Liberty Media Corp (FWONA) CEO Greg Maffei on Q3 2018 Results - Earnings Call Transcript

About: Liberty Media Corp (FWONA)
by: SA Transcripts

Liberty Media Corp (NASDAQ:FWONA) Q3 2018 Earnings Conference Call November 8, 2018 11:00 AM ET


Courtnee Chun - Senior Vice President of Investor Relations

Greg Maffei - President and Chief Executive Officer

Mark Carleton - Chief Financial Officer

Chase Carey - Chairman and CEO, Formula One


Ben Swinburne - Morgan Stanley

David Karnovsky - J.P. Morgan

Vijay Jayant - Evercore

Jeff Wlodarczak - Pivotal Research

Bryan Kraft - Deutsche Bank

Amy Yong - Macquarie

Jason Bazinet - Citi

Brandon Ross - BTIG


Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation 2018, Q3 Earnings Call. During the presentation, all participants will been a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded November 8th.

I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead.

Courtnee Chun

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, including statements about business strategies, market potential, new service and product launches, discussions involving IR communications, Sirius access proposed acquisition of Pandora including expected timing and effect on our ownership interest and Sirius, plans for the Battery Atlanta, matters relating to Formula One including digital initiatives, new races, the Concorde Agreement, sporting regulation changes and sponsorship opportunities 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 the availability of 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 of Liberty Media and adjusted EBITDA of SiriusXM. The required definitions and reconciliations, Schedules 1 and 2 can be found at the end of the earnings press release issued today, which is available on our website. This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty TripAdvisor Holdings. 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. These forward-looking statements speak only as of the date of this call and Liberty TripAdvisor Holdings 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 TripAdvisor Holdings' 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, Liberty's President and CEO.

Greg Maffei

Thank you, Courtnee. And good morning to all you out there. Today on the call, besides myself, will have Liberty CFO, Mark Carleton; and Formula One's Chairman and CEO, Chase Carey. During the Q&A, we will also be available to answer questions regarding Liberty TripAdvisor.

So beginning with Liberty SiriusXM, we continued our repurchase is the Liberty SiriusXM stock and bought an additional $134 million from August 1st through October 31st. We effectively bought the SiriusXM shares at a price of - a look-through price $4.91 over this period. We think this compares point quite favorably to yesterday's close up $6.30. Commenting I get back iHeart Communications for the moment there bankruptcy process continues. We watch with interest but it's unlikely we will increase our investment in iHeart at this time.

Looking at SiriusXM, had another outstanding quarter. Revenue of $1.5 billion was a new quarterly record. Self-pay net subscriber adds up to 298,000. We recorded adjusted EBITDA which was a record, and it drove the margin over 40% for the first time. Liberty Media's Ownership stood as of October 22nd at 71.2% but I would note, and when the Pandora deal closes, which I'll comment on more in a moment. We expect our ownership to fall to about 65%.

Looking at Pandora, the acquisition is moving forward. We file the S4 on October 31st. yesterday's close, Pandora was trading below the indicated deal price suggesting that get done and we expect the closing to occur early in the first quarter of 2019.

Looking at Formula One Group, great 2018 with exciting outcomes, Lewis Hamilton securities 5th Championship. We still have 2 more to go, and we expect excitement because the constructors' championship is still on the line. In sponsorship, we signed data rights deal during the quarter with ISG to produce live Formula One betting offering. As we've mentioned many times before, this business is hard to compare on a quarterly basis, this quarter we had 8 races versus 6 in a comparable period in 2017. So we might just take a longer term look. With that in mind, we are revving for an exciting 2000 season and are quite excited.

Live Nation posted its best quarter ever. Revenue up 11%, all divisions delivered strong quarterly AOI results. Although through the quarter we had 71 million fans attending over 24,000 shows in 40 countries. This business only continues to increase and we're on track deliver another record your results across revenue AOI and free cash flow.

The Braves, great season, clinched the 2018 NL East Division title advance the playoffs for the first time since 2018. In the last couple of weeks, we've had other awards recently 3 Golden Gloves were handed out for Freeman markets and NCRT, that's the highest number in the National League, matches the number of that the Red Shocks received.

Looking at the financial side for a moment, we did sell the residential portion of Battery Atlanta for $156 million in October. The Braves receives cash proceeds of approximately $61 million net of the debt in our JB distribution. We expect to redeploy these funds for the next development phase of the Battery Atlanta.

And over at Liberty TripAdvisor, TripAdvisor posted a fantastic quarter and the market is responding accordingly well this morning. Strong consolidated adjusted EBITDA growth. We increased revenue per hotel shopper which offset expected hotel revenue shopper declines due to our marketing optimizations. We accelerated revenue growth in experience as a category in which we are the leader in both bookable inventory and revenue. We are projecting healthy consolidated adjusted EBITDA growth for 2019.

With that, I'm going to turn over to Mark Carleton for more on our financial results.

Mark Carleton

Thank you, Greg. At quarter end, Liberty SiriusXM Group had attributed cash and liquid investments of $80 million, excluding $46 million of cash held at SiriusXM. The value as SiriusXM common stock we have the Liberty SiriusXM as of November 7, was $20 billion and we have around $950 million in debt against these holdings.

Formula One Group had attributed cash and liquid investments of $106 million excluding $45 million of cash at F1. Formula One Group has attributed public market securities with a market value of approximately $4.4 billion as of August 7, including the inter-group interest in the Braves Group and our stake in Live Nation, with $2 billion of attributed debt excluding the debt at F1.

Braves Group had attributed cash and liquid investments of $78 million. At quarter end Liberty SiriusXM Group had attributed the principal amount of debt of $7.6 billion, includes $6.6 million of debt at SiriusXM. Formula One group had attributed principal amount of debt of $5 billion which includes $2.9 billion of debt at F1 and Braves Group had an attributed principal amount of debt of $626 million.

F1's total net debt-to-covenant OIBDA ratio was defined in their credit facilities calculations was approximately 6.5 times, as of September 30, as compared to a maximum allowable leverage ratio of 8.75 times. At the calendar, race calendar variances between 2017 and 2018 resulted in income from 22 races falling in the trailing twelve months in the covenant calculation income from only 21 races will be captured in the trailing twelve months for the year-ended 2018. So we expect the reported leverage ratio will increase accordingly at year-end based on the race accounts.

We've set a target total net leverage ratio for Formula One up of 5 to 6 times, bank covenant OIBDA, please note that these leverage ratios are for the Formula One business and not for the Formula One Group overall.

So with that, I will turn over to Chase Carey to talk a little bit at Formula One.

Chase Carey

Thank you, Mark. Lewis Hamilton secured his 5th World Championship at the Mexico Grand Prix at the end of October, an outstanding achievement which puts him on par with Formula One legend Juan Manuel Fangio and now only behind Michael Schumacher in the all-time list of championship titles. Congratulations to Lewis. We still have two more races in the 2018 season, in Brazil this weekend and then Abu Dhabi during Thanksgiving, and we expect to see continued excitement and drama among the drivers and the teams will be focused on securing final placing in the constructors' championship.

To-date the 2018 season continues to impress in a number of areas. Live attendance in aggregate is up 3% year-on-year at the 16 tracks with comparable data from 2017. And we've had a great response to the enhancements such as the fans owns, merchandising, track tours, hot laps, champions club, paddock compatible club. Television viewing on race day on year-on-year on year is down 5%, however that is largely due to our move from free to Pay TV.

In Italy, excluding Italy, our television viewership is up 1% year-on-year and our Saturday viewership for qualifying is up even more. We're especially pleased with our performance in our two key growth markets the U.S. and China where viewing figures, are showing uplift of 50% and 265% respectively.

For the digital engagement, while still early on our - in our initiative to upgrade and expand our digital platforms, our interactions during race week are up 31%, and our video views are up 66%. And we continue to be for the second year running the fastest growing sport on social media. We now have 18.1 million followers on our social platforms and counting up about 50% on a year ago.

We finalized the 2019 calendar with the renewals of the Japanese and German race contracts. And with that, 2019, will replicate the 2018 race counter in both number of races and locations. We're already looking forward to 2020 and are thrilled that Formula One will add the newly announced Hanoi race in that year. This location is part of our strategy to extend our reach and brand in Asia and Vietnam is a dynamic country with whom we are excited to partner. We're in continuing discussions around additional opportunities to develop the race calendar including the previously discussed race in Miami.

Speaking of which, we held our fourth and final fan festival of the year in Miami which overlapped with the U.S. Grand Prix in Austin in October. The fan festival featured a live car run down Biscayne Boulevard which attracted an estimated 80,000 spectators which was featured heavily in social media. That weekend kicked off with an amazing stunt by Red Bull with an F1 car driven by F1 commentator and former racer David Coulthard doing donuts in the top of a high rise. We haven't seen this video encourage you to seek it out.

As we look toward the 2019 season, we will continue to host fan vestibules as a way to engage and attract fans and build the F1 brand currently and anticipate expanding our fan festivals in 2019. We made further progress and our other main commercial areas. On the television part of the business, we completed additional renewals that matter support our targets on both free and pay television platforms and include digital opportunities. We know that offering compelling content on multiple platforms is key to reaching our existing fans in attracting new ones.

For our Nation OTT product, we launched on mobile platforms in September, which further enhance is the offering and we look forward to a full commercial launch in 2019. We will continue to improve the product and content offering in the off season and over the coming years, but early response since our mobile platform launch has been positive.

We just completed the second event in the F1 New Balance e-sports Pro Series in which drivers race on F1 2018 the official game of the FIA Formula One World Championships which was released on August 24th.

This year and 9 of the Formula One teams have entered teams giving the drivers a once in a lifetime opportunity to race with the backing of some of the most prestigious names in motor sport racing following an intensive qualifying and draft process. The two events have been stream live via Facebook and broadcast last globally on selected TV networks. Our Esport events this season have accumulated over 67 million impressions and 13.1 million views on social media about double what we were - where we were the same time last year through the semifinals.

We look forward to the grand final later this month where the winner will receive $200,000. Regarding sponsorships, on our last call I talked about our philosophy and how we approach both new and existing sponsors and the focus on building a broader array of offerings to service the needs of our partners and provide a real connection with our fans and support. On this called like to focus on the many wins we've had here in 2018, some of which include renewals of existing sponsors DHL and Emirates with multi-year deals and expanded offerings.

Our first ever regional sponsorship deal with Petronas, partnership with Amazon, Web Services entering into sponsorship and data rights commercial partnerships with ISG to produce an F1 betting offering, in a listing New Balance and fanatic as sponsors of the F1 to balance Esports pro series. I point out that many of these deals were done during 2018, and we look forward to receiving the full bettered by these new contracts in 2019. Sponsorship will be a continued area of focus in 2019 and we will enter the year with great momentum. The F1 value proposition to sponsors will continue to strengthen as we expand and tailor the offering, grow the fan base and reach new audiences.

We continue to make progress on the motor sport side of our business to improve competition, action and unpredictability. We've agreed on changes to the aero regulations of the cars that will be introduced in 2019, which could lead to an increase in overtaking and build excitement on the track for next season. The unpredictability is amplified by a number of changes to the driver lineup going into next season.

With Fernando Alonso retiring Daniel Ricciardo moving to Rano, Pierre Gasly taking his place at Red Bull long side Max Verstappen, Charles Leclerc heading to Ferrari and more. They are eager to see what this next season has in stored. And we're focused on a larger list of sporting regulation changes to further improve the sport for our drivers and fans. I am often asked about the so-called Concorde Agreement, we're making progress regarding the broader set of changes to cost structures, revenue distribution regulations and governance. During constant constructive discussions with the teams and at the end of the day, our interests are aligned. We agree on the long term objectives and we're working towards finalizing the details for the 2021 season.

Our team is busy working on all these initiatives with the majority of our hiring for corporate functions complete, we now have the organization largely in place it will continue to build and grow Formula One for long term success.

Now, I'll turn the call back to Greg. Thank you.

Greg Maffei

Thank you, Chase. Appreciate the comments of both Mark and Chase. As a reminder, we will be holding our Annual Investor Meeting on November 14, in New York City. Yes, there will be a video. If you would like to register and see the agenda, please useful link on our home page. We appreciate your continued interest in Liberty Media, we look forward seems many of you next week.

And with that, operator, I'd like to open up for questions.

Question-and-Answer Session


Thank you. [Operator Instructions] And we'll take our first question from Ben Swinburne with Morgan Stanley.

Ben Swinburne

Thank you. Good morning, guys. Chase, just going back to your comments on the digital business and streaming, is 2019 a year sort of full steam ahead in terms of marketing and programming that product? I think this year - this year launched it at the beginning of the season sort of had fits and starts and you've been getting the tech ready and the devices ready is 2019, a year that you think this business really can get hit its stride from a growth perspective or do you see it is still something that's a multi-year project, is there any color on that since I think it's a big opportunity for you guys and then I have a follow from it?

Chase Carey

You're talking - you're talking about OOT product?

Ben Swinburne

Yes. Yes, exactly.

Chase Carey

Yeah. Okay, yeah. I guess - I think that's right I mean it's a look - it's a multi-year project to get it to where we believe it can get to. But I guess I'd say this year ended up being probably almost a beta project to me and we didn't launch it at the beginning of the season, I think 1st more like ours to really achieve its potential, it's a season by more than up more than a sort of race by.

We have more technical I means as do a lot of players who have gone into it initially, in the more technical blogs and the like I think we probably were not surprised, we hoped they wouldn't be there but they were. And so I think really this has been –I mean to me there are there steps in getting in building this out, first is the technology, the technical platforms got to be reliable, I mean customers, just don't they don't tolerate glitches.

I think second, we've got to find content offering me people buy content that are by technology, so the technical got more but then we got to define the content offering. And we got to sell the market, we didn't really do the latter this year because we were focused on. You got to get all most of the things done sequentially, got to make the technology platform stable. Tell the content story of and sell the market it.

So I think 2019, will really be the first time we bring it to market as up as a commercial proposition to market and sell it. And I think we feel good about the technological platform, the mobile, the adding the mobile platform is critical I mean so much of people follow it today, not on desktops or phone got on. And on mobile devices and we didn't get that in place till September, I think the content offerings improved it will adding some of that the realistically the content is probably over the next couple of years, we'll continue to add breadth and depth in terms of data and archival products.

But we really next year will be the first time we really sell a market it properly. So I'd say this was a year of getting, if ready to more commercially launch but next year to year one, this is not a - this is a multi-year proposition and we're still, as we roll it out clearly it's going to rally different in different countries and in some it will - will be fully an aggressively push it actually one of the really exciting opportunities we're developing as with some of our traditional broadcasters, some of the deals we did, renewals we did for 2019, we're sort of partnering with them to market and promote over the top platform in a way as to sort of working with them as opposed to against them. Because I actually think it is compatible and I think it I mean this is a product targeted at your hardcore customers who will pay more for a richer experience than the basic linear one. And I think it benefits everybody to find a way to tap into the demand that those products that those customers have for the product.

So it will continue to certainly evolve, certainly it's not going to be early days next year but along with the wave thing next year really will be the first time we sort of take it to a market - take it to market as a commercial proposition, again it will vary by country how we take it to market.

Ben Swinburne

And then Greg, you're both an executive at an investor so hopefully you'll answer the question or at least address it. We look at LSXMK shares with Live Nation having been so strong over the last couple years in the stuff has really been getting cheaper and cheaper. I'm wondering if you think the market's missing something to do seems like the business is now really starting to ramp. And then I guess point two, as of when you can do structurally whether it's with the live stake and then to try to unlock value here.

Greg Maffei

Thanks, Ben. You want to answer that as an executive or an investor, I'm kidding. Look I think we have an embarrassment of riches, Live Nation has performed very well, exceedingly well. And Formula One which is probably a in some ways a building story that we knew when we purchased it that there would be efforts that needed to be done investment to be made and headcount investments to be made, in a lot of areas where there was no personnel, we knew that some of the cycles ramping up, OTT ramping up some of these things would take longer.

I think most things coming to pass have there been as always surprises to the upside and surprise the downside of what we had when you buy a business, yes, I think the fundamental thesis there and probably some overhang on the stock around the Concorde agreement and the perception of uncertainty that's not positive on its - on what it could trade at the - I think we remain very bullish as you are Chase's comments about the direction of the business. Trying something structural, I think it's complicated, I think we've expressed before that, in some ways the Live Nation stake which has a role obviously in the live entertainment of different types, fits well here but it also could be argued that if it's better over on the music side with Siri and Pandora.

Today that would be hard given our Liberty Sirius discount to say that would be a good trade and I think delivery Sirius holders would be disappointed if we use Liberty Sirius stock to buy it relatively full priced. I have excuse me relatively full price Live Nation and transfer across. So we'll see where that process goes I don't - we have different ideas at various times and I don't see an obvious solution in the short term unless the value is realigned better, that would be structurally attractive for the Liberty Sirius side and to create pure value.

Ben Swinburne

Got it. Thanks a lot.

Greg Maffei

Thank you.


And we'll take our next question from David Karnovsky with J.P. Morgan.

David Karnovsky

Hi, just a question for Chase. How does Force India is entry and exit administration potentially impact your view not only on things like budget caps but also on how profitable and financially healthy the independent F1 team should be in general?

Chase Carey

I think it probably reinforces. What we've been saying that the initiatives that we've proposed and we're discussing with the teams on revenues and cost are really of two goals. One is to make the sport better, improve competition action, as we said. But others to make it a healthier business model for everybody right, I think today, the business model is not what it can or should be. And I do that we need to address revenues and costs and teams agree with that the details - the details are always going to require hard work and compromise to find the right ones because there are 10 different perspectives there are - there isn't one on the details. But I think everybody agrees in the goals and I think the challenges of Force India sort of reinforce.

That the importance of making it healthier than I think we can then I think actually realistically it's - I think we can make it a healthier business model and a healthier sport, so it's laces where tacking and dealing with things like cost is actually not compromising, the quality teams, the quality competition I think it's actually enhancing it, for it. It's just the challenge is sort of breaking old habits and recognizing where people are today to get there. But I think we need to make it healthier for them both healthier for the teams that are in it and I think it makes them it a much more exciting an enticing proposition for some of the potential new entrants that we think potentially could race on the track with us, that would be a great addition for fans. So I think the - I think it just reinforces the importance of improving that business model from both perspectives.

David Karnovsky

Okay. And then just a follow-up, is there any update you can provide an integration for the British Grand Prix, first 2019, is it - is it feasible to move this race to the other track or street racing London and then separately is there any update you can provide in where you stand with regards to Miami? Thanks.

Chase Carey

Again, I think an ongoing negotiation, we've said the best this is for it to seem to like negotiate in public and I don't think that's the healthiest way to deal with things as partners. So I don't think we want to provide a lot of inside the tent commentary on an active discussions, we value the Silverstone race but we've got to get to a place that that works for us. And then those discussions are ongoing. There are always other options in it, part of one of those we make sure is we're continuing to develop an array of options. We're in a fortunate place right now that we have more places we want to have races, then we can raise, and that's a good place to be in.

We'll continue to develop those options and you can make sure, we are able to make the best decisions both for fans and for racing and for us as a business all those things matter and we're actively engaged Miami clearly there and ongoing process a lot of parties involved which is not uncommon when you get to a street race that you've got sort of macro parties and micro parties are there instead so it's just a time consuming process step to navigate through all of those I guess, I'd say it's active. I think the fan festival was a help.

I think everybody in Miami thought was a great experience, there was great energy, great excitement of this and the comments being 80000 people and really I think almost all the comments we got were positive and exciting about it, I think really recognized it as a unique world class event and in sort of help reinforce what we bring, so I think that's up positive step in it. But it takes time when you're working through a process like in Miami where there is as many constituencies that we have to deal with.

So we are certainly the U.S. remains a priority, we're engaged in discussions elsewhere in the U.S. So it's not just Miami and opportunities but we think Miami you know really could be a great signature event for us worldwide not just in the U.S.

David Karnovsky

Thank you.


And we'll take our next question from Vijay Jayant with Evercore.

Vijay Jayant

Thanks. One for you Greg, on the combination of SiriusXM and Pandora, just want to get your outlook. The real opportunities the synergies between the two are really turning around the Pandora business as someone who's studied business for a long time and if you could sort of size that for us it's possible though the fantastic?

And for Chase, obviously you've talked about investment years into since I suppose purchased, is 2019 the setup for healthy growth you have momentum on sponsorship, you have some cash deals coming from meaningful step up, your calendar looks relatively similar on your OTT product hopefully starts to scale. So is 2019 the year we should start to see healthy growth? Thanks.

Greg Maffei

I go first. Thanks, Vijay. The - on synergies between SiriusXM and Pandora, I think they fall into both not unexpectedly revenue synergies and strategic synergies which may be somewhat tied and then some cost synergies. I'll take the latter first there are some obvious duplicative as on the cost side and there are things that Siri does at scale, that will be additive to Pandora. How that exactly gets organized is still being worked through and I would expect you'll hear more about that in the coming months from Jim Meyer and from Roger Lynch.

On the revenue side, and the strategic side, I think we've talked about in the past, we have an embarrassment of riches in the sense that our content is beloved by our users, our consumers and we have through the satellite system, a desirable niche in some cases in lots of areas but we'd like to expand as time goes on and we have limitations on what we can do. So there are things we can experiment more broadly in Pandora, that are going to be interesting for segments that we haven't reached out as well. There's obviously work that Pandora has done around mobile where they are ahead of what Siri is done there are 70 million monthly active users, is a scale opportunity obviously mobile first product but also their experiences outside the car are places where they can clearly help us and their relationships can help us.

Flipping that into our relationships in the car which is roughly half listening are far stronger and things we can do to help bring them in the car accelerate them are appealing. Obviously, those 70 million monthly active users are a mix of pay, ad free and ad supported. And the On demand pay subscription the ad free version of the Pandora and then the ad supported version. The opportunity to sell, cross sell some of those into Siri which are lifetime value of a Siri subscriber is far higher and given the nature of the 6 content costs vast majority of our content costs are fixed at SiriusXM, the contribution margin on them is even enormously better to bring anyone we can bring across. The up change share content because we do have more unique content and shared across to ensure that we're exposing the good better aspect, if not the best aspect of Siri, is interesting. The opportunity to do more things together in scale in advertising where Pandora clearly leads Siri has an ad business which is 4 or 5 times as big.

And the opportunity to work on do areas like podcasts together in a more consolidated fashion, those are a few examples where I think the revenue a strategic side is quite attractive. I expect you'll hear more of this from Jim Meyer at our Investor Day, on some of these flesh out and expect to hear more ahead when they go forward with their 2019 guidance, which they generally do as you know around CS about that time. Chase?

Chase Carey

And I guess - yeah I think in terms of where we're at in the process of really building in some sense rebuilding as Greg said Formula One, yeah I do - I think we do expect 2019 to be a step forward in that sense many ways 2017 and 2018. And if we described it going and we're sort of foundation building and I think as you go through 2019 realistically we expect 2020 and 2021 also be steps forward.

So I do think we - I think we actually feel pretty good about where we are I mean early on we talked about coming in with a 3 to 4 year process - 3 to 4 year perspective and the early stage being investment with some of those investments starting to deliver the benefits and then to deliver on the opportunities that we're building and we do expect those - those sort that come through in 2019 and then again an issues more and others and 2020 and sort of ongoing a 2021, more certainly not going up. We're not going to get a step forward but clearly we still believe there's a lot we have a lot of plans we have in place I mean we talk about things like the U.S. and China that are really further down the road as I said OOT is certainly still going to be a very early stage product next year so.

And I think mindset, I also making sure where I think our priority for this business is it continue to be where we're going to be in 3 years not 3 months and not get sucked into sort of trying to - trying to sort of focus on the prioritize the short term over the long term. I think we believe then the deeper we get into it the more excited we are about the opportunities to grow the sport and want to make sure, we really prioritize building that value over up, maximizing a short term profit opportunity but that being said certainly 2019, we do expect that we start to deliver on the opportunities and them that are that exist inside Formula One.

Vijay Jayant

Great. Thanks so much.


And we'll take our next question from Jeff Wlodarczak with Pivotal Research.

Jeff Wlodarczak

Good morning. Couple for Chase. Chase, in the Concorde Agreement, is that something you expect to get done 2018 and then given the time to engineer and build the new engines especially for potential new as you manufacture teams. At this point realistically, we probably pushing the engine into 2021, I've got a follow-up?

Chase Carey

Yeah I guess fist on the Concorde. We have been in private and I guess I go back to the conversations on discussions we have in private versus public. We've told them our goals and in terms of targets and timeline, I'd rather get it done sooner than later though, the challenge is everything we're talking about is affective in 2021 and usually getting things done there helped by having a deadline that sort of drives that.

Obviously, if all these changes are 2021, everybody's like to have it done but there isn't - there isn't something that creates up a pressure point to say it has to get done by December 31st, 2018, I'd like to have it done just because I think it's sort of healthy for us to be focusing on the future. But I think the conversations are good. We have targets internally but I don't think it's constructive for us to try to put out externally target dates that are going to create a different dynamic around those discussions, I think the discussions have been good, I think the discussions have been helpful and I think the best discussions again are ones at this point that we have with the 10 teams as partners and there are ongoing and we feel good about that process and we'll bring it to a conclusion, in the right way, in hopefully expeditiously but we're not going to put them publicly out deadlines on it, I don't think that helps them, helps the process.

In terms of the engines and the engine really isn't part of the Concorde Agreement because really governance dictates how you deal with the engine I mean we can put something in place but the engines always going to have things that are evolving it through. And actually I think we have a - I think we've actually pretty well got a path forward for the engines that sort of evolved in many ways through good constructive conversations with the teams in a year ago, we are probably headed towards a - towards a more significantly rebuilt engine.

I think as we got into discussions, I think we - with all the teams, I think we all came to an agreement that the right path was more stabilizing the existing engine and it to a series of sporting and technical regulations that improve competition and help to improve address the economic issues around that, some of those sporting technical regulations are still evolving and they will and again they won't really be - they won't be part of the Concorde Agreement, the Concorde Agreement will be will lay out the governance process by which you have you put in place those sort of regulations but they won't they won't lay those out.

So actually I think right now, we're in pretty good path. I mean we agree from early days our goals on the engine for simpler, cheaper, louder more power, let the drivers drive. I think as we went through that we felt, the best it was destabilizing the existing engine and then through sporting and technical regulations trying to achieve tailored, just sort of our objectives through those regulations to achieve what we wanted to achieve and I think we're pretty well, pretty well aligned on that and the path we're going forward. And down the road I'm sure they'll continue to be regulations that evolve with that but I think the engine path is

I think we're on pretty well agreed to and again continuing to be refined through the regulatory process.

Jeff Wlodarczak

So it's more evolutionary than revolutionary and do you feel comfortable that you contract outside engine manufacturers through the path engine or on the price cost?

Chase Carey

Yeah I think that's why the regulations are important. I think what we - I think what we what we really came to an agreement with I think everybody got persuaded by that stabilizing maybe have a new engine. It's sort of every starts over and they're always unintended consequences out of a new engine. So what is actually I think we agreed probably been the most stabilizing for those objectives whether it's new or existing is stabilizing the existing engine and to the degree you want to address the economics and things like that, it's really to regulations because I mean a factor for example that came out of this is die, no time which is testing time, it's probably as.

One of the more expensive consequences because it lets you test open ended sort of throw stuff against a wall and tested. So the degree you want to address sort of how much - how much time and money can be spent testing, an endless list of theoretical enhancements, is probably an example of as important as anything any tool to try to make the engines both from a sport, and a competition perspective and a business perspective viable and attractive form, again existing and new players.

So I think the - the intent of this was not just to improve the development path for existing but actually it is develop a path that we think is enticing and interesting for new. And I think in doing it one of things, we want to make sure, is we're not looking, we want engines to be the engines to be different, the technology in this sport is incredibly important, we are clearly - we have a technology that is - miles beyond any anything else out there at any level, the efficiency of these engines I mean one of the stories that has been told well enough is this new hybrid engine that came out a few years ago, the incredible performance it gets today with - in a much more fuel efficient basis than prior engines.

So I think we've want to make sure we continue to have the hybrid engine that was rode relevant today. But at the top of the pyramid in terms of technology that - that in many ways is at the forefront of what's going on in the world. So I think it's achieving all the things that I think that part of that is what attracts the right new engine manufacturers into it as well. And then I actually think the process to teams is the way I hope we address a lot of things going forward is that it was collaborative, I think it was constructive, and I think it was much more as opposed to every man for himself in the past, it was much more of a partnership and trying to agree on goals and agree on the best path to get there.

But I do think the path we're on and we've had some discussion with attention to entrance we're in cars and I think there's broad agreement that the path we've - we've sort of landed on for going forward is the is the right path for everybody again is next existing and new.

Jeff Wlodarczak

Thank you.


And we'll take our next question from Bryan Kraft with Deutsche Bank.

Bryan Kraft

Hi. Chase had two questions for you. Was wondering if you could give us some additional color on the advertising and promotion revenue in the third quarter, specifically did the AWS in the Patronas relationships contribute or are those still yet to come in 4Q? And then separately, I wanted to ask you what are the benefits that you're expecting from the agreement you recently signed with ISG to bring betting to Formula One, and just maybe at a high level, can you talk about the structure of the economics and what it means for Formula One, and what the timing is for rolling out that an across the major markets? Thanks.

Chase Carey

There was some impact been those deals were signed during the - I said on the Patronas you know off top of my head, the ISG, certainly was not we sign during the quarter I think it was probably pretty late into the quarter. So those deals will certainly be much more 2019, you have a bigger impact and much more significant happening impact the 2019 than 2018. But in terms of the actual percentage in the third quarter, I don't know I think it was but it was sort of at the back end of the third quarter.

I think the betting, I think betting is a - is a we always have responsibilities that go with it, want to make sure it's done in a healthy way, want to sure it's done there's proper integrity tools around it. But I think fans that - it's clear fans enjoy it, I think it makes it more interesting, makes more exciting, makes as an American I look at in some ways fantasy football which is great enhancement into the NFL. It's all a form of fun day and I think that type of engagement in a sport widens its appeal to others, makes the experience better and obviously as business opportunities for us.

For us were we're sort of both it's both a sponsorship element and providing probably a more expanded an interesting set of opportunities to - to engage with the sport and bet on things that you may not be betting that may not be available and the people I was talking about in the sport today is so it's not betting on the sport it's not new. But I think we can provide new and interesting ways, we have to make sure, we have integrity and disciplines around them to ensure that anything one bets on is - is properly oversight and properly sort of policed and maintained.

But we think it's up, we think it's a great advancement in a great additional dynamic dimension to the sport that we can both road and develop there's additional places to go for fans to - fans to bat and we do it recognizing, there are things you have to be aware of and be responsible for when you're - when you're gauged in the world the betting.

Bryan Kraft

Does Formula One share at all in the economics from the betting side or is it the sponsorship revenue that - that form and why?

Chase Carey

I think the primary directly we're not in the betting business, so we are more engaged with opportunities to bet than promoting the betting aspect of it but we're not in the - we're not in the gambling, we're not in the betting business.

Bryan Kraft

Okay. Thanks very much.


We'll take our next question from Amy Yong with Macquarie.

Amy Yong

Thanks. Maybe two questions for Greg. First on iHeart, now that you're not going to increase your stake. How do we think about your debt investment how do you plan on monetizing it and why do you think Apple is interested what makes it more, why does it make more sense for them to own it versus that's a SiriusXM and Pandora. And then on [indiscernible] now want to give you credit for buying back stock the stock is lower than where you bought it. What do you think is going to change that view? Thanks.

Greg Maffei

I'll start with the iHeart, I just don't think we're going to increase our investment this time, it looks like in the process how the bankruptcy proceedings will work we're likely never with some stripping mix of CGO equity, giveback debt that will be on the iHeartRadio business and then iHeart equity, our stake if all these come to pass would be something like 5% is - I don't think we're long term holders of CGO equity or of the iHeart debt. We might hold the equity will say, we'll watch how that goes, I just don't think at this time we're going to be increasing our stake.

I think there's zero chance Apple buys this. I guess nothing is zero but substantially low. You can pick your infinitesimal low number and pick that one for me for my bet. But it's a good rumor, if you're a holder of paper. And on - we talked about this before, I don't actually think the market is trading below our price when you look at when we think about our price we're buying it for 490 would still looks pretty good even against 491 even against the current 630. Yes, it has been higher various times maybe the stock got a little ahead itself at iHeart, maybe the market didn't love the fact that we issued at that price but it's probably not a terrible place to be an issue where and we feel pretty good about being a buyer at a fraction of that price where we issued.

So that's a good arbitrage in my mind, how it gets cleaned up over the long term I think and we've talked about some of these in the past, I think what you expect we will continue to shrink, I think you will expect that the available float has been as a Siri is continue to shrink will tighten that may cause short term perturbations but eventually these lines are going to cross in one way or another. And I think we'll be happy we bought stock in 490 over the long term.

Amy Yong


Greg Maffei

Thank you.


And we'll take our next question from Jason Bazinet with Citi.

Jason Bazinet

I don't know if this is - for Mr. Carey and Mr. Maffei but - from the moment you bought Formula One, Liberty stock sort of reacted very favorably. Because the buy side likes the asset they had a lot of confidence in Mr. Carey and the broader Liberty team. But every quarter that you guys have reported, I think over the last 5 or 6 have been disappointing even though you've been very clear about these being sort of foundational years to build for long term growth.

So my question is this as we take this step forward as you describe it in 2019, 2020 and 2021, what is a reasonable range of expectations for top line growth? Is it a low single-digit, mid-single-digit, high single-digit like what anything to source or to help the buy side dimensional eyes what success looks like or what failure looks like I think would be quite helpful.

Chase Carey

Greg, because I'll answer Greg can add anything he wants them. Look I guess I don't think we're sort of going to get into prying trying to quantify I mean I guess it's a form of guidance and where we expected to be. I think we tried to be clear about 2017 or 2018 what were our priorities and in some way, I think people always sort of think once you've what you said you going to do something three months later why isn't it done, and it takes time to put an organization in place.

I think equally as you get into a business and I think talked about this a few quarters ago or maybe was last year. Usually, always find a few surprises that you usually know the good thing, so it's something you find about a race in particular or a sponsor that was had was leaving. In some ways those are opportunities but there are opportunities to fix them, so I think I'm in many ways the ample of things we found early on that we're working through, all opportunities for us to as we - as we address those and get everything to where it should be an opportunity to grow it.

But our - when I recognize the market always in a really want to step sort of gravitates form the quarterly earnings, I mean that is short term quarter, and not that we ignore it. But I guess we've tried to be as clear as we can that our priorities where I get as said - I think I said from the get go where we're going to in 2020 not where we're going to where we're going to be in 3 to 4 years not 3 to 4 months. And we have and we describe the initiatives to get there but I think that - I don't think we're going to start trying to have - head down a road of quantifying - quantifying those components, some of the initiatives we announced yesterday the race if you had not made to step into 2020 step not 2019 step, but as we evolve the calendar in 2020.

And 2020 want to be on one of the opportunities and we described the things that can drive the business. And if we feel pretty good about where we are and realistically I think there's always a challenge when you describe where you're trying to go again I think it's a reaction once you've described it, and things should in very short orderly process follow behind it. Realistically it takes time to develop take a business that's really what we came in to, when I said it I think at the investor conference last year, is sort of an organizational startup in a business turnaround and those things don't happen and whether - whatever expectations were in there in the short term, our focus has been building for 2020, so that and - I think we feel.

There are always surprises and I think as Greg said earlier, the world's never exactly as you - as you expect it to be. But all things considered we feel - I think we feel pretty good about where we are. And but clearly we recognize equally, there's real work to do in execution to. Now there are some things that are a lot harder than plan and some things where you have an opportunity that we didn't - we didn't know was there whether it's fixing something from the past or an area that is bigger than we thought it may be.

Greg Maffei

So if I could say, I grew all just comment that - we have the market gave a lot of credit it's right on the block as you rightly pointed out Jason. We appreciate that but sometimes the market can also as Chase rightly point out expect immediate gratification syndrome. We have gone and laid the foundation bunch of things including hiring including building out substantial capabilities, we've absorbed places where business may have been ahead of itself.

For example, particularly with promoters and adjusting to make that a better experience, and we've done things to set the business right for the longer term, we've cleaned up the balance sheet, we've driven a lot more flexibility, we think we're building and the asset that we bought is the asset that we wanted and we think we're building a seminal sported going to be critical to viewers and liberty for the long term and I think going to happen faster always where I wish would happen faster, I'm sure Chase which is more than I do. But I'm very comfortable we are in the right direction.

Jason Bazinet

Very good. Thank you.


And we will take our last question from Brandon Ross with BTIG.

Brandon Ross

Hi. Thanks for taking the question, for Greg, you mentioned a couple of times that you're unlikely to invest further in the iHeart, there's a ton of free cash flow there. What do you think is the best use of capital right now for Siri at this point and is there any M&As that you believe makes sense for Sirius?

Greg Maffei

Well and I just want to point out I said at this time, Liberty we like to think one of the advantages whether it be at Trip or at Formula One or at Sirius, we can play the long game. We are have control shareholder, influential shareholder who has a long term perspective hopefully our management team as a long term perspective. And we can play the long game and look for win, the right opportunity arises. This substantial free cash flow at Siri, your rightly note is there because they are is for a bunch of reasons related to the stock price rise in the interim or being somewhat helped out of the market during the pendency of the Pandora transaction.

Sirius is actually been delivering, so there's a bunch of free cash flow there. I would expect that Siri will look hard and its share repurchase program given where the current price is versus where the price has been and how the business is proceeding quite nicely. I'd note that they have a substantial amount of free cash flow at the Sirius level, we have substantially less free cash flow at the Liberty Sirius level.

We do get roughly $140 million a dividends, we do have a bunch of borrowing capacity and we'll try and take advantage of both of those as we point out to arbitrage the differences in the marketplace. But we do not have infinite capacity they have substantial capacity with they've got to be through by year-end, they've got to be through net three times, sub net three times and I think that's a business that could be substantially greater.

I don't see massive M&A in the short term just because not due to financial constraints but due to management constraints they're going to be absorbing and fixing and directing Pandora and that's absolutely my mind the right thing to do, and they do have a real opportunity I suspect in their own share price.

Brandon Ross

Great. Thanks so much.

Greg Maffei

Operator, I think that's our time for today. Thank you very much to all the questioners and listeners and as we said we hope to see a bunch of you next week in New York. And if not, we'll speak to you next quarter. Thank you for your interest in Liberty Media.

Chase Carey

Thanks a lot.


This concludes today's call. Thank you for your participation. You may now disconnect.