The Liberty Braves Group (NASDAQ:BATRA) Q3 2023 Earnings Call Transcript

The Liberty Braves Group (NASDAQ:BATRA) Q3 2023 Earnings Call Transcript November 3, 2023

Operator: Welcome to the Liberty Media Corporation’s 2023 Q3 Earnings Call. [Operator Instructions] As a reminder, this conference will be recorded November 3. I would now like to turn the call over to Shane Kleinstein, Vice President, Investor Relations. Please go ahead.

Shane Kleinstein: Thank you. 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 the most recent Forms 10-K and 10-Q filed by Liberty Media with the SEC and the most recent Form 10-Q and registration statement on Form S-1 filed by Atlanta Braves Holdings with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Media and Atlanta Braves Holdings expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Media or Atlanta Braves Holdings 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, SiriusXM and Atlanta Braves Holdings, including adjusted OIBDA and adjusted EBITDA. The required definitions and reconciliations for Liberty Media, SiriusXM and Atlanta Braves Holdings Schedules one through three can be found at the end of the earnings press release issued today, which are available on Liberty Media and Atlanta Braves Holdings website. Now I’d like to turn the call over to Greg Maffei, Liberty’s President and CEO.

Gregory Maffei: Thank you, Shane, and good morning to all. 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. Also during Q&A, we will be available to answer questions related to the Atlanta Braves Holdings and the Braves management will be available as well. So, beginning with Liberty SiriusXM, we did propose a combination of LSXM and SIRI. The goal is to rationalize the dual corporate structure, create a single share class and benefit both groups of shareholders. We believe such a combination would lead to enhanced trading dynamics in new Sirius with increased liquidity, less technical pressure, for example, a small short interest, and a higher likelihood of future index inclusion.

We will provide updates on this potential transaction only if and when an agreement is reached. So, let me turn to Sirius itself. Q3 results demonstrate what management had put forward during the year that there would be continuous improvement throughout the year, and we saw sequential improvements in self-pay net adds, and we expect a slightly positive back half of the year. EBITDA grew 4% versus the prior year and 6% sequentially, and there were $40 million of cost savings that were realized during the third quarter. The dividend was raised 10%. The Board approved that, showing continued confidence in Sirius’ cash flow generation capabilities. Sirius also announced an expanded partnership with Ford to make SiriusXM a standard feature in all traditional F1s, beginning with the 2024 model year.

That’s important because the Ford F-150 has been the best-selling vehicle in the U.S. for over four years. Management does remain focused on its strategic objectives, supported by the significant EBITDA and free cash flow generation. You will see a new streaming experience and branded platform announced next Wednesday, the day before our Analyst Day by the Sirius management team at their own event, and we believe this new experience will be able to drive engagement and enhance subscriber acquisition and retention. Turning now to the Formula One Group, we announced in September our planned acquisition of Quint. Quint is a provider of hospitality inventory, and they sell unique experiences to F1, the NBA, for the NBA All-Star game, the Kentucky Derby and other sporting events.

We believe this merger or this purchase will announce enable us an enhanced partnership with F1 and lead us to expand to other live sporting events. Quint is a high-growth asset with EBITDA and cash flow positive capabilities and currently already are both, but we’ll expect will grow more over time. Turning to other things at F1, during the quarter, in October, we re-priced the $1.7 billion of our F1 term loan B, and we tightened the spread there from 300 basis points to 225 basis points. At F1 itself, we see surge in popularity and it continues. We’ve had continued sellouts in the grandstands in the Paddock Club. we’ve seen growth in engagement and awareness across social platforms, TV, digital platforms like F1T, social consumer media and others.

You continue to see new interest in Formula One. For example, we’ve seen new investors, high-profile investors joined at Alpine, Rory McIlroy, Anthony Joshua and Patrick Mahomes, and that follows Ryan Reynolds investment in June. This morning, at F1, we also announced a 5-year extension of our race in Brazil through 2030. We are excited for the inaugural Vegas race in just under two weeks begin. The Pit Building is ready. We received the certificate of occupancy to operate for the race. This will be the largest Pit Building on the F1 calendar. The roof-top deck and wraparound balcony will provide 360-degree views of the track. The temporary structure is in place. The bridges are complete. We are ready to go. This event will offer an unparalleled fan experience.

It’s going to kick off with an All-Star line-up for the opening ceremony Wednesday before the race, which will air on ESPN2. To name a few, they’ll be Keith Urban, Andra Day, J Balvin, William and others. We’ll also have Netflix hosting its first ever live sporting event the Netflix Cup. This will be a golf tournament with F1 drivers and PGA Tour players, and it will stream on Netflix on the 14 November at 6:00 p.m. Eastern Time. The Vegas race is generating record-breaking sponsorship levels with new marquee brands, and these examples include Moet Hennessy and Google Chrome. But more importantly, we think the biggest experience will create commercial opportunities beyond the race itself and accrue to the broader F1 ecosystem. The Amex partnership we recently announced is a great example, and there are more to come.

We did incur significant expense in launching year one in Vegas, and that included extra provisions for safety, security and traffic planning, which was required by local regulators. And we had several nonrecurring items, for example, our first year only opening ceremony, as I mentioned, and the design and launch of our multipurpose app and creation of a fan database. We remain highly confident and increased efficiency to operate there on our growing profitability in years two and beyond, and we remain bullish on the broader value creation at LVGP that far outweighs the increased investment in start-up costs. Let me turn now to Liberty Live Group, where we issued new 1.15 billion of two and three eight live exchangeable in September, 918 million of those proceeds were used to repurchase 93% of our existing LYB exchangeable exchangeable.

Looking at the Live Nation itself, another record quarter announced. Looking year-to-date, they’ve sold 140 million tickets versus 121 million for the full 2022. Revenue was up 36%, AOI was up 33%. They saw strength in all markets, venues and price points with international leading the way. Year-to-date, concert fans are up 21%, with international fans up 34%. Per-fan profitability is up double digits globally at operated and owned theaters and clubs, and sponsorship has been a tremendous win with a new large deal with Mastercard, driven again by growth in the international concerts platform. Live sees continuing tailwinds into 2024 and beyond. Consumer wallets are continuing to be spent on live experiences. We see untapped potential in the continuing globalization of lives business, and large venues are showing a pipeline and sponsorship commitments, which are up double digits.

Lastly, looking at the Braves, it was an incredible season on field and off the field, even if the play-off run was obviously more disappointing and ended earlier than we had hoped. We finished with the best record in Major League Baseball, 104 wins against 58 losses. 3.2 million tickets were sold, a new record for Truist Park. We won our sixth straight National League title. The Braves have won the most division titles of any team in baseball since the institution of Divisional Play in 1969. Braves had strong financial performance. Baseball revenue was up 11% year-to-date from increased ticket demand and attendance, and the Battery continue to benefit from increased traffic and rent growth with adjusted OIBDA at the mixed-use up 15% in the nine months versus the prior year.

And with that, let me turn it over to Brian for some more on our financial results.

Brian Wendling: Thank you, Greg, and good morning. My remarks this morning when I’m talking about balance sheet figures, we’ll be comparing 9/30 to the adjusted 6/30 balances that are adjusted for the split-off that was completed on July 18 and the reclassification of our tracking stocks that was completed on August 3, as you’ll see noted in the release. At quarter-end, Liberty SiriusXM Group had attributed cash, liquid investments and monetizable public holdings of $339 million. Excluding $53 million of cash held at SiriusXM and including the Battery stake held at LSXM that’s valued at $65 million as of 9/30. We expect these shares will be exchanged with third-party lenders to pay down debt in the near-term. There’s also $1.1 billion of undrawn margin loan capacity at the parent level related to our SiriusXM margin loan.

As of November 2, the value of the SiriusXM stock was $14.9 billion. We have $1.4 billion in principal amount of debt against these holdings. Total Liberty SiriusXM Group attributed principal amount of debt is $11.5 billion, which includes $9.4 billion of debt at SiriusXM. Subsequent to quarter-end, Liberty SiriusXM retired the remaining $199 million outstanding face value of the 1.375 basket convertible notes. Turning to the Formula One Group, at quarter-end, Formula One Group had attributed cash and liquid investments of $1.5 billion. This includes $947 million of cash at Formula One. Total Formula One Group attributed principal amount of debt was $2.9 billion, which includes $2.4 billion of debt at F1, leaving $500 million at the corporate level.

F1’s $500 million revolver is undrawn, and their leverage at quarter-end was 2.2x. And as Greg mentioned, the F1 re-priced its term loan B in October, resulting in 75 basis points of margin compression to 225 basis points. The F1 business is best analyzed on an annual basis, given its variability in the year-over-year rate calendar. With that said, though, I will make a few brief remarks on the quarterly results. During the quarter, F1 recognized a higher proportion of season-based income due to eight out of 22 races occurring during this quarter compared to seven out of 22 in last year. The mix of races has also benefited our financial results in the third quarter, with two flyaway races Singapore and Japan taking place this year versus France in the prior year period.

Formula One grew OIBDA in the quarter in line with revenue growth. We realized leverage on fee payments during the quarter while also making incremental investments and growth initiatives that were lower or not incurred in the prior year period, like the Vegas race and F1 Academy. Our team payments are best viewed on a year-to-date basis and represented 64.6% of pre-team OIBDA for the first nine months. I will note that Q2 and Q3 tend to have higher percent payout ratios based on the greater mix of European races in these two quarters. Reminder that other costs of F1 revenue and SG&A are best viewed as a percent of total revenue. Other costs at F1 revenue for the quarter was 21% of total revenue. Note that the LVGP-related revenues and other cost of sales will largely be recognized in the fourth quarter when the race occurs.

On SG&A, the third quarter included $8 million of costs related to LVGP. Non-Vegas, as Greg said, the Paddock building is ready. Year-to-date, through the third quarter, we incurred approximately $280 million of CapEx related to the Pit building structure and track preparation. The majority of the CapEx spend has and will be incurred at the corporate level related to the Pit building as the land and buildings sit within F1 — Formula One Group, sorry, separate from the Formula One OPCO. Track-related CapEx has and will be incurred at the F1-OPCO level. At the Liberty Live Group, there’s attributed cash, liquid investments and monetizable public holdings of $417 million, which includes the ETF assets. There’s also $400 million of undrawn margin loan capacity related to our Live Nation margin loan.

As of November 2, the value of our Live Nation stock was $5.7 billion. We have $1.2 billion in principal amount of debt against these holdings. And during the quarter, we raised $1.15 billion of new 2.375 Live Nation exchangeable bonds. Portion of these proceeds were used to repurchase approximately 93% of our outstanding 0.5% Live Nation exchangeable bonds for $918 million. There’s $62 million remaining outstanding on the 0.5% bonds, which have a September ’24 put call date that we expect to settle with the remaining proceeds from the recent issuance. Liberty and our consolidated subsidiaries are in compliance with their debt covenants at quarter-end and turning briefly to the Atlanta Braves. Revenue growth in the quarter primarily reflects increased attendance, that regular season games and growth in related revenues, including ticket and concession revenue, which more than offset the impact of one less home game in the current period.

Battery mixed-use revenue grew due to increased rental income from existing and new tenants, and then baseball operating costs grew in the third quarter, primarily due to increased player payroll and higher minor league expenses. SG&A was also elevated in the third quarter, driven by costs related to the split-off. And with that, I’ll turn it over to Stefano to discuss Formula One.

Stefano Domenicali: Thanks, Brian. Good morning. We are coming to the end of an action-pack triple header in the Americas, from Austin to Mexico City and this weekend to Brazil. Max Verstappen Red Bull have had an incredible season winning their second consecutive Constructor Championship and third consecutive title. While the Championship has been secured for several races, the other teams are still competing; firstly, with tight battles all the way-down the field at every event. We have had six different teams represented on the podium season-to-date. McLaren, Mercedes and Ferrari have gained strength throughout the season evidenced in Norton with Lando’s excellent start and excitement around the various type strategy implemented.

Santa Luisa is getting closer to Max in Austin and Mexico and four Ferrari poles in the last six races. We have more battles left to witness for the remainder of the season, even with the number of teams shifting focus to their 2024 cars. With gaps in performance appearing to be closing over recent events, we hope for a real challenge for Max and Red Bull next year. Our business is in a position of strength. Fun engagement is high, commercial interest is strong. The teams have sustainably improved their financial health, generating their own incremental sponsorship, which benefit our entire F1 ecosystem. And we have a number of brand expansion initiatives in the works, including the much anticipated starting Brad Pitt. I will have more to share on our strategy to capitalize on this momentum at Liberty’s Investor Day next week.

Braves Attendance in 2023 continues to sell out. The highlight of the third quarter was the record 480,000 weekend attendance at Silverstone for the British Grand Prix, the highest recorded in any event in recent decades. Other highlights, so the Japanese Grand Prix total weekend attendance of 202,000 to the highest level since 2006. The Netherlands sold out a 305,000 fans. Singapore sold out a 260,000 last weekend in Mexico, so another record with 400,000 attending. These are massive crowds for the country where we race. As we’ve discussed, our fans are increasing in excess in F1 content across multiple media platforms, including leaner, digital and social. We are building a richer and more varied content across median to satisfy the various types of funs.

All in a TV, global audiences averaged approximately 70 million. Growth market has seen solid year-over-year growth viewership, including Spain, Australia, Mexico as well as the U.S., where we have also had particularly strong growth in F1 TV subs. We’ve seen growth on digital video viewership with the F1 YouTube channel reaching almost 10 million subscribers, plus 14% year-over-year. Across our social media channels, F1 reached 67.6 million followers as of Q3, up 26% year-over-year. TikTok is now fastest-growing platform on social media, growing existing and new fans alike. Massive audience gravitate to both racing and lifestyle content across our social channels. EI launched their F1 23 game in June, and the U.S. is now the biggest market for our game, surpassing the U.K.for the first time.

According to OpenCritic, the game continues to be the highest-rated annualized sporting game franchise globally. F1 continues to advance our approach to audience measurement as consumer behaviors evolve. We aim to better capture our wider viewership and engagement for the future as we continue to grow these touch points. Turning to recent updates on our commercial agreement, on race promotion, we look forward to the ’24 race championship calendar next year. We recently renewed our agreement in Belgium for an additional year in 2025 after record year race attendance of 380,000 this season. The promoter has invested in its capacity increases and more variety entertainment for fans in recent years, which has benefited their attendance figures.

On media right, we entered into a strategic partnership with the Viaplay in the Netherlands that will allow their customer to access F1 TV Pro as part of their Viaplay subscription, providing fans with incremental commentary, camera angles, radio-communication and more. Our agreement with RTBF in the Netherlands and Belgium were also new for multiple seasons. This past week, we have announced an expansion of our agreement with DAZN to broadcast F1 in Spain in an attractive deal until the end of 2026. A market with strong growth in TV viewership this season. TV Pro and access subscribers are continuing to grow and provide a tailwind to our media right revenue. On sponsorship, our recently announced new multiyear regional partnership with American Express, welcome them as official payment partner for the F1 in the Americas and for Las Vegas Card members will have special benefits and access across F1 races in the Americas, including presale tickets and curated on-site benefits.

We were also thrilled to renew our agreement with Pirelli and Liqui Moly. Pirelli will remain F1 global partner until 2027, securing their place as long-standing supply to Formula One. Liqui Moly will also continue as an official partner under a multiyear renewal. Overall, demand and interest from sponsors continue to be strong, given the growth in our brand and the opportunity to align with F1 sustainability initiatives. We continue to have meaningful success in securing new and renewed sponsors, and we are confident in our coming pipeline. All eyes are now on Las Vegas as we countdown to the Grand Prix weekend. While the race itself will be a spectacle, it has also generated exciting noise that benefits the entire F1 ecosystem through the increased commercial interest, fan awareness and broader brand value.

The fan experience will be unparalleled. The team has continued to invest in creative offering for its fans, including announced with the Wind Grid Club, a first of its kind membership program that will debut in Las Vegas Grand Prix. The program is designed for the F1 enthusiasts and will provide members with an unparalleled hospitality experience, including exclusive access to location within the Pit building, bespoken services and incredible Members will also enjoy year-round benefits to additional F1 races and services through our over Wind properties. As part of our partnership with the brand new Sphere, we will be taking over the from Wednesday to Sunday or race we can to display a combination of unique partners, F1 and Las Vegas Grand Prix The team in Las Vegas, led by Renee Wilm, has real secured a number of new partnership in addition to the previously mentioned Americas fresh deal.

With the agreements announced this quarter, the Las Vegas Grand Prix has now secured over 20 partnerships to date for the marquee event. We are committed to raising Las Vegas in the long term. The total local economical benefit of the Grand Prix this year is expected to reach over $1.2 billion, which includes the direct spend from F1 to put on race, the incremental spend by visitor and the impact of local supplier and businesses. In addition, the Las Vegas Grand Prix will generate estimated $25 million that will be allocated to K-12 public school and is developed in a STEM program that will be implemented in the County school district in the coming years. Perhaps a future F1 engineer will be born out of this. Finally, F1 continues to progress our sustainability and diversity and inclusion efforts.

F1 Academy completed its debut season in Austin Congratulations to victory. And as we promised, she has now secured a full founded seat with in the underlining our determination to ensure the best in the Academy series move upwards to the system. The F1 Academy finale was broadcasted live in over 100 territories, marking a significant extension of coverage. This demonstrates the support of our broadcast partners and their commitment in bringing F1 Academy to both existing and new generation F1 fan, who can be inspired by this incredible racing talent. Additionally, our ambition effort in the development of 100% advanced sustainable are advancing well. Just last week, our partner, Aramco, announced that they will start operating two plus to produce synthetic fuels by 2025.

Our partnership with DHL to use bio-fuel truck across the European of the season was highly successful. They reduced emission by an average of 83% compared to the diesel-driven trucks. The use of bio-fuel will continue into 2024 and beyond. And we are excited about the insight we are gaining this year as we’re exploring further opportunity in the connection with the We have only three races left in the record-breaking season. I want to thank our F1 family, FIA, fans, teams, partners and shareholders to all of their support and enthusiasm decision. Our own excitement isn’t done yet. With the battle of standing outside of first place likely to come down to the last round of racing, we hope you tune into Brazil this weekend before we make our way today now Las Vegas Grand Prix and then wrap the season in I look forward to providing additional updates at Liberty’s Investor Day next week.

[Foreign Language] [ph]Avanti tutta! Full speed ahead! And now I will turn the call back over to Greg. Thank you.

Gregory Maffei: [Foreign Language] [ph]Stefano, and thank you, Stefano and Brian. Some of you may have seen our release that is retiring after 20 years at Liberty. Many of you know who Albert is and how much value he’s added for our shareholders. Most recently, he served as Chief Corporate Development Officer. Previously, he was Head of Tax. He never really relinquished that as we know. Fortunately, he will remain a senior adviser. We do have a deep bench of talent, both on the corporate development and tax teams, and we’ll continue to grow in those areas. But I’m pleased that they — Albert will work with them and me to drive future investment opportunities and our tax strategies. We look forward to seeing many of you at our Annual Investor Day on Thursday, November 9, in New York.

Additional information is available on our website. John Malone and I will be hosting our annual Q&A session. If you would like to submit questions in advance, you can e-mail investorday@libertymedia.com. None of the questions can ask if there will be about comedy. We do appreciate your continued interest in Liberty Media and the Atlanta Braves Holdings. And with that operator, we will open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of David Karnovsky with JPMorgan. Please proceed with your question.

David Karnovsky: Hey, thanks for the question. On Formula One payments, our team payments year-to-date, if we look at the implied figure for the full year, I think it’s down a bit relative to where it was in August. Greg, you noted significant launch in nonrecurring costs related to Vegas. So I wanted to see if you’ve adjusted your expectation for the economics of the race in the first year?

Gregory Maffei: I’m going to comment a little on Vegas and then I’ll let Brian reiterate some of his comments or hopefully, clarity about how those payouts — team payouts can be misleading it’s looked at just on a quarterly basis. On the first point, yes, I think Vegas is proving to be a bigger spectacle and more impactful than we had anticipated, but there also have proven to be initial start-up costs. I outlined some of them increased security, onetime things like the open day ceremony, but there were other ones like consultants that help us set it up. Permitting costs that were unusual and the like. So there are a bunch of initial costs that are probably higher than we had originally estimated. I remain very bullish. We remain very bullish on, as I said, the impact of Formula One overall by Las Vegas and the potential for this race be a profitable exercise itself.

Brian Wendling: Yes. And just year-to-date, we’re running at 64.6%. As you rightly noted out, you can see an implied decline in the overall team payment for the year, but those are covered by what Greg noted. But Q2 and Q3 tend to have a higher percentage team payment than what we typically see for the full year just because of that higher mix of the European races that have lower economics versus flyways.

Gregory Maffei: So to say another way, as we come into some of the races that are — have higher revenue, one might expect that the payout ratio will be higher payouts to the team, but a lower percentage overall. So that — this quarter may not be indicative of the full year number. Does that help?

David Karnovsky: Yes. And just sticking with Vegas for a second, it looks like there is a possibility of a labor strike next week at the hotels. Obviously, this could resolve before the race, but how are you thinking about the potential impact should a work stoppage go through?

Gregory Maffei: We have worked with the unions, and I believe our race will not be impacted directly. We’re obviously watching what impact that may have on the overall Las Vegas market.

Operator: Our next question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed with your question.

Benjamin Swinburne: Thanks. Good morning. Congratulations to Albert, and I guess, the IRS.

Gregory Maffei: He’s not quite done yet. We’re going to — thank goodness, we’re going to keep him around. So I don’t have to say goodbye to him yet. But go ahead Ben, I’m sorry.

Benjamin Swinburne: No problem. Greg, just to put a finer point on it, I think people want to know, are you guys still expecting this sort of approaching $500 million of revenue race weekend that will be top five — within the top five freezing EBITDA type numbers? Or are you changing that perspective today?

Gregory Maffei: A couple of thoughts. I think those revenue numbers approaching that still a reasonable estimate on profitability. I think I noted we’ve seen some onetime and start-up costs that may have been larger than anticipated. But remembering how this is impactful to us, not only directly, but indirectly, this is a very profitable race for us. As far as being measured as a top five, obviously, we don’t tell the world what the top five are, but we have noted that this one will have that impact. I still think that’s true, particularly when you look at the bottom line for F1, it will have that impact overall. And I think that we will see that profitability, as I noted. Once we get past some of these initial start-up costs, we’ll — and we optimize, it will increase.

let’s be clear, this year, we optimize for being there, being on time and having a great race. That’s not to say we won’t have some of that objectives next year, but I think we’ll be able to optimize on other variables as well and increase profitability.

Benjamin Swinburne: Okay. And then you made a comment, Greg, at a conference recently, I think acknowledging that you kind of post the Disney, the charter thing and just higher interest rates in the world we’re in. Sports rights inflation are probably going to be impacted. You guys just announced this deal. There was the Apple story out there that you probably won’t comment on. But can you guys — can you just give us your perspective on what the market feels like right now for sports rights as a seller? And whether the deal is an indication of the direction ahead as we think about forecasting your businesses that are in the sports business?

Gregory Maffei: There are really a couple of variables here. I mean, if you’re fully a distributed and more stable sports property, there are certainly trends about fragmentation of the market and overall pricing that might give you pause. Nonetheless, we’ve seen pretty good increases at some properties. We’re in somewhat of a different position, and I think, Ben, your focused rightly on the U.S., where we’re still relatively nascent, and our product is gaining traction, and our audiences are growing dramatically. So I think I feel very comfortable with the F1 renewals much more than I do with the overall market. There are a lot of factors in the overall market where you know well, the fragmentation to find scale. And if you’re a property trying to decide between how you get paid and reach and that is always a challenge to be managed that will be made more difficult with the fragmentation of the market.