Liberty Latin America Announces First Quarter 2020 Results

  • Rebased1 revenue growth of 2% to $931 million
  • Strong RGU additions of 60,000, C&W additions 22% higher year-over-year
  • Operating income of $108 million, 5% lower compared to prior year
  • Rebased OCF2 growth of 4% to $364 million, growth in all reporting segments

 

DENVER, Colorado–(BUSINESS WIRE)–Liberty Latin America Ltd. (“Liberty Latin America” or “LLA”) (NASDAQ: LILA and LILAK, OTC Link: LILAB) today announced its financial and operating results for the three months ended March 31, 2020 (“Q1”).

The following is a letter to Shareholders from CEO Balan Nair:

Dear fellow shareholders,

We find ourselves in an unprecedented time with significant global economic uncertainty stemming from the COVID-19 pandemic. For this quarter, I decided to adjust our usual format and write you this letter as I believe it is crucial to be direct and transparent about how we’re responding to this challenge and why we see ourselves emerging from it stronger than before.

Let me start by saying that our first quarter exceeded my expectations. Liberty Puerto Rico performed really well and VTR had a good quarter despite the social unrest in Chile. C&W nailed it with record Q1 fixed adds and the best Q1 OCF performance since acquisition. This strong performance is a testament to the hard work and commitment of our employees and demonstrates that the changes we have made to our operating model over the last 24 months are working.

Now, we know the next three quarters won’t look like the first or what we had planned for the year. As a result, we are withdrawing our guidance that we shared with you just a few months ago. The reasons are clear. The Coronavirus is unpredictable, government responses and policies are uncertain and nobody can be sure how long this disruption will last.

What I do know is that my management team and I are ready for this. We have shown that we can overcome challenges in our markets and become a stronger company. I can also tell you that we know how to run our business to generate cash and are focused on generating positive free cash flow in 2020. Based on our current view of the virus’ impact on our business, we initiated a reduction of $150 million in fixed operating costs and capex. We also expect that our variable costs, such as COGS and activity related costs and capex, will go down with reductions in revenue. We have more than enough liquidity on our balance sheet to weather this difficult period. Cash in the bank and positive free cash flow from our operations gives us stability and flexibility.

Our mission has never been more important. Our networks enable social interactions, education for children, connectivity for work, access to information, platforms for governments to reach their citizens, and our submarine cables connect all to the global internet. Essentially, we are critical to a functioning society.

However, many of our customers are not as fortunate. The lack of tourism across C&W’s Caribbean islands is impacting economies. Hotels are temporarily closed. Small businesses across the region are facing difficulties due to lockdowns. We know our customers are doing what they can to weather this storm. We are here for them now. And we will be here for them when this is over.

This is like a hurricane that we are going through and I thought I would share with you how I am running our business through this storm. I have a framework focused on eight areas.

1. People and safety

I am pleased to report that the number of our employees infected by COVID-19 is small, and all of them have recovered or are on the road to recovery. We are happy that the governments in our markets have been proactive to flatten the curve and avoid spikes in infections. The health and well-being of our employees are at the top of our minds. At the end of February, we acted quickly and restricted all non-essential travel. We then instituted a company-wide work-from-home policy, and also provided our technicians and frontline workers with the tools and equipment to keep themselves and others safe while they worked tirelessly to keep the communities we serve connected.

The culture that we have created and embedded in our company is paying dividends. Employee morale is high and commitment to fellow colleagues and our customers is very strong.

2. Network

The network is our bread and butter. Since, the beginning of March, we have seen double digit percentage peak traffic increases in our mobile networks and roughly 40% increases in our fixed and subsea networks usage. Our network team has maintained the quality and capacity in every node, hub, tower and landing station. We handled the increased traffic and provided great service. Our investments in the network, and in the home with Connect box advanced Wi-Fi are paying off for our customers. Many of our key vendors across LLA have stepped up and partners like Netflix and Google have also been very helpful in helping us manage this traffic.

3. Commercial

Our focus has been to keep our customers and communities connected when they need it the most. To do that, we rapidly responded to retail store closings, broadband demand growth, call center traffic increases, B2B customer challenges, and cash collection difficulties. We also rolled-out new value propositions to adapt to changes in local economies. In light of these factors, we took the following actions:

  • We made sure that our technicians could handle the increased volume of installs and to do it safely;
  • We implemented and expanded self-install processes;
  • We created virtual stores;
  • We enabled our call centers to work from home;
  • We implemented a new WhatsApp channel for customers to service their accounts;
  • We created new connectivity plans for customers that are facing economic hardship; and
  • We put in new ways for customers to pay us with roving cash collection vans and digital channels.

These initiatives are showing results. We have had some of our highest broadband daily sales in the last 4-5 weeks in Puerto Rico and Chile. Our non-voice call center traffic, including using WhatsApp, is now past 20%. Our self-installs are growing fast and our relationships with B2B customers are stronger as they see how we have responded to their needs in these troubled times.

4. Government Affairs

We are working closely with governments to make sure that they know we are here to provide critical service to their countries now and in the future. We are demonstrating that we are a stable source of employment and provide an essential service. Governments are our partners in tackling this scourge, and we have worked together to gain access to additional spectrum, designate our technicians and installers as “essential” so they can keep our networks up and running, promote the responsible use of the internet, and protect networks against senseless vandalism.

5. COVID-19 Task Force

In mid-March, I created a special task force with colleagues across our operations and functions to drive three primary items:

  1. Scenario plan to stress test our business;
  2. Identify areas in which we should reduce costs and areas in which we should continue to invest for the future; and
  3. Innovate and prepare our company for a post-Coronavirus world.

This team has accomplished 1 and 2, and we are working on point 3 now.

6. Finance/Treasury

We used the scenario planning to ensure that, combined with our actions to decrease our costs, we have sufficient liquidity.

We closed Q1 with $1.6 billion of cash and $650 million remaining on our revolving credit facilities. In March, we did proactively draw down $467 million out of our $1.1 billion revolving lines, which added to our reported Q1 cash totals, and importantly, this cash remains on our balance sheet as of today. We drew the RCFs for three key reasons: our general concern about the health and capacity of global financial institutions; our desire to lock-in the final piece of funding for the AT&T transaction; and to have a buffer for any near-term working capital swings resulting in part from lower revenue from customers and/or lower collection activities.

We remain comfortable with our leverage and liquidity position, as our extended maturity profile and covenant headroom provides us with a degree of confidence. We continue to buy back stock under the program announced in March, albeit at prudent levels. And we will continue our new build and upgrade program across LLA. We are leaning in on the thesis for this enterprise.

7. M&A

We are excited about the opportunities presented by the proposed acquisition of AT&T’s assets in Puerto Rico and the USVI and continue to work closely with our counterparts at AT&T to prepare for integration. We expect to close the transaction in the second half of this year. This transaction is accretive to us on a cash flow per share basis. It is mostly a post-paid mobile business and adds to our ability to bring converged services to Puerto Rico. We also remain on the lookout for opportunities to create value in consolidation, asset swaps or general market dislocation situations.

8. Governance

Our board has deep experience and knowledge of our industry, in balance sheet management, operations and M&A. I update my board weekly and have a video conference meeting bi-weekly. I am tapping their knowledge and experience. I am also spending time with investors and other CEOs in our industry to get their perspective. This is a new experience for all of us, but we are in it together.

Hopefully, you can see from my letter that we know the challenges ahead of us are not going to be easy. We are taking the proactive steps we believe necessary to run our business effectively and to come out even stronger. I am proud of my management team. For each of my initiatives above, I partner with one of my executive team members to drive results. We run a very distributed decision-making process that is effective and agile. This crisis has accelerated many things that we were planning on doing. And we feel good about that.

We are not deviating from our strategy, as our thesis remains strong. While we must address the current challenges, we are still managing for success over the longer term. Everybody in Latin America and across the Caribbean wants broadband, everybody wants to be connected, everybody wants great service and everybody wants a great network. We intend to provide all that with good value, everywhere we operate. And I couldn’t be prouder of all my colleagues. They have really stepped up.

This is not our first rodeo on dealing with a crisis. Like I said before, we are running this like a hurricane just hit us. But unlike a hurricane, we have nothing to rebuild at the end of this. We are pragmatic about the challenges and confident about the future.

Thank you for your support.

Balan

Business Highlights

  • C&W’s improved operational execution drove strong Q1 performance:

    • Record Q1 RGU additions of 38,000, up 22% YoY
    • New build / upgrade activity added ~40,000 homes, mainly in Panama and Jamaica
    • Robust financial performance with rebased revenue growth of 2% and OCF growth of 6%
  • VTR/Cabletica steady start to the year:

    • Continued broadband RGU growth with 21,000 additions
    • Strong mobile and B2B growth in Chile
    • New build / upgrade activity added ~30,000 homes
  • Liberty Puerto Rico continued to deliver growth across operating and financial metrics:

    • 9,000 RGU additions in Q1 driven by strong broadband performance
    • Integration planning for AT&T assets progressing well
    • Q1 rebased OCF growth of 4% to $51 million

LLA 2020 Financial Guidance

  • Due to the lack of visibility on the duration and extent of impacts related to the COVID-19 pandemic, we are withdrawing previously provided financial guidance at this time.

Financial Highlights

Liberty Latin America

 

Q1 2020

 

Q1 2019

 

YoY Growth/

(Decline)*

 

 

 

 

 

 

 

(in millions, except % amounts)

 

 

 

 

 

 

Revenue

 

$

931

 

 

$

943

 

 

1.6

%

OCF

 

$

364

 

 

$

366

 

 

4.2

%

Property & equipment additions

 

$

133

 

 

139

 

 

(4.5

%)

As a percentage of revenue

 

14

%

 

15

%

 

 

 

 

 

 

 

 

 

Operating income

 

$

108

 

 

$

113

 

 

(4.9

%)

 

 

 

 

 

 

 

Adjusted FCF3

 

$

(49

)

 

$

48

 

 

 

Cash provided by operating activities.

 

$

115

 

 

$

188

 

 

 

Cash used by investing activities

 

$

(147

)

 

$

(286

)

 

 

Cash provided by financing activities

$

455

$

39 

* Revenue and OCF rates are on a rebased basis.

COVID-19 UPDATE

  • In December 2019, COVID-19 was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a “pandemic,” pointing to the sustained risk of further global spread. To date, confirmed cases of COVID-19 are present in each of the markets in which we operate.
  • Through March 31, 2020, COVID-19 has not had a material impact on our financial position, results of operations or liquidity. The extent to which COVID-19 impacts our future operational and financial performance will depend on a number of uncertain developments, which include, among other factors:

    • the duration and spread of the outbreak;
    • the ability of governments and medical professionals in our markets to respond to the outbreak;
    • the impact of government regulations imposed in response to the pandemic;
    • the impact on our customers and our sales cycles;
    • the impact on actual and expected customer receivable collection patterns;
    • the impact on our employees, including that from labor shortages or work from home initiatives;
    • the impacts on foreign currency and interest rate fluctuations; and
    • the effect on our vendors, as COVID-19 could have adverse impacts on our supply chain thereby impacting our customers’ ability to use our services.
  • Given the impacts of COVID-19 continue to rapidly evolve, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain and cannot be predicted at this time. If the disruptions we are experiencing were to worsen or extend over a prolonged period, COVID-19 could have a material adverse impact on our results of operations and cash flows, financial condition and liquidity.
  • As COVID-19 continues to spread, we have, and expect to continue to take, a variety of measures to promote the safety and security of our employees, and ensure the availability of our communication services. To this end, we have upgraded our network in an effort to handle peak traffic, accelerated our digital transformation efforts, initiated moves to self-installations for as many of our services and customers as possible, are developing innovative pricing plans that meet our customers’ needs across our prepaid products, our fixed products, our Pay-TV products, and our B2B products, and continue to evaluate and change our cost structure.

    • In this regard, in an effort to mitigate potential revenue challenges that may arise from COVID-19, and based on our current view of the potential impacts of COVID-19 on our business, we have identified and begun to take actions that are expected to help reduce certain fixed-related operating costs and capital costs by approximately $150 million during the remainder of 2020, of which approximately half relates to operating costs and expenses.

Subscriber Growth4

 

Three months ended

 

March 31,

 

2020

 

2019

Organic RGU net additions by product

 

 

 

Video

4,600

 

 

14,900

 

Data

48,400

 

 

50,100

 

Voice

7,000

 

 

8,000

 

Total

60,000

 

 

73,000

 

 

 

 

 

Organic RGU net additions by segment

 

 

 

C&W

38,400

 

 

31,600

 

VTR/Cabletica

12,600

 

 

19,700

 

Liberty Puerto Rico

9,000

 

 

21,700

 

Total

60,000

 

 

73,000

 

 

 

 

 

Organic Mobile SIM additions (losses) by product

 

 

 

Postpaid

4,800

 

 

10,400

 

Prepaid

(43,500

)

 

400

 

Total

(38,700

)

 

10,800

 

 

 

 

 

Organic Mobile SIM additions (losses) by segment

 

 

 

C&W

(42,800

)

 

800

 

VTR/Cabletica

4,100

 

 

10,000

 

Total

(38,700

)

 

10,800

 

  • Fixed customer additions: Organic additions of 31,000 in Q1 2020 with gains in each reporting segment, led by VTR/Cabletica with 16,000.

    • C&W reported a record quarter, with 10,000 customer additions, 25% above the prior-year period.
  • Product additions: Organic fixed RGU additions of 60,000 in Q1 2020 were driven by broadband subscriber growth. Mobile organic losses totaled 39,000 in the quarter.
  • C&W added 38,000 fixed RGUs during the quarter; our best Q1 result since 2016. This included 20,000 and 14,000 net additions in Jamaica and Panama, respectively.

    • Broadband RGU additions of 21,000 were up 5,000 year-over-year, supported by improvements in operational execution and our ongoing new build / upgrade program. Gains were driven by continued success in our largest markets of Jamaica and Panama, with additions of 11,000 and 6,000 RGUs, respectively. Markets in C&W’s Other category also performed strongly, adding 4,000 broadband RGUs.
    • Video RGU additions of 5,000 were nearly double the prior-year quarter, driven by Barbados Jamaica and Panama, where we added 2,000 subscribers in each market.
    • Fixed-line telephony RGU additions of 12,000 were in-line year-over-year, and again driven by Jamaica and Panama, where we added 7,000 and 5,000 subscribers, respectively.
    • Mobile subscribers declined by 43,000 in Q1 compared to additions of 1,000 in the prior-year period. The year-over-year decline was driven by a 35,000 swing in Panama from 21,000 additions in Q1 2019 to 15,000 losses in Q1 2020, as we continue to operate in a challenging competitive environment. In Jamaica, we reported a decline in subscriber numbers of 19,000. First quarter subscriber losses in Jamaica are typical due to seasonality, however this year the decline was also partly driven by increased promotional activity from our competitor.
  • VTR/Cabletica added 13,000 fixed RGUs during Q1. VTR added 6,000 RGUs driven by 14,000 broadband additions, despite some residual impact from prior social unrest, offset by 8,000 fixed-line telephony RGU losses. Cabletica added 7,000 RGUs in total, driven by broadband.

    • VTR delivered another quarter of growth in mobile, adding 4,000 subscribers in Q1 and taking our overall base to 305,000. At March 31, 2020, over 95% of VTR’s mobile subscribers were on postpaid plans.
  • Liberty Puerto Rico added 9,000 fixed RGUs in Q1 driven by broadband additions over our leading, high-speed network. Our Q1 2020 performance was particularly robust given disruption to sales activity related to the earthquakes early in the quarter. Strong additions in Q1 2019 were driven by the recovery of our subscriber base following Hurricane Maria.

Revenue Highlights

The following table presents (i) revenue of each of our reportable segments for the comparative period and (ii) the percentage change from period-to-period on both a reported and rebased basis:

 

Three months ended

 

Increase/(decrease)

 

March 31,

 

 

2020

 

2019

 

%

 

Rebased %

 

in millions, except % amounts

 

 

 

 

 

 

 

 

C&W

$

588.6

 

 

$

569.8

 

 

3.3

 

 

1.6

 

VTR/Cabletica

240.1

 

 

276.5

 

 

(13.2

)

 

1.2

 

Liberty Puerto Rico

104.6

 

 

98.6

 

 

6.1

 

 

3.2

 

Intersegment eliminations

(2.3

)

 

(2.2

)

 

4.5

 

 

4.5

 

Total

$

931.0

 

 

$

942.7

 

 

(1.2

)

 

1.6

 

N.M. – Not Meaningful.

  • Our reported revenue for the three months ended March 31, 2020 decreased by 1%.

    • The reported revenue decline was largely driven by (1) a net negative foreign exchange (“FX”) impact of $47 million, primarily related to a 21% appreciation of the US dollar in relation to the Chilean peso, and (2) a $15 million reduction as compared to the prior-year period from the disposal of C&W’s Seychelles business. These declines were partially offset by (1) $32 million related to the acquisition of UTS and (2) organic growth in each of our reportable segments.

Q1 2020 Rebased Revenue Growth – Segment Highlights

  • C&W: Rebased revenue growth of 2% year-over-year.

    • B2B revenue grew by 4% on a rebased basis. This growth was driven by subsea network revenue, which included an $8 million year-over-year increase associated with revenue recognized on a cash basis for services provided to a significant customer, as well as growth in B2B service revenue.
    • Fixed residential revenue was up 5% on a rebased basis, driven by subscriber growth in our largest markets.
    • Mobile revenue was 6% lower on a rebased basis. The decline was primarily driven by ARPU reductions year-over-year. Reduced subscribers, primarily due to competitive pressures in Panama and the Bahamas, were partly offset by higher average mobile subscribers in Jamaica where we have successfully built our subscriber base over the past twelve months.
  • VTR/Cabletica: Rebased revenue growth of 1% was driven by broadband performance in both Chile and Costa Rica, as we continued to add subscribers across our expanding high-speed footprints. In Chile, we also generated growth in mobile and B2B services through subscriber additions.
  • Liberty Puerto Rico: Rebased revenue growth of 3% was primarily driven by broadband subscriber additions, reflecting the strength of our networks and entertainment propositions. This growth was despite $2 million of credits issued to customers as a result of power outages following earthquakes early in the quarter.

Operating Income

  • Operating income was $108 million and $113 million for the three months ended March 31, 2020 and 2019, respectively.

    • Operating income decreased during Q1 2020, as compared with Q1 2019, primarily due to (i) increased share-based compensation expense, as certain bonuses will be settled with shares, and (ii) slightly lower OCF, as further discussed below. These items were partially offset by (i) lower depreciation and amortization expense and (ii) lower impairment, restructuring and other operating items, net.

Operating Cash Flow Highlights

The following table presents (i) OCF of each of our reportable segments and our corporate category for the comparative period and (ii) the percentage change from period-to-period on both a reported and rebased basis:

 

Three months ended

 

Increase (decrease)

 

March 31,

 

 

2020

 

2019

 

%

 

Rebased %

 

in millions, except % amounts

 

 

 

 

 

 

 

 

C&W

$

232.8

 

 

$

222.5

 

 

4.6

 

 

6.4

 

VTR/Cabletica

93.4

 

 

106.9

 

 

(12.6

)

 

1.9

 

Liberty Puerto Rico

50.5

 

 

47.9

 

 

5.4

 

 

3.8

 

Corporate

(12.8

)

 

(11.5

)

 

11.3

 

 

31.5

 

Total

$

363.9

 

 

$

365.8

 

 

(0.5

)

 

4.2

 

 

 

 

 

 

 

 

 

OCF Margin

39.1

%

 

38.8

%

 

 

 

 

  • Our reported OCF for the three months ended March 31, 2020 decreased by 1%.

    • Reported OCF decline was primarily driven by (1) a net negative FX impact of $18 million, mainly related to the Chilean peso and (2) a $6 million reduction, as compared to the prior-year period from the disposal of C&W’s Seychelles business. This was partially offset by (1) an increase of $11 million related to the acquisition of UTS, (2) organic growth in each of our reportable segments, and (3) lower bonus-related expenses in the current year related to certain amounts that will be settled with shares.

Q1 2020 Rebased OCF Growth – Segment Highlights

  • C&W: Rebased OCF growth of 6% was due in part to the aforementioned 2% rebased revenue growth as well as lower programming costs in Q1 due to reduced sports content costs.
  • VTR/Cabletica: Rebased OCF growth of 2% was driven by the segment’s 1% rebased revenue growth.
  • Liberty Puerto Rico: Rebased OCF was 4% higher than the prior-year period, driven by the previously mentioned revenue growth. Liberty Puerto Rico continues to have the highest OCF margin of our reporting segments at 48% in Q1 2020.
  • Corporate: The increase in corporate costs was primarily due to higher personnel costs and professional services, including with respect to establishing our new operations center in Panama.

Net Loss Attributable to Shareholders

  • Net loss attributable to shareholders was $181 million and $42 million for the three months ended March 31, 2020 and 2019, respectively.

Property and Equipment Additions and Capital Expenditures

The table below highlights the categories of the property and equipment additions for the indicated periods and reconciles those additions to the capital expenditures that are presented in the condensed consolidated statements of cash flows included in our Form 10-Q.

 

Three months ended

 

March 31,

 

2020

 

2019

 

in millions, except % amounts

 

 

 

 

Customer Premises Equipment

$

67.1

 

 

$

71.9

 

New Build & Upgrade

28.2

 

 

21.6

 

Capacity

6.1

 

 

10.9

 

Baseline

19.6

 

 

23.3

 

Product & Enablers

11.9

 

 

11.4

 

Property and equipment additions

132.9

 

 

139.1

 

Assets acquired under capital-related vendor financing arrangements

(23.6

)

 

(10.9

)

Assets acquired under finance leases

 

 

(0.1

)

Changes in current liabilities related to capital expenditures

39.9

 

 

31.5

 

Capital expenditures*

$

149.2

 

 

$

159.6

 

 

 

 

 

Property and equipment additions as % of revenue

14.3

%

 

14.8

%

 

 

 

 

Property and Equipment Additions of our Reportable Segments:

 

 

 

C&W

$

70.5

 

 

$

63.6

 

VTR/Cabletica

44.9

 

 

54.1

 

Liberty Puerto Rico

13.3

 

 

19.8

 

Corporate

4.2

 

 

1.6

 

Property and equipment additions

$

132.9

 

 

$

139.1

 

Contacts

Investor Relations

Kunal Patel, ir@lla.com

Corporate Communications

Claudia Restrepo, communications@lla.com

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