Starz Class A STRZA
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/27/2013

Operator: Good day, everyone, and welcome to the Liberty Media Corporation Quarterly Earnings Q4 2012 Earnings Call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Courtnee Ulrich - IR: Good afternoon. This call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches, 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, competitive issues, regulatory issues, and continued access to capital on terms acceptable to Liberty Media.

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 definitions and reconciliations, preliminary notes and schedules 1 through 3 can be found at the end of this presentation.

Now, I'd like to introduce Greg Maffei, Liberty Media's President and CEO.

Gregory B. Maffei - President and CEO: Thank you, Courtnee, and good afternoon. Today, speaking on the call besides myself, there will be Chris Shean, our CFO. If we spin off anymore elements, I'm going to be alone on this call. But on to the highlights.

This is the first since the separation from Starz which was completed on January 11. As a part of that transaction, Liberty Media received cash of $1.2 billion. This transaction, we think, highlighted the value of Starz which is up about 19% since we began trading. The results as of 12/31 which we'll speak to includes Starz but the commentary about the Starz business was delivered by Chris Albrecht on the prior call and we're not going to talk anymore about Starz on this call.

SiriusXM was a highlight. We received approval for a de jure control from the SEC on January 3rd. We bought some incremental shares which increased our ownership over 50%. Our stake is now worth about $10.1 billion based on yesterday's close. As a part of taking that de jure control, we added additional directors to the Board and we continue to search for a new CEO at SiriusXM. Apart of all this, we're very pleased with the strong results there. Subscribers were up to 23.9 million. 2012 revenue was up 13%, and 2012 adjusted EBITDA was up 26%.

Turning now to Barnes & Noble; the NOOK Media division there received another strategic investment, verifying value and I think direction; $89.5 million from Pearson, that's in addition to the prior investments that were made by Microsoft. At Live Nation, they had a very solid quarter, posting results yesterday, notably constant sales for 2013, were up 58%.

Back at Liberty Media, we were active on our buyback. We bought $78 million worth of repurchase, prior to the spin of Starz and another $52 million post the spin of Starz.

So, with that, I'm going to turn it over to Chris Shean to talk about our financial results.

Christopher W. Shean - SVP and CFO: Thanks Greg. Liberty Media's revenue decreased 52% to $467 million in the fourth quarter, and 34% to $2 billion for the year. Adjusted OIBDA decreased 76% to $77 million in the fourth quarter, and 58% to $450 million for the year. The decrease in revenue and adjusted OIBDA was primarily related to the one-time recognition of deferred revenue and costs at TruePosition in 2011.

Looking at the liquidity picture at year-end, in our audit results, Liberty had cash and liquid investments of $1.4 billion and debt of $540 million. As Greg mentioned, these result are prior to the separation of Starz from Liberty. At the time of the spin, Starz distributed $1.2 billion of cash to Liberty in all of the debt that gave rise to that cash remained at Starz. Pro forma for this Liberty had $1.8 billion of cash.

Additionally, since our ownership in SiriusXM is now over 50%, beginning in the first quarter of 2013, we will consolidate the balance sheet and operations of SiriusXM into our numbers and they will be the dominant driver of our financial statements going forward.

With that quick wrap-up, we'll turn it to Greg.

Gregory B. Maffei - President and CEO: Thanks, Chris. As you know, change has pretty much been a constant at Liberty Media. The two latest changes; the separation from Starz and our taking hard control of SiriusXM, we believe it produced significant value for the Company and our shareholders. We are pleased with the results of our businesses. We appreciate your continued interest in Liberty Media.

With that, operator, I'd like to open it up for questions.

Transcript Call Date 02/27/2013

Operator: Bart Crockett, Lazard Capital Markets.

Barton Crockett - Lazard Capital Markets: Greg, I was wondering about your current position on vis-a-vis SiriusXM share repurchase. This is ramping up now and they've said that it's no longer required that you participate pro rata to buy back stock. I was just wondering what your feeling is about that, whether you'd like participate pro rata or not, a little bit cause that would be helpful.

Gregory B. Maffei - President and CEO: As you rightly noted, because we were over the 50% mark, the Board deemed it was no longer relevant that we participate pro rata. As you may recall, we had some purchases that drove us over 50% that rolled into the beginning of this year and there were reasons why short swing profit and the like we would not to participate in that repurchase for a period of time until we clear that short swing profit problem. Longer term, we'll see where we go. We like the operations and we sometimes in the past expressed desires about different things we might do with the stock, but we'll wait and see.

Barton Crockett - Lazard Capital Markets: Then if I could follow up with one other. As you are leading the CEO search, I was wondering if you could update us on where you are in that process. Any sense of how long it might be before it settles and how it's progressing?

Gregory B. Maffei - President and CEO: Well, I think, I can speak for my fellow committee members, Eddy Hartenstein and Jim Mooney that we've seen strong candidate internally and externally. We are excited about the quality of people we've seen and the responses they have about the business which have only confirmed the opportunities for the business and what's ahead. I expect we will wrap up our search in the next few months and I expect the market and we will be gratified with the result.

Operator: Vijay Jayant, ISI Group.

David Joyce - ISI Group: This is David Joyce for Vijay. Is there some optimal ownership level that you could see Liberty Media having for Sirius; kind of related to that prior question? And given that there are some limitations on Sirius to raise the capital, how do you see addressing that gap of getting up to the 3.5 times target leverage?

Gregory B. Maffei - President and CEO: I don't think there's an optimal percentage. We'd like increasing our ownership, because that's actually been a very attractive economic proposition. Obviously, taking control, we thought was beneficial. And as I said, we don't have a target number in mind. I would differ with the idea that there are limitations on the amount of capital that can be raised there to get to the 3.5 times level. We believe we can work through those issues and that Sirius can move forward to get to 3.5 times.

David Joyce - ISI Group: Any sort of (new) direction you think those can take? What range of possibilities you can work with there?

Gregory B. Maffei - President and CEO: I'm not sure I understand the question. If you're asking about – I think there are perceived structural limitations because of existing issues. I believe those are entirely workable.

Operator: Jason Bazinet, Citigroup.

Jason Bazinet - Citigroup: Since you now have de jure control of Sirius, if I could ask a strategic question on that front; in the past you talked about the potential attractiveness of telematics, and I was just wondering if you could elaborate on what it is about that business that's attractive and is that something if you decide to go down that path that you can do organically or does it by definition necessitate M&A?

Gregory B. Maffei - President and CEO: I think there are a couple of things in – if anybody was at one of your competitors' conferences yesterday, I think Jim Meyer was articulate on some of the opportunities. This is a natural extension of where SiriusXM is now, a trusted supplier to the OEMs of the car industry providing already not only entertainment but already information. You asked about telematics. We already have at least one OEM to whom we're supplying our contracted supply. Telematics broader set of information than just entertainment, and I think we already do that in other places like the aviation business and like the marine business and it's a natural extension of both what we have done in other industries, with SiriusXM and what SiriusXM has the relationship with the car business. The opportunity to get a recurring revenue stream direct with consumers. Based on their experience in the car, I think is right up SiriusXM's ally. I think they both have an interesting organic opportunity, but that's not to say we wouldn't present it with the right opportunity, consider utilizing some of the balance sheet capacity and strong cash flow capabilities of SiriusXM to accelerate our entry.

Operator: Matthew Harrigan, Wunderlich Securities.

Matthew Harrigan - Wunderlich Securities: I was just curious what your reaction was to the spade of announcements out of Barcelona forward (indiscernible), the 4G announcement with GM and all that. I know it's been – the bar cast platform is wonderful, but you Greg have been particularly cognizant of competition and how everything develops with the dashboards. I just like to get your views as well as the guys at SiriusXM.

Gregory B. Maffei - President and CEO: Well, I think all the actions like General Motors working with AT&T just indicates the increased direction of the connected car and the car manufacturers in General Motors being among the leaders, driving to raise the level of connectedness and intelligence in the car, and that plays in well to where we think the strategy for SiriusXM is and I think all of those things are good accelerators of the opportunity for telematics and for SiriusXM in telematics.

Operator: Bryan Kraft, Evercore Partners.

Bryan Kraft - Evercore Partners: I just had two questions. I guess, one, which assets did o you sell since the end of last quarter to utilize the Starz capital losses? Looks there was $400 million of assets sales there. Then also, Greg, just want to ask you, I mean, strategically now you've got a controlling stake in Sirius. Starz is gone. No substantial operating assets. Thus an eventual RMT even make much sense at this point longer term or does it make more sense to try to reach some agreement to combine Liberty Media and Sirius since the leftover assets once you sell public securities are pretty minimal anyway?

Gregory B. Maffei - President and CEO: I'll take the second first and then I'll let Chris Shean answer about the securities sold. If we think about the direction and obviously, we are, as I noted, changes of content and we are never certain of exactly what our direction will be for the long-term because we are relatively opportunistic. But if you think about the direction, we are less likely to go in and try and combine I think the securities at Liberty Media which still traded somewhat of a discount to fair value in our minds with SiriusXM and we're more likely if we wanted to increase our ownership of SiriusXM to continue to let SiriusXM repurchase stock and draw us up that way, with us not participating in a buyback. That seems like a more logical way to go. I would discount a little bit – or not discount – I'd take the issue a little with the idea that we don't have other operating businesses in. We have interesting opportunities around Live Nation, around Barnes & Noble potentially and obviously, there are other operating assets in there like TP and (indiscernible). But above all, there's still quite a lot of cash, quite a lot of non-core asset securities that we have set and are core to business; debt securities, equity securities, in which we own small minority stakes have no path to control. It provides fire power. We like to believe one of our competencies is an ability to reinvest that capital wisely. So, we're still out on a hunt for opportunities, and I think it's a relatively difficult environment today with the low interest rates and relatively high multiples, but we are confident somewhere along the line we'll find something wise to do with that money. With that, Chris, maybe I'll let you answer the part about what securities we sold.

Christopher W. Shean - SVP and CFO: We light and ship in our shares of – in shares of Time Warner, Viacom and we got completely out of our Sprint position.

Operator: John Tinker, Maxim Group.

John Tinker - Maxim Group: Just following up on your Barnes & Noble comments. I think the Chairman Riggio filed this week to announce that he's intending to make a buyback off of the retail stores, but not for NOOK, and as you mentioned Pearson invested $90 million or so in NOOK. How are you sort of thinking about which – do you have any views on which way you'd like to go on that or how are you thinking about it?

Gregory B. Maffei - President and CEO: Well, I would clarify one thing. I believe because he had an existing 13D, because of its large equity ownership position, Len Riggio was required to amend that he might consider making an offering. No offer has been made. There is an independent committee that's been formed to – if something has – gets done, but I think it's very preliminary and we'll see where Len goes with that and that seems in line with where Len's heritage and heart has been in the retail stores, while understanding and being very encouraging, meeting Len of meeting a longer term an eBook solution, a tablet solution, a store online, and so it was very logical that he would want to be interested in the retail stores but supportive of the NOOK Media business. As far as where we would go, I think by the terms of our preferred, we have a fair amount of right to influence or block any sale that we don't see as advantageous and I will wait and see what happens, whether a transaction occurs and what the format and how NOOK Media is organized going forward.

Operator: Doug Mitchelson, Deutsche Bank.

Doug Mitchelson - Deutsche Bank: So, Greg, I'll be down to asking a question about the Atlantic's brave soon, but this quarter I am curious. Can you give us a sense of the rate of return, new demand from your investments; Liberty Media portfolio at this point? And whether SIRI has held to that same standard or does it's scale and size suggest a lower rate of returns acceptable?

Gregory B. Maffei - President and CEO: Well, I'd be happy to talk about the Uptons in the outfield if that was helpful. But I don't think we have a fixed rate of return we seek. We're cognizant of both risk. (Certain kinds) of securities and transactions have different amounts of risk and therefore you might be willing to require a higher rate of return. You might not be able to put as much financial leverage on that because they have operating leverage and you also need to recognize a low interest rate environment in which the opportunities are clearly less. The marginal rate of return has come down quite a bit of the opportunities we see. So, part of the reason why we sit with that cash is we have not been seen enough opportunities with the combination of risk, return, finance ability meet our hurdle. As far as SiriusXM, well, by some measures the valuation in multiple are pretty high. By all measures, the Company has a strong growth path. We're very optimistic about its positioning in the car with consumers, operating leverage in the business, its ability to extend itself into new markets. We remain quite bullish on the growth prospects for the Company. So, whatever hurdle we would have internally I'm confident SiriusXM will meet.

Doug Mitchelson - Deutsche Bank: I was hoping you had there only to the extent that buying back your stock is investing further in that asset. So, any sense of your level of patience in terms of trying to find alternative investments outside of Liberty for the cash versus just saying, you know what, we will buy more Sirius by buying more LMCA?

Gregory B. Maffei - President and CEO: We're buying more Sirius in two ways. Right now, Sirius is buying itself back which is increasing our ownership and we are buying more LMCA. LMCA can't really ink the bargain it once was in at least $0.01 – in $0.02, is not only have you already had the enormous upside of SiriusXM but we are not trading at a larger discount to net asset value as we have it various times. So, candidly, we need to be thoughtful, look outside. The scale of Sirius and our larger position of Sirius, I think, it still drive good returns to LMCA. But just the sheer act of our buyback – I think we bought back something like 45% of the original LMCA shares at ($135). Clearly, we're not going get the kind of leverage on buyback, the pop in NAV that we once did. So, we need to look outside. But Sirius is a large enough to still grow and be meaningful in the LMCA portfolio.

Operator: Martin Pyykkonen, Wedge Partners.

Martin Pyykkonen - Wedge Partners: One on the Barnes & Noble, Greg, maybe a little broader, you've had this stake for a while. I'm just curious, how you are all thinking of the traditional retail brick and mortar side to whatever (indiscernible) think that's undervalued in the market? Then on the NOOK you really haven't done anything your sales, with additional investment. It's obviously a very competitive business. I'm curious how you feel about the NOOK business from that standpoint. Then secondly, just on Sirius and the search for new a CEO. I know you're not going to say candidates, obviously, but are you looking for any particular traits industry experience or just (total outcome) kind of the consumer industry is one example, something else could be brought up, but (indiscernible) you can say on that in terms of kind of the background and experience and skills you're looking for?

Gregory B. Maffei - President and CEO: I think since we've been invested in Barnes & Noble, the retail business has probably performed better than most outside observers were thought. I think probably at least as well as better than we would have thought, absorbing the borders dissolution, moving quickly through that and actually benefiting from that more quickly than anticipated. It has meant retail has performed pretty well, and we have always been of the view that there will be retail book stores around for a long time. There's likely to be one retail book store around for a long time called Barnes & Noble and that is so far proven the path that the DK rate has been much less than most people would have forecasted. On the other side of the house, we took an early position in Barnes & Noble, recognizing, we thought two ideas; one, that the retail would DK less quickly; and two, that there are many important partners like a Microsoft or Pearson would find the NOOK Media business strategic. So we got in early at evaluation which compare to the valuations which those partners have come it at, is attractive. It made less sense for us to be involved in the NOOK Media directly, because we didn't have some of the elements of distribution and some of the royalty elements and kind of relationships that – or content that some of those partners could bring. What we really thought of ourselves as was seeing value there early on the two parts, and so far at least on paper less in the market that's proven to be so. We'll see if we ultimately are correct. SiriusXM CEO traits. Thank you. I don't think there is an industry we're looking at. If you had to ask of the perfect person who doesn't exist but some of the characteristics that perfect person would – he or she would have, would include experience with subscription businesses like cable, like satellite, like the SiriusXM business itself, experience with the changing technologies recognizing that we both have opportunities and potential threats from IP. And talked already about some of the opportunities by extending into things like telematics. I think a technology background would be helpful. A direct marketing knowledge on how to reach out to a new set of customers, because we believe there is an untapped reservoir of customers out there where SiriusXM would be helpful. And finally, some experience of content businesses, because the strength of our content is one of the two differentiators for SiriusXM. We are not a commodity music service. We are many things on top of that. And I think someone who understands how to bring exclusive content, differentiated content to SiriusXM; would be helpful. So those are off the top of my head. Four things that I would point to is all being strength that a perfect candidate would have.

Operator: Everyone; that does conclude our question-and-answer session, and that does conclude our conference call for today. Thank you all for your participation.