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 performance, results of
operations and cash flows of our equity affiliate, Charter Communications, Inc.
("Charter"); projected sources and uses of cash; the effects of regulatory
developments; the EBB (as defined below); the impact of COVID-19 (as defined
below); the Rural Healthcare Program; indebtedness and the anticipated impact of
certain contingent liabilities related to legal and tax proceedings and other
matters arising in the ordinary course of business. Forward-looking statements
inherently involve many risks and uncertainties that could cause actual results
to differ materially from those projected in these statements. Where, in any
forward-looking statement, we express an expectation or belief as to future
results or events, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but such statements necessarily involve
risks and uncertainties and there can be no assurance that the expectation or
belief will result or be achieved or accomplished. The following include some
but not all of the factors that could cause actual results or events to differ
materially from those anticipated:
our, GCI Holdings, LLC ("GCI Holdings"), GCI, LLC, and Charters' ability to
? obtain cash in sufficient amounts to service financial obligations and meet
other commitments;
? our ability to use net operating loss carryforwards and disallowed business
interest carryforwards;
? our, GCI Holdings, GCI, LLC and Charters' ability to obtain additional
financing, or refinance existing indebtedness, on acceptable terms;
the impact of our, GCI Holdings, GCI, LLC and Charters' significant
? indebtedness and our, GCI Holdings and Charters' ability to comply with any
covenants in our and their respective debt instruments;
general business conditions, unemployment levels and the level of activity in
the housing sector and economic uncertainty or downturn, including the impact
? of the novel coronavirus ("COVID-19") pandemic to GCI Holdings and Charter's
customers and vendors and local, state and federal governmental responses to
the pandemic;
? competition faced by GCI Holdings and Charter;
? the ability of GCI Holdings and Charter to acquire and retain subscribers;
the impact of governmental legislation and regulation including, without
? limitation, regulations of the Federal Communications Commission (the "FCC"),
on GCI Holdings and Charter, their ability to comply with regulations, and
adverse outcomes from regulatory proceedings;
? changes in the cost of programming expenses and the ability of GCI Holdings and
Charter to pass on related costs to their customers;
? changes in the amount of data used on the networks of GCI Holdings and Charter;
? the ability of third-party providers to supply equipment, services, software or
licenses;
? the ability of GCI Holdings and Charter to respond to new technology and meet
customer demands for new products and services;
? changes in customer demand for the products and services of GCI Holdings and
Charter and their ability to adapt to changes in demand;
? the ability of GCI Holdings and Charter to license or enforce intellectual
property rights;
natural or man-made disasters, terrorist attacks, pandemics; cyberattacks,
? network disruptions, service interruptions and system failures and the impact
of related uninsured liabilities;
? the ability to hire and retain key personnel;
? risks related to the Investment Company Act of 1940;
? the outcome of any pending or threatened litigation; and
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? changes to general economic conditions, including economic conditions in
Alaska, and their impact on potential customers, vendors and third parties.
For additional risk factors, please see Part I, Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2020. These forward-looking statements
and such risks, uncertainties and other factors speak only as of the date of
this Quarterly Report, and we expressly disclaim any obligation or undertaking
to disseminate any updates or revisions to any forward-looking statement
contained herein, to reflect any change in our expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based.
The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read in
conjunction with our accompanying condensed consolidated financial statements
and the notes thereto and our Annual Report on Form 10-K for the year ended
December 31, 2020.
Overview
The information contained herein relates to Liberty Broadband Corporation and
its controlled subsidiaries (collectively, "Liberty Broadband," the "Company,
"us," "we," or "our" unless the context otherwise requires). Liberty Broadband
Corporation is primarily comprised of a wholly owned subsidiary, GCI Holdings
(as of December 18, 2020), and an equity method investment in Charter.
On December 18, 2020, pursuant to the Agreement and Plan of Merger, dated as of
August 6, 2020, entered into by GCI Liberty, Inc. ("GCI Liberty"), Liberty
Broadband, Grizzly Merger Sub 1, LLC, a wholly owned subsidiary of Liberty
Broadband ("Merger LLC"), and Grizzly Merger Sub 2, Inc., a wholly owned
subsidiary of Merger LLC ("Merger Sub"), Merger Sub merged with and into GCI
Liberty (the "First Merger"), with GCI Liberty surviving the First Merger as an
indirect wholly owned subsidiary of Liberty Broadband (the "Surviving
Corporation"), and immediately following the First Merger, GCI Liberty (as the
Surviving Corporation in the First Merger) merged with and into Merger LLC (the
"Upstream Merger", and together with the First Merger, the "Combination"), with
Merger LLC surviving the Upstream Merger as a wholly owned subsidiary of Liberty
Broadband.
As a result of the Combination, each holder of a share of Series A common stock
and Series B common stock of GCI Liberty received 0.58 of a share of Series C
common stock and Series B common stock, respectively, of Liberty Broadband.
Additionally, each holder of a share of Series A Cumulative Redeemable
Preferred Stock of GCI Liberty received one share of newly issued Liberty
Broadband Series A Cumulative Redeemable Preferred Stock ("Liberty Broadband
Preferred Stock"), which has substantially identical terms to GCI Liberty's
former Series A Cumulative Redeemable Preferred Stock, including a mandatory
redemption date of March 9, 2039. Cash was paid in lieu of issuing fractional
shares of Liberty Broadband stock in the Combination. No shares of Liberty
Broadband stock were issued with respect to shares of GCI Liberty capital stock
held by (i) GCI Liberty as treasury stock, (ii) any of GCI Liberty's wholly
owned subsidiaries or (iii) Liberty Broadband or its wholly owned subsidiaries.
Through a number of prior years' transactions, including the Combination,
Liberty Broadband has acquired an interest in Charter.
During the first quarter of 2021, as a result of the closing of the Combination
on December 18, 2020, Skyhook Holding, Inc. ("Skyhook"), a wholly owned
subsidiary of the Company, is no longer significant to the Company and has been
included in Corporate and other for presentation purposes. The revised segment
reporting structure includes the following reportable segments: (1) GCI Holdings
and (2) Charter. All prior period segment disclosure information has been
reclassified to conform to the current reporting structure. These
reclassifications had no effect on our condensed consolidated financial
statements in any period.
Update on Economic Conditions
GCI Holdings
GCI Holdings offers wireless and wireline telecommunication services, data
services, video services, and managed services to customers primarily throughout
Alaska. Because of this geographic concentration, growth of GCI Holdings'
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business and operations depends upon economic conditions in Alaska. In December
2019, Chinese officials reported a novel coronavirus outbreak. COVID-19 has
since spread through China and internationally. On March 11, 2020, the World
Health Organization assessed COVID-19 as a global pandemic, causing many
countries throughout the world to take aggressive actions, including imposing
travel restrictions and stay-at-home orders, closing public attractions and
restaurants, and mandating social distancing practices, which has caused a
significant disruption to most sectors of the economy.
Although the COVID-19 pandemic has significantly impacted Alaska, GCI Holdings
has continued to deliver services uninterrupted by the pandemic and expects to
be able to continue to respond to the increase in network activity. As a major
provider of Internet services in Alaska, GCI Holdings believes it plays an
instrumental role in enabling social distancing through telecommuting and
e-learning across the state and remains focused on its service to customers, as
well as the health and safety of its employees and customers.
The majority of GCI Holdings' workforce has transitioned to working at home full
time and it expects to keep those employees working from home through at least
May 2022.
GCI Holdings cannot predict the ultimate impact of COVID-19 on its business,
including the depth and duration of the economic impact to its customers'
ability to pay for products and services including the impact of extended
unemployment benefits and other stimulus packages and what assistance may be
provided to its customers. There is a risk that GCI Holdings' accounts
receivable and bad debt expense will increase substantially due to the economic
impact of the COVID-19 pandemic. In addition, there is uncertainty regarding the
impact of government emergency declarations, the ability of suppliers and
vendors to provide products and services to GCI Holdings and the risk of
limitations on the deployment and maintenance of its services.
The Alaska economy is dependent upon the oil industry, state government
spending, United States military spending, investment earnings and tourism. A
decline in oil prices would put significant pressure on the Alaska state
government budget. Although Alaska state government has significant reserves
that GCI Holdings believes will help fund the state government for the next
couple of years, major structural budgetary reforms will be required in order to
offset the impact of the COVID-19 pandemic and a decline in oil prices. Although
GCI Holdings cannot predict the long-term impact COVID-19 will have on these
sectors of the Alaska economy, adverse circumstances in these industries may
have an adverse impact on the demand for its products and services and on its
results of operations and financial condition.
The Alaska economy is in a recession that started in late 2015 and has continued
as a result of the COVID-19 pandemic. While it is difficult for GCI Holdings to
predict the future impact of a continuing recession on its business, these
conditions have had an adverse impact on its business and could adversely affect
the affordability of and demand for some of its products and services and cause
customers to shift to lower priced products and services or to delay or forgo
purchases of its products and services. Additionally, GCI Holdings' customers
may not be able to obtain adequate access to credit, which could affect their
ability to make timely payments to GCI Holdings. If that were to occur, GCI
Holdings could be required to increase its allowance for doubtful accounts, and
the number of days outstanding for its accounts receivable could increase. If
the recession continues, it could negatively affect GCI Holdings' business
including its financial position, results of operations, or liquidity, as well
as its ability to service debt, pay other obligations and enhance shareholder
returns.
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Rural Health Care ("RHC") Program
GCI Holdings receives support from various Universal Service Fund ("USF")
programs including the RHC Program. The USF programs are subject to change by
regulatory actions taken by the FCC, interpretations of or compliance with USF
program rules, or legislative actions. Changes to any of the USF programs that
GCI Holdings participates in could result in a material decrease in revenue and
accounts receivable, which could have an adverse effect on GCI Holdings'
business and the Company's financial position, results of operations or
liquidity. The following paragraphs describe certain separate matters related to
the RHC Program that impact or could impact the revenue earned by the Company.
As of September 30, 2021, the Company had net accounts receivable from the RHC
Program of approximately $119 million, which is included within Trade and other
receivables in the condensed consolidated balance sheets.
The Company disclosed, in additional detail, the following items related to GCI
Holdings' involvement in the RHC Program in its Annual Report on Form 10-K for
the year ended December 31, 2020:
The FCC reduced the rates charged to RHC customers by approximately 26% for the
? funding year that ended June 30, 2018. An Application for Review is currently
with the FCC.
The FCC approved the cost-based rural rates GCI Holdings historically applied
? for the funding years that ended on June 30, 2019 and June 30, 2020. GCI
Holdings collected $175 million in accounts receivable relating to these two
funding years during 2021.
GCI Holdings submitted cost studies for the funding year ended June 30, 2021,
? which require approval by the FCC. Those studies remain pending before the FCC
and we cannot predict when the FCC will act upon them.
The RHC Program has a funding cap for each individual funding year that is
annually adjusted for inflation, and which the FCC can increase by carrying
? forward unused funds from prior funding years. In recent years, including the
current year, this funding cap has not limited the amount of funding received
by participants; however, management continues to monitor the funding cap and
its potential impact on funding in future years.
GCI Holdings received a letter of inquiry and request for information from the
Enforcement Bureau of the FCC (the "Enforcement Bureau") in March 2018 relating
? to the period beginning January 1, 2015 and including all future periods. GCI
Holdings has also received other related inquiries to which it is in the
process of responding.
GCI Holdings became aware of potential RHC Program compliance issues related to
? certain of its currently active and expired contracts with certain of its RHC
customers.
The FCC released an order adopting changes to the RHC Program that will revise
the manner in which support issued under the RHC Program will be calculated and
approved. On January 19, 2021, the Wireline Competition Bureau of the FCC
? issued an Order that waives the requirement to use the database for health care
providers in Alaska for the two funding years ending June 30, 2022 and June 30,
2023. The Order requires GCI Holdings to determine its rural rates based on
previously approved rates or under reinstitution of the rules currently in
effect through the funding year ended on June 30, 2021.
The Company does not have any significant updates regarding the items noted
above except as discussed in the remainder of this paragraph and below. On
April 8, 2021, the Wireline Competition Bureau issued an Order further extending
the January 19, 2021 waiver to carriers nationwide and eliminating the ability
or requirement to use the database to establish the healthcare provider payments
for services subsidized by the RHC Telecom Program. On April 21, 2021,
representatives of the Department of Justice informed GCI Holdings that a qui
tam action has been filed in the Western District of Washington arising from the
subject matter under review by the Enforcement Bureau. The Department of
Justice is investigating whether GCI Holdings submitted false claims and/or
statements in connection with GCI's participation in the FCC's RHC Program. GCI
Holdings is working with the Department of Justice and the Enforcement Bureau
related to this matter; however, given the confidentiality of the qui tam
process, the Company is unable to assess the ultimate outcome of this action and
whether any type of fine or penalty would ultimately be assessed as is permitted
under the applicable law.
On May 24, 2021, the FCC approved the cost studies submitted by GCI Holdings for
the funding year ended June 30, 2021.
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Charter
In 2021 and 2020, the COVID-19 pandemic significantly impacted how Charter's
customers use its products and services, how they interact with Charter, and how
Charter's employees work and provide services to customers. Customer activity
levels remain below normal which contributed to lower operating expense from
reduced service transactions and lower bad debt in the first nine months of
2021, however, Charter expects trends to return to pre-COVID-19 levels as the
economy continues to reopen and normal activities resume.
Although the ultimate impact of the COVID-19 pandemic cannot be predicted,
Charter remains focused on driving customer relationship growth by deploying
superior products and services packaged with attractive pricing. In October
2021, Charter announced and implemented new Spectrum Mobile multi-line pricing
designed to drive more mobile line sales per customer, and in turn, drive more
broadband sales and the associated retention benefits. Further, Charter expects
to continue to drive customer relationship growth through sales of bundled
services and improving customer retention despite the expectation for continued
losses of video and wireline voice customers.
In May 2021, the FCC introduced the Emergency Broadband Benefit ("EBB") program
to help households pay for Internet service. The EBB program provides eligible
low-income households with up to $50 per month towards Internet service.
Although Congress may extend the EBB program funding as currently proposed in an
infrastructure bill, Charter expects the FCC to run out of funding under the
current EBB program allocation sometime in early 2022. If funding is not
extended by Congress, Charter's customers in the current EBB program will
generally roll out of that program, continue to be Charter's customers and be
serviced consistent with Charter's business practices regarding collections,
disconnect process and bad debt. Many of these customers were serviced prior to
the EBB program consistent with normal business practices. However, Charter
cannot predict how such an expiration of the EBB program would ultimately impact
its experience with disconnects and bad debt for customers currently in the EBB
program.
Results of Operations-Consolidated-September 30, 2021 and 2020
General. We provide information regarding our consolidated operating results
and other income and expenses, as well as information regarding the contribution
to those items from our reportable segments in the tables below. The "Corporate
and other" category consists of those assets or businesses which do not qualify
as a separate reportable segment. See note 11 to the accompanying condensed
consolidated financial statements for more discussion regarding our reportable
segments. GCI Holdings' results are only included in the Company's consolidated
results beginning on December 18, 2020. For a more detailed discussion and
analysis of GCI Holding's results, see "Results of Operations-GCI Holdings"
below.
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Consolidated operating results:
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in thousands
Revenue
GCI Holdings $ 245,688 - 725,760 -
Corporate and other 4,532 4,219 13,278 12,437
Consolidated $ 250,220 4,219 739,038 12,437
Operating Income (Loss)
GCI Holdings $ 16,444 - 62,766 -
Corporate and other 8,793 (16,328) (140,500) (33,435)
Consolidated $ 25,237 (16,328) (77,734) (33,435)
Adjusted OIBDA
GCI Holdings $ 88,800 - 273,515 -
Corporate and other (8,372) (14,270) (34,987) (26,658)
Consolidated $ 80,428 (14,270) 238,528 (26,658)
Revenue
Revenue increased $246.0 million and $726.6 million for the three and nine
months ended September 30, 2021, respectively, as compared to the corresponding
prior year periods. The increases in revenue were primarily due to revenue from
GCI Holdings as a result of the Combination on December 18, 2020. See "Results
of Operations - GCI Holdings, LLC" below for a more complete discussion of the
results of operations of GCI Holdings.
Revenue for Corporate and other increased slightly due to increased revenue at
Skyhook from both existing and new customers.
Operating Income (Loss)
Consolidated operating income increased $41.6 million and consolidated operating
loss increased $44.3 million for the three and nine months ended September 30,
2021, respectively, as compared to the corresponding prior year periods.
Operating income for Corporate and other increased $25.1 million for the three
months ended September 30, 2021, primarily due to insurance recoveries of $24.5
million related to the litigation settlement (see note 10 in the accompanying
condensed consolidated financial statements for additional discussion), as well
as decreased professional service fees for the three month period, partially
offset by increased corporate compensation expenses. Operating loss for
Corporate and other increased $107.1 million for the nine months ended September
30, 2021, primarily due to a litigation settlement, net of recoveries of $86.5
million during the nine months ended September 30, 2021, as well as an increase
in professional service fees and corporate compensation expenses.
Operating income increased at GCI Holdings as a result of the Combination on
December 18, 2020. See "Results of Operations - GCI Holdings, LLC" below for a
more complete discussion of the results of operations of GCI Holdings.
Stock-based compensation
Stock-based compensation expense increased $8.6 million and $25.3 million for
the three and nine months ended September 30, 2021, respectively, as compared to
the corresponding prior year periods. The increase in stock-based compensation
expense was primarily due to upfront grants per our CEO's employment agreement,
along with the impact of the Combination.
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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 Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in thousands
Operating income (loss) $ 25,237 (16,328) (77,734) (33,435)
Depreciation and amortization 68,130 56 198,766 1,041
Stock-based compensation 10,581 2,002 31,016 5,736
Litigation settlement, net of recoveries (23,520) - 86,480 -
Adjusted OIBDA $ 80,428 (14,270) 238,528 (26,658)
Adjusted OIBDA improved $94.7 million and $265.2 million for the three and nine
months ended September 30, 2021, respectively, as compared to the corresponding
prior year periods. The increases in Adjusted OIBDA were primarily due to the
results of operations of GCI Holdings as a result of the Combination, as
discussed above. Corporate and other Adjusted OIBDA improved for the three
months ended September 30, 2021 and declined for the nine months ended September
30, 2021 due to the fluctuations in operating income (loss) as discussed above.
Other Income and Expense
Components of Other income (expense) are presented in the table below.
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in thousands
Other income (expense):
Interest expense $ (28,155) (3,719) (90,032) (14,711)
Share of earnings (losses) of affiliates 314,563 188,586 752,390 408,396
Gain (loss) on dilution of investment in
affiliate
(1,693) (35,284) (98,446) (140,610)
Realized and unrealized gains (losses)
on financial instruments, net (26,839) (39,324) (52,555) (39,324)
Other, net 14,788 8 29,382 199
$ 272,664 110,267 540,739 213,950
Interest expense
Interest expense increased $24.4 million and $75.3 million during the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding periods in the prior year. The increases were driven by
additional amounts outstanding on the Margin Loan Facility (as defined in note 7
to the accompanying condensed consolidated financial
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statements), the 2.75% Exchangeable Senior Debentures due 2050 that were issued
in August 2020 and the 1.25% Exchangeable Senior Debentures due 2050 that were
issued in November 2020, as well as interest associated with all the debt
instruments assumed by the Company as a result of the Combination.
Share of earnings (losses) of affiliates
Share of earnings of affiliates increased $126.0 million and $344.0 million
during the three and nine months ended September 30, 2021, respectively, as
compared to the corresponding periods in the prior year. The Company's Share of
earnings (losses) of affiliates line item in the accompanying condensed
consolidated statements of operations includes expenses of $58.4 million and
$25.5 million, net of related taxes, for the three months ended September 30,
2021 and 2020, respectively, and $180.8 million and $107.3 million, net of
related taxes, for the nine months ended September 30, 2021 and 2020,
respectively, due to the increase in amortization of the excess basis of assets
with identifiable useful lives and debt, which was primarily due to the
acquisition of GCI Liberty's Charter shares in the Combination, as well as
Charter's share buyback program. The change in the share of earnings of
affiliates in the three and nine months ended September 30, 2021, as compared to
the corresponding periods in the prior year, was the result of the corresponding
change in net income at Charter.
The following is a discussion of Charter's results of operations. In order to
provide a better understanding of Charter's operations, we have included a
summarized presentation of Charter's results from operations.
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in millions
Revenue $ 13,146 12,039 38,470 35,473
Operating expenses, excluding stock-based
compensation (7,851) (7,414) (23,503) (21,972)
Adjusted OIBDA 5,295 4,625 14,967 13,501
Depreciation and amortization (2,270) (2,370) (7,065) (7,295)
Stock-based compensation (98) (83) (332) (263)
Operating income 2,927 2,172 7,570 5,943
Other expenses, net (1,173) (1,063) (3,240) (3,296)
Net income (loss) before income taxes 1,754 1,109 4,330 2,647
Income tax (expense) benefit (347) (177) (844) (372)
Net income (loss) 1,407 932 3,486 2,275
Less: Net income attributable to
noncontrolling interests (190) (118) (442) (299)
Net income (loss) attributable to Charter
shareholders $ 1,217 814 3,044 1,976
Charter net income increased $475 million and $1,211 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding periods in the prior year.
Charter's revenue increased $1,107 million and $2,997 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding periods in the prior year, primarily due to increases in the
number of residential Internet, mobile and commercial customers and price
adjustments.
During the three and nine months ended September 30, 2021, operating expenses,
excluding stock-based compensation, increased $437 million and $1,531 million,
respectively, as compared to the corresponding periods in the prior year.
Operating costs increased primarily due to increased programming and mobile
costs, as well as increased regulatory, connectivity and produced content costs
for the nine month period. Operating costs for the nine months ended September
30, 2021 also increased due to increased litigation settlements, including the
tentative settlement with Sprint Communications Company L.P. and T-Mobile USA,
Inc. for $220 million.
Programming costs increased as a result of $163 million of estimated rebates
from sports programming networks as a result of canceled sporting events due to
COVID-19 which reduced programming costs during the three and nine months
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ended September 30, 2020, as well as contractual rate adjustments, including
renewals and increases in amounts paid for retransmission consent offset by
fewer customers and a higher mix of lower cost video packages within Charter's
video customer base. Charter expects programming rates per customer will
continue to increase due to a variety of factors, including annual increases
imposed by programmers with additional selling power as a result of media and
broadcast station groups consolidation, increased demands by owners of broadcast
stations for payment for retransmission consent or linking carriage of other
services to retransmission consent, and additional programming. Charter has been
unable to fully pass these increases on to its customers and does not expect to
be able to do so in the future without a potential loss of customers.
Mobile costs were comprised of mobile device costs and mobile service, customer
acquisition and operating costs. The increase is attributable to an increase in
the number of mobile lines.
Regulatory, connectivity and produced content increased during the nine months
ended September 30, 2021, as compared to the corresponding period in 2020,
primarily due to higher sports rights costs as a result of more National
Basketball Association ("NBA") and Major League Baseball ("MLB") games during
2021 as compared to the corresponding period in 2020 as the prior period had
cancelation of MLB games and the current period had additional games due to the
delayed start of the 2020 - 2021 NBA season as a result of COVID-19.
Charter's Adjusted OIBDA for the three and nine months ended September 30, 2021
increased for the reasons described above.
Depreciation and amortization expense decreased $100 million and $230 million
during the three and nine months ended September 30, 2021, respectively, as
compared to the corresponding periods 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.
Charter's results were also impacted by other expenses, net which increased $110
million and decreased $56 million for the three and nine months ended September
30, 2021, respectively, as compared to the corresponding periods in the prior
year. The changes in other expenses, net were primarily due to changes in gain
(loss) on financial instruments, increased net periodic pension benefits and
changes in gain (loss) on equity investments, net for the periods, including an
impairment on equity investments of approximately $165 million during the nine
months ended September 30, 2021.
Income tax expense increased $170 million and $472 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding periods in the prior year. Income tax expense increased during the
three and nine months ended September 30, 2021 as compared to the corresponding
periods in the prior year, primarily as a result of higher pretax income.
Gain (loss) on dilution of investment in affiliate
The loss on dilution of investment in affiliate decreased by $33.6 million and
$42.2 million during the three and nine months ended September 30, 2021,
respectively, as compared to the corresponding periods in the prior year,
primarily due to a gain on dilution related to Charter's repurchase of Liberty
Broadband's Charter shares during the three and nine months ended September 30,
2021, partially offset by increases in issuance of Charter common stock from the
exercise of stock options held by employees and other third parties, at prices
below Liberty Broadband's book basis per share. As Liberty Broadband's ownership
in Charter changes due to exercises of Charter stock options, a loss is recorded
with the effective sale of common stock, because the exercise price of Charter
stock options is typically lower than the book value of the Charter shares held
by Liberty Broadband.
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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 Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in thousands
Indemnification obligation $ (8,366) - (48,935) -
Exchangeable senior debentures (18,473) (39,324) (3,620) (39,324)
$ (26,839) (39,324) (52,555) (39,324)
The changes in these accounts are primarily due to market factors and changes in
the fair value of the underlying stocks or financial instruments to which these
related. The losses during the three and nine months ended September 30, 2021
were primarily related to the assumption of the indemnification obligation by
the Company as a result of the Combination (see note 4 in the accompanying
condensed consolidated financial statements for additional discussion). The
changes for the three and nine months ended September 30, 2021 were additionally
impacted by the changes in fair value of the 2.75% Exchangeable Senior
Debentures due 2050, the 1.25% Exchangeable Senior Debentures due 2050 and the
1.75% Exchangeable Senior Debentures due 2046 related to changes in market price
of underlying Charter stock (see notes 4 and 7 in the accompanying condensed
consolidated financial statements for additional discussion).
Other, net
Other, net increased $14.8 million and $29.2 million for the three and nine
months ended September 30, 2021, respectively, as compared to the corresponding
periods in the prior year. The increases in 2021 were primarily due to a tax
sharing receivable with Qurate Retail that resulted in gains of $2.2 million and
$15.6 million for the three and nine months ended September 30, 2021,
respectively, as well as a gain of $11.5 million on the sale of an investment
during the third quarter of 2021. 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 Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in thousands
Earnings (loss) before income taxes $ 297,901 93,939 $ 463,005 180,515
Income tax (expense) benefit
(61,073) (24,979) (117,784) (47,183)
Effective income tax rate 20.5% 26.6% 25.4% 26.1%
There was effectively no difference between the effective income tax rate of
20.5% and the U.S. Federal income tax rate of 21% for the three months ended
September 30, 2021. The difference between the effective income tax rate of
25.4% and the U.S. Federal income tax rate of 21% for the nine months ended
September 30, 2021 was primarily due to a non-deductible litigation settlement
and the accrual of non-deductible equity distributions related to the
indemnification agreement between Liberty Broadband and Qurate Retail, partially
offset by tax benefits from a change in effective tax rate used to measure
deferred taxes on certain Charter shares.
The difference between the effective income tax rate of 26.6% and 26.1% and the
U.S. Federal income tax rate of 21% for the three and nine months ended
September 30, 2020, respectively, was primarily due to the effect of state
income taxes.
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Net earnings (loss)
The Company had net earnings of $236.8 million and $69.0 million for the three
months ended September 30, 2021 and 2020, respectively, and net earnings of
$345.2 million and $133.3 million for the nine months ended September 30, 2021
and 2020, respectively. The change in net earnings (loss) was the result of the
above-described fluctuations in our revenue, expenses and other income and
expenses.
Liquidity and Capital Resources
As of September 30, 2021, substantially all of our cash and cash equivalents are
invested in U.S. Treasury securities, other government securities or government
guaranteed funds, AAA rated money market funds and other highly rated financial
and corporate debt instruments.
The following are potential sources of liquidity: available cash balances, cash
generated by the operating activities of our privately-owned subsidiaries (to
the extent such cash exceeds the working capital needs of the subsidiaries and
is not otherwise restricted), monetization of our investments (including Charter
Repurchases (as defined in note 5 to the accompanying condensed consolidated
financial statement and discussed below)), outstanding or anticipated debt
facilities (as defined in note 7 to the accompanying condensed consolidated
financial statements), debt and equity issuances, and dividend and interest
receipts.
As of September 30, 2021, Liberty Broadband had a cash and cash equivalents
balance of $319 million.
Nine months ended September 30,
2021 2020
amounts in thousands
Cash flow information
Net cash provided (used) by operating activities $ 135,968 (36,812)
Net cash provided (used) by investing activities $ 2,568,890 (14,952)
Net cash provided (used) by financing activities $ (3,693,230) 402,308
The increase in cash provided by operating activities in the nine months ended
September 30, 2021, as compared to the corresponding period in the prior year,
was primarily driven by increased activity in working capital accounts due to
the Combination and the collection of accounts receivable from the RHC Program
for the funding years that ended on June 30, 2019 and June 30, 2020.
During the nine months ended September 30, 2021, net cash flows provided by
investing activities were primarily related to the sale of 3,962,155 shares of
Charter Class A common stock to Charter for $2,643 million to maintain our fully
diluted ownership percentage of Charter at 26%. In February 2021, Liberty
Broadband entered into a letter agreement in order to implement, facilitate and
satisfy the terms of the Stockholders Agreement with respect to the Equity Cap
(see more information in note 5 to the accompanying condensed consolidated
financial statements). The Company expects the Charter Repurchases to be a
significant source of liquidity in future periods.
During the nine months ended September 30, 2021, net cash flows used in
financing activities were primarily repurchases of Series A and Series C Liberty
Broadband common stock of $2,911 million, as well as net debt repayments of $500
million of outstanding Revolving Loans (as defined in note 7 to the accompanying
condensed consolidated financial statements) under the Margin Loan Facility and
repayment of $275 million by GCI, LLC on its revolving credit facility.
The projected uses of our cash for the remainder of 2021 are the potential
buyback of common stock under the approved share buyback program, capital
expenditures of approximately $40 million, approximately $30 million for
interest payments on outstanding debt, approximately $3 million for preferred
stock dividends, funding of any operational needs of our subsidiaries, to
reimburse Liberty Media Corporation for amounts due under various agreements and
to fund potential investment opportunities. We expect corporate cash and other
available sources of liquidity to cover corporate expenses for the foreseeable
future.
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Results of Operations-GCI Holdings, LLC
As described in notes 1 and 3 to the accompanying condensed consolidated
financial statements, Liberty Broadband acquired GCI Holdings in the Combination
on December 18, 2020. As GCI Holdings' results are only included in the
Company's results since December 18, 2020, we believe a discussion of GCI
Holdings' results for a comparative two year period promotes a better
understanding of GCI Holdings' operations. For comparison and discussion
purposes the Company is presenting (a) the results of GCI Holdings for the three
and nine months ended September 30, 2021, as included in the condensed
consolidated financial statements of the Company and (b) the actual historical
results of GCI Holdings for 2020, exclusive of the effects of acquisition
accounting since the period is prior to the Combination. The most significant
effect of acquisition accounting is an increase to depreciation and amortization
as compared to prior periods as a result of an increase in fair values of
depreciable and amortizable assets. This historical financial information of GCI
Holdings can be found in historical filings of GCI Liberty, Inc. The financial
information below is presented voluntarily and does not purport to represent
what the results of operations of GCI Holdings would have been if it were a
wholly owned subsidiary of Liberty Broadband for the periods presented or to
project the results of operations of GCI Holdings for any future periods.
GCI Holdings provides a full range of wireless, data, video, voice, and managed
services to residential, businesses, governmental entities, and educational and
medical institutions primarily in Alaska. The following table highlights
selected key performance indicators used in evaluating GCI Holdings.
September 30,
2021 2020
Consumer
Wireless:
Revenue generating wireless lines in service1 188,800 179,600
Non-revenue generating wireless lines in service2 1,200 2,700
Wireless lines in service 190,000 182,300
Data:
Cable modem subscribers3 147,800 138,200
Video:
Basic subscribers4 62,200 76,000
Voice:
Total local access lines in service5 34,800 37,300
Business
Wireless:
Revenue generating wireless lines in service1 21,500 25,200
Data:
Cable modem subscribers3
13,700 12,800
Voice:
Total local access lines in service5 29,000 33,400
1 A revenue generating wireless line in service is defined as a wireless device
with a monthly fee for services.
2 A non-revenue generating wireless line in service is defined as a data-only
line with no monthly fee for services.
3 A cable modem subscriber is defined by the purchase of cable modem service
regardless of the level of service purchased. If one entity purchases multiple
cable modem service access points, each access point is counted as a subscriber.
4 A basic subscriber is defined by the purchase of basic video service.
5 A local access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone network.
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GCI Holdings' operating results for the three and nine months ended September
30, 2021 and 2020 are as follows:
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in thousands
Revenue $ 245,688 244,266 725,760 698,408
Operating expenses (excluding stock-based
compensation included below):
Operating expense (67,661) (67,053) (199,249) (198,873)
Selling, general and administrative expenses (89,227) (85,596) (252,996) (243,478)
Adjusted OIBDA
88,800 91,617 273,515 256,057
Stock-based compensation (4,273) (3,285) (12,129) (6,829)
Depreciation and amortization (68,083) (60,284) (198,620) (183,188)
Operating income (loss) $ 16,444 28,048 62,766 66,040
Revenue
The components of revenue are as follows:
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
amounts in thousands
Consumer
Wireless $ 45,901 43,749 135,045 126,849
Data 53,608 47,852 158,494 137,562
Video 18,277 23,931 55,919 65,154
Voice 3,999 3,795 11,493 11,643
Business
Wireless 20,162 21,440 60,425 64,964
Data 92,626 90,377 270,339 248,347
Video 904 2,277 2,586 10,726
Voice 10,211 10,845 31,459 33,163
Total revenue $ 245,688 244,266 725,760 698,408
Consumer wireless revenue increased $2.2 million and $8.2 million for the three
and nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases were primarily due to increased
plan service fee revenue of $2.1 million and $5.5 million for the three and nine
month periods, respectively, driven by an increase in the number of subscribers
and subscribers' selection of plans with higher recurring monthly charges that
offer higher usage limits. Additionally, equipment and accessories sales revenue
increased $2.6 million for the nine month period, driven by an increase in the
number of handsets sold in 2021.
Consumer data revenue increased $5.8 million and $20.9 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases were driven by an increase in
the number of subscribers and the subscribers' selection of plans with higher
recurring monthly charges that offer higher speeds and higher usage limits.
Consumer video revenue decreased $5.7 million and $9.2 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The decreases were due to a $2.5 million and
$7.9 million decrease in plan service fee revenue for the three and nine month
periods, respectively, driven by a decrease in the number of subscribers.
Additionally, there was a decrease of $2.8 million and $0.3 million in
advertising revenue for the three and nine month periods, respectively, driven
by a reduction in advertising sales due to the absence of a major political
election in 2021.
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Consumer voice revenue was relatively flat for both the three and nine months
ended September 30, 2021, as compared to the corresponding prior year periods.
Business wireless revenue decreased $1.3 million and $4.5 million for the three
and nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The decreases were primarily due to decreases
in grant and roaming revenue.
Business data revenue increased $2.2 million and $22.0 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases were due to $6.6 million and
$42.0 million increases in data and transport revenue for the three and nine
month periods, respectively, driven by increased sales to education and medical
customers for service upgrades. The increases were partially offset by decreases
of $4.3 million and $11.0 million in professional services revenue driven by a
reduction in time and materials project work for the three and nine month
periods, respectively. Additionally, the increase for the nine month period was
partially offset by the absence of $9 million recorded in the first quarter of
2020 for a RHC customer whose funding was initially denied.
Business video revenue decreased $1.4 million and $8.1 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The decreases were primarily due to the sale
of the Company's broadcast television station in the third quarter of 2020.
Business voice revenue decreased $0.6 million and $1.7 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The decreases were driven by a reduction in
conference calling, long distance minutes, and local service lines.
Operating expenses increased $0.6 million and $0.4 million for the three and
nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases for the three and nine month
periods are primarily due to $7.8 million and $16.7 million increases for the
three and nine month periods, respectively, in costs to operate our network
driven by the increase in demand from education and medical customers.
Additionally, the nine month period was impacted by a $0.9 million increase in
wireless handset costs. The increases discussed above are partially offset by
decreases of $3.1 million and $8.2 million for the three and nine month periods,
respectively, in professional services costs driven by a reduction in time and
materials project work and decreases of $3.4 million and $9.7 million for the
three and nine month periods, respectively, in video costs driven by the sale of
the Company's broadcast television station in the third quarter of 2020, as well
as a decrease in costs paid to content producers driven by a decrease in video
subscribers.
Selling, general and administrative expenses increased $3.6 million and $9.5
million for the three and nine months ended September 30, 2021, respectively, as
compared to the corresponding prior year periods. The increases for the three
and nine month periods were primarily due to $2.4 million and $11.1 million
increases, respectively, in labor related costs driven by increases in
healthcare costs as employees have returned to normal healthcare interactions
and employee incentive compensation. Additionally, the nine month period was
impacted by a $1.5 million increase in software costs driven by an increase in
software as service arrangements and a $1.0 million increase in travel and
training costs driven by a return to more normal activity levels. The increase
for the nine month period is partially offset by a $1.9 million decrease in bad
debt expense, $2.7 million decrease in legal and compliance costs and a $1.2
million decrease in lease costs.
Stock-based compensation increased $1.0 million and $5.3 million for the three
and nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. Stock-based compensation increased for the
three and nine month periods due to the fair value assigned to converted awards
as part of the modification as a result of the Combination. Additionally,
stock-based compensation expense for the nine months ended September 30, 2020
included the reversal of expense for performance-based awards that did not vest
due to a shortfall in certain financial metrics and qualitative criteria.
Depreciation and amortization increased $7.8 million and $15.4 million for the
three and nine months ended September 30, 2021, respectively, as compared to the
corresponding prior year periods. The increases were primarily due to an
increase in assets placed in service since January 1, 2020 and higher
amortization expense because of an accelerated recognition pattern for
amortizing intangibles as a result of the Combination.
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