Liberty Latin America(US:LILA)2024-02-22 21:42Part I Business Overview Liberty Latin America is a major telecommunications provider in Latin America and the Caribbean, offering residential and B2B services, with recent strategic developments including tower monetization and joint ventures General Development of Business - Liberty Latin America is an international provider of fixed, mobile, and subsea telecommunications services across Latin America and the Caribbean, operating through segments including C&W Caribbean, C&W Panama, Liberty Puerto Rico, and Liberty Costa Rica2527 - The company has expanded its network, passing or upgrading approximately 1.6 million homes and commercial premises over the last three years through new build and upgrade projects26 - In November 2023, the company monetized approximately 1,300 mobile tower sites across six markets with Phoenix Tower International and agreed to build an additional 500 sites over the next five years28 - An agreement was made in November 2023 to acquire Dish Network's spectrum assets and prepaid mobile subscribers in Puerto Rico and the USVI for $256 million, payable in four annual installments, with the deal expected to close in 202428 - On October 6, 2022, the company formed a 50:50 joint venture in Chile with América Móvil, contributing its VTR operations. Liberty Latin America now accounts for this interest as an equity method investment28 - Completed the acquisition of América Móvil's Panama operations on July 1, 2022, for an enterprise value of $200 million28 - Completed the acquisition of Telefónica's Costa Rica operations on August 9, 2021, for an enterprise value of $500 million31 Operating Data Operating Data as of December 31, 2023 | Segment | Homes Passed | Customer Relationships | Total RGUs | Mobile Subscribers | | :--- | :--- | :--- | :--- | :--- | | C&W Caribbean | 1,738,600 | 832,200 | 1,739,000 | 1,970,000 | | C&W Panama | 953,600 | 260,400 | 620,500 | 1,856,400 | | Liberty Puerto Rico | 1,178,700 | 580,800 | 1,053,000 | 979,300 | | Liberty Costa Rica | 749,500 | 277,500 | 520,900 | 3,171,700 | | Total | 4,620,400 | 1,950,900 | 3,933,400 | 7,977,400 | Total Subscribers by Category as of December 31, 2023 | Category | Count | | :--- | :--- | | Video RGUs | 933,700 | | Internet RGUs | 1,801,400 | | Telephony RGUs | 1,198,300 | | Prepaid Mobile Subscribers | 5,556,500 | | Postpaid Mobile Subscribers | 2,420,900 | Products and Services - The company offers a comprehensive set of converged services, including mobile, broadband internet, video, and fixed-line telephony, across its markets in the Caribbean and Latin America5960 - Mobile services are offered throughout the operating footprint, with postpaid contracts typically ranging from 12 to 36 months and prepaid options available. Spectrum licenses generally have terms of 10 to 15 years616263 - Broadband internet services are delivered predominantly via FTTH or HFC networks, with a focus on increasing speeds to support streaming and multi-device usage. In 2023, network extension programs passed or upgraded approximately 349,200 homes6466 - Video services include advanced digital platforms with features like DVR, Video-on-Demand (VoD), and "TV Everywhere" mobile applications. The company also manages sports and entertainment channels in the Caribbean region6870 - B2B services are offered across all operations, with C&W having the most developed B2B business. Offerings include enterprise-grade connectivity, data center, hosting, and managed IT solutions73 - Liberty Networks operates an extensive subsea and terrestrial fiber optic cable network of approximately 50,000 kilometers with an activated capacity of over 20 Tbps, providing connectivity and wholesale solutions to carriers and businesses across the region747678 Technology and Supply Sources - The company primarily uses HFC and increasingly FTTH networks for broadband, video, and fixed-line telephony. Over 80% of the network is capable of delivering speeds of 1 Gbps or more, utilizing DOCSIS 3.1 and FTTH technologies8182 - Mobile networks deliver high-speed services with over 90% LTE population coverage. The company operates 5G networks in Puerto Rico and the USVI, serving approximately 95% of the population there, and is investing in a new virtualized, redundant mobile core in Puerto Rico8687 - Content is primarily licensed from third-party providers, including broadcasters and major studios, through multi-year, per-subscriber fee agreements. The company also operates its own channels like Flow Sports in the Caribbean88 - A variety of suppliers are used for mobile handsets and customer premises equipment (CPE) like set-top boxes and modems. The company implements dual sourcing strategies to mitigate supply chain risks91 Regulatory Matters - The company's businesses are regulated in each market, with regulations covering licensing, pricing, competition, and content. Adverse regulatory changes could limit growth and increase operating costs93 - In the Caribbean, C&W is the incumbent provider in many jurisdictions and is subject to significant regulatory oversight, including price caps and interconnection rate setting. License renewals are currently in process in key markets like Jamaica and The Bahamas949598 - In Puerto Rico, operations are regulated by the FCC and the local Telecommunications Bureau (TB). The company receives federal funding from the UPR Fund and Connect USVI Fund to deploy and harden networks, but this support is decreasing122125131 - In Costa Rica, operations are regulated by MICITT and Sutel. Liberty Telecomunicaciones holds two spectrum concessions, with the first expiring in May 2026 but renewable for an additional 10 years151152 - Regulators in some markets (e.g., Jamaica, ECTEL states) are mandating or considering third-party access to network infrastructure, which could increase competition and adversely impact revenue100101102 Competition - The company operates in a highly competitive environment, facing pressure from incumbent telecom companies, mobile operators, DTH satellite providers, and Over-the-Top (OTT) streaming services160165 - Key mobile competitors include Digicel in the Caribbean, Millicom (Tigo) in Panama and Costa Rica, and T-Mobile and Claro in Puerto Rico161166 - In broadband, the company competes with cable, DSL, and FTTH providers. A key strategy is speed leadership, offering up to 1 Gbps in many markets via HFC and FTTH networks162163 - Video services face significant competition from DTH providers like DirecTV and Dish Network, as well as OTT services such as Netflix, Disney+, and Max. Piracy is also a major challenge, particularly in jurisdictions with weak copyright enforcement165166169 - Fixed-line telephony competes with incumbent operators, other cable providers, and OTT telephony services like WhatsApp. The strategy focuses on value and bundling with other services175176 Human Capital Resources - As of December 31, 2023, the company employed approximately 10,600 full-time employees. Women represented 41% of the global workforce and 39% of managerial positions180 - The total employee attrition rate in 2023 was approximately 11.5%, and the company measured its Employee Net Promoter Score (eNPS) at +20181 - The company's Equality, Diversity & Inclusion (EDI) strategy focuses on gender equity, LGBTQIA+ inclusion, and race & ethnicity185 - Corporate Social Responsibility efforts are focused on Learning, Environment, Access, and Disaster Relief. In 2023, over 1,300 employees contributed more than 7,800 volunteer hours during the company-wide "Mission Week" initiative189190 Risk Factors The company faces diverse risks including intense competition, technological changes, complex regulations, foreign currency exposure, substantial leverage, cybersecurity threats, and corporate structure challenges - Competition and Technology: The company operates in highly competitive markets and faces risks from technological changes, potential failure to acquire desirable programming on acceptable terms, and dependence on third-party suppliers for equipment and software200203207 - Operational and Regulatory: A substantial portion of business is outside the U.S., exposing the company to foreign currency exchange risk, political and economic instability, and complex, adverse regulations that could limit growth and increase costs221228237 - Financial: The business is highly leveraged, with $8.2 billion in debt and finance lease obligations as of year-end 2023. This leverage could limit the ability to obtain additional financing and exposes the company to interest rate and credit market risks263270 - Cybersecurity: The company's systems are vulnerable to security breaches, cyberattacks, and natural disasters, which could disrupt operations, result in data loss, and damage its reputation284287 - Corporate Structure: As a holding company, its ability to meet financial obligations depends on accessing cash from subsidiaries, which may be restricted. Overlapping directors and officers with Liberty Global could create conflicts of interest297298 - Material Weaknesses: The company has identified and disclosed continuing material weaknesses in its internal control over financial reporting, which could result in material misstatements in financial statements if not remediated313314 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None Cybersecurity The company's cybersecurity program, overseen by the Audit Committee and managed by GISO, aligns with NIST standards and has not materially impacted operations to date - The cybersecurity program is overseen by the Audit Committee, which receives quarterly reports from management and external consultants317 - The program is managed by the Global Information Security Office (GISO) and aligns with the NIST cybersecurity framework functions (Identify, Protect, Detect, Respond, Recover)318 - The company utilizes third-party cybersecurity vendors for protection and engages experts to perform regular assessments, audits, and reviews of its cybersecurity measures320 - As of the filing date, the company has not experienced any cybersecurity threats that have had a material effect on its business strategy, operations, or financial condition325 Properties The company leases corporate offices and operates through subsidiaries that own or lease fixed assets, including a significant subsea network, which are deemed adequate for current operations - The company leases its corporate office in Denver, Colorado and an operations center in Panama City, Panama327 - Subsidiaries own or lease essential assets like office space, headend facilities, distribution equipment, and cell towers. The Liberty Networks segment owns significant portions of its subsea network327 Legal Proceedings The company and its subsidiaries are involved in routine litigation, with outcomes not expected to materially differ from estimates, though no assurance is provided - The company and its subsidiaries are involved in litigation relating to claims arising from their operations in the normal course of business328 Mine Safety Disclosures This item is not applicable to the company - Not applicable Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Liberty Latin America's Class A and C shares trade on Nasdaq, with no cash dividends paid, and the company has an active share repurchase program with $139 million remaining authorized - Class A (LILA) and Class C (LILAK) shares trade on the Nasdaq Global Select Market. Class B (LILAB) shares are eligible for the OTC Markets but lack an active trading market333 - The company has never paid a cash dividend and has no present intention to do so336 - On May 8, 2023, the Board approved an additional $200 million for the 2022 Share Repurchase Program, extending it through December 2025339 Share Repurchases in Q4 2023 | Period | Class | Total Shares Purchased (millions) | Average Price Paid per Share | | :--- | :--- | :--- | :--- | | Oct 2023 | A | 0.1 | $8.17 | | Oct 2023 | C | 0.8 | $7.63 | | Nov 2023 | A/C | — | $— | | Dec 2023 | A/C | — | $— | - As of December 31, 2023, $139 million remained authorized for future share repurchases under the program342 [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, revenue decreased to $4.51 billion due to the Chile JV disposition, while operating income significantly increased to $518 million due to lower impairment charges, and net loss narrowed to $74 million Overview - As of December 31, 2023, the company served 7,977,400 mobile subscribers and had 3,933,400 fixed-line RGUs, including 1,801,400 broadband internet subscribers348 - In November 2023, the company monetized approximately 1,300 mobile towers, receiving proceeds of about $244 million, which is recorded as debt349 - The company's strategy focuses on organic growth through bundled services and network upgrades, as well as selective acquisitions to build scale353354 Results of Operations Consolidated Operating Results (2023 vs. 2022) | Metric | 2023 (in millions) | 2022 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Revenue | $4,511.1 | $4,808.6 | $(297.5) | | Operating Income | $517.7 | $86.5 | $431.2 | | Consolidated Adjusted OIBDA | $1,701.6 | $1,709.9 | $(8.3) | | Net Loss | $(86.8) | $(207.8) | $121.0 | | Net Loss Attributable to Shareholders | $(73.6) | $(170.7) | $97.1 | - The decrease in 2023 revenue was primarily driven by the disposition of the Chile JV Entities, which contributed $450.6 million in 2022. Organically, revenue was nearly flat363374 - The significant increase in operating income was mainly due to a $532.3 million decrease in impairment, restructuring, and other operating items compared to the prior year363424 - Depreciation and amortization expense increased by $98 million (11%) in 2023, primarily due to property and equipment additions from network expansion and upgrades421 - Interest expense increased by $45 million in 2023 due to higher weighted-average interest rates, partially offset by lower average debt balances following the Chile JV disposition425 Liquidity and Capital Resources Cash and Cash Equivalents by Group (Dec 31, 2023) | Holding Group | Cash (in millions) | | :--- | :--- | | Liberty Latin America and unrestricted subsidiaries | $100.3 | | C&W | $737.9 | | Liberty Puerto Rico | $119.9 | | Liberty Costa Rica | $30.5 | | Total | $988.6 | Consolidated Cash Flow Summary (2023 vs. 2022) | Cash Flow Activity | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net cash from operating activities | $897.0 | $868.8 | | Net cash used by investing activities | $(615.8) | $(1,122.6) | | Net cash used by financing activities | $(62.4) | $(29.2) | - Total debt and finance lease obligations aggregated $8.25 billion as of December 31, 2023, with a weighted average interest rate of 7.1% (6.0% including derivative impacts)451453 - Property and equipment additions totaled $730.9 million in 2023, a decrease from $816.3 million in 2022, mainly due to the disposition of the Chile JV Entities459 - Financing activities in 2023 included $137 million in net debt borrowings (including $244 million from Tower Transactions), offset by $118 million in share repurchases and $75 million in distributions to noncontrolling interest owners460 Contractual Commitments as of December 31, 2023 | Obligation | Total (in millions) | Less than 1 year (in millions) | 1-3 years (in millions) | 3-5 years (in millions) | More than 5 years (in millions) | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt (excluding interest) | $8,242.2 | $586.9 | $59.9 | $5,498.9 | $2,096.5 | | Operating leases | $769.7 | $123.0 | $218.2 | $167.7 | $260.8 | | Other | $97.5 | $52.3 | $27.4 | $14.5 | $3.3 | | Total | $9,109.4 | $762.2 | $305.5 | $5,681.1 | $2,360.6 | Critical Accounting Policies, Judgments and Estimates - The company's critical accounting policies involve significant judgment and estimates, particularly regarding the impairment of property, equipment, and intangible assets (including goodwill), and fair value measurements in acquisition accounting468 - Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually (on July 1) or when triggering events occur. The fair value of reporting units is typically determined using a discounted cash flow model, which requires significant management judgment on estimates like subscriber growth, margins, and discount rates471472 - No goodwill impairments were recorded in 2023. However, significant goodwill impairments of $555 million and $605 million were recorded in 2022 and 2021, respectively, related to the C&W Caribbean segment473 - Acquisition accounting requires estimating the fair value of acquired assets and liabilities, including property and equipment, customer relationships, and spectrum licenses, which impacts future depreciation and amortization expenses474 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, primarily CRC and JMD, and interest rate changes on its $3.0 billion variable-rate debt, which is largely hedged, and manages counterparty credit risk - The company is exposed to foreign currency risk, primarily from the Costa Rican colón (CRC) and Jamaican dollar (JMD), which represented 12% and 9% of 2023 revenue, respectively. The company generally does not hedge against translation risk481 - Interest rate risk is managed through derivative instruments. As of December 31, 2023, 96% of the company's total debt was at a fixed or capped interest rate after accounting for these derivatives486 - The company's variable-rate debt totaled $3.0 billion at year-end 2023. A hypothetical 0.50% (50 basis point) increase in the variable interest rate would increase annual interest expense by $15 million, before considering the offsetting effects of derivative contracts487 - Counterparty credit risk is spread across a broad base of financial institutions for derivative instruments and undrawn debt facilities. At year-end 2023, exposure included $989 million in cash and $869 million in undrawn credit facilities488489 Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021-2023, including balance sheets, income statements, cash flows, and detailed notes, along with the independent auditor's report Report of Independent Registered Public Accounting Firm - KPMG LLP issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations of Liberty Latin America Ltd. in conformity with U.S. GAAP521529 - KPMG LLP issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023, due to the existence of material weaknesses520530 - The identified material weaknesses relate to: (1) insufficient number of resources with appropriate skills, (2) ineffective information and communication processes, (3) ineffective IT risk assessment and general IT controls (GITCs), and (4) consequent deficiencies in process-level controls across major financial reporting cycles523 - A critical audit matter identified was the assessment of goodwill impairment for certain reporting units, which required a high degree of subjective auditor judgment regarding key assumptions like projected revenues, costs, discount rates, and terminal growth rates534535 Consolidated Financial Statements Consolidated Balance Sheet Data (As of Dec 31) | Account | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $2,412.2 | $2,078.9 | | Goodwill | $3,483.4 | $3,421.3 | | Property and equipment, net | $4,205.7 | $4,293.6 | | Total Assets | $13,594.6 | $13,575.2 | | Total Current Liabilities | $2,132.6 | $1,773.8 | | Long-term debt and finance lease obligations | $7,598.0 | $7,653.8 | | Total Liabilities | $11,284.9 | $11,018.5 | | Total Equity | $2,309.7 | $2,556.7 | Consolidated Statement of Operations Data (Year Ended Dec 31) | Account | 2023 (in millions) | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | :--- | | Revenue | $4,511.1 | $4,808.6 | $4,811.3 | | Operating Income | $517.7 | $86.5 | $63.8 | | Net Loss | $(86.8) | $(207.8) | $(490.6) | | Net Loss Attributable to Shareholders | $(73.6) | $(170.7) | $(440.6) | | Basic and Diluted EPS | $(0.35) | $(0.77) | $(1.89) | Consolidated Statement of Cash Flows Data (Year Ended Dec 31) | Account | 2023 (in millions) | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash from operating activities | $897.0 | $868.8 | $1,016.2 | | Net cash used by investing activities | $(615.8) | $(1,122.6) | $(1,268.6) | | Net cash from (used by) financing activities | $(62.4) | $(29.2) | $426.6 | Notes to Consolidated Financial Statements - (Note 5) Acquisitions: A pending acquisition of Dish Network's spectrum assets in Puerto Rico and USVI for $256 million is expected to close in 2024. The note also details the final purchase price allocation for the 2022 Claro Panama acquisition and the 2021 Liberty Telecomunicaciones acquisition647648653 - (Note 6) Disposition: In October 2022, the company contributed its Chile JV Entities to form a 50:50 joint venture with América Móvil, resulting in a pre-tax gain of $169 million. The investment in the Chile JV is now accounted for using the equity method, and its carrying value was zero at year-end 2023661666667 - (Note 8) Long-lived Assets: Goodwill stood at $3.5 billion at year-end 2023. Impairment charges in 2023 totaled $67.0 million, primarily related to operating lease right-of-use assets in C&W Panama. This compares to significant goodwill impairments of $555.3 million in 2022 and $605.1 million in 2021 in the C&W Caribbean segment686691 - (Note 10) Debt: Total debt was $8.24 billion at year-end 2023. This includes proceeds of $244 million from the 2023 Tower Transactions, which are accounted for as a financial liability. The note details the debt structure by borrowing group (C&W, Liberty Puerto Rico, Liberty Costa Rica) and maturities705708 - (Note 12) Equity: The company repurchased $118.3 million of its common shares in 2023. As of December 31, 2023, $139 million remained available under the 2022 Share Repurchase Program754757 - (Note 16) Income Taxes: The company recorded an income tax expense of $24.4 million in 2023 on a pre-tax loss of $62.4 million. The effective tax rate is influenced by differing international rates, permanent differences, and changes in valuation allowances against deferred tax assets779782 - (Note 20) Segment Reporting: The note provides a detailed breakdown of revenue and Adjusted OIBDA by reportable segment (C&W Caribbean, C&W Panama, Liberty Networks, Liberty Puerto Rico, Liberty Costa Rica) and by major product category (residential fixed, residential mobile, B2B)809814821 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2023, due to material weaknesses in internal control over financial reporting, for which a remediation plan is underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to material weaknesses in internal control over financial reporting502 - The continuing material weaknesses include: (1) insufficient number of resources with appropriate skills, (2) ineffective information and communication processes, and (3) ineffective IT risk assessment and general information technology controls (GITCs)507508 - These deficiencies create a reasonable possibility that a material misstatement to the financial statements will not be prevented or detected on a timely basis508 - Management's remediation plan includes hiring more skilled individuals, enhancing communication processes (including implementing a new ERP), and improving the design and implementation of GITCs and process-level controls511 - The independent auditor, KPMG LLP, issued an adverse report on the operating effectiveness of the company's internal control over financial reporting510 Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023 - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended December 31, 2023514 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable Part III Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2024 Annual General Meeting of Shareholders - Information is incorporated by reference to the definitive proxy statement for the 2024 Annual General Meeting of Shareholders847 Executive Compensation Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2024 Annual General Meeting of Shareholders - Information is incorporated by reference to the definitive proxy statement for the 2024 Annual General Meeting of Shareholders847 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2024 Annual General Meeting of Shareholders - Information is incorporated by reference to the definitive proxy statement for the 2024 Annual General Meeting of Shareholders849 Certain Relationships and Related Transactions, and Director Independence Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2024 Annual General Meeting of Shareholders - Information is incorporated by reference to the definitive proxy statement for the 2024 Annual General Meeting of Shareholders849 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2024 proxy statement, with KPMG LLP serving as the independent auditor - Information is incorporated by reference to the definitive proxy statement for the 2024 Annual General Meeting of Shareholders847 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed with the report, noting the omission of schedules where information is not applicable or included elsewhere - The financial statements required under this item are included in the report851 - All financial statement schedules have been omitted because the required information is not applicable, not present in sufficient amounts, or is included in the consolidated financial statements and notes852 - A detailed list of exhibits filed with the Form 10-K is provided, including corporate governance documents, material contracts, and certifications853 Form 10-K Summary The company has not provided a summary for Form 10-K - None