Liberty Latin America Ltd. — Q1 2023 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2023, compared with the same period in 2022. Liberty Latin America provides fixed, mobile, business and wholesale telecommunications services across Latin America and the Caribbean. In October 2022, it contributed VTR to a 50%-owned Chile joint venture; VTR is no longer consolidated, while Q1 2022 results include VTR. The company also acquired Claro Panama in July 2022.
Financial performance and liquidity
- Revenue: $1.104 billion, down 9.2% from $1.216 billion. Management attributed the reported decline mainly to the VTR disposition; organic revenue increased $9.6 million. Revenue growth in Panama and Costa Rica was partly offset by declines elsewhere.
- Adjusted OIBDA: $406.5 million, down 6.9% from $436.5 million. The reported comparison includes a $45.7 million net impact from acquisitions and dispositions; organic and foreign-exchange effects increased OIBDA by $9.6 million and $5.6 million, respectively. Adjusted OIBDA margin was approximately 36.8%, versus 35.9%.
- Profitability: Operating income fell to $113.0 million from $184.6 million. Net loss was $63.0 million, versus net earnings of $90.2 million; loss attributable to Liberty Latin America shareholders was $49.7 million, or $0.23 per share, versus earnings of $80.6 million, or $0.35 per share.
- Cash flow: Operating cash flow was $62.4 million, down from $122.3 million. Cash capital expenditures were $114.1 million, compared with $164.2 million; operating cash flow less cash capital expenditures was negative $51.7 million. Cash, cash equivalents and restricted cash ended at $679.6 million, down $109.3 million during the quarter.
- Debt and liquidity: Debt and finance lease obligations had a carrying amount of $7.915 billion, including $261.4 million current; principal debt before financing adjustments was $8.001 billion. Cash and cash equivalents were $671.8 million, and reported unused borrowing capacity was $957.3 million. The company reported covenant compliance and said it believes it can meet foreseeable liquidity needs over the next 12 months, while noting that later maturities may require refinancing.
- Balance sheet: Total assets were $13.421 billion and total equity was $2.522 billion at March 31, 2023. Current assets of $1.993 billion exceeded current liabilities of $1.687 billion.
Material changes versus the prior period
- The Chile JV disposition removed VTR from consolidated results, materially affecting year-over-year revenue and OIBDA comparisons. Claro Panama contributed to 2023 results.
- Interest expense rose $16.9 million to $146.6 million. Derivative losses increased to $59.1 million from $33.7 million, while foreign-currency transaction gains decreased to $49.2 million from $96.6 million.
- Programming and other direct costs declined $60.0 million to $243.4 million, while depreciation and amortization increased $20.5 million to $234.6 million.
- Cash from operations declined by $59.9 million, which management attributed primarily to lower Adjusted OIBDA and working-capital changes.
Outlook, commentary, risks and unusual items
- The filing provides no specific numerical earnings or revenue guidance. Management expects significant interest expense to continue and anticipates refinancing or extending debt maturities as they approach; it cautions that financing may not be available on favorable terms or at all.
- Management cited competition, inflation, foreign-exchange and interest-rate movements, programming costs, regulation, customer demand, debt-service capacity, and natural disasters and other external events among risks to results and liquidity.
- Impairment, restructuring and other operating items totaled $29.7 million, versus $7.8 million. The 2023 amount included $21.2 million of impairment charges, primarily a $19 million impairment of operating lease assets related largely to decommissioned tower leases in Panama, and $13.1 million of restructuring charges, partly offset by a gain on asset disposition.
- Liberty Costa Rica refinanced debt in January 2023, replacing its prior term loans with new facilities bearing stated interest rates of 10.875%; the company also repurchased $25 million principal amount of convertible notes in March.
- The company disclosed material weaknesses in internal control over financial reporting. Remediation was ongoing, and management concluded disclosure controls and procedures remained ineffective as of March 31, 2023.
- Legal, tax, interconnection, programming and other contingencies arise in the ordinary course. The filing says potential losses cannot be meaningfully estimated in some cases; unfavorable outcomes could materially affect a period.
- On May 8, 2023, directors authorized an additional $200 million for share repurchases through December 2025, following the original program. This is a subsequent event, not a Q1 cash use authorization. The company repurchased shares for approximately $25 million during Q1.
Important facts for investors to verify
- How much of underlying revenue and OIBDA performance reflects continuing operations after adjusting for VTR, Claro Panama and currency effects.
- Cash conversion and working-capital trends, including the sustainability of operating cash flow relative to capital investment and shareholder repurchases.
- Debt maturities concentrated in 2027 and 2028, refinancing plans, borrowing-group covenant headroom and the practical availability of subsidiary cash and credit facilities to the parent.
- Progress in remediating the disclosed material weaknesses and any subsequent updates to control effectiveness.
- Potential exposure from litigation, tax and regulatory matters, impairments, derivatives, and Costa Rica’s high-rate refinancing.