Liberty Latin America Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company provides fixed, mobile and subsea telecommunications services across Latin America and the Caribbean. Results are affected by the October 2020 AT&T acquisition, a related Puerto Rico disposal in January 2021, foreign-exchange movements and COVID-19. VTR and Cabletica were reported as separate segments beginning in Q1 2021.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1,159.9 million | $931.0 million |
| Operating income | $178.2 million | $107.8 million |
| Adjusted OIBDA | $449.3 million | $363.9 million |
| Net earnings (loss) attributable to shareholders | $87.8 million | $(180.7) million |
| Diluted earnings (loss) per share | $0.37 | $(0.98) |
| Operating cash flow | $203.5 million | $114.9 million |
| Capital expenditures | $135.6 million | $149.2 million |
| Adjusted free cash flow | $57.7 million | $(48.5) million |
- Revenue increased 25%, but excluding acquisitions, disposals and foreign exchange, revenue declined 2% organically. The reported increase included $242 million from acquisitions, partly offset by a $5 million disposal impact; foreign exchange added $11 million.
- Adjusted OIBDA increased about 23%; the company defines it as a non-GAAP measure. Segment margins varied: C&W Caribbean and Networks 42.2%, C&W Panama 36.1%, Liberty Puerto Rico 41.5%, VTR 33.5% and Cabletica 39.0%. Puerto Rico’s margin fell from 48.3%, primarily reflecting the lower-margin acquired mobile business; VTR’s fell from 38.8%.
- Net earnings included $114.9 million of net derivative gains, while foreign-currency transaction losses were $25.4 million and debt-extinguishment losses were $23.3 million. Management cautioned that derivative and currency gains are volatile and not a dependable source of earnings.
- Cash and cash equivalents were $1,305.6 million at quarter-end, versus $894.2 million at year-end 2020. Total debt and finance lease obligations were $8,782.9 million carrying value; debt principal before discounts and financing costs was $8,925.8 million. The weighted-average stated borrowing rate was 5.1% (6.0% including specified adjustments, but excluding financing costs).
- Cash provided by financing activities was $333.0 million, including $408 million of net debt borrowings. Total debt increased from $8,500.9 million principal at year-end. The company refinanced Puerto Rico and VTR debt, issued new notes and repaid the $1.0 billion 2026 SPV facility and certain VTR loans and notes.
Material changes and management commentary
- Liberty Puerto Rico revenue rose to $361.3 million from $104.6 million, primarily because of the AT&T mobile acquisition. Organic revenue increased $21.1 million; the acquisition and related disposal contributed a net $235.6 million to the year-over-year comparison.
- Organic revenue declines in C&W Caribbean and Networks and C&W Panama reflected COVID-related pressure on roaming, mobile, B2B and other activity, alongside competition. VTR’s organic revenue also declined, partly offset in reported results by favorable foreign exchange. Broadband demand benefited in some markets from work-from-home arrangements.
- COVID-19 continued to affect the business through lockdowns, travel restrictions, service moratoriums and reduced activity in certain B2B and mobile operations. Management said the duration and financial effects remained uncertain.
- The company expected its pending all-cash acquisition of Telefónica’s Costa Rican wireless operations, at a $500 million enterprise value, to close around mid-2021, subject to customary conditions and regulatory approvals.
- Management said it believed available resources were sufficient for foreseeable liquidity needs and current debt maturities over the next 12 months, while noting future refinancing needs and that financing may not be available on favorable terms or at all. All borrowing groups were in compliance with debt covenants at March 31, 2021.
Risks, contingencies and unusual items
- Material weaknesses in internal control over financial reporting remained unremediated; management concluded disclosure controls and procedures were ineffective as of March 31, 2021. Remediation efforts were ongoing.
- VTR faced several Chilean consumer class actions alleging broadband service, disclosure and customer-service issues. The company disputed the allegations; potential liability or a reasonable loss range was not determinable from the filing.
- Other risks include competition, regulatory changes, foreign-exchange and interest-rate exposure, programming and network costs, acquisition integration, COVID-19 effects, and the ability to service or refinance substantial debt. The company reported that 97% of total debt was fixed-rate when derivatives were included.
- Contractual commitments included $295.9 million of programming commitments, $215.2 million of purchase commitments and $106.6 million of network and connectivity commitments. Management noted that certain minimum commitments may understate expected payments. The filing also reported $48 million of uncertain tax positions, for which payment timing and amount were not reasonably estimable.
- The company recorded a $9 million gain on the January Puerto Rico B2B disposal, more than offset by acquisition costs and impairment and restructuring items. Debt refinancing generated $23.3 million of extinguishment losses.
Investor verification priorities
- Separate underlying operating trends from the AT&T acquisition, disposal and foreign-exchange effects; confirm the acquired business’s contribution to Puerto Rico revenue, cash flow and margins.
- Assess whether operating cash flow and adjusted free cash flow can be sustained after capital spending, debt service, derivatives and vendor-financing repayments.
- Review debt maturities, refinancing execution, interest-rate and currency hedges, and the restrictions on accessing subsidiary cash.
- Track the Telefónica Costa Rica transaction’s approvals, closing, financing and integration costs.
- Monitor COVID-19-related operating effects, competition and the VTR litigation, as well as progress remediating internal-control weaknesses.