Liberty Latin America Ltd. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless stated otherwise. The company provides fixed, mobile, broadband, video, business and subsea-network services across Latin America and the Caribbean. In 2021 it added Telefónica’s Costa Rica operations and classified its Chile businesses as held for sale in connection with a proposed joint venture.
Key financial results
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Revenue | $4,799.0 million | $3,764.6 million | Up $1,034.4 million, or 27.5%; acquisitions contributed $885.1 million and organic growth was $149.0 million. |
| Adjusted OIBDA | $1,829.0 million | $1,484.7 million | Up 23.2%; non-GAAP measure defined by the company. |
| Operating income | $81.2 million | $93.2 million | Down $12.0 million despite higher revenue and Adjusted OIBDA. |
| Net loss attributable to Liberty Latin America shareholders | $(440.1) million | $(682.2) million | Loss narrowed; 2021 basic and diluted loss per share was $(1.89), versus $(3.49). |
| Cash from operating activities | $1,016.2 million | $640.1 million | Up $376.1 million. |
| Capital expenditures, cash basis | $736.3 million | $565.8 million | Derived property and equipment additions were $855.9 million, or 17.8% of revenue. |
| Cash, cash equivalents | $956.7 million | $894.2 million | Separate from restricted cash; cash and restricted cash together were $1,074.2 million at year-end. |
| Debt and finance lease obligations | $7,565.9 million carrying amount | $8,357.2 million | Year-end debt principal was $7,678.3 million, excluding Chile JV Entities classified as held for sale; those entities had $1,522.2 million of debt principal. |
Margins and business trends
- Segment Adjusted OIBDA margins: C&W Caribbean and Networks 42.7% (2020: 41.8%); C&W Panama 36.5% (35.4%); Liberty Puerto Rico 40.8% (44.4%); VTR 33.0% (37.9%); and Costa Rica 31.3% (39.2%). The company attributed Puerto Rico and Costa Rica margin pressure mainly to acquired mobile operations with lower margins; Puerto Rico also faced higher roaming expense and handset-sale losses.
- Organic revenue increased in C&W Caribbean and Networks, C&W Panama, Liberty Puerto Rico and Costa Rica, but declined at VTR. VTR cited broadband and video subscriber losses, lower broadband and video ARPU, and intense competition.
- Year-end operating scale included 8.35 million homes passed, 6.44 million fixed RGUs and 7.54 million mobile subscribers. During 2021, network-extension programs passed approximately 738,800 homes.
Cash, debt and liquidity
- Operating cash flow less cash capital expenditures was approximately $279.9 million, calculated from the reported figures; this is not a company-reported free-cash-flow measure.
- Investing cash outflow was $1,268.6 million, including $736.3 million of capital expenditures and $520.6 million of net cash paid for the Telefónica Costa Rica acquisition. Financing cash inflow was $426.6 million, including $617 million of net debt borrowings and $63 million of share repurchases.
- Management said it expected sufficient resources to repay or refinance current debt and meet foreseeable liquidity needs for the next 12 months. It also expected to refinance or extend later maturities. At year-end, borrowing groups were in covenant compliance, with $958.8 million of unused borrowing capacity reported before applicable conditions and limitations.
- Debt is substantially held in subsidiary borrowing groups; access to their cash may be limited by debt covenants, tax and legal restrictions, noncontrolling interests and other factors. Reported weighted-average debt interest rate was 4.8%, or 5.6% including specified derivative, premium/discount and commitment-fee effects.
Material changes and unusual items
- Revenue growth was substantially affected by acquisitions: Liberty Puerto Rico included the AT&T wireless and wireline operations for a full year, and Costa Rica included Telefónica Costa Rica from August 9, 2021. These effects limit direct comparability with 2020.
- Impairment, restructuring and other operating charges rose to $665.0 million from $375.3 million. They included $605.1 million of goodwill impairment in C&W Caribbean and Networks and $33.0 million of restructuring charges.
- Non-operating results were volatile: net derivative gains were $564.1 million, versus losses of $352.7 million in 2020; foreign-currency transaction losses were $319.6 million, versus a $1.2 million gain. These items helped narrow the net loss but are not a reliable recurring earnings source.
- Income tax expense was $189.5 million, compared with a $27.8 million benefit in 2020. Management cited valuation allowances, non-deductible goodwill impairment, expired deferred tax assets and withholding taxes among the 2021 factors.
- The filing discloses immaterial corrections to prior-period errors, mainly understated depreciation and, to a lesser extent, impairment. The company revised comparative statements and increased opening 2019 accumulated deficit by $82 million; it said the errors did not affect revenue, Adjusted OIBDA, operating cash flow or property and equipment additions.
Outlook, transactions and risks
- Management expected 2022 property and equipment additions to be approximately 18% of revenue, subject to COVID-19, competition, regulation, business plans, foreign exchange and capital availability. No numeric revenue or earnings guidance is provided in the supplied filing text.
- The proposed 50:50 Chile joint venture with América Móvil was expected to close in the second half of 2022, subject to conditions including regulatory approvals. Liberty Latin America expected to account for its interest using the equity method after closing. The transaction involved a balancing payment to América Móvil of CLP 73 billion, approximately $0.1 billion.
- The proposed all-cash acquisition of América Móvil’s Panama operations was based on $200 million enterprise value and was expected to close in the first half of 2022, subject to customary conditions and regulatory approvals.
- Key disclosed risks include intense competition and customer losses; inflation and inability to pass through cost increases; foreign-exchange and interest-rate volatility; high leverage and refinancing needs; regulatory changes, spectrum and license renewals; political and economic uncertainty; natural disasters and climate impacts; COVID-19 and supply disruption; cybersecurity and privacy; and potential goodwill impairment.
- Four Chile class-action complaints concerning broadband service and pandemic-period service levels were joined into one proceeding. The company disputes the allegations; the potential liability or loss range was not determinable from the filing.
- KPMG issued an unqualified opinion on the consolidated financial statements but an adverse opinion on internal control over financial reporting. Material weaknesses remained, involving staffing and financial-reporting expertise, information and communication, IT general controls, and related process-level controls. Management reported remediation work and said further progress was planned for 2022.
- A new share repurchase program of up to $200 million through December 2024 was authorized on February 22, 2022, after the reporting period. The company said it had no present intention to pay cash dividends.
Investor verification priorities
- Check the audited statements and segment disclosures for the distinction between reported growth, organic performance and acquisition effects, particularly in Puerto Rico and Costa Rica.
- Assess the assumptions behind the $605.1 million goodwill impairment and the possibility of further impairment, especially in C&W Caribbean and Networks or C&W Panama.
- Review the material weaknesses, remediation milestones and subsequent evidence of effective controls; the financial-statement audit opinion does not remove the adverse ICFR opinion.
- Reconcile debt and liquidity across consolidated balances, subsidiary borrowing groups and the Chile businesses classified as held for sale; verify cash accessibility, maturities, covenants and refinancing plans.
- Track regulatory approvals and closing terms for the Chile joint venture and Panama acquisition, and confirm how the Chile transaction affects debt, cash, earnings and reported segments upon completion.
- Monitor the Chile class actions, tax audits and other contingencies, for which the filing does not provide a clear estimate of potential losses.