Business context and reporting period
Liberty Latin America Ltd. is a telecommunications provider serving residential and business customers across Latin America and the Caribbean, including fixed, mobile and subsea-network services. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
Comparability with 2022 is affected by the October 2022 formation of the 50:50 Chile JV, after which VTR was no longer consolidated, and the July 2022 acquisition of Claro Panama. Accordingly, 2022 results include VTR and 2023 results include Claro Panama.
Financial results and key metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,122.7 | $1,216.2 | $2,226.5 | $2,432.4 |
| Adjusted OIBDA | $445.3 | $460.8 | $851.8 | $897.3 |
| Operating income (loss) | $139.5 | $(352.9) | $252.5 | $(168.3) |
| Net earnings (loss) | $19.2 | $(508.6) | $(43.8) | $(418.4) |
| Net earnings (loss) attributable to LLA shareholders | $38.2 | $(475.0) | $(11.5) | $(394.4) |
| Basic EPS attributable to LLA shareholders | $0.18 | $(2.11) | $(0.05) | $(1.74) |
Adjusted OIBDA margin, calculated as Adjusted OIBDA divided by revenue, was approximately 39.7% in Q2 2023 versus 37.9% a year earlier, and 38.3% for the first half versus 36.9%. Adjusted OIBDA is a non-GAAP measure.
- Cash flow: For the first half, operating cash flow was $288.0, down from $347.1; capital expenditures, net, were $273.1 versus $319.1. Investing cash outflow was $291.1, financing cash outflow was $132.7, and cash, cash equivalents and restricted cash decreased by $140.0 to $648.9. Balance-sheet cash and cash equivalents were $632.9.
- Debt and liquidity: Debt and finance lease obligations had a carrying value of $7,958.4 at June 30; reported outstanding principal plus finance leases was approximately $8,042. Current maturities were about $316. Total unused borrowing capacity was $956.9, subject to facility terms and conditions. Cash held by borrowing groups was $523.0; access to subsidiary cash may be limited by legal, tax, noncontrolling-interest and currency restrictions.
- Balance sheet: Total assets were $13,410.9 and total equity was $2,392.9. Current assets of $2,091.4 exceeded current liabilities of $1,760.0.
- Interest and risk management: The weighted-average stated borrowing rate was 6.9%; including specified derivative and other effects, management reported a 5.9% weighted-average rate. Derivatives covered or capped interest on 96% of total debt.
Material changes versus prior comparable periods
- Reported Q2 revenue declined $93.5, or about 7.7%; first-half revenue declined $205.9, or about 8.5%. The Chile disposition reduced reported comparisons, while Claro Panama contributed $34.8 in Q2 and $69.6 in the first half. On management’s organic basis, revenue decreased $3.3 in Q2 and increased $6.3 in the first half.
- Q2 Adjusted OIBDA fell $15.5, about 3.4%, and first-half Adjusted OIBDA fell $45.5, about 5.1%. Excluding FX and acquisition/disposition effects, management’s reconciliation indicates organic increases of approximately $11.8 for Q2 and $21.9 for the first half. Higher operating costs and corporate expenses partly offset savings in direct service costs.
- Operating results improved sharply from 2022, primarily because impairment, restructuring and other operating charges fell to $40.8 in Q2 2023 from $568.6, and to $70.5 for the first half from $576.4. The 2022 charges were primarily goodwill impairment in C&W Caribbean.
- Q2 net income included $64.4 of net derivative gains, while the prior-year quarter included $283.3; foreign currency transaction losses were $6.7 versus losses of $262.0. These volatile non-operating items materially affect reported earnings. First-half interest expense increased to $295.7 from $266.6.
- Segment trends varied: Panama revenue grew substantially, in part from the acquisition; Costa Rica revenue gains were heavily affected by favorable currency translation; Puerto Rico revenue declined, principally due to mobile service revenue; and Caribbean revenue was broadly flat.
Outlook, commentary, risks and unusual items
- Management said it believes resources are sufficient to repay or refinance current debt and fund foreseeable liquidity needs over the next 12 months. It expects to seek refinancing or maturity extensions as larger debt maturities approach; there is no assurance refinancing will be available on favorable terms or at all. No specific numerical earnings or revenue guidance is provided in the supplied filing text.
- Debt maturities are concentrated in 2027 and 2028: approximately $2,876.5 and $2,617.7, respectively. Management reported covenant compliance at June 30, 2023 and did not anticipate material liquidity-impacting covenant noncompliance over the next 12 months.
- Key risks include competition and subscriber/ARPU pressure, inflation and costs that may not be passed through to customers, foreign-exchange and interest-rate exposure, refinancing and subsidiary-cash access, regulation, programming costs, integration of acquired businesses, litigation, and natural disasters and cybersecurity threats. Management cautioned that derivative and currency gains are volatile and not a reliable earnings source.
- Disclosure controls and procedures remained ineffective at June 30, 2023 because previously disclosed material weaknesses in internal control over financial reporting had not been remediated. Management continued remediation work, including added procedures, technology implementation and training.
- In May 2023, a pension buy-in covered 100% of the relevant plan’s liabilities with insurance annuities; the transaction resulted in a $75 remeasurement loss recorded in accumulated other comprehensive income. The company repurchased $80.3 of shares for cash during the first half and authorized an additional $200 share-repurchase capacity; $175 remained authorized at quarter-end. It also repurchased and cancelled $99 principal amount of convertible notes during the first half.
- The filing describes ordinary-course legal, tax and regulatory contingencies but does not provide a meaningful potential-loss range. It states that unfavorable resolutions could materially affect results, cash flows or financial position in a period.
Important facts for investors to verify
- Assess underlying revenue and Adjusted OIBDA trends after separating the Chile JV disposition, Claro Panama acquisition and foreign-exchange effects.
- Review the timing and refinancing plan for the sizeable 2027–2028 maturities, as well as covenant headroom and restrictions on moving cash from operating subsidiaries.
- Track Puerto Rico mobile performance, competitive subscriber and ARPU trends, and whether cost inflation can be passed on to customers.
- Monitor remediation and testing of the material weaknesses in internal control; controls were still deemed ineffective at quarter-end.
- Distinguish recurring operating performance from volatile derivative, currency, tax and impairment effects when evaluating earnings and cash generation.