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(a) | Except as otherwise noted, the amounts presented for each C&W jurisdiction include revenue from residential and B2B operations. |
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(b) | The amounts represent wholesale services revenue from various jurisdictions across the Caribbean and Latin America, primarily related to the sale and lease of telecom capacity on C&W’s sub-sea and terrestrial networks. |
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(c) | The amounts relate to a number of countries in which C&W has less significant operations, all but one of which are located in Latin America and the Caribbean. In addition, these amounts include C&W intercompany eliminations. |
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Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See the Glossary of defined terms at the beginning of this Quarterly Report on Form 10-Q.
The following discussion and analysis, which should be read in conjunction with our 2020 Form 10-K and the condensed consolidated financial statements and the discussion and analysisaccompanying notes included in our 2017Part I, Item 1 of this Quarterly Report on Form 10-K,10-Q, is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and is organized as follows:
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• | •Forward-looking Statements. This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events. •Overview. This section provides a general description of our business and recent events. •Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three months ended March 31, 2021 and 2020. • This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events. |
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• | Overview. This section provides a general description of our business and recent events.
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• | Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three months ended March 31, 2018 and 2017.
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• | Material Changes in Financial Condition. This section provides an analysis of our corporate and subsidiary liquidity, condensed consolidated statements of cash flows and contractual commitments. |
The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Latin America or collectively to Liberty Latin America and its subsidiaries.
Unless otherwise indicated, convenience translations into U.S. dollars are calculated, and operational data (including subscriber statistics) are presented, as of March 31, 2018.2021.
Forward-looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Quarterly Report on Form 10-Q are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In particular, statements under Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3. Quantitative and Qualitative Disclosures About Market Risk,and Item 4. Controls and Procedures may contain forward-looking statements, including statements regarding: our business, product, foreign currency and finance strategies in 2018; the anticipated rate and cost of our recovery in certain markets from the impact of Hurricanes Maria and Irma; our property and equipment additions in 2018;strategies; subscriber growth and retention rates; changes in competitive, regulatory and economic factors; the timing and impacts of proposed transactions; anticipated changes in our revenue, costsexpenses, or growth rates; debt levels; our liquidity;liquidity and our ability to access the liquidity of our subsidiaries; credit risks; internal control over financial reporting; foreign currency risks; target leverage levels;interest rate risks; compliance with debt, financial and other covenants; our future projected contractual commitments and cash flows; the Telefónica-Costa Rica Acquisition, including the expected closing date; the effects and potential impacts of COVID-19 on our business and results of operations; reductions in operating and capital costs; the remediation of material weaknesses; our Share Repurchase Program; the outcome and impact of pending litigation; and other information and statements that are not historical fact. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. In evaluating these statements, you should consideraddition to the risks and uncertainties discussedrisk factors described in Part I, Item 1A in our 20172020 Form 10-K, as well as the following list ofare some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
•economic and business conditions and industry trends in the countries in which we operate;
•the competitive environment in the industries in the countries in which we operate, including competitor responses to our products and services;
•fluctuations in currency exchange rates, inflation rates and interest rates;
•our relationships with third-party programming providers and broadcasters and the ability to acquire programming;
•our relationships with suppliers and licensors and the ability to maintain equipment, software and certain services;
•instability in global financial markets, including sovereign debt issues and related fiscal reforms;
•our ability to obtain additional financing and generate sufficient cash to meet our debt obligations;
•the impact of restrictions contained in certain of our subsidiaries’ debt instruments;
•consumer disposable income and spending levels, including the availability and amount of individual consumer debt;
•changes in consumer television viewing preferences and habits;habits, including on mobile devices that function on various operating systems and specifications, limited bandwidth, and different processing power and screen sizes;
•customer acceptance of our existing service offerings, including our video, broadband internet, fixed-line telephony, mobile and business service offerings, and of new technology, programming alternatives and other products and services that we may offer in the future;
•our ability to manage rapid technological changes;
•the impact of 5G and wireless technologies on broadband internet;
•our ability to maintain or increase the number of subscriptions to our video, broadband internet, fixed-line telephony and mobile service offerings and our average revenue per household;household and mobile subscriber;
•our ability to provide satisfactory customer service, including support for new and evolving products and services;
•our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers;
•the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital;
•changes in, or failure or inability to comply with, government regulations in the countries in which we or our affiliates operate and adverse outcomes from regulatory proceedings;
•government intervention that requires opening our broadband distribution networks to competitors;
•our ability to renew necessary regulatory licenses, concessions or other operating agreements and to otherwise acquire future spectrum or other licenses that we need to offer new mobile data or other technologies or services;
•our ability to obtain regulatory approval and satisfy other conditions necessary to close acquisitions and dispositions, and the impact of conditions imposed by competition and other regulatory authorities in connection with acquisitions;acquisitions, such as with respect to the Telefónica-Costa Rica Acquisition;
•our ability to successfully acquire new businesses and, if acquired, to integrate, realize anticipated efficiencies from and implement our business plan with respect to the businesses we have acquired or that we expect to acquire;acquire, such as with respect to the Telefónica-Costa Rica Acquisition;
•changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in other countries in which we operate and the results of any tax audits or our affiliates operate;tax disputes;
•changes in laws and government regulations that may impact the availability and cost of capital and the derivative instruments that hedge certain of our financial risks;
•the ability of suppliers and vendors, including third-party channel providers and broadcasters (including our third-party wireless network providersprovider under our MVNO arrangement), to timely deliver quality products, equipment, software, services and access;
•the availability of attractive programming for our video services and the costs associated with such programming, including retransmission and copyright fees payable to public and private broadcasters;
•uncertainties inherent in the development and integration of new business lines and business strategies;
•our ability to adequately forecast and plan future network requirements, including the costs and benefits associated with our network extension and upgrade programs;
•the availability of capital for the acquisition and/or development of telecommunications networks and services;services, including property and equipment additions;
certain factors outside of our control that may impact the timing and extent of the restoration of our networks and services in Puerto Rico and certain of our C&W markets following Hurricanes Irma and Maria;
•problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;acquire, such as with respect to the AT&T Acquired Entities and with respect to the Telefónica-Costa Rica Acquisition;
•the effect of any of the identified material weaknesses in our internal control over financial reporting;
•piracy, targeted vandalism against our networks, and cybersecurity threats or other security breaches, including the leakage of sensitive customer data;data, which could harm our business or reputation;
•the outcome of any pending or threatened litigation;
•the loss of key employees and the availability of qualified personnel;
•the effect of any strikes, work stoppages or other industrial actions that could affect our operations;
•changes in the nature of key strategic relationships with partners and joint venturers;
•our equity capital structure;
•our ability to realize the full value of our intangible assets;
•changes in and compliance with applicable data privacy laws, rules, and regulations;
•our ability to recoup insurance reimbursements and settlements from third-party providers;
•our ability to comply with economic and trade sanctions laws, such as the U.S. Treasury Department’s Office of Foreign Assets Control; and
•events that are outside of our control, such as political conditions and unrest in international markets, terrorist attacks, malicious human acts, hurricanes, volcanoes and other natural disasters, pandemics, including the COVID-19 pandemic, and other similar events.
The broadband distribution and mobile service industries are changing rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Quarterly Report on Form 10-Q are subject to a significant degree of risk. These forward-looking statements and the above described risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q,, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based. Readers are cautioned not to place undue reliance on any forward-looking statement.
Overview
General
We are an international provider of video, broadband internet, fixed-line telephonyfixed, mobile and mobilesubsea telecommunications services. We provide residential and B2B communications services in (i) 18over 20 countries, primarily in Latin America and the Caribbean, through C&W (ii) Chile through VTRCaribbean and (iii)Networks and C&W Panama, (ii) Puerto Rico, through Liberty Puerto Rico.Rico, (iii) Chile through VTR and (iv) Costa Rica through Cabletica. Through our Networks & LatAm business, C&W Caribbean and Networks also provides (i) B2B communication services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its sub-seasubsea and terrestrial fiber optic cable networks that connect over 40 markets in that region.
Operations
As described below, Hurricanes Irma and Maria caused significant damage to our operations in the Impacted Markets, as defined below, resulting in disruptions to our telecommunications services. As we are still in the process of assessing the operational impacts of the hurricanes in the Impacted Markets, we are unable to accurately estimate our homes passed and subscriber numbers as of March 31, 2018. Accordingly, the March 31, 2018 subscriber numbers for the Impacted Markets reflect subscriber amounts as of August 31, 2017 as adjusted through March 31, 2018 for (i) net voluntary disconnects and (ii) disconnects related to customers whose accounts are delinquent. The Liberty Puerto Rico homes passed reflect the August 31, 2017 levels adjusted for approximately 30,000 homes in geographic areas we may not rebuild.
At March 31, 2018,2021, we (i) owned and operated fixed networks that passed 6,457,9007,959,500 homes and served 5,231,000 revenue generating units (RGUs),6,262,300 RGUs, comprising 2,146,8002,797,900 broadband internet subscribers, 1,691,7001,957,100 video subscribers and 1,392,5001,507,300 fixed-line telephony subscribers, and (ii) served 3,620,4004,506,200 mobile subscribers.
During the first quarter of 2021, we completed an organizational change with respect to the management of CWP, VTR and Cabletica. As a result of this organizational change, VTR and Cabletica are now operating and reportable segments. Accordingly, as of March 31, 2021, our reportable segments are as follows:
•C&W Caribbean and Networks;
Hurricane Impact Update•C&W Panama;
•Liberty Puerto Rico;
•VTR; and
•Cabletica.
As a result of the aforementioned segment change, we have revised the presentation of the discussion and analysis set forth below in order to align with the current segment presentation included in our condensed consolidated financial statements.
COVID-19
In September 2017, Hurricanes Irma and Maria impactedDecember 2019, COVID-19 was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a number“pandemic,” pointing to the sustained risk of ourfurther global spread. To date, confirmed cases of COVID-19 have been experienced in each of the markets in the Caribbean, resulting in varying degrees of damage to homes, businesseswhich we operate. COVID-19 negatively impacted our operations during 2020 and infrastructure in these markets. The most extensive damage occurred in Puerto Rico and certain markets within our C&W reportable segment (collectively, the Impacted Markets). We continue to remain uncertain as to the extent and ultimate completion of our restoration and reconnection efforts in the Impacted Markets.
We maintain an integrated group property and business interruption insurance program covering all Impacted Markets up to a limit of $75 million per occurrence, which is generally subject to $15 million per occurrence of self-insurance. Although we are continuing to assess the alternatives under our insurance policy, we currently believe that the hurricanes will result in at least two occurrences. This policy is subject to the normal terms and conditions applicable to this type of insurance. We expect that the insurance recovery will only cover a portion of the incurred losses of each of our impacted businesses.
Duringhas continued into the three months ended March 31, 2018,2021, primarily within our C&W Caribbean and Networks, C&W Panama and VTR segments, due to resulting lockdowns, moratoriums, cancellation of live sporting events, and mobility, travel and tourism restrictions across many of the markets in which we received a net advance payment fromoperate. These factors collectively resulted in negative impacts to revenue, particularly within our third-party insurance providerB2B and mobile operations. The extent to which COVID-19 continues to impact our operational and financial performance will depend on certain developments, which include, among other factors:
•the duration and spread of $30 million associated with the initial insurance claims filed in connection with damages sustained from the hurricanes. Until such claims are legally settled, the advance is included in other accrued and current liabilities in our condensed consolidated balance sheet.
Liberty Puerto Rico. In Puerto Rico, the damage caused by Hurricane Maria and, to a lesser extent Hurricane Irma, was extensive and widespread. Individuals and businesses across Puerto Rico continue to deal with significant challenges caused by the severe damage to essential infrastructure, including damage to Puerto Rico’s power supply and transmission system. Similarly, Liberty Puerto Rico’s broadband communications network suffered extensive damage. As of March 31, 2018, we have been able to restore service to approximately 560,000 RGUs of our total estimated 723,100 RGUs at Liberty Puerto Rico. Additionally, we estimate that approximately $130 millionof property and equipment additions will be required to restore nearly all of Liberty Puerto Rico’s broadband communications network, of which approximately $112 million has been incurred following the hurricanesthrough March 31, 2018.outbreak;
While the negative impacts from the hurricanes are declining as the network is restored and customers are reconnected, we expect that the adverse impacts of the hurricanes on Liberty Puerto Rico’s revenue and Adjusted OIBDA will continue through 2018•and beyond. The severity of the hurricanes’ impact on Liberty Puerto Rico’s future revenue and Adjusted OIBDA will be influenced in part by the following uncertainties:
the length of time that it will take to restore Puerto Rico’s power and transmission system and to fully restore our network;
the number of people that will choose to leave Puerto Rico for an extended period or permanently; and
the ability of governments and medical professionals in our markets to respond further to the Puerto Ricooutbreak, including securing access to a vaccine and U.S.vaccinating citizens;
•the actions by governments to effectively overseerequire the recovery processextension of services for individuals regardless of payment status;
•the impact of changes to, or new, government regulations imposed in Puerto Rico.response to the pandemic, including laws and moratoriums;
In terms•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 and adverse impacts on our supply chain thereby impacting our customers’ ability to use our services.
Given the impacts of liquidity for Liberty Puerto Rico,COVID-19 continue to evolve, the cash provided by itsextent to which COVID-19 may further impact our financial condition or results of operations wascontinues to be uncertain and cannot be predicted at this time. The heightened volatility of global markets resulting from COVID-19 further expose us to risks and uncertainties.
As COVID-19 continues to spread, we have taken, and expect to continue to take, a significant sourcevariety of pre-hurricane liquidity. Asmeasures to promote the safety and security of our employees, and ensure the availability of our communication services.
Telefónica-Costa Rica Acquisition
On July 30, 2020, we entered into a resultdefinitive agreement to acquire Telefónica S.A.’s wireless operations in Costa Rica in an all-cash transaction based upon an enterprise value of the hurricane impacts, we do not expect Liberty Puerto Rico will generate positive cash from operations, inclusive of capital expenditures, until at least the latter half of 2018. In this regard, Liberty Puerto Rico’s liquidity needs are being funded by the up$500 million on a cash- and debt-free basis. The transaction is subject to $60 million LCPR Equity Commitment from Liberty Latin Americacertain customary closing conditions, including regulatory approvals, and Searchlight, $45 million of which has been provided during 2018, including $20 million subsequent to March 31, 2018, and an insurance advance of $35 million ($30 million through a third-party insurance provider and the remainder through a captive insurance subsidiary). Future liquidity sources areis expected to include further insurance proceeds,close during the remaining portionmiddle of the LCPR Equity Commitment, as applicable, through December 31, 2018 of up to $15 million and, cash from operations. For additional information regarding the LCPR Equity Commitment, see Material Changes in Financial Condition below. While there are still uncertainties with respect to Liberty Puerto Rico’s recovery from the hurricanes, and no assurance can be given as to the ultimate amount or timing of liquidity to be received from cash from operations or insurance proceeds, we expect these existing and potential sources of liquidity will be sufficient to satisfy Liberty Puerto Rico’s liquidity requirements over the next twelve months.2021.
C&W. C&W offers services over fixed and mobile networks, and portions of these networks in C&W’s Impacted Markets were significantly damaged as a result of the hurricanes. The most notable markets that continue to be impacted are the British Virgin Islands and Dominica. Services to most of our fixed-line customers in these markets have not yet been restored. While mobile services have been largely restored in C&W’s Impacted Markets, we are still in the process of completing the restoration of our mobile network infrastructure. In addition to network damage, these markets are also dealing with extensive damage to homes, businesses and essential infrastructure.
We currently estimate that approximately $50 million of property and equipment additions will be required to restorenearly all of the damaged networks in C&W’s Impacted Markets, of which approximately $21 millionhas been incurred following the hurricanesthrough March 31, 2018. The negative impacts of the hurricanes are declining as the networks are restored and customers are reconnected, and we do not expect there to be a material impact from hurricanes on C&W’s revenue and Adjusted OIBDA during 2018.
Material Changes in Results of Operations
The comparability of our operating results during the three months ended March 31, 2021 and 2020 is affected by acquisitions, a disposal and FX. As we use the term, “organic” changes exclude FX and the impacts of acquisitions and disposals, each as further discussed below.
In the following discussion, we quantify the estimated impact of acquisitions (the Acquisition Impact) on our operating results. The Acquisition Impact represents our estimate of the difference between the operating results of the periods under comparison that is attributable to an acquisition. Accordingly,acquisitions and disposals. We (i) acquired (a) AT&T’s wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands in October 2020 and (b) a small B2B operation in the following discussion, (i)Cayman Islands in July 2020, and (ii) in connection
with the AT&T Acquisition and as further described in note 4 to our condensed consolidated financial statements, disposed of certain B2B operations in Puerto Rico in January 2021. With respect to acquisitions, organic increaseschanges and the calculations of our organic change percentages exclude the operating results of an acquired entity during the first 12 months following the date of acquisitionacquisition. With respect to disposals, the prior-year period operating results of disposed entities are excluded from organic changes and (ii) the calculationcalculations of our organic change percentages excludeto the Acquisition Impact of such entity.same extent that those operations are not included in the current-year period.
Changes in foreign currency exchange rates may have a significant impact on our operating results, as VTR, Cabletica and certain entities within C&W have functional currencies other than the U.S. dollar. Our primary exposure to foreign currency translation effects (FX) exchange risk during 2018 wasrelates to the Chilean peso. For example, the average FX rate (utilized to translate our condensed consolidated financial statements) for the U.S. dollar per one Chilean peso as 29.0% of our revenue duringdepreciated by 10% for the three months ended March 31, 2018 was derived from VTR, whose functional currency is2021, as compared to the Chilean peso. In addition, our operating results are impacted by changescorresponding period in the exchange rates for other local currencies inLatin America and the Caribbean.2020. The impacts to the various components of our results of operations that are attributable to changes in FX are highlighted below. For information concerning our foreign currency risks and applicable foreign currency exchange rates, see Item 3. Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rates below.
The amounts presented and discussed below represent 100% of the revenue and Adjusted OIBDAexpenses of each reportable segment and our corporate operations, as further discussed in note 16 to our condensed consolidated financial statements.operations. As we have the ability to control Liberty Puerto Rico and certain subsidiaries of C&W that are not wholly-owned, we include 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners’ interests in the operating results of Liberty Puerto Rico and certain subsidiaries of C&W and Cabletica are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations.
Prior to the Split-Off, Liberty Global allocated a portion of their corporate function costs to us, based primarily on the estimated percentage of time spent by corporate personnel providing services to us. Such costs were not intended to reflect the costs of operating as a standalone public company. Accordingly, our corporate-related SG&A costs have increased significantly during 2018, as compared with 2017, as a result of operating as a standalone company and incurring certain public company-related costs. These costs include executive employee and board of directors expenses; insurance; costs related to the compliance with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002); and costs for financial reporting, tax administration, human resources functions and centralization of certain other corporate functions. These increases in costs are inclusive of costs
that Liberty Global charges us in connection with certain of the Split-Off Agreements, as further described in note 11 to our condensed consolidated financial statements.
We are subject to inflationary pressures with respect to certain costs and foreign currency exchange risk with respect to costs and expenses that are denominated in currencies other than the respective functional currencies of our reportable segments. Any cost increases that we are not able to pass on to our subscriberscustomers would result in increased pressure on our operating margins.
Consolidated Adjusted OIBDA
On a consolidated basis, Adjusted OIBDA is a non-U.S. GAAP measure. Adjusted OIBDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Adjusted OIBDA is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of incentive compensation plans. Our internal decision makers believe Adjusted OIBDA is a meaningful measure because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. We believe our Adjusted OIBDA measure is useful to investors because it is one of the bases for comparing our performance with the performance of other companies in the same or similar industries, although our measures may not be directly comparable to similar measures used by other public companies. Adjusted OIBDA should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income or loss, net earnings or loss and other U.S. GAAP measures of income (loss).
A reconciliation of total operating income (loss), the nearest U.S. GAAP measure, to Adjusted OIBDA on a consolidated basis, is presented below.
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | in millions |
| | | | | | | |
Operating income | | | | | $ | 178.2 | | | $ | 107.8 | |
Share-based compensation expense | | | | | 23.0 | | | 23.8 | |
Depreciation and amortization | | | | | 245.9 | | | 213.5 | |
Impairment, restructuring and other operating items, net | | | | | 2.2 | | | 18.8 | |
Consolidated Adjusted OIBDA | | | | | $ | 449.3 | | | $ | 363.9 | |
The following table sets forth organic and non-organic changes in Adjusted OIBDA for the period indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| C&W Caribbean and Networks | | C&W Panama | | Liberty Puerto Rico (a) | | VTR | | Cabletica | | Corporate | | Intersegment eliminations | | Consolidated |
| in millions |
Adjusted OIBDA for the three months ending: | | | | | | | | | | | | | | | |
March 31, 2020 | $ | 187.0 | | | $ | 45.8 | | | $ | 50.5 | | | $ | 80.1 | | | $ | 13.3 | | | $ | (12.8) | | | $ | — | | | $ | 363.9 | |
Organic changes related to: | | | | | | | | | | | | | | | |
Revenue | (16.9) | | | (16.3) | | | 21.1 | | | (16.8) | | | 5.2 | | | 5.4 | | | (1.1) | | | (19.4) | |
Programming and other direct costs | 6.5 | | | 6.2 | | | (2.9) | | | 1.4 | | | (2.1) | | | — | | | 0.6 | | | 9.7 | |
Other operating costs and expenses | 6.7 | | | 8.3 | | | (1.8) | | | (1.1) | | | (1.2) | | | (3.1) | | | 0.5 | | | 8.3 | |
Non-organic increases (decreases): | | | | | | | | | | | | | | | |
FX | (2.4) | | | — | | | — | | | 6.9 | | | (1.1) | | | — | | | — | | | 3.4 | |
Acquisitions/disposition, net | 0.4 | | | — | | | 83.0 | | | — | | | — | | | — | | | — | | | 83.4 | |
March 31, 2021 | $ | 181.3 | | | $ | 44.0 | | | $ | 149.9 | | | $ | 70.5 | | | $ | 14.1 | | | $ | (10.5) | | | $ | — | | | $ | 449.3 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(a)The organic change to Adjusted OIBDA resulting from an acquisition includes $8 million of net inbound roaming revenue.
Adjusted OIBDA Margin
The following table sets forth the Adjusted OIBDA margins (Adjusted OIBDA divided by revenue) of each of our reportable segments:
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | % |
| | | | | | | |
C&W Caribbean and Networks | | | | | 42.2 | | | 41.4 | |
C&W Panama | | | | | 36.1 | | | 33.1 | |
Liberty Puerto Rico | | | | | 41.5 | | | 48.3 | |
VTR | | | | | 33.5 | | | 38.8 | |
Cabletica | | | | | 39.0 | | | 39.5 | |
Adjusted OIBDA margin is impacted by organic changes in revenue, programming and other direct costs of services and other operating costs and expenses, as further discussed below. The decrease in the Adjusted OIBDA margin for Liberty Puerto Rico is primarily related to the inclusion of Liberty Mobile operations following the AT&T Acquisition that generate a lower Adjusted OIBDA margin relative to the legacy operations. The decrease in the Adjusted OIBDA margin for VTR is primarily related to a decline in revenue, as further discussed below.
Revenue
All of our reportable segments derive their revenue primarily from (i) residential broadband communicationsfixed services, including video, broadband internet and fixed-line telephony, services, (ii) with the exception of Liberty Puerto Rico,Cabletica, residential mobile services, and (iii) with the exception of Cabletica, B2B communications services. For detailed information regarding the composition of our reportable segments, see note 16 to our condensed consolidated financial statements.
C&W Caribbean and Networks also provides wholesale communication services over its subsea and terrestrial fiber optic cable networks.
While not specifically discussed in the below explanations of the changes in the revenue, of our reportable segments, we are experiencing significant competition in all of our markets. This competition has an adverse impact on our ability to increase or maintain our RGUs and/or average monthly subscription revenue per average fixed RGU or mobile subscriber, as applicable, (ARPU).ARPU.
Variances in the subscription revenue that we receive from our customers are a function of (i) changes in the number of RGUs or mobile subscribers during the period and (ii) changes in ARPU. Changes in ARPU can be attributable to (i) changes in prices, (ii) changes in bundling or promotional discounts, (iii) changes in the tier of services selected, (iv) variances in subscriber usage patterns, and (v) the overall mix of fixed and mobile products within a segment during the period. In the following discussion, we discuss ARPU changes in terms of the net impact of the above factors on the ARPU that is derived from our video, broadband internet, fixed-line telephony and mobile products. At Liberty Puerto Rico,
For the comparisons below, revenue variances, including changes in revenue duringARPU, were also influenced by the three months ended March 31, 2018,impacts of COVID-19, as compared to the corresponding periodfurther discussed below and in 2017, were significantly impacted by Hurricanes Maria and Irma.Overview above.
The following table sets forth revenue by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2021 | | 2020 | | $ | | % |
| in millions, except percentages |
| | | | | | | |
C&W Caribbean and Networks | $ | 429.8 | | | $ | 452.0 | | | $ | (22.2) | | | (5) | |
C&W Panama | 122.0 | | | 138.3 | | | (16.3) | | | (12) | |
Liberty Puerto Rico | 361.3 | | | 104.6 | | | 256.7 | | | 245 | |
VTR | 210.3 | | | 206.4 | | | 3.9 | | | 2 | |
Cabletica | 36.2 | | | 33.7 | | | 2.5 | | | 7 | |
Corporate (a) | 5.4 | | | — | | | 5.4 | | | N.M |
Intersegment eliminations | (5.1) | | | (4.0) | | | (1.1) | | | N.M. |
Total | $ | 1,159.9 | | | $ | 931.0 | | | $ | 228.9 | | | 25 | |
N.M. — Not meaningful.
(a)Amount relates to services we provide for mobile handset insurance following the closing of the AT&T Acquisition.
Consolidated. The increase during the three months ended March 31, 2021, as compared to the corresponding period in 2020, includes (i)an increase of $242 million associated with the impact of acquisitions, (ii) a decreaseof $5 million associated with the impact of a disposal and (iii) an increaseof $11 million attributable to the impact of FX. Excluding the effects of acquisitions, a disposal and FX, revenuedecreased $19 million or 2%. The organicdecrease primarily includesincreases (decreases) of ($17 million), ($16 million), $21 million, ($17 million) and $5 million at C&W Caribbean and Networks, C&W Panama, Liberty Puerto Rico, VTR, and Cabletica, respectively, as further discussed below.
|
| | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2018 | | 2017 | | $ | | % |
| in millions, except percentages |
| | | | | | | |
C&W | $ | 585.5 |
| | $ | 575.6 |
| | $ | 9.9 |
| | 1.7 |
|
VTR | 263.8 |
| | 229.3 |
| | 34.5 |
| | 15.0 |
|
Liberty Puerto Rico | 61.8 |
| | 106.7 |
| | (44.9 | ) | | (42.1 | ) |
Intersegment eliminations | (1.2 | ) | | (0.7 | ) | | (0.5 | ) | | N.M. |
|
Total | $ | 909.9 |
| | $ | 910.9 |
| | $ | (1.0 | ) | | (0.1 | ) |
C&W Caribbean and Networks. C&W Caribbean and Networks’s revenue by major category is set forth below: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2021 | | 2020 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
Subscription revenue: | | | | | | | |
Video | $ | 34.3 | | | $ | 37.3 | | | $ | (3.0) | | | (8) | |
Broadband internet | 66.6 | | | 61.4 | | | 5.2 | | | 8 | |
Fixed-line telephony | 16.5 | | | 19.3 | | | (2.8) | | | (15) | |
Total subscription revenue | 117.4 | | | 118.0 | | | (0.6) | | | (1) | |
Non-subscription revenue | 10.7 | | | 13.1 | | | (2.4) | | | (18) | |
Total residential fixed revenue | 128.1 | | | 131.1 | | | (3.0) | | | (2) | |
Residential mobile revenue: | | | | | | | |
Service revenue | 71.8 | | | 78.8 | | | (7.0) | | | (9) | |
Interconnect, inbound roaming, equipment sales and other (a) | 11.4 | | | 13.7 | | | (2.3) | | | (17) | |
Total residential mobile revenue | 83.2 | | | 92.5 | | | (9.3) | | | (10) | |
Total residential revenue | 211.3 | | | 223.6 | | | (12.3) | | | (6) | |
B2B revenue: | | | | | | | |
Service revenue | 150.8 | | | 157.7 | | | (6.9) | | | (4) | |
Subsea network revenue | 67.7 | | | 70.7 | | | (3.0) | | | (4) | |
Total B2B revenue | 218.5 | | | 228.4 | | | (9.9) | | | (4) | |
Total | $ | 429.8 | | | $ | 452.0 | | | $ | (22.2) | | | (5) | |
(a) Revenue from inbound roaming was $5 million and $7 million, respectively.
The details of the changes in C&W Caribbean and Networks’s revenue during the three months ended March 31, 2021, as compared to the corresponding period in 2020, are set forth below (in millions):
| | | | | | | |
| | | |
Increase (decrease) in residential fixed subscription revenue due to change in: | | | |
Average number of RGUs (a) | | | $ | 7.8 | |
ARPU (b) | | | (6.1) | |
Decreasein residential fixed non-subscription revenue (c) | | | (2.1) | |
Total decrease in residential fixed revenue | | | (0.4) | |
Decrease in residential mobile service revenue (d) | | | (5.3) | |
Decrease in residential mobile interconnect, inbound roaming, equipment sales and other (e) | | | (2.1) | |
Decrease in B2B service revenue (f) | | | (5.8) | |
Decrease in B2B subsea network revenue (g) | | | (3.3) | |
Total organic decrease | | | (16.9) | |
Impact of an acquisition | | | 2.0 | |
Impact of FX | | | (7.3) | |
Total | | | $ | (22.2) | |
(a)The increase is primarily attributable to higher average broadband internet RGUs, which is partially attributable to an increase in telecommuting during COVID-19 due to work-from-home mandates.
(b)The decrease is primarily due to lower ARPU from fixed-line telephony and video services.
(c)The decrease is primarily attributable to lower volumes of interconnect revenue across most markets of this segment.
(d)The decrease is due to (i) lower average numbers of mobile subscribers as a result of COVID-19 impacts, and (ii) lowerARPU from mobile services as COVID-19 lockdowns and travel restrictions reduced (a) outbound roaming activity and (b) demand for mobile services.
(e)The decrease is primarily attributable to the net effect of (i) an organic decrease in inbound roaming fees, primarily related to travel restrictions associated with COVID-19, (ii) an increase in interconnect revenue and (iii) lower volumes of handset sales due to the temporary closure or reduced hours of physical stores, as a result of COVID-19-related lockdowns.
(f)The decrease is primarily due to (i) lower revenues from mobile and fixed servicespartially due to reduced or suspended service across our markets as a result of the COVID-19 lockdowns,and (ii) lower wholesale call volumes.
(g)The decrease is primarily attributable to the net effect of (i) a decrease related to $10 million recognized on a cash basis during the three months ended March 31, 2020 for services provided to a significant customer, (ii) a $6 million increase associated with the renegotiation of a customer contract during the three months ended March 31, 2021, and (iii) an increase associated with continued demand for telecommunications capacity on our subsea network during COVID-19.
C&W Panama. C&W Panama’s revenue by major category is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2021 | | 2020 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
Subscription revenue: | | | | | | | |
Video | $ | 6.2 | | | $ | 7.6 | | | $ | (1.4) | | | (18) | |
Broadband internet | 10.7 | | | 9.6 | | | 1.1 | | | 11 | |
Fixed-line telephony | 4.3 | | | 5.0 | | | (0.7) | | | (14) | |
Total subscription revenue | 21.2 | | | 22.2 | | | (1.0) | | | (5) | |
Non-subscription revenue | 2.5 | | | 3.8 | | | (1.3) | | | (34) | |
Total residential fixed revenue | 23.7 | | | 26.0 | | | (2.3) | | | (9) | |
Residential mobile revenue: | | | | | | | |
Service revenue | 39.3 | | | 44.2 | | | (4.9) | | | (11) | |
Interconnect, inbound roaming, equipment sales and other (a) | 10.3 | | | 11.8 | | | (1.5) | | | (13) | |
Total residential mobile revenue | 49.6 | | | 56.0 | | | (6.4) | | | (11) | |
Total residential revenue | 73.3 | | | 82.0 | | | (8.7) | | | (11) | |
| | | | | | | |
B2B service revenue | 48.7 | | | 56.3 | | | (7.6) | | | (13) | |
Total | $ | 122.0 | | | $ | 138.3 | | | $ | (16.3) | | | (12) | |
The details of the changes in C&W Panama’s revenue during the three months ended March 31, 2021, as compared to the corresponding period in 2020, are set forth below (in millions):
| | | | | |
Increase (decrease)in residential fixed subscription revenue due to change in: | |
Average number of RGUs (a) | $ | 1.3 | |
ARPU (b) | (2.3) | |
Decreasein residential fixed non-subscription revenue (c) | (1.3) | |
Totaldecrease in residential fixed revenue | (2.3) | |
Decreasein residential mobile service revenue (d) | (4.9) | |
Decrease in residential mobile interconnect, inbound roaming, equipment sales and other revenue (e) | (1.5) | |
Decreasein B2B service revenue (f) | (7.6) | |
Total organicdecrease | $ | (16.3) | |
(a)The increase is primarily attributable to higher average broadband internet RGUs, partially attributable to an increase in telecommuting during COVID-19 due to work-from-home mandates.
(b)The decrease is primarily due to lower ARPU from fixed-line telephony and video services.
(c)The decrease is primarily attributable to a decrease in payphone revenue.
(d)The decrease is due to (i) lower ARPU from mobile services as a result of (a) COVID-19 lockdowns negatively impacting customers’ ability to recharge handset devices and (b) increased competition and (ii) lower average numbers of mobile subscribers, primarily resulting from the impacts of COVID-19.
(e)The decrease is primarily attributable to lower volumes of handset sales, as COVID-19 related lockdowns negatively impacted customers’ ability to purchase handsets.
(f)The decrease is primarily due to lower revenues from managed services, primarily driven by certain non-recurring projects that have been put on hold due to the economic uncertainty of the impact of COVID-19.
Liberty Puerto Rico.Liberty Puerto Rico’s revenue by major category is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2021 | | 2020 | | $ | | % |
| in millions, except percentages |
Residential fixed revenue: | | | | | | | |
Subscription revenue: | | | | | | | |
Video | $ | 38.6 | | | $ | 35.3 | | | $ | 3.3 | | | 9 | |
Broadband internet | 61.4 | | | 45.5 | | | 15.9 | | | 35 | |
Fixed-line telephony | 7.0 | | | 5.9 | | | 1.1 | | | 19 | |
Total subscription revenue | 107.0 | | | 86.7 | | | 20.3 | | | 23 | |
Non-subscription revenue | 4.2 | | | 4.6 | | | (0.4) | | | (9) | |
Total residential fixed revenue | 111.2 | | | 91.3 | | | 19.9 | | | 22 | |
Residential mobile revenue: | | | | | | | |
Service revenue | 117.4 | | | — | | | 117.4 | | | N.M. |
Interconnect, inbound roaming, equipment sales and other (a) | 72.1 | | | — | | | 72.1 | | | N.M. |
Total residential mobile revenue | 189.5 | | | — | | | 189.5 | | | N.M. |
Total residential revenue | 300.7 | | | 91.3 | | | 209.4 | | | 229 | |
B2B service revenue | 52.1 | | | 13.3 | | | 38.8 | | | 292 | |
Other revenue (b) | 8.5 | | | — | | | 8.5 | | | N.M. |
Total | $ | 361.3 | | | $ | 104.6 | | | $ | 256.7 | | | 245 | |
N.M. — Not Meaningful.
Consolidated.(a)Revenue from inbound roaming was The decrease$19 million during the three months ended March 31, 2018, as compared2021.
(b)Amount relates to funds received from the corresponding period in 2017, includes a decrease of $45 million atFCC related to Liberty Puerto Rico primarily attributable toMobile following the hurricanes, and increases of $10 million and $23 million attributable to the impactsclosing of the C&W Carve-out Acquisition and FX, respectively. Excluding the effects of the C&W Carve-out Acquisition and FX, revenue decreased $34 million or 3.7%. The organic decrease includes declines of $45 million and $1 million at Liberty Puerto Rico and C&W, respectively, and an increase of $13 million at VTR, as further discussed below.
As further described in notes 2 and 3 to our condensed consolidated financial statements, we adopted ASU 2014-09 effective January 1, 2018 using the cumulative effect transition method. The impact to revenue during three months ended March 31, 2018 was not material.
C&W. C&W’s revenue by major category is set forth below:AT&T Acquisition.
|
| | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2018 | | 2017 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
Subscription revenue: | | | | | | | |
Video | $ | 42.7 |
| | $ | 40.5 |
| | $ | 2.2 |
| | 5.4 |
|
Broadband internet | 53.7 |
| | 52.8 |
| | 0.9 |
| | 1.7 |
|
Fixed-line telephony | 26.9 |
| | 29.3 |
| | (2.4 | ) | | (8.2 | ) |
Total subscription revenue | 123.3 |
| | 122.6 |
| | 0.7 |
| | 0.6 |
|
Non-subscription revenue | 21.5 |
| | 23.5 |
| | (2.0 | ) | | (8.5 | ) |
Total residential fixed revenue | 144.8 |
| | 146.1 |
| | (1.3 | ) | | (0.9 | ) |
Residential mobile revenue: | | | | | | | |
Subscription revenue | 155.1 |
| | 161.8 |
| | (6.7 | ) | | (4.1 | ) |
Non-subscription revenue | 22.1 |
| | 19.9 |
| | 2.2 |
| | 11.1 |
|
Total residential mobile revenue | 177.2 |
| | 181.7 |
| | (4.5 | ) | | (2.5 | ) |
Total residential revenue | 322.0 |
| | 327.8 |
| | (5.8 | ) | | (1.8 | ) |
B2B revenue: | | | | | | | |
Non-subscription revenue | 203.9 |
| | 201.4 |
| | 2.5 |
| | 1.2 |
|
Sub-sea network revenue | 59.6 |
| | 46.4 |
| | 13.2 |
| | 28.4 |
|
Total B2B revenue | 263.5 |
| | 247.8 |
| | 15.7 |
| | 6.3 |
|
Total | $ | 585.5 |
| | $ | 575.6 |
| | $ | 9.9 |
| | 1.7 |
|
The details of the changes in C&W’sLiberty Puerto Rico’s revenue during the three months ended March 31, 2018,2021, as compared to the corresponding period in 2017,2020, are set forth below:below (in millions):
|
| | | | | | | | | | | |
| Subscription revenue | | Non-subscription revenue | | Total |
| in millions |
Increase (decrease) in residential fixed subscription revenue due to change in: | | | | | |
Average number of RGUs (a) | $ | 4.0 |
| | $ | — |
| | $ | 4.0 |
|
ARPU (b) | (3.7 | ) | | — |
| | (3.7 | ) |
Decrease in residential fixed non-subscription revenue (c) | — |
| | (2.0 | ) | | (2.0 | ) |
Total increase (decrease) in residential fixed revenue | 0.3 |
| | (2.0 | ) | | (1.7 | ) |
Increase (decrease) in residential mobile revenue (d) | (7.1 | ) | | 2.2 |
| | (4.9 | ) |
Increase in B2B revenue (e) | — |
| | 0.1 |
| | 0.1 |
|
Increase in B2B sub-sea network revenue (f) | — |
| | 5.1 |
| | 5.1 |
|
Total organic increase (decrease) | (6.8 | ) | | 5.4 |
| | (1.4 | ) |
Impact of the C&W Carve-out Acquisition | — |
| | 9.5 |
| | 9.5 |
|
Impact of FX | 0.8 |
| | 1.0 |
| | 1.8 |
|
Total | $ | (6.0 | ) | | $ | 15.9 |
| | $ | 9.9 |
|
| | | | | |
(a) | The increase is primarily attributableIncreasein residential fixed subscription revenue due to higher broadband internet RGUs. |
change in: | |
(b)Average number of RGUs (a) | The decrease is primarily attributable to the net effect of (i) lower ARPU from fixed-line telephony and broadband internet services and (ii) higher ARPU from video services.$ |
8.1 | |
(c)ARPU (b) | The decrease is primarily attributable to lower advertising revenue and late fees. |
12.2 | |
(d) | The decreaseDecrease in mobile subscription revenue is primarily attributable to the net effect of (i) lower revenue in (a) the Bahamasassociated with a decrease in the average number of subscribers and lower ARPU, primarily driven by the commercial launch of mobile services by a competitor during the fourth quarter of 2016, and (b) Panama due primarily to a decrease in the average number of subscribers and (ii) higher revenue in Jamaica mostly due to higher ARPU. The increase in mobileresidential fixed non-subscription revenue is primarily attributable to an increase in revenue from handset sales.
|
(0.4) | |
(e)Total increase in residential fixed revenue | The increase is primarily attributable to (i) project-related revenue in managed services, driven by increases in Jamaica that were partially offset by decreases in Panama and (ii) individually insignificant changes across the markets of C&W. |
19.9 | |
(f)Increasein B2B service | The1.2 | |
Total organic increase is primarily due to increased capacity sales on C&W’s sub-sea network to new | 21.1 | |
Impact of an acquisition and existing customers.a disposition, net | 235.6 | |
Total | $ | 256.7 | |
VTR.(a)The increase is primarily attributable to higher average broadband internet and video RGUs. The higher average broadband internet RGUs are partially due to higher demand as a result of COVID-19 work-from-home mandates, which subsequently led to increased purchases of video products as a result of bundling offers.
(b)The increase is primarily due to (i) higher ARPU from broadband internet and video services and (ii) the impact to the comparison resulting from $2 million of credits provided to customers during 2020 in connection with the earthquakes that impacted Puerto Rico in January 2020.
VTR. VTR’s revenue by major category is set forth below:
|
| | | | | | | | | | | | | |
| Three months ended March 31, | | Increase |
| 2018 | | 2017 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
Subscription revenue: | | | | | | | |
Video | $ | 99.7 |
| | $ | 87.4 |
| | $ | 12.3 |
| | 14.1 |
Broadband internet | 96.6 |
| | 82.3 |
| | 14.3 |
| | 17.4 |
Fixed-line telephony | 34.6 |
| | 34.3 |
| | 0.3 |
| | 0.9 |
Total subscription revenue | 230.9 |
| | 204.0 |
| | 26.9 |
| | 13.2 |
Non-subscription revenue | 7.5 |
| | 7.4 |
| | 0.1 |
| | 1.4 |
Total residential fixed revenue | 238.4 |
| | 211.4 |
| | 27.0 |
| | 12.8 |
Residential mobile revenue: | | | | | | | |
Subscription revenue | 16.3 |
| | 12.6 |
| | 3.7 |
| | 29.4 |
Non-subscription revenue | 3.2 |
| | 2.3 |
| | 0.9 |
| | 39.1 |
Total residential mobile revenue | 19.5 |
| | 14.9 |
| | 4.6 |
| | 30.9 |
Total residential revenue | 257.9 |
| | 226.3 |
| | 31.6 |
| | 14.0 |
B2B revenue: | | | | | | | |
Subscription revenue | 5.6 |
| | 2.7 |
| | 2.9 |
| | 107.4 |
Non-subscription revenue | 0.3 |
| | 0.3 |
| | — |
| | — |
Total B2B revenue | 5.9 |
| | 3.0 |
| | 2.9 |
| | 96.7 |
Total | $ | 263.8 |
| | $ | 229.3 |
| | $ | 34.5 |
| | 15.0 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2021 | | 2020 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
Subscription revenue: | | | | | | | |
Video | $ | 78.3 | | | $ | 75.6 | | | $ | 2.7 | | | 4 | |
Broadband internet | 84.8 | | | 81.9 | | | 2.9 | | | 4 | |
Fixed-line telephony | 20.0 | | | 19.6 | | | 0.4 | | | 2 | |
Total subscription revenue | 183.1 | | | 177.1 | | | 6.0 | | | 3 | |
Non-subscription revenue | 3.4 | | | 4.9 | | | (1.5) | | | (31) | |
Total residential fixed revenue | 186.5 | | | 182.0 | | | 4.5 | | | 2 | |
Residential mobile revenue: | | | | | | | |
Service revenue | 13.2 | | | 14.6 | | | (1.4) | | | (10) | |
Interconnect, inbound roaming, equipment sales and other | 2.3 | | | 2.0 | | | 0.3 | | | 15 | |
Total residential mobile revenue | 15.5 | | | 16.6 | | | (1.1) | | | (7) | |
Total residential revenue | 202.0 | | | 198.6 | | | 3.4 | | | 2 | |
| | | | | | | |
B2B service revenue | 8.3 | | | 7.8 | | | 0.5 | | | 6 | |
Total | $ | 210.3 | | | $ | 206.4 | | | $ | 3.9 | | | 2 | |
The details of the changes in VTR’s revenue during the three months ended March 31, 2018,2021, as compared to the corresponding period in 2017,2020, are set forth below:below (in millions):
|
| | | | | | | | | | | |
| Subscription revenue | | Non-subscription revenue | | Total |
| in millions |
Increase in residential fixed subscription revenue due to change in: | | | | | |
Average number of RGUs (a) | $ | 4.1 |
| | $ | — |
| | $ | 4.1 |
|
ARPU (b) | 4.1 |
| | — |
| | 4.1 |
|
Decrease in residential fixed non-subscription revenue | — |
| | (0.5 | ) | | (0.5 | ) |
Total increase (decrease) in residential fixed revenue | 8.2 |
| | (0.5 | ) | | 7.7 |
|
Increase in residential mobile revenue (c) | 2.4 |
| | 0.6 |
| | 3.0 |
|
Increase in B2B revenue (d) | 2.4 |
| | 0.1 |
| | 2.5 |
|
Total organic increase | 13.0 |
| | 0.2 |
| | 13.2 |
|
Impact of FX | 20.5 |
| | 0.8 |
| | 21.3 |
|
Total | $ | 33.5 |
| | $ | 1.0 |
| | $ | 34.5 |
|
| | | | | |
(a) | The increase is attributableDecrease in residential fixed subscription revenue due to the net effect of (i) higher broadband internet and video RGUs and (ii) lower fixed-line telephony RGUs. |
change in: | |
(b)Average number of RGUs (a) | The increase is primarily due to higher ARPU from video services and an improvement in RGU mix.$ |
(6.9) | |
(c)ARPU (b) | The increase in mobile subscription revenue is primarily due to a higher average number of mobile subscribers. |
(5.1) | |
(d)Decrease in residential fixed non-subscription revenue (c) | The increase(1.8) | |
Total decreasein residential fixed revenue | (13.8) | |
Decreasein residential mobile service revenue (d) | (2.7) | |
Change in residential mobile interconnect, inbound roaming, equipment sales and other revenue | — | |
Decrease in B2B subscriptionservice revenue is primarily attributable to higher average numbers | (0.3) | |
Total organic decrease | (16.8) | |
Impact of broadband internet, video and fixed-line telephony SOHO RGUs. A portion of this increase is attributable to the conversion of certain residential subscribers to SOHO customers.FX | 20.7 | |
Total | $ | 3.9 | |
Liberty Puerto Rico. (a)DueThe decrease is attributable to the significant impactlower average broadband internet, video and fixed-line telephony RGUs.
(b)The decrease is primarily due to lower ARPU from broadband internet and video services, partially a result of the hurricanes on the operationscontinued high levels of our Liberty Puerto Rico segment, we have provided supplementary sequential information in ordercompetition.
(c)The decrease is primarily attributable to provide a meaningful analysislower activations, installations and reconnects.
(d)The decrease is due to lower ARPU from mobile services and lower average numbers of Liberty Puerto Rico’s business, including recovery after the hurricanes. Accordingly, Liberty Puerto Rico’smobile subscribers.
Cabletica. Cabletica’s revenue by major category during eachis set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2021 | | 2020 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
Subscription revenue: | | | | | | | |
Video | $ | 19.5 | | | $ | 19.4 | | | $ | 0.1 | | | 1 | |
Broadband internet | 14.0 | | | 12.5 | | | 1.5 | | | 12 | |
Fixed-line telephony | 1.1 | | | 0.7 | | | 0.4 | | | 57 | |
Total subscription revenue | 34.6 | | | 32.6 | | | 2.0 | | | 6 | |
Non-subscription revenue | 1.6 | | | 1.1 | | | 0.5 | | | 45 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total | $ | 36.2 | | | $ | 33.7 | | | $ | 2.5 | | | 7 | |
The details of the changes in Cabletica’s revenue during three months ended March 31, 2018, December 31, 2017 and March 31, 2017 is set forth below:
|
| | | | | | | | | | | |
| Three months ended |
| March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
| in millions |
Residential fixed revenue: | | | | | |
Subscription revenue: | | | | | |
Video | $ | 23.3 |
| | $ | 5.3 |
| | $ | 42.7 |
|
Broadband internet | 25.3 |
| | 7.8 |
| | 40.4 |
|
Fixed-line telephony | 3.5 |
| | 1.2 |
| | 6.4 |
|
Total subscription revenue | 52.1 |
| | 14.3 |
| | 89.5 |
|
Non-subscription revenue | 1.7 |
| | 0.5 |
| | 5.9 |
|
Total residential fixed revenue | 53.8 |
| | 14.8 |
| | 95.4 |
|
B2B revenue: | | | | | |
Subscription revenue | 4.3 |
| | 1.3 |
| | 6.7 |
|
Non-subscription revenue | 3.0 |
| | 0.7 |
| | 3.3 |
|
Total B2B revenue | 7.3 |
| | 2.0 |
| | 10.0 |
|
Other revenue | 0.7 |
| | 0.1 |
| | 1.3 |
|
Total | $ | 61.8 |
| | $ | 16.9 |
| | $ | 106.7 |
|
The decrease in Liberty Puerto Rico’s revenue during the three months ended March 31, 2018,2021, as compared to the three months ended March 31, 2017,corresponding period in 2020, are set forth below (in millions):
| | | | | |
Increasein residential fixed subscription revenue due to change in: | |
Average number of RGUs (a) | $ | 1.5 | |
ARPU (b) | 3.0 | |
Increasein residential fixed non-subscription revenue | 0.7 | |
Total organic increase | 5.2 | |
Impact of FX | (2.7) | |
Total | $ | 2.5 | |
(a)The increase is primarily attributable to Hurricanes Maria and Irma.higher average broadband internet RGUs.
(b)The table below presents changes in (i) residential fixed subscription revenueincrease is primarily due to changes in the average number of RGUshigher ARPU from video and ARPU, (ii) residential fixed non-subscription revenue, (iii) B2B revenue and (iv) other revenue, each reflective of changes during the three months ended March 31, 2018, as compared to the three months ended December 31, 2017.broadband internet services.
|
| | | | | | | | | | | |
| Subscription revenue | | Non-subscription revenue | | Total |
| in millions |
Increase in residential fixed subscription revenue due to change in: | | | | | |
Average number of RGUs (a) | $ | 35.5 |
| | $ | — |
| | $ | 35.5 |
|
ARPU (b) | 2.3 |
| | — |
| | 2.3 |
|
Increase in residential fixed non-subscription revenue (c) | — |
| | 1.2 |
| | 1.2 |
|
Total increase in residential fixed revenue | 37.8 |
| | 1.2 |
| | 39.0 |
|
Increase in B2B revenue (d) | 3.0 |
| | 2.3 |
| | 5.3 |
|
Increase in other revenue | — |
| | 0.6 |
| | 0.6 |
|
Total | $ | 40.8 |
| | $ | 4.1 |
| | $ | 44.9 |
|
| |
(a) | The increase is attributable to increases in broadband internet, video and fixed-line telephony RGUs, primarily due to the reconnection of subscribers associated with the recovery in Puerto Rico following the hurricanes. |
| |
(b) | The increase is primarily attributable to reconnecting higher ARPU customers during the first quarter of 2018. |
| |
(c) | The increase is primarily due to higher late fees, advertising revenue and reconnect fees resulting from Liberty Puerto Rico’s ongoing recovery from the hurricanes. |
| |
(d) | The increase in subscription revenue is primarily attributable to increases in broadband internet, fixed-line telephony and video SOHO RGUs, primarily due to the reconnection of subscribers associated with the recovery in Puerto Rico following the hurricanes. The increase in non-subscription revenue is primarily attributable to higher revenue from broadband internet services, resulting from the restoration of fiber circuits to Liberty Puerto Rico’s B2B customers. |
Programming and Other Direct Costsother direct costs of Servicesservices
General.Programming and other direct costs of services include programming and copyright costs, mobileinterconnect and access and interconnect costs, costs of mobile handsets and other devices, and other direct costs related to our operations. Notwithstanding the impact of the hurricanes, programmingProgramming and copyright costs, which represent a significant portion of our operating costs, are expected to risemay increase in future periods as a result of (i) higher costs associated with the expansion of our digital video content, including rights associated with ancillary product offerings and rights that provide for the broadcast of live sporting events, (ii) rate increases andor (iii) growth in the number of our enhanced video subscribers.
Consolidated. The following table sets forth programmingthe organic and other direct costs of services by reportable segment:
|
| | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2018 | | 2017 | | $ | | % |
| in millions, except percentages |
| | | | | | | |
C&W | $ | 130.2 |
| | $ | 133.4 |
| | $ | (3.2 | ) | | (2.4 | ) |
VTR | 70.5 |
| | 61.6 |
| | 8.9 |
| | 14.4 |
|
Liberty Puerto Rico | 16.5 |
| | 27.6 |
| | (11.1 | ) | | (40.2 | ) |
Intersegment eliminations | (1.4 | ) | | (0.7 | ) | | (0.7 | ) | | N.M. |
|
Total | $ | 215.8 |
| | $ | 221.9 |
| | $ | (6.1 | ) | | (2.7 | ) |
N.M. — Not Meaningful.
Consolidated. The decreasenon-organic changes in programming and other direct costs of services duringon a consolidated basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Three months ended March 31, | | Increase | | FX | | Acquisitions (disposition), net | | Organic |
| 2021 | | 2020 | | | | |
| in millions |
| | | | | | | | | | | |
Programming and copyright | $ | 111.8 | | | $ | 100.6 | | | $ | 11.2 | | | $ | 3.6 | | | $ | 3.0 | | | $ | 4.6 | |
Interconnect | 66.4 | | | 66.3 | | | 0.1 | | | (0.8) | | | 8.7 | | | (7.8) | |
Equipment and other | 102.0 | | | 43.9 | | | 58.1 | | | 0.2 | | | 64.4 | | | (6.5) | |
Total programming and other direct costs | $ | 280.2 | | | $ | 210.8 | | | $ | 69.4 | | | $ | 3.0 | | | $ | 76.1 | | | $ | (9.7) | |
C&W Caribbean and Networks. The following table sets forth the three months ended March 31, 2018, as compared to the corresponding periodorganic and non-organic changes in 2017, includes a decrease of $11 million at Liberty Puerto Rico primarily attributable to the hurricanes, an increase of $4 million attributable to the impact of the C&W Carve-out Acquisition and an increase of $6 million due to FX. Excluding the effects of the C&W Carve-out Acquisition and FX, our programming and other direct costs of services decreased $17 million or 7.5%. for our C&W Caribbean and Networks segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Three months ended March 31, | | Increase (decrease) | | FX | | An acquisition | | Organic |
| 2021 | | 2020 | | | | |
| in millions |
| | | | | | | | | | | |
Programming and copyright | $ | 23.7 | | | $ | 24.8 | | | $ | (1.1) | | | $ | (0.5) | | | $ | — | | | $ | (0.6) | |
Interconnect | 37.6 | | | 44.6 | | | (7.0) | | | (1.7) | | | — | | | (5.3) | |
Equipment and other | 16.6 | | | 16.5 | | | 0.1 | | | (0.2) | | | 0.9 | | | (0.6) | |
Total programming and other direct costs | $ | 77.9 | | | $ | 85.9 | | | $ | (8.0) | | | $ | (2.4) | | | $ | 0.9 | | | $ | (6.5) | |
•Interconnect: The organic decrease includes declines of $8 millionis primarily due to (i) lower wholesale call volumes and $11 million at C&W and Liberty Puerto Rico, respectively, and an increase of $3 million at VTR, as further discussed below.(ii) other individually insignificant decreases.
C&W. &W Panama.The decreasefollowing table sets forth the organic changes in C&W’s programming and other direct costs of services includes an increasefor our C&W Panama segment.
| | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Organic decrease |
| 2021 | | 2020 | |
| in millions |
| | | | | |
Programming and copyright | $ | 3.7 | | | $ | 4.2 | | | $ | (0.5) | |
Interconnect | 9.9 | | | 10.4 | | | (0.5) | |
Equipment and other | 17.6 | | | 22.8 | | | (5.2) | |
Total programming and other direct costs | $ | 31.2 | | | $ | 37.4 | | | $ | (6.2) | |
•Equipment and other: The organic decrease is primarily due to (i) a decrease driven by certain non-recurring projects that have been put on hold due to the economic uncertainty of $4 million attributable to the impact of COVID-19 and (ii) lower volumes of mobile handset sales.
Liberty Puerto Rico. The following table sets forth the C&W Carve-out Acquisitionorganic and an increase of $1 million due to FX. Excluding the effects of the C&W Carve-out Acquisition and FX, C&W’snon-organic changes in programming and other direct costs of services decreased $8 million or 6.0%. This decrease includes the following factors:for our Liberty Puerto Rico segment.
A decrease in mobile handset costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase from: |
| Three months ended March 31, | | Increase | | Acquisition (disposition), net | | Organic |
| 2021 | | 2020 | | | |
| in millions |
| | | | | | | | | |
Programming and copyright | $ | 27.2 | | | $ | 22.0 | | | $ | 5.2 | | | $ | 3.0 | | | $ | 2.2 | |
Interconnect | 11.5 | | | 2.1 | | | 9.4 | | | 8.7 | | | 0.7 | |
Equipment and other | 63.5 | | | — | | | 63.5 | | | 63.5 | | | — | |
Total programming and other direct costs | $ | 102.2 | | | $ | 24.1 | | | $ | 78.1 | | | $ | 75.2 | | | $ | 2.9 | |
•Programming and copyright: The organic increase is primarily attributable to (i) higher programming rates and (ii) a higher average number of $5 million or 20.7%, primarily due to lower mobile handset sales;video subscribers.
A decrease in mobile access and interconnect costs of $1 million or 2.0%, primarily due to lower call volumes; and
A net decrease resulting from other individually insignificant changes in other direct cost categories.
VTR.VTR. The increasefollowing table sets forth the organic and non-organic changes in VTR’s programming and other direct costs of services for our VTR segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) | | Increase (decrease) from: |
| 2021 | | 2020 | | | FX | | Organic |
| in millions |
| | | | | | | | | |
Programming and copyright | $ | 48.4 | | | $ | 41.3 | | | $ | 7.1 | | | $ | 4.8 | | | $ | 2.3 | |
Interconnect | 9.6 | | | 11.2 | | | (1.6) | | | 1.0 | | | (2.6) | |
Equipment and other | 4.0 | | | 4.7 | | | (0.7) | | | 0.4 | | | (1.1) | |
Total programming and other direct costs | $ | 62.0 | | | $ | 57.2 | | | $ | 4.8 | | | $ | 6.2 | | | $ | (1.4) | |
•Programming and copyright: includesThe organic increase is primarily due to an increase of $6$2 milliondue to FX. Excluding the effect of FX, VTR’s programming and other direct costs of services increased $3 million or 5.2%. This increase includes the following factors:
An increase in programming and copyright costs of $1 million or 3.5%, primarily due to the net effect of (i) an increase in certain premium and basic content costs due to rate increases, (ii) a decrease in the foreign currency impact of programming contracts denominated in U.S. dollars and (ii) higher costs associated with video-on-demand;
An increase in mobile access and interconnect costs of $1 million or 8.2%, primarily due todollars. In addition, the change includes (i) higher MVNO charges and (ii) a net increase in interconnectbasic content costs fromdue to higher callrates, which were partially offset by lower volumes and lower interconnect(ii) a decrease in premium content cost rates.
Liberty Puerto Rico.•Interconnect: Theorganic decrease is primarily due to lower rates.
•Equipment and other: The organic decrease is primarily due to lower volumes of equipment sales.
Cabletica. The following table sets forth the organic and non-organic changes in Liberty Puerto Rico’s programming and other direct costs of services for our Cabletica segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | Increase (decrease) from: |
| 2021 | | 2020 | | Increase | | FX | | Organic |
| in millions |
| | | | | | | | | |
Programming and copyright | $ | 8.8 | | | $ | 8.3 | | | $ | 0.5 | | | $ | (0.7) | | | $ | 1.2 | |
Interconnect | 1.4 | | | 1.2 | | | 0.2 | | | (0.1) | | | 0.3 | |
Equipment and other | 0.8 | | | 0.2 | | | 0.6 | | | — | | | 0.6 | |
Total programming and other direct costs | $ | 11.0 | | | $ | 9.7 | | | $ | 1.3 | | | $ | (0.8) | | | $ | 2.1 | |
•Programming and copyright: The organic increase is primarily due to a declinean increase in programming and copyright costs of $10 million or 42.7% mostly attributable to (i) $7 million of credits from vendors stemming from Hurricanes Irma and Maria and (ii) lower costs of $4 million resulting from disconnects of enhanced video subscribers due to the impact of the hurricanes.certain premium content costs.
Other Operating Expensesoperating costs and expenses
General.Other operating costs and expenses set forth in the tables below comprise the following cost categories:
•Personnel and contract labor-related costs, which primarily include network operations, customer operations, customer care, share-based compensationsalary-related and othercash bonus expenses, net of capitalizable labor costs, and temporary contract labor costs;
•Network-related expenses, which primarily include costs related to our operations.
The following table sets forth other operating expenses by reportable segment:
|
| | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2018 | | 2017 | | $ | | % |
| in millions, except percentages |
| | | | | | | |
C&W | $ | 109.0 |
| | $ | 117.8 |
| | $ | (8.8 | ) | | (7.5 | ) |
VTR | 42.9 |
| | 36.9 |
| | 6.0 |
| | 16.3 |
|
Liberty Puerto Rico | 14.6 |
| | 15.4 |
| | (0.8 | ) | | (5.2 | ) |
Intersegment eliminations | (0.1 | ) | | (0.1 | ) | | — |
| | N.M. |
|
Total other operating expenses excluding share-based compensation expense | 166.4 |
| | 170.0 |
| | (3.6 | ) | | (2.1 | ) |
Share-based compensation expense | 0.1 |
| | 0.5 |
| | (0.4 | ) | | (80.0 | ) |
Total | $ | 166.5 |
| | $ | 170.5 |
| | $ | (4.0 | ) | | (2.3 | ) |
N.M. — Not Meaningful.
Consolidated. The decrease in other operating expenses during the three months ended March 31, 2018, as compared to the corresponding period in 2017, includes increases of $3 millionnetwork access, system power, core network, CPE repair, maintenance and $4 million attributable to the impact of the C&W Carve-out Acquisition and FX, respectively. Our other operating expenses include share-based compensation expense. For additional information, see the discussion under Share-based compensation expense (included in other operating and SG&A expenses) below. Excluding the effects of the C&W Carve-out Acquisition, FX and share-based compensation expense, our other operating expenses decreased $10 million or 5.8%. The organic decrease includes declines of $12 million and $1 million at C&W and Liberty Puerto Rico, respectively, and an increase of $3 million at VTR, as further discussed below.test costs;
C&W. The decrease in C&W’s other operating expenses includes an increase of $3 million attributable to the impact of the C&W Carve-out Acquisition. Excluding the effect of the C&W Carve-out Acquisition, C&W’s other operating expenses (exclusive of share-based compensation expense) decreased $12 million or 9.8%. This decrease includes the following factors:
A decrease in bad debt and collection expenses of $7 million or 50.5%, primarily due to (i) better than expected collections in 2018, including a $3 million recovery related to provisions established following the impacts of Hurricanes Irma and Maria, and (ii) a decrease resulting from provisions recorded during the first quarter of 2017 in connection with Hurricane Matthew; and
| |
• | A decrease in network-related expenses of$6 million or 14.0%, primarily due to network restoration costs incurred in the first quarter of 2017 associated with sustained damages from Hurricane Matthew.
|
VTR. The increase in VTR’s other operating expenses includes an increase of $4 million due to FX. Excluding the effect of FX, VTR’s other operating expenses (exclusive of share-based compensation expenses) increased $3 million or 6.8%. This change is primarily the result of an increase in network-related expenses of $3 million or 21.1% due to higher maintenance costs.
Liberty Puerto Rico. •The decrease in Liberty Puerto Rico’sService-related costs, which primarily include professional services, information technology-related services, audit, legal and other operating expenses is primarily due to lower various indirect expenses of approximately $2 million, predominantly related to bad debt and franchise fees that decreased as a result of the hurricanes. This decrease was partially offset by higher personnel costs of $1 million resulting from hurricane recovery efforts.services;
SG&A Expenses
General. •SG&A expenses include human resources, information technology, general services, management, finance, legal, externalCommercial, which primarily includes sales and marketing costs, share-based compensationsuch as advertising, commissions and other general expenses.sales and marketing-related costs, and customer care costs related to outsourced call centers;
The following table sets forth SG&A by reportable segment
•Facility, provision, franchise and other, which primarily includes facility-related costs, provision for bad debt expense, franchise-related fees, bank fees, insurance, travel and entertainment and other operating-related costs; and
•Share-based compensation expense that relates to (i) SARs, RSUs and PSUs issued to our corporateemployees and Directors and (ii) bonus-related expenses that will be paid in the form of equity.
category:
|
| | | | | | | | | | | | | |
| Three months ended March 31, | | Increase |
| 2018 | | 2017 | | $ | | % |
| in millions, except percentages |
| | | | | | | |
C&W | $ | 117.2 |
| | $ | 114.5 |
| | $ | 2.7 |
| | 2.4 |
VTR | 45.4 |
| | 39.2 |
| | 6.2 |
| | 15.8 |
Liberty Puerto Rico | 12.7 |
| | 12.4 |
| | 0.3 |
| | 2.4 |
Corporate | 11.3 |
| | 5.1 |
| | 6.2 |
| | 121.6 |
Intersegment eliminations | 0.3 |
| | 0.1 |
| | 0.2 |
| | N.M. |
Total SG&A expenses excluding share-based compensation expense | 186.9 |
| | 171.3 |
| | 15.6 |
| | 9.1 |
Share-based compensation expense | 6.4 |
| | 5.1 |
| | 1.3 |
| | 25.5 |
Total | $ | 193.3 |
| | $ | 176.4 |
| | $ | 16.9 |
| | 9.6 |
N.M. — Not Meaningful.
Consolidated. The increase in SG&A expenses during the three months ended March 31, 2018, as compared to the corresponding period in 2017, includes increases of $1 million and $4 million attributable to the impacts of the C&W Carve-out Acquisition and FX, respectively. Our SG&A expenses include share-based compensation expense. For additional information, see the discussion under Share-based compensation expense (included in other operating and SG&A expenses) below. Excluding the effects of the C&W Carve-out Acquisition, FX and share-based compensation expense, our SG&A expenses increased $11
million or 6.2%. The organic increase primarily includes increases of $6 million, $3 million and $1 million at Corporate, VTR and C&W, respectively, as further discussed below.
C&W. The increase in C&W’s SG&A expenses includes an increase of $1 million attributable to the impact of the C&W Carve-out Acquisition. Excluding the effect of the C&W Carve-out Acquisition, C&W’s SG&A expenses (exclusive of share-based compensation expense) increased $1 million or 1.2%. This increase includes the following factors:
A decrease in outsourced labor and professional fees of $3 million or 28.6%, primarily due to higher contract costs in 2017;
An increase in personnel costs of $3 million or 5.0%, primarily due to higher incentive compensation costs; and
A net increase resulting from other individually insignificant changes in other SG&A expense categories.
VTR. The increase in VTR’s SG&A expenses includes an increase of $4 million due to FX. Excluding the effect of FX, VTR’s SG&A expenses (exclusive of share-based compensation expense) increased $3 million or 6.4%. This change is primarily the result of an increase in sales, marketing and advertising expenses of $3 million or 19.3%, due to higher (i) sales commissions to third-party dealers and (ii) costs associated with advertising campaigns.
Liberty Puerto Rico. Liberty Puerto Rico’s SG&A expenses (exclusive of share-based compensation expense) remained relatively unchanged during the three months ended March 31, 2018, as compared to the corresponding period in 2017.
Corporate. The increase is primarily attributable to added costs associated with being a separate public company, including increases in personnel costs and professional services. The increase in costs is inclusive of costs that Liberty Global charges us in connection with certain of the Split-Off Agreements, as further described in note 11 to our condensed consolidated financial statements.
Adjusted OIBDA
Adjusted OIBDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance. For the definition of this performance measure and for a reconciliation of total Adjusted OIBDA to our earnings (loss) before income taxes, see note 16 to our condensed consolidated financial statements.
The following table sets forth Adjusted OIBDA by reportable segment and our corporatecategory:
|
| | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) |
| 2018 | | 2017 | | $ | | % |
| in millions, except percentages |
| | | | | | | |
C&W | $ | 229.1 |
| | $ | 209.9 |
| | $ | 19.2 |
| | 9.1 |
|
VTR | 105.0 |
| | 91.6 |
| | 13.4 |
| | 14.6 |
|
Liberty Puerto Rico | 18.0 |
| | 51.3 |
| | (33.3 | ) | | (64.9 | ) |
Corporate | (11.3 | ) | | (5.1 | ) | | (6.2 | ) | | 121.6 |
|
Total | $ | 340.8 |
| | $ | 347.7 |
| | $ | (6.9 | ) | | (2.0 | ) |
Adjusted OIBDA Margin
The following table sets forth the Adjusted OIBDA margins (Adjusted OIBDA divided by revenue) of each of our reportable segments:
|
| | | |
| Three months ended March 31, |
| 2018 | | 2017 |
| % |
| | | |
C&W | 39.1 | | 36.5 |
VTR | 39.8 | | 39.9 |
Liberty Puerto Rico | 29.1 | | 48.1 |
Adjusted OIBDA margin is impacted by organic changes in revenue, programming and other direct costs of services, other operating expenses and SG&A expenses as further discussed above. During the three months ended March 31, 2018, the Adjusted OIBDA of Liberty Puerto Rico was adversely impacted by Hurricanes Irma and Maria, as more fully described in Overview above. With regards to Puerto Rico, Adjusted OIBDA margin during the first quarter of 2018 improved significantly from (71.6)% during the three months ended December 31, 2017 as we recover from Hurricanes Maria and Irma.
Share-based compensation expense (includednon-organic changes in other operating costs and SG&A expenses)expenses on a consolidated basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Three months ended March 31, | | Increase (decrease) | | | | Acquisitions (disposition), net | | Organic |
| 2021 | | 2020 | | | FX | | |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 138.4 | | | $ | 124.5 | | | $ | 13.9 | | | $ | 0.5 | | | $ | 20.7 | | | $ | (7.3) | |
Network-related | 77.2 | | | 63.9 | | | 13.3 | | | 1.1 | | | 8.2 | | | 4.0 | |
Service-related | 47.5 | | | 38.3 | | | 9.2 | | | 0.7 | | | 7.7 | | | 0.8 | |
Commercial | 52.4 | | | 42.1 | | | 10.3 | | | 1.7 | | | 7.8 | | | 0.8 | |
Facility, provision, franchise and other | 114.9 | | | 87.5 | | | 27.4 | | | 0.3 | | | 33.7 | | | (6.6) | |
Share-based compensation expense | 23.0 | | | 23.8 | | | (0.8) | | | 0.2 | | | 0.4 | | | (1.4) | |
Total other operating costs and expenses | $ | 453.4 | | | $ | 380.1 | | | $ | 73.3 | | | $ | 4.5 | | | $ | 78.5 | | | $ | (9.7) | |
We recognized share-based compensation expense of $7 million and $6 million during the three months ended March 31, 2018 and 2017, respectively.This increase is primarily due to equity awards granted during 2018.
For additional information regarding our share-based compensation, see note 13Results of Operations (below Adjusted OIBDA) discussion and analysis below.
C&W Caribbean and Networks. The following table sets forth the organic and non-organic changes in other operating costs and expenses for our C&W Caribbean and Networks segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Three months ended March 31, | | Increase (decrease) | | | | An acquisition | | Organic |
| 2021 | | 2020 | | | FX | | |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 64.3 | | | $ | 67.3 | | | $ | (3.0) | | | $ | (0.9) | | | $ | 0.7 | | | $ | (2.8) | |
Network-related | 37.8 | | | 35.4 | | | 2.4 | | | (0.6) | | | — | | | 3.0 | |
Service-related | 17.7 | | | 18.9 | | | (1.2) | | | (0.1) | | | — | | | (1.1) | |
Commercial | 11.2 | | | 13.2 | | | (2.0) | | | (0.4) | | | — | | | (1.6) | |
Facility, provision, franchise and other | 39.6 | | | 44.3 | | | (4.7) | | | (0.5) | | | — | | | (4.2) | |
Share-based compensation expense | 6.2 | | | 6.9 | | | (0.7) | | | — | | | 0.4 | | | (1.1) | |
Total other operating costs and expenses | $ | 176.8 | | | $ | 186.0 | | | $ | (9.2) | | | $ | (2.5) | | | $ | 1.1 | | | $ | (7.8) | |
•Personnel and contract labor: The organic decrease is primarily due to our condensed consolidated financial statements.
Depreciationlower salaries and amortization expenseother personnel costs, mainly associated with the benefit of certain ongoing restructuring activities.
Our depreciation•Network-related: The organic increase is primarily due to higher maintenance costs.
•Commercial: The organic decrease is primarily due to lower marketing and amortization expense increased $8 million or 4.3% duringsales costs, largely due to reductions in promotional and sponsorship costs, as a result of certain adverse economic impacts caused by the three months ended March 31, 2018, as comparedCOVID-19 pandemic across our markets.
•Facility, provision, franchise and other costs: The organic decrease is primarily due to (i) lower travel and entertainment costs due to the corresponding periodcurtailment of such costs as a result of the impact of COVID-19 and (ii) lower bad debt provisions.
C&W Panama. The following table sets forth the organic changes in 2017. Excludingother operating costs and expenses for our C&W Panama segment.
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Organic increase (decrease) | | | | |
| 2021 | | 2020 | | | |
| in millions |
| | | | | | | | | |
Personnel and contract labor | $ | 17.2 | | | $ | 20.6 | | | $ | (3.4) | | | | | |
Network-related | 9.8 | | | 11.5 | | | (1.7) | | | | | |
Service-related | 3.9 | | | 4.3 | | | (0.4) | | | | | |
Commercial | 5.1 | | | 5.7 | | | (0.6) | | | | | |
Facility, provision, franchise and other | 10.8 | | | 13.0 | | | (2.2) | | | | | |
Share-based compensation expense | 0.7 | | | 0.5 | | | 0.2 | | | | | |
Total other operating costs and expenses | $ | 47.5 | | | $ | 55.6 | | | $ | (8.1) | | | | | |
•Personnel and contract labor: The organic decrease is primarily due to lower salaries and other personnel costs, primarily associated with the effectbenefit of FX, depreciationcertain ongoing restructuring activities.
•Network-related: The organic decrease is primarily due to lower maintenance costs.
•Facility, provision, franchise and amortization expense increased $6other costs: The organic decrease is primarily due to lower bad debt provisions.
Liberty Puerto Rico. The following table sets forth the organic and non-organic changes in other operating costs and expenses for our Liberty Puerto Rico segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Three months ended March 31, | | Increase | | Acquisition (disposition), net | | Organic |
| 2021 | | 2020 | | | |
| in millions |
| | | | | | | | | |
Personnel and contract labor | $ | 32.4 | | | $ | 10.8 | | | $ | 21.6 | | | $ | 20.0 | | | $ | 1.6 | |
Network-related | 9.2 | | | 1.2 | | | 8.0 | | | 8.2 | | | (0.2) | |
Service-related | 10.4 | | | 3.0 | | | 7.4 | | | 7.7 | | | (0.3) | |
Commercial | 12.0 | | | 2.6 | | | 9.4 | | | 7.8 | | | 1.6 | |
Facility, provision, franchise and other | 45.2 | | | 12.4 | | | 32.8 | | | 33.7 | | | (0.9) | |
Share-based compensation expense | 3.0 | | | 1.4 | | | 1.6 | | | — | | | 1.6 | |
Total other operating costs and expenses | $ | 112.2 | | | $ | 31.4 | | | $ | 80.8 | | | $ | 77.4 | | | $ | 3.4 | |
•Personnel and contract labor: The organic increase is primarily due to higher salaries and other personnel costs.
•Service-related: We incurred $1 million or 3.0%of integration costs associated with the AT&T Acquisition in each of the first quarters of 2021 and 2020. The integration costs incurred during 2021 are included in the three months ended March 31, 2018, as comparedincrease from an acquisition (disposition), net, in the above table and are expected to grow significantly in future quarters.
•Commercial: The organic increase is primarily due to higher call center volumes.
VTR. The following table sets forth the corresponding periodorganic and non-organic changes in 2017. Thisother operating costs and expenses for our VTR segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) | | Increase (decrease) from: |
| 2021 | | 2020 | | | FX | | | | Organic |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 16.1 | | | $ | 14.9 | | | $ | 1.2 | | | $ | 1.6 | | | | | $ | (0.4) | |
Network-related | 19.3 | | | 14.3 | | | 5.0 | | | 1.9 | | | | | 3.1 | |
Service-related | 10.1 | | | 8.6 | | | 1.5 | | | 0.9 | | | | | 0.6 | |
Commercial | 22.3 | | | 19.8 | | | 2.5 | | | 2.3 | | | | | 0.2 | |
Facility, provision, franchise and other | 10.0 | | | 11.5 | | | (1.5) | | | 0.9 | | | | | (2.4) | |
Share-based compensation expense | 1.9 | | | 1.9 | | | — | | | 0.2 | | | | | (0.2) | |
Total other operating costs and expenses | $ | 79.7 | | | $ | 71.0 | | | $ | 8.7 | | | $ | 7.8 | | | | | $ | 0.9 | |
•Network-related: The organic increase is primarily due to higher volumes of network access-related contracted labor.
•Commercial: The organic increase is primarily due to the net effect of (i) higher call center volumes and (ii) a decrease in marketing and advertising expenses.
•Facility, provision, franchise and other costs: The organic decrease is primarily due to lower bad debt provisions.
Cabletica. The following table sets forth the organic and non-organic changes in other operating costs and expenses for our Cabletica segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Increase (decrease) | | Increase (decrease) from: |
| 2021 | | 2020 | | | FX | | | | Organic |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 3.4 | | | $ | 4.8 | | | $ | (1.4) | | | $ | (0.2) | | | | | $ | (1.2) | |
Network-related | 2.1 | | | 2.0 | | | 0.1 | | | (0.2) | | | | | 0.3 | |
Service-related | 0.8 | | | 0.4 | | | 0.4 | | | (0.1) | | | | | 0.5 | |
Commercial | 1.8 | | | 0.8 | | | 1.0 | | | (0.2) | | | | | 1.2 | |
Facility, provision, franchise and other | 3.0 | | | 2.7 | | | 0.3 | | | (0.1) | | | | | 0.4 | |
Share-based compensation expense | 0.1 | | | 0.2 | | | (0.1) | | | — | | | | | (0.1) | |
Total other operating costs and expenses | $ | 11.2 | | | $ | 10.9 | | | $ | 0.3 | | | $ | (0.8) | | | | | $ | 1.1 | |
•Service-related: During the first quarter of 2021, we have incurred a minor amount of integration costs related to the pending Telefónica-Costa Rica Acquisition. These costs are expected to grow during the remainder of 2021.
Corporate. The following table sets forth the organic changes in other operating costs and expenses for our corporate operations.
| | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Organic increase (decrease) |
| 2021 | | 2020 | |
| in millions |
| | | | | |
Personnel and contract labor | $ | 5.0 | | | $ | 6.1 | | | $ | (1.1) | |
Service-related | 4.6 | | | 3.1 | | | 1.5 | |
Facility, provision, franchise and other | 6.3 | | | 3.6 | | | 2.7 | |
Share-based compensation expense | 11.1 | | | 12.9 | | | (1.8) | |
Total other operating costs and expenses | $ | 27.0 | | | $ | 25.7 | | | $ | 1.3 | |
•Facility, provision, franchise and other: The organic increase is primarily attributable to higher expenses associated with a mobile handset insurance program that began during the fourth quarter of 2020 following the closing of the AT&T Acquisition.
Results of Operations (below Adjusted OIBDA)
Share-based compensation expense (included in other operating costs and expenses)
Share-based compensation expenseremained relatively flat during the three months ended March 31, 2021, as compared to the corresponding period in 2020.
Depreciation and amortization
Our depreciation and amortization expense increased $32 million or 15% during the three months ended March 31, 2021, as compared to the corresponding period in 2020,primarily dueto the net effect of (i) an increase associated withof $30 million following the closing of the AT&T Acquisition, (ii) an increase in property and equipment additions, related toprimarily associated with the installation of customer premises equipment,CPE, baseline related additions and the expansion and upgrade of our networks and other capital initiatives and(ii) (iii) a decrease associated with certain assets becoming fully depreciated, primarily at VTR and Liberty Puerto Rico.depreciated.
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of $34$2 million and $13$19 million during the three months ended March 31, 20182021 and 2017,2020, respectively.
During 2018,the three months ended March 31, 2021, we recognized a gain of $9 million on the disposition of certain B2B operations in our Liberty Puerto Rico segment that was completed in January 2021, which was more than offset by direct acquisition costs of $7 million, and impairment and restructuring costs.
During the three months ended March 31, 2020, we incurred $26(i) impairment charges of $2 million, (ii) restructuring charges of $9 million and (iii) direct acquisition costs of $8 million. The restructuring charges, which are primarily related to C&W Caribbean and Networks and VTR, include $24 million of(i) employee severance and termination costs related to certain reorganization activities primarily at C&W. During 2017, we incurred $11 million of restructuring charges, which include $9 million of employee severance and (ii) contract termination and other related charges. The direct acquisition costs primarily related to certain reorganization activities, primarily at C&W.
For additional information regarding our restructuring charges, see note 12 to our condensed consolidated financial statements.the AT&T Acquisition.
Interest expense
Our interest expense increased $8decreased $17 million during 2018,the three months ended March 31, 2021, as compared to 2017. This increase isthe corresponding period in 2020, primarily attributabledue to the net effect of (i) an increase resulting from the adoption of ASU 2014-09, as further described in notes 2 and 3 to our condensed consolidated financial statements,lower weighted-average interest rates and (ii) a net decrease of accretion expense associated with premiums and discounts.higher average outstanding debt balances.
For additional information regarding our outstanding indebtedness, see note 8 to our condensed consolidated financial statements.
It is possible that the interest rates on (i) any new borrowings could be higher than the current interest rates on our existing indebtedness and (ii) our variable-rate indebtedness could increase in future periods. As further discussed in note 5 to our condensed consolidated financial statements, we use derivative instruments to manage our interest rate risks.
Realized and unrealized lossesgains on derivative instruments, net
Our realized and unrealized gains or losses on derivative instruments primarily include (i) unrealized changes in the fair values of our derivative instruments that are non-cash in nature until such time as the derivative contracts are fully or partially settled and (ii) realized gains or losses upon the full or partial settlement of the derivative contracts. The details of our realized and unrealized lossesgains on derivative instruments, net, are as follows:
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | in millions |
| | | | | | | |
Cross-currency and interest rate derivative contracts (a) | | | | | $ | 119.5 | | | $ | 9.3 | |
Foreign currency forward contracts | | | | | 0.7 | | | 10.5 | |
Weather Derivatives (b) | | | | | (5.3) | | | (2.4) | |
Total | | | | | $ | 114.9 | | | $ | 17.4 | |
|
| | | | | | | |
| Three months ended March 31, |
| 2018 | | 2017 |
| in millions |
| | | |
Cross-currency and interest rate derivative contracts (a) | $ | (38.9 | ) | | $ | (25.5 | ) |
Foreign currency forward contracts | (2.6 | ) | | (1.8 | ) |
Total | $ | (41.5 | ) | | $ | (27.3 | ) |
(a)The gain during the three months ended March 31, 2021 is primarily attributable to the net effect of (i) changes in interest rates and (ii) changes in FX rates, predominantly due to changes in the value of the Chilean peso relative to the U.S. dollar. In addition, the gain during the 2021 period includes a net loss of $21 million resulting from changes in our credit risk valuation adjustments. The gain during the three months ended March 31, 2020 is primarily attributable to the net effect of (i) changes in FX rates, predominantly due to changes in the value of the Chilean peso relative to the U.S. dollar and (ii) changes in interest rates. In addition, the gain during the 2020 period includes a net gain of $33 million resulting from changes in our credit risk valuation adjustments, which is primarily due to increased credit risk stemming from market reaction to the COVID-19 outbreak. | |
(a) | The loss during 2018 is attributable to the net effect of (i) losses from changes in FX rates, primarily resulting from an increase in the value of the Chilean peso relative to the U.S. dollar, and (ii) gains resulting from changes in interest rates. In addition, the loss during 2018 includes a net loss of $12 million resulting from changes in our credit risk valuation adjustments. The loss during 2017 is primarily attributable to the net effect of (i) gains resulting from changes in interest rates and (ii) losses from changes in FX rates, primarily resulting from an increase in the value of the Chilean peso relative to the U.S. dollar. In addition, the loss during 2017 includes a net gain of $7 million resulting from changes in our credit risk valuation adjustments. |
(b)Amounts represent the amortization of the premiums associated with our Weather Derivatives.
For additional information concerning our derivative instruments, see notes 5 and 6 to our condensed consolidated financial statements and Item 3. QualitativeQuantitative and QuantitativeQualitative Disclosures about Market Risk below.
Foreign currency transaction gains,losses, net
Our foreign currency transaction gains or losses primarily result from the remeasurement of monetary assets and liabilities that are denominated in currencies other than the underlying functional currency of the applicable entity. Unrealized foreign currency transaction gains or losses are computed based on period-end exchange rates and are non-cash in nature until such time as the amounts are settled. The details of our foreign currency transaction gains,losses, net, are as follows:
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | in millions |
| | | | | | | |
U.S. dollar-denominated debt issued by a Chilean peso functional currency entity | | | | | $ | (4.1) | | | $ | (158.7) | |
Intercompany payables and receivables denominated in a currency other than the entity’s functional currency | | | | | (16.2) | | | 3.2 | |
Other | | | | | (5.1) | | | (8.8) | |
Total | | | | | $ | (25.4) | | | $ | (164.3) | |
|
| | | | | | | |
| Three months ended March 31, |
| 2018 | | 2017 |
| in millions |
| | | |
U.S. dollar-denominated debt issued by a Chilean peso functional currency entity | $ | 26.8 |
| | $ | 20.5 |
|
British pound sterling-denominated debt issued by a U.S. dollar functional currency entity | (10.5 | ) | | (3.7 | ) |
Other | (0.4 | ) | | (2.3 | ) |
Total | $ | 15.9 |
| | $ | 14.5 |
|
LossLosses on debt modification and extinguishment
We recognized a losslosses on debt modification and extinguishment of $13$23 million and nil$3 million during the three months ended March 31, 20182021 and 2017,2020, respectively. The 2018 amount representslosses during 2021 are associated with (i) the write-off of unamortized discounts and deferred financing costs related to the repayment of the 2026 SPV Credit Facility, (ii) the payment of breakage fees and the write-off of unamortized deferred financing costs related to the repayments of the VTR TLB-1 Facility and VTR TLB-2 Facility and (iii) the payment of redemption premiums and the write-off of unamortized deferred financing costs related to the partial redemption of the 2028 VTR Senior Secured Notes. The losses during 2020 are associated with the write-off of unamortized discounts and deferred financing costs associated with the repayment of the C&W Term Loan B-3B-4 Facility.
For additional information concerning our losslosses on debt modification and extinguishment, see note 8 to our condensed consolidated financial statements.
Other income, net
Our other income and expense, net, generally includes (i) certain amounts associated with our defined benefit plans, including interest expense and expected return on plan assets, and (ii) interest income on cash, cash equivalents and restricted cash.
We recognized other income (expense), net, of $5($1 million) and $7 million during the three months ended March 31, 2021 and 2020, respectively. During the first quarter of 2020, we generated interest income on restricted cash held in escrow in advance of the closing of the AT&T Acquisition.
Income tax expense
We recognized income tax expense of $28 million and $6 million during the three months ended March 31, 20182021 and 2017,2020, respectively. The amount for each period includes $3 million of interest and dividend income and $3 million in pension-related credits following the adoption of ASU 2017-07.
For additional information regarding the adoption of ASU 2017-07, see note 2 to our condensed consolidated financial statements.
Income tax expense
We recognized income tax expense of $17 million and $23 million during the three months ended March 31, 2018 and 2017, respectively. For the three months ended March 31, 2018, 2021 and 2020,the income tax expense attributable to our lossearnings (loss) before income taxes differs from the amountamounts computed using the statutory tax rate,primarily due to the net detrimental effects of international rate differences, increases in the valuation allowance,allowances, changes in uncertain tax positions, and negative effects of permanent tax differences, such as non-deductible expenses. These negative impacts to our effective tax rate were partially offset by the beneficial effects of permanent tax differences, such as non-taxable income and price level restatements. For the three months ended March 31, 2017, the income tax expense attributable to our earnings before income taxes differs from the amount computed using the statutory tax rate primarily due to the detrimental effects of international rate differences, non-deductible expenses and changes in valuation allowances, partially offset by the beneficial effects of enacted tax law and rate changes.income.
For additional information regarding our income taxes, see note 913 to our condensed consolidated financial statements.
Net earnings (loss)
During the three months ended March 31, 2018 and 2017, we reportedThe following table sets forth selected summary financial information of our net earnings (loss) of ($54 million) and $11 million, respectively, including (i) operating income of $98 million and $135 million, respectively, (ii) net non-operating expenses of $136 million and $101 million, respectively, and (iii) income taxexpense of $17 million and $23 million, respectively.earnings:
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | in millions |
| | | | | | | |
Operating income | | | | | $ | 178.2 | | | $ | 107.8 | |
Net non-operating expenses | | | | | $ | (60.8) | | | $ | (286.8) | |
Income tax expense | | | | | $ | (28.0) | | | $ | (5.6) | |
Net earnings (loss) | | | | | $ | 89.4 | | | $ | (184.6) | |
Gains or losses associated with (i) changes in the fair values of derivative instruments and (ii) movements in foreign currency exchange rates are subject to a high degree of volatility and, as such, any gains from these sources do not represent a reliable source of income. In the absence of significant gains in the future from these sources or from other non-operating items, our ability to achieve earnings is largely dependent on our ability to increase our aggregate Adjusted OIBDA to a level that more than offsets the aggregate amount of our (i) share-based compensation expense, (ii) depreciation and amortization, (iii) impairment, restructuring and other operating items, (iv) interest expense, (v) other non-operating expenses and (vi) income tax expenses.
Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under Material Changes in Financial Condition—Capitalization below, we expect that we will continue to report significant levels of interest expense for the foreseeable future. For information concerning our expectations with respect to trends that may affect certain aspects of our operating results in future periods, see the discussion under Overview above.
Net earnings (loss)or loss attributable to noncontrolling interests
During the three months ended March 31, 2018 and 2017, weWe reported net earnings (loss) attributable to noncontrolling interests of $2 million and ($104 million) during the three months ended March 31, 2021 and $16 million,2020, respectively.
The 2018 period primarily includes losses attributable to our noncontrolling interests in certain C&W entities, as compared to the 2017 period, which primarily comprises earnings attributable to noncontrolling interests in certain C&W entities.
During the first quarter of 2018, we increased our ownership in C&W Jamaica from 82.0% to 91.7%. For additional information, see note 10 to our condensed consolidated financial statements.
Material Changes in Financial Condition
Sources and Uses of Cash
EachAs of our reportable segments is separately financed within one of our threeMarch 31, 2021, we have four primary “borrowing groups.groups,” These borrowing groupswhich include the respective restricted parent and subsidiary entities withinof C&W, VTR Finance and Liberty Puerto Rico.Rico, VTR and Cabletica. Our borrowing groups, which typically generate cash from operating activities, accounted forheld a significant portion of our consolidated cash and cash equivalents at March 31, 2018.2021. Our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests, foreign currency exchange restrictions with respect to certain C&W subsidiaries and other factors.
Cash and cash equivalents
The details of the U.S. dollar equivalent balances of our cash and cash equivalents at March 31, 20182021 are set forth in the following table (in millions):
|
| | | |
Cash and cash equivalents held by: | |
Liberty Latin America and unrestricted subsidiaries: | |
Liberty Latin America (a) | $ | 70.6 |
|
Unrestricted subsidiaries (b) | 38.9 |
|
Total Liberty Latin America and unrestricted subsidiaries | 109.5 |
|
Borrowing groups (c): | |
C&W (d) | 291.6 |
|
VTR Finance | 69.0 |
|
Liberty Puerto Rico | 40.5 |
|
Total borrowing groups | 401.1 |
|
Total cash and cash equivalents | $ | 510.6 |
|
| | | | | |
(a)Cash and cash equivalents held by: | Represents the amount held by |
Liberty Latin America on a standalone basis. |
and unrestricted subsidiaries: | |
(b) | Represents the aggregate amount held by subsidiaries of Liberty Latin America that are outside of our borrowing groups.(a)
| $ | All of these companies rely on funds provided by our borrowing groups to satisfy their liquidity needs.197.7 |
| |
(c)Unrestricted subsidiaries (b) | Represents the aggregate amounts held by the parent entity of the applicable borrowing group and their restricted subsidiaries. |
359.4 | |
(d)Total Liberty Latin America and unrestricted subsidiaries | 557.1 | |
Borrowing groups (c): | |
C&W’s subsidiaries hold the majority of C&W’s consolidated cash. Due to the restrictions as noted above, a significant portion of the&W | 474.7 | |
Liberty Puerto Rico | 128.1 | |
VTR | 138.5 | |
Cabletica | 7.2 | |
Total borrowing groups | 748.5 | |
Total cash held by C&W subsidiaries is not considered to be an immediate source of corporate liquidity for C&W.and cash equivalents | $ | 1,305.6 | |
(a)Represents the amount held by Liberty Latin America on a standalone basis.
(b)Represents the aggregate amount held by subsidiaries of Liberty Latin America that are outside of our borrowing groups.All of these companies rely on funds provided by our borrowing groups to satisfy their liquidity needs.
(c)Represents the aggregate amounts held by the parent entity of the applicable borrowing group and their restricted subsidiaries.
Liquidity of Liberty Latin America and its unrestricted subsidiaries
Our current sources of corporate liquidity include (i) cash and cash equivalents held by Liberty Latin America and, subject to certain tax and legal considerations, Liberty Latin America’s unrestricted subsidiaries and (ii) interest and dividend income received on our and, subject to certain tax and legal considerations, our unrestricted subsidiaries’ cash and cash equivalents and investments. From time to time, Liberty Latin America and its unrestricted subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from Liberty Latin America’s borrowing groups or affiliates, upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds upon the disposition of investments and other assets of Liberty Latin America and its unrestricted subsidiaries and (iii) proceeds in connection with the incurrence of debt by Liberty Latin America or its unrestricted subsidiaries or the issuance of equity securities by Liberty Latin America. No assurance can be given that any external funding would be available to Liberty Latin America or its unrestricted subsidiaries on favorable terms, or at all. As noted above, various factors may limit our ability to access the cash of our borrowing groups.
Our corporate liquidity requirements include (i) corporate general and administrative expenses and (ii) other liquidity needs that may arise from time to time. In addition, Liberty Latin America and its unrestricted subsidiaries may require cash in connection with (i) the repayment of third-party and intercompany debt, (ii) the satisfaction of contingent liabilities, (iii) acquisitions and other investment opportunities, (iv) the repurchase of debt securities, (v) tax payments or (vi) any funding requirements of our consolidated subsidiaries, includingsubsidiaries.
In March 2020, our commitmentDirectors approved the Share Repurchase Program. There were no share repurchases under this program during the three months ended March 31, 2021. For additional information regarding our Share Repurchase Program, see note 16 to fund our portioncondensed consolidated financial statements and Part II—Item 2 Unregistered Sales of any potential liquidity shortfallsEquity Securities and Use of Liberty Puerto Rico through December 31, 2018, as further describedProceeds below.
Liquidity of borrowing groups
The cash and cash equivalents of our borrowing groups are detailed in the table above. In addition to cash and cash equivalents, the primary sources of liquidity of our borrowing groups are cash provided by operations and borrowing availability under their respective debt instruments and, with respect to Liberty Puerto Rico, the remaining portion of the LCPR Equity Commitment (as described below) and insurance proceeds.instruments. For the details of the borrowing availability of such subsidiariesour borrowing groups at March 31, 2018,2021, see note 8to our condensed consolidated financial statements. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from Liberty Latin America and its unrestricted subsidiaries. The liquidity of our borrowing groups generally is used to fund property and equipment additions, debt service requirements and income tax payments. From time to time, our borrowing groups may also require liquidity in connection with (i) acquisitions and other investment opportunities, (ii) loans to Liberty Latin America, (iii) capital distributions to Liberty Latin America and other equity owners or (iv) the satisfaction of contingent liabilities. No assurance can be given that any external funding would be available to our borrowing groups on favorable terms, or at all. For information regarding our borrowing groups’ commitments and contingencies, see note 1517 to our condensed consolidated financial statements.
On December 20, 2017, in connection with challenging circumstances that Liberty Puerto Rico continues to experience as a result of the damage caused by Hurricanes Irma and Maria, the LPR Credit Agreements were amended to (i) provide Liberty Puerto Rico with relief from complying with leverage covenants through December 31, 2018, (ii) increase the consolidated first lien net leverage ratio covenant from 4.5:1 to 5.0:1 beginning with the March 31, 2019 quarterly test date, (iii) restrict Liberty Puerto Rico’s ability to make certain types of payments to its shareholders through December 31, 2018 and (iv) include an equity commitment of up to $60 million from Liberty Puerto Rico’s shareholders through December 31, 2018 to fund any potential liquidity shortfalls. Based on our 60% ownership in Liberty Puerto Rico, we are obligated for up to $36 million of the LCPR Equity Commitment. During the first quarter of 2018, a $25 million capital contribution was provided to Liberty Puerto Rico consisting of $15 million from us and $10 million from Searchlight. Subsequent to March 31, 2018, an additional $20 million was contributed to Liberty Puerto Rico, consisting of $12 million from us and $8 million from Searchlight. Accordingly, Liberty Puerto Rico has up to an additional $15 million available under the LCPR Equity Commitment, of which we are obligated for up to $9 million.
Hurricanes Irma and Maria are expected to continue to have an adverse impact on Liberty Puerto Rico’s cash flows and liquidity. For additional information, see the discussion under Overview above.
For additional information regarding our cash flows, see the discussion under Condensed Consolidated Statements of Cash Flows below.
Capitalization
We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. In this regard, we generally seek to cause our operating subsidiaries to maintain their debt at levels that result in a debt balance (measured using subsidiary debt figures at swapped foreign currency exchange rates, consistent with the covenant calculation requirements of our subsidiary debt agreements) that is typically between four and five times our consolidated Adjusted OIBDA, although the timing of our acquisitions and financing transactions and the interplay of foreign currency average and spot rates may impact this ratio. The ratio of our March 31, 2018 consolidated debt to our annualized consolidated Adjusted OIBDA for the quarter ended March 31, 2018 was 4.8x. In addition, the ratio of our March 31, 2018 consolidated net debt (debt, as defined above, less cash and cash equivalents) to our annualized consolidated Adjusted OIBDA for the quarter ended March 31, 2018 was4.5x. Beginning in the fourth quarter of 2017, these ratios increased due to the adverse impacts of the hurricanes on our Adjusted OIBDA. However, assuming our debt levels remain relatively consistent, we expect these ratios to decrease in future periods as we continue to recover from the adverse impacts of the hurricanes.
When it is cost effective, we generally seek to match the denomination of the borrowings of our subsidiaries with the functional currency of the operations that support the respective borrowings. As further discussed under Item 3. Quantitative and Qualitative Disclosures about Market Risk and in note 5 to our condensed consolidated financial statements, we also use derivative instruments to mitigate foreign currency and interest rate risks associated with our debt instruments.
Our ability to service or refinance our debt and to maintain compliance with the leverage covenants in the credit agreements and indentures of our borrowing groups is dependent primarily on our ability to maintain or increase covenant EBITDA of our operating subsidiaries, as specified by our subsidiaries’ debt agreements (Covenant EBITDA), and to achieve adequate returns on our property and equipment additions and acquisitions. In addition, our ability to obtain additional debt financing is limited by incurrence-based leverage covenants contained in the various debt instruments of our borrowing groups. For example, if the Covenant EBITDA of C&Wone of our borrowing groups were to decline, our ability to support or obtain additional debt in that borrowing group could be limited. No assurance can be given that we would have sufficient sources of liquidity, or that any external funding would be available on favorable terms, or at all, to fund any such required repayment. At March 31, 2018,2021, each of our borrowing groups was in compliance with its debt covenants. We do not anticipate any instances of non-compliance with respect to the debt covenants of our borrowing groups that would have a material adverse impact on our liquidity during the next 12 months.
At March 31, 2018,2021, the outstanding principal amount of our debt, together with our capitalfinance lease obligations, aggregated $6,440$8,939 million, including $212$163 million that is classified as current in our condensed consolidated balance sheet and $5,803$7,395 million that is not due until 20222027 or thereafter. AllAt March 31, 2021, $8,533 million of our debt and capitalfinance lease obligations have been borrowed or incurred by our subsidiariessubsidiaries. Included in the outstanding principal amount of our debt at March 31, 2018.2021 is $170 million of vendor financing, which we use to finance certain of our operating expenses and property and equipment additions. These obligations are generally due within one year, other than for certain licensing arrangements that generally are due over the term of the related license. For additional information concerning our debt, and capital lease obligations, including our debt maturities, see note 8 to our condensed consolidated financial statements.
Notwithstanding our negative working capital position
The weighted average interest rate in effect at March 31, 20182021 for all borrowings outstanding pursuant to each debt instrument, including any applicable margin, was 5.1%. The interest rate is based on stated rates and does not include the impact of derivative instruments, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing. The weighted average impact of the derivative instruments, excluding forward-starting derivative instruments, on our borrowing costs at March 31, 2021 was as follows:
| | | | | | | | |
Borrowing group | | Increase to borrowing costs |
| | |
C&W | 0.66 | % |
Liberty Puerto Rico | 0.39 | % |
VTR | 0.48 | % |
Cabletica | 1.26 | % |
Liberty Latin America borrowing groups | 0.53 | % |
Including the effects of derivative instruments, original issue premiums or discounts, including the discount on the Convertible Notes associated with the instrument’s conversion option, and commitment fees, but excluding the impact of financing costs, the weighted average interest rate on our indebtedness was 6.0% at March 31, 2021.
, wWe believe that we have sufficient resources to repay or refinance the current portion of our debt and capitalfinance lease obligations and to fund our foreseeable liquidity requirements during the next 12 months. However, as our debt maturities grow in later years, we anticipate that we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete refinancing transactions or otherwise extend our debt maturities. In this regard, it is difficult to predict how political, economic and economicsocial conditions, sovereign debt concerns or any adverse regulatory developments will impact the credit and equity markets we access and our future financial position. Our ability to access debt financing on favorable terms, or at all, could be adversely impacted by (i) the financial failure of any of our counterparties, which could (a) reduce amounts available under committed credit facilities and (b) adversely impact our ability to access cash deposited with any failed financial institution, and (ii) tightening of the credit markets and (iii) in the case of Liberty Puerto Rico, by the adverse impacts of the hurricanes on its operations. For additional information regarding the impacts of the hurricanes, see the related discussion under Overview above.markets. In addition, any weakness in the equity markets could make it less attractive to use our shares to satisfy contingent or other obligations, and sustained or increased competition, particularly in combination with adverse economic or regulatory developments, could have an unfavorable impact on our cash flows and liquidity.
Condensed Consolidated Statements of Cash Flows
General. Our cash flows are subject to variations due to FX.
Summary. Our condensed consolidated statements of cash flows for the three months ended March 31, 20182021 and 20172020 are summarized as follows:
| | | Three months ended March 31, | | | | | Three months ended March 31, | |
| 2018 | | 2017 | | Change | | 2021 | | 2020 | | Change |
| in millions | | in millions |
| | | | | | |
Net cash provided by operating activities | $ | 163.2 |
| | $ | 75.0 |
| | $ | 88.2 |
| Net cash provided by operating activities | $ | 203.5 | | | $ | 114.9 | | | $ | 88.6 | |
Net cash used by investing activities | (187.8 | ) | | (127.0 | ) | | (60.8 | ) | Net cash used by investing activities | (126.4) | | | (147.1) | | | 20.7 | |
Net cash provided (used) by financing activities | (11.8 | ) | | 34.5 |
| | (46.3 | ) | |
Net cash provided by financing activities | | Net cash provided by financing activities | 333.0 | | | 455.4 | | | (122.4) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 0.1 |
| | (0.5 | ) | | 0.6 |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 2.8 | | | (8.5) | | | 11.3 | |
Net decrease in cash, cash equivalents and restricted cash | $ | (36.3 | ) | | $ | (18.0 | ) | | $ | (18.3 | ) | |
Net increase in cash, cash equivalents and restricted cash | | Net increase in cash, cash equivalents and restricted cash | $ | 412.9 | | | $ | 414.7 | | | $ | (1.8) | |
The capital expenditures that we report in our condensed consolidated statements of cash flows, dowhich includes cash paid for property and equipment and intangible assets acquired not part of an acquisition, does not include amounts that are financed under capital-related vendor financing or capitalfinance lease arrangements. Instead, these amounts are reflected as non-cash additions to our property and equipment when the underlying assets are delivered and as repayments of debt when the principal is repaid. In this discussion, we refer to (i) our capital expenditures, as reported in our condensed consolidated statements of cash flows, which exclude amounts financed under capital-related vendor financing or capital lease arrangements, and (ii) our total property and equipment additions, which include our capital expenditures on an accrual basis and amounts financed under capital-related vendor financing or capitalfinance lease arrangements. For further details regarding our property and equipment additions, see note 16 to our condensed consolidated financial statements.
A reconciliation of our property and equipment additions to our capital expenditures, as reported in our condensed consolidated statements of cash flows, is set forth below:
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in our company making any material payments and we do not believe that they will result in material payments in the future. For information concerning certain indemnifications provided by C&W, see note 15 to our condensed consolidated financial statements.
The following table sets forth the U.S. dollar equivalents of our commitments as of March 31, 2018:2021:
We are exposed to market risk in the normal course of our business operations due to our investments in various countries and ongoing investing and financing activities. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and stock prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. As further described below, we have established policies, procedures and processes governing our management of market risks and the use of derivative instruments to manage our exposure to such risks.
We invest our cash in highly liquid instruments that meet high credit quality standards. We are exposed to exchange rate risk to the extent that the denominations of our cash and cash equivalent balances, revolving lines of credit and other short-term sources of liquidity do not correspond to the denominations of Liberty Latin America’s short-term liquidity requirements. In order to mitigate this risk, we actively manage the denominations of our cash balances in consideration of Liberty Latin America’s forecasted liquidity requirements. At March 31, 2018, a significant proportion2021, $138 million or 11% of our cash balance was denominated in U.S. dollars or denominated in a currency that is indexed to the U.S. dollar.Chilean pesos.
In general, we seek to enter into derivative instruments to protect against increases in the interest rates on our variable-rate debt. Accordingly, we have entered into various derivative transactions to reduce exposure to increases in interest rates. We use interest rate derivative contracts to exchange, at specified intervals, the difference between fixed and variable interest rates calculated by reference to an agreed-upon notional principal amount. We also use interest rate cap agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit from declines in market rates. At March 31, 2018,2021, we effectively paid a fixed rate of interest rate on 97% of our total debt.debt, which includes the impact of our interest rate derivative contracts. The final maturity dates of our various portfolios of interest rate derivative instruments generally fall short of the respective maturities of the underlying variable-rate debt. In this regard, we use judgment to determine the appropriate maturity dates of our portfolios of interest rate derivative instruments, taking into account the relative costs and benefits of different maturity profiles in light of current and expected future market conditions, liquidity issues and other factors. For additional information concerning the impacts of these interest rate derivative instruments, see note 5 to our condensed consolidated financial statements.
Information concerning the sensitivity of the fair value of certain of our more significant derivative instruments to changes in market conditions is set forth below. The potential changes in fair value set forth below do not include any amounts associated with the remeasurement of the derivative asset or liability into the applicable functional currency. For additional information, see notes 5 and 6 to our condensed consolidated financial statements.
The following table provides information regarding the projected cash flows associated with our derivative instruments. The U.S. dollar equivalents presented below are based on interest rates and exchange rates that were in effect as of March 31, 2018.2021. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. For additional information regarding our derivative instruments, including our counterparty credit risk, see note 5 to our condensed consolidated financial statements.