LIBERTY GLOBAL PLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS (form 10-Q)
LBTYA
•Forward-looking Statements. This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events.
•Overview. This section provides a general description of our business and recent events.
•Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three months ended March 31, 2022 and 2021.
Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of March 31, 2022. Forward-looking Statements
•economic and business conditions and industry trends in the countries in which we or our affiliates operate;
•fluctuations in currency exchange rates and interest rates;
•instability in global financial markets, including sovereign debt issues and related fiscal reforms;
•consumer disposable income and spending levels, including the availability and amount of individual consumer debt;
•changes in consumer television viewing and broadband usage preferences and habits;
•our ability to manage rapid technological changes and the rate at which our current technology becomes obsolete;
•our ability to maintain or increase the number of subscriptions to our broadband internet, video, fixed-line telephony and mobile service offerings and our average revenue per household;
•our ability to provide satisfactory customer service, including support for new and evolving products and services;
•our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers;
•the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital;
•government intervention that requires opening our broadband distribution networks to competitors, such as the obligations imposed in Belgium;
•our ability to successfully acquire new businesses and, if acquired, to integrate, realize anticipated efficiencies from, and implement our business plan with respect to, the businesses we have acquired or that we expect to acquire;
•changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.K., the U.S. or in other countries in which we or our affiliates operate;
•changes in laws and government regulations that may impact the availability and cost of capital and the derivative instruments that hedge certain of our financial risks;
•our ability to navigate the potential impacts on our business resulting from the U.K.'s departure from the E.U.;
•the ability of suppliers and vendors (including our third-party wireless network providers under our mobile virtual network operator arrangements) to timely deliver quality products, equipment, software, services and access;
•uncertainties inherent in the development and integration of new business lines and business strategies;
•our ability to adequately forecast and plan future network requirements;
•the availability of capital for the acquisition and/or development of telecommunications networks and services;
•the availability, cost and regulation of spectrum;
•problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;
•successfully integrating businesses we acquire in the time or within the budgets estimated for such integrations;
•our ability to realize the expected synergies from our acquisitions in the amounts anticipated or on the anticipated timelines;
•our ability to profit from investments in joint ventures that we do not solely control;
•the leakage of sensitive customer data;
•the outcome of any pending or threatened litigation;
•the loss of key employees and the availability of qualified personnel;
•changes in the nature of key strategic relationships with partners and joint venturers;
•our capital structure and factors related to our debt agreements; and
Overview
General
We are an international provider of broadband internet, video, fixed-line telephony and mobile communications services to residential customers and businesses in Europe. Our operations comprise businesses that provide residential and B2B communications services in (i) Switzerland and Slovakia through UPC Holding, (ii) Belgium through Telenet and (iii) Ireland through another wholly-owned subsidiary of Liberty Global. In addition, we own 50% noncontrolling interests in (a) the VMO2 JV, which provides residential and B2B communications services in the U.K., and (b) the VodafoneZiggo JV, which provides residential and B2B communications services in the Netherlands.
Operations
Competition and Other External Factors
Material Changes in Results of Operations
Discussion and Analysis of our Reportable Segments
General
The following table provides a reconciliation of earnings from continuing operations to Adjusted EBITDA:
Realized and unrealized losses (gains) due to changes in fair values of certain investments, net
Revenue of our Consolidated Reportable Segments
General. While not specifically discussed in the below explanations of the changes in the revenue of our consolidated reportable segments, we are experiencing competition in all of our markets. This competition has an adverse impact on our ability to increase or maintain our total number of customers and/or our ARPU.
Revenue
(a)The 2021 amount represents the revenue of the U.K. JV Entities, which were contributed to the VMO2 JV on June 1, 2021.
Decrease in residential fixed subscription revenue due to change in: Average number of customers
(a)The decrease in residential fixed non-subscription revenue is primarily due to lower revenue associated with our Swiss sports channels.
(b)The increase in residential mobile subscription revenue is primarily attributable to an increase in the average number of mobile subscribers.
(c)The increase in B2B non-subscription revenue is primarily attributable to higher revenue from wholesale services.
Decrease in residential fixed subscription revenue due to change in: Average number of customers
(a)The increase in residential mobile subscription revenue is primarily attributable to an increase in ARPU. The decrease in residential mobile non-subscription revenue is primarily due to lower interconnect revenue.
Programming and Other Direct Costs of Services, Other Operating Expenses and SG&A Expenses of our Consolidated Reportable Segments
Adjusted EBITDA of our Consolidated Reportable Segments
(a)The 2021 amount represents the Adjusted EBITDA of the U.K. JV Entities, which were contributed to the VMO2 JV on June 1, 2021.
Adjusted EBITDA Margin
The following table sets forth the Adjusted EBITDA margins (Adjusted EBITDA divided by revenue) of each of our consolidated reportable segments:
Discussion and Analysis of our Consolidated Operating Results
Revenue
Our revenue by major category is set forth below:
(2.6)
(b)Residential subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. As a result, changes in the standalone pricing of our fixed and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
and large enterprises and, fixed-line and mobile services on a wholesale basis, to other operators and (b) revenue from long-term leases of portions of our network.
Residential revenue. The details of the decrease in our consolidated residential revenue during the three months ended March 31, 2022, as compared to the corresponding period in 2021, are as follows:
Decrease in residential fixed subscription revenue due to change in: Average number of customers
(8.9)
(4.3)
(21.5)
20.0
(16.7)
(18.2)
(1,395.1)
(58.8)
$ (1,472.1)
On an organic basis, our consolidated residential mobile non-subscription revenue decreased $16.7 million or 10.0% during the three months ended March 31, 2022, as compared to the corresponding period in 2021, primarily due to a decrease in Belgium.
B2B revenue. On an organic basis, our consolidated B2B subscription revenue increased $3.1 million or 2.2% during the three months ended March 31, 2022, as compared to the corresponding period in 2021, primarily attributable to an increase in Belgium.
For additional information regarding the changes in our residential, B2B and other revenue, see Discussion and Analysis of our Reportable Segments above.
Programming and other direct costs of services
(a)The 2021 amount represents the programming and other direct costs of the U.K. JV Entities, which were contributed to the VMO2 JV on June 1, 2021.
•An increase in costs of $12.7 million in Central and Other related to the sale of customer premises equipment to the VodafoneZiggo JV;
•A decrease in programming and copyright costs of $11.3 million or 6.8%, attributable to lower costs for certain premium and/or basic content, primarily in Ireland and Switzerland;
•An increase in mobile handset and other device costs of $4.2 million or 4.6%, primarily due to higher sales volumes in Switzerland.
Other operating expenses
Other operating expenses include network operations, customer operations, customer care, share-based compensation and other costs related to our operations. We do not include share-based compensation in the following discussion and analysis of the other operating expenses of our consolidated reportable segments as share-based compensation expense is not included in the performance measures of our consolidated reportable segments. Share-based compensation expense is separately discussed further below. The details of our other operating expenses are as follows:
7.4
(a)The 2021 amount represents the other operating expenses of the U.K. JV Entities, which were contributed to the VMO2 JV on June 1, 2021.
SG&A expenses
The details of our SG&A expenses are as follows:
(1.5)
(a)The 2021 amount represents the SG&A expenses of the U.K. JV Entities, which were contributed to the VMO2 JV on June 1, 2021.
Supplemental SG&A expense information
(1.3)
(a)General and administrative expenses include all personnel-related costs within our SG&A expenses, including personnel-related costs associated with our sales and marketing function.
Share-based compensation expense
(a)Includes share-based compensation expense related to (i) our 2019 Challenge Performance Awards and (ii) for the 2021 period, PSUs and our 2019 CEO Performance Award.
For additional information regarding our share-based compensation expense, see note 13 to our condensed consolidated financial statements.
Depreciation and amortization expense
Impairment, restructuring and other operating items, net
The amount for the 2022 period includes direct acquisition and disposition costs of $10.2 million, primarily in Belgium and Central and Other.
The amount for the 2021 period includes (i) restructuring charges of $31.3 million, including $28.4 million of employee severance and termination costs related to certain reorganization activities, primarily in Switzerland and Central and Other, and
(ii) direct acquisition and disposition costs of $18.4 million, primarily related to costs incurred in connection with the formation of the VMO2 JV.
Interest expense
Realized and unrealized gains on derivative instruments, net
(b)The recurring fair value measurements of our equity-related derivative instruments are based on Black-Scholes pricing models.
Foreign currency transaction gains, net
Intercompany payables and receivables denominated in a currency other than the entity's functional currency (a)
U.S. dollar-denominated debt issued by euro functional currency entities
Euro-denominated debt issued by British pound sterling functional currency entities
Realized and unrealized gains (losses) due to changes in fair values of certain investments, net
Share of results of affiliates, net
(1)Includes interest expense of $235.0 million.
(1)Includes interest expense of $144.1 million and $152.2 million, respectively.
Other income, net
Income tax expense
We recognized income tax expense of $81.2 million and $165.2 million during the three months ended March 31, 2022 and 2021, respectively.
For additional information concerning our income taxes, see note 11 to our condensed consolidated financial statements.
Earnings from continuing operations
Earnings from discontinued operations, net of taxes
Net earnings attributable to noncontrolling interests
Material Changes in Financial Condition
Sources and Uses of Cash
Cash and cash equivalents
The details of the U.S. dollar equivalent balances of our consolidated cash and cash equivalents at March 31, 2022 are set forth in the following table (in millions):
_______________
(a)Represents the amount held by Liberty Global on a standalone basis.
(b)Represents the aggregate amount held by subsidiaries that are outside of our borrowing groups.
Liquidity of borrowing groups
For additional information regarding our consolidated cash flows, see the discussion under Condensed Consolidated Statements of Cash Flows below.
Capitalization
For additional information concerning our debt and finance lease obligations, see notes 9 and 10, respectively, to our condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
General. Our cash flows are subject to significant variations due to FX.
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