Nov 4, 2015
Executives
Courtney Ehrlich - VP, IR Greg Maffei - President and CEO Chris Shean - SVP and CFO
Analysts
Jeff Wlodarczak - Pivotal Research Group Barton Crockett - FBR Capital Markets James Ratcliffe - Buckingham Research Tom Eagan - Telsey Advisor Group Vijay Jayant - Evercore ISI Ben Swinburne - Morgan Stanley Kannan Venkateshwar - Barclays Capital Matthew Harrigan - Wunderlich Securities
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation’s 2015 Third Quarter 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 Wednesday, November 04, 2015. I would now like to turn the conference over to Courtney Ehrlich, Vice President of Investor Relations.
Please go ahead.
Courtney Ehrlich
Thank you. Before we begin, we would like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potentials, new service and product launches, the future financial performance of SiriusXM, stock repurchases and other matters that are not historical facts.
These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, possible changes in market acceptance of new products or services, the ability of our businesses to attract and retain customers, competitive issues, regulatory issues, and market conditions conducive to buy back. 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, including adjusted OIBDA. The required definition and reconciliations, Preliminary Note and Schedules 1, 2, 3, can be found at the end of the earnings press release issued today, which is available on our Web site.
This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty Broadband. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including the ability to complete the Charter transaction and Liberty Broadband related investments.
These forward-looking statements speak only as of the date of this call and Liberty Broadband expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Broadband’s expectations with regard thereto or any change in events conditions or circumstances on which any such statement is based. Now I would like to introduce Greg Maffei, our President and CEO.
Greg Maffei
Thank you, Courtney and good afternoon to all of you out there. Today speaking on the call, we will also have Liberty’s CFO, Chris Shean.
During Q&A, we’ll be available to answer questions related to Liberty Broadband as well. So starting with Liberty Media, during the quarter we completed the hedging period on our previously disclosed the Live Nation forward purchase.
We will own when this hedge closes at the end of November, 34.4% of Live Nation. We’re acquiring 15.9 million shares at an average price of 24.91 and we’re very happy with our increased involvement and investment.
Live Nation announced stellar Q3 results last week revenue grew 10% and AOI, adjusted operating income was up 8% both in constant currency and these were driven by a 10% increase in attendance during the quarter. Sponsorship and advertising AOI grew an impressive 16% in constant currency and in ticketing Live Nation grew its primary and secondary GTV by 18%.
Digital content is also performing at Live Nation with Yahoo live festival streaming and vice original programming having now delivered over 100 million streams to-date. We continue to focus on mobile with over 60% of Web traffic through mobile at Live Nation and we’re on track to deliver record performance for 2015.
Looking back at Liberty Media itself, we continued buyback and we repurchased a total of $38 million of LMCK shares from 8/1 to 10/31 taking advantage impart of the increased spread between LMCA and LMCK. We also continue to focus on the overall discount between an LMC between it and its continuant components the NAV recent analysts estimates have had this discount somewhere in the mid to high-teens and we continue to look at alternatives to take advantage including stock repurchases as you saw in this quarter.
So on to a few operational highlights at our subsidiary SIRIUSXM again posted very solid results and increased its guidance for net subscriber growth revenue and adjusted EBITDA. During the quarter subscriber count increased to nearly 29 million, revenue was up 11% to 1.7 billion and adjusted EBITDA grew 17% to a record $447 million.
As of 10/20 our ownership in SiriusXM stood at about 60.7%. Looking at the Braves, our stadium and mixed used development is progressing well in September we closed on a stadium construction loan of $345 million to fund the remaining Braves’ portion of the stadium parking and plaza and we officially named the new mixed used development adjacent to SunTrust Park at Battery Atlanta.
Additionally, we named John Coppolella as general manager during the quarter. Over at Liberty Broadband Charter continued to show excellent results with very good growth in customer relationships PSUs and revenue was up 7.2% year-over-year with adjusted EBITDA 8.5% year-over-year and including the transaction cost we incurred during the quarter end transition cost related to our upcoming mergers and acquisitions we would have been up 9.7% year-over-year in adjusted EBITDA.
We remain very excited about the Charter, Time Warner Cable and the Bright House combination and the ability to successfully apply the Charter strategy across the larger footprint. We look forward to seeing many of you on November 12th in New York for our Annual Investor Meeting.
We’ll have lots of fun things to talk about and with that I'll turn it back over to Chris to talk about our financial results.
Chris Shean
Thanks Greg. Just a reminder that while Sirius Consolidated and Liberty Media's financial statements we suggest we think it would be better to go directly to their Web site in publicly filed documents for your analysis on that asset.
At quarter-end Liberty had cash and liquid investments of $607 million and principal amount of debt of $6.9 billion which includes $5.5 billion of debt at SiriusXM and a margin loan at Liberty. Included in the 607 million in cash and liquid investments balance at September 30, 2015 is $153 million of cash held at SiriusXM.
Liberty's cash and liquid investments excluding cash held at SiriusXM was $454 million. Now with that I'll turn the call back to Greg.
Greg Maffei
Thank you, Chris. And to the listening audience we appreciate your continued interest in Liberty Media.
And with that operator I would like to open the floor for questions.
Operator
[Operator Instructions] And your first question comes from the line of Jeff Wlodarczak.
Jeff Wlodarczak
I just wanted to get your latest thoughts on your high basis Siri shares, and then separately now that Sirius has had experience in pushing through a couple of price increases what your comfort level around Siri taking additional price increases and then I have got a follow-up thanks.
Greg Maffei
First I think we remain constant in our belief in SiriusXM and for many quarters now we've not sold any shares we did as you recall increased our stake dramatically from the 48-ish percent to well over 50 and SiriusXM has done a heavy lifting since and we did sell some shares just to get some of our base back but I think we’re very happy with our position and have no current intent to dispose of any more high basis or otherwise in SiriusXM. I'm not going to comment on future price increases other than to say both the churn and customer reaction on an ongoing basis and in light of prior increases indicates quite a lot of happiness with the products and quite a lot of price elasticity at least in my mind, but we’ll see where we go with that.
Jeff Wlodarczak
Fair enough. And then on Charter Greg, how interesting is the idea of Charter offering sort of a Wi-Fi first MVNO wireless product to consumers outside of the home?
Greg Maffei
I’ll let them make their announcement, but I think our Liberty’s belief is probably somewhat consistent with theirs 75% to 80% of all bits on mobile devices are already delivered through Wi-Fi. We have a unique plant in market to be able to offer customers incremental services that include Wi-Fi whether that is bundled in something which is a Wi-Fi first or whether it's a more broad MVNO or whether ultimately there is a richer offering on a quad-play the way there is in Europe, we’ll see.
I don’t think that is know, and I think the market could evolve, but clearly the strength of our ability to have the network we have and offer Wi-Fi is very valuable to customers.
Operator
The next question comes from the line of Barton Crockett with FBR Capital Market.
Barton Crockett
To follow-up on your statement that you're interested in hanging out your Sirius shares. Now when you look at your kind of view of the value of that business, how much of it is really driven by the core subscription business if they have and how much of it is potentially driven by the long-term value that they might be able to unlock from spectrum as they move to kind of free up the Sirius spectrum?
And you look at kind of the dynamics of the spectrum values in lost auction, does that really factor in kind of your long-term thinking of the value there?
Greg Maffei
Well, I think first and foremost, Sirius is a subscription company and it is value will come from that subscription. The company has done a excellent job of building on the initial lag first member with and aftermarket product now it became an OEM product and now adding this next leg which they have done very well over the last three years of the secondary market.
We are -- there is not probably as much growth left given what has happened to STAR in the OEM market. But the potential to see the secondary market grow for as much as 10 to 15 years is very conceivable and very attractive.
And with that comes other sources of value too in this company including the fact that we’re going to have many OEM installed non-subscribers number out who will never probably want to become subscribers, we don’t pretend or believe that every car is a potential subscriber to a paid service just like not everyone is willing to subscribe to STARZ or HBO or Showtime. But we think there is quite a lot of room left to grow in both of those.
But when you're done there is still a huge base of installed cars, that I think there is opportunity to do things with. And last and not least, we do have a lot of spectrum value and some of the actions we’re taking to unify our platform are going to create opportunities with that incremental spectrum.
I don’t view that as the driver of value, I view that as an incremental boost and obviously there is another feature as we’ve talked about which we haven’t accounted here which is the connected car, another subscription service. So I think that most of these are green shoots to a degree, I think they have got real potential, but we don’t know the size of them and I put the spectrum in that category as well.
Barton Crockett
Okay, that’s helpful. And then if I can switch gears here a little bit, to what extent do you think Liberty Media could be potentially valuable as a consolidation vehicle, or acquisition vehicle for emerging music services there is a lot of innovation in that area.
You have stakes in companies that are in that area, but have earnings meet cyclical earnings. Liberty Media’s some of the parts really doesn’t have to focus on earnings.
So to what extent do you think you could get involved in taking stakes or making acquisitions or substance in that area?
Greg Maffei
Well that is a great question and you could see to some degree that’s already happened. We have, and I believe we have disclosed the small stake venture capital stake in the company called Saavn which is an Indian streaming company.
We’ve looked at virtually there isn’t a streaming company that we have not spoken with either Sirius or Liberty or both and in some cases have imagined that given the high profitability of Sirius and as you rightly put we have got more the NAV orientation of Liberty that perhaps some of it ought to fit the equities ought to sit inside Liberty for a period while they bake because in a lot of cases the models as you have rightly pointed out where these emerging services are not robust yet and not known and don’t fit very well. So that’s not a crazy idea and you’ve already seen a bit of that with our Saavn investment and we as I said we look for punch.
Barton Crockett
Okay I mean since you threw it out there, I mean do you have a sense of the desirability of businesses like Spotify with your evaluation or candor with its valuation whether you can look at those types of models maybe not the specific equities and see a case where value and you're willing to spend and they are willing to price it could meet are you in the ballpark, could you think there is separation there?
Greg Maffei
I think the biggest issue have for us has been the uncertainty around some of the models because of the nature of the variable content costing very high as a percent of revenue, potential only for increases in those contents with some rulings or some approaches from content owners whether they be the broadcast the play services or the publishers so all of those have given us uncertainty about what the real cost or what the real potential to earn your cost of content in this businesses are particular when you throw on the cost of servicing streaming et cetera. So most of our hesitation has not been where does this belong Liberty or Sirius but what is the nature of the business model and what is the sustainability.
Operator
Your next question comes from the line of James Ratcliffe with Buckingham Research.
James Ratcliffe
If my math is right the -- once you've completed the Live transaction there is going to be pretty minimal cash balance sitting at LMCA. And can you talk about other potential sources of liquidity, should you desire it there I mean I have seem you could extend the margin loans on Sirius for example but are there other options there?
Thanks.
Greg Maffei
I first would note that we believe there is quite a lot of borrowing capacity. We have the long-term $1 billion exchangeable there.
We have which sort of mature another eight years or some point then and we have a margin loan against our Sirius stake on which we had diminished several hundred million dollars drawn and it's safe to say we have several many times that in capacity undrawn and so I don't worry about that. We've also shown an ability to raise incremental capital against some of our existing stakes or in our existing company.
So yes it is always feast or famine in the sense that for the first eight years I was at Liberty all we ever thought about and heard was what are you going to do with all that cash in your balance sheet now we’re at the other end of the spectrum and we've been blessed with somewhat of a decent track record and people have approached us to bet various ways to finance and we've always found ways to raise capital for the right opportunity.
Operator
Your next question comes from the line of Tom Eagan with Telsey Advisor Group.
Tom Eagan
I have a broader question on cable for either Greg or John, there has been some talk about cable operators providing video service outside of their footprint I guess as a video service on the Internet versus one that is based on facilities. I guess my question is what do you think about that, pros and cons to the operators?
Greg Maffei
I think in general over builders have had a very tough time in marketplaces. To my knowledge it's hard to point to a very successful over builder who made return their cost of capital.
So we have a great opportunity to invest on our won footprint upgrade speeds do more with go all digital in the footprint do a lot with our footprint that is we hope to close soon, the combined Charter Time Warner Bright House footprint and I think that frankly is a lot of more attractive in opportunity and potentially adding on services like wireless than trying to decide we are going to overbuild into other markets.
Operator
Your next question comes from Vijay Jayant with Evercore ISI.
Vijay Jayant
I have two so Greg I am getting a lot of questions on the spread of LMCA at the Sirius and which stock should I buy and I'm sort of trying to understand is there any urgency at Liberty to close those at spread obviously you talked about. You have liquidity to do that if you seem to want to do so.
Can you just talk about how important it is to close a spread or is this going to be national and we sort of deal with it when tax consolidation probably happens. And second given you've been one of the largest investors in cable in the U.S.
and you have had Alties come along recently and talk about synergies that are even higher than the synergies on the Time Warner Cable Charter deal for a much smaller asset. Can you just talk about is that something there that they see or you have sort of studies and think there is a real opportunity for U.S.
cable operators that we are all missing?
Greg Maffei
On closing the spread, look I consider it a personal insult for all investors putting us at a discount because it suggests that they think we’re going to overpay for Siri or do something else that is irrational. I hope we demonstrate a track record of not doing that but we’ll have to see.
Historically we've taken advantage of those discounts to NAV to purchase stock or do other things to take advantage of the discount and subsequently get fully valued NAV and outperform the underlying equities we’ll see if that proves to be the case again but I would put my money on it. On the LT synergies I view their entry to the marketplace is largely good.
If they do something that’s highly beneficial and highly attractive and highly effective in running cable plans at much lower costs than existing operators in the U.S. market are able to, I hope we'll go to school on it and learn will either make our business far more profitable or maybe they'll buy us all out because they can make them all they can run them much better either seems to bode very well for our equities.
Operator
Your next question comes from the line of Ben Swinburne with Morgan Stanley.
Ben Swinburne
First question any update on Vivendi litigation’s timing wise, I think we’re coming in on maybe the beginning of a trial here in December. If just any update you guys have on timing and process would be great?
Greg Maffei
I’ll let Rich Baer, our General Counsel comment on that.
Rich Baer
Yes, the matter has been set for oral arguments before the court of appeal, so it's not a trial it's just an impelled argument. The second circa will consider those arguments in March of next year.
And then they typically rule within six to eight months after that.
Ben Swinburne
And do we know what interest you’ll be earning on the cash or that’s still on the settlement or the fines I guess should be the best way to put it or that is still also being debated?
Greg Maffei
Well there are two parts to that, the first part is what interest we earn from the time the fraud occurred to the ruling of the judge and that is being in dispute. To what we earn from the time the ruling came down till today is not in dispute and that is a low treasury rate.
If the dispute is whether we earn that treasury rate from roughly 2002 till 2014 or whether we earn a 9% simple interest rate under New York contract law which is our aim.
Ben Swinburne
And then just lastly Greg switching back to the music business, a bit of a random one, but since you are a big investor to Live Nation and you have booked it a lot of music businesses. What do you make of Pandora buying Ticketfly do you see that as something that might impact Live Nation in any way or do you have realized they are much slower taking business today, but do you think the combination there is interesting as it relates to the competitive set for Live Nation or it is something that Live Nation might be able to do in that direction to enhance their business?
Greg Maffei
I think Ticketfly is mostly directed at smaller venues which is not where the bread and butter of Live Nation is, our success and our strength is really in large global ticketing cards global tours and so I don’t want to be dismissive of a competitor but they are not really front and center as much of a problem or as much we don’t -- they are not as tough as some out there. I think it is interesting to imagine though that events and programming are useful for promoting a service because I think it suggests there are possibilities in the portfolio we have between Live Nation and SiriusXM to work together.
Operator
Your next question comes from the line of Kannan Venkateshwar with Barclays.
Kannan Venkateshwar
Greg just a couple of questions from you, first is on the cable side of it if you just look at the footprint for Charter there the initial plan was maybe two years ago versus where it is now, is there any scope for optimization? And not specifically with respect to Charter, but when you look across the ecosystem with Alties in the mix and so on in terms of assets allotments are not going forward?
And the second is given the kind of pressure the media guys are seeing, I mean is that an opportunity for you guys at some point to start looking at some media assets just given everything else that you own in your portfolio? Thanks.
Greg Maffei
So on the first asset swaps are really one of the most attractive ways to optimize a cable portfolio I think as you rightly point out, one of my predecessors Leo Henry had the Summer of Love back in the mid to late 90s when there was a massive series of swaps which were mapped hugely beneficial to the industry and obviously the transactions that we contemplated but were unable to complete with Comcast because they were unable to complete their Time Warner purchase with a series of swaps which we thought was very optimal for both of us. All that’s probably off to table for a while but it's certainly not to say that it doesn’t ultimately in some cases make sense to move towards that.
And on the question of media assets, we certainly notice that certain of the media companies have been seen their valuations come down quite a bit and we’re always looking that’s the nature of who we are, but I don’t think we’re ready to announce anything this afternoon. I think it is the question operator, thank you.
Operator
And our last question comes from the line of Matthew Harrigan with Wunderlich Securities.
Matthew Harrigan
I was curious as a suitable building and FCTA does really a lot more anxiety about how compatible LTE and license and Wi-Fi are, could you just provide us some thoughts on that and then thoughts on the valuation of the spectrum auction next year, I mean several of the indications are kind of all over the place in terms of what some of the telecoms executives are saying?
Greg Maffei
Matt to make sure I understand your first point, so I’ll get the second point first, I certainly -- we watch the spectrum auctions. We have some interest even Siri we have some interest given what Charter may want to do, but we’re certainly not experts, so I’ll pass on what is going to happen in those spectrum auctions the speculation.
But make sure I understand the first part of the question.
Matthew Harrigan
Yes, I mean there are some technology issues with LTE advance and Wi-Fi, I mean LTE is very grabby and on license spectrum and there is some concern that it could affect the QoS on Wi-Fi, Verizon is going ahead pretty aggressively with some things and it feels like overall people are getting a lot more pulled up in Wi-Fi both in terms of the churn reduction and even some more direct monetization possibilities and there seems to be more and more concern about this interference between the technologies I mean Wi-Fi kind of is very passive and LTE it will just kind of take a slot.
Greg Maffei
Well generally the guys who have licensed investments have more incentive and have been probably more aggressive at standard spikes because they've invested more to get there. So I think that’s a natural.
That happens and those spikes happen all the time. I'm sure they will get sort out at some point and the SEC will be likely be arbitrators of parts of it so we’ll see.
Greg Maffei
Thank you to all of you out there. And as I said hope to see many of you next week in New York.