Liberty Latin America Ltd. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company provides fixed, mobile and subsea telecommunications services across Latin America and the Caribbean. Results include acquisitions and the Chile operations classified as held for sale; the 2020 comparison also reflects different acquisition timing.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,192.0m | $887.5m | $3,519.9m | $2,667.4m |
| Adjusted OIBDA | $446.1m | $360.2m | $1,359.4m | $1,056.7m |
| Operating income (loss) | $137.4m | $86.6m | $475.8m | $(11.6)m |
| Net earnings (loss) | $74.0m | $(90.0)m | $164.4m | $(774.8)m |
| Net earnings (loss) attributable to shareholders | $78.2m | $(84.6)m | $170.4m | $(658.3)m |
| Basic EPS | $0.34 | $(0.46) | $0.73 | $(3.59) |
Adjusted OIBDA margin was approximately 37.4% in Q3 2021 versus 40.6% in Q3 2020, and 38.6% for the first nine months versus 39.6%. Adjusted OIBDA is a non-GAAP measure. Growth in reported revenue and OIBDA was substantially acquisition-related: acquisitions/dispositions contributed $267.8m of Q3 revenue growth and $738.7m of nine-month growth, and $85.1m and $264.4m of OIBDA growth, respectively. Organic revenue increased $41.5m in Q3 and $89.4m year to date.
Cash flow and investment: Nine-month operating cash flow was $717.8m, compared with $491.0m. Capital expenditures were $544.7m, up from $418.3m; cash paid for the Telefónica-Costa Rica acquisition was $520.6m. Adjusted free cash flow, a non-GAAP measure, was $148.5m versus $59.2m. Cash and cash equivalents were $917.0m at September 30, 2021.
Debt and liquidity: Debt and finance lease obligations were $7,518.7m, including $75.6m current; the debt table excludes Chile JV entity debt classified as held for sale. Total debt before premiums, discounts and financing costs was $7,629.6m. The weighted average stated borrowing rate was 5.1% (5.9% including specified derivative and other effects); the company reported that 97% of total debt was fixed-rate after derivatives. Unused borrowing capacity was $964.5m, and borrowing groups were in covenant compliance. Management said it believed resources were sufficient for foreseeable liquidity needs over the next 12 months.
Material changes and business developments
- Revenue increased 34% in Q3 and 32% for the nine-month period. Liberty Puerto Rico’s reported growth chiefly reflects the 2020 AT&T acquisition; the Telefónica-Costa Rica acquisition closed August 9, 2021 and contributed $41m of Q3 revenue and $3m of Q3 net earnings.
- VTR revenue declined 4% in Q3, with organic revenue down $10.7m, amid lower broadband and video subscribers and competitive pressure. Its Adjusted OIBDA margin fell to 33.7% from 39.2%.
- Q3 earnings benefited from $292.0m of net derivative gains, compared with $78.1m of losses a year earlier. Nine-month derivative gains were $464.2m versus losses of $239.7m. Foreign-currency transaction losses were $136.2m in Q3 and $206.0m year to date. These volatile, substantially non-cash fair-value items make reported earnings less indicative of recurring operating performance.
- The prior-year nine-month results included $279.9m of impairment expense, including goodwill impairment, compared with $3.0m in 2021. In Q3 2021, the company recorded a separate $41m impairment of a cost-basis investment in other expense.
Outlook, risks and contingencies
- No quantified consolidated revenue or earnings guidance is provided in the filing. Management expected approximately $10m of AT&T acquisition integration costs in Q4 2021; Costa Rica integration costs were also expected to increase significantly in future periods.
- The company agreed to contribute its Chile operations to a 50:50 joint venture with América Móvil, subject to customary conditions and regulatory approvals, with closing expected in the second half of 2022. A balancing payment of CLP 73bn (approximately $0.1bn) is contemplated. At quarter-end, the Chile entities were classified as held for sale: $1,542.2m of assets and $1,836.9m of liabilities. The transaction was not presented as a discontinued operation.
- The planned all-cash acquisition of América Móvil’s Panama operations has an enterprise value of $200m and was expected to close in the first half of 2022, subject to customary conditions including regulatory approvals.
- Key risks include competition, foreign-exchange and interest-rate movements, inflation and costs that may not be passed to customers, regulatory and acquisition approvals, debt refinancing and limits on access to subsidiary cash, COVID-19 impacts, and cybersecurity threats. The filing notes that gains or losses on derivatives and currency movements are volatile and not a reliable source of income.
- VTR faces consolidated consumer class-action proceedings in Chile concerning broadband service, capacity and customer service. The company disputes the allegations; potential liability or a reasonable loss range was not determinable.
- Disclosure controls and procedures remained ineffective at September 30, 2021 because previously identified material weaknesses in internal control over financial reporting had not been remediated. Management reported continuing remediation work.
Investor verification priorities
- Separate organic performance from acquisition effects, especially the AT&T and Telefónica-Costa Rica contributions, and track Puerto Rico and Costa Rica margins as integration proceeds.
- Assess recurring earnings and cash generation excluding volatile derivative and foreign-currency results; reconcile Adjusted OIBDA and adjusted free cash flow to GAAP measures.
- Confirm debt and liquidity figures on a consistent basis, including the Chile entities’ held-for-sale debt, subsidiary cash-access restrictions, refinancing plans and covenant headroom.
- Monitor regulatory approvals, terms and timing for the Chile joint venture and Claro Panama acquisition, including the Chile balancing payment.
- Track remediation and testing of material weaknesses, and developments in the VTR class actions and other contingencies.