Business context and reporting period
Liberty Latin America Ltd. is a telecommunications provider operating fixed, mobile, business and subsea-network services across Latin America and the Caribbean. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022; financial amounts below are in U.S. dollars and millions unless otherwise stated.
The company completed its acquisition of Claro Panama on July 1, 2022. It completed formation of a 50:50 Chile joint venture with América Móvil after quarter-end; from October 2022, Liberty Latin America accounts for its interest using the equity method. The company paid América Móvil $76 million in October as a balancing payment.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,222.0 | $1,196.3 | $3,654.4 | $3,534.2 |
| Adjusted OIBDA | $415.0 | $443.2 | $1,312.3 | $1,351.5 |
| Operating income (loss) | $152.9 | $136.0 | $(15.4) | $485.0 |
| Net earnings (loss) attributable to Liberty Latin America shareholders | $84.1 | $76.1 | $(310.3) | $174.0 |
| Basic earnings (loss) per share | $0.38 | $0.33 | $(1.38) | $0.75 |
| Operating cash flow | Not provided in the filing text for the quarter | Not provided in the filing text for the quarter | $491.8 | $717.8 |
| Capital expenditures | Not provided in the filing text for the quarter | Not provided in the filing text for the quarter | $497.7 | $544.7 |
Q3 revenue increased 2% year over year, while Adjusted OIBDA declined about 6%. Nine-month revenue increased about 3%, but Adjusted OIBDA declined about 3%. Adjusted OIBDA margin was approximately 34.0% in Q3 2022 versus 37.0% in Q3 2021, and 35.9% for the first nine months versus 38.2% a year earlier. Adjusted OIBDA is a non-GAAP measure.
The nine-month operating loss included $558.5 million of impairment charges, primarily a $555.3 million goodwill impairment in C&W Caribbean. The impairment followed higher interest rates and increased discount rates used in valuation. Excluding the impairment would not eliminate the other differences between reported and underlying results.
Cash and cash equivalents were $769.2 million at September 30, 2022, down from $956.7 million at December 31, 2021. Total cash, cash equivalents and restricted cash were $839.8 million. Total debt and finance lease obligations were $7,851.5 million, including $208.0 million current; the debt table reports $971.7 million of unused borrowing capacity. The weighted-average stated borrowing rate was 5.8%. The company reported that borrowing groups were in covenant compliance and believed it had resources for foreseeable liquidity needs over the next 12 months. Cash access may be restricted by legal, tax, noncontrolling-interest and foreign-exchange considerations.
For the nine months, investing cash outflow was $744.6 million and financing cash inflow was $21.9 million. Operating cash flow less reported capital expenditures was approximately negative $5.9 million; this simple calculation excludes other investing items and is not a company-reported free-cash-flow measure.
Material changes versus the prior comparable period
- Quarterly revenue gains included organic growth in C&W Caribbean and acquisitions in Panama and Costa Rica. The Claro Panama acquisition contributed $34.8 million to C&W Panama’s Q3 revenue comparison.
- VTR revenue fell 33% in Q3 and 26% for the nine-month period. Management cited competitive pressure, lower subscriber counts and lower ARPU; currency translation also reduced reported revenue.
- Liberty Costa Rica’s reported revenue grew substantially, largely reflecting the 2021 Telefónica acquisition; organic growth was more modest.
- Nine-month operating cash flow fell by $226.0 million, which management attributed primarily to working-capital timing. Capital expenditures decreased $47.0 million.
- Interest expense rose to $415.8 million for the nine months from $397.2 million, reflecting higher average interest rates and debt balances. Derivative gains were $385.0 million, down from $464.2 million; such gains are volatile and are not a dependable recurring earnings source.
- In Q3, the company recognized a $41.1 million gain on debt extinguishments associated with repurchases of VTR debt. It repurchased $152.9 million of its own shares during the first nine months; $74 million remained authorized under the 2022 program at quarter-end.
Outlook, commentary, risks and unusual items
- The filing provides no specific numerical earnings or revenue guidance. Management said it expected sufficient resources for the next 12 months, while noting that refinancing future maturities cannot be assured. Significant debt maturities are concentrated in 2027 and later.
- Management cited competition across its markets, inflation, foreign-exchange movements, higher interest rates, regulatory and tax developments, programming and supplier costs, and the ability to maintain subscriber levels and pass on cost increases as risks to performance and margins.
- Hurricane Fiona affected Puerto Rico operations in September. Customer credits reduced fixed-service ARPU, while network expenses increased. The filing does not quantify the total financial impact of the hurricane.
- Goodwill impairment may recur if macroeconomic conditions, discount rates, competition or operating results worsen. The company recorded $555.3 million of goodwill impairment in C&W Caribbean during the first half of 2022.
- Disclosure controls and procedures remained ineffective at September 30, 2022 because previously identified material weaknesses in internal control over financial reporting had not been remediated. The company described ongoing remediation actions.
- The company revised prior-period financial statements for errors it assessed as immaterial. It also disclosed a VTR class-action proceeding in Chile concerning broadband service and other ordinary-course legal, tax and regulatory contingencies; it could not provide a meaningful range of potential losses for certain matters.
Most important facts for investors to verify
- Whether operating cash flow, capital expenditures and working-capital movements improve, and how the company funds investment needs.
- Debt maturities, borrowing costs, covenant headroom and the practical availability of subsidiary cash and unused credit facilities.
- Whether VTR’s subscriber and ARPU declines stabilize, and whether margins in Panama and other markets recover as acquisition integration progresses.
- The final financial and balance-sheet effects of the Chile joint venture, including the treatment of its debt and the $76 million balancing payment.
- Progress in remediating internal-control material weaknesses and any subsequent reporting revisions.
- Potential additional goodwill impairments, and developments in the VTR class action and other contingencies.