Liberty Latin America(US:LILA)2025-02-19 21:48Part I: Business and Risk Factors Business Overview Liberty Latin America is a leading telecommunications provider in Latin America and the Caribbean, offering residential and B2B services and focusing on strategic transactions and network expansion General Development of Business The company actively expanded its footprint through network upgrades and strategic acquisitions, including EchoStar's assets and a pending joint venture with Millicom in Costa Rica - Acquired EchoStar's prepaid business and spectrum assets in Puerto Rico and USVI in September 2024 for $256 million in cash, payable in four annual installments28 - Announced an agreement in August 2024 to combine Costa Rican operations with Millicom, with Liberty Latin America holding an approximate 86% interest, with the transaction expected to close in the second half of 202528 - Monetized approximately 1,300 mobile tower sites in November 2023 through an agreement with Phoenix Tower International, with plans to build an additional 500 sites over the next four years28 - Completed the formation of a 50:50 joint venture in Chile with América Móvil in October 2022, though its interest was reduced to less than 10% in 202429 Operating Data As of December 31, 2024, the company served 8.05 million mobile subscribers and 1.94 million fixed-line customer relationships, with its fixed network passing 4.74 million homes Total Subscribers and RGUs by Segment (as of Dec 31, 2024) | Segment | Homes Passed | Customer Relationships | Total Fixed RGUs | Total Mobile Subscribers | | :--- | :--- | :--- | :--- | :--- | | C&W Caribbean | 1,756,500 | 810,700 | 1,695,100 | 1,964,400 | | C&W Panama | 959,300 | 262,200 | 659,600 | 1,957,700 | | Liberty Puerto Rico | 1,191,800 | 574,100 | 1,061,600 | 861,900 | | Liberty Costa Rica | 828,100 | 289,500 | 571,300 | 3,270,300 | | Total | 4,735,700 | 1,936,500 | 3,987,600 | 8,054,300 | - Network composition varies by market, with FTTH being predominant in Barbados (100%) and The Bahamas (89%), while HFC is the primary technology in Trinidad and Tobago (99%) and Puerto Rico (83%)56 Products and Services The company offers a comprehensive suite of residential and business services, including mobile, broadband, video, and telephony, with Liberty Networks operating an extensive regional fiber network - Offers converged fixed-mobile services across most of its operating footprint, which is a key strategic focus to enhance customer value and retention6465 - Network extension programs upgraded or passed approximately 800,000 homes in 2024, expanding the availability of high-speed broadband68 - Liberty Networks operates a subsea and terrestrial fiber network of approximately 50,000 km with an activated capacity of over 30 Tbps, connecting over 30 markets in the region82 Technology The company utilizes a mix of HFC and FTTH networks, with over 95% capable of 1 Gbps speeds, and has deployed 5G services in key markets - Over 95% of the company's fixed network is capable of delivering speeds of 1 Gbps or higher, utilizing a combination of FTTH and DOCSIS 3.1 technologies87 - 5G services are currently provided in Puerto Rico, Panama, Costa Rica, and the Cayman Islands, with the 5G capable network in Puerto Rico and USVI serving approximately 95% of the population9092 - The subsea network cables terminating in the U.S. carry over 35 Tbps, representing only about 25% of their potential capacity, indicating significant growth opportunities88 Regulatory Matters The company navigates complex regulatory environments across its markets, dealing with license renewals, rate regulation, and universal service obligations, while also securing funding for network expansion - In C&W Caribbean, the company is the incumbent provider in many markets and is subject to significant oversight, with license renewals pending in The Bahamas and Antigua100 - In Puerto Rico, LCPR was awarded approximately $72 million from the UPR Fund to provide high-speed broadband to over 914,000 locations, and also receives funding for mobile network expansion and participates in the BEAD program133149 - In Costa Rica, Liberty Telecomunicaciones participated in the 5G spectrum auction in January 2025, securing spectrum blocks for approximately $16.3 million and committing to deploy over 1,552 base stations162 Competition The company faces intense competition across all service categories from mobile, broadband, and video providers, employing strategies like high-speed connectivity and bundled services - Key mobile competitors include Digicel in the Caribbean, Millicom (Tigo) in Panama and Costa Rica, and T-Mobile/Claro in Puerto Rico168 - Broadband competition comes from other cable, DSL, and FTTH providers, with the company differentiating by offering download speeds up to 1 Gbps in many markets167168 - Video services face competition from traditional DTH providers and significant pressure from OTT services like Netflix and Disney+, as well as content piracy171172 Human Capital Resources As of December 31, 2024, the company employed approximately 10,000 full-time employees, with a focus on talent management and corporate social responsibility Employee Snapshot (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Total Full-Time Employees | ~10,000 | | Women in Workforce | 41% | | Women in Management | 39% | | Unionized Workforce | ~33% | | 2024 Employee Attrition | 16.3% | | 2024 eNPS | +24 | Risk Factors The company faces material risks from intense competition, rapid technological change, substantial leverage, diverse regulatory environments, and identified material weaknesses in internal controls - The company operates in highly competitive markets against DTH, FTTH, and OTT providers, which could adversely affect growth and pricing199201 - Substantial leverage of $8.1 billion as of December 31, 2024, could limit the ability to obtain additional financing and service debt obligations257 - Operations are subject to adverse regulation, including potential requirements to grant third-party access to network infrastructure, and risks related to license renewals234 - Identified material weaknesses in internal control over financial reporting could result in material misstatements in financial statements if not remediated315 Cybersecurity The company maintains a cybersecurity program aligned with NIST standards, overseen by the Audit Committee, and has not experienced material cybersecurity incidents to date - The Audit Committee oversees the cybersecurity program and receives quarterly reports from internal and external sources320 - The cybersecurity program aligns with the NIST framework (Identify, Protect, Detect, Respond, Recover) and is managed by the Global Information Security Office (GISO)321 - To the company's knowledge, no cybersecurity threats have materially affected the company as of the filing date330 Part II: Market, Financials, and Controls Market for Common Equity and Related Matters Liberty Latin America's Class A and C common shares trade on Nasdaq, with no current dividend plans but an active share repurchase program - The company has no present intention of paying cash dividends on its shares342 - As of December 31, 2024, $242 million remained authorized for share repurchases under the company's programs346 - The stock performance of both Class A and Class C shares has significantly underperformed the Nasdaq Composite and MSCI Emerging Markets indices from December 2019 to December 2024349 Management's Discussion and Analysis (MD&A) In 2024, the company reported a slight revenue decrease, a significant operating loss due to impairment, and reduced Adjusted OIBDA, with liquidity primarily held within borrowing groups Results of Operations (2024 vs. 2023) For 2024, revenue decreased by 1.2% to $4.46 billion, resulting in an operating loss of $48.3 million and a widened net loss, primarily due to a $538.4 million impairment charge Consolidated Operating Results (in millions) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $4,456.9 | $4,511.1 | (1.2)% | | Operating Income (Loss) | $(48.3) | $517.7 | (109.3)% | | Adjusted OIBDA | $1,593.7 | $1,701.6 | (6.3)% | | Net Loss Attributable to Shareholders | $(657.0) | $(73.6) | (792.7)% | - A goodwill impairment charge of $516 million at the Liberty Puerto Rico reporting unit was the primary driver of the significant operating loss in 2024427694 - Revenue performance varied by segment: C&W Caribbean and C&W Panama saw modest growth, while Liberty Puerto Rico experienced a significant decline of 11.1% ($157.2 million) due to challenges in its mobile business379 - Hurricane Beryl in July 2024 negatively impacted revenue and Adjusted OIBDA by approximately $11 million and $14 million, respectively, but triggered a $44 million gain from weather derivatives353356 Liquidity and Capital Resources As of December 31, 2024, the company had $654.3 million in cash, $8.1 billion in total debt, and $796.3 million in unused borrowing capacity, with cash flow from operations at $756.3 million Key Liquidity and Capitalization Figures (as of Dec 31, 2024) | Metric | Amount (in millions) | | :--- | :--- | | Cash and Cash Equivalents | $654.3 | | Total Debt & Finance Leases | $8,143.0 | | Unused Borrowing Capacity | $796.3 | | 2024 Net Cash from Operations | $756.3 | | 2024 Property & Equipment Additions | $725.3 | - The company's ability to access cash is limited as a significant portion is held by its borrowing groups, subject to covenants and other restrictions443 - Net cash used in financing activities was $386.4 million, driven by $257 million in net debt repayments and $83 million in share repurchases462 Critical Accounting Policies, Judgments and Estimates The company's critical accounting policies involve significant judgment and estimates, particularly for impairment testing of assets and fair value measurements in acquisition accounting - Key critical accounting policies are: Impairment of property and equipment and intangible assets (including goodwill), and Fair value measurements in acquisition accounting470 - Impairment testing for goodwill involves a discounted cash flow analysis based on long-range business plans, which is subject to inherent uncertainties in estimates of subscriber growth, margins, and capital expenditures474 Market Risk Disclosures The company is exposed to market risks from foreign currency exchange rates and interest rates, managing the latter through derivatives to fix or cap 96% of its debt - Primary foreign currency exposures are to the Costa Rican colón (CRC) and Jamaican dollar (JMD), which represented 14% and 9.3% of 2024 revenue, respectively482 - As of December 31, 2024, 96% of the company's total debt was at a fixed or capped interest rate, including the impact of derivative contracts486 - A hypothetical 50 basis point (0.50%) increase in variable interest rates would increase annual interest expense by $16 million on unhedged debt488 Financial Statements and Supplementary Data The audited consolidated financial statements for 2024 show total assets of $12.8 billion and a net loss of $627.3 million, with the auditor issuing an adverse opinion on internal control effectiveness Consolidated Financial Highlights (in millions) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Balance Sheet | | | | Total Assets | $12,800.0 | $13,594.6 | | Total Liabilities | $11,174.0 | $11,284.9 | | Total Equity | $1,626.0 | $2,309.7 | | Statement of Operations (FY) | | | | Revenue | $4,456.9 | $4,511.1 | | Operating Income (Loss) | $(48.3) | $517.7 | | Net Loss | $(627.3) | $(86.8) | | Basic and Diluted EPS | $(3.31) | $(0.35) | - KPMG LLP issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2024520531 Note 10: Debt and Finance Lease Obligations As of December 31, 2024, total debt was $8.14 billion, primarily within three borrowing groups, with significant refinancing activities occurring subsequent to year-end Debt Principal by Borrowing Group (Dec 31, 2024) | Borrowing Group | Principal Amount (in millions) | | :--- | :--- | | C&W Credit Facilities & Notes | $4,425.2 | | LPR Credit Facilities & Notes | $2,651.0 | | LCR Credit Facilities | $450.0 | | Other | $612.6 | | Total | $8,138.8 | - Subsequent to year-end, C&W executed significant refinancing, including a new $1.5 billion term loan due 2032 and $755 million in senior notes due 2033, to repay and extend maturities of existing debt751 Note 8: Long-lived Assets The company recorded $538.4 million in impairment charges in 2024, primarily a $515.7 million goodwill impairment at Liberty Puerto Rico due to declining mobile performance - Recorded a $515.7 million goodwill impairment at the Liberty Puerto Rico reporting unit in 2024 due to declining mobile performance693694 Long-Lived Asset Balances (Dec 31, 2024, in millions) | Asset Category | Carrying Value | | :--- | :--- | | Goodwill | $2,981.0 | | Property and Equipment, Net | $4,062.4 | | Intangible Assets (not subject to amortization) | $1,813.3 | | Intangible Assets (subject to amortization), Net | $414.3 | Note 14: Income Taxes The company reported an income tax benefit in 2024, influenced by international rates and significant tax loss carryforwards of $8.1 billion, largely offset by a valuation allowance - The company has tax loss carryforwards of $8.1 billion, with the largest amounts in the U.K. ($5.96 billion), Barbados ($517 million), and Puerto Rico ($499 million)784 - A valuation allowance of $2.1 billion is recorded against deferred tax assets, indicating uncertainty about their future realization782 - Bermuda enacted a 15% corporate income tax effective for fiscal years starting on or after January 1, 2025, but the company does not expect to incur material tax liabilities there due to its holding company status314782 Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2024, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024503 - Four primary material weaknesses were identified: (1) insufficient skilled resources, (2) ineffective risk assessment, (3) ineffective information and communication, and (4) ineffective General Information Technology Controls (GITCs)508 - The independent auditor, KPMG LLP, issued an adverse report on the operating effectiveness of the company's internal control over financial reporting510 - A remediation plan is in progress, focusing on hiring, engaging third-party experts, implementing a central ERP system, and enhancing risk assessment and IT controls511