Liberty Latin America Ltd. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a quarterly filing; fourth-quarter figures are also noted below. The company provides fixed, mobile, broadband, video, business and wholesale telecommunications services across more than 20 Latin American and Caribbean markets. Results include the AT&T Puerto Rico and U.S. Virgin Islands operations from their acquisition on October 31, 2020.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $3,764.6 million | $3,867.0 million |
| Operating income | $91.7 million | $353.8 million |
| Net loss | $808.9 million | $182.4 million |
| Net loss attributable to Liberty Latin America shareholders | $687.2 million; $3.51 per share | $80.1 million; $0.43 per share |
| Adjusted OIBDA (non-GAAP) | $1,484.7 million | $1,541.4 million |
| Net cash from operating activities | $640.1 million | $918.2 million |
| Capital expenditures, cash basis | $565.8 million | $589.1 million |
| Adjusted free cash flow (non-GAAP) | $148.0 million | $223.1 million |
Revenue declined 2.6% reported and 3.2% excluding acquisitions, dispositions and foreign exchange. Adjusted OIBDA fell about 3.7%; its consolidated margin was approximately 39.5%. Operating income fell substantially, while net loss widened, reflecting impairment and restructuring charges and a large year-over-year increase in derivative losses.
Fourth-quarter 2020 revenue was $1,097.2 million, operating income was $103.3 million, and net loss attributable to shareholders was $28.9 million. Fourth-quarter 2019 revenue was $974.6 million; the year-over-year comparison includes the acquired mobile business.
Segment performance
| Segment | FY2020 revenue | FY2020 Adjusted OIBDA | Adjusted OIBDA margin |
|---|---|---|---|
| C&W Caribbean and Networks | $1,706.8 million | $713.2 million | 41.8% |
| C&W Panama | $500.2 million | $177.2 million | 35.4% |
| VTR/Cabletica | $949.0 million | $361.9 million | 38.1% |
| Liberty Puerto Rico | $624.1 million | $276.9 million | 44.4% |
Liberty Puerto Rico revenue includes $174.2 million attributed to the AT&T acquisition impact in the year-over-year bridge. Excluding acquisition effects, its organic revenue increased $37.8 million. Revenue declined across the other three segments, with Panama down 14.2% and VTR/Cabletica down 11.6% reported.
Financial position, debt and liquidity
- At year-end, cash and cash equivalents were $894.2 million; total current assets were $1,951.9 million and current liabilities were $1,705.0 million. Restricted cash was $17.3 million.
- Debt and finance lease obligations had a carrying amount of $8,357.2 million. Outstanding debt principal before discounts and financing costs was $8,500.9 million; approximately $7.2 billion of principal was scheduled for 2026 or later. The stated weighted-average borrowing rate was 5.2%, or 6.3% including specified financing effects but excluding financing costs.
- Undrawn borrowing capacity was approximately $1,172.9 million. Management said it believed resources were sufficient to meet foreseeable liquidity requirements and repay or refinance current maturities over the next 12 months. Access to subsidiary cash and facilities is subject to restrictions and other considerations.
- Operating cash flow declined $278.1 million year over year. Cash used in investing activities was $2,450.8 million, including $1,886.1 million for acquisitions and $565.8 million of capital expenditures. Financing activities provided $271.1 million; year-end cash, cash equivalents and restricted cash totaled $912.5 million.
Material changes and unusual items
- The AT&T acquisition closed October 31, 2020 for an accounting purchase price of $1,930.8 million. Its preliminary allocation included $894.4 million of spectrum assets and $352.2 million of goodwill; the company said valuation work remained incomplete. Acquired operations contributed $174 million of revenue and an $83 million net loss in 2020.
- Impairment, restructuring and other operating items totaled $380.9 million, including $283.1 million of impairment charges. Goodwill impairments were $177 million at C&W Panama and $99 million across C&W Caribbean and Networks reporting units. Goodwill was $4,885.5 million at year-end.
- Net realized and unrealized derivative losses were $352.7 million, compared with $17.2 million in 2019. Interest expense increased to $533.4 million from $499.2 million. The company reported a $1.2 million foreign-currency transaction gain, versus a $112.5 million loss in 2019.
- A $350 million gross rights offering issued approximately 49.0 million Class C shares. The company repurchased $9.5 million of shares during 2020 and had $91 million remaining under its authorized repurchase program.
- Property and equipment additions were $631.1 million on an accrual basis, or 16.8% of revenue, versus 18.7% in 2019. The company expected 2021 additions to be approximately 18% of revenue; actual spending may vary.
Outlook, management commentary and risks
Management identified COVID-19 impacts including reduced roaming and tourism activity, pressure on mobile and B2B revenue, customer discounts, deferred payments and increased churn. Broadband demand rose with work-from-home activity, but capacity challenges at VTR contributed to customer churn. The company reported partial recovery in prepaid mobile activity in the third and fourth quarters. The duration and financial effects of the pandemic remained uncertain.
Management expected the Telefónica Costa Rica wireless acquisition, agreed at a $500 million enterprise value, to close in the first half of 2021, subject to approvals and other conditions. For the AT&T integration, it forecast $35–$40 million of integration costs during 2021 and approximately $10 million of synergies during 2021. The filing does not provide general revenue or earnings guidance.
- Four Chilean consumer class actions allege issues involving VTR broadband capacity, service disclosures and customer-service requirements during the pandemic. The company intends to defend them; the potential loss or range of loss was not determinable.
- Other material risks include high leverage and refinancing needs, competition and pricing pressure, foreign-exchange and interest-rate exposure, regulatory and license uncertainty, natural disasters, cybersecurity and supplier risks, and possible further impairment charges. Certain C&W licenses were expired or approaching renewal, and Jamaican infrastructure-sharing rules and proposed Eastern Caribbean regulation could affect operations.
- The company’s financial statements received an unqualified audit opinion, but management concluded disclosure controls and internal control over financial reporting were ineffective at year-end. KPMG issued an adverse opinion on internal control, citing material weaknesses in staffing, risk assessment, monitoring, information technology controls and process-level controls. Management reported immaterial misstatements, some corrected, and continued remediation efforts.
Important facts for investors to verify
- Track 2021 operating cash flow, adjusted free cash flow, working-capital collections and liquidity accessibility across the four borrowing groups.
- Review debt maturities, covenant headroom, refinancing plans and the effect of interest rates and foreign exchange, including derivative cash flows.
- Monitor completion and integration of the AT&T acquisition, final purchase-price allocation, integration costs and realization of forecast synergies.
- Check whether the Telefónica Costa Rica transaction closes as expected, its funding and resulting leverage.
- Assess progress in remediating internal-control material weaknesses and whether future filings report effective controls.
- Follow VTR litigation outcomes, COVID-related churn and service quality, and any further goodwill or asset impairments.