1 higher churn and the pullback in marketing as we will way to rollout our new app. Advertising did perform better than expectations and podcasting continues to be a bright spot. We saw solid progress in rolling out 360L, our revolutionary new product enhancement, which leverages the best of our content and interactivity. We expect 40% of its penetration – 40% penetration in new car trials by year end 2023. We see a good conversion lift in vehicles with 360L, particularly if consumers are aware of and use advanced features. We did take costs out of the business at SiriusXM with an 8% workforce reduction in March, and we are confident that we will see improvement in operating results for the year with likely positive self-pay net ads in the back half of the year, and the cost savings and ad revenue seasonality benefiting EBITDA. As a result, SiriusXM on their earnings announcement raised both EBITDA and free cash flow guidance, $50 million each. We were excited to name Tom Barry as the new CFO. He was previously our Chief Accounting Officer. He's been with SiriusXM since 2009 and has a detailed knowledge of financial and strategic elements of the business. We do wish Sean well in his new role and his success on the course. Turning to Live Nation. Tremendous quarter, continued growth in live events across all of its segments with a great Q1, as I said, even against a pretty reasonably strong comp last year though there were some international markets that were not open in the prior period. Ticketing GTV was up 60%, AOi was up a stunning 53% to $320 million, and they converted 59% of that AOi into $190 million of free cash flow. We look forward to yet another expected record year at Live with about 90 million tickets sold for Live Nation shows year-to-date. We expect to manage 600 million tickets globally. We will host a record number of fans even against a strong 2022 comp, which benefit from rescheduled shows in prior periods. We believe the AOi at Live can compound at double digits for the foreseeable future. On the legislative updates, we continue to make solid progress and hope the market will begin to recognize the momentum there. We continue to gain momentum on the FAIR Ticketing Act and the proposed bill in the Senate called the TICKET Act is actually a significant positive first step towards implementing initiatives we support. Turning now to the Formula One Group. On the corporate side, we paid $202 million of cash to LSXM to settle the intergroup interest in connection with the repurchase of the basket converts. That’s an effective buyback of 3.1 million FWONA shares at $65 a share proportionate to the amount of the convert repurchased. The F1 season is back after several weeks off, beginning here with the exciting Miami race this weekend. I would note, we had our first F1 Accelerate conference yesterday, was successful. This business summit brought together leaders in sports, tech and media, and we expect we’ll have further iterations of that in the future. We announced format tweaks to Sprint events, now a standalone event with separate points and no impact to the grid on the GP itself. I also expect we’ll see continued improvements in this format and three full days – resulting in three full days of on-track excitement. We continue to see growth in the sport. The Baku Sprint weekend TV audience was up 7% versus the 2022 GP in part due to Sprint. Continuing from here in Miami, we see growth in the U.S. fandom on full display. The Saudi GP was on ESPN and cable’s most live GP on record to date. U.S. social media fallers were up dramatically, 43% in the first quarter versus the prior year, and the U.S. is now Formula One’s biggest audience across Instagram, YouTube, TikTok and Snapchat. Quick update on Vegas. We completed the Wave 1 and Wave 2 ticket sales with strong demand. The final Wave 3 sales are expected later this spring. We remain confident in our sponsorship pipeline with many big deals already announced. We most recently added Virgin at Hard Rock. The construction of Paddock Building itself is over 60% complete. CapEx is running in line with expectations, modestly exceeding our original cost of land purchase. Reiterate the – reiterating the race specific economics for year one. We expect total revenues will approach $500 million, and we do expect that will be a top five race in profit economics. On the balance sheet, F1’s leverage at quarter end was 2.2 times. This will trigger a 25 basis point permanent reduction in the margin on our existing term loan B regardless of future leverage ratios. Turning to Braves. Great start to the season, 22 [ph] and 10 Best Record in the NLF and leading the NLEs by six games Ronald Acuna Jr. was named NL player of the month for April. He led the Major League Baseball and stolen bases and runs. We had the largest home opener crowd in Truist Park history. We’ve seen incredible ticket demand for season to date. We stopped selling season ticket tails for the first time in franchise history and started a wait list before opening day. We expect to sell out over half the games this season. Baseball is clearly benefiting from MLB’s rule changes. Games have more action and less downtime across Major League Baseball, you’ve seen stolen base attempts up over 30% and versus last year to the highest rate since 2012. Games are about 30 minutes shorter versus last year and dropping below three hours. Looking at the Braves themselves and innovation there, we already plan to implement a new – we already plan to implement a new POS system this year to enhance our fan experience, and this will help mitigate any impact to concessions from shorter games, and we are actually seeing favorable trends in concessions year-to-date. Let me turn it over to Brian for more on our financial results.
Brian Wendling: Thanks, Greg, and good morning, everyone. At quarter end, Liberty SiriusXM Group had attributed cash and liquid investments of approximately $377 million, which excludes $53 million of cash held directly at SiriusXM. There’s also $1.5 billion of undrawn margin loan capacity at the parent level related to our SiriusXM and Live Nation margin loans. As of May 4, the value of our SiriusXM stock held by LSXM was $11.5 billion, and the value of the Live Nation stock was $4.7 billion. We have $2.7 billion in principal amount of debt against these holdings or $2.4 billion pro forma for the additional pay down that occurred after the quarter. Total Liberty SiriusXM Group attributed principal amount of debt is $13 billion, which includes $9.6 billion directly at the Sirius level. In March, Liberty SiriusXM Group issued $575 million aggregate principal amount of 3.75% LSXMA convertible notes due 2028. We used the net proceeds of this offering to repurchase $591 million principal amount of the 1.375% cash convertible notes and $112 million of the 2.125% senior exchangeable debentures. In addition to the proceeds raised from the new convertible, LSXM used cash on hand, including $39 million from the proportional net settlement of the bond hedge and warrant and cash received from Formula One Group to retire $3.1 million FWONA intergroup interest shares underlying the corresponding portion of the convertible repurchase. Subsequent to quarter end, Liberty SiriusXM settled the remaining 2.125% senior exchangeables for $275 million at the April-foot call date. There’s approximately $199 million remaining on the 1.375% cash convertible notes, which mature in October. All remaining intergroup interest are expected to be settled and extinguished in connection with the Braves spin-off and additional information regarding the intergroup interest is available in our press release and as well as the S-4 that was filed with the SEC. Formula One Group had attributed cash, liquid investments and monetizable public holdings of $1.8 billion at quarter end, which includes $1 billion of cash at the Formula One level. Formula One Group purchased $129 million of exchange traded funds in the first quarter, which we expect to attribute to the Liberty Live Group tracking stock in connection with the announced reclassification of the trackers. Total Formula One Group attributed principal amount of debt was $3 billion, which includes $2.4 billion of debt of F1 leaving $538 million at the corporate level. F1 $500 million revolvers undrawn and their leverage ratio at quarter ends 2.2 times, which will trigger a 25 basis point reduction in the margin on the term loan B debt. Looking quickly at the F1 operating business given quarterly variability, we will remind you to look at this business on a full year basis. But that being said, let’s take a quick look at the quarter. Our race count in the first quarter was consistent year-over-year with two races. Primary revenue grew with increases across race promotion, media rights and sponsorship. Other F1 revenue decreased in the first quarter primarily due to easing a freight cost inflation versus the prior year which was partially offset by growth in Paddock Club attendance. On the cost side, our team payments grew in the first quarter due to the pro rata recognition of increased payments for the year. Reminder that other costs of revenue, F1 revenue and SG&A are best viewed as a percent of total revenue. Other cost of F1 revenue benefited from the easing of the freight inflation. This was largely offset by increased hospitality costs and higher commission than partner servicing costs paid to – related to the growth in the primary F1 revenue streams. On SG&A, the first quarter included $6 million of costs from the LV – from the Las Vegas Grand Prix. Looking at Vegas, nearly all of LBGP’s revenue and costs will be recognized in the fourth quarter when the race takes place, just a reminder on that. The Paddock Club building is progressing on schedule. In the first quarter, we incurred approximately $53 million of corporate level capital expenditures related to Las Vegas. We will not be providing a forward-looking allocation between the F1 Opco and the Formula One corporate CapEx. LBGP will pay rent and other fees out of F1 Opco to Formula One corporate for use of the building during the race period, which will show up in our financial statements as revenue at the corporate level in the fourth quarter, but will eliminate in consolidation. Finally, at the Braves Group at quarter end, they had attributed cash and liquid investments of $215 million, which excludes $30 million of restricted cash. Braves Group had attributed principal amount of debt of $542 million. 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. Good morning from Miami. We are thrilled to be back for our second Miami Grand Prix, where the excitement in the city is as vibrant as year one. This year event feature on expanded Paddock now located inside the Dolphins Stadium and upgraded Paddock Club and a fully resurfaced track. We have four races into our record 2023 race calendar. While Red Bull has dominated the race to date, it is still very early in the season and the races have been packed with excitement and drama. Alonso fans have unmatched cheer about with Aston Martin recent performance. Alonso first place finishes in Saudi Arabia, marked his 100 podium, making him one of only six drivers in F1 history to claim these feet. The Australian Grand Prix featured three red flags adding even more complexity to this strategy and ended with only 12 of 20 drivers crossing the finish line. The new sprint format was unanimous approved by the teams F1 and FIA advance of Baku. We all believe that the new format is the right one for our fans and the sport and increase the level of intensity and action across the weekend. Starting the season at the six sprint events, all three days of the weekend will be packed with on track excitement. The Saturday Sprint Shootout is a shorter qualifying session to determine the sprint grid later that day. This makes the sprint standard on event with no bearing on the Grand Prix, allowing drivers to find more aggressively without fear to raise of the implication. Formula One is engaging with our fans across platform. Global audiences exceed 70 million viewers for the first two races of the season with significant increases in key markets across Europe and North America. In the U.S., the Saudi Arabian Grand Prix broke 1.52 million viewers marking ESPN and cables most viewed Grand Prix on record. Across our digital channels, F1 reached 62.9 million social media followers as of Q1, up 31% year-over-year. Our f1.com website and F1 apps have launched additional content including a new what is F1 section dedicated to new fans with videos and beginner’s guide to the sport. Crowds continue to flock to our races globally. The vast majority of events are sold out for the 2023 season. Bahrain set his new record with nearly a 100,000 fans over the weekend. Melbourne top at last year record as the largest weekend sporting event in the recent Australian history. We welcomed 445,000 fans over the course of the weekend up from 420,000 the prior year. This also marks a new record this century perform one internal total race weekend attendance. Turning to recent updates on our commercial agreements. On race promotion, we extended our Austrian Grand Prix through 2027 fully in last year sold out crowd of 303,000 fans. This year event will mark our 10th anniversary since F1 returned to Spielberg [ph]. We also announced the extension of the Azerbaijan Grand Prix through 2026. On Meteorite, we entered into a multiyear extension of our partnership with ESPN to broadcast F1 channel, in Latin America and in the Caribbean. ESPN will provide live coverage of over half of the races with the full season available on the streaming service Star Plus. ESPN has continued to develop dedicated content across web and social platforms, allowing us to expand our global reach and attract and increasingly the diverse fan base. Our Pro and Access product continue to see solid subscriber growth this season. On sponsorship, we made the Liqui Moly an official partner. Our enhanced agreement includes track signage at the three races and visual branding out 15 races demonstrated the opportunity for digital ad insertion within the broadcast fee. We first welcomed Liqui Moly as regional sponsor in 2019, grew our relation to official sports in 2020 and now official partner in 2023. We continue to demonstrate growing value to our partners. We were thrilled to announce Paramount+ as an official partner following our successful sport and entertainment collaboration last season. Our new multiyear agreement will feature the popular series at Fan Zone on trackside display and in digital placement. This week, we announced Puma as official provider of F1 sports and apparel in a new multiyear partnership and we extended our agreement with MSC Cruises as global partner throughout 2026. As part of the extension, MSC will bring a unique specialty experience. Our sponsorship pipeline remains strong. To try to survive return for its fifth season in February, avid, casual and new fans alike continue to be drawn to the cities. The latest season didn't disappoint. On April 14, we celebrate the topping out of our Las Vegas Grand Prix Paddock Building by placing a symbolic concrete barrier on top of the structure. We are very pleased with our progress. The efficiency of this project is a function of the incredible collaboration between the Las Vegas Grand Prix team, our talented design and construction crew and local officials. We thank them all for their support. The Paddock Building spans 1,000 feet long, 100 feet wide and three stories told with the rooftop deck. It will be the largest Paddock Building on the race calendar and will host the largest Paddock club. On the roof, we have a 28,000 square foot LED screen in the shape of our F1 logo that provides unparalleled branding opportunities. When you fly over Las Vegas, you will know that F1 has established a permanent home in the U.S. We can monetize the LED screen and display third-party branding in the future years. The building itself has advanced AV capabilities, temporary walls between thin garages and additional features ensures ample flexibility to convert the entire space for a broad range of year-round users. Future year-round activation are under development, and we hope to have more to share in the coming months. I encourage you to visit the Las Vegas Grand Prix website for the time lapse video of the extraordinary construction progress. Our track surfaces of Las Vegas roads began last month, and the second phase is scheduled for July. Once complete, this track surface can last six years to 10 years. The team also recently announced addition to this sponsorship lineup. Virgin Hotel, Las Vegas was named an event partner, and will have entitlement to the East Harmon Fan Zone. Hard Rock International, who's name of presenting partner and will build a grandstand in front of the mirage on the street. In March, we announced an event partnership with Switch, the technology infrastructure company who will supply LVGP with its sustainable goals and establish [indiscernible] conscious practice for the race we can and beyond. Finally, touching on our broader F1 sustainability and inclusion effort. The European Union recently recognized the role that sustainable fuel needs to play as part of the automotive solution alongside the electric vehicles up to 2035. This cement the future of sustainable fuels following F1 extensive work with policymakers. Our F2 and F3 cars are running 55% sustainable fuels this season. Current F1 cars are running at 10% sustainable fuels, and we are on track to introduce 100% advanced sustainable fuels in 2026. The F1 Academy, our new/old series, began its season in Austria last weekend, following two testing session in Barcelona and Paul Ricard [ph] in France. Congratulations to Marta Garcia from Prime Racing on winning two of the three races on opening weekend, with just 0.3 seconds separating her and the second place finisher in the third place. The season will have seven race weekends with the final race alongside us in Austin in October. I'm pleased to say that in 2024 season, we'll have all F1 Academy races joined F1 weekends. The creation of F1 Academy is an important step forward towards increasing opportunity for female participation in motor sports. It is the start of a journey, and we hope it will be aspirational for young female drivers aspiring to reach professional motor sport; we now have the F1 Academy to aim for. I believe we are creating the best possible structure to find and nurture female talent, including those already in the series and those yet to come through from the grassroots level. We are looking forward to the season. Yesterday, F1 partnered with Custom Events from Wall Street Journal or to host our first F1 Accelerate Summit. We brought together Trailblazer from the walls of sport, entertainment and business to discuss how they can make a significant impact on the future of technology performance, diversity and sustainability not only in their own business, but across interesting culture. We welcome familiar faces from the F1 Group and management alongside Marquee Sports figures including Maria Sharapova and [indiscernible]. Jay Leno was our host as business executives traveled from across the country into the Jerry Bruckheimer, Joe Kosinski, Maverick Carter, Sarah Harden and Brooke Magnus [ph]. We hope to continue leverage F1 brands to drive innovation and commercial success for the sporting and entertainment worlds. It is an exciting time for Formula One on the track and in the commercial operation. Our unusual early season sprint break didn't have a mandatory shutdown like summer break meaning it was hard at work with their cars upgrade. I believe competition will intensifies as the season progresses. Miami caused us the first doubleheader of the season before we head to Europe for the first triple-header. There is plenty of action to come of [indiscernible] full speed ahead. And now I will turn the call back over to Greg. Thank you.
Greg Maffei: Thank you, Stefano, and thank you Brian. And to our listening audience, we appreciate your continued support of and interest in Liberty Media, we hope you will all turn in to see the Miami Grand Prix this weekend and the start of our Braves series against the Orioles tonight. And with that operator, I'd like to open the line for questions.
Operator: Thank you. The floor is now open for questions. [Operator Instructions] The first question is coming from David Karnovsky of J.P. Morgan. Please go ahead.
Operator: Thank you. The next question is coming from Bryan Kraft of Deutsche Bank. Please go ahead.
Operator: Thank you. The next question is coming from Vijay Jayant of Evercore. Please go ahead.
Operator: Thank you. The next question is coming from Peter Supino of Wolfe Research. Please go ahead.
Operator: Thank you. The next question is coming from Stephen Laszczyk of Goldman Sachs. Please go ahead.
.: So I would say now the real thing is not to work only on the already more, but making sure that each of them receive the right qualitative answer to their question. And the other thing that I think is really relevant like this in another way, the fact that we receive this on the sustainability platform because no one will invest today in a business that is not credible on this landscape. Therefore, that is another push that we receive from our partners to make sure that our goals with sustainability [indiscernible] has been achieved. So it’s – let’s say a constructive push that we are working together in order to be stronger and stronger together.
Operator: Thank you. The next question is coming from David Joyce of Seaport Research Partners. Please go ahead.
Operator: Thank you. The next question is coming from Matthew Harrigan of Benchmark Company. Please go ahead.
Greg Maffei: Operator, I think we’re done. And to our listening audience. Again, thank you for your interest in the Liberty Media Companies. We look forward to speaking with you next quarter, if not sooner. And have a great weekend.
Operator: Ladies and gentlemen, this concludes today’s event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
