LiLAC Group Reports Mixed Results in Latin America

By Markets Fool.com

Image source: Getty Images.

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An uncertain economy in the Caribbean and Latin America led to some mixed results from LiLAC Group (NASDAQ: LILAK), which reported third-quarter earnings after the market closed on Thursday. Acquisitions continue to drive growth, but organic growth may not be what management expected, and profits and cash flow are trending lower at the moment. Here are the key metrics investors should be looking at.

LiLAC Group results: The raw numbers

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$894 million

$308.8 million

189.5%

Operating cash flow

$354.6 million

$127.8 million

177.5%

Free cash flow

($39.3 million)

$11.5 million

n/a

Source: LiLAC Group Q3 2016 earnings report.

What happened with LiLAC Group this quarter?

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Revenue growth was driven by the acquisition of CWC, so the comparisons above don't give a great picture of how the business is doing organically. Below are a few of the key metrics from operations.

  • The subscriber base for LiLAC Group grew by 27,000 revenue-generating units (RGUs) to a total of 2.9 million customers and 5.4 million subscriptions. Continuing a long-term trend, 30,000 broadband and 5,000 video customers were added, offset by 7,000 lost fixed-line telephone customers.
  • In the wireless segment, 20,000 customers were lost on an organic basis, leaving 3.6 million customers at the end of the quarter. The main driver was 39,000 lost prepaid customers.
  • The CWC business saw rebased revenue fall 4% in the quarter due to competitive and economic pressures in the Bahamas, Barbados, and Trinidad and Tobago. Overall, CWC swung from a profit of $1.6 million a year ago to a loss of $21.9 million this past quarter.
  • Management now expects to see $150 million in synergies from folding CWC into LiLAC over the next five years.
  • At the end of the quarter, total debt and capital lease obligations outstanding were $6.0 billion, offset by $471 million in cash and equivalents.

What management had to say

Management said the LiLAC Group hasn't been performing as expected, which led to a review of how they could improve the business. They identified the $150 million in synergies, which is on top of $125 million of efficiencies already announced after the CWC deal.

Long term, management is still expecting to see 7% to 9% operating cash-flow growth over the next few years, although 2016 will only grow about 6%. The reality is that a better economy may be needed to bump growth up to the next level.

Looking forward

It isn't surprising to see phone lines being dropped for video and broadband across the business, so broadly, customers are behaving as investors would expect. What's a little strange is the drop in wireless customers, which shows just how competitive some markets in Latin America can be. In the future, investors should watch to see if management can turn the wireless business into a growth engine because wireless is currently a drag on results where it should be a bright spot. It looks like it'll take more time to get the CWC business performing as management expected.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Liberty LiLAC Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.