Liberty Latin America Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited, prepared under U.S. GAAP. Liberty Latin America provides fixed, mobile and subsea telecommunications services across Latin America and the Caribbean. Comparisons are with Q1 2021 unless stated otherwise; amounts are U.S. dollars.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1,218.7 million | $1,165.2 million | +4.6% |
| Adjusted OIBDA | $440.2 million | $449.3 million | -2.0% |
| Adjusted OIBDA margin | 36.1% | 38.6% | -2.5 percentage points |
| Operating income | $188.3 million | $181.0 million | +4.0% |
| Net earnings | $93.2 million | $90.7 million | +2.8% |
| Net earnings attributable to Liberty Latin America shareholders | $83.6 million | $89.1 million | -6.2% |
| Diluted EPS | $0.36 | $0.38 | Lower |
| Operating cash flow | $122.3 million | $203.5 million | -$81.2 million |
| Capital expenditures | $164.7 million | $135.6 million | +$29.1 million |
Revenue growth included $74.9 million from acquisitions, offset by $29.0 million of adverse foreign-exchange effects; organic revenue growth was $7.6 million. Cash flow from operations less reported capital expenditures was negative $42.4 million, compared with positive $67.9 million in Q1 2021; this is a simple calculation, not a company-reported free-cash-flow measure.
At March 31, 2022, cash and cash equivalents were $856.6 million and total current assets were $2,023.8 million, against current liabilities of $1,360.0 million. Debt and finance lease obligations on the balance sheet were $7,593.8 million, excluding debt classified with assets held for sale. The filing reports $974.0 million of unused borrowing capacity. The weighted average stated borrowing rate was 4.9%; including specified derivative and other effects, the rate was 5.6% before financing costs.
Material changes versus the prior period
- Revenue increased, but Adjusted OIBDA declined as costs rose and operating margins narrowed. Other operating costs and expenses increased to $506.3 million from $455.2 million; programming and other direct costs increased to $302.2 million from $283.7 million.
- Costa Rica revenue rose to $107.4 million from $36.2 million, primarily reflecting the Telefónica Costa Rica acquisition. VTR revenue fell 19% to $170.8 million, reflecting competition, lower customer revenue and adverse currency translation. VTR Adjusted OIBDA fell to $46.5 million from $70.5 million.
- Reported net earnings included a $96.6 million foreign-currency transaction gain, compared with a $25.4 million loss in Q1 2021. Derivative instruments generated a $33.7 million loss, versus a $114.9 million gain. These volatile non-operating items materially affect period-to-period earnings comparisons.
- Operating cash flow decreased mainly due to working-capital timing. Cash used for investing increased to $189.0 million, including $164.7 million of capital expenditures and acquisition-related cash payments. Financing activities used $78.2 million, including $55.3 million of share repurchases.
- Cash and cash equivalents declined from $956.7 million at December 31, 2021. Debt and finance lease obligations increased slightly from $7,565.9 million.
Outlook, risks, contingencies and unusual items
- The filing provides no specific earnings or revenue guidance. Management said it believes resources are sufficient to meet foreseeable liquidity needs and repay or refinance current maturities over the next 12 months. It expects to refinance or extend debt maturities in later years; refinancing availability and terms are not assured. Debt covenants were in compliance at quarter-end.
- The proposed Claro Panama acquisition, at an enterprise value of $200 million, remained subject to customary conditions and regulatory approvals and was expected to close in Q2 2022. The planned 50:50 Chile joint venture with América Móvil was expected to close in the second half of 2022, subject to conditions and approvals; Liberty Latin America expected to make a balancing payment of approximately $0.1 billion. Chile operations were classified as held for sale, but remained in reported operating results.
- Management highlighted intense competition, particularly in Chile, as well as inflation and foreign-exchange and interest-rate exposure. The company uses derivatives to manage market risks and reported that 97% of total debt was fixed-rate or capped after considering interest-rate derivatives.
- VTR faces consolidated Chilean class-action proceedings concerning broadband service, capacity and customer-service claims. The company disputes the allegations; potential liability or a reasonable loss range was not determinable. Other routine legal, tax, interconnection and regulatory contingencies could also affect results, cash flows or financial position.
- Previously identified material weaknesses in internal control over financial reporting had not been remediated. Management concluded disclosure controls and procedures remained ineffective as of March 31, 2022, while remediation efforts continued.
- The company repurchased 5.4 million Class A and Class C shares for approximately $56 million in Q1 and authorized a new program of up to $200 million through December 2024. Approximately $170 million remained authorized at quarter-end.
Most important facts for investors to verify
- Whether organic growth and operating margins improve, particularly in VTR, and whether competitive pressure continues to affect customer counts and average revenue.
- How working-capital movements, elevated capital spending and integration costs affect cash generation in subsequent quarters.
- Debt maturities, subsidiary-level cash restrictions, covenant headroom and the company’s ability to refinance on acceptable terms.
- Regulatory progress and final terms for the Claro Panama acquisition and Chile joint venture, including any effects on debt, cash and reported results.
- Progress in remediating internal-control weaknesses and developments in the VTR class actions and other contingencies.