Liberty Latin America Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company provides fixed, mobile and subsea telecommunications services across Latin America and the Caribbean, including Puerto Rico, Chile, Panama and Costa Rica.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,217.6 million | $1,173.2 million | $2,436.3 million | $2,338.4 million |
| Adjusted OIBDA | $463.5 million | $464.0 million | $903.7 million | $913.3 million |
| Operating income (loss) | $(350.2) million | $173.0 million | $(161.9) million | $354.0 million |
| Net income (loss) attributable to shareholders | $(473.0) million | $12.7 million | $(389.4) million | $101.8 million |
| Operating cash flow | Not separately stated for the quarter | $347.1 million | $443.7 million |
- Revenue rose about 3.8% in Q2 and 4.2% year to date. Six-month Adjusted OIBDA declined about 1.1%; its margin was approximately 37.1%, versus 39.1% a year earlier.
- Q2 included a $555 million goodwill impairment charge, primarily in C&W Caribbean and Networks, following higher interest rates and increased valuation discount rates. This drove the operating loss; impairment and related operating items totaled $568.6 million for the quarter.
- Net losses also reflected foreign-currency transaction losses of $262.0 million in Q2, partly offset by $283.3 million of derivative gains. Management cautions that derivative and currency gains are volatile and not a dependable earnings source.
- Six-month operating cash flow fell $96.6 million, mainly due to working-capital timing. Cash capital expenditures were $319.9 million; operating cash flow less reported capital expenditures was approximately $27 million.
Financial position and liquidity
- At June 30, 2022, cash and cash equivalents were $1,030.7 million; total current assets were $2,353.2 million and current liabilities were $1,519.8 million.
- Total debt and finance lease obligations were $7,795.2 million, including $166.4 million current and $7,628.8 million long-term. The debt table reports a 5.2% weighted-average stated borrowing rate, or 5.6% including specified derivative, premium/discount and commitment-fee effects. These debt figures exclude Chile JV entity debt classified within liabilities associated with assets held for sale.
- Unused borrowing capacity was approximately $971 million. The company said borrowing groups were covenant-compliant and management believed resources were sufficient for foreseeable liquidity needs over the next 12 months, while noting refinancing and market-access risks.
- Debt maturities are concentrated in 2027 and thereafter; the maturity schedule shows $2.88 billion due in 2027 and excludes Chile JV entity debt. Subsidiary cash may not be freely available to the parent because of legal, tax, noncontrolling-interest and other restrictions.
Material changes, outlook and risks
- Segment performance was uneven. Q2 revenue increased in C&W Caribbean and Networks, C&W Panama and Liberty Costa Rica, while VTR revenue fell 28% to $150.0 million. Management attributed VTR’s decline to competition, lower subscriber counts and lower ARPU; Chilean peso translation also reduced reported revenue.
- Liberty Costa Rica revenue growth largely reflected the 2021 Telefónica Costa Rica acquisition. The company said integration costs were expected to continue increasing during the remainder of 2022.
- The planned 50:50 Chile joint venture with América Móvil remained subject to customary closing conditions and regulatory approvals, with closing expected in the second half of 2022. Chile operations were classified as held for sale; the filing does not provide a specific numerical earnings or cash-flow forecast.
- The Claro Panama acquisition, based on a $200 million enterprise value, closed July 1, 2022, after the reporting date.
- Management cited competition, inflation, foreign-exchange and interest-rate movements, regulation, customer trends and access to financing among key risks. Four Chile consumer class-action complaints concerning broadband service and related matters had been joined; the company disputed the claims, and a reasonably estimable loss range was not available.
- Disclosure controls and procedures remained ineffective at June 30 because previously identified material weaknesses in internal control over financial reporting had not been remediated. Management described ongoing remediation actions.
- The filing provides no specific consolidated revenue, profit or cash-flow guidance for the full year.
Important facts for investors to verify
- Whether further goodwill impairment is required if discount rates, competition or operating forecasts worsen.
- VTR subscriber, ARPU and revenue trends, and whether pricing and competitive actions stabilize performance.
- Completion and terms of the Chile joint venture, including regulatory conditions and the treatment of Chilean debt and cash.
- Debt refinancing capacity, covenant headroom and the availability of subsidiary cash to meet parent-level obligations.
- Progress remediating internal-control material weaknesses and the potential exposure from the Chile consumer litigation.