UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File Number
(Exact name of Registrant as specified in its charter)
State of | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated Filer ☐ | Non-accelerated Filer ☐ | Smaller Reporting Company | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes
The number of outstanding shares of Liberty Broadband Corporation’s common stock as of April 30, 2023 was:
Series A | Series B | Series C | ||||
Liberty Broadband Corporation common stock | ||||||
|
Table of Contents
Part I - Financial Information
I-1
LIBERTY BROADBAND CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
March 31, | December 31, | |||||
2023 | 2022 |
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amounts in millions |
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Assets |
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Current assets: | ||||||
Cash and cash equivalents | $ | |
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Trade and other receivables, net of allowance for credit losses of $ | | | ||||
Prepaid and other current assets |
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Total current assets |
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Investment in Charter, accounted for using the equity method (note 4) |
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Property and equipment, net | | | ||||
Intangible assets not subject to amortization | ||||||
Goodwill | | | ||||
Cable certificates | | | ||||
Other | | | ||||
Intangible assets subject to amortization, net (note 5) | | | ||||
Other assets, net |
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Total assets | $ | |
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See accompanying notes to the condensed consolidated financial statements.
I-2
LIBERTY BROADBAND CORPORATION
Condensed Consolidated Balance Sheets (Continued)
(unaudited)
March 31, | December 31, | |||||
2023 | 2022 |
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amounts in millions, |
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except share amounts | ||||||
Liabilities and Equity | ||||||
Current liabilities: | ||||||
Accounts payable and accrued liabilities | $ | |
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Deferred revenue |
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Current portion of debt, including $ | | | ||||
Indemnification obligation (note 3) | | | ||||
Other current liabilities | | | ||||
Total current liabilities |
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Long-term debt, net, including $ | | | ||||
Obligations under tower obligations and finance leases, excluding current portion | | | ||||
Long-term deferred revenue | | | ||||
Deferred income tax liabilities | | | ||||
Preferred stock (note 7) | | | ||||
Other liabilities | | | ||||
Total liabilities |
| |
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Equity | ||||||
Series A common stock, $ | ||||||
Series B common stock, $ | ||||||
Series C common stock, $ | | | ||||
Additional paid-in capital | | | ||||
Accumulated other comprehensive earnings (loss), net of taxes |
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Retained earnings |
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Total stockholders' equity | | | ||||
Non-controlling interests | | | ||||
Total equity |
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Commitments and contingencies (note 9) |
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Total liabilities and equity | $ | |
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See accompanying notes to the condensed consolidated financial statements.
I-3
LIBERTY BROADBAND CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended |
| |||||
March 31, |
| |||||
2023 |
| 2022 |
| |||
amounts in millions, except per share amounts | ||||||
$ | | | ||||
Operating costs and expenses: | ||||||
Operating expense (exclusive of depreciation and amortization shown separately below) | | | ||||
Selling, general and administrative, including stock-based compensation (note 8) | | | ||||
Depreciation and amortization | | | ||||
| | |||||
Operating income (loss) | | | ||||
Other income (expense): | ||||||
Interest expense (including amortization of deferred loan fees) | ( | ( | ||||
Share of earnings (losses) of affiliate (note 4) | | | ||||
Gain (loss) on dilution of investment in affiliate (note 4) | ( | ( | ||||
Realized and unrealized gains (losses) on financial instruments, net (note 3) | ( | | ||||
Other, net | | ( | ||||
Earnings (loss) before income taxes | | | ||||
Income tax benefit (expense) | ( | ( | ||||
Net earnings (loss) | | | ||||
Less net earnings (loss) attributable to the non-controlling interests | — | — | ||||
Net earnings (loss) attributable to Liberty Broadband shareholders | $ | | | |||
Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2) | $ | | | |||
Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2) | $ | | | |||
See accompanying notes to the condensed consolidated financial statements.
I-4
LIBERTY BROADBAND CORPORATION
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(unaudited)
Three months ended |
| |||||
March 31, |
| |||||
2023 |
| 2022 |
| |||
amounts in millions |
| |||||
Net earnings (loss) |
| $ | | | ||
Other comprehensive earnings (loss), net of taxes: | ||||||
Credit risk on fair value debt instruments gains (loss) | | ( | ||||
Other comprehensive earnings (loss), net of taxes | | ( | ||||
Comprehensive earnings (loss) | | | ||||
Less comprehensive earnings (loss) attributable to the non-controlling interests | — | — | ||||
Comprehensive earnings (loss) attributable to Liberty Broadband shareholders | $ | | | |||
See accompanying notes to the condensed consolidated financial statements.
I-5
LIBERTY BROADBAND CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended | ||||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Cash flows from operating activities: |
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|
|
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Net earnings (loss) | $ | |
| | ||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||
Depreciation and amortization |
| |
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Stock-based compensation |
| |
| | ||
Share of (earnings) losses of affiliate, net |
| ( |
| ( | ||
(Gain) loss on dilution of investment in affiliate |
| |
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Realized and unrealized (gains) losses on financial instruments, net |
| |
| ( | ||
Deferred income tax expense (benefit) |
| |
| | ||
Other, net |
| ( |
| ( | ||
Changes in operating assets and liabilities: | ||||||
Current and other assets |
| ( |
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Payables and other liabilities |
| ( |
| | ||
Net cash provided by (used in) operating activities |
| |
| | ||
Cash flows from investing activities: | ||||||
Capital expenditures | ( | ( | ||||
Cash received for Charter shares repurchased by Charter | | | ||||
Other investing activities, net | — | | ||||
Net cash provided by (used in) investing activities | ( | | ||||
Cash flows from financing activities: | ||||||
Borrowings of debt | | | ||||
Repayments of debt, tower obligations and finance leases | ( | ( | ||||
Repurchases of Liberty Broadband common stock | ( | ( | ||||
Indemnification payment to Qurate Retail | ( | — | ||||
Other financing activities, net |
| ( |
| ( | ||
Net cash provided by (used in) financing activities |
| ( |
| ( | ||
Net increase (decrease) in cash, cash equivalents and restricted cash | ( |
| | |||
Cash, cash equivalents and restricted cash, beginning of period | | | ||||
Cash, cash equivalents and restricted cash, end of period | $ | | | |||
The following table reconciles cash and cash equivalents and restricted cash reported in the accompanying condensed consolidated balance sheets to the total amount presented in the accompanying condensed consolidated statement of cash flows:
March 31, | December 31, | |||||
2023 | 2022 | |||||
amounts in millions | ||||||
Cash and cash equivalents | $ | | | |||
Restricted cash included in other current assets | | | ||||
Restricted cash included in other long-term assets | | | ||||
Total cash and cash equivalents and restricted cash at end of period | $ | | | |||
See accompanying notes to the condensed consolidated financial statements.
I-6
LIBERTY BROADBAND CORPORATION
Condensed Consolidated Statements of Equity
(unaudited)
Accumulated | Noncontrolling | |||||||||||||||||
Additional | other | interest in | ||||||||||||||||
Common stock | paid-in | comprehensive | Retained | equity of | ||||||||||||||
Series A |
| Series B |
| Series C |
| capital | earnings | earnings | subsidiaries | Total equity | ||||||||
amounts in millions | ||||||||||||||||||
Balance at January 1, 2023 |
| $ | — | — | | |
| |
| | |
| | |||||
Net earnings (loss) | — | — | — | — |
| — |
| | — |
| | |||||||
Other comprehensive earnings (loss), net of taxes | — | — | — | — | | — | — | | ||||||||||
Stock-based compensation | — | — | — | | — | — | — | | ||||||||||
Issuance of common stock upon exercise of stock options | — | — | — | | — | — | — | | ||||||||||
Withholding taxes on net share settlements of stock-based compensation | — | — | — | ( | — | — | — | ( | ||||||||||
Liberty Broadband stock repurchases | — | — | — | ( | — | — | — | ( | ||||||||||
Noncontrolling interest activity at Charter and other | — | — | — | ( | — | — | — | ( | ||||||||||
Balance at March 31, 2023 | $ | — | — | | |
| |
| | |
| | ||||||
Accumulated | Noncontrolling | |||||||||||||||||
Additional | other | interest in | ||||||||||||||||
Common stock | paid-in | comprehensive | Retained | equity of | ||||||||||||||
Series A |
| Series B |
| Series C |
| capital | earnings | earnings | subsidiaries | Total equity | ||||||||
amounts in millions | ||||||||||||||||||
Balance at January 1, 2022 | $ | — | — | | | | | | | |||||||||
Net earnings (loss) | — | — | — | — | — | | — | | ||||||||||
Other comprehensive earnings (loss), net of taxes | — | — | — | — | ( | — | — | ( | ||||||||||
Stock-based compensation | — | — | — | | — | — | — | | ||||||||||
Withholding taxes on net share settlements of stock-based compensation | — | — | — | ( | — | — | — | ( | ||||||||||
Liberty Broadband stock repurchases | — | — | — | ( | — | — | — | ( | ||||||||||
Noncontrolling interest activity at Charter and other | — | — | — | ( | — | — | | | ||||||||||
Balance at March 31, 2022 | $ | — | — | | | | | | | |||||||||
See accompanying notes to the condensed consolidated financial statements.
I-7
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of 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 GCI Holdings, LLC (“GCI Holdings” or “GCI”), a wholly owned subsidiary, and an equity method investment in Charter Communications, Inc. (“Charter”).
On December 18, 2020, GCI Liberty, Inc. (“GCI Liberty”) was merged with Liberty Broadband (the “Combination”) and Liberty Broadband acquired GCI Holdings.
The accompanying (a) condensed consolidated balance sheet as of December 31, 2022, which has been derived from audited financial statements, and (b) interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. Additionally, certain prior period amounts have been reclassified for comparability with current period presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Liberty Broadband's Annual Report on Form 10-K for the year ended December 31, 2022. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company considers (i) the application of the equity method of accounting for its affiliate, (ii) non-recurring fair value measurements of non-financial instruments and (iii) accounting for income taxes to be its most significant estimates.
Through a number of prior years’ transactions, including the Combination, Liberty Broadband has acquired an interest in Charter. The investment in Charter is accounted for using the equity method. Liberty Broadband does not control the decision making process or business management practices of this affiliate. Accordingly, Liberty Broadband relies on the management of this affiliate to provide it with accurate financial information prepared in accordance with GAAP that the Company uses in the application of the equity method. In addition, Liberty Broadband relies on audit reports that are provided by the affiliate's independent auditor on the financial statements of such affiliate. The Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliate that would have a material effect on Liberty Broadband's condensed consolidated financial statements.
Skyhook Holdings, Inc. (“Skyhook”) was a wholly owned subsidiary of Liberty Broadband until its sale on May 2, 2022 for aggregate consideration of approximately $
As described in note 4, we are currently participating in Charter’s share buyback program in order to maintain our fully diluted ownership percentage of
I-8
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Series A and Series C common stock pursuant to our authorized share repurchase programs. In addition, some of the proceeds were used for debt repayments.
During the three months ended March 31, 2023, we repurchased
Exchange Agreement with Chairman
On June 13, 2022, Liberty Broadband entered into an Exchange Agreement with its Chairman of the board of directors, John C. Malone, and a revocable trust of which Mr. Malone is the sole trustee and beneficiary (the “JM Trust”) (the “Exchange Agreement”). Under the Exchange Agreement, the JM trust exchanged
Spin-Off Arrangements
During May 2014, the board of directors of Liberty Media Corporation and its subsidiaries (“Liberty”) authorized management to pursue a plan to spin-off to its stockholders common stock of a wholly owned subsidiary, Liberty Broadband, and to distribute subscription rights to acquire shares of Liberty Broadband’s common stock (the “Broadband Spin-Off”). In connection with the Broadband Spin-Off, Liberty (for accounting purposes a related party of the Company) and Liberty Broadband entered into certain agreements in order to govern certain of the ongoing relationships between the two companies and to provide for an orderly transition, including a services agreement and a facilities sharing agreement. Under the facilities sharing agreement, Liberty Broadband shares office space with Liberty and related amenities at Liberty’s corporate headquarters. Liberty Broadband reimburses Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services which are negotiated semi-annually.
Pursuant to the services agreement, Liberty provides Liberty Broadband with general and administrative services including legal, tax, accounting, treasury and investor relations support. In December 2019, the Company entered into an amendment to the services agreement with Liberty in connection with Liberty’s entry into a new employment arrangement with Gregory B. Maffei, the Company’s President and Chief Executive Officer. Under the amended services agreement, components of his compensation would either be paid directly to him by each of the Company, Liberty TripAdvisor Holdings, Inc. and Qurate Retail, Inc. (“Qurate Retail”) (collectively, the “Service Companies”) or reimbursed to Liberty, in each case, based on allocations among Liberty and the Service Companies set forth in the amended services agreement, currently set at
Additionally, in connection with a prior transaction, GCI Liberty and Qurate Retail (for accounting purposes a related party of the Company) entered into a tax sharing agreement, which was assumed by Liberty Broadband as a result of the Combination. The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Qurate Retail and Liberty Broadband and other agreements related to tax matters.
Under these various agreements, amounts reimbursable to Liberty were approximately $
I-9
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
(2) Earnings Attributable to Liberty Broadband Stockholders Per Common Share
Basic earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) attributable to Liberty Broadband shareholders by the weighted average number of common shares outstanding (“WASO”) for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented. Excluded from diluted EPS for the three months ended March 31, 2023 and 2022 are
Liberty Broadband Common Stock | |||||
Three months | Three months |
| |||
ended | ended | ||||
| March 31, 2023 |
| March 31, 2022 |
| |
(numbers of shares in millions) | |||||
Basic WASO |
| |
| | |
Potentially dilutive shares (1) |
| |
| | |
Diluted WASO |
| |
| | |
(1) Potentially dilutive shares are excluded from the computation of diluted EPS during periods in which losses are reported since the result would be antidilutive.
(3) Assets and Liabilities Measured at Fair Value
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company does not have any recurring assets or liabilities measured at fair value that would be considered Level 3.
The Company’s assets and liabilities measured at fair value are as follows:
March 31, 2023 | December 31, 2022 |
| ||||||||||||
Quoted prices | Significant | Quoted prices | Significant |
| ||||||||||
in active | other | in active | other |
| ||||||||||
markets for | observable | markets for | observable |
| ||||||||||
identical assets | inputs | identical assets | inputs |
| ||||||||||
Description | Total | (Level 1) | (Level 2) | Total | (Level 1) | (Level 2) |
| |||||||
amounts in millions |
| |||||||||||||
Cash equivalents | $ | | | — | | | — | |||||||
Indemnification obligation | $ | | — | | | — | | |||||||
Exchangeable senior debentures | $ | | — | | | — | | |||||||
Pursuant to an indemnification agreement initially entered into by GCI Liberty and assumed by Liberty Broadband in connection with the Combination, Liberty Broadband has agreed to indemnify Liberty Interactive LLC (“LI LLC”), a subsidiary of Qurate Retail, for certain payments made to holders of LI LLC’s
I-10
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
2023. Such amount will equal the difference between the exchange value and par value of the LI LLC
The Company’s exchangeable senior debentures are debt instruments with quoted market value prices that are not considered to be traded on “active markets”, as defined in GAAP, and are reported in the foregoing table as Level 2 fair value.
Other Financial Instruments
Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued and other current liabilities, current portion of debt (with the exception of the
Realized and Unrealized Gains (Losses) on Financial Instruments
Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:
Three months ended |
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March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
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Indemnification obligation | $ | ( | | |||
Exchangeable senior debentures (1) | ( | | ||||
$ | ( | | ||||
| (1) | The Company has elected to account for its exchangeable senior debentures using the fair value option. Changes in the fair value of the exchangeable senior debentures recognized in the condensed consolidated statements of operations are primarily due to market factors driven by changes in the fair value of the underlying shares into which the debt is exchangeable. The Company isolates the portion of the unrealized gain (loss) attributable to the change in the instrument specific credit risk and recognizes such amount in other comprehensive income. The change in the fair value of the exchangeable senior debentures attributable to changes in the instrument specific credit risk before tax was a gain of $ |
I-11
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
(4) Investment in Charter Accounted for Using the Equity Method
Through a number of prior years’ transactions and the Combination, Liberty Broadband has acquired an interest in Charter. The investment in Charter is accounted for as an equity method affiliate based on our voting and ownership interest and the board seats held by individuals appointed by Liberty Broadband. As of March 31, 2023, the carrying and market value of Liberty Broadband’s ownership in Charter was approximately $
Upon the closing of the Time Warner Cable merger, the Second Amended and Restated Stockholders Agreement, dated as of May 23, 2015, by and among Charter, Liberty Broadband and Advance/Newhouse Partnership, as amended (the “Stockholders Agreement”), became fully effective. Pursuant to the Stockholders Agreement, Liberty Broadband’s equity ownership in Charter (on a fully diluted basis) is capped at the greater of
In February 2021, Liberty Broadband was notified that its ownership interest, on a fully diluted basis, had exceeded the Equity Cap set forth in the Stockholders Agreement. On February 23, 2021, Charter and 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. Pursuant to this letter agreement, following any month during which Charter purchases, redeems or buys back shares of its Class A common stock, and prior to certain meetings of Charter’s stockholders, Liberty Broadband will be obligated to sell to Charter, and Charter will be obligated to purchase, such number of shares of Class A common stock as is necessary (if any) to reduce Liberty Broadband’s percentage equity interest, on a fully diluted basis, to the Equity Cap (such transaction, a “Charter Repurchase”). The per share sale price for each share of Charter will be equal to the volume weighted average price paid by Charter in its repurchases, redemptions and buybacks of its common stock (subject to certain exceptions) during the month prior to the Charter Repurchase (or, if applicable, during the relevant period prior to the relevant meeting of Charter stockholders). Under the terms of the letter agreement, Liberty Broadband sold
Investment in Charter
The excess basis in our investment in Charter is allocated within memo accounts used for equity method accounting purposes as follows (amounts in millions):
March 31, | December 31, | |||||
2023 | 2022 | |||||
Property and equipment |
| $ | | | ||
Customer relationships |
| | | |||
Franchise fees |
| | | |||
Trademarks |
| | | |||
Goodwill |
| | | |||
Debt |
| ( | ( | |||
Deferred income tax liability |
| ( | ( | |||
$ | | |
I-12
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Property and equipment and customer relationships have weighted average remaining useful lives of approximately
The Company had dilution losses of $
Summarized unaudited financial information for Charter is as follows:
Charter condensed consolidated balance sheets
| March 31, 2023 | December 31, 2022 |
| |||
amounts in millions | ||||||
Current assets | $ | | | |||
Property and equipment, net |
| | | |||
Goodwill |
| | | |||
Intangible assets, net |
| | | |||
Other assets |
| | | |||
Total assets | $ | | | |||
Current liabilities | $ | | | |||
Deferred income taxes |
| | | |||
Long-term debt |
| | | |||
Other liabilities |
| | | |||
Equity |
| | | |||
Total liabilities and shareholders’ equity | $ | | | |||
I-13
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Charter condensed consolidated statements of operations
Three months ended |
| |||||
March 31, | ||||||
2023 | 2022 |
| ||||
amounts in millions | ||||||
Revenue | $ | | | |||
Cost and expenses: | ||||||
Operating costs and expenses (excluding depreciation and amortization) |
| | | |||
Depreciation and amortization |
| | | |||
Other operating expenses, net |
| | | |||
| | |||||
Operating income | | | ||||
Interest expense, net |
| ( | ( | |||
Other income (expense), net | ( | | ||||
Income tax (expense) benefit |
| ( | ( | |||
Net income (loss) | | | ||||
Less: Net income attributable to noncontrolling interests | ( | ( | ||||
Net income (loss) attributable to Charter shareholders | $ | | | |||
(5) Intangible Assets
Intangible Assets Subject to Amortization, net
| March 31, 2023 |
| December 31, 2022 |
| ||||||||||
Gross | Net | Gross | Net | |||||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying |
| ||||||||
| amount |
| amortization |
| amount |
| amount |
| amortization |
| amount |
| ||
amounts in millions |
| |||||||||||||
Customer relationships | $ | | ( | | | ( | | |||||||
Other amortizable intangible assets |
| | ( | | | ( | | |||||||
Total | $ | | ( | | | ( | | |||||||
Amortization expense for intangible assets with finite useful lives was $
Remainder of 2023 | $ | | ||
2024 | $ | | ||
2025 | $ | | ||
2026 | $ | | ||
2027 | $ | |
I-14
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
(6) Debt
Debt is summarized as follows:
| Outstanding |
|
|
|
|
| |||
principal | Carrying value |
| |||||||
March 31, | March 31, | December 31, |
| ||||||
| 2023 |
| 2023 |
| 2022 |
| |||
| amounts in millions | ||||||||
Margin Loan Facility | $ | |
| |
| | |||
| | — | |||||||
| | | |||||||
| — |
| — |
| | ||||
— | — | | |||||||
Senior notes |
| |
| |
| | |||
Senior credit facility |
| |
| |
| | |||
Wells Fargo note payable |
| |
| |
| | |||
Deferred financing costs |
|
| ( |
| ( | ||||
Total debt | $ | |
| |
| | |||
Debt classified as current |
|
| ( |
| ( | ||||
Total long-term debt | $ | |
| | |||||
Margin Loan Facility
On November 8, 2022, a bankruptcy remote wholly owned subsidiary of the Company (“SPV”) entered into Amendment No. 6 to Margin Loan Agreement (the “Sixth Amendment”), which amends SPV’s margin loan agreement, dated as of August 31, 2017 (as amended by the Sixth Amendment, the “Margin Loan Agreement”), with a group of lenders. The Margin Loan Agreement provides for (x) a term loan credit facility in an aggregate principal amount of $
Outstanding borrowings under the Margin Loan Agreement were $
The Margin Loan Agreement contains various affirmative and negative covenants that restrict the activities of SPV (and, in some cases, the Company and its subsidiaries with respect to shares of Charter owned by the Company and its subsidiaries). The Margin Loan Agreement does not include any financial covenants. The Margin Loan Agreement does contain restrictions related to additional indebtedness and events of default customary for margin loans of this type.
I-15
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
SPV’s obligations under the Margin Loan Agreement are secured by first priority liens on a portion of the Company’s ownership interest in Charter, sufficient for SPV to meet the loan to value requirements under the Margin Loan Agreement. The Margin Loan Agreement indicates that no lender party shall have any voting rights with respect to the shares pledged as collateral, except to the extent that a lender party buys any shares in a sale or other disposition made pursuant to the terms of the loan agreement. As of March 31, 2023,
Exchangeable Senior Debentures
On February 28, 2023, the Company closed a private offering of $
The Company used the net proceeds of the offering, together with existing cash on hand, to repurchase all of the outstanding
The Company has elected to account for all of its exchangeable senior debentures at fair value in its condensed consolidated financial statements. Accordingly, changes in the fair value of these instruments are recognized in unrealized gains (losses) in the accompanying condensed consolidated statements of operations. See note 3 for information related to unrealized gains (losses) on debt measured at fair value. As of March 31, 2023, a holder of the
Senior Notes
In connection with the closing of the Combination on December 18, 2020, GCI, LLC became an indirect wholly owned subsidiary of the Company. GCI, LLC is the issuer of $
I-16
LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Senior Credit Facility
In connection with the closing of the Combination on December 18, 2020, GCI, LLC became an indirect wholly owned subsidiary of the Company. GCI, LLC is the borrower under the Senior Credit Facility (as defined below).
On October 15, 2021, GCI, LLC entered into an Eighth Amended and Restated Credit Agreement (the “Senior Credit Facility”), which includes a $
GCI, LLC’s First Lien Leverage Ratio (as defined in the Senior Credit Facility) may not exceed
The terms of the Senior Credit Facility include customary representations and warranties, customary affirmative and negative covenants and customary events of default. At any time after the occurrence of an event of default under the Senior Credit Facility, the lenders may, among other options, declare any amounts outstanding under the Senior Credit Facility immediately due and payable and terminate any commitment to make further loans under the Senior Credit Facility. The obligations under the Senior Credit Facility are secured by a security interest on substantially all of the assets of GCI, LLC and the subsidiary guarantors, as defined in the Senior Credit Facility, and on the stock of GCI Holdings.
As of March 31, 2023, there was $
Wells Fargo Note Payable
In connection with the closing of the Combination on December 18, 2020, the Company assumed GCI Holdings’ outstanding $
GCI Holdings issued a note to Wells Fargo that matures on July 15, 2029 and is payable in monthly installments of principal and interest (the "Wells Fargo Note Payable"). The interest rate is variable at one month
The note is subject to similar affirmative and negative covenants as the Senior Credit Facility. The obligations under the note are secured by a security interest and lien on the building purchased with the note.
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LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Debt Covenants
GCI, LLC is subject to covenants and restrictions under its Senior Notes and Senior Credit Facility. The Company and GCI, LLC are in compliance with all debt maintenance covenants as of March 31, 2023.
Fair Value of Debt
The fair value of the Senior Notes was $
Due to the variable rate nature of the Margin Loan, Senior Credit Facility and Wells Fargo Note Payable, the Company believes that the carrying amount approximates fair value at March 31, 2023.
(7) Preferred Stock
Liberty Broadband's preferred stock is issuable, from time to time, with such designations, preferences and relative participating, optional or other rights, qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of such preferred stock adopted by Liberty Broadband’s board of directors.
Liberty Broadband Series A Cumulative Redeemable Preferred Stock (“Liberty Broadband Preferred Stock”) was issued as a result of the Combination on December 18, 2020. Each share of Series A Cumulative Redeemable Preferred Stock of GCI Liberty outstanding immediately prior to the closing of the Combination was converted into
The liquidation price is measured per share and shall mean the sum of (i) $
The holders of shares of Liberty Broadband Preferred Stock are entitled to receive, when and as declared by the Liberty Broadband board of directors, out of legally available funds, preferential dividends that accrue and cumulate as provided in the certificate of designations for the Liberty Broadband Preferred Stock.
Dividends on each share of Liberty Broadband Preferred Stock accrue on a daily basis at a rate of
Accrued dividends are payable quarterly on each dividend payment date, which is January 15, April 15, July 15, and October 15 of each year, commencing January 15, 2021. If Liberty Broadband fails to pay cash dividends on the Liberty Broadband Preferred Stock in full for any
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LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
which was paid on April 17, 2023 to shareholders of record of the Liberty Broadband Preferred Stock at the close of business on March 31, 2023.
(8) Stock-Based Compensation
Liberty Broadband grants, to certain of its directors, employees and employees of its subsidiaries, restricted stock units and stock options to purchase shares of its common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an equity classified Award (such as stock options and restricted stock) based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and re-measures the fair value of the Award at each reporting date.
Included in Selling, general and administrative expenses in the accompanying condensed consolidated statements of operations are $
Liberty Broadband – Grants
During the three months ended March 31, 2023, Liberty Broadband granted
There were
The Company has calculated the GDFV for all of its equity classified options and any subsequent re-measurement of its liability classified options using the Black-Scholes Model. The Company estimates the expected term of the options based on historical exercise and forfeiture data. The volatility used in the calculation for options is based on the historical volatility of Liberty Broadband common stock. The Company uses a
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LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Liberty Broadband – Outstanding Awards
The following table presents the number and weighted average exercise price (“WAEP”) of options to purchase Liberty Broadband common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining life and aggregate intrinsic value of the options.
|
|
|
|
| Weighted |
|
|
| |||
average |
| ||||||||||
remaining | Aggregate |
| |||||||||
contractual | intrinsic |
| |||||||||
Series C | WAEP | life | value |
| |||||||
(in thousands) | (in years) | (in millions) |
| ||||||||
Outstanding at January 1, 2023 |
| | $ | |
| ||||||
Granted |
| | $ | |
| ||||||
Exercised |
| ( | $ | |
| ||||||
Forfeited/Cancelled | ( | $ | | ||||||||
Outstanding at March 31, 2023 |
| | $ | |
| $ | | ||||
Exercisable at March 31, 2023 |
| | $ | |
| $ | | ||||
As of March 31, 2023, there were
As of March 31, 2023, the total unrecognized compensation cost related to unvested Awards was approximately $
As of March 31, 2023, Liberty Broadband reserved
(9) Commitments and Contingencies
General Litigation
The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible the Company may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
(10) Segment Information
Liberty Broadband identifies its reportable segments as (A) those consolidated companies that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA (as defined below) or total assets and (B) those equity method affiliates whose share of earnings or losses represent 10% or more of Liberty Broadband’s annual pre-tax earnings (losses).
Liberty Broadband evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue and Adjusted OIBDA. In addition, Liberty Broadband reviews nonfinancial measures such as subscriber growth.
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LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the three months ended March 31, 2023, Liberty Broadband has identified the following consolidated company and equity method investment as its reportable segments:
| ● | GCI Holdings – a wholly owned subsidiary of the Company that provides a full range of data, wireless, video, voice, and managed services to residential, businesses, governmental entities, and educational and medical institutions primarily in Alaska. |
| ● | Charter – an equity method investment that is one of the largest providers of cable services in the United States, offering a variety of entertainment, information and communications solutions to residential and commercial customers. |
Liberty Broadband’s operating segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. The accounting policies of the segment that is also a consolidated company are the same as those described in the Company’s summary of significant accounting policies in the Company’s annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. We have included amounts attributable to Charter in the tables below. Although Liberty Broadband owns less than
Performance Measures
Revenue by segment from contracts with customers, classified by customer type and significant service offerings follows:
Three months ended | ||||||
March 31, | ||||||
2023 |
| 2022 | ||||
amounts in millions | ||||||
GCI Holdings |
|
|
| |||
Consumer Revenue |
|
|
| |||
Data | $ | | | |||
Wireless | | | ||||
Other |
| | | |||
Business Revenue |
| |||||
Data |
| | | |||
Wireless |
| | | |||
Other |
| | | |||
Lease, grant, and revenue from subsidies |
| | | |||
Total GCI Holdings | | | ||||
Corporate and other | — | | ||||
Total | $ | |
| | ||
Charter revenue totaled $
The Company had receivables of $
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LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
generally pay for services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is recognized as revenue in the accompanying condensed consolidated statements of operations as the services are provided. Changes in the contract liability balance for the Company during the three months ended March 31, 2023 were not materially impacted by other factors.
The Company expects to recognize revenue in the future related to performance obligations that are unsatisfied (or partially unsatisfied) of approximately $
For segment reporting purposes, Liberty Broadband defines Adjusted OIBDA as revenue less operating expenses and selling, general and administrative expenses excluding stock-based compensation. Liberty Broadband believes this measure is an important indicator of the operational strength and performance of its 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 management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock-based compensation, transaction costs, separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net earnings, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Liberty Broadband generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
Adjusted OIBDA is summarized as follows:
Three months ended | ||||||
March 31, | ||||||
2023 | 2022 | |||||
amounts in millions | ||||||
GCI Holdings |
| $ | |
| | |
Charter |
| | | |||
Corporate and other |
| ( | ( | |||
| | | ||||
Eliminate equity method affiliate |
| ( | ( | |||
Consolidated Liberty Broadband | $ | | | |||
Other Information
March 31, 2023 |
| |||||||
Total | Investments | Capital |
| |||||
assets | in affiliate | expenditures |
| |||||
amounts in millions |
| |||||||
GCI Holdings |
| $ | |
| — |
| | |
Charter |
| |
| — |
| | ||
Corporate and other |
| |
| |
| — | ||
| |
| |
| | |||
Eliminate equity method affiliate |
| ( |
| — |
| ( | ||
Consolidated Liberty Broadband | $ | |
| |
| | ||
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LIBERTY BROADBAND CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table provides a reconciliation of Adjusted OIBDA to Operating income (loss) and Earnings (loss) before income taxes:
Three months ended |
| |||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Adjusted OIBDA |
| $ | |
| | |
Stock-based compensation |
| ( | ( | |||
Depreciation and amortization |
| ( | ( | |||
Operating income (loss) | | | ||||
Interest expense | ( | ( | ||||
Share of earnings (loss) of affiliate, net |
| | | |||
Gain (loss) on dilution of investment in affiliate |
| ( | ( | |||
Realized and unrealized gains (losses) on financial instruments, net |
| ( | | |||
Other, net |
| | ( | |||
Earnings (loss) before income taxes | $ | | | |||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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; competition; the performance, results of operations and cash flows of our equity affiliate, Charter Communications, Inc. (“Charter”); the expansion of Charter’s network; projected sources and uses of cash; the effects of regulatory developments; the Rural Health Care 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” or “GCI”), GCI, LLC, and Charter’s 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 Charter’s ability to obtain additional financing, or refinance existing indebtedness, on acceptable terms; |
| ● | the impact of our, GCI Holdings, GCI, LLC and Charter’s significant indebtedness and the ability to comply with any covenants in our and their respective debt instruments; |
| ● | general business conditions, unemployment levels, the level of activity in the housing sector, economic uncertainty or downturn and inflationary pressures on input costs and labor; |
| ● | 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 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, armed conflicts, pandemics, cyberattacks, network disruptions, service interruptions and system failures and the impact of related uninsured liabilities; |
| ● | the ability to hire and retain key personnel; |
| ● | the ability to procure necessary services and equipment from GCI Holdings’ and Charter’s vendors in a timely manner and at reasonable costs including in connection with Charter’s network evolution and rural construction initiatives; |
| ● | risks related to the Investment Company Act of 1940; |
| ● | the outcome of any pending or threatened litigation; and |
I-24
| ● | 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, 2022. 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, 2022.
Overview
Liberty Broadband Corporation (“Liberty Broadband,” “the Company,” “us,” “we,” or “our”) is primarily comprised of GCI Holdings, a wholly owned subsidiary, and an equity method investment in Charter.
On December 18, 2020, GCI Liberty, Inc. (“GCI Liberty”) was merged with Liberty Broadband (the “Combination”) and Liberty Broadband acquired GCI Holdings. Through a number of prior years’ transactions, including the Combination, Liberty Broadband has acquired an interest in Charter. Liberty Broadband controls 25.01% of the aggregate voting power of Charter.
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’ business and operations depends upon economic conditions in Alaska. Mounting inflationary cost pressures and recessionary fears have negatively impacted the U.S. and global economy. Unfavorable economic conditions, such as a recession or economic slowdown in the U.S., or inflation in the markets in which GCI operates, could negatively affect the affordability of and demand for GCI’s products and services and its cost of doing business.
The Alaska economy is dependent upon the oil industry, state and federal spending, investment earnings and tourism. A decline in oil prices would put significant pressure on the Alaska state government budget. The Alaska state government has significant reserves that GCI Holdings believes will help fund the state government for the next couple of years. The Alaska economy is subject to recessionary pressures as a result of the economic impacts of the COVID-19 pandemic, volatility in oil prices, inflation, and other causes that could result in a decrease in economic activity. While it is difficult for GCI Holdings to predict the future impact of a recession on its business, these conditions have had an adverse impact on its business and could 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. 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 and could lead to an increase in accounts receivable and bad debt expense. If a recession occurs, it could 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.
In addition, during 2022 and continuing in 2023, GCI Holdings began to experience the impact of inflation-sensitive items, including upward pressure on the costs of materials, labor, and other items that are critical to GCI Holding’s business. GCI Holdings continues to monitor these impacts closely and, if costs continue to rise, GCI Holdings may be unable to recoup losses or offset diminished margins by passing these costs through to its customers or implementing offsetting cost reductions.
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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 March 31, 2023, the Company had net accounts receivable from the RHC Program of approximately $86 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, 2022:
FCC Rate Reduction
| ● | 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 million in accounts receivable relating to these two funding years during 2021. GCI Holdings also filed an Application for Review of these determinations. GCI Holdings identified rates for similar services provided by a competitor that would justify higher rates for certain GCI Holdings satellite services in the funding years that ended on June 30, 2018, June 30, 2019, and June 30, 2020. GCI Holdings submitted that information to the FCC’s Wireline Competition Bureau on September 7, 2021. The Applications for Review remain pending. |
| ● | On May 24, 2021, the FCC approved the cost studies submitted by GCI Holdings for the funding year ended June 30, 2021. Subsequently, on August 16, 2021, GCI Holdings submitted a request for approval of rates for 17 additional sites, 13 of which the FCC approved on December 22, 2022. The rest remain pending. |
RHC Program Funding Cap
| ● | 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 funding 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. |
Enforcement Bureau and Related Inquiries
| ● | GCI Holdings received a letter of inquiry and request for information from the Enforcement Bureau (the “Enforcement Bureau”) of the FCC, in March 2018 relating to the period beginning January 1, 2015 and including all future periods. |
| ● | In the fourth quarter of 2019, 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. |
| ● | On December 17, 2020, GCI Holdings received a Subpoena Duces Tecum from the FCC’s Office of the Inspector General requiring production of documents from January 1, 2009 to the present related to a single RHC customer and related contracts, information regarding GCI Holdings’ determination of rural rates for a single customer, and to provide information regarding persons with knowledge of pricing practices generally. |
| ● | In 2021, GCI Holdings was informed that a qui tam action had been filed in the Western District of Washington arising from the subject matter under review by the Enforcement Bureau. The Department of Justice (the “DOJ”) is investigating whether GCI Holdings submitted false claims and/or statements in connection with GCI’s participation in the FCC’s RHC Program. Additionally in 2021, the DOJ issued a Civil Investigative Demand with regard to the qui tam action. |
| ● | With respect to the ongoing inquiries from the FCC’s Enforcement Bureau and the FCC’s Office of the Inspector General, GCI Holdings recognized a liability of approximately $12 million in 2019 for contracts that were deemed |
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| probable of not complying with the RHC Program rules. During the year ended December 31, 2022, GCI Holdings recorded an additional estimated settlement expense of $15 million relating to a settlement offer made by GCI Holdings resulting in a total estimated liability of $27 million. GCI Holdings also identified certain contracts where additional loss was reasonably possible and such loss could range from zero to $30 million. An accrual was not made for the amount of the reasonably possible loss in accordance with the applicable accounting guidance. GCI Holdings could also be assessed fines and penalties but such amounts could not be reasonably estimated. |
| ● | The DOJ and GCI Holdings held discussions regarding the qui tam action whereby the DOJ clarified that its investigation relates to the years from 2010 through 2019 and alleged that GCI Holdings had submitted false claims under the RHC Program during this time period. GCI Holdings continues to work with the DOJ related to this matter and has recorded a $14 million estimated settlement expense during the year ended December 31, 2022 to reflect discussions and settlement offers that GCI Holdings made to the DOJ during 2022. However, the Company is unable to assess the ultimate outcome of this action and is unable to reasonably estimate any range of additional possible loss beyond the $14 million estimated settlement liability, including any type of fine or penalty that may ultimately be assessed as permitted under the applicable law. |
| ● | Separately, during the third quarter of 2022, GCI Holdings became aware of possible RHC Program compliance issues relating to potential conflicts of interest identified in the historical competitive bidding process with respect to certain of its contracts with its RHC customers. GCI Holdings notified the FCC’s Enforcement Bureau of the potential compliance issues; however, the Company is unable to assess the ultimate outcome of the potential compliance issues and is unable to reasonably estimate any range of loss or possible loss. |
Revision of Support Calculations
| ● | 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 ended on June 30, 2021. 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 12, 2022 and May 25, 2022, the Bureau issued Orders further extending the January 19, 2021 and April 8, 2021 waivers regarding use of the database by health care providers seeking support under the RHC Program through the funding year ending June 30, 2024. On January 26, 2023, the FCC adopted an Order on Reconsideration, Report and Order, and Second Further Notice of Proposed Rulemaking, which grants the petitions challenging the rates database, returns the RHC Telecom Program to the rate determination rules in place prior to the adoption of the rates database, permits providers to determine rural rates based on previously approved rates through the funding years ending June 30, 2025 and June 30, 2026, and seeks comment on future revisions to the rate determination rules. |
The Company does not have any significant updates regarding the items noted above.
Charter
Charter is a leading broadband connectivity company and cable operator serving more than 32 million customers in 41 states through its Spectrum brand.
During the first quarter of 2023, Charter added 686,000 mobile lines, 76,000 Internet customers and 16,000 residential and small and medium business customer relationships, which excludes mobile-only customers. Charter’s Spectrum One offering, which brings together Spectrum Internet, Advanced WiFi and Unlimited Spectrum Mobile to offer consumers fast, reliable and secure online connections on their favorite devices at home and on-the-go in a high-value package, contributed to Charter’s increase in mobile lines in the first quarter. Charter continues to see lower customer move rates and switching behavior among providers, which has reduced its selling opportunities. Charter is beginning to see benefits from the targeted investments it is making in employee wages and benefits inside of its operations to build employee skill sets and tenure, as well as the continued investments in digitization of Charter’s customer service platforms and proactive
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maintenance, all with the goal of improving the customer experience, reducing transactions and driving customer growth and retention.
Charter spent $391 million on its subsidized rural construction initiative during the three months ended March 31, 2023. Charter expects that over time, its subsidized rural construction initiative will support customer growth, and in the first quarter of 2023, Charter activated approximately 44,000 subsidized rural passings. In addition, Charter continues to evolve and upgrade its network to provide higher Internet speeds and reliability and invest in its products and customer service platforms. By continually improving its product set and offering consumers the opportunity to save money by switching to its services, Charter believes it can continue to penetrate its expanding footprint and capture more spend on additional products for its existing customers.
Other
Skyhook Holdings, Inc. (“Skyhook”) was a wholly owned subsidiary of Liberty Broadband until its sale on May 2, 2022 for aggregate consideration of approximately $194 million, including amounts held in escrow of approximately $23 million. Liberty Broadband recognized a gain on the sale of $179 million, net of closing fees, in the second quarter of 2022. Skyhook is included in Corporate and other through April 30, 2022 and is not presented as a discontinued operation as the sale did not represent a strategic shift that had a major effect on Liberty Broadband’s operations and financial results.
Results of Operations — Consolidated —March 31, 2023 and 2022
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 10 to the accompanying condensed consolidated financial statements for more discussion regarding our reportable segments. For a more detailed discussion and analysis of GCI Holdings’ results, see "Results of Operations-GCI Holdings" below.
Consolidated operating results:
Three months ended | ||||||
March 31, | ||||||
| 2023 | 2022 | ||||
amounts in millions | ||||||
Revenue |
|
|
|
| ||
GCI Holdings | $ | 246 | 233 | |||
Corporate and other |
| — | 5 | |||
Consolidated | $ | 246 |
| 238 | ||
Operating Income (Loss) |
|
|
|
| ||
GCI Holdings | $ | 29 | 21 | |||
Corporate and other |
| (13) | (14) | |||
Consolidated | $ | 16 |
| 7 | ||
Adjusted OIBDA |
|
|
|
| ||
GCI Holdings | $ | 90 | 87 | |||
Corporate and other |
| (8) | (7) | |||
Consolidated | $ | 82 |
| 80 | ||
Revenue
Revenue increased $8 million for the three months ended March 31, 2023, as compared to the corresponding prior year period. The increase in revenue was primarily due to increased revenue from GCI Holdings. See “Results of Operations – GCI Holdings, LLC” below for a more complete discussion of the results of operations of GCI Holdings.
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Revenue for Corporate and other decreased for the three months ended March 31, 2023, as compared to the corresponding prior year period. With the sale of Skyhook in May 2022, Corporate and other revenue was minimal during the first half of 2022 and will be zero in future periods as all Corporate and other revenue was generated by Skyhook.
Operating Income (Loss)
Consolidated operating income improved $9 million for the three months ended March 31, 2023, as compared to the corresponding prior year period. Operating loss for Corporate and other improved $1 million for the three months ended March 31, 2023, as compared to the corresponding prior year period, due to decreased professional service fees.
Operating income increased $8 million at GCI Holdings for the three months ended March 31, 2023, as compared to the corresponding prior year period. 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 decreased $1 million for the three months ended March 31, 2023, as compared to the corresponding prior year period. The decrease in stock-based compensation expense was primarily due to a decrease in Liberty Broadband’s allocation rate per the services agreement arrangement as described in note 1 to the accompanying condensed consolidated financial statements.
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 |
| |||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Operating income (loss) |
| $ | 16 |
| 7 | |
Depreciation and amortization |
| 58 | 64 | |||
Stock-based compensation |
| 8 | 9 | |||
Adjusted OIBDA | $ | 82 | 80 | |||
Adjusted OIBDA improved $2 million for the three months ended March 31, 2023, as compared to the corresponding prior year period, primarily due to increased Adjusted OIBDA at GCI Holdings. See “Results of Operations – GCI Holdings, LLC” below for a more complete discussion of the results of operations of GCI Holdings.
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Other Income and Expense
Components of Other income (expense) are presented in the table below.
Three months ended |
| |||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Other income (expense): |
|
|
| |||
Interest expense | $ | (45) | (26) | |||
Share of earnings (losses) of affiliate |
| 248 | 303 | |||
Gain (loss) on dilution of investment in affiliate |
| (27) | (56) | |||
Realized and unrealized gains (losses) on financial instruments, net |
| (114) | 137 | |||
Other, net |
| 14 | (21) | |||
$ | 76 | 337 | ||||
Interest expense
Interest expense increased $19 million during the three months ended March 31, 2023, as compared to the corresponding period in the prior year. The increase was driven by higher interest rates on our variable rate debt, partially offset by lower amounts outstanding on the Margin Loan Facility (as defined in note 6 to the accompanying condensed consolidated financial statements). The interest rates on our fixed rate debt also increased with the closing of the 3.125% Exchangeable Senior Debentures due 2053 (the “3.125% Debentures”) and repurchase of other exchangeables, as further described in note 6 to the accompanying condensed consolidated financial statements.
Share of earnings (losses) of affiliate
Share of earnings of affiliate decreased $55 million during the three months ended March 31, 2023, as compared to the corresponding period in the prior year. The Company’s share of earnings (losses) of affiliate line item in the accompanying condensed consolidated statements of operations includes expenses of $69 million and $67 million, net of related taxes, for the three months ended March 31, 2023 and 2022, respectively, due to the increase in amortization of the excess basis of assets with identifiable useful lives and debt, which was primarily due to Charter’s share buyback program. The decrease in the share of earnings of affiliate in the three months ended March 31, 2023, as compared to the corresponding period in the prior year, was the result of the corresponding decrease in net income at Charter.
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The following is a discussion of Charter’s results of operations. Beginning in the first quarter of 2023, Charter changed its presentation of its mobile business, among several other changes, to better reflect the converged and integrated nature of its business and operations, which altered the way they group revenue and expenses. 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 | |||||
March 31, | |||||
2023 | 2022 | ||||
amounts in millions | |||||
Revenue |
| $ | 13,653 |
| 13,200 |
Operating expenses, excluding stock-based compensation |
| (8,313) | (7,988) | ||
Adjusted OIBDA |
| 5,340 | 5,212 | ||
Depreciation and amortization |
| (2,206) | (2,294) | ||
Stock-based compensation |
| (208) | (147) | ||
Operating income |
| 2,926 | 2,771 | ||
Other expenses, net |
| (1,369) | (1,037) | ||
Net income (loss) before income taxes |
| 1,557 | 1,734 | ||
Income tax (expense) benefit |
| (374) | (345) | ||
Net income (loss) | 1,183 | 1,389 | |||
Less: Net income attributable to noncontrolling interests | (162) | (186) | |||
Net income (loss) attributable to Charter shareholders | $ | 1,021 | 1,203 | ||
Charter net income decreased $206 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year.
Charter’s revenue increased $453 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year, primarily due to pass-through of programming cost increases to video customers and other price adjustments and increases in the number of residential mobile and Internet customers. Additionally, revenue increased due to product mix and higher mobile device sales.
During the three months ended March 31, 2023, operating expenses, excluding stock-based compensation, increased $325 million, as compared to the corresponding period in the prior year. Operating costs increased primarily due to higher mobile device sales and higher other mobile direct costs due to an increase in mobile lines, as well as increased costs to service customers and higher corporate labor costs. The increased costs to service customers was primarily due to adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce resulting in lower frontline employee attrition compared to 2022, and additional activity to support the accelerated growth of Spectrum Mobile.
These increases in operating costs were partially offset by decreased programming costs as a result of fewer video customers and a higher mix of lower cost video packages within Charter’s video customer base partly offset by contractual rate adjustments, including renewals and increases in amounts paid for retransmission consent.
Charter’s Adjusted OIBDA increased $128 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year, for the reasons described above.
Depreciation and amortization expense decreased $88 million during the three months ended March 31, 2023, as compared to the corresponding period in the prior year, primarily due to certain assets acquired in acquisitions becoming fully depreciated offset by an increase in depreciation as a result of more recent capital expenditures.
Other expenses, net increased $332 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year. The increase in other expenses, net was primarily due to increased interest expense caused by an increase in weighted average interest rates, as well as an increase in weighted average debt outstanding, and increased losses on financial instruments and equity investments.
I-31
Income tax expense increased $29 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year. Income tax expense increased primarily as a result of decreased recognition of excess tax benefits resulting from share-based compensation partly offset by lower pretax income.
Gain (loss) on dilution of investment in affiliate
The loss on dilution of investment in affiliate decreased by $29 million during the three months ended March 31, 2023, as compared to the corresponding period in the prior year, primarily due to a decrease in issuance of Charter common stock from the exercise of stock options and restricted stock units held by employees and other third parties, partially offset by a smaller gain on dilution related to Charter’s repurchase of Liberty Broadband’s Charter shares.
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 |
| |||||
March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Indemnification obligation | $ | (3) | 85 | |||
Exchangeable senior debentures | (111) | 52 | ||||
$ | (114) | 137 | ||||
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 (see notes 3 and 6 to the accompanying condensed consolidated financial statements for additional discussion). The increase in realized and unrealized losses for the three months ended March 31, 2023, compared to the corresponding period in the prior year, was primarily due to an increase in unrealized losses on the indemnification obligation, as well as the change in fair value of the 3.125% Debentures related to changes in market price of underlying Charter stock.
Other, net
Other, net income increased $35 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year. The increase was primarily due to a tax sharing receivable with Qurate Retail that resulted in an increased gain of $31 million for the three months ended March 31, 2023. 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 | ||||||
March 31, | ||||||
2023 |
| 2022 | ||||
amounts in millions | ||||||
Earnings (loss) before income taxes | $ | 92 |
| 344 | ||
Income tax (expense) benefit |
| (23) |
| (45) | ||
Effective income tax rate |
| 25% | 13% | |||
The difference between the effective income tax rate of 25% and the U.S. Federal income tax rate of 21% for the three months ended March 31, 2023 was primarily due to the effect of state income taxes and the recognition of excess tax benefits and shortfalls related to stock-based compensation.
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The difference between the effective income tax rate of 13% and the U.S. Federal income tax rate of 21% for the three months ended March 31, 2022 was primarily due to deferred tax benefits recognized related to tax basis in the stock of a consolidated subsidiary sold during the second quarter of 2022 and non-taxable income from a decrease in the fair value of the indemnification payable owed to Qurate Retail.
Net earnings (loss)
The Company had net earnings of $69 million and $299 million for the three months ended March 31, 2023 and 2022, 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 March 31, 2023, 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 (as defined in note 4 to the accompanying condensed consolidated financial statement and discussed below)), outstanding or anticipated debt facilities (as described in note 6 to the accompanying condensed consolidated financial statements), debt and equity issuances, and dividend and interest receipts.
As of March 31, 2023, Liberty Broadband had a cash and cash equivalents balance of $169 million.
Three months ended March 31, |
| |||||
2023 | 2022 |
| ||||
amounts in millions |
| |||||
Cash flow information |
|
|
|
| ||
Net cash provided by (used in) operating activities | $ | 41 |
| 90 | ||
Net cash provided by (used in) investing activities | $ | (12) |
| 574 | ||
Net cash provided by (used in) financing activities | $ | (235) |
| (548) | ||
The decrease in cash provided by operating activities in the three months ended March 31, 2023, as compared to the corresponding period in the prior year, was primarily driven by timing differences in working capital accounts, partially offset by increased operating income.
During the three months ended March 31, 2023 and 2022, net cash flows used in investing activities were primarily related to capital expenditures of $54 million and $32 million, respectively. This net outflow of cash was offset by the sale of 120,149 and 970,241 shares of Charter Class A common stock to Charter for $42 million and $602 million during the three months ended March 31, 2023 and 2022, respectively, 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 4 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 three months ended March 31, 2023, net cash flows used in financing activities were primarily for the repurchase of approximately $1,415 million in principal amount of outstanding exchangeable senior debentures, partially offset by the issuance of $1,265 million aggregate original principal amount of the 3.125% Debentures (see more information in note 6 to the accompanying condensed consolidated financial statements). Additionally, net cash flows used in financing activities included repurchases of Liberty Broadband Series A and Series C common stock of $40 million and indemnification payments of $24 million made by Liberty Broadband to Qurate Retail in connection with the LI LLC 1.75% Exchangeable Debentures. During the three months ended March 31, 2022, net cash flows used in financing activities were primarily
I-33
repurchases of Liberty Broadband Series A and Series C common stock of $843 million, partially offset by borrowings of debt of $300 million of outstanding Revolving Loans (as defined in note 6 to the accompanying condensed consolidated financial statements) under the Margin Loan Facility.
The projected uses of our cash for the remainder of 2023 are the potential buyback of common stock under the approved share buyback program, net capital expenditures of approximately $130 million, approximately $155 million for interest payments on outstanding debt, approximately $10 million for preferred stock dividends, funding of any operational needs of our subsidiaries, to pay accrued litigation settlements, 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
GCI Holdings provides a full range of data, wireless, 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.
March 31, |
| ||||
2023 |
| 2022 |
| ||
Consumer |
|
|
| ||
Data: |
|
|
| ||
Cable modem subscribers1 | 159,100 | 153,600 | |||
Wireless: |
|
|
| ||
Wireless lines in service2 | 193,700 |
| 185,900 | ||
1 A 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. Data cable modem subscribers as of March 31, 2023 include 1,100 subscribers that were reclassified from GCI Business to GCI Consumer subscribers in the first quarter of 2023 and are not new additions.
2 A wireless line in service is defined as a wireless device with a monthly fee for services. Wireless lines in service as of March 31, 2023 include 1,400 lines that were reclassified from GCI Business to GCI Consumer lines in the first quarter of 2023 and are not new additions.
GCI Holdings’ operating results for the three months ended March 31, 2023 and 2022 are as follows:
Three months ended | ||||||
March 31, | ||||||
| 2023 |
| 2022 |
| ||
amounts in millions | ||||||
Revenue | $ | 246 |
| 233 |
| |
Operating expenses (excluding stock-based compensation included below): |
|
|
|
|
| |
Operating expense |
| (62) |
| (63) |
| |
Selling, general and administrative expenses |
| (94) |
| (83) |
| |
Adjusted OIBDA |
| 90 |
| 87 |
| |
Stock-based compensation |
| (3) |
| (3) |
| |
Depreciation and amortization |
| (58) |
| (63) |
| |
Operating income (loss) | $ | 29 |
| 21 |
| |
I-34
Revenue
The components of revenue are as follows:
Three months ended | ||||||
March 31, | ||||||
| 2023 |
| 2022 |
| ||
amounts in millions | ||||||
Consumer |
|
|
|
|
| |
Data | $ | 59 |
| 58 |
| |
Wireless | 47 |
| 46 |
| ||
Other |
| 12 |
| 15 |
| |
Business |
|
|
|
|
| |
Data |
| 106 |
| 90 |
| |
Wireless |
| 13 |
| 14 |
| |
Other |
| 9 |
| 10 |
| |
Total revenue | $ | 246 |
| 233 |
| |
Consumer data revenue increased $1 million for the three months ended March 31, 2023 as compared to the corresponding prior year period. The increase was primarily driven by an increase in the number of subscribers.
Consumer wireless revenue increased $1 million for the three months ended March 31, 2023 as compared to the corresponding prior year period. The increase was primarily driven by an increase in the number of subscribers.
Consumer other revenue decreased $3 million for the three months ended March 31, 2023 as compared to the corresponding prior year period. Consumer other revenue consists of consumer video and voice revenue. The decrease was due to a decrease in video revenue primarily driven by decreased video subscribers. This was the result of both the transition from traditional linear video delivery to IP delivery and GCI Holdings’ decision to discontinue selling bulk video packages for multi-dwelling units. Historically, GCI Holdings has seen declines in video and voice subscribers and revenue and expects a continued decrease as customers potentially choose alternative services.
Business data revenue increased $16 million for the three months ended March 31, 2023 as compared to the corresponding prior year period, primarily due to increased sales to health care and school customers due to service upgrades as well as new customer growth. These increases were partially offset by decreases in professional services revenue, driven by a reduction in time and material project work.
Business wireless revenue decreased $1 million for the three months ended March 31, 2023 as compared to the corresponding prior year period. The decrease was primarily due to decreases in roaming revenue.
Business other revenue decreased $1 million for the three months ended March 31, 2023 as compared to the corresponding prior year period. Business other revenue consists of business video and voice revenue. The decrease was primarily due to decreased local and long distance voice revenue. Historically, GCI Holdings has seen declines in video and voice subscribers and revenue and has not focused business efforts on growth in these areas.
Operating expenses decreased $1 million for the three months ended March 31, 2023 as compared to the corresponding prior year period, primarily due to a decrease in costs paid to content producers driven by reduced video subscribers.
Selling, general and administrative expenses increased $11 million for the three months ended March 31, 2023 as compared to the corresponding prior year period, primarily due to increases in labor related costs and increases in bad debt and property taxes. The increase in bad debt and property taxes is due to one-time decreases in these costs during the quarter ended March 31, 2022.
I-35
Stock-based compensation remained flat for the three months ended March 31, 2023 as compared to the corresponding prior year period.
Depreciation and amortization decreased $5 million for the three months ended March 31, 2023 as compared to the corresponding prior year period. The decrease was due to lower depreciation expense as certain assets became fully depreciated during 2022.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk in the normal course of business due to our ongoing investing and financial activities. Market risk refers to the risk of loss arising from adverse changes in stock prices and interest rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.
We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which could include investments in fixed and floating rate debt instruments and borrowings used to maintain liquidity and to fund business operations. The nature and amount of our long-term and short-term debt are expected to vary as a result of future requirements, market conditions and other factors. We manage our exposure to interest rates by maintaining what we believe is an appropriate mix of fixed and variable rate debt. We believe this best protects us from interest rate risk. We could achieve this mix by (i) issuing fixed rate debt that we believe has a low stated interest rate and significant term to maturity, (ii) issuing variable rate debt with appropriate maturities and interest rates and (iii) entering into interest rate swap arrangements when we deem appropriate.
Liberty Broadband’s borrowings under the Margin Loan Agreement (as defined in note 6 of the accompanying condensed consolidated financial statements) and the Senior Credit Facility (as defined in note 6 of the accompanying condensed consolidated financial statements) carry a variable interest rate based on LIBOR as a benchmark for establishing the rate of interest. LIBOR is the subject of national, international and other regulatory guidance and proposals for reform. In 2017, the United Kingdom's Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that it intends to phase out LIBOR. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the one week and two month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. The United States Federal Reserve has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate. The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate (“SOFR”), an index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. Our Margin Loan Agreement and Senior Credit Facility provide for a transition to a SOFR based rate or to other alternative reference rates depending on acceptance in the market of these rates.
As of March 31, 2023, our debt is comprised of the following amounts:
Variable rate debt | Fixed rate debt |
| ||||||||||
Principal |
| Weighted avg |
| Principal |
| Weighted avg |
| |||||
amount | interest rate | amount | interest rate |
| ||||||||
dollar amounts in millions |
| |||||||||||
GCI Holdings | $ | 401 | 6.5 | % | $ | 600 | 4.8 | % | ||||
Corporate and other | $ | 1,400 | 6.7 | % | $ | 1,267 | 3.1 | % | ||||
Our investment in Charter (our equity method affiliate) is publicly traded and not reflected at fair value in our balance sheet. Our investment in Charter is also subject to market risk that is not directly reflected in our financial statements.
I-36
Item 4. Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and its principal accounting and financial officer (the "Executives"), and under the oversight of its Board of Directors, of the effectiveness of the design and operation of its disclosure controls and procedures as of March 31, 2023. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There has been no change in the Company's internal control over financial reporting that occurred during the three months ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
I-37
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Our Annual Report on Form 10-K for the year ended December 31, 2022 includes "Legal Proceedings" under Item 3 of Part I. There have been no material changes from the legal proceedings described in our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchase Programs
A summary of the repurchase activity for the three months ended March 31, 2023 is as follows:
Series A Common Stock | Series C Common Stock |
| |||||||||||||||
|
|
| Total Number |
| Maximum Number |
| |||||||||||
of Shares | (or Approximate Dollar |
| |||||||||||||||
Purchased as | Value) of Shares that |
| |||||||||||||||
Total Number | Average | Total Number | Average | Part of Publicly | May Yet Be Purchased |
| |||||||||||
of Shares | Price Paid per | of Shares | Price Paid per | Announced Plans or | Under the Plans or |
| |||||||||||
Period | Purchased | Share | Purchased | Share | Programs | Programs |
| ||||||||||
January 1 - 31, 2023 | 283,449 | $ | 85.15 | 37,975 | $ | 79.43 | 321,424 | $1,974 | million | ||||||||
February 1 - 28, 2023 |
| 38,518 | $ | 92.88 | 98,620 | $ | 92.82 | 137,138 | $1,962 | million | |||||||
March 1 - 31, 2023 |
| — | $ | - | — | $ | - | — | $1,962 | million | |||||||
Total |
| 321,967 | 136,595 |
| 458,562 | ||||||||||||
There were no repurchases of Liberty Broadband Series B common stock or Liberty Broadband Preferred Stock during the three months ended March 31, 2023.
During the three months ended March 31, 2023, 29 shares of Liberty Broadband Series A common stock, zero shares of Liberty Broadband Series B common stock, 106 shares of Liberty Broadband Series C common stock and zero shares of Liberty Broadband Preferred Stock were surrendered by our officers and employees to pay withholding taxes and other deductions in connection with the vesting of their restricted stock, restricted stock units and options.
II-1
Item 6. Exhibits
| (a) | Exhibits |
Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
31.1 | ||
31.2 | ||
32 | ||
101.INS | XBRL Instance Document* - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document* | |
101.LAB | Inline XBRL Taxonomy Label Linkbase Document* | |
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document* | |
101.DEF | Inline XBRL Taxonomy Definition Document* | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
* Filed herewith
** Furnished herewith
II-2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LIBERTY BROADBAND CORPORATION | ||
Date: May 2, 2023 | By: | /s/ GREGORY B. MAFFEI | |
Gregory B. Maffei President and Chief Executive Officer | |||
Date: May 2, 2023 | By: | /s/ BRIAN J. WENDLING | |
Brian J. Wendling Chief Accounting Officer and Principal Financial Officer | |||
II-3