Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding business, product
and marketing strategies; new service and product offerings; revenue growth;
future expenses; anticipated changes to regulations; the recognition of deferred
revenue; the performance, results of operations and cash flows of our equity
affiliate, Charter Communications, Inc. ("Charter"); projected sources and uses
of cash; the effects of regulatory developments; the impact of COVID-19 (as
defined below); the Rural Healthcare Program; indebtedness and the anticipated
impact of certain contingent liabilities related to legal and tax proceedings
and other matters arising in the ordinary course of business. Forward-looking
statements inherently involve many risks and uncertainties that could cause
actual results to differ materially from those projected in these statements.
Where, in any forward-looking statement, we express an expectation or belief as
to future results or events, such expectation or belief is expressed in good
faith and believed to have a reasonable basis, but such statements necessarily
involve risks and uncertainties and there can be no assurance that the
expectation or belief will result or be achieved or accomplished. The following
include some but not all of the factors that could cause actual results or
events to differ materially from those anticipated:
our, GCI Holdings, LLC ("GCI Holdings"), GCI, LLC, and Charters' ability to
? obtain cash in sufficient amounts to service financial obligations and meet
other commitments;
? our ability to use net operating loss carryforwards and disallowed business
interest carryforwards;
? our, GCI Holdings, GCI, LLC and Charters' ability to obtain additional
financing, or refinance existing indebtedness, on acceptable terms;
the impact of our, GCI Holdings, GCI, LLC and Charters' significant
? indebtedness and our, GCI Holdings and Charters' ability to comply with any
covenants in our and their respective debt instruments;
general business conditions, unemployment levels and the level of activity in
the housing sector and economic uncertainty or downturn, including the impact
? of the novel coronavirus ("COVID-19") pandemic to GCI Holdings and Charter's
customers and vendors and local, state and federal governmental responses to
the pandemic;
? competition faced by GCI Holdings and Charter;
? the ability of GCI Holdings and Charter to acquire and retain subscribers;
the impact of governmental legislation and regulation including, without
? limitation, regulations of the Federal Communications Commission (the "FCC"),
on GCI Holdings and Charter, their ability to comply with regulations, and
adverse outcomes from regulatory proceedings;
? changes in the cost of programming expenses and the ability of GCI Holdings and
Charter to pass on related costs to their customers;
? changes in the amount of data used on the networks of GCI Holdings and Charter;
? the ability of third-party providers to supply equipment, services, software or
licenses;
? the ability of GCI Holdings and Charter to respond to new technology and meet
customer demands for new products and services;
? changes in customer demand for the products and services of GCI Holdings and
Charter and their ability to adapt to changes in demand;
? the ability of GCI Holdings and Charter to license or enforce intellectual
property rights;
natural or man-made disasters, terrorist attacks, pandemics; cyberattacks,
? network disruptions, service interruptions and system failures and the impact
of related uninsured liabilities;
? the ability to hire and retain key personnel;
? risks related to the Investment Company Act of 1940;
? the outcome of any pending or threatened litigation; and
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? changes to general economic conditions, including economic conditions in
Alaska, and their impact on potential customers, vendors and third parties.
For additional risk factors, please see Part I, Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2020. These forward-looking statements
and such risks, uncertainties and other factors speak only as of the date of
this Quarterly Report, and we expressly disclaim any obligation or undertaking
to disseminate any updates or revisions to any forward-looking statement
contained herein, to reflect any change in our expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based.
The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read in
conjunction with our accompanying condensed consolidated financial statements
and the notes thereto and our Annual Report on Form 10-K for the year ended
December 31, 2020.
Overview
The information contained herein relates to Liberty Broadband Corporation and
its controlled subsidiaries (collectively, "Liberty Broadband," the "Company,
"us," "we," or "our" unless the context otherwise requires). Liberty Broadband
Corporation is primarily comprised of a wholly owned subsidiary, GCI Holdings
(as of December 18, 2020) and an equity method investment in Charter.
On December 18, 2020, pursuant to the Agreement and Plan of Merger, dated as of
August 6, 2020, entered into by GCI Liberty, Inc. ("GCI Liberty"), Liberty
Broadband, Grizzly Merger Sub 1, LLC, a wholly owned subsidiary of Liberty
Broadband ("Merger LLC"), and Grizzly Merger Sub 2, Inc., a wholly owned
subsidiary of Merger LLC ("Merger Sub"), Merger Sub merged with and into GCI
Liberty (the "First Merger"), with GCI Liberty surviving the First Merger as an
indirect wholly owned subsidiary of Liberty Broadband (the "Surviving
Corporation"), and immediately following the First Merger, GCI Liberty (as the
Surviving Corporation in the First Merger) merged with and into Merger LLC (the
"Upstream Merger", and together with the First Merger, the "Combination"), with
Merger LLC surviving the Upstream Merger as a wholly owned subsidiary of Liberty
Broadband.
As a result of the Combination, each holder of a share of Series A common stock
and Series B common stock of GCI Liberty received 0.58 of a share of Series C
common stock and Series B common stock, respectively, of Liberty Broadband.
Additionally, each holder of a share of Series A Cumulative Redeemable
Preferred Stock of GCI Liberty ("GCI Liberty Preferred Stock") received one
share of newly issued Liberty Broadband Series A Cumulative Redeemable Preferred
Stock ("Liberty Broadband Preferred Stock"), which has substantially identical
terms to GCI Liberty's former Series A Cumulative Redeemable Preferred Stock,
including a mandatory redemption date of March 9, 2039. Cash was paid in lieu of
issuing fractional shares of Liberty Broadband stock in the Combination. No
shares of Liberty Broadband stock were issued with respect to shares of GCI
Liberty capital stock held by (i) GCI Liberty as treasury stock, (ii) any of GCI
Liberty's wholly owned subsidiaries or (iii) Liberty Broadband or its wholly
owned subsidiaries.
Through a number of prior years' transactions, including the Combination,
Liberty Broadband has acquired an interest in Charter.
During the first quarter of 2021, as a result of the closing of the Combination
on December 18, 2020, Skyhook Holding, Inc., a wholly owned subsidiary of the
Company, is no longer significant to the Company and has been included in
Corporate and other for presentation purposes. The revised segment reporting
structure includes the following reportable segments: (1) GCI Holdings and (2)
Charter. All prior period segment disclosure information has been reclassified
to conform to the current reporting structure. These reclassifications had no
effect on our condensed consolidated financial statements in any period.
Update on Economic Conditions
GCI Holdings
GCI Holdings offers wireless and wireline telecommunication services, data
services, video services, and managed services to customers primarily throughout
Alaska. Because of this geographic concentration, growth of GCI Holdings'
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business and operations depends upon economic conditions in Alaska. In December
2019, Chinese officials reported a novel coronavirus outbreak. COVID-19 has
since spread through China and internationally. On March 11, 2020, the World
Health Organization assessed COVID-19 as a global pandemic, causing many
countries throughout the world to take aggressive actions, including imposing
travel restrictions and stay-at-home orders, closing public attractions and
restaurants, and mandating social distancing practices, which has caused a
significant disruption to most sectors of the economy.
Although the COVID-19 pandemic has significantly impacted Alaska, GCI Holdings
has continued to deliver services uninterrupted by the pandemic and expects to
be able to continue to respond to the increase in network activity. As a major
provider of Internet services in Alaska, GCI Holdings believes it plays an
instrumental role in enabling social distancing through telecommuting and
e-learning across the state and remains focused on its service to customers, as
well as the health and safety of its employees and customers.
The majority of GCI Holdings' workforce has transitioned to working at home full
time and it expects to keep those employees working from home through at least
December 2021.
GCI Holdings cannot predict the ultimate impact of COVID-19 on its business,
including the depth and duration of the economic impact to its customers'
ability to pay for products and services including the impact of extended
unemployment benefits and other stimulus packages and what assistance may be
provided to its customers. There is a risk that GCI Holdings' accounts
receivable and bad debt expense will increase substantially due to the economic
impact of the COVID-19 pandemic. In addition, there is uncertainty regarding the
impact of government emergency declarations, the ability of suppliers and
vendors to provide products and services to GCI Holdings and the risk of
limitations on the deployment and maintenance of its services.
The Alaska economy is dependent upon the oil industry, state government
spending, United States military spending, investment earnings and tourism. A
decline in oil prices would put significant pressure on the Alaska state
government budget. Although Alaska state government has significant reserves
that GCI Holdings believes will help fund the state government for the next
couple of years, major structural budgetary reforms will be required in order to
offset the impact of the COVID-19 pandemic and a decline in oil prices. Although
GCI Holdings cannot predict the long-term impact COVID-19 will have on these
sectors of the Alaska economy, adverse circumstances in these industries may
have an adverse impact on the demand for its products and services and on its
results of operations and financial condition.
The Alaska economy is in a recession that started in late 2015 and has continued
as a result of the COVID-19 pandemic. While it is difficult for GCI Holdings to
predict the future impact of a continuing recession on its business, these
conditions have had an adverse impact on its business and could continue to
adversely affect the affordability of and demand for some of its products and
services and cause customers to shift to lower priced products and services or
to delay or forgo purchases of its products and services. Additionally, GCI
Holdings' customers may not be able to obtain adequate access to credit, which
could affect their ability to make timely payments to GCI Holdings. If that were
to occur, GCI Holdings could be required to increase its allowance for doubtful
accounts, and the number of days outstanding for its accounts receivable could
increase. If the recession continues, it could continue to negatively affect GCI
Holdings' business including its financial position, results of operations, or
liquidity, as well as its ability to service debt, pay other obligations and
enhance shareholder returns.
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Rural Health Care ("RHC") Program
GCI Holdings receives support from various Universal Service Fund ("USF")
programs including the RHC Program. The USF programs are subject to change by
regulatory actions taken by the FCC, interpretations of or compliance with USF
program rules, or legislative actions. Changes to any of the USF programs that
GCI Holdings participates in could result in a material decrease in revenue and
accounts receivable, which could have an adverse effect on GCI Holdings'
business and the Company's financial position, results of operations or
liquidity. The following paragraphs describe certain separate matters related to
the RHC Program that impact or could impact the revenue earned by the Company.
As of June 30, 2021, the Company had net accounts receivable from the RHC
Program of approximately $131 million, which is included within Trade and other
receivables in the condensed consolidated balance sheets.
The Company disclosed, in additional detail, the following items related to GCI
Holdings' involvement in the RHC Program in its Annual Report on Form 10-K for
the year ended December 31, 2020:
The FCC reduced the rates charged to RHC customers by approximately 26% for the
? funding year that ended June 30, 2018. An Application for Review is currently
with the FCC.
The FCC approved the cost-based rural rates GCI Holdings historically applied
? for the funding years that ended on June 30, 2019 and June 30, 2020. GCI
Holdings collected $175.2 million in accounts receivable relating to these two
funding years during the first half of 2021.
GCI Holdings submitted cost studies for the funding year ended June 30, 2021,
? which require approval by the FCC. Those studies remain pending before the FCC
and we cannot predict when the FCC will act upon them.
The RHC Program has a funding cap for each individual funding year that is
annually adjusted for inflation, and which the FCC can increase by carrying
? forward unused funds from prior funding years. In recent years, including the
current year, this funding cap has not limited the amount of funding received
by participants; however, management continues to monitor the funding cap and
its potential impact on funding in future years.
GCI Holdings received a letter of inquiry and request for information from the
Enforcement Bureau of the FCC (the "Enforcement Bureau") in March 2018 relating
? to the period beginning January 1, 2015 and including all future periods. GCI
Holdings has also received other related inquiries to which it is in the
process of responding.
GCI Holdings became aware of potential RHC Program compliance issues related to
? certain of its currently active and expired contracts with certain of its RHC
customers.
The FCC released an order adopting changes to the RHC Program that will revise
the manner in which support issued under the RHC Program will be calculated and
approved. On January 19, 2021, the Wireline Competition Bureau of the FCC
? issued an Order that waives the requirement to use the database for health care
providers in Alaska for the two funding years ending June 30, 2022 and June 30,
2023. The Order requires GCI Holdings to determine its rural rates based on
previously approved rates or under reinstitution of the rules currently in
effect through the funding year ending on June 30, 2021.
The Company does not have any significant updates regarding the items noted
above except as discussed in the remainder of this paragraph. On April 8, 2021,
the Wireline Competition Bureau issued an Order further extending the January
19, 2021 waiver to carriers nationwide and eliminating the ability or
requirement to use the database to establish the healthcare provider payments
for services subsidized by the RHC Telecom Program. On April 21, 2021,
representatives of the Department of Justice informed GCI Holdings that a qui
tam action has been filed in the Western District of Washington arising from the
subject matter under review by the Enforcement Bureau. The Department of
Justice is investigating whether GCI Holdings submitted false claims and/or
statements in connection with GCI's participation in the FCC's RHC Program. GCI
Holdings is working with the Department of Justice and the Enforcement Bureau
related to this matter; however, given the confidentiality of the qui tam
process, the Company is unable to assess the ultimate outcome of this action and
whether any type of fine or penalty would ultimately be assessed as is permitted
under the applicable law.
On May 24, 2021, the FCC approved the cost studies submitted by GCI Holdings for
the funding year ended June 30, 2021.
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Charter
In the first half of both 2021 and 2020, the COVID-19 pandemic has significantly
impacted how Charter's customers use its products and services, how they
interact with Charter, and how Charter's employees work and provide services to
customers. During the first half of 2021, customer activity levels remained
below normal which contributed to lower operating expense from reduced service
transactions and significantly lower bad debt, however, those trends are slowly
returning to pre-COVID-19 levels and Charter expects that to continue throughout
2021 as the economy reopens and normal activities resume.
Although the ultimate impact of the COVID-19 pandemic cannot be predicted,
Charter remains focused on driving customer relationship growth by deploying
superior products and services packaged with attractive pricing. Further,
Charter expects to continue to drive customer relationship growth through sales
of bundled services and improving customer retention despite the expectation for
continued losses of video and wireline voice customers.
In May 2021, the FCC introduced the Emergency Broadband Benefit ("EBB") program
to help households pay for Internet service. The EBB program provides eligible
low-income households with up to $50 per month toward Internet service. Charter
estimates that the EBB program favorably impacted its net increase in customer
relationships by approximately 60,000 for the quarter ended June 30, 2021.
Additional new and existing customers also enrolled in the EBB program.
Results of Operations-Consolidated-June 30, 2021 and 2020
General. We provide information regarding our consolidated operating results
and other income and expenses, as well as information regarding the contribution
to those items from our reportable segments in the tables below. The "Corporate
and other" category consists of those assets or businesses which do not qualify
as a separate reportable segment. See note 11 to the accompanying condensed
consolidated financial statements for more discussion regarding our reportable
segments. GCI Holdings' results are only included in the Company's consolidated
results beginning on December 18, 2020. For a more detailed discussion and
analysis of GCI Holding's results, see "Results of Operations-GCI Holdings"
below.
Consolidated operating results:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in thousands
Revenue
GCI Holdings $ 237,856 - 480,072 -
Corporate and other 4,428 4,114 8,746 8,218
Consolidated $ 242,284 4,114 488,818 8,218
Operating Income (Loss)
GCI Holdings $ 17,574 - 46,322 -
Corporate and other (19,666) (9,832) (149,293) (17,107)
Consolidated $ (2,092) (9,832) (102,971) (17,107)
Adjusted OIBDA
GCI Holdings $ 88,656 - 184,715 -
Corporate and other (13,309) (7,407) (26,615) (12,388)
Consolidated $ 75,347 (7,407) 158,100 (12,388)
Revenue
Revenue increased $238.2 million and $480.6 million for the three and six months
ended June 30, 2021, respectively, as compared to the corresponding prior year
periods. The increases in revenue were primarily due to revenue from GCI
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Holdings as a result of the Combination on December 18, 2020. See "Results of
Operations - GCI Holdings, LLC" below for a more complete discussion of the
results of operations of GCI Holdings.
Revenue for Corporate and other increased slightly due to increased revenue from
both existing and new customers.
Operating Income (Loss)
Consolidated operating loss decreased $7.7 million and increased $85.9 million
for the three and six months ended June 30, 2021, respectively, as compared to
the corresponding prior year periods. Operating losses for Corporate and other
increased $9.8 million and $132.2 million for the three and six months ended
June 30, 2021, respectively, primarily due to an increase in professional
service fees and corporate compensation expense during both periods, and a
litigation settlement of $110.0 million during the six months ended June 30,
2021.
Operating income increased at GCI Holdings as a result of the Combination on
December 18, 2020. See "Results of Operations - GCI Holdings, LLC" below for a
more complete discussion of the results of operations of GCI Holdings.
Stock-based compensation
Stock-based compensation expense increased $8.6 million and $16.7 million for
the three and six months ended June 30, 2021, respectively, as compared to the
corresponding prior year periods. The increase in stock-based compensation
expense was primarily due to upfront grants per our CEO's employment agreement,
along with the impact of the Combination.
Adjusted OIBDA
To provide investors with additional information regarding our financial
results, we also disclose Adjusted OIBDA, which is a non-GAAP financial measure.
We define Adjusted OIBDA as operating income (loss) plus depreciation and
amortization, stock-based compensation, transaction costs, separately reported
litigation settlements, restructuring, and impairment charges. Our chief
operating decision maker and management team use this measure of performance in
conjunction with other measures to evaluate our businesses and make decisions
about allocating resources among our businesses. We believe this is an important
indicator of the operational strength and performance of our businesses by
identifying those items that are not directly a reflection of each business'
performance or indicative of ongoing business trends. In addition, this measure
allows us to view operating results, perform analytical comparisons and
benchmarking between businesses and identify strategies to improve performance.
Accordingly, Adjusted OIBDA should be considered in addition to, but not as a
substitute for, operating income, net income, cash flow provided by operating
activities and other measures of financial performance prepared in accordance
with U.S. generally accepted accounting principles. The following table provides
a reconciliation of Operating income (loss) to Adjusted OIBDA.
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in thousands
Operating income (loss) $ (2,092) (9,832) (102,971) (17,107)
Depreciation and amortization 66,874 492 130,636 985
Stock-based compensation 10,565 1,933 20,435 3,734
Litigation settlement - - 110,000 -
Adjusted OIBDA $ 75,347 (7,407) 158,100 (12,388)
Adjusted OIBDA improved $82.8 million and $170.5 million for the three and six
months ended June 30, 2021, respectively, as compared to the corresponding prior
year periods. The increases in Adjusted OIBDA were due to the results of
operations of GCI Holdings as a result of the Combination, as discussed above,
partially offset by increases in corporate professional service fees and
compensation expense.
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Other Income and Expense
Components of Other income (expense) are presented in the table below.
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in thousands
Other income (expense):
Interest expense $ (28,734) (5,131) (61,877) (10,992)
Share of earnings (losses) of affiliates 248,848 158,128 437,827 219,810
Gain (loss) on dilution of investment in
affiliate
(14,538) (46,001) (96,753) (105,326)
Realized and unrealized gains (losses)
on financial instruments, net (125,064) - (25,716) -
Other, net 22,720 28 14,594 191
$ 103,232 107,024 268,075 103,683
Interest expense
Interest expense increased $23.6 million and $50.9 million during the three and
six months ended June 30, 2021, respectively, as compared to the corresponding
periods in the prior year. The increases were driven by additional amounts
outstanding on the Margin Loan Facility (as defined in note 7 to the
accompanying condensed consolidated financial statements), the 2.75%
Exchangeable Senior Debentures due 2050 that were issued in August 2020 and the
1.25% Exchangeable Senior Debentures due 2050 that were issued in November 2020,
as well as interest associated with all the debt instruments assumed by the
Company as a result of the Combination.
Share of earnings (losses) of affiliates
Share of earnings of affiliates increased $90.7 million and $218.0 million
during the three and six months ended June 30, 2021, respectively, as compared
to the corresponding periods in the prior year. The Company's Share of earnings
(losses) of affiliates line item in the accompanying condensed consolidated
statements of operations includes expenses of $64.5 million and $41.7 million,
net of related taxes, for the three months ended June 30, 2021 and 2020,
respectively, and $122.4 million and $81.8 million, net of related taxes, for
the six months ended June 30, 2021 and 2020, respectively, due to the increase
in amortization of the excess basis of assets with identifiable useful lives and
debt, which was primarily due to the acquisition of GCI Liberty's Charter shares
in the Combination, as well as Charter's share buyback program. The change in
the share of earnings of affiliates in the three and six months ended June 30,
2021, as compared to the corresponding periods in the prior year, was the result
of the corresponding change in net income at Charter.
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The following is a discussion of Charter's results of operations. In order to
provide a better understanding of Charter's operations, we have included a
summarized presentation of Charter's results from operations.
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in millions
Revenue $ 12,802 11,696 25,324 23,434
Operating expenses, excluding stock-based
compensation (7,773) (7,209) (15,652) (14,558)
Adjusted OIBDA 5,029 4,487 9,672 8,876
Depreciation and amortization (2,354) (2,428) (4,795) (4,925)
Stock-based compensation (100) (90) (234) (180)
Operating income 2,575 1,969 4,643 3,771
Other expenses, net (1,136) (927) (2,067) (2,233)
Net income (loss) before income taxes 1,439 1,042 2,576 1,538
Income tax (expense) benefit (281) (166) (497) (195)
Net income (loss) 1,158 876 2,079 1,343
Less: Net income attributable to
noncontrolling interests (138) (110) (252) (181)
Net income (loss) attributable to Charter
shareholders $ 1,020 766 1,827 1,162
Charter net earnings increased $282 million and $736 million for the three and
six months ended June 30, 2021, respectively, as compared to the corresponding
periods in the prior year.
Charter's revenue increased $1,106 million and $1,890 million for the three and
six months ended June 30, 2021, respectively, as compared to the corresponding
periods in the prior year, primarily due to increases in the number of
residential Internet and mobile customers, price adjustments and an increase in
advertising sales.
During the three and six months ended June 30, 2021, operating expenses,
excluding stock-based compensation, increased $564 million and $1,094 million,
respectively, as compared to the corresponding periods in the prior year.
Operating costs increased primarily due to increased regulatory, connectivity
and produced content costs, as well as increased mobile and programming costs.
Operating costs for the six months ended June 30, 2021 also increased due to
increased litigation settlements, including the tentative settlement with Sprint
Communications Company L.P. ("Sprint") and T-Mobile USA, Inc. ("T-Mobile") for
$220 million.
Regulatory, connectivity and produced content increased primarily due to higher
sports rights costs as a result of more basketball and baseball games during the
first half of 2021 as compared to the corresponding period in 2020 as the prior
period had postponement of games and the current period had additional games due
to the delayed start of the 2020 - 2021 NBA season as a result of COVID-19.
Mobile costs were comprised of mobile device costs and mobile service, customer
acquisition and operating costs. The increase is attributable to an increase in
the number of mobile lines.
Programming costs increased as a result of contractual rate adjustments,
including renewals and increases in amounts paid for retransmission consent
offset by a higher mix of lower cost video packages within Charter's video
customer base. Charter expects programming rates per customer will continue to
increase due to a variety of factors, including annual increases imposed by
programmers with additional selling power as a result of media and broadcast
station groups consolidation, increased demands by owners of broadcast stations
for payment for retransmission consent or linking carriage of other services to
retransmission consent, and additional programming. Charter has been unable to
fully pass these increases on to its customers and does not expect to be able to
do so in the future without a potential loss of customers.
Charter's Adjusted OIBDA for the three and six months ended June 30, 2021
increased for the reasons described above.
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Depreciation and amortization expense decreased $74 million and $130 million
during the three and six months ended June 30, 2021, respectively, as compared
to the corresponding periods in the prior year primarily due to a decrease in
depreciation and amortization as certain assets acquired in acquisitions become
fully depreciated offset by an increase in depreciation as a result of more
recent capital expenditures.
Charter's results were also impacted by other expenses, net which increased $209
million and decreased $166 million for the three and six months ended June 30,
2021, respectively, as compared to the corresponding periods in the prior year.
The changes in other expenses, net were primarily due to changes in gain (loss)
on financial instruments, increased other pension benefits, net and changes in
gain (loss) on equity investments, net for the periods, including an impairment
on equity investments of approximately $165 million during the three and six
months ended June 30, 2021.
Income tax expense increased $115 million and $302 million for the three and six
months ended June 30, 2021, respectively, as compared to the corresponding
periods in the prior year. Income tax expense increased during the three and six
months ended June 30, 2021 as compared to the corresponding periods in the prior
year, primarily as a result of higher pretax income.
Gain (loss) on dilution of investment in affiliate
The loss on dilution of investment in affiliate decreased by $31.5 million and
$8.6 million during the three and six months ended June 30, 2021, respectively,
as compared to the corresponding periods in the prior year, primarily due to a
gain on dilution related to Charter's repurchase of Liberty Broadband's Charter
shares during the three and six months ended June 30, 2021, partially offset by
increases in issuance of Charter common stock from the exercise of stock options
held by employees and other third parties, at prices below Liberty Broadband's
book basis per share. As Liberty Broadband's ownership in Charter changes due to
exercises of Charter stock options, a loss is recorded with the effective sale
of common stock, because the exercise price of Charter stock options is
typically lower than the book value of the Charter shares held by Liberty
Broadband.
Realized and unrealized gains (losses) on financial instruments, net
Realized and unrealized gains (losses) on financial instruments, net are
comprised of changes in the fair value of the following:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in thousands
Indemnification obligation $ (92,339) - (40,569) -
Exchangeable senior debentures (32,725) - 14,853 -
$ (125,064) - (25,716) -
The changes in these accounts are primarily due to market factors and changes in
the fair value of the underlying stocks or financial instruments to which these
related. The increased losses during the three and six months ended June 30,
2021 were primarily related to the assumption of the indemnification obligation
by the Company as a result of the Combination (see note 4 in the accompanying
condensed consolidated financial statements for additional discussion). The
changes for the three and six months ended June 30, 2021 were additionally
impacted by the changes in fair value of the 2.75% Exchangeable Senior
Debentures due 2050, the 1.25% Exchangeable Senior Debentures due 2050 and the
1.75% Exchangeable Senior Debentures due 2046 related to changes in market price
of underlying Charter stock (see notes 4 and 7 in the accompanying condensed
consolidated financial statements for additional discussion).
Other, net
Other, net increased $22.7 million and $14.4 million for the three and six
months ended June 30, 2021, respectively, as compared to the corresponding
periods in the prior year. The increases in 2021 were primarily due to a tax
sharing receivable with Qurate Retail that resulted in gains of $22.3 million
and $13.3 million for the three and six months ended
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June 30, 2021, respectively, as well as increased other income. See more
discussion about the tax sharing agreement with Qurate Retail in note 1 to the
accompanying condensed consolidated financial statements.
Income taxes
Earnings (losses) before income taxes and income tax (expense) benefit are as
follows:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in thousands
Earnings (loss) before income taxes $ 101,140 97,192 $ 165,104 86,576
Income tax (expense) benefit
(44,926) (24,978) (56,711) (22,204)
Effective income tax rate 44.4% 25.7% 34.3% 25.6%
The difference between the effective income tax rate of 44.4% and the U.S.
Federal income tax rate of 21% for the three months ended June 30, 2021 was
primarily due to the accrual of non-taxable equity contributions related to the
indemnification agreement between Liberty Broadband and Qurate Retail (see note
4 in the accompanying condensed consolidated financial statements for additional
discussion). The difference between the effective income tax rate of 34.3% and
the U.S. Federal income tax rate of 21% for the six months ended June 30, 2021
was primarily due to a non-deductible litigation settlement and the accrual of
non-deductible equity distributions related to the indemnification agreement
between Liberty Broadband and Qurate Retail, partially offset by tax benefits
from a change in effective tax rate used to measure deferred taxes on certain
Charter shares.
The difference between the effective income tax rate of 25.7% and 25.6% and the
U.S. Federal income tax rate of 21% for the three and six months ended June 30,
2020, respectively, was primarily due to the effect of state income taxes.
Net earnings (loss)
The Company had net earnings of $56.2 million and $72.2 million for the three
months ended June 30, 2021 and 2020, respectively, and net earnings of $108.4
million and $64.4 million for the six months ended June 30, 2021 and 2020,
respectively. The change in net earnings (loss) was the result of the
above-described fluctuations in our revenue, expenses and other income and
expenses.
Liquidity and Capital Resources
As of June 30, 2021, substantially all of our cash and cash equivalents are
invested in U.S. Treasury securities, other government securities or government
guaranteed funds, AAA rated money market funds and other highly rated financial
and corporate debt instruments.
The following are potential sources of liquidity: available cash balances, cash
generated by the operating activities of our privately-owned subsidiaries (to
the extent such cash exceeds the working capital needs of the subsidiaries and
is not otherwise restricted), monetization of our investments (including Charter
Repurchases (discussed below)), outstanding or anticipated debt facilities,
including $1.15 billion available to be drawn under the Margin Loan Facility (as
defined in note 7 to the accompanying condensed consolidated financial
statements) until five business days prior to the Maturity Date (as defined in
note 7 to the accompanying condensed consolidated financial statements), debt
and equity issuances, and dividend and interest receipts.
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As of June 30, 2021, Liberty Broadband had a cash and cash equivalents balance
of $219 million.
Six months ended June 30,
2021 2020
amounts in thousands
Cash flow information
Net cash provided (used) by operating activities $ 111,457 (15,698)
Net cash provided (used) by investing activities $ 1,714,218 (14,945)
Net cash provided (used) by financing activities $ (3,023,747) (1,919)
The increase in cash provided by operating activities in the six months ended
June 30, 2021, as compared to the corresponding period in the prior year, was
primarily driven by increased activity in working capital accounts due to the
Combination and the collection of accounts receivable from the RHC Program for
the funding years that ended on June 30, 2019 and June 30, 2020.
During the six months ended June 30, 2021, net cash flows provided by investing
activities were primarily related to the sale of 2,761,608 shares of Charter
Class A common stock to Charter for $1,762.6 million to maintain our fully
diluted ownership percentage of Charter at 26%. In February 2021, Liberty
Broadband entered into a letter agreement in order to implement, facilitate and
satisfy the terms of the Stockholders Agreement with respect to the Equity Cap
(see more information in note 5 to the accompanying condensed consolidated
financial statements). The Company expects the Charter Repurchases to be a
significant source of liquidity in future periods.
During the six months ended June 30, 2021, net cash flows used in financing
activities were primarily repurchases of Series C Liberty Broadband common stock
of $1,957.0 million, as well as net debt repayments of $850 million of
outstanding Revolving Loans (as defined in note 7 to the accompanying condensed
consolidated financial statements) under the Margin Loan Facility and repayment
of $210 million by GCI, LLC on its revolving credit facility.
The projected uses of our cash for the remainder of 2021 are the potential
buyback of common stock under the approved share buyback program, capital
expenditures of approximately $80 million, approximately $50 million for
interest payments on outstanding debt, approximately $5 million for preferred
stock dividends, funding of any operational needs of our subsidiaries, to
reimburse Liberty Media Corporation for amounts due under various agreements and
to fund potential investment opportunities. We expect corporate cash and other
available sources of liquidity to cover corporate expenses for the foreseeable
future.
Results of Operations-GCI Holdings, LLC
As described in notes 1 and 3 to the accompanying condensed consolidated
financial statements, Liberty Broadband acquired GCI Holdings in the Combination
on December 18, 2020. As GCI Holdings' results are only included in the
Company's results since December 18, 2020, we believe a discussion of GCI
Holdings' results for a comparative two year period promotes a better
understanding of GCI Holdings' operations. For comparison and discussion
purposes the Company is presenting (a) the results of GCI Holdings for the three
and six months ended June 30, 2021, as included in the condensed consolidated
financial statements of the Company and (b) the actual historical results of GCI
Holdings for 2020, exclusive of the effects of acquisition accounting since the
period is prior to the Combination. The most significant effect of acquisition
accounting is an increase to depreciation and amortization as compared to prior
periods as a result of an increase in fair values of depreciable and amortizable
assets. This historical financial information of GCI Holdings can be found in
historical filings of GCI Liberty, Inc. The financial information below is
presented voluntarily and does not purport to represent what the results of
operations of GCI Holdings would have been if it were a wholly owned subsidiary
of Liberty Broadband for the periods presented or to project the results of
operations of GCI Holdings for any future periods.
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GCI Holdings provides a full range of wireless, data, video, voice, and managed
services to residential, businesses, governmental entities, and educational and
medical institutions primarily in Alaska. The following table highlights
selected key performance indicators used in evaluating GCI Holdings.
June 30,
2021 2020
Consumer
Wireless:
Revenue generating wireless lines in service1 189,100 179,400
Non-revenue generating wireless lines in service2 1,500 3,600
Wireless lines in service
190,600 183,000
Data:
Revenue generating cable modem subscribers3 145,400 134,900
Non-revenue generating cable modem subscribers4
- 800
Cable modem subscribers 145,400 135,700
Video:
Basic subscribers5 64,600 77,700
Voice:
Total local access lines in service6 36,300 38,200
Business
Wireless:
Revenue generating wireless lines in service1 21,700 25,000
Data:
Revenue generating cable modem subscribers3 13,400 8,700
Voice:
Total local access lines in service6 29,500 33,500
1 A revenue generating wireless line in service is defined as a wireless device
with a monthly fee for services.
2 A non-revenue generating wireless line in service is defined as a data-only
line with no monthly fee for services.
3 A revenue generating cable modem subscriber is defined by the purchase of
cable modem service regardless of the level of service purchased. If one entity
purchases multiple cable modem service access points, each access point is
counted as a subscriber.
4 A non-revenue generating cable modem subscriber is defined by the provision of
basic cable modem service as a promotion to aid those impacted by COVID-19.
5 A basic subscriber is defined by the purchase of basic video service.
6 A local access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone network.
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GCI Holdings' operating results for the three and six months ended June 30, 2021
and 2020 are as follows:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in thousands
Revenue $ 237,856 222,581 480,072 454,142
Operating expenses (excluding stock-based
compensation included below):
Operating expense (64,835) (66,869) (131,588) (131,820)
Selling, general and administrative expenses (84,365) (77,667) (163,769) (157,882)
Adjusted OIBDA
88,656 78,045 184,715 164,440
Stock-based compensation (4,257) (2,696) (7,856) (3,544)
Depreciation and amortization (66,825) (60,543) (130,537) (122,904)
Operating income (loss) $ 17,574 14,806 46,322 37,992
Revenue
The components of revenue are as follows:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
amounts in thousands
Consumer
Wireless $ 44,756 42,327 89,144 83,100
Data 52,661 45,416 104,886 89,710
Video 18,709 20,461 37,642 41,223
Voice 3,811 3,843 7,494 7,848
Business
Wireless 19,876 21,035 40,263 43,524
Data 86,583 73,756 177,713 157,970
Video 880 4,427 1,682 8,449
Voice 10,580 11,316 21,248 22,318
Total revenue $ 237,856 222,581 480,072 454,142
Consumer wireless revenue increased $2.4 million and $6.0 million for the three
and six months ended June 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases were primarily due to increased
plan service fee revenue of $1.3 million and $2.9 million for the three and six
month periods, respectively, driven by an increase in the number of subscribers
and subscribers' selection of plans with higher recurring monthly charges that
offer higher usage limits. Additionally, equipment sales revenue increased $0.4
million and $1.9 million for the three and six month periods, respectively,
driven by an increase in the number of handsets sold in 2021.
Consumer data revenue increased $7.2 million and $15.2 million for the three and
six months ended June 30, 2021, respectively, as compared to the corresponding
prior year periods. The increases were driven by an increase in the number of
subscribers and the subscribers' selection of plans with higher recurring
monthly charges that offer higher speeds and higher usage limits.
Consumer video revenue decreased $1.8 million and $3.6 million for the three and
six months ended June 30, 2021, respectively, as compared to the corresponding
prior year periods. The decreases were due to a $2.6 million and $5.4 million
decrease in plan service fee revenue for the three and six month periods,
respectively, driven by a decrease in the number of subscribers. The decreases
were partially offset by increases of $1.2 million and $2.4 million in
advertising revenue for the three and six month periods, respectively, driven by
a reorganization effective August 1, 2020. The Company transitioned its
advertising sales to Consumer video following the sale of the Company's
broadcast television station.
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Consumer voice revenue was relatively flat and decreased $0.4 million for the
three and six months ended June 30, 2021, respectively, as compared to the
corresponding prior year periods. The decrease for the six month period was
primarily due to a reduction in the number of customers.
Business wireless revenue decreased $1.2 million and $3.3 million for the three
and six months ended June 30, 2021, respectively, as compared to the
corresponding prior year periods. The decreases were primarily due to decreases
in grant revenue.
Business data revenue increased $12.8 million and $19.7 million for the three
and six months ended June 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases were due to $15.6 million and
$35.4 million increases in data and transport revenue for the three and six
months periods, respectively, driven by increased sales to school and medical
customers for service upgrades. The increases were partially offset by decreases
of $2.8 million and $6.7 million in professional services revenue driven by a
reduction in time and materials project work for the three and six month
periods, respectively. Additionally, the increase for the six month period was
partially offset by the absence of $9 million recorded in the first quarter of
2020 for a RHC customer whose funding was initially denied.
Business video revenue decreased $3.5 million and $6.8 million for the three and
six months ended June 30, 2021, respectively, as compared to the corresponding
prior year periods. The decreases were primarily due to the sale of the
Company's broadcast television station in the third quarter of 2020.
Business voice revenue decreased $0.7 million and $1.1 million for the three and
six months ended June 30, 2021, respectively, as compared to the corresponding
prior year periods. The decreases were driven by a reduction in conference
calling, long distance minutes, and local service lines.
Operating expenses decreased $2.0 million and $0.2 million for the three and six
months ended June 30, 2021, respectively, as compared to the corresponding
prior year periods. The decreases for the three and six month periods are
primarily due to $2.4 million and $5.0 million decreases for the three and six
month periods, respectively, in professional services costs driven by a
reduction in time and materials project work and $3.4 million and $6.4 million
decreases for the three and six month periods, respectively, in video costs
driven by the sale of the Company's broadcast television station in the third
quarter of 2020 and a decrease in costs paid to content producers driven by a
decrease in video subscribers. The decreases for the three and six month periods
are partially offset by $3.7 million and $8.9 million increases for the three
and six month periods, respectively, in costs to operate our network driven by
the increase in demand from school and medical customers. Additionally, the six
month period was impacted by a $2.2 million increase in wireless handset costs.
Selling, general and administrative expenses increased $6.7 million and $5.9
million for the three and six months ended June 30, 2021, respectively, as
compared to the corresponding prior year periods. The increases for the three
and six month periods were primarily due to $6.6 million and $8.7 million
increases, respectively, in labor related costs driven by increases in
healthcare costs as employees have returned to normal healthcare interactions
and employee incentive compensation. The increase for the six month period is
partially offset by a $2.7 million decrease in bad debt expense and $1.3 million
decrease in legal and compliance costs.
Stock-based compensation increased $1.6 million and $4.3 million for the three
and six months ended June 30, 2021, respectively, as compared to the
corresponding prior year periods. Stock-based compensation increased for the
three and six month periods due to the fair value assigned to converted awards
as part of the modification as a result of the Combination. Additionally,
stock-based compensation expense for the six months ended June 30, 2020 included
the reversal of expense for performance-based awards that did not vest due to a
shortfall in certain financial metrics and qualitative criteria.
Depreciation and amortization increased $6.3 million and $7.6 million for the
three and six months ended June 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases were primarily due to an
increase in assets placed in service since January 1, 2020 and higher
amortization expense because of an accelerated recognition pattern for
amortizing intangibles as a result of the Combination.
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