Liberty Latin America Ltd. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unless otherwise stated, amounts are in U.S. dollars. Liberty Latin America provides fixed, mobile, business-to-business and subsea telecommunications services across Latin America and the Caribbean.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $942.7 million | $909.9 million |
| Operating income | $113.3 million | $98.3 million |
| Adjusted OIBDA | $365.8 million | $340.8 million |
| Net loss attributable to shareholders | $41.7 million | $44.5 million |
| Basic and diluted loss per share | $0.23 | $0.26 |
| Operating cash flow | $187.8 million | $163.2 million |
| Capital expenditures | $159.6 million | $188.2 million |
| Adjusted free cash flow | $48.4 million | $(45.7) million |
- Revenue increased 3.6%; management attributed the reported change to a $33 million Cabletica acquisition impact, partly offset by $32 million of foreign-exchange effects. Excluding those impacts, revenue rose $32 million, or 3.6%.
- Operating margin was approximately 12.0%, versus 10.8% a year earlier. Adjusted OIBDA margin was approximately 38.8%, versus 37.5%.
- Net loss improved year over year, although operating gains were offset by $150.1 million of net non-operating expense, including $115.7 million of interest expense and $69.0 million of derivative losses. Income tax expense was $4.4 million.
- Cash and cash equivalents were $568.8 million at March 31, compared with $631.0 million at year-end. Operating, investing and financing activities resulted in a $55.9 million net decrease in cash, cash equivalents and restricted cash. Investing cash use included $160.1 million for acquisitions; the company also received $33.9 million of hurricane-related property insurance recoveries.
- Debt and finance lease obligations had a $6,747.8 million carrying amount, including $365.4 million classified as current. Gross and net leverage were 4.3x and 3.9x, respectively, using the company’s latest-two-quarters annualized calculation. The calculation included $64 million of hurricane settlement contribution, which management said reduced gross and net leverage by approximately 0.3x and 0.4x.
- Cash was concentrated in subsidiary borrowing groups: $506.9 million of the $568.8 million total. Unused borrowing capacity was $896.2 million, subject to facility terms. Current liabilities exceeded current assets by approximately $202.8 million.
Material changes versus the prior comparable period
- Revenue growth was led by Liberty Puerto Rico, up $36.8 million, primarily reflecting recovery after Hurricanes Irma and Maria. VTR/Cabletica rose $12.7 million, including the Cabletica acquisition and currency effects; C&W declined $15.7 million, with lower mobile revenue and foreign exchange contributing.
- Adjusted OIBDA increased $25.0 million. Liberty Puerto Rico’s increase reflected post-hurricane recovery; C&W declined $6.6 million, while VTR/Cabletica increased $1.9 million.
- Interest expense rose $13 million, primarily due to higher average debt balances and weighted-average interest rates. Derivative losses increased to $69.0 million from $41.5 million.
- Capital expenditures fell from $188.2 million to $159.6 million, primarily because the prior-year period included hurricane restoration spending. Operating cash flow increased $24.6 million.
- Share-based compensation rose to $14.7 million from $6.5 million. Restructuring, impairment and other operating items declined to $20.5 million from $33.7 million.
Outlook, commentary, risks and unusual items
- The filing provides no specific numeric revenue, earnings or cash-flow guidance. Management said it believed resources were sufficient to repay or refinance current debt and fund foreseeable liquidity needs over the next 12 months, while noting refinancing would likely be needed as later maturities approach.
- Management reported covenant compliance at March 31 and did not anticipate material covenant non-compliance affecting liquidity over the next 12 months. These statements are subject to financing availability and operating performance.
- UTS acquisition: the company acquired an 87.5% interest effective March 31 for a stated cash purchase price of $161 million, funded by a $170 million C&W revolver draw. UTS contributed no Q1 revenue or earnings because the acquisition closed on quarter-end. The preliminary purchase-price allocation remains subject to valuation adjustments.
- Subsequent financing: in April, C&W issued $300 million of additional 2027 notes and Sable issued $400 million of 5.750% secured notes due 2027. Proceeds were used in part to repay the $170 million revolver draw, redeem existing notes and repay term debt. Liberty Puerto Rico also repaid $10 million of second-lien term debt.
- Key risks include competition and pricing pressure, foreign-exchange and interest-rate movements, regulation, programming costs, acquisition integration, natural disasters, and access to refinancing. Management warned that adverse operating or market developments could affect liquidity and could require impairment charges, particularly for C&W goodwill.
- Commitments included $665.8 million of programming, network, purchase and other commitments, excluding amounts already recorded as balance-sheet liabilities. The company also disclosed $307 million of liabilities for uncertain tax positions, for which payment timing and amount were not reasonably estimable. Legal, tax, regulatory and other contingencies could have a material effect, although the company could not provide a meaningful range of potential losses.
- Disclosure controls remained ineffective at March 31 because previously identified material weaknesses in internal control over financial reporting had not been remediated. Management said the weaknesses had not caused material misstatements in these interim financial statements and remediation work continued.
Important facts for investors to verify
- Whether operating cash flow and adjusted free cash flow remain positive after excluding hurricane insurance proceeds and considering acquisition-related spending.
- The final UTS purchase-price allocation, post-acquisition contribution, and integration results; also assess the impact of April debt transactions on interest costs and maturities.
- Debt refinancing capacity, subsidiary cash accessibility, covenant headroom and the effect of currency, interest-rate and derivative movements.
- Whether recovery in Puerto Rico and subscriber and revenue trends in C&W and VTR/Cabletica persist amid competition and cost pressures.
- Progress remediating internal-control material weaknesses, and updates on goodwill impairment exposure, tax positions and material legal or regulatory contingencies.