Liberty Latin America(LILA) - 2024 Q2 - Quarterly Report

Front Matter This section provides foundational information for the Form 10-Q, including filing details, company identification, and a comprehensive glossary of terms Form 10-Q Filing Information This section details Liberty Latin America Ltd.'s Form 10-Q filing for Q2 2024, including its status as a Large Accelerated Filer and outstanding common shares - Liberty Latin America Ltd. is a Large Accelerated Filer, indicating it meets specific market capitalization and public float requirements[2] Outstanding Common Shares as of July 31, 2024 | Class | Shares (millions) | | :---- | :---------------- | | Class A | 37.9 | | Class B | 2.4 | | Class C | 156.0 | Glossary of Defined Terms This section provides a comprehensive glossary of defined terms, abbreviations, and financial instruments used throughout the Quarterly Report on Form 10-Q PART I - FINANCIAL INFORMATION This part presents Liberty Latin America Ltd.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. FINANCIAL STATEMENTS This section presents Liberty Latin America Ltd.'s unaudited condensed consolidated financial statements, providing a snapshot of its financial health and performance Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates - Total assets decreased by $444.1 million from December 31, 2023, to June 30, 2024, primarily driven by a reduction in cash and cash equivalents and property and equipment, net[9] - Total liabilities decreased by $328.1 million, mainly due to a reduction in total current liabilities and other long-term liabilities[10] Condensed Consolidated Balance Sheet Highlights (in millions) | Item | June 30, 2024 | December 31, 2023 | | :------------------------------------- | :------------ | :------------------ | | ASSETS | | | | Cash and cash equivalents | $598.6 | $988.6 | | Total current assets | $2,064.4 | $2,412.2 | | Goodwill | $3,473.4 | $3,483.4 | | Property and equipment, net | $4,096.9 | $4,205.7 | | Total assets | $13,150.5 | $13,594.6 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $1,900.0 | $2,132.6 | | Long-term debt and finance lease obligations | $7,581.1 | $7,598.0 | | Total liabilities | $10,956.8 | $11,284.9 | | Total equity | $2,193.7 | $2,309.7 | | Total liabilities and equity | $13,150.5 | $13,594.6 | Condensed Consolidated Statements of Operations This section presents the company's condensed consolidated statements of operations, detailing revenues, expenses, and net earnings or losses - Revenue remained relatively stable year-over-year for both the three and six-month periods, with a slight decrease of $2.2 million and $4.3 million, respectively[12] - The company reported a net loss attributable to Liberty Latin America shareholders of $(42.7) million for the three months ended June 30, 2024, a significant decline from net earnings of $35.1 million in the prior-year period[12] Condensed Consolidated Statements of Operations Highlights (in millions, except per share amounts) | Item | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $1,118.0 | $1,120.2 | $2,217.4 | $2,221.7 | | Operating income | $110.8 | $135.4 | $203.6 | $242.0 | | Net earnings (loss) | $(36.9) | $16.1 | $(37.4) | $(52.0) | | Net earnings (loss) attributable to Liberty Latin America shareholders | $(42.7) | $35.1 | $(43.2) | $(30.5) | | Basic net earnings (loss) per share | $(0.22) | $0.17 | $(0.22) | $(0.14) | | Diluted net earnings (loss) per share | $(0.22) | $0.16 | $(0.22) | $(0.14) | Condensed Consolidated Statements of Comprehensive Loss This section presents the company's condensed consolidated statements of comprehensive loss, including net earnings (loss) and other comprehensive income (loss) - Comprehensive loss attributable to Liberty Latin America shareholders increased to $(55.3) million for the three months ended June 30, 2024, from $(36.9) million in the prior-year period[14] - Foreign currency translation adjustments contributed to an 'Other comprehensive loss' of $(14.3) million for the three months ended June 30, 2024, compared to a gain of $2.0 million in the same period last year[14] Condensed Consolidated Statements of Comprehensive Loss Highlights (in millions) | Item | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net earnings (loss) | $(36.9) | $16.1 | $(37.4) | $(52.0) | | Other comprehensive loss | $(11.5) | $(70.7) | $(1.6) | $(48.1) | | Comprehensive loss | $(48.4) | $(54.6) | $(39.0) | $(100.1) | | Comprehensive loss attributable to Liberty Latin America shareholders | $(55.3) | $(36.9) | $(45.3) | $(79.3) | Condensed Consolidated Statements of Equity This section presents the company's condensed consolidated statements of equity, detailing changes in shareholders' equity and noncontrolling interests - Total Liberty Latin America shareholders' equity decreased by $111.6 million from December 31, 2023, to June 30, 2024, primarily due to net losses and share repurchases[17] - Treasury stock increased by $82.9 million during the six months ended June 30, 2024, reflecting ongoing share repurchase activities[17] Condensed Consolidated Statements of Equity Highlights (in millions) | Item | June 30, 2024 | December 31, 2023 | | :----------------------------------------- | :------------ | :------------------ | | Total Liberty Latin America shareholders | $1,651.9 | $1,763.5 | | Noncontrolling interests | $541.8 | $546.2 | | Total equity | $2,193.7 | $2,309.7 | | Treasury shares, at cost | $(444.1) | $(361.2) | | Additional paid-in capital | $5,278.6 | $5,262.0 | | Accumulated deficit | $(2,984.9) | $(2,941.7) | Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows, categorizing cash activities into operating, investing, and financing - Net cash provided by operating activities decreased by $107.8 million to $180.2 million for the six months ended June 30, 2024, compared to $288.0 million in the prior-year period[18] - Net cash used by financing activities significantly increased to $(280.5) million in 2024 from $(132.7) million in 2023, primarily due to higher net debt repayments and share repurchases[19] Condensed Consolidated Statements of Cash Flows Highlights (Six months ended June 30, in millions) | Cash Flow Activity | 2024 | 2023 | | :------------------------------------ | :-------- | :-------- | | Net cash provided by operating activities | $180.2 | $288.0 | | Net cash used by investing activities | $(282.4) | $(291.1) | | Net cash used by financing activities | $(280.5) | $(132.7) | | Effect of exchange rate changes | $(2.6) | $(4.2) | | Net decrease in cash | $(385.3) | $(140.0) | | Cash, cash equivalents and restricted cash: Beginning of period | $999.8 | $788.9 | | Cash, cash equivalents and restricted cash: End of period | $614.5 | $648.9 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes to the condensed consolidated financial statements, offering additional context and disclosures - (1) Basis of Presentation: Liberty Latin America Ltd. is an international provider of fixed, mobile, and subsea telecommunications services across over 20 countries in Latin America and the Caribbean, including Puerto Rico, USVI, and Costa Rica[21][23] - (2) Accounting Changes and Recent Accounting Pronouncements: The company is evaluating the impact of new FASB ASUs, including ASU 2022-04 (Supplier Finance Programs), ASU 2023-07 (Segment Reporting), and ASU 2023-09 (Income Tax Disclosures), on its financial statements[26][27][28] - (4) Acquisitions: Pending transactions include the acquisition of DISH Network spectrum assets in Puerto Rico and USVI for $256 million, expected to close in 2024, and an all-stock agreement with Millicom to combine Costa Rica operations, expected to close in H2 2025, resulting in Liberty Latin America holding approximately 86% interest[33][34] (5) Current Expected Credit Losses (Six months ended June 30, in millions) | Item | 2024 | 2023 | | :----------------------------- | :----- | :----- | | Balance at beginning of period | $91.6 | $101.1 | | Provision for expected losses, net | $62.0 | $36.3 | | Write-offs, net of recoveries | $(41.6)| $(37.9)| | Balance at end of period | $111.4 | $100.8 | - (6) Derivative Instruments: The company uses interest rate swaps, basis swaps, interest rate floors, and caps to manage interest rate risk, and foreign currency forward contracts for non-functional currency exposure[37][45][46][47][48] - (6) Derivative Instruments: Total derivative assets were $284.9 million and liabilities were $53.2 million at June 30, 2024[45][46] - (7) Long-lived Assets: Goodwill decreased slightly to $3,473.4 million at June 30, 2024[49] - (7) Long-lived Assets: Liberty Puerto Rico faces potential goodwill impairment due to declines in revenue from mobile subscriber losses and network outages[49] - (8) The Chile JV: Liberty Latin America will not exercise its catch-up right in the Chile JV with América Móvil, leading to a dilution of its ownership to less than 10%, with no material impact expected on consolidated financial statements[56] (9) Operating Lease Expense (Six months ended June 30, in millions) | Item | 2024 | 2023 | | :-------------------- | :---- | :---- | | Operating lease cost | $60.1 | $65.4 | | Short-term lease cost | $13.7 | $14.8 | | Total operating lease expense | $73.8 | $80.2 | (10) Debt and Finance Lease Obligations (in millions) | Item | June 30, 2024 | December 31, 2023 | | :----------------------------------------- | :------------ | :------------------ | | Total debt before premiums, discounts and deferred financing costs | $8,131.1 | $8,242.2 | | Total carrying amount of debt | $8,075.5 | $8,174.4 | | Finance lease obligations | $5.2 | $5.5 | | Total debt and finance lease obligations | $8,080.7 | $8,179.9 | | Less: Current maturities | $(499.6) | $(581.9) | | Long-term debt and finance lease obligations | $7,581.1 | $7,598.0 | - (10) Debt and Finance Lease Obligations: The weighted average interest rate on total debt was 7.1% at June 30, 2024[66] - (10) Debt and Finance Lease Obligations: Subsequent to June 30, 2024, the remaining $140 million principal amount of Convertible Notes was repurchased and cancelled[68][79] - (11) Unfulfilled Performance Obligations: Approximately $260 million in unfulfilled performance obligations, primarily from subsea contracts, are expected to be recognized as revenue over an average remaining life of four years[80] - (12) Equity: The Share Repurchase Program was authorized for an additional $200 million through December 2026, with $257 million remaining at June 30, 2024[81][83] - (12) Equity: The company repurchased 4 million Class A and 8 million Class C common shares during the six months ended June 30, 2024[83] (13) Programming and Other Direct Costs of Services (Six months ended June 30, in millions) | Category | 2024 | 2023 | | :----------------------------- | :---- | :---- | | Programming and copyright | $120.5| $120.1| | Interconnect | $137.8| $150.0| | Equipment | $151.5| $159.1| | Project-related and other | $75.7 | $51.9 | | Total | $485.5| $481.1| (14) Other Operating Costs and Expenses (Six months ended June 30, in millions) | Category | 2024 | 2023 | | :------------------------------------------------- | :------ | :------ | | Personnel and contract labor | $300.0 | $287.3 | | Network-related | $127.6 | $128.4 | | Service-related | $137.1 | $110.3 | | Commercial | $99.9 | $89.1 | | Facility, provision, franchise and other | $304.0 | $284.2 | | Share-based compensation and other Employee Incentive Plan-related expense | $43.0 | $53.7 | | Total | $1,011.6| $953.0 | - (15) Income Taxes: The company recognized an income tax benefit of $31 million for the six months ended June 30, 2024, compared to an expense of $(42) million in the prior-year period, with effective tax rates of (45.2%) and 395.2% respectively[91] (16) Basic and Diluted EPS (Six months ended June 30, in millions, except per share amounts) | Item | 2024 | 2023 | | :------------------------------------------------- | :------ | :------ | | Net earnings (loss) attributable to Liberty Latin America shareholders - basic | $(43.2) | $(30.5) | | Weighted average shares - basic | 200.3 | 214.0 | | Basic net earnings (loss) per share | $(0.22) | $(0.14) | | Diluted net earnings (loss) per share | $(0.22) | $(0.14) | - (17) Commitments and Contingencies: The company has contingent liabilities related to legal proceedings, tax issues, and disputes, with outcomes generally uncertain but not expected to result in material payments[102] - (18) Segment Reporting: The company's reportable segments include C&W Caribbean, C&W Panama, Liberty Networks, Liberty Puerto Rico, and Liberty Costa Rica, with performance evaluated based on revenue and Adjusted OIBDA[104][105] (18) Segment Revenue (Six months ended June 30, in millions) | Segment | 2024 | 2023 | | :---------------- | :-------- | :-------- | | C&W Caribbean | $732.5 | $710.1 | | C&W Panama | $366.4 | $346.1 | | Liberty Networks | $227.6 | $227.3 | | Liberty Puerto Rico | $635.8 | $713.0 | | Liberty Costa Rica| $299.5 | $264.4 | | Total | $2,217.4 | $2,221.7 | (18) Segment Adjusted OIBDA (Six months ended June 30, in millions) | Segment | 2024 | 2023 | | :---------------- | :------ | :------ | | C&W Caribbean | $307.6 | $286.5 | | C&W Panama | $121.6 | $102.5 | | Liberty Networks | $122.3 | $135.8 | | Liberty Puerto Rico | $140.2 | $265.2 | | Liberty Costa Rica| $111.7 | $95.3 | | Total | $763.3 | $841.3 | Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Liberty Latin America Ltd.'s financial condition and results of operations for the three and six months ended June 30, 2024 Forward-looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties, including economic conditions, competitive environment, currency fluctuations, regulatory changes, and the ability to integrate acquisitions and manage technological shifts[134][135][136][137] - Key risk factors include the impact of Hurricane Beryl, the transaction with Millicom in Costa Rica, subscriber growth and retention, and compliance with debt covenants[134] Overview This section provides a high-level summary of Liberty Latin America's business, its operational footprint, and key strategic developments - Liberty Latin America is an international provider of fixed, mobile, and subsea telecommunications services across Latin America and the Caribbean, serving 3,997,400 RGUs and 7,912,300 mobile subscribers at June 30, 2024[140] - Hurricane Beryl is expected to negatively impact revenue and Adjusted OIBDA by $10-20 million for the remainder of 2024, primarily in Q3, but triggered Weather Derivatives are expected to yield approximately $44 million in net third-party proceeds[141][142] - The company entered an agreement with Millicom to combine Costa Rica operations, with Liberty Latin America and its minority partner holding approximately 86% interest, expected to close in H2 2025[143] Material Changes in Results of Operations This section discusses significant changes in the company's operating results, analyzing revenue, expenses, and profitability drivers across segments Operating Income Changes (in millions) | Item | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Change | | :--------------------------------- | :------------------------------- | :------------------------------- | :----- | | Operating income | $110.8 | $135.4 | $(24.6) | | Organic change | | | $(25.7) | | FX impact | | | $1.1 | Consolidated Adjusted OIBDA Changes (Six months ended June 30, in millions) | Item | 2024 | 2023 | Change | | :------------------- | :------ | :------ | :------ | | Consolidated Adjusted OIBDA | $763.3 | $841.3 | $(78.0) | | Organic changes | | | $(66.5) | | FX impact | | | $7.5 | Adjusted OIBDA Margin by Segment (%) | Segment | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :---------------- | :------------------------------- | :------------------------------- | | C&W Caribbean | 42.6 | 41.1 | | C&W Panama | 32.9 | 32.6 | | Liberty Networks | 53.0 | 60.9 | | Liberty Puerto Rico | 23.0 | 39.3 | | Liberty Costa Rica| 36.3 | 37.1 | - Liberty Puerto Rico experienced a significant organic revenue decrease of $(40.9) million for the three months ended June 30, 2024, primarily due to declines in mobile subscribers and lower equipment sales, impacted by customer migration and network outages[161][178][179] - C&W Caribbean's revenue increased organically by $13.7 million for the three months ended June 30, 2024, driven by higher broadband internet RGUs and B2B project-related revenue[161][165][166] - Consolidated programming and other direct costs of services increased organically by $9.0 million for the three months ended June 30, 2024, mainly due to higher B2B project-related costs[189] - Consolidated other operating costs and expenses increased organically by $26.8 million for the three months ended June 30, 2024, with significant increases in facility, provision, franchise and other costs, and commercial expenses[208] - Interest expense increased by $7 million for the three months ended June 30, 2024, due to higher average outstanding debt balances (including Tower Transactions) and increased weighted-average interest rates[240] Realized and Unrealized Gains on Derivative Instruments, Net (Three months ended June 30, in millions) | Category | 2024 | 2023 | | :----------------------------------------- | :---- | :---- | | Interest rate derivative contracts | $24.7 | $75.2 | | Foreign currency forward contracts and other | $6.5 | $(3.1)| | Weather Derivatives | $(7.3)| $(7.7)| | Total | $23.9 | $64.4 | Material Changes in Financial Condition This section analyzes significant changes in the company's financial position, including liquidity, debt, and cash flow activities Cash and Cash Equivalents by Entity (June 30, 2024, in millions) | Entity | Amount | | :------------------------------------ | :----- | | Liberty Latin America (standalone) | $43.2 | | Unrestricted subsidiaries | $61.0 | | C&W borrowing group | $465.7 | | Liberty Puerto Rico borrowing group | $18.8 | | Liberty Costa Rica borrowing group | $9.9 | | Total cash and cash equivalents | $598.6 | - The company's liquidity is primarily derived from cash and cash equivalents held by Liberty Latin America and its unrestricted subsidiaries, as well as cash generated by its three primary borrowing groups (C&W, Liberty Puerto Rico, Liberty Costa Rica)[253][256] - During the six months ended June 30, 2024, the company repurchased $83 million of its common shares under the Share Repurchase Program[257] - At June 30, 2024, the total outstanding principal amount of debt and finance lease obligations was $8,136 million, with a weighted average interest rate of 7.1% (6.0% including derivative effects)[261][262] - All borrowing groups were in compliance with debt covenants[262] Condensed Consolidated Statements of Cash Flows Summary (Six months ended June 30, in millions) | Cash Flow Activity | 2024 | 2023 | Change | | :------------------------------------ | :-------- | :-------- | :------ | | Net cash provided by operating activities | $180.2 | $288.0 | $(107.8)| | Net cash used by investing activities | $(282.4) | $(291.1) | $8.7 | | Net cash used by financing activities | $(280.5) | $(132.7) | $(147.8)| | Net decrease in cash | $(385.3) | $(140.0) | $(245.3)| - The decrease in cash from operating activities is primarily due to a decline in Adjusted OIBDA, higher interest payments, and increased tax payments[265] - Property and equipment additions decreased to $314.5 million for the six months ended June 30, 2024, representing 14.2% of revenue, down from 15.2% in the prior-year period[269] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section outlines Liberty Latin America Ltd.'s exposure to market risks, primarily foreign currency exchange rates and interest rates, and details risk management strategies - The company manages foreign currency exchange risk by actively managing cash balance denominations and uses derivative instruments to protect against increases in interest rates on variable-rate debt[275][277] - At June 30, 2024, 96% of the company's total debt had a fixed or capped interest rate, including the impact of interest rate derivative contracts[277] - A 100 basis point increase in the relevant base rate would increase the aggregate fair value of C&W interest rate derivative contracts by approximately $77 million and Liberty Puerto Rico contracts by approximately $24 million[280][281] Projected Derivative Cash Payments (Receipts), Net (in millions) | Category | Remainder of 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | Total | | :------------------- | :---------------- | :------ | :-------- | :-------- | :------ | :------ | :-------- | | Interest-related | $(50.0) | $(64.4) | $(102.7) | $(102.7) | $(62.1) | $(24.3) | $(406.2) | | Other | $8.3 | $6.4 | — | — | — | — | $14.7 | | Total | $(41.7) | $(58.0) | $(102.7) | $(102.7) | $(62.1) | $(24.3) | $(391.5) | Item 4. CONTROLS AND PROCEDURES This section reports that Liberty Latin America Ltd.'s disclosure controls and procedures were deemed ineffective as of June 30, 2024, due to identified material weaknesses - Disclosure controls and procedures were evaluated as ineffective as of June 30, 2024, due to material weaknesses in internal control over financial reporting[287] - Remediation plans are ongoing, including designing and implementing additional manual controls, migrating acquired systems, and conducting control training[288][289] PART II - OTHER INFORMATION This part includes disclosures on legal proceedings, equity security sales, other information, and a list of exhibits Item 1. LEGAL PROCEEDINGS This section refers to Note 17 of the condensed consolidated financial statements for details on legal proceedings and contingent liabilities - The company's subsidiaries and affiliates are involved in litigation and have contingent liabilities related to claims arising in the normal course of business, as detailed in Note 17[291] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's Share Repurchase Program, including the additional $200 million authorization and shares repurchased during Q2 2024 - Directors approved an additional $200 million for the Share Repurchase Program through December 2026, bringing the remaining authorized amount to $257 million at June 30, 2024[292][295] Issuer Purchases of Equity Securities (April 1, 2024 – June 30, 2024, in millions, except per share amounts) | Period | Class | Total shares purchased | Average price per share | | :----------------------------------- | :---- | :--------------------- | :---------------------- | | April 1, 2024 through April 30, 2024 | Class A | 0.9 | $7.34 | | | Class C | 1.1 | $7.19 | | May 1, 2024 through May 31, 2024 | Class A | 0.3 | $8.63 | | | Class C | 0.3 | $8.29 | | June 1, 2024 through June 30, 2024 | Class A | 0.3 | $8.69 | | | Class C | — | — | | Total – April 1, 2024 through June 30, 2024 | Class A | 1.5 | $7.86 | | | Class C | 1.5 | $7.44 | Item 5. OTHER INFORMATION This section states that no directors or officers of Liberty Latin America Ltd. adopted or terminated Rule 10b5-1 trading arrangements during Q2 2024 - No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the second quarter of 2024[297] Item 6. EXHIBITS This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including amendments to incentive plans, certifications, and XBRL taxonomy documents - Exhibits filed include amendments to the 2018 Incentive Plan and Nonemployee Director Plan, certifications from the CEO and CFO, Section 1350 Certifications, and XBRL Inline Taxonomy Extension documents[298] SIGNATURES This section contains the formal signatures of Liberty Latin America Ltd.'s President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer - The report is duly signed by Balan Nair, President and Chief Executive Officer, and Christopher Noyes, Senior Vice President and Chief Financial Officer, on August 6, 2024[301]