The Liberty Braves Group (NASDAQ:BATRA) Q4 2023 Earnings Call Transcript
The Liberty Braves Group (NASDAQ:BATRA) Q4 2023 Earnings Call Transcript February 28, 2024
The Liberty Braves Group isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Liberty Media Corporation and Atlanta Braves Holdings 2023 Year End Earnings Call. [Operator Instructions] As a reminder, this conference will be recorded. It is now my pleasure to introduce your host Shane Kleinstein, Senior Vice President of Investor Relations. Thank you, Shane. You may begin.
Shane Kleinstein: Thank you. Good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-K filed by Liberty Media and 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. The LSXM and SIRI transaction is on schedule. We filed the preliminary proxy on the January 30th. We still expect to close by early Q3 and the NAV discount which was about 42% prior to announcement is now closed to about 25% as we had hoped and we expect it will continue to close. Looking at SiriusXM itself, the strong operating and financial performance that it had in 2023 showed the durability of the business.
Self-pay net adds were up in the second half as expected boosted by streaming. The strong margins and free cash flow generation remained largely through cost discipline. Importantly, they rebuilt their tech stack and re launched their app in the fourth quarter and we are beginning to show positive early results from that with better personalization, promising engagement, and improved service quality. We believe these initiatives as well as the incremental content they added will continue to drive long term growth. Looking at the 2024 priorities of the business, first, increasing 360L adoption and boosting conversion and retention, continuing to deliver engaging content. Recently, they signed the quite popular SmartLess podcast with Jason Bateman, Will Arnett and Sean Hayes.
We do expect self-pay net add improvement throughout the year and there is a focus on maintaining stable EBITDA margins and free cash flow. I look forward to remaining involved personally in the evolution of the business as Chairman and a shareholder. Turning to Formula One Group. It was an amazing 2023 at F1. We saw double digit growth across all revenue streams and adjusted OIBDA up 22%. We see a strong commercial start to the season, four race promotion renewals including Silverstone, a 10-year deal with venue upgrades in our important heritage market and a new race in Madrid beginning in 2026, which will be a partial street race with convenient fan access. We do see continued growth in fandom. Recently, this week, F1 joined Threads and 2.8 million followers were on board platform after half a day of use.
We closed the Quint acquisition in January as we previously noted and that growing partnership opportunities from Quint with F1, LVGP and other sports properties including the Kentucky Derby and the NBA All Star Game. Let me turn to a minute to Vegas. It was an incredible race. We were fortunate to have such a great outcome with a record 181 overtakes, the podium came down to the final lap. It was a great result for Formula One. It created new commercial opportunities and generated fantastic global buzz. A high percentage of the first time F1 attendees and massive audiences tuned into this race. It drew marquee brands to F1, for example, American Express, T-Mobile, Moët Hennessy, Google and we think these brands and the marquee aspect of joining Vegas will continue to help us in 2024 and beyond.
It was also a hugely success for the local community. The total economic impact of the rates was estimated at $1.2 billion and an average visitor spent 3.6 times what a typical visitor spends for a non-F1 event. We look forward to building on the success of LVGP in 2024. For example, we're going to increase the GA and expand other product offerings at various price points. We're going to optimize the cost structure. A year-round commercialization efforts at Grand Prix Plaza are developing, but we will expect only a modest contribution from those in 20 24. Corporate events at that site kicked off around the Super Bowl this year. In summary, the Vegas race exceeded our expectations on many levels even though year-one cost came in higher than we had anticipated.
We do not intend to disclose race specifics on this race consistent with our practice across all races. I would note that we are kicking off the F1 season with testing in Bahrain which occurred and look forward to the first race in Bahrain this weekend. Turning to Live Nation. 2023 was the biggest year ever where they were all time highs for attendance, ticket sales and sponsorship. Concert attendance grew 20% with 145 million fans. Global demand for concerts continues to grow. The top 50 tours did 50% more international acts in 2023. We have an incredible pipeline for 2024 with no sign of consumer slowdown. We are seeing strong demand across all price points. For example, large venue shows are up double digits and 65% of full year large venue shows are already booked versus only 50% last year at this time.
The number of shows at amphitheatres and other operated venues will also increase in 2024. Let me turn to the Braves. Obviously, it was incredible team performance in 2023, so much to highlight, I will do one, the 947 runs scored was the first in MLB and it tied in MLB homerun record as well for the team. The Braves also experienced great financial growth for the year. Baseball revenue was up 9%. We see continued success result in higher payments under MLB's revenue sharing plan. So that is the one negative about our continued revenue growth. But I'd also note the battery revenue was up 10% and our adjusted OIBDA was up 11%. We clearly benefit from the strength of the Braves territory. In a recent study by YouGov, the Braves had 8.4 million fans in the South region, number one in MLB and over 65% of all other local sports teams fans support the Braves, which is the highest crossover of any fandom in Atlanta.
We've seen encouraging early season trades, including for seven-time All-Star Chris Sale and outfielder Jarred Kelenic. We are well positioned for future commercial and on field success. For example, 2024 season tickets are already sold out and there is a 16,000-person waitlist. We are looking forward with bated breath to the home opener against the D-backs on April 5th. And with that, me turn it over to Brian for more on our financial results.
Brian Wendling: Thank you, Greg, and good morning, everyone. At year end, Liberty SiriusXM Group had attributed cash, liquid investments and monetizable public holdings of $90 million. This excludes $216 million of cash held directly at SiriusXM. During the quarter, Liberty SiriusXM repaid the remaining $199 SiriusXM outstanding principal of its 1.375 basket convertible notes using cash on hand. Also, during Q4, Liberty SiriusXM paid down $80 SiriusXM under the margin loan, $61 SiriusXM of which was from the monetization of its 1.8 million BATRK shares. At quarter end, there's $1.1 billion of undrawn margin loan capacity at the parent level related to our SiriusXM margin loan. As of February 27th, the value of our SiriusXM stock was $15 billion.
We have $1.3 billion in principal amount of debt against these holdings. Total Liberty SiriusXM Group attributed principal amount of debt is $11.1 billion which includes $9.3 billion of debt held directly at SiriusXM. Turning to the Formula One Group, at quarter end, Formula One Group had attributed cash and liquid investments of $1.4 billion which includes $1 billion of cash held directly at Formula One. Note the Quinn acquisition closed in January, which will be a use of Formula One Group cash. Total Formula One Group attributed principal amount of debt was $2.9 billion which includes $2.5 billion of debt at Formula One leaving $533 million at the corporate level. And F1's $500 million revolver remains undrawn and leverage at the end of the year was 1.9 times.
As we've said in the past, the F1 business is best annualized on an annual basis, so we'll only be speaking to full year results. Total revenue grew 25% in 2023 with double digit growth across all primary streams. Year-over-year revenue increases include the significant revenue generation from self-promoting the Las Vegas Grand Prix, including ticketing revenue which is included in race promotion, sponsorship revenue which is recognized accordingly and hospitality and experience income which is included in other F1 revenue. Race promotion revenue also benefited from the mix of events held compared to 2022 with two additional Fly Away races this year with Qatar and Las Vegas versus Imola and France in the prior year. And sponsorship and media rights revenue grew due to increased fees under new and renewed commercial agreements.
Other F1 revenue grew 42% or $196 million driven by hospitality and experiences largely attributed to the Las Vegas Grand Prix as well as growth in the Paddock Club and other events, partially offset by reduced freight income due to easing of freight cost inflation. Team payments as a percent of pre-team adjusted OIBDA as reported was 63% in 2023, down from 66% in 2022. Other costs of F1 revenue increased from 23% of total revenue in the prior year to 32% of total revenue this year, primarily driven by promoting, organizing and delivering Las Vegas Grand Prix as well as increased costs of servicing additional hospitality offerings. SG&A at 7% of total revenue was in line with historic averages. Corporate and other adjusted OIBDA was a loss of $39 million in 2023 which includes the $15 million of revenue for use of the pit building during the Las Vegas race weekend.
Formula One incurs a fixed monthly rent payment that approximates depreciation plus a variable rent component during the race weekend. Note that the fixed rent payment in 2023 reflects only a portion of the year as the building wasn't occupied until closer to the race weekend. Corporate level expense at Formula One Group was also elevated due to the split off and reclassification costs. In 2024, Formula One Group corporate and other adjusted OIBDA will benefit from the Quinn acquisition that closed in January as well as a full year of the rent payments. Looking to 2024, F1 will host 24 races with the return of China and Imola compared to 22 races in this past year. Quickly looking at a few cash items. F1 estimates its cash tax rate in 2024 to be a high single digit percent of F1 adjusted OIBDA, increasing towards low double digits in future years as a result of the UK tax rate increase.
Total CapEx incurred at the Formula One Group in 2023 was $426 million approximately $390 million of which related to the development of LVGP with the majority incurred at the Formula One Group corporate level. At the Liberty Life Group, there's attributed cash, liquid investments and monetizable public holdings $418 million which includes ETF assets. There's $400 million of undrawn margin loan capacity related to our Live Nation margin loan. And as of February 27, the value of the Live Nation stock was $6.5 billion. We have $1.2 billion in principal amount of debt against these holdings. Liberty and our consolidated subsidiaries are in compliance with their debt covenants at quarter end. And then quickly looking at the Braves, The Braves business is also best analysed on an annual basis due to fluctuations in game count.
Baseball revenue increased 9% in 2023 primarily due to increased ticket demand and attendance leading to a 14% growth in baseball event revenue and 8% growth in retail and licensing revenue. Other baseball revenue declined primarily due to fewer concerts held compared to the prior year. The Battery had another great year with mixed use revenue increasing 10%. Total adjusted OIBDA decreased for the year primarily due to increased player payroll expense as Braves management continues to invest in its on-field success including a number of trades and accelerated player signings in December of 2023. Adjusted OIBDA for the mixed-use development increased 11% in 2023. And just a reminder that SG&A was elevated for the full year due to the split off costs.
We would anticipate a $10 million to $15 million annual run rate for corporate overhead at the Atlanta Braves Holdings. With that, I'll turn it over to Stefano to discuss Formula One.
Stefano Domenicali: Thanks, Brian. The 2023 season delivered incredible racing and record financial results. On the track, we want to recognize Max Verstappen and once again their superb performance. The rest of the great battled until the end. The race for the second in the Constructor Championship came down to the final lap of the season between Mercedes and Ferrari. McLaren and Aston Martin battled for fourth with McLaren intensifying the competition after a solid mid-season upgrade. Oscar Piastri had a stellar rookie season, securing 97 points included two podiums and a sprint race victory and Albon fans had much to cheer about as he scored points in a number of races in 2023, helping Williams finish the 7th, showing good progress under James Doll's leaderships.
Across the entire 2023 season, six teams were represented on the podium, a reflection of the talent up and down the grid. The new regulation are increasingly benefiting competition across the field and we believe this will continue in 2024 as the benefit of the cost cap and the technical regulation continue to mature. Financially, the business generated record revenue and adjusted OIBDA for the year. All primary revenue stream grew benefiting from new and renewed commercial agreement. Furthermore, our Paddock Club had an incredibly strong year with hospitality and experiences revenue growing nearly 100% year-on-year. This was driven by the expansive suite of hospitality and experience offerings at Las Vegas Grand Prix as well as growth in our core Paddock Club product, with the Paddock Club sell out at 10 of 19 events.
Towards the end of the season, we had the spectacular inaugural Las Vegas Grand Prix. It was a formidable undertaking moving the project from startup planning to rate delivery in a little more than one year. We are incredibly proud of the Las Vegas team worked with multiple stakeholders in the city and within the wider F1 community to deliver an incredible event on and off the track. Total ticket sales were 316,000 for the weekend. The race was trading from the start to finish. Charles Leclerc passed Perez on the last lap to secure his second-place finish. The race generated far reaching multi-platform buzz and drew in new viewers who hasn't engaged all season. The local economic benefit generated by this race is remarkable. Local casino partners had record revenue with monthly gaming revenue for Clark County at all-time high for the month of November.
Stepping back to the broader calendar, the 2023 season overall delivered another year of record attendance. Six million total fans attended the race weekend, up 5% compared to the 2022 season. 12 races promoters reported new attendance as record including 480,000 at Silverstone, 445,000 at Mobile, 405,000 in Mexico and 308,000 in Belgium. Race attendance remained strong through the end of the season with record crowds in Sao Paulo and Abu Dhabi. F1 fans tuned in across platform. Last season, we worked closely with our media partner and created new tools to estimate digital viewership on platforms and channels not covered by Nielsen. Our findings suggest an additional 29% of audience are not currently covered by traditional measurement globally, representing almost 20 million on average per race weekend.
The share of digital viewership is much higher for markets like the U.S. Where fans rely more on video on demand and streaming platforms to watch races, especially those at less convenient times for live viewing. We will keep working with Nielsen this year to incorporate more of these digital audiences into their standard reporting to provide the most accurate picture of our total audience. Looking at broadcast TV, cumulative TV audience for 2023 season excluding digital viewership was 1.5 billion and average viewership per race was approximately 70 million. In the U.S., cumulative viewership was up 4% compared to the prior year, setting a new season cumulative TV audience record. Importantly, viewership among the under 35 and female demographics grew across all of our markets.
Our Sprint Series continued to drive increased engagement throughout the season, which boosted TV audiences and race weekend attendances. For our sponsor, there was an over 50% increase in average brand exposure during the Sprint weekends. We look forward to the 6th event in 2024. Formula One was once again the fastest growing major sport league on social media for the fourth year in a row with the highest growth rate compared to the 11 other global sports including NBA, NFL and Champion League. We grew to 70.5 million followers on social media, up 17% from the prior year with continued growth especially in U.S. where social media followers were up 28%. The U. S. continues to makeup our largest orders on YouTube and TikTok social platforms.
For our f1.com and F1app platforms, over 100 million unique visitors view it over 3.1 billion pages, an increase of plus 10% over 2022. Consumption of highlight videos on our web and app also grew by 35%. And we made greater commercial progress in 2023, securing contracts that will underpin our continued future success. As of year-end, we have over $12 billion in future revenue under multi-year contracts. Our momentum continued during the off season and into 2024. Our race promotion, we are prioritizing the quality and the value of every race slot, having reached what we believe is a comfortable near-term max of 24 races. Early this month, we announced 10 years extension with Silverstone and look forward to enhancement to the Paddock Club and other physical infrastructure upgrade of the circuit.
We are excited to welcome the Madrid grand Prix 10 years agreement in a brand-new circuit with both street and non-street segment for 2026. The race is planned to invite 110,000 fans initially and has potential to expand to over 140,000 over several years. We also announced 5-years extension for our Japan and Brazil races. With this announcement, we have now finalized all contracts negotiation for the 2025 season and we turn our attention to optimize the race calendar for 2026 and beyond. Additionally, on media right, we are delighted to have recently secured a long-term pan regional deal across the MENA region with its biggest sport platform being sport. This is on the heels of over half of those of renewal signed in 2023. F1 continues to benefit from the demand for live global premium content.
We are broadcasting 200 territories and have a well-diversified portfolio of media rights contracts across markets typically ranging from 3 to 5 years. As we have said, alternative bidders including digital players are increasingly showing interest in live sport and increases competition from Stars media rights. Our F1 TV product has grown significantly since launch with active F1 TV Pro subscribers growing 37% in 2023 compared to 2022. The product has been boosted by growing in the F1 calendars, F1 Sprint races, new in-depth shows, all 20 onboard cameras, team radios and continuously adding live programming around every season plus have revamped mobile friendly design. We believe it delivers the best-in-class product for fans and is now available in 120 countries.
Early this year, we rolled our price increase in the cross market for the first time since product launch in 2018 to bring the pricing in line with the market rates for the qualifying of the offering. Turning to sponsorship, we had successful 2023 in growing existing partnership while securing new brands including leveraging new assets like Las Vegas and F1 Academy to generate incremental demand. Puma and Tommy Hilfiger have recently announced as official partner of F1 Academy and will have designed Liberty for this season and beauty brands like Charlotte Tilbury also became an official partner of F1 Academy, marking their first year ever global sports partnership. We also announced an attractive multi-year renewal with our global partner DHL this week.
Going forward, we are optimizing our existing inventory to maximize impact, exclusivity and value for our partners. We are also actively creating new assets to capitalize our growing demand as sponsor preference for tailored opportunity in live events. There are targets vertical where we are under exposed, including financial services and betting to name a few. Our fun engagement activities off the track continue to gain momentum. F1 Arcade's first location in London recorded 400,000 visitors in its first year and a second UK location opened in Birmingham. The first U.S. Venue will open in Boston and DC this year, with 20 venues targeted over the next five years. The F1 exhibition moved from Madrid where we welcomed 170,000 visitors. It opened its second location in Vienna early this month and will continue touring iconic global city to inspire the next generation of F1 fans.
Sustainability remains a large priority for Formula One across our organization, commercial partners and F1 teams. More detail will be provided in the coming weeks detailing our progress towards reaching the sustainability strategy we laid out in 2019. There are a number of sustainability accomplishments to highlight from last year. To name a few, progress continuing to develop of 100% sustainable hybrid fuels that will be introduced in 2026 and will be a drop in fuel usable in road cars without modification which provides broader global benefits to the automotive industry well beyond the impact of Formula One. The nine European events of the 2023 season used freight transportation by DHL on the new fleet of biofueled truck reducing related logistic carbon emission by 83%.
The first cohort of students from F1 Engineering Scholarship embarked on their first work placement with the F1 teams. We will welcome the third cohort this year. Finally, we launched F1 Academy, the all-female driver category to develop and prepare young female drivers to progress to higher levels of competition. The second season in 2024 will see F1 Academy race as a support series at seven F1 events. The F1 teams are getting more involved in supporting the series. In 2024, all ten will have their labels displayed on one F1 Academy car each and will each nominate a one female driver to race in the series. We look forward to beginning our 2024 season next month. The 2024 race calendar has greater regionalization and more efficient the close of races which reduced the distance our freight kits travel globally in support of our 2030 net zero commitment.
China returned to the calendar for the first time since 2019. The Six Sprint Series will take place in Miami, Austria, Austin, Brazil, Qatar and China. We made small changes to the format this season with Sprint qualifier on Friday, Sprint race followed by race qualifying on Saturday and the Grand Prix as normal on Sunday. And much to the delight of our fans, this off season has certainly delivered excitement. Young talent secured seats for years to come with Charles Leclerc committing to the Scuderia at least through 2025 and London Orange remaining McLaren at least through 2026. Capturing headlines, Lewis Hamilton will lead Mercedes for Ferrari in 2025 after an incredible 12 seasons with the Silver Arrows. In closing, I'm incredibly proud of the accomplishment in 2023 and eager to begin our 2024 season.
We have a solid financial foundation and an attractive growing fan base. Our team is focused on deepening this fandom with optimized content and platforms to boost engagements while capturing more fast data, so we can better tailor our commercial outreach. These efforts are spread across protecting our established fans, nurturing newly acquired fans and growing up into new cohorts, especially younger audiences and underserved growth markets like Asia. We will continue to invest in our sport to capitalize on our incredible momentum. Avanti Tutta, full speed ahead. And now, I will turn the call back over to Greg.
Gregory Maffei: Thank you, Stefano, and thank you, Brian. To the listening audience, we appreciate your continued interest in Liberty Media and the Atlanta Braves Holdings. And with that, operator, I'd like to open the line for questions.
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