Liberty .(LBTYB) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents Liberty Global's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive earnings (loss), equity, and cash flows, along with detailed notes, providing a comprehensive overview of the company's financial position and performance Condensed Consolidated Balance Sheets Provides a snapshot of Liberty Global's financial position as of June 30, 2023, and December 31, 2022, detailing assets, liabilities, and equity, with total assets increasing due to investments and total liabilities rising primarily from long-term debt Condensed Consolidated Balance Sheets (in millions) | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :----------------------------- | :--------------------------- | :--------------------------- | | Total Assets | $43,936.5 | $42,895.0 | | Total Liabilities | $21,995.8 | $20,321.6 | | Total Equity | $21,940.7 | $22,573.4 | | Cash and cash equivalents | $1,565.2 | $1,726.2 | | Investments and related notes receivable | $16,236.8 | $14,948.5 | | Long-term debt and finance lease obligations | $14,405.7 | $12,963.5 | Condensed Consolidated Statements of Operations Presents Liberty Global's financial performance for the three and six months ended June 30, 2023 and 2022, reporting a net loss in 2023 due to non-operating losses from derivative instruments, foreign currency transactions, and fair value changes in investments, contrasting with significant gains in 2022 Condensed Consolidated Statements of Operations (in millions) | Metric | 3 Months Ended June 30, 2023 (in millions) | 3 Months Ended June 30, 2022 (in millions) | 6 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2022 (in millions) | | :--------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Revenue | $1,848.0 | $1,754.2 | $3,716.4 | $3,607.5 | | Operating income (loss) | $(49.2) | $24.5 | $(11.8) | $83.3 | | Net earnings (loss) | $(511.3) | $3,131.1 | $(1,224.8) | $4,241.4 | | Net earnings (loss) attributable to Liberty Global shareholders | $(499.6) | $2,786.6 | $(1,221.0) | $3,824.9 | | Basic EPS | $(1.13) | $5.56 | $(2.73) | $7.49 | | Diluted EPS | $(1.13) | $5.47 | $(2.73) | $7.34 | - Significant non-operating losses in 2023 from derivative instruments, foreign currency transactions, and fair value changes in investments, contrasting with large gains in 2022, including a $693.3 million gain on Telenet Tower Sale and $1,121.9 million in realized/unrealized gains on derivative instruments for the six months ended June 30, 2022[13] Condensed Consolidated Statements of Comprehensive Earnings (Loss) Details the comprehensive earnings (loss) for the three and six months ended June 30, 2023 and 2022, showing a significant shift from comprehensive earnings in 2022 to losses in 2023, primarily driven by foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Earnings (Loss) (in millions) | Metric | 3 Months Ended June 30, 2023 (in millions) | 3 Months Ended June 30, 2022 (in millions) | 6 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2022 (in millions) | | :--------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net earnings (loss) | $(511.3) | $3,131.1 | $(1,224.8) | $4,241.4 | | Foreign currency translation adjustments | $494.0 | $(2,722.9) | $1,195.3 | $(3,908.2) | | Other comprehensive earnings (loss) | $490.2 | $(2,715.9) | $1,187.8 | $(3,933.7) | | Comprehensive earnings (loss) | $(21.1) | $415.2 | $(37.0) | $307.7 | | Comprehensive earnings (loss) attributable to Liberty Global shareholders | $(9.5) | $63.4 | $(33.8) | $(116.6) | Condensed Consolidated Statements of Equity Outlines changes in Liberty Global's equity for the six months ended June 30, 2023 and 2022, reflecting net losses in 2023 compared to net earnings in 2022, alongside significant share repurchases and foreign currency translation impacts Condensed Consolidated Statements of Equity (in millions) | Metric | June 30, 2023 (in millions) | June 30, 2022 (in millions) | | :------------------------------------- | :-------------------------- | :-------------------------- | | Total Liberty Global shareholders' equity | $21,856.2 | $24,776.0 | | Accumulated earnings | $18,396.7 | $21,969.4 | | Accumulated other comprehensive earnings, net of taxes | $1,700.6 | $(49.3) | | Net loss (earnings) attributable to Liberty Global shareholders (6 months) | $(1,221.0) | $3,824.9 | | Repurchases and cancellations of Liberty Global ordinary shares (6 months) | $(625.5) | $(1,062.0) | Condensed Consolidated Statements of Cash Flows Provides an overview of cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022, showing a decrease in operating cash, a shift to net cash used in investing, and a shift to net cash provided by financing Condensed Consolidated Statements of Cash Flows (in millions) | Metric | 6 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2022 (in millions) | | :--------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $999.6 | $1,414.1 | | Net cash provided (used) by investing activities | $(1,486.3) | $2,565.7 | | Net cash provided (used) by financing activities | $295.0 | $(2,434.6) | | Net increase (decrease) in cash and cash equivalents and restricted cash | $(160.6) | $1,479.9 | | Cash and cash equivalents (End of period) | $1,565.2 | $2,391.1 | - Investing activities shifted from a net provider of $2,565.7 million in 2022 to a net user of $(1,486.3) million in 2023, primarily due to higher cash paid for investments and the absence of significant proceeds from the sale of UPC Poland and Telenet Tower in 2023[27] - Financing activities shifted from a net user of $(2,434.6) million in 2022 to a net provider of $295.0 million in 2023, driven by higher borrowings of debt and lower share repurchases[27] Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes supporting the condensed consolidated financial statements, covering accounting policies, significant transactions, and financial instrument disclosures (1) Basis of Presentation Liberty Global plc is an international provider of broadband internet, video, fixed-line telephony, and mobile communications services in Europe, with continuing operations in Switzerland, Slovakia, Ireland, and Belgium, alongside significant noncontrolling interests in joint ventures - Liberty Global is an international provider of broadband internet, video, fixed-line telephony, and mobile communications services to residential customers and businesses in Europe[32] - Continuing operations include UPC Holding (Switzerland, Slovakia), Telenet (61.1%-owned, Belgium, Luxembourg), and VM Ireland (Ireland)[33] - Holds 50% noncontrolling interests in VMO2 JV (U.K.) and VodafoneZiggo JV (Netherlands), and other JVs like AtlasEdge JV (50% voting) and nexfibre JV (25%)[33] - Operations in Poland (UPC Poland) were sold on April 1, 2022, and are reflected as discontinued operations[34] (2) Accounting Changes Details the adoption of new accounting standards, including ASU 2022-04 (Supplier Finance Programs) and ASU 2021-08 (Contract Assets and Liabilities) on January 1, 2023, and the application of ASU 2020-04 (Reference Rate Reform) expedients, none of which had a significant impact on the consolidated financial statements - Adopted ASU 2022-04 (Liabilities—Supplier Finance Programs) on January 1, 2023, requiring additional disclosures for vendor financing, with no significant impact on consolidated financial statements[39] - Adopted ASU 2021-08 (Accounting for Contract Assets and Contract Liabilities from Contracts with Customers) on January 1, 2023, impacting recognition and measurement of contract assets and liabilities in business combinations[39] - Applied optional expedients in ASU 2020-04 (Reference Rate Reform) to modify debt agreements, replacing LIBOR with other reference rates, which has not had a significant impact to date[40] (3) Revenue Recognition and Related Costs Explains the company's policies for revenue recognition, contract balances, and contract costs, where trade receivables, contract assets, and deferred revenue are recorded based on service transfer and payment timing, and contract costs are capitalized and amortized Revenue Recognition and Related Costs (in millions) | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :--------------------- | :-------------------------- | :-------------------------- | | Trade receivables, net | $872.2 | $830.6 | | Contract assets | $36.8 | $33.3 | | Deferred revenue | $331.7 | $272.5 | | Contract costs (assets) | $75.2 | $69.4 | - Deferred revenue increased primarily due to net additions during the period and the recognition of $184.3 million of revenue from the prior period's deferred balance[45] - Amortized $5.5 million of contract costs during the six months ended June 30, 2023[46] - Revenue from contracts is generally recognized over the contract term, typically 12 months for residential, 1-3 years for mobile, and 1-5 years for B2B services[47] (4) Acquisitions and Dispositions Details significant transactions, including the formation of Wyre by Telenet and Fluvius on July 1, 2023, and the 2022 dispositions of UPC Poland and the Telenet Tower Sale, which generated substantial cash proceeds and gains - Telenet and Fluvius created Wyre, an independent infrastructure company, on July 1, 2023, with Telenet initially owning 66.8%, and consolidation will begin in Q3 2023[48] Dispositions (in millions) | Disposition | Date | Net Cash Proceeds (in millions) | Gain Recognized (in millions) | | :------------------ | :--------- | :------------------------------ | :---------------------------- | | UPC Poland | Apr 1, 2022 | $1,568.1 | $848.9 | | Telenet Tower Sale | Jun 1, 2022 | $779.9 | $693.3 | - In connection with the Telenet Tower Sale, Telenet entered into a 15-year master lease agreement to lease back the assets, resulting in non-cash additions to operating lease ROU assets and liabilities of $615.1 million[57] (5) Investments Provides a breakdown of Liberty Global's investments, totaling $18,362.8 million as of June 30, 2023, including significant equity method investments in VMO2 JV and VodafoneZiggo JV, and fair value investments in SMAs, Vodafone, and others Investments (in millions) | Investment Type | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :---------------------- | :-------------------------- | :-------------------------- | | Total investments | $18,362.8 | $17,570.1 | | Equity Method Investments: | | | | VMO2 JV | $9,887.0 | $9,790.9 | | VodafoneZiggo JV | $2,274.7 | $2,345.8 | | Fair Value Investments: | | | | SMAs (Short-term) | $2,126.0 | $2,621.6 | | Vodafone | $1,255.8 | — | - Acquired 1,335 million shares of Vodafone in Q1 2023 for an aggregate purchase price of £1,227.6 million ($1,488.7 million), partially funded by a collar transaction (Vodafone Collar Loan)[63] Investment Metrics (6 Months Ended June 30, in millions) | Metric (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | | :------------------------------ | :----------------- | :----------------- | | Share of results of affiliates, net | $(100.3) | $311.6 | | VMO2 JV Net Earnings | $22.6 | $406.5 | | VodafoneZiggo JV Net Earnings (Loss) | $(215.6) | $218.9 | | Realized and unrealized losses due to changes in fair values of certain investments, net | $(416.3) | $(205.3) | (6) Derivative Instruments Liberty Global uses derivative instruments to manage exposure to interest rate increases, foreign currency movements, and decreases in market prices of securities, with most derivatives not hedge accounted and fair value changes recorded in the statements of operations - Derivative instruments are used to protect against increases in interest rates, foreign currency movements, and decreases in market prices of certain publicly traded securities[83] Derivative Instruments (in millions) | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Total Derivative Assets | $1,535.2 | $1,470.3 | | Total Derivative Liabilities | $913.7 | $747.1 | | Realized and unrealized gains on derivative instruments, net (6 months) | $16.7 | $1,121.9 | - Entered into the Vodafone Collar on February 11, 2023, to hedge the value of Vodafone shares, financed by a €1,143.6 million ($1,219.8 million) Vodafone Collar Loan[100][101] Derivative Notional Amounts and Remaining Life (June 30, 2023, in millions) | Derivative Type (June 30, 2023) | Notional Amount (in millions) | Weighted Average Remaining Life (in years) | | :------------------------------ | :---------------------------- | :----------------------------------------- | | UPC Holding Cross-currency swaps | $4,475.0 (USD to CHF) | 5.0 | | Telenet Cross-currency swaps | $3,940.0 (USD to EUR) | 3.6 | | UPC Holding Interest rate swaps | $3,444.6 (pays fixed) | 3.1 | | Telenet Interest rate swaps | $1,508.5 (pays fixed) | 3.9 | | UPC Holding Basis swaps | $3,610.4 | 0.2 | | Telenet Basis swaps | $3,507.0 | 0.2 | | VM Ireland Basis swaps | $982.7 | 0.5 | (7) Fair Value Measurements Describes the company's use of fair value measurements for investments and derivative instruments, categorized into a three-level hierarchy based on input observability, with most nonrecurring valuations using significant unobservable inputs (Level 3) - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[103] - A Monte Carlo based approach is used to incorporate credit risk valuation adjustments in fair value measurements for derivative instruments[104] Fair Value Measurements (June 30, 2023, in millions) | Asset/Liability Category (June 30, 2023) | Total Fair Value (in millions) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | | :--------------------------------------- | :----------------------------- | :-------------------- | :-------------------- | :-------------------- | | Total Derivative Instruments (Assets) | $1,535.2 | — | $1,321.6 | $213.6 | | Total Investments (Assets) | $5,525.3 | $2,241.4 | $1,710.7 | $1,573.2 | | Total Derivative Instruments (Liabilities) | $913.7 | — | $868.9 | $44.8 | - As of June 30, 2023, $369.8 million of Level 3 investments were accounted for under the measurement alternative at cost less impairment, adjusted for observable price changes[113] (8) Long-lived Assets Details Liberty Global's property and equipment, net, which increased to $6,621.8 million at June 30, 2023, and goodwill, which increased to $9,570.1 million, primarily due to foreign currency translation adjustments, with ongoing monitoring for impairment risks Long-lived Assets (in millions) | Asset Category | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Property and equipment, net | $6,621.8 | $6,504.5 | | Goodwill | $9,570.1 | $9,316.1 | | Intangible assets subject to amortization, net | $2,203.4 | $2,342.4 | - Goodwill increased by $252.6 million during the six months ended June 30, 2023, primarily due to foreign currency translation adjustments[116] - Non-cash increases to property and equipment related to vendor financing arrangements were $98.3 million for the six months ended June 30, 2023[114] - Potential for significant impairment charges on goodwill and other long-lived assets if equity values decline or adverse economic/competitive/regulatory factors worsen[116] (9) Debt Provides a comprehensive overview of Liberty Global's debt, which aggregated $14,801.3 million (principal amount) at June 30, 2023, largely due to the Vodafone Collar Loan, with subsidiary borrowing groups in compliance with debt covenants Debt (in millions) | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Total debt before deferred financing costs, discounts and premiums | $14,801.3 | $13,370.2 | | Total carrying amount of debt | $14,650.3 | $13,327.1 | | Finance lease obligations | $459.5 | $436.1 | | Total debt and finance lease obligations | $15,109.8 | $13,763.2 | | Current portion of debt and finance lease obligations | $704.1 | $799.7 | | Long-term debt and finance lease obligations | $14,405.7 | $12,963.5 | - Weighted average interest rate on aggregate variable- and fixed-rate indebtedness (including derivative effects, excluding deferred financing costs) was 3.21% at June 30, 2023[121] - Vodafone Collar Loan contributed $1,373.6 million to total debt at June 30, 2023, with settlement dates in 2025 and 2026[120][132] Debt Maturities (June 30, 2023, in millions) | Debt Maturities (June 30, 2023) | Total (in millions) | | :------------------------------ | :------------------ | | 2023 (remainder of year) | $400.8 | | 2024 | $310.6 | | 2025 | $361.9 | | 2026 | $1,086.6 | | 2027 | $37.6 | | 2028 | $5,074.6 | | Thereafter | $7,529.2 | - All subsidiary borrowing groups (UPC Holding, Telenet, VM Ireland) were in compliance with debt covenants at June 30, 2023[338] (10) Leases Details Liberty Global's operating and finance lease arrangements for network equipment, real estate, and vehicles, with total ROU assets of $2,089.1 million and total lease liabilities of $2,233.8 million at June 30, 2023 Lease Metrics (in millions) | Lease Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :------------------- | :-------------------------- | :-------------------------- | | Total ROU assets | $2,089.1 | $2,102.0 | | Total lease liabilities | $2,233.8 | $2,227.2 | Lease Expense (6 Months Ended June 30, in millions) | Lease Expense (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | | :------------------------------------- | :----------------- | :----------------- | | Total finance lease expense | $30.2 | $48.7 | | Operating lease expense | $119.7 | $112.7 | | Short-term lease expense | $2.0 | $2.1 | | Variable lease expense | $0.7 | $1.5 | | Total lease expense | $152.6 | $165.0 | - Cash outflows from operating and finance leases totaled $122.0 million for the six months ended June 30, 2023, down from $165.2 million in the prior year[140] - Weighted average remaining lease term for finance leases was 21.4 years and for operating leases was 13.0 years at June 30, 2023[135] (11) Income Taxes Reports income tax expense of $159.2 million and $171.7 million for the three and six months ended June 30, 2023, respectively, differing from the expected tax benefit due to valuation allowances and non-deductible foreign currency exchange results, with ongoing tax examinations and litigation Income Tax Expense (in millions) | Metric | 3 Months Ended June 30, 2023 (in millions) | 3 Months Ended June 30, 2022 (in millions) | 6 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2022 (in millions) | | :------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Income tax expense | $159.2 | $63.6 | $171.7 | $144.8 | | Computed "expected" tax benefit (expense) | $82.8 | $(445.7) | $247.5 | $(665.5) | - The statutory or "expected" tax rates are the U.K. rates of 23.5% for 2023 periods (blended rate) and 19.0% for 2022 periods[145] - Unrecognized tax benefits were $443.0 million as of June 30, 2023, with $345.6 million having a favorable impact if ultimately recognized[148] - U.S. Department of Justice filed a lawsuit against Liberty Global, Inc. for approximately $284 million in unpaid federal income taxes and penalties for the 2018 tax year, which the company intends to vigorously defend[150] (12) Equity Details Liberty Global's share repurchase activities, with $625.5 million of Class A and Class C ordinary shares repurchased during the six months ended June 30, 2023, and the board authorizing an increase in the 2023 share repurchase program in July 2023 Share Repurchases (6 months ended June 30, 2023) | Share Class | Shares Repurchased (6 months ended June 30, 2023) | Average Price Per Share | | :---------- | :------------------------------------------------ | :---------------------- | | Class A | 1,444,000 | $18.24 | | Class C | 31,045,175 | $19.30 | - Aggregate purchase price for share repurchases was $625.5 million during the six months ended June 30, 2023[151] - As of June 30, 2023, 13.4 million Class A and/or Class C ordinary shares remained authorized for repurchase, equating to approximately $232.0 million[152] - In July 2023, the board of directors authorized an increase in the 2023 share repurchase program to a minimum of at least 15% of total outstanding shares as of December 31, 2022[152] (13) Share-based Compensation Reports Liberty Global's share-based compensation expense, which increased to $119.6 million for the six months ended June 30, 2023, partly due to a $27.1 million incremental expense from extending the expiration dates of certain SARs and director options Share-based Compensation Expense (in millions) | Metric | 3 Months Ended June 30, 2023 (in millions) | 3 Months Ended June 30, 2022 (in millions) | 6 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2022 (in millions) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total Share-based compensation expense | $75.8 | $49.3 | $119.6 | $100.7 | - An aggregate incremental share-based compensation expense of $27.1 million was recognized during Q2 2023 due to the extension of expiration dates for outstanding SARs and director options granted from 2016-2018[155] Share-based Awards Outstanding (June 30, 2023, Gross Shares) | Award Type (June 30, 2023) | Class A (Gross Shares) | Class C (Gross Shares) | | :------------------------- | :--------------------- | :--------------------- | | Options, SARs, PSARs (Outstanding) | 24,766,857 | 57,564,729 | | RSUs (Outstanding) | 2,048,761 | 4,653,393 | (14) Earnings (Loss) per Share Presents basic and diluted earnings (loss) per share for Liberty Global, reporting a diluted loss per share of $(2.73) for the six months ended June 30, 2023, a significant shift from diluted earnings per share of $7.34 in the prior year Earnings (Loss) per Share | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS (Continuing operations) | $(1.13) | $3.87 | $(2.73) | $5.76 | | Diluted EPS (Continuing operations) | $(1.13) | $3.80 | $(2.73) | $5.64 | | Basic EPS (Total) | $(1.13) | $5.56 | $(2.73) | $7.49 | | Diluted EPS (Total) | $(1.13) | $5.47 | $(2.73) | $7.34 | Weighted Average Ordinary Shares Outstanding (6 Months Ended June 30) | Metric (6 Months Ended June 30) | 2023 | 2022 | | :------------------------------ | :----------- | :----------- | | Weighted average ordinary shares outstanding (basic) | 448,052,831 | 510,811,156 | | Weighted average ordinary shares outstanding (diluted) | 448,052,831 | 521,133,041 | - 97.5 million potentially dilutive shares were excluded from the diluted EPS computation for the three and six months ended June 30, 2023, because their inclusion would have been anti-dilutive due to the reported losses from continuing operations[162] (15) Commitments and Contingencies Outlines Liberty Global's significant contractual commitments, totaling $3,333.9 million as of June 30, 2023, including network, purchase, and programming commitments, and details ongoing legal and regulatory proceedings, such as the Interkabel Acquisition and a lawsuit from Swisscom Commitments (June 30, 2023, in millions) | Commitment Type (June 30, 2023) | Total (in millions) | | :------------------------------ | :------------------ | | Network and connectivity commitments | $1,497.7 | | Purchase commitments | $649.0 | | Programming commitments | $505.3 | | Other commitments | $681.9 | | Total Commitments | $3,333.9 | - Programming and copyright costs aggregated $275.8 million for the six months ended June 30, 2023, and are expected to remain a significant portion of operating costs[169] - Involved in ongoing legal proceedings including the Interkabel Acquisition (Proximus claiming €1.4 billion in damages) and Telekom Deutschland Litigation[176][178] - Swisscom filed a lawsuit against UPC Schweiz GmbH claiming approximately CHF 90 million ($101 million) in damages for alleged breach of an MVNO agreement, which the company intends to vigorously defend[183] (16) Segment Reporting Liberty Global identifies reportable segments based on revenue, Adjusted EBITDA, or total assets, including Switzerland, Belgium, Ireland, VMO2 JV, and VodafoneZiggo JV, and revised its segment reporting in Q1 2023 due to changes in its "Tech Framework" - Reportable segments include Switzerland, Belgium, Ireland (consolidated), and VMO2 JV, VodafoneZiggo JV (nonconsolidated)[191] - Adjusted EBITDA is the primary measure for evaluating segment operating performance and resource allocation[190] - Changed "Tech Framework" in Q1 2023: consolidated segments now capitalize CPE hardware and essential software costs, while other services are expensed, impacting segment revenue, Adjusted EBITDA, and property and equipment additions[195] Segment Performance (6 Months Ended June 30, in millions) | Metric (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | | :------------------------------ | :----------------- | :----------------- | | Total Revenue | $3,716.4 | $3,607.5 | | Total Adjusted EBITDA | $1,225.9 | $1,334.1 | | Total Property and Equipment Additions | $742.6 | $717.9 | Revenue by Major Category (6 Months Ended June 30, 2023, in millions) | Revenue by Major Category (6 Months Ended June 30, 2023, in millions) | | :------------------------------------------------------------------ | | Residential fixed subscription revenue: $1,453.4 | | Residential mobile subscription revenue: $732.1 | | B2B subscription revenue: $274.3 | (17) Subsequent Events Details the Telenet Takeover Bid launched by Liberty Global Belgium Holding B.V. (LGBH) for Telenet shares, which increased LGBH's ownership to 93.23% after the initial acceptance period, with the €728 million ($795 million) payment funded by a new €1.0 billion ($1.1 billion) term loan facility and existing liquidity - Liberty Global Belgium Holding B.V. (LGBH) launched a voluntary public takeover bid for Telenet shares at €21 per share (after deducting a €1 gross dividend)[218] - During the initial acceptance period (ended July 12, 2023), 34,676,001 Telenet shares were tendered, increasing LGBH's ownership to 93.23% (including treasury shares)[219] - The aggregate offer price of approximately €728 million ($795 million) will be funded by a new €1.0 billion ($1.1 billion) term loan facility and existing liquidity[219][220] - The offer will be mandatorily reopened on August 24, 2023, closing on September 13, 2023[219] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Liberty Global's financial condition, changes in financial condition, and results of operations, including an overview of the business, analysis of material changes by segment, and a discussion of liquidity and cash flows Forward-looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including economic conditions, competition, currency fluctuations, regulatory changes, and the ability to manage technological shifts, cautioning readers not to place undue reliance on these statements - The report contains forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially from expectations[224] - Key risk factors include economic and business conditions, competitive environment, currency exchange rates, global financial market instability, consumer spending, technological changes, regulatory factors, and the success of acquisitions and dispositions[226][227] - Readers are cautioned not to place undue reliance on forward-looking statements, and the company disclaims any obligation to update or revise them[228] Overview Liberty Global is an international provider of broadband, video, fixed-line telephony, and mobile services in Europe, operating through consolidated subsidiaries and noncontrolling interests in joint ventures, facing significant competition, macroeconomic pressures, and inflationary costs across its markets - Liberty Global is an international provider of broadband internet, video, fixed-line telephony, and mobile communications services to residential customers and businesses in Europe[229] - Continuing operations include UPC Holding (Switzerland, Slovakia), Telenet (Belgium, Luxembourg), VM Ireland (Ireland), and noncontrolling interests in VMO2 JV (U.K.) and VodafoneZiggo JV (Netherlands), among others[229] Key Metrics (June 30, 2023) | Metric (June 30, 2023) | Value | | :--------------------- | :---------- | | Homes passed | 7,895,200 | | Fixed-line customers | 4,124,200 | | Mobile subscribers | 5,874,800 | - The company faces significant competition, macroeconomic factors, and inflationary pressures (labor, programming, energy costs) that adversely impact revenue, customer numbers, and ARPU[231][232] Material Changes in Results of Operations Discusses the factors impacting the comparability of 2023 and 2022 operating results, primarily the dispositions of UPC Poland and the Telenet Tower Sale in 2022, and highlights the significant influence of foreign currency exchange rate fluctuations - Comparability of 2023 and 2022 results is impacted by the sale of UPC Poland (April 1, 2022) and the Telenet Tower Sale (June 1, 2022)[233] - Foreign currency exchange rates have a significant impact on reported operating results, with primary exposure to the euro (57.8% of Q2 2023 revenue) and Swiss franc (44.2% of Q2 2023 revenue)[235] - 100% of Telenet's revenue and expenses are consolidated, and 100% of VMO2 JV and VodafoneZiggo JV revenue and Adjusted EBITDA are presented in segment tables, despite noncontrolling interests[236] Discussion and Analysis of our Reportable Segments Analyzes the revenue and Adjusted EBITDA performance of Liberty Global's reportable segments (Switzerland, Belgium, Ireland, Central and Other, VMO2 JV, VodafoneZiggo JV), noting that competition and changes in customer numbers and ARPU continue to influence subscription revenue, with overall consolidated revenue increasing but Adjusted EBITDA decreasing - Competition in all markets adversely impacts the ability to increase or maintain total customers and/or ARPU[241] Segment Revenue (6 Months Ended June 30, in millions) | Metric (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | Reported Change ($) | Reported Change (%) | Organic Change ($) | Organic Change (%) | | :------------------------------ | :----------------- | :----------------- | :------------------ | :------------------ | :----------------- | :----------------- | | Total Revenue | $3,716.4 | $3,607.5 | $108.9 | 3.0% | $10.5 | 0.3% | | Switzerland Revenue | $1,623.6 | $1,587.5 | $36.1 | 2.3% | $(23.2) | (1.5%) | | Belgium Revenue | $1,521.5 | $1,413.5 | $108.0 | 7.6% | $34.2 | 2.3% | | Ireland Revenue | $246.9 | $249.3 | $(2.4) | (1.0%) | $0.4 | 0.2% | | VMO2 JV Revenue | $6,554.2 | $6,600.6 | $(46.4) | (0.7%) | N/A | N/A | | VodafoneZiggo JV Revenue | $2,171.8 | $2,195.6 | $(23.8) | (1.1%) | N/A | N/A | Segment Adjusted EBITDA (6 Months Ended June 30, in millions) | Metric (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | Reported Change ($) | Reported Change (%) | Organic Change ($) | Organic Change (%) | | :------------------------------ | :----------------- | :----------------- | :------------------ | :------------------ | :----------------- | :----------------- | | Total Adjusted EBITDA | $1,225.9 | $1,334.1 | $(108.2) | (8.1%) | $(91.4) | (6.9%) | | Switzerland Adjusted EBITDA | $550.1 | $557.5 | $(7.4) | (1.3%) | $(30.9) | (5.5%) | | Belgium Adjusted EBITDA | $648.9 | $666.3 | $(17.4) | (2.6%) | $9.5 | 1.5% | | Ireland Adjusted EBITDA | $88.8 | $95.6 | $(6.8) | (7.1%) | $(5.9) | (6.1%) | Adjusted EBITDA Margin (6 Months Ended June 30) | Adjusted EBITDA Margin (6 Months Ended June 30) | 2023 | 2022 | | :---------------------------------------------- | :---- | :---- | | Switzerland | 33.9% | 35.1% | | Belgium | 42.6% | 47.1% | | Ireland | 35.9% | 38.4% | | VMO2 JV | 33.0% | 37.2% | | VodafoneZiggo JV | 44.0% | 46.8% | Discussion and Analysis of our Consolidated Operating Results Provides a detailed analysis of Liberty Global's consolidated operating results, including revenue by category and various expense lines, noting that overall revenue increased but residential fixed subscription revenue declined organically, leading to a net loss primarily due to non-operating items and the absence of prior year disposition gains Revenue by Category (6 Months Ended June 30, in millions) | Revenue Category (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | Reported Change ($) | Reported Change (%) | Organic Change ($) | Organic Change (%) | | :---------------------------------------- | :----------------- | :----------------- | :------------------ | :------------------ | :----------------- | :----------------- | | Total Residential Revenue | $2,465.4 | $2,443.1 | $22.3 | 0.9% | $(24.1) | (1.0%) | | Residential fixed subscription revenue | $1,453.4 | $1,456.8 | $(3.4) | (0.2%) | $(30.4) | (2.1%) | | Residential mobile subscription revenue | $732.1 | $700.2 | $31.9 | 4.6% | $17.4 | 2.5% | | Total B2B Revenue | $728.4 | $690.9 | $37.5 | 5.4% | $26.9 | 3.9% | | Other Revenue | $522.6 | $473.5 | $49.1 | 10.4% | $7.7 | 1.4% | Expense Category (6 Months Ended June 30, in millions) | Expense Category (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | Reported Change ($) | Reported Change (%) | Organic Change ($) | Organic Change (%) | | :---------------------------------------- | :----------------- | :----------------- | :------------------ | :------------------ | :----------------- | :----------------- | | Programming and other direct costs of services | $1,126.4 | $1,017.4 | $109.0 | 10.7% | $49.1 | 4.5% | | Other operating expenses (excl. share-based comp.) | $621.4 | $538.1 | $83.3 | 15.5% | $51.3 | 9.0% | | SG&A expenses (excl. share-based comp.) | $742.7 | $717.9 | $24.8 | 3.5% | $1.5 | 0.2% | | Share-based compensation expense | $119.6 | $100.7 | $18.9 | 18.8% | N/A | N/A | | Depreciation and amortization | $1,097.8 | $1,082.4 | $15.4 | 1.4% | $3.5 | 0.3% | | Interest expense | $414.6 | $267.1 | $147.5 | 55.2% | $151.2 | 56.6% | - Net loss from continuing operations for the six months ended June 30, 2023, was $(1,224.8) million, a significant decrease from $3,357.9 million in earnings in the prior year, primarily due to non-operating losses and the absence of the Telenet Tower Sale gain[313] Material Changes in Financial Condition Discusses Liberty Global's liquidity, capitalization strategy, and cash flow activities, noting reliance on subsidiary capital resources, a target debt ratio of 4-5x consolidated Adjusted EBITDA, and shifts in cash flow from operating, investing, and financing activities largely due to the Vodafone investment and debt Sources and Uses of Cash Liberty Global's liquidity is dependent on its subsidiaries' capital resources, with $438.3 million in corporate cash and equivalents and $2,293.4 million in SMAs at June 30, 2023, managed considering tax and legal limitations and foreign exchange rate fluctuations - Liberty Global is a holding company dependent on the capital resources of its subsidiaries, which are separately financed within three borrowing groups (UPC Holding, Telenet, VM Ireland)[319] Cash & Investments (June 30, 2023, in millions) | Cash & Investments (June 30, 2023) | Amount (in millions) | | :--------------------------------- | :------------------- | | Liberty Global and unrestricted subsidiaries cash | $438.3 | | Borrowing groups cash | $1,126.9 | | Investments held under SMAs | $2,293.4 | | Total cash and cash equivalents and investments held under SMAs | $3,858.6 | - Short-term corporate liquidity sources include cash, SMAs, interest/dividend income, and cash from transitional services[326] - Long-term sources include subsidiary distributions/loan repayments, asset dispositions, and debt/equity issuances[327] - Corporate liquidity requirements include general and administrative expenses, interest/principal payments on the Vodafone Collar Loan, and potential debt repayment, acquisitions, and share repurchases[330] Capitalization Liberty Global aims to maintain its consolidated debt (excluding the Vodafone Collar Loan) at 4-5 times its consolidated Adjusted EBITDA, with all borrowing groups in compliance with debt covenants at June 30, 2023, and sufficient resources for short-term liquidity, but anticipating refinancing or extending debt maturities in later years - The company aims to maintain consolidated debt (excluding Vodafone Collar Loan) between four and five times its consolidated Adjusted EBITDA[337] - All borrowing groups were in compliance with their debt covenants at June 30, 2023, and no material adverse impact on liquidity from non-compliance is anticipated for the next 12 months[338] - Outstanding principal amount of consolidated debt and finance lease obligations aggregated $15.3 billion at June 30, 2023, with $7.8 billion due in 2029 or thereafter[339] - The company believes it has sufficient resources for the next 12 months but anticipates refinancing or extending debt maturities in later years, subject to market conditions[340] Condensed Consolidated Statements of Cash Flows Provides a summary of Liberty Global's cash flow activities for the six months ended June 30, 2023 and 2022, noting a decrease in operating cash, a shift to net cash used in investing, and a shift to net cash provided by financing, largely influenced by the Vodafone investment, debt borrowings, and the absence of prior year asset sales Cash Flow Activity (6 Months Ended June 30, in millions) | Cash Flow Activity (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | Change (in millions) | | :------------------------------------------ | :----------------- | :----------------- | :------------------- | | Net cash provided by operating activities | $999.6 | $1,363.0 | $(363.4) | | Net cash provided (used) by investing activities | $(1,486.3) | $2,581.3 | $(4,067.6) | | Net cash provided (used) by financing activities | $295.0 | $(2,432.0) | $2,727.0 | | Net increase (decrease) in cash and cash equivalents and restricted cash | $(160.6) | $1,447.0 | $(1,607.6) | - Decrease in operating cash primarily due to lower dividend distributions from VMO2 JV and VodafoneZiggo JV, higher interest payments, and lower Adjusted EBITDA[342] - Shift in investing activities to net cash used is mainly due to higher net cash paid for investments (Vodafone) and the absence of proceeds from the sale of UPC Poland and Telenet Tower in 2022[343] - Shift in financing activities to net cash provided is primarily due to higher net borrowings of debt, including the Vodafone Collar Loan, and lower repurchases of Liberty Global ordinary shares[346] Capital Expenditures (6 Months Ended June 30, in millions) | Capital Expenditures (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | | :-------------------------------------------- | :----------------- | :----------------- | | Property and equipment additions | $742.6 | $717.9 | | Capital expenditures, net | $688.4 | $634.2 | Adjusted Free Cash Flow Adjusted free cash flow, a non-GAAP measure, decreased to $150.3 million for the six months ended June 30, 2023, from $531.4 million in the prior year, used to gauge the company's ability to service debt and fund new investments after considering all cash payments related to working capital and capital expenses Adjusted Free Cash Flow (6 Months Ended June 30, in millions) | Metric (6 Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | | :------------------------------ | :----------------- | :----------------- | | Adjusted free cash flow | $150.3 | $531.4 | - Adjusted free cash flow is a non-GAAP measure used to assess the ability to service debt and fund new investment opportunities[349] - The calculation includes net cash provided by operating activities of continuing operations, plus operating-related vendor financed expenses, less cash capital expenditures, principal payments on vendor financing, and principal payments on finance leases[348] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details Liberty Global's exposure to market risks, including foreign currency exchange rates, interest rates, and stock prices, arising from its international operations and financing activities, outlining the strategies and derivative instruments used to manage these risks and providing sensitivity analyses General Liberty Global is exposed to market risk from foreign currency exchange rates, interest rates, and stock prices due to its international operations and financing activities, which it manages through established policies, procedures, and derivative instruments - Liberty Global is exposed to market risk from foreign currency exchange rates, interest rates, and stock prices due to international investments and financing activities[352] - The company manages these market risks through established policies, procedures, and the use of derivative instruments[352] Cash and Investments The company invests cash in highly liquid, high-credit-quality instruments and manages foreign exchange rate risk for cash balances by aligning denominations with liquidity requirements, with a significant portion of cash and SMAs denominated in euros and U.S. dollars, respectively, at June 30, 2023 - Cash is invested in highly liquid instruments meeting high credit quality standards[355] - Foreign exchange rate risk for cash balances is mitigated by actively managing denominations to align with liquidity requirements[355] - At June 30, 2023, 81.3% of consolidated cash was in euros, 15.2% in U.S. dollars, and $2,257.4 million of SMAs were in U.S. dollars[355] Foreign Currency Risk Liberty Global faces foreign currency exchange rate risk when debt is denominated in a currency different from the functional currency of the supporting operations, which it manages using derivative instruments, and the report provides spot and average exchange rates for key currencies against the U.S. dollar - Exposure to foreign currency exchange rate risk arises when debt is denominated in a currency other than the functional currency of the underlying operations[356] - Derivative instruments are used to manage foreign currency exchange rate risk[356] Foreign Currency Exchange Rates (per USD) | Currency | Spot Rate (June 30, 2023, per USD) | Average Rate (6 Months Ended June 30, 2023, per USD) | | :--------- | :--------------------------------- | :------------------------------------------------- | | Euro | 0.9159 | 0.9252 | | Swiss franc | 0.8948 | 0.9120 | | British pound sterling | 0.7864 | 0.8108 | Inflation and Foreign Investment Risk The company is subject to inflationary pressures on labor, programming, and other operating costs, which have recently increased significantly in its operating countries, and there is no guarantee that revenue increases will offset these rising costs, potentially impacting operating results, cash flows, and liquidity - Liberty Global is subject to inflationary pressures on labor, programming, and other operating costs, which have recently increased significantly in its operating countries[359] - There is no assurance that revenue increases will offset rising costs, potentially leading to a negative impact on operating results, cash flows, and liquidity[359] Interest Rate Risks Liberty Global is exposed to interest rate changes from its fixed-rate and variable-rate borrowings, primarily EURIBOR-indexed and Term SOFR-indexed debt, which it manages using derivative instruments like interest rate swaps, caps, floors, and collars, with the transition from LIBOR to alternative reference rates ongoing - Exposure to interest rate changes primarily from fixed-rate and variable-rate borrowings, including EURIBOR-indexed and Term SOFR-indexed debt[360] - Derivative instruments (interest rate swaps, caps, floors, and collars) are used to manage exposure to increases in interest rates[361] - USD LIBOR settings ceased after June 30, 2023, with Term SOFR identified as the preferred alternative rate for USD-denominated loans under credit agreements[362] - At June 30, 2023, variable-rate indebtedness aggregated $10.7 billion, with a weighted average interest rate of approximately 6.3% (excluding derivative effects)[365] - A hypothetical 50 basis point increase in the weighted average variable interest rate would increase annual consolidated interest expense and cash outflows by $53.5 million (excluding derivative effects)[365] Sensitivity Information Provides sensitivity analysis for key derivative instruments to hypothetical changes in market conditions, indicating that a 10% change in Swiss franc or euro value, or a 50 basis point change in base rates, would significantly impact derivative fair values for UPC Holding and Telenet, and the Vodafone Collar's fair value is sensitive to Vodafone's share price - For UPC Holding cross-currency and interest rate derivative contracts at June 30, 2023[367] - An instantaneous 10% increase (decrease) in CHF vs. USD would decrease (increase) fair value by approximately €417 million ($455 million) - An instantaneous 10% increase (decrease) in CHF vs. EUR would decrease (increase) fair value by approximately €245 million ($268 million) - An instantaneous 50 bps increase (decrease) in the relevant base rate would increase (decrease) fair value by approximately €94 million ($103 million) - For Telenet cross-currency and interest rate derivative contracts at June 30, 2023[367] - An instantaneous 10% increase (decrease) in EUR vs. USD would decrease (increase) fair value by approximately €295 million ($322 million) - An instantaneous 50 bps increase (decrease) in the relevant base rate would increase (decrease) fair value by approximately $68 million ($74 million) - For the Vodafone Collar at June 30, 2023[368] - An instantaneous 10% increase in Vodafone share price would decrease fair value by approximately €78 million ($85 million) - An instantaneous 10% decrease in Vodafone share price would increase fair value by approximately €78 million ($85 million) Projected Cash Flows Associated with Derivative Instruments Presents illustrative projected net cash flows for Liberty Global's derivative instruments based on June 30, 2023, interest rate projections and exchange rates, with total projected net cash payments from derivatives amounting to $(1,085.2) million Projected Derivative Cash Flows, net (in millions) | Projected Derivative Cash Flows, net | Total (in millions) | | :--------------------------------- | :------------------ | | Interest-related | $(1,530.6) | | Principal-related | $275.4 | | Other | $170.0 | | Total | $(1,085.2) | ITEM 4. CONTROLS AND PROCEDURES This section outlines the evaluation of Liberty Global's disclosure controls and procedures and reports on any changes in internal controls over financial reporting, concluding that disclosure controls were effective as of June 30, 2023, and no material changes to internal controls were identified Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of Liberty Global's disclosure controls and procedures as of June 30, 2023, concluding that these controls effectively provide reasonable assurance that required information is recorded, processed, summarized, and reported in a timely manner - Evaluation of disclosure controls and procedures was conducted as of June 30, 2023, under the supervision of the chief executive officer and chief financial officer[371] - Management concluded that disclosure controls and procedures effectively provide reasonable assurance for timely and accurate reporting of information required under the Exchange Act[371] Changes in Internal Controls over Financial Reporting No changes in internal controls over financial reporting were identified during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal controls - No changes in internal controls over financial reporting were identified during the fiscal quarter ended June 30, 2023, that materially affected or are reasonably likely to materially affect internal controls[372] PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section refers to Note 15 of the condensed consolidated financial statements for detailed information regarding legal proceedings that arise in the normal course of Liberty Global's business operations - Details on legal proceedings are provided in Note 15 to the condensed consolidated financial statements[374] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Details Liberty Global's share repurchase activities for the quarter ended June 30, 2023, where the company repurchased 1,014,000 Class A shares and 20,232,775 Class C shares, with the board increasing the 2023 repurchase program to at least 15% of outstanding shares in July 2023 Share Repurchases (April 1 - June 30, 2023) | Period (April 1 - June 30, 2023) | Class | Total Shares Purchased | Average Price Paid Per Share | | :------------------------------- | :---- | :--------------------- | :--------------------------- | | Total | A | 1,014,000 | $18.14 | | Total | C | 20,232,775 | $18.31 | - As of June 30, 2023, 13.4 million Class A and/or Class C ordinary shares remained authorized for repurchase, equating to approximately $232.0 million[375] - In July 2023, the board of directors authorized an increase in the 2023 share repurchase program to a minimum of at least 15% of total outstanding shares as of December 31, 2022[375] ITEM 5. OTHER INFORMATION States that no directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements during the quarter ended June 30, 2023 - No directors or executive officers adopted or terminated any Rule 10b5-1(c) trading arrangements during the quarter ended June 30, 2023[376] ITEM 6. EXHIBITS Lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including Articles of Association, Supplemental Deeds for facility agreements, and various forms of incentive plan agreements, along with certifications - Key exhibits include the Articles of Association of Liberty Global plc, Supplemental Deeds for UPC Broadband Holding B.V. and Telenet BV facility agreements, and the Liberty Global 2023 Incentive Plan with related share appreciation rights and restricted share units agreements[378] - Certifications from the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer are also filed[378] SIGNATURES The report is duly signed on behalf of Liberty Global plc by Michael T. Fries, President and Chief Executive Officer, and Charles H.R. Bracken, Executive Vice President and Chief Financial Officer, on July 24, 2023 - The report was signed by Michael T. Fries, President and Chief Executive Officer, and Charles H.R. Bracken, Executive Vice President and Chief Financial Officer[382] - The signing date of the report was July 24, 2023[382]