Braves’ First-Quarter Financial Results: Higher Revenue, Larger Loss
Staff Report From Metro Atlanta CEO
Thursday, May 10th, 2018
Liberty Media Corporation reported first quarter 2018 results. Highlights include(1):
-
Attributed to Liberty SiriusXM Group
-
SiriusXM reported strong first quarter 2018 results
-
Total subscribers surpassed 33 million for first time
-
First quarter revenue climbed 6% to $1.4 billion
-
Total net subscriber additions of 330,000 in the quarter
-
Net income grew 40% to $289 million; adjusted EBITDA(2) grew 6% to $532 million
-
Operating cash flow climbed 34% to $415 million; free cash flow(2) climbed 31% to $326 million
-
SiriusXM reiterated financial and subscriber guidance for 2018
-
-
Liberty Media's ownership of SiriusXM stood at 70.6% as of April 23rd
-
From February 1, 2018 through April 30, 2018, repurchased 2.4 million LSXMK shares at an average price per share of $41.16 and total cash consideration of $100 million
-
-
Attributed to Formula One Group
-
Presented teams and FIA with proposals to improve sport for 2021 and beyond: alterations to power unit specifications, optimizing cost structure, balancing revenue distribution and amending technical and sporting regulations to facilitate better racing
-
Announced key long-term partnership with China Central Television, the predominant state television broadcaster in China, bringing Formula 1 ("F1") back to this nationwide platform for the first time since 2012
-
Announced renewed sponsorship agreements with DHL and PETRONAS
-
Progressed digital initiatives with OTT platform "F1 TV" available from Spanish Grand Prix; extension of Snap Inc. agreement; production of Netflix docu-series; Players' Tribune original series; fantasy sports partnership with PlayON; F1 Live Show on Twitter
-
-
Attributed to Braves Group
-
Announced planned sale of residential portion of Battery Atlanta
-
Silverspot Cinema to open a 38,000 square foot theater in Battery Atlanta
-
Braves record 19-14 as of May 6th, first place in NL East division
-
"SiriusXM continues its track record of excellent execution and we initiated the purchase of Liberty SiriusXM shares," said Greg Maffei, Liberty Media President and CEO. "Formula 1's 2018 season to-date has been celebrated with exciting races and unpredictable outcomes. We look forward to this weekend's launch of F1 TV, our OTT product. A young Atlanta Braves team has started the season strong and The Battery continues to be a compelling draw for fans and businesses."
Unless otherwise noted, the following discussion compares financial information for the three months ended March 31, 2018 to the same period in 2017.
LIBERTY SIRIUSXM GROUP - The following table provides the financial results attributed to Liberty SiriusXM Group for the first quarter of 2018. In the first quarter, approximately $10 million of corporate level selling, general and administrative expense (including stock-based compensation expense) was allocated to the Liberty SiriusXM Group.
| 1Q17 | 1Q18 | % Change | ||||||||||||
| amounts in millions | ||||||||||||||
| Liberty SiriusXM Group | ||||||||||||||
| Revenue | ||||||||||||||
| SiriusXM | $ | 1,294 | $ | 1,375 | 6 | % | ||||||||
| Total Liberty SiriusXM Group | $ | 1,294 | $ | 1,375 | 6 | % | ||||||||
| Operating Income (Loss) | ||||||||||||||
| SiriusXM | 381 | 407 | 7 | % | ||||||||||
| Corporate and other | (9 | ) | (11 | ) | (22 | )% | ||||||||
| Total Liberty SiriusXM Group | $ | 372 | $ | 396 | 6 | % | ||||||||
| Adjusted OIBDA | ||||||||||||||
| SiriusXM | 500 | 530 | 6 | % | ||||||||||
| Corporate and other | (4 | ) | (5 | ) | (25 | )% | ||||||||
| Total Liberty SiriusXM Group | $ | 496 | $ | 525 | 6 | % | ||||||||
The increases in Liberty SiriusXM Group revenue, operating income and adjusted OIBDA(2) were primarily attributable to an increase in SiriusXM's daily weighted average number of subscribers. Revenue growth at Liberty SiriusXM Group was partially offset by the impact of the adoption of a new revenue recognition accounting standard, as described in detail in Liberty Media's Form 10-Q for the quarter ended March 31, 2018.
SiriusXM is a separate publicly traded company and additional information about SiriusXM can be obtained through its website and filings with the Securities and Exchange Commission. SiriusXM reported its stand-alone first quarter results on April 25, 2018. For additional detail on SiriusXM's financial results for the first quarter, please see SiriusXM's earnings release posted to their Investor Relations website. For presentation purposes on page one of this release, we include the results of SiriusXM, as reported by SiriusXM, without regard to the purchase accounting adjustments applied by us for purposes of our financial statements. Liberty Media believes the presentation of financial results as reported by SiriusXM is useful to investors as the comparability of those results is best understood in the context of SiriusXM's historical financial presentation.
The businesses and assets attributed to Liberty SiriusXM Group consist primarily of Liberty Media's interest in SiriusXM.
FORMULA ONE GROUP - The following table provides the financial results attributed to the Formula One Group for the first quarter of 2018. In the first quarter, the Formula One Group incurred approximately $7 million of corporate level selling, general and administrative expense (including stock-based compensation expense).
"The 2018 season has already seen exciting races with a number of different podium finishers," said Chase Carey, Formula 1 Chairman and CEO. "We hosted, with Heineken, our first fan festival for 2018 in Shanghai around the Chinese Grand Prix. We look forward to heightened fan engagement with the launch of F1 TV Pro this weekend which will enable unprecedented access and views of the race, customizable by the user. We continue to have productive conversations with the teams as we shape the future long term vision for F1."
| 1Q17 | 1Q18 | |||||||||||
| amounts in millions | ||||||||||||
| Formula One Group | ||||||||||||
| Revenue | ||||||||||||
| Formula 1 | $ | 96 | $ | 114 | ||||||||
| Total Formula One Group | $ | 96 | $ | 114 | ||||||||
| Operating Income (Loss) | ||||||||||||
| Formula 1 | $ | (57 | ) | $ | (109 | ) | ||||||
| Corporate and other | (23 | ) | (9 | ) | ||||||||
| Total Formula One Group | $ | (80 | ) | $ | (118 | ) | ||||||
| Adjusted OIBDA | ||||||||||||
| Formula 1 | $ | 18 | $ | 3 | ||||||||
| Corporate and other | (18 | ) | (4 | ) | ||||||||
| Total Formula One Group | $ | — | $ | (1 | ) | |||||||
Liberty completed the acquisition of F1 on January 23, 2017. For comparison and discussion purposes, the pro forma results of F1 are presented below for the three months ended March 31, 2017, inclusive of purchase accounting adjustments, as if the acquisition of F1 occurred on January 1, 2017. The financial information below is presented for illustrative purposes only and does not purport to represent the actual results of F1 had the business combination occurred on January 1, 2017, or to project the results of operations of Liberty for any future periods.
|
Pro Forma F1 Operating Results |
||||||||||||||
| 1Q17 | 1Q18 | % Change | ||||||||||||
| amounts in millions | ||||||||||||||
| Primary Formula 1 revenue | $ | 79 | $ | 85 | 8 | % | ||||||||
| Other Formula 1 revenue | 18 | 29 | 61 | % | ||||||||||
| Total Formula 1 revenue | $ | 97 | $ | 114 | 18 | % | ||||||||
| Operating expenses (excluding stock-based compensation included below): | ||||||||||||||
| Team payments | (47 | ) | (45 | ) | 4 | % | ||||||||
| Other cost of Formula 1 revenue | (22 | ) | (36 | ) | (64 | )% | ||||||||
| Cost of Formula 1 revenue | $ | (69 | ) | $ | (81 | ) | (17 | )% | ||||||
| Selling, general and administrative expenses | (20 | ) | (30 | ) | (50 | )% | ||||||||
|
Adjusted OIBDA |
$ | 8 | $ | 3 | (63 | )% | ||||||||
| Stock-based compensation | (5 | ) | (3 | ) | 40 | % | ||||||||
| Depreciation and Amortization | (108 | ) | (109 | ) | (1 | )% | ||||||||
| Operating loss | $ | (105 | ) | $ | (109 | ) | (4 | )% | ||||||
| Number of races in period | 1 | 1 | ||||||||||||
Primary F1 revenue represents the majority of F1's revenue and is derived from (i) race promotion fees, (ii) broadcasting fees and (iii) advertising and sponsorship fees.
Broadcast revenue decreased due to the impact of slightly lower proportionate recognition of season-based income during the quarter (1/21 races in the first quarter of 2018 compared to 1/20 races in the first quarter of 2017). Race promotion and advertising and sponsorship revenue increased due to fee inflation in underlying contracts. Advertising and sponsorship revenue was impacted by the adoption of the new revenue recognition accounting standard (ASC 606), which accelerated the recognition of certain fees related to F1's Global Partner and Official Supplier contracts. These fee elements were previously recognized pro-rata with the race calendar, but the majority are now being recognized evenly over the calendar year. This change provided a modest tailwind to advertising and sponsorship revenue in the first quarter of 2018 but is expected to be neutral on a full calendar year basis.
Other F1 revenue increased during the first quarter primarily due to the sale of the new F2 chassis and component parts to competing F2 teams as 2018 marks the start of the next three year vehicle cycle for the championship.
Operating loss increased and adjusted OIBDA decreased in the first quarter. Cost of F1 revenue increased due to costs associated with providing the chassis and component parts to F2 teams, partially offset by reduced team payments due to the pro rata recognition of such payments during the season. Selling, general and administrative expense increased as a result of costs associated with additional headcount, new corporate offices, marketing and research.
F1's total net debt to covenant OIBDA ratio, as defined in F1's credit facilities for covenant calculations, was approximately 6.8x as of March 31, 2018, as compared to a maximum allowable leverage ratio of 8.75x.
The businesses and assets attributed to the Formula One Group consist of all of Liberty Media's businesses and assets other than those attributed to the Liberty SiriusXM Group and the Braves Group, including Liberty Media's subsidiary F1, its interest in Live Nation, minority equity investments and an intergroup interest in the Braves Group. There are approximately 9.1 million notional shares of the Braves Group underlying the Formula One Group's 15.1% intergroup interest as of April 30, 2018.
BRAVES GROUP - The following table provides the financial results attributed to the Braves Group for the first quarter of 2018. In the first quarter, approximately $2 million of corporate level selling, general and administrative expense (including stock-based compensation expense) was allocated to the Braves Group.
| 1Q17 | 1Q18 | |||||||
| amounts in millions | ||||||||
| Braves Group | ||||||||
| Revenue | ||||||||
| Corporate and other | $ | 5 | $ | 28 | ||||
| Total Braves Group | $ | 5 | $ | 28 | ||||
| Operating Income (Loss) | ||||||||
| Corporate and other | (33 | ) | (51 | ) | ||||
| Total Braves Group | $ | (33 | ) | $ | (51 | ) | ||
| Adjusted OIBDA | ||||||||
| Corporate and other | (29 | ) | (35 | ) | ||||
| Total Braves Group | $ | (29 | ) | $ | (35 | ) | ||
The following table provides the operating results of Braves Holdings, LLC ("Braves").
|
Braves Operating Results |
||||||||||||||
| 1Q17 | 1Q18 | % Change | ||||||||||||
| amounts in millions | ||||||||||||||
| Baseball revenue | $ | 5 | $ | 20 | 300 | % | ||||||||
| Development revenue | — | 8 |
NA |
|||||||||||
| Total revenue | 5 | 28 | 460 | % | ||||||||||
| Operating expenses (excluding stock-based compensation included below): | ||||||||||||||
| Other operating expenses | (17 | ) | (40 | ) | (135 | )% | ||||||||
| Selling, general and administrative expenses | (16 | ) | (21 | ) | (31 | )% | ||||||||
| Adjusted OIBDA | $ | (28 | ) | $ | (33 | ) | (18 | )% | ||||||
| Stock-based compensation | (2 | ) | — |
NA |
||||||||||
| Depreciation and Amortization | (2 | ) | (16 | ) | (700 | )% | ||||||||
| Operating income (loss) | $ | (32 | ) | $ | (49 | ) | (53 | )% | ||||||
| Number of home game openings in period | 0 | 3 | ||||||||||||
Baseball revenue is derived from (i) ballpark operations, (ii) local and national broadcast rights and (iii) licensing and other shared MLB revenue streams. Development revenue is derived from the Battery Atlanta mixed-use facilities and primarily includes rental income.
Baseball revenue increased in the first quarter primarily driven by ballpark operations revenue, with three home games in the first quarter of 2018 compared to no home games in the first quarter of 2017. Development revenue was nominal in the first quarter of 2017 as the project was still ramping.
Operating loss increased compared to the prior year primarily as a result of increased depreciation and amortization expense due to the depreciation of assets associated with the Braves mixed-use facility and SunTrust Park. Adjusted OIBDA decreased primarily driven by increased operating expense due to higher player salaries and the acceleration of player salary expense as a result of released and injured players, which more than offset the increase in ballpark operations revenue. Selling, general and administrative expense also increased primarily due to higher facilities, marketing and advertising costs associated with baseball and ballpark operations and the mixed-use facility.
The Formula One Group holds an approximate 15.1% intergroup interest in the Braves Group as of April 30, 2018. Assuming the issuance of the shares underlying the intergroup interest held by the Formula One Group, the Braves Group outstanding share count as of April 30, 2018 would have been 60 million.
The businesses and assets attributed to the Braves Group consist primarily of Liberty Media's subsidiary the Braves, which indirectly owns the Atlanta Braves Major League Baseball Club, five minor league baseball clubs and certain assets and liabilities associated with the Braves' ballpark and mixed-use development project.
Share Repurchases
From February 1, 2018 through April 30, 2018, Liberty Media repurchased approximately 2.4 million Series C Liberty SiriusXM shares (Nasdaq: LSXMK) at an average cost per share of $41.16 for total cash consideration of $100 million. The total remaining repurchase authorization for Liberty Media is approximately $1.2 billion and can be applied to repurchases of Series A and Series C shares of any of the Liberty Media Corporation tracking stocks.
FOOTNOTES
| 1) | Liberty Media's President and CEO, Greg Maffei, will discuss these highlights and other matters on Liberty Media's earnings conference call which will begin at 11:00 a.m. (E.D.T.) on May 9, 2018. For information regarding how to access the call, please see "Important Notice" later in this document. | |
| 2) | For definitions of adjusted OIBDA (as defined by Liberty Media) and adjusted EBITDA and free cash flow (as defined by SiriusXM) and applicable reconciliations see the accompanying schedules. | |
NOTES
The following financial information with respect to Liberty Media's equity affiliates and available for sale securities is intended to supplement Liberty Media's condensed consolidated balance sheet and statement of operations to be included in its Form 10-Q for the period ended March 31, 2018.
|
Fair Value of Corporate Public Holdings |
||||||||
| (amounts in millions) | 12/31/2017 | 3/31/2018 | ||||||
| Liberty SiriusXM Group | ||||||||
| iHeart Debt(1) | $ | 100 | $ | 519 | ||||
| Total Liberty SiriusXM Group(2) | $ | 100 | $ | 519 | ||||
| Formula One Group | ||||||||
| Live Nation Investment(3) | $ | 2,965 | 2,935 | |||||
| Other Public Holdings(4) | 467 | 471 | ||||||
| Total Formula One Group | $ | 3,432 | $ | 3,406 | ||||
| Braves Group | N/A | N/A | ||||||
| Total Liberty Media | $ | 3,532 | $ | 3,925 | ||||
|
________________ |
||
| (1) | Liberty has purchased $660 million in aggregate principal amount of iHeart bonds to-date. | |
| (2) | SiriusXM's investment in Pandora excluded from public holdings presented above. | |
| (3) | Represents the fair value of the equity investment attributed to Formula One Group. In accordance with GAAP, Liberty Media accounts for its investment in the equity of Live Nation using the equity method of accounting and includes it in its condensed consolidated balance sheet at its historical carrying value of $756 million and $743 million as of December 31, 2017 and March 31, 2018, respectively. | |
| (4) | Represents the carrying value of other public holdings which are accounted for at fair value. | |
Cash and Debt
The following presentation is provided to separately identify cash and liquid investments and debt information.
| (amounts in millions) | 12/31/2017 | 3/31/2018 | ||||||||
| Cash and Cash Equivalents Attributable to: | ||||||||||
| Liberty SiriusXM Group(1) | $ | 615 | $ | 658 | ||||||
| Formula One Group(2) | 282 | 270 | ||||||||
| Braves Group | 132 | 114 | ||||||||
| Total Liberty Consolidated Cash and Cash Equivalents (GAAP) | $ | 1,029 | $ | 1,042 | ||||||
| Debt: | ||||||||||
| SiriusXM senior notes(3) | $ | 6,500 | $ | 6,500 | ||||||
| 2.125% exchangeable senior debentures due 2048(4) | — | 400 | ||||||||
| Margin loans | 750 | 750 | ||||||||
| Other subsidiary debt(5) | 311 | 375 | ||||||||
| Total Attributed Liberty SiriusXM Group Debt | $ | 7,561 | $ | 8,025 | ||||||
| Unamortized discount, fair market value adjustment and deferred loan costs | (65 | ) | (69 | ) | ||||||
| Total Attributed Liberty SiriusXM Group Debt (GAAP) | $ | 7,496 | $ | 7,956 | ||||||
| 1.375% cash convertible notes due 2023(4) | 1,000 | 1,000 | ||||||||
| 1% cash convertible notes due 2023(4) | 450 | 450 | ||||||||
| 2.25% exchangeable senior debentures due 2046(4) | 445 | 445 | ||||||||
| Live Nation margin loan | 350 | 350 | ||||||||
| Formula 1 bank loan | 3,302 | 3,102 | ||||||||
| Other corporate level debt | 35 | 34 | ||||||||
| Total Attributed Formula One Group Debt | $ | 5,582 | $ | 5,381 | ||||||
| Fair market value adjustment | 214 | 177 | ||||||||
| Total Attributed Formula One Group Debt (GAAP) | $ | 5,796 | $ | 5,558 | ||||||
| Formula 1 leverage(6) |
7.1x |
6.8x |
||||||||
| Atlanta Braves debt | 667 | 603 | ||||||||
| Total Attributed Braves Group Debt | $ | 667 | $ | 603 | ||||||
| Deferred loan costs | (5 | ) | (4 | ) | ||||||
| Total Attributed Braves Group Debt (GAAP) | $ | 662 | $ | 599 | ||||||
| Total Liberty Media Corporation Debt (GAAP) | $ | 13,954 | $ | 14,113 | ||||||
|
________________ |
||
| (1) | Includes $69 million and $79 million of cash and liquid investments held at SiriusXM as of December 31, 2017 and March 31, 2018, respectively. | |
| (2) | Includes $165 million and $140 million of cash and liquid investments held at Formula 1 as of December 31, 2017 and March 31, 2018, respectively. | |
| (3) | Outstanding principal amount of Senior Notes with no reduction for the net unamortized discount. | |
| (4) | Face amount of the cash convertible notes and exchangeable debentures with no fair market value adjustment. | |
| (5) | Includes SiriusXM capital leases and borrowings under the SiriusXM revolving credit facility. | |
| (6) | Net debt to covenant OIBDA ratio of F1 operating business as defined in F1's credit facilities for covenant calculations. | |
Total cash and liquid investments attributed to Liberty SiriusXM Group increased $43 million during the quarter. Additional borrowing at Liberty SiriusXM Group combined with cash from operations at SiriusXM more than offset SiriusXM's stock repurchases and dividend payment, investments in iHeart debt securities at Liberty SiriusXM Group and stock repurchases at Liberty SiriusXM Group. Included in the cash and liquid investments balance attributed to Liberty SiriusXM Group at March 31, 2018 is $79 million held at SiriusXM. Although SiriusXM is a consolidated subsidiary, it is a separate public company with a significant non-controlling interest, therefore Liberty Media does not have ready access to SiriusXM's cash balance.
Total debt attributed to Liberty SiriusXM Group increased $464 million during the quarter. On March 6, 2018, Liberty Media closed a private offering for $400 million of 2.125% exchangeable senior debentures due 2048. A total of 49.9 million shares of SiriusXM common stock are attributable to the debentures. Initially, 124.6922 shares of SiriusXM common stock are attributable to each $1,000 original principal amount of debentures, representing an initial exchange price of $8.02 for each share of SiriusXM. Net proceeds are expected to be used for repurchases of Liberty SiriusXM common stock, possible acquisitions or investments and other general corporate purposes.
Also in March 2018, Liberty refinanced its margin loan attributed to Liberty SiriusXM Group for a similar financial instrument with a term loan of $250 million and a $1.1 billion undrawn line of credit for total capacity of $1.35 billion. $750 million was drawn on the margin loan facility as of March 31, 2018. The margin loan matures in March 2020. There are 1 billion shares of SiriusXM common stock pledged as collateral to the margin loan.
Total cash and liquid investments attributed to the Formula One Group decreased $12 million during the quarter, primarily as a result of debt repayments and interest and tax payments, which were largely offset by cash from operations.
Total debt attributed to Formula One Group decreased $201 million during the quarter primarily as a result of the repayment of debt at F1. On January 31, 2018, F1 refinanced its first lien term loan. Concurrent with the refinancing, F1 repaid $400 million of the first lien term loan using a combination of $150 million of excess cash on the balance sheet and $250 million drawn under its available revolving credit facility. The margin on the first lien term loan was reduced from 3.00% to 2.50%. Subsequently, in March 2018, F1 repaid $50 million of its revolving credit facility loans using excess cash on the balance sheet.
Total cash and liquid investments attributed to the Braves Group decreased $18 million in the quarter as capital expenditures related to the mixed-use development and net debt repayments more than offset cash from operations.
Total debt attributed to the Braves Group decreased by $64 million primarily as a result of repayment of the Braves' team revolver, partially offset by additional borrowings for funding the mixed-use development.
