Liberty Broadband Corporation (“Liberty Broadband”) (Nasdaq: LBRDA, LBRDK, LBRDP) today reported second quarter 2023 results.
Headlines include(1):
- Fair value of Charter investment was $17.3 billion as of June 30th
- Liberty Broadband did not sell Charter shares to Charter from May 1st through July 31st as its fully diluted equity interest in Charter remained below 26%(2)
- Liberty Broadband received a $25 million dividend from GCI subsequent to quarter-end on July 5th; $65 million received year-to-date
- In the second quarter, GCI(3) increased revenue 3% to $245 million, generated $32 million in operating income and grew Adjusted OIBDA(4) 2% to $92 million
Share Repurchases
There were no repurchases of Liberty Broadband’s common stock (Nasdaq: LBRDA, LBRDK) from May 1, 2023 through July 31, 2023. The total remaining repurchase authorization for Liberty Broadband as of August 1, 2023 is approximately $2.0 billion.
Charter Ownership
Under the terms of Liberty Broadband and Charter’s stockholder agreement, Liberty Broadband has sold and will continue to sell to Charter a number of shares of Class A common stock as is necessary to maintain Liberty Broadband’s percentage equity interest at 26% on a fully diluted basis. Such sales are executed by Liberty Broadband monthly based on Charter’s repurchase activity in the month prior.
From May 1, 2023 through July 31, 2023, Liberty Broadband did not sell any Charter shares to Charter as its fully diluted equity interest in Charter for the period was below 26%.
Balance Sheet
The following presentation is provided to separately identify cash and liquid investments, debt and public holdings of Liberty Broadband as of March 31, 2023 and June 30, 2023.
(amounts in millions) | 3/31/2023 | 6/30/2023 | ||||||
Cash and Cash Equivalents: | ||||||||
GCI Holdings | $ | 59 | $ | 60 | ||||
Corporate and Other | 110 | 21 | ||||||
Total Liberty Broadband Consolidated Cash | $ | 169 | $ | 81 | ||||
Fair Value of Public Holdings in Charter(a) | $ | 16,843 | $ | 17,303 | ||||
Debt: | ||||||||
Senior Notes(b) | $ | 600 | $ | 600 | ||||
Senior Credit Facility | 396 | 396 | ||||||
Tower Obligations and Other(c) | 93 | 92 | ||||||
Total GCI Holdings Debt | $ | 1,089 | $ | 1,088 | ||||
GCI Leverage(d) | 2.9x | 3.0x | ||||||
Charter Margin Loan | $ | 1,400 | $ | 1,475 | ||||
3.125% Exchangeable Senior Debentures due 2053(e) | 1,265 | 1,265 | ||||||
1.25% Exchangeable Senior Debentures due 2050(e) | 2 | 2 | ||||||
Total Corporate Level Debt | $ | 2,667 | $ | 2,742 | ||||
Total Liberty Broadband Debt | $ | 3,756 | $ | 3,830 | ||||
Fair market value adjustment and deferred loan costs | 11 | (9 | ) | |||||
Tower obligations and finance leases (excluded from GAAP Debt) | (88 | ) | (87 | ) | ||||
Total Liberty Broadband Debt (GAAP) | $ | 3,679 | $ | 3,734 | ||||
Other Financial Obligations: | ||||||||
Indemnification Obligation(f) | $ | 29 | $ | 10 | ||||
Preferred Stock(g) | 180 | 180 | ||||||
| ____________________ | ||
a) | Represents fair value of the investment in Charter as of March 31, 2023 and June 30, 2023. A portion of the Charter equity securities are considered covered shares and subject to certain contractual restrictions in accordance with the indemnification obligation, as described below. | |
b) | Principal amount of Senior Notes. | |
c) | Includes the Wells Fargo Note Payable and current and long-term obligations under tower obligations and finance leases. | |
d) | As defined in GCI's credit agreement. | |
e) | Principal amount of Senior Exchangeable Debentures exclusive of fair market value adjustments. | |
f) | Indemnity to Qurate Retail, Inc. (“Qurate Retail”), pursuant to an indemnification agreement (the "indemnification agreement"), with respect to the Liberty Interactive LLC ("LI LLC") 1.75% exchangeable debentures due 2046 (the "LI LLC Charter exchangeable debentures"), as described below. LI LLC is a wholly owned subsidiary of Qurate Retail. | |
g) | Liquidation value of preferred stock. Preferred stock has a 7% coupon, $25/share liquidation preference plus accrued and unpaid dividends and 1/3 vote per share. The redemption date is the first business day following March 8, 2039. The preferred stock is considered a liability for GAAP purposes. | |
Liberty Broadband cash decreased $88 million in the second quarter primarily due to litigation settlements, the purchase of investments and taxes paid during the period. GCI cash remained flat in the second quarter as cash from operations was offset by capital expenditures and the RHC program litigation settlement.
Liberty Broadband debt increased $74 million in the second quarter due to additional borrowing under the Charter margin loan. There is $825 million of available capacity under the Charter margin loan. On May 17, 2023, Liberty Broadband entered into an amended Charter margin loan with an extended maturity date of May 2026 and a 1.875% spread to SOFR, among other modifications. GCI’s credit facility has undrawn capacity of $397 million (net of letters of credit), and GCI’s leverage as defined in its credit agreement is 3.0x.
Liberty Broadband has an indemnification agreement with Qurate Retail with respect to the LI LLC Charter exchangeable debentures. Pursuant to the indemnification agreement, Liberty Broadband will be required to indemnify LI LLC for any payments made to a holder of such debentures that exercises its exchange right on or before the put/call date of October 5, 2023 in excess of the sum of the adjusted principal amount of such debentures plus certain estimated tax benefits to Qurate Retail, if any, resulting from the exchange. This indemnity is supported by a negative pledge in favor of Qurate Retail on the reference shares of Class A common stock of Charter held at Liberty Broadband that underlie the LI LLC Charter exchangeable debentures. The indemnification obligation on Liberty Broadband’s balance sheet is valued based on the estimated exchange feature in the LI LLC Charter exchangeable debentures. As of June 30, 2023, holders of the LI LLC Charter exchangeable debentures have the ability to exchange their debentures, and accordingly, the indemnification obligation is classified as a current liability. During the three months ended June 30, 2023, indemnification payments of $1 million were made by Liberty Broadband to Qurate Retail in connection with exchanges of $94 million principal amount of the LI LLC Charter exchangeable debentures that settled in the quarter.
GCI Operating and Financial Results | |||||||||||
2Q22 | 2Q23 | % Change | |||||||||
(amounts in millions, except operating metrics) | |||||||||||
GCI Consolidated Financial Metrics | |||||||||||
Revenue | |||||||||||
Consumer | $ | 117 | $ | 117 | — | % | |||||
Business | 121 | 128 | 6 | % | |||||||
Total revenue | $ | 238 | $ | 245 | 3 | % | |||||
Operating income | $ | 10 | $ | 32 | 220 | % | |||||
Operating income margin (%) | 4.2 | % | 13.1 | % | 890 | bps | |||||
Adjusted OIBDA(a) | $ | 90 | $ | 92 | 2 | % | |||||
Adjusted OIBDA margin(a) (%) | 37.8 | % | 37.6 | % | (20 | ) bps | |||||
GCI Consumer | |||||||||||
Financial Metrics | |||||||||||
Revenue | |||||||||||
Data | $ | 57 | $ | 59 | 4 | % | |||||
Wireless | 47 | 48 | 2 | % | |||||||
Other | 13 | 10 | (23 | )% | |||||||
Total revenue | $ | 117 | $ | 117 | — | % | |||||
Operating Metrics | |||||||||||
Data: | |||||||||||
Cable modem subscribers(b) | 154,500 | 159,600 | 3 | % | |||||||
Wireless: | |||||||||||
Lines in service(c) | 194,000 | 201,100 | 4 | % | |||||||
GCI Business | |||||||||||
Financial Metrics | |||||||||||
Revenue | |||||||||||
Data | $ | 97 | $ | 106 | 9 | % | |||||
Wireless | 13 | 13 | — | % | |||||||
Other | 11 | 9 | (18 | )% | |||||||
Total revenue | $ | 121 | $ | 128 | 6 | % | |||||
| ____________________ | ||
a) | See reconciling schedule 1. | |
b) | 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 June 30, 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. | |
c) | A wireless line in service is defined as a wireless device with a monthly fee for services. Wireless lines in service as of June 30, 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. | |
Unless otherwise noted, the following discussion compares financial information for the three months ended June 30, 2023 to the same period in 2022.
GCI revenue was up 3% in the second quarter. Consumer revenue was flat driven by continued strength in demand for consumer data and wireless, offset by declines in voice and video revenue. Business revenue was up 6% with significant growth in data revenue primarily driven by sales to rural health care and schools due to service upgrades as well as new customer growth.
Operating income increased by $22 million in the second quarter primarily due to lapping the $10 million litigation settlement accrual in the prior year period as well as lower depreciation expense as certain assets were fully depreciated in 2022. Adjusted OIBDA grew 2% due to the growth in business data revenue, partially offset by cost inflation.
In the second quarter, GCI spent $41 million on net capital expenditures. Capital expenditure spending was related primarily to improvements to the wireless and hybrid fiber coax networks. GCI's net capital expenditures for the full year 2023 are expected to be approximately $185 million related to increased investment in middle mile and last mile data connectivity, including network expansion in rural Alaska.
FOOTNOTES
1) | Liberty Broadband will discuss these highlights and other matters on Liberty Broadband's earnings conference call that will begin at 11:15 a.m. (E.T.) on August 4, 2023. For information regarding how to access the call, please see “Important Notice” later in this document. | |
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