TRILOGY INTERNATIONAL PARTNERS INC.
This Management's Discussion and Analysis ("MD&A") contains important
information about the business of the Company and its performance for the years
ended December 31, 2022 , 2021 and 2020. This MD&A should be read in conjunction
with TIP Inc.'s audited consolidated financial statements for the year ended
December 31, 2022 , and notes thereto (the "Consolidated Financial Statements"),
prepared in accordance with generally accepted accounting principles in the U.S.
("U.S. GAAP") as issued by the Financial Accounting Standards Board ("FASB").
All financial results and metrics for the year ended December 31, 2022 included
in this MD&A reflect the results from the Bolivia segment from January 1, 2022
through May 14, 2022 and from the New Zealand segment from January 1, 2022
through May 19, 2022 .
Historically, the market operations in New Zealand and Bolivia represented the
Company's two reportable segments. Our chief operating decision maker, TIP
Inc.'s Chief Executive Officer, assessed performance of the segments and
allocated resources primarily based on the financial measures of revenues and
Segment Adjusted EBITDA. See Note 19 - Segment Information to the Consolidated
Financial Statements for additional information.
Foreign Currency
InNew Zealand , the Company generated revenue and incurred costs in NZD. Fluctuations in the value of the NZD relative to the USD increased or decreased the Company's overall revenue and profitability as stated in USD, which is the Company's reporting currency. The effect of these fluctuations is referenced in this MD&A as "impact of foreign currency". The following table sets forth for each period or date indicated the exchange rates in effect at the end of such period, including as ofMay 19, 2022 which reflects the date of the balance sheet forNew Zealand upon closing of the 2degrees Sale, and the average exchange rates for such periods for the NZD, expressed in USD. Additionally, the amount held in escrow from the 2degrees Sale is denominated in NZD and therefore, the exchange rate in effect atDecember 31, 2022 is provided below: May 19, December 31, December 31, 2022 2021 2022 2021 2020 End of period NZD to USD exchange rate 0.64 0.68 0.63 (1) 0.68 0.72 % Change (7 %) (7 %) (5 %) Year Ended December 31, 2022 2021 2020
Average NZD to USD exchange rate 0.67 (2) 0.71 0.65 % Change
(5 %) 9 %
(1)While the exchange rate in effect at December 31, 2022 was 0.63, in the
fourth quarter of 2022, the Company entered into forward exchange contracts to
sell an aggregate of $20 million NZD and buy an aggregate of $12.3 million USD
on June 30, 2023 . Thus, future exposure to fluctuations in the NZD to USD
exchange rate for substantially all of the proceeds from the 2degrees Sale held
in escrow is mitigated.
(2)For the period from January 1, 2022 through May 19, 2022 .
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The following table sets forth for each period indicated the exchange rates in effect at the end of the period and the average exchange rates for such periods, for the CAD, expressed in USD, as quoted by theBank of Canada : December 31, 2022 December 31, 2021 December 31, 2020 End of period CAD to USD exchange rate 0.74 0.79 0.79 % Change (6 %) 0 % Year Ended December 31, 2022 2021 2020 Average CAD to USD exchange rate 0.77 0.80 0.75 % Change (4 %) 7 % Overall Performance
The table below summarizes the Company's consolidated key financial metrics for
the years ended
For the Year Ended December 31, % Variance
2022 2021 2020 2022 vs 2021 2021 vs 2020
(in millions, unless otherwise noted)
Service revenues $ 200.4 $ 540.7 $ 504.0 (63 %) 7 %
Total revenues $ 238.5 $ 653.6 $ 610.3 (64 %) 7 %
Net income (loss) $ 437.0 $ (194.4 ) $ (79.7 ) 325 % (144 %)
Net income (loss) margin(1) 218.1 % (36.0 %)
(15.8 %) 254.0 pts (20.1) pts
Consolidated Adjusted EBITDA(2)
(66 %) 8 %
Consolidated Adjusted EBITDA Margin(2) 19.7 % 21.3 % 21.2 % (1.6) pts 0.1 pts
Capital expenditures(3) $ 32.4 $ 92.8 $ 77.3 (65 %) 20 %
pts - percentage points
(1)Net income (loss) margin is calculated as Net income (loss) divided by
service revenues.
(2)These are non-U.S. GAAP measures and do not have standardized meanings under
U.S. GAAP. Therefore, they are unlikely to be comparable to similar measures
presented by other companies. For definitions and reconciliation to most
directly comparable GAAP financial measures, see "Definitions and
Reconciliations of Non-GAAP Measures" in this MD&A.
(3)Represents purchases of property and equipment excluding purchases of
property and equipment acquired through vendor-backed financing and finance
lease arrangements. Expenditures related to the acquisition of spectrum
licenses, if any, were not included in capital expenditures amounts.
Reclassification of Fixed Broadband Service Revenues
In 2021, we replaced "Wireline" with "Fixed broadband" to describe the revenues and subscribers associated with the Company's fixed broadband products inNew Zealand andBolivia , which were provided using fixed line or wireless technology. As a result, fixed Long Term Evolution ("LTE") service revenues were reclassified from Wireless service revenues and were included as a component of Fixed broadband service revenues in our Consolidated Statements of Operations and Comprehensive Income (Loss). This reclassification was applied to all periods presented in this MD&A. Fixed LTE service revenues reclassified to Fixed broadband service revenues were$2.1 million ,$5.1 million and$3.1 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. This change had no impact on total revenues or net loss for any period presented.
2022 Full Year Highlights
• On
ownership interest in 2degrees, the Company's share of the total consideration
was
the date the consideration was received), net of
of closing adjustments, including transaction advisory fees, along with
payments to satisfy the outstanding 2degrees option pool. Approximately
million NZD of the consideration paid by Voyage Digital for the Company's
2degrees shares is being held in escrow for a maximum period of one year after
the sale closing date.
• Promptly following the closing of the 2degrees Sale, the Company repaid its
outstanding indebtedness and the outstanding indebtedness of its subsidiary,
Trilogy International South Pacific LLC ("TISP"), plus related accrued interest, totaling approximately$450 million . As a result of these prepayments, the Company had no remaining indebtedness outstanding as ofDecember 31, 2022 . 11
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• In the second quarter, the Board declared and paid a distribution to
shareholders of
plan of liquidation adopted by the Board.
• On
related to the NuevaTel Transaction were in a nominal amount and the Company
recorded a net gain on the transaction of
value of liabilities in excess of assets for the business.
• Total cash was
Company's share of the purchase price escrow established in connection with the
2degrees Sale of approximately
exchange rate as of
Results of Operations
Consolidated Revenues
For the Year Ended December 31, % Variance
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Revenues:
Wireless service revenues (1) $ 154.8 $ 420.3 $ 408.4 (63 %) 3 %
Fixed broadband service revenues (1) 42.5 111.5 86.6 (62 %) 29 %
Equipment sales 38.1 112.9 106.3 (66 %) 6 %
Non-subscriber ILD and other revenues 3.2 8.9 9.0 (64 %) (2 %)
Total revenues $ 238.5 $ 653.6 $ 610.3 (64 %) 7 %
(1)Beginning in 2021, we replaced "Wireline" with "Fixed broadband" and reclassified fixed LTE revenues from Wireless service revenues to Fixed broadband service revenues.
Consolidated Wireless Service Revenues
Wireless service revenues declined$265.5 million , or 63%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to the closing of the 2degrees Sale and the NuevaTel Transaction inMay 2022 . See Note 2 - Sale of Operations to the Consolidated Financial Statements for further information. In addition, prior to the closing of the NuevaTel Transaction, there were declines in both prepaid and postpaid revenues inBolivia , compared to the same period in 2021, mainly due to lower voice traffic and data usage, as well as declines in the subscriber base. Wireless service revenues increased$11.9 million , or 3%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Excluding the impact of foreign currency, wireless service revenues declined$12.0 million , or 3%, compared to the same period in 2020, as a decline inBolivia more than offset an increase inNew Zealand . The decline inBolivia was due to a decline in both postpaid and prepaid revenues as a result of the COVID-19 pandemic and increased competition in the market which affected the decline in the postpaid and prepaid subscriber base. The decline inBolivia was partially offset by increased postpaid wireless service revenues inNew Zealand driven by the larger postpaid subscriber base, particularly due to business subscriber growth. There was also an increase in prepaid service revenues inNew Zealand mainly due to an increase in prepaid ARPU.
Consolidated Fixed Broadband Service Revenues
Fixed broadband service revenues declined$69.0 million , or 62%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to the closing of the 2degrees Sale and the NuevaTel Transaction inMay 2022 . Fixed broadband service revenues increased$24.9 million , or 29%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Excluding the impact of foreign currency, fixed broadband service revenues increased$17.4 million , or 19%, compared to the same period in 2020, primarily due to the 17% growth in the fixed broadband subscriber base. 12
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Consolidated Equipment Sales
Equipment sales declined$74.8 million , or 66%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , due to the closing of the 2degrees Sale inMay 2022 . Equipment sales increased$6.6 million , or 6%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Excluding the impact of foreign currency, equipment sales declined$2.5 million , or 2%, compared to the same period in 2020, as a decline inBolivia more than offset an increase inNew Zealand . The decline inBolivia was mainly due to a decrease in the number of handsets sold inBolivia during the period. The increase inNew Zealand was primarily driven by the rise in the volume of sales of higher priced devices to new and existing subscribers.
Consolidated Non-subscriber International Long Distance ("ILD") and Other Revenues
Non-subscriber ILD and other revenues declined$5.7 million , or 64%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , due to the closing of the 2degrees Sale and the NuevaTel Transaction inMay 2022 . Non-subscriber ILD and other revenues declined$0.2 million , or 2%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , due to individually insignificant changes in the period.
Consolidated Operating Expenses
Operating expenses represent expenditures incurred by the Company's operations and its corporate headquarters.
For the Year Ended December 31, % Variance
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Operating expenses:
Cost of service, exclusive of depreciation,
amortization and accretion shown separately $ 81.0 $ 217.6 $ 202.9 (63 %) 7 %
Cost of equipment sales 39.2 120.9 115.8 (68 %) 4 %
Sales and marketing 30.8 88.8 80.3 (65 %) 11 %
General and administrative 62.3 123.9 112.3 (50 %) 10 %
Depreciation, amortization and accretion 18.4 107.2 107.0 (83 %) 0 %
Impairment of long-lived assets - 113.8 - (100 %) 100 %
(Gain) on sale of operations and loss (gain) on
disposal of assets and sale-leaseback transaction (457.6 ) 1.1 (2.5 ) n/ m 143 %
Total operating expenses $ (225.9 ) $ 773.4 $ 615.7 (129 %) 26 %
n/m - not meaningful
Consolidated Cost of Service
Cost of service expense declined $136.6 million , or 63%, for the year ended
December 31, 2022 compared to the year ended December 31, 2021 . The declines
were primarily due to the closing of the 2degrees Sale and the NuevaTel
Transaction in May 2022 . In addition, prior to the closing of the NuevaTel
Transaction, there were declines in interconnection costs in Bolivia as a result
of lower voice traffic terminating outside of NuevaTel's network.
Cost of service expense increased $14.8 million , or 7%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020 . Excluding the
impact of foreign currency, cost of service increased $3.5 million , or 2%,
primarily due to increases in New Zealand partially offset by declines in
Bolivia . The increase in New Zealand was mainly attributable to an increase in
transmission expense associated with the growth of the fixed broadband
subscriber base. The decline in Bolivia was primarily due to a decline in
interconnection costs as a result of a lower volume of voice traffic terminating
outside of NuevaTel's network.
Consolidated Cost of Equipment Sales
Cost of equipment sales declined
Cost of equipment sales increased$5.1 million , or 4%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Excluding the impact of foreign currency, cost of equipment sales declined$4.6 million , or 4%, in 2021, primarily due to a decline in the number of handsets sold inBolivia , partially offset by an increase inNew Zealand in the volume of sales of higher priced devices in 2021 as compared to 2020. 13
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Consolidated Sales and Marketing
Sales and marketing declined
Sales and marketing increased$8.5 million , or 11%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Excluding the impact of foreign currency, sales and marketing increased$3.8 million , or 4%, primarily due to an increase in commissions expenses inNew Zealand partially offset by a decline in salaries and wages inBolivia .
Consolidated General and Administrative
General and administrative costs declined$61.6 million , or 50%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to the closing of the 2degrees Sale and the NuevaTel Transaction inMay 2022 . These declines were partially offset by a total of$6.5 million of severance costs recorded at corporate headquarters in the second and third quarters of 2022. The severance costs and other costs associated with the 2degrees Sale and the NuevaTel Transaction included in general and administrative costs were$10.6 million for the year endedDecember 31, 2022 . Due to their nonrecurring nature, such costs were removed from Consolidated Adjusted EBITDA. General and administrative costs increased$11.6 million , or 10%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Excluding the impact of foreign currency, general and administrative costs increased$5.9 million , or 5%. Approximately$8.0 million of the increase was due to nonrecurring professional service costs inNew Zealand and at corporate headquarters associated with strategic transactions that were under consideration related to the 2degrees business in 2021, including approximately$4.7 million of costs primarily related to the preparation for a planned public listing and equity issuance inNew Zealand which were deferred and included within Prepaid expenses and other current assets on the Consolidated Balance Sheet as ofSeptember 30, 2021 , reflecting the facts and circumstances as of that date. During the fourth quarter of 2021, upon announcement of the 2degrees Sale, the Company expensed these previously deferred costs of approximately$4.7 million as general and administrative expenses. Due to the nonrecurring nature of these expenses, the total of approximately$8.0 million of these costs incurred during the year endedDecember 31, 2021 was removed from Adjusted EBITDA. These increases were partially offset by a decline in general and administrative costs inBolivia , primarily due to a decline in bad debt expense. In addition, there was a decline in expenses inBolivia attributable to cost controls that were implemented in response to the COVID-19 pandemic.
Consolidated Depreciation, Amortization and Accretion
Depreciation, amortization and accretion declined$88.8 million , or 83%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , due to the closing of the 2degrees Sale and the NuevaTel Transaction inMay 2022 . The 2degrees and NuevaTel businesses met the accounting criteria to be classified as held for sale onMarch 15, 2022 andMarch 28, 2022 , respectively, and, accordingly, recording depreciation and amortization of their long-lived assets ceased on those dates. For additional information, see Note 2 - Sale of Operations to the Consolidated Financial Statements. In addition, prior to the closing of the NuevaTel Transaction, there were declines inBolivia due to a lower asset base being depreciated in 2022 compared to 2021 as a result of the impairment charge recognized in the third quarter of 2021. Depreciation, amortization and accretion was flat for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Excluding the impact of foreign currency, depreciation, amortization and accretion declined$5.5 million , or 5%, as a decline inBolivia was partially offset by an increase inNew Zealand . The decline inBolivia was primarily due to a lower net asset base being depreciated including the impact of the long-lived asset impairment charge recorded in 2021. The increase inNew Zealand was mainly related to wireless network assets previously placed in service and accelerated depreciation expense on certain existing assets associated with the onset of 5G enabled infrastructure construction.
Consolidated Impairment of Long-Lived Assets
Impairment of long-lived assets of$113.8 million for the year endedDecember 31, 2021 related to the impairment charge recorded inBolivia . There were no impairment charges recognized for 2022. 14
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Consolidated (Gain) on Sale of Operations and Loss (Gain) on Disposal of Assets and Sale-Leaseback Transaction
(Gain) on sale of operations and loss on disposal of assets increased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , due to a$443.3 million gain recognized in connection with the 2degrees Sale and a$14.5 million gain recognized in connection with the NuevaTel Transaction inMay 2022 . For additional information, see Note 2 - Sale of Operations to the Consolidated Financial Statements. Loss on disposal of assets and sale-leaseback transaction increased$3.6 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , primarily due to gains recognized upon the final closing of the tower sale-leaseback transaction in the third quarter of 2020, partially offset by disposal and abandonment charges of approximately$1.4 million recorded during the second quarter of 2020 for certain construction in progress due in part to a reassessment of capital expenditures needs as 2degrees undertook cost reduction measures in response to the COVID-19 pandemic.
Consolidated Other Expenses (Income)
For the Year Ended December 31, % Variance
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Interest expense $ 22.9 $ 53.7 $ 46.5 (57 %) 15 %
Change in fair value of warrant liability (0.105 ) (0.055 ) 0.049 (91 %) (212 %)
Debt extinguishment, modification and issuance costs 8.5 7.0 - 22 % 100 %
Other, net (15.4 ) 3.3 4.6 (567 %) (28 %)
Consolidated Interest Expense
Interest expense declined $30.8 million , or 57%, for the year ended December 31,
2022 compared to the same period in 2021, primarily related to the prepayment of
the outstanding indebtedness of the 8.875% senior secured notes issued by TISP
and TISP Finance, Inc. due in 2023 (the "TISP 8.875% Notes") and the 10.0%
senior secured notes due 2022 issued by TISP (the "TISP 10.0% Notes") in May
2022 . See Note 8 - Debt to the Consolidated Financial Statements for further
information.
Interest expense increased $7.2 million , or 15%, for the year ended December 31,
2021 compared to the same period in 2020, primarily related to the issuance of
the TISP 10.0% Notes in October 2020 .
Consolidated Change in Fair Value of Warrant Liability
The change in fair value of the warrant liability resulted in income of$0.1 million for year endedDecember 31, 2022 , due to the warrants expiring onFebruary 7, 2022 . The change in fair value of the warrant liability increased income by$0.1 million for the year endedDecember 31, 2021 , compared to same period in 2020, due to changes in the trading price of the warrants. See Note 11 - Equity to the Consolidated Financial Statements for further information.
Consolidated Debt Extinguishment, Modification and Issuance Costs
Debt extinguishment, modification and issuance costs increased$1.5 million , or 22%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The increase was primarily due to an$8.5 million write-off of deferred finance cost and discounts on the TISP 8.875% Notes and the TISP 10.0% Notes as a result of the prepayment of the outstanding balances inMay 2022 . The increase in 2022 was partially offset by costs associated with the consummation inJune 2021 of the exchange ofTrilogy LLC's 8.875% senior secured notes due in 2022 (the "Trilogy LLC 2022 Notes") for the TISP 8.875% Notes due in 2023. See Note 8 - Debt to the Consolidated Financial Statements for further information. Debt extinguishment, modification and issuance costs increased$7.0 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . The increase was due to the consummation inJune 2021 of the exchange of theTrilogy LLC 2022 Notes for the TISP 8.875% Notes due in 2023.
Consolidated Other, Net
Other, net income increased$18.7 million , or 567%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The increase for the year endedDecember 31, 2022 was primarily due to a gain of$16.6 million recognized in connection with the change in value of the forward exchange contract that the Company entered into inMarch 2022 to mitigate exposure to fluctuations in the NZD to USD exchange rate for a portion of the proceeds we received from the 2degrees Sale. The gain recognized reflected the differential between the contract price and the foreign exchange rate as of the settlement date under this forward exchange contract. See Note 9 - Derivative Financial Instruments to the Consolidated Financial Statements for further information. 15
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Other, net expense declined$1.3 million , or 28%, for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . This decline was driven by changes in the fair value of interest rate swaps inNew Zealand of$7.3 million and other individually immaterial changes. These changes were partially offset by a$10.7 million increase relating to the change in the fair value of a derivative instrument relating to an increase in the principal amount of the TISP 8.875% Notes in the fourth quarter of 2021. Consolidated Income Taxes For the Year Ended December 31, % Variance (in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 Income tax expense$ (11.5 ) $ (10.5 ) $ (23.1 ) (9 %) 54 %
Income Tax (Expense) Benefit
Income tax expense increased$0.9 million , or 9%, for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to the benefit recorded in 2021 for the impact of NuevaTel's losses on the Company's deferred tax liability with respect to NuevaTel's unrepatriated earnings. This increase is offset by a decrease in pre-tax profits inNew Zealand in 2022 due to the closing of 2degrees Sale inMay 2022 .
Income tax expense declined
Business Segment Analysis
The Company historically had two reporting segments (New Zealand (2degrees) andBolivia (NuevaTel)) that provided a variety of wireless voice and data communications services, including local, international long distance and roaming services. Services were provided to subscribers on both a postpaid and prepaid basis. InBolivia , fixed public telephony services were also offered via wireless backhaul connections. InNew Zealand , fixed broadband communications services were offered sinceMay 2015 . InBolivia , fixed LTE services, or fixed broadband services, were offered since late 2019. During the second quarter of 2022, the Company completed the sale of its operations inNew Zealand andBolivia , which represented substantially all of the operating activities of the business. The disposals and comparative historical periods are not presented as discontinued operations since the associated activities represented substantially all of the Company's net productive assets, business activities and results of operations. Accordingly, they do not meet the definition of a component of an entity that would qualify for discontinued operations presentation because they are not clearly distinguishable from the rest of the entity. Since presentation of discontinued operations is not applicable, the presentation of segment information forNew Zealand andBolivia has been retained.
2degrees launched commercial service in 2009. As described above and as further discussed in Note 2 - Sale of Operations to the Consolidated Financial Statements, inDecember 2021 , the Company entered into the 2degrees Sale to sell its 73.2% indirect equity interest in 2degrees to Voyage Digital. OnMay 19, 2022 , the 2degrees Sale closed for an aggregate purchase price of$1.315 billion NZD. 16
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For the Year Ended December 31, % Variance
(in millions, unless otherwise
noted) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Service revenues $ 161.0 $ 416.1 $ 357.0 (61 %) 17 %
Total revenues $ 199.1 $ 528.6 $ 458.9 (62 %) 15 %
Segment Adjusted EBITDA $ 51.5 $ 127.6 $ 111.4 (60 %) 15 %
Segment Adjusted EBITDA
Margin(1) 32.0 % 30.7 % 31.2 % 1.3 pts (0.6) pts
Capital expenditures (2)
(62 %) 25 %
Capital intensity 18.9 % 19.5 % 18.2 % (0.5) pts 1.3 pts
pts - percentage points
(1) Segment Adjusted EBITDA Margin is calculated as Segment Adjusted EBITDA
divided by service revenues.
(2) Represents purchases of property and equipment excluding purchases of
property and equipment acquired through vendor-backed financing and finance
lease arrangements. Expenditures related to the acquisition of spectrum
licenses, if any, were not included in capital expenditures amounts.
Year Ended
Service revenues declined$255.0 million , or 61%, compared to 2021. Excluding the impact of foreign currency, service revenues declined$232.5 million , or 59%, compared to the same period in 2021. This decline was primarily due to the closing of the 2degrees Sale inMay 2022 . For additional information, see Note 2 - Sale of Operations to the Consolidated Financial Statements. Total revenues declined$329.6 million , or 62%, compared to 2021. Excluding the impact of foreign currency, total revenues declined$300.9 million , or 60%, compared to the same period in 2021, attributable to the declines in service revenues mentioned above. In addition, equipment sales declined$74.5 million , or 66%, compared to the same period in 2021. Excluding the impact of foreign currency, equipment sales declined$68.4 million , or 64%, primarily due to the closing of the 2degrees Sale inMay 2022 .
For the year ended
• Cost of service declined
period in 2021. Excluding the impact of foreign currency, cost of service
declined
Sale inMay 2022 ;
• Cost of equipment sales declined
period in 2021. Excluding the impact of foreign currency, cost of equipment
sales declined
2degrees Sale inMay 2022 ;
• Sales and marketing declined
in 2021. Excluding the impact of foreign currency, sales and marketing declined
2022;
• General and administrative declined
Excluding the impact of foreign currency, general and administrative declined
2022. Approximately
by 2degrees were associated with the 2degrees Sale. Due to the nonrecurring
nature of these expenses, such costs were removed from Segment Adjusted EBITDA;
and
• Depreciation, amortization, and accretion declined
compared to the same period in 2021. Excluding the impact of foreign currency,
depreciation, amortization, and accretion declined
primarily due to the 2degrees business meeting the accounting criteria to be
classified as held for sale on
ceased recording depreciation and amortization of 2degrees' long-lived assets
on that date. For additional information, see Note 2 - Sale of Operations to
the Consolidated Financial Statements.
Segment Adjusted EBITDA declined$76.1 million , or 60%, compared to 2021. Excluding the impact of foreign currency, Segment Adjusted EBITDA declined$69.2 million , or 57%, compared to 2021, primarily as a result of the closing of the 2degrees Sale inMay 2022 . Capital expenditures declined$50.6 million , or 62%, compared to 2021. Excluding the impact of foreign currency, capital expenditures declined$46.2 million , or 60%, compared to 2021, due to the closing of the 2degrees Sale inMay 2022 . 17
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Year Ended
Service revenues increased$59.1 million , or 17%, compared to 2020. Excluding the impact of foreign currency, service revenues increased$27.1 million , or 7%, compared to 2020. This increase was primarily due to growth in fixed broadband revenues driven by the larger fixed broadband subscriber base and increases in residential fixed broadband ARPU. There was also an increase in postpaid wireless service revenues driven by the larger postpaid subscriber base, due mainly to growth in business subscribers. In addition, there was an increase in prepaid wireless service revenues compared to the same period in 2020, driven by an increase in prepaid ARPU. Total revenues increased$69.8 million , or 15%, compared to 2020. Excluding the impact of foreign currency, total revenues increased$28.7 million , or 6%, compared to 2020. This increase was attributable to the increase in service revenues mentioned above. Equipment sales increased$10.7 million , or 10%, compared to the same periods in 2020. Excluding the impact of foreign currency, equipment sales increased$1.6 million , or 1%, primarily driven by the rise in the volume of sales of higher priced devices in 2021 compared to 2020.
For the year ended
• Cost of service increased
period in 2020. Excluding the impact of foreign currency, cost of service
increased
expense associated with the growth of the fixed broadband subscriber base. In
addition, there was an increase in network-related maintenance costs
attributable to investments in outsourced infrastructure support surrounding
new platforms for 5G delivery, managed security firewall programs, and disaster
recovery. These increases were partially offset by a decline in combined
network sharing and national roaming costs due to a network sharing agreement
which commenced in the second quarter of 2020;
• Cost of equipment sales increased
period in 2020. Excluding the impact of foreign currency, cost of equipment
sales increased
of sales of higher priced devices in 2021 compared to 2020;
• Sales and marketing increased
period in 2020. Excluding the impact of foreign currency, sales and marketing
increased
in commissions expense of
primarily associated with higher amortization expense of incremental contract
acquisition costs capitalized subsequent to
• General and administrative increased
Excluding the impact of foreign currency, general and administrative increased
consulting costs and increases in office rent expense due to the 2degrees
corporate headquarters lease beginning in the second quarter of 2021.
Approximately
incurred during 2021 associated with the strategic transactions that were under
consideration throughout that year, including approximately
costs primarily related to 2degrees' preparation for a planned public listing
and equity issuance which were deferred and included within Prepaid expenses
and other current assets on the Consolidated Balance Sheet as of
2021, reflecting the facts and circumstances as of that date. During the fourth
quarter of 2021, upon announcement of the Company's definitive agreement to
sell 100% of its equity in 2degrees, 2degrees recorded these deferred
professional service costs of approximately
administrative expenses. Due to the nonrecurring nature of these expenses, the
total of approximately
ended
increases were partially offset by a decline in bad debt expense attributable
to accounts receivable collection efforts and the improved credit risk of our
customer portfolio. In addition, there was a
the first quarter of 2020 associated with 2degrees' improvement in collections
of Equipment Installment Plan ("EIP") receivables previously sold to the
third-party EIP receivables purchaser and a decline in equity-based
compensation expense as a result of
of 2020 associated with the extension of the expiration date of certain
2degrees' service-based share options;
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• Depreciation, amortization, and accretion increased
compared to the same period in 2020. Excluding the impact of foreign currency,
depreciation, amortization, and accretion increased
increase was due primarily to an increase in depreciation expense associated
with wireless network assets previously placed in service and accelerated
depreciation expense on certain existing assets associated with the commencement of 5G enabled infrastructure construction; and
• Loss on disposal of assets declined
period in 2020. Excluding the impact of foreign currency, loss on disposal of
assets declined
with disposal and abandonment charges of approximately
second quarter of 2020 for certain construction in progress due in part to a
reassessment of capital expenditures needs as 2degrees undertook cost reduction
measures in response to the COVID-19 pandemic.
Segment Adjusted EBITDA increased$16.2 million , or 15%, compared to 2020. Excluding the impact of foreign currency, Segment Adjusted EBITDA increased$6.2 million , or 5%, compared to 2020. This increase in Segment Adjusted EBITDA was primarily the result of the increase in fixed broadband revenues and postpaid wireless revenues discussed above partially offset by an increase in cost of service and sales and marketing.
Capital expenditures were
For the Year Ended December 31, % Variance
(in millions, unless otherwise
noted) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Service revenues $ 39.3 $ 124.3 $ 146.6 (68 %) (15 %)
Total revenues $ 39.4 $ 124.6 $ 151.0 (68 %) (17 %)
Segment Adjusted EBITDA $ 0.2 $ (0.1 ) $ 6.6 390 % (101 %)
Segment Adjusted EBITDA
Margin(1) 0.5 % (0.1 %) 4.5 % 0.6 pts (4.6) pts
Capital expenditures(2) $ 1.9 $ 11.8 $ 12.3 (84 %) (4 %)
Capital intensity 4.9 % 9.5 % 8.4 % (4.6) pts 1.1 pts
pts - percentage points
(1)Segment Adjusted EBITDA Margin is calculated as Segment Adjusted EBITDA divided by service revenues. (2)Represents purchases of property and equipment excluding purchases of property and equipment acquired through vendor-backed financing and finance lease arrangements. Expenditures related to the acquisition of spectrum licenses, if any, were not included in capital expenditures amounts.
Year Ended
Service revenues declined$85.0 million , or 68%, in 2022 compared to 2021, primarily due to the closing of the NuevaTel Transaction inMay 2022 . See Note 2 - Sale of Operations to the Consolidated Financial Statements for further information. There were also declines in both prepaid and postpaid revenues mainly due to lower voice traffic and data usage, as well as declines in the subscriber base.
Total revenues declined
For the year ended
• Cost of service declined
closing of the NuevaTel Transaction inMay 2022 . In addition, there were declines in interconnection costs as a result of lower voice traffic terminating outside of NuevaTel's network; 19
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• Sales and marketing declined
the closing of the NuevaTel Transaction in
advertising expense;
• General and administrative costs declined
primarily due to the closing of the NuevaTel Transaction in
• Depreciation, amortization and accretion declined
2022, primarily due to the NuevaTel business meeting the accounting criteria to
be classified as held for sale on
ceased recording depreciation and amortization of NuevaTel's long-lived assets
on that date. For additional information, see Note 2 - Sale of Operations to
the Consolidated Financial Statements. The declines were also attributable to a
lower asset base being depreciated in 2022 compared to 2021 as a result of an
impairment charge recognized in the third quarter of 2021; and
• Impairment of long-lived assets declined
result of the charge recorded in the third quarter of 2021. There was no
impairment recorded in the year ended
Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies to the Consolidated Financial Statements for additional
information. Segment Adjusted EBITDA increased$0.3 million , or 390%, in 2022 compared to 2021, as Segment Adjusted EBITDA was negative in 2021. This increase was primarily due to the declines in cost of service, general and administrative costs and sales and marketing described above partially offset by the decrease in service revenues. Capital expenditures declined$9.8 million , or 84%, to$1.9 million , in 2022 compared to 2021, mainly due to the closing of the NuevaTel Transaction inMay 2022 along with timing of spending in 2021.
Year Ended
Service revenues declined$22.3 million , or 15%, in 2021 compared to 2020, primarily due to a decline in postpaid revenues of$15.8 million , or 23%. The decline in postpaid revenues was due to a 15% decline in the subscriber base primarily as a result of the impact of the COVID-19 pandemic and effects of increased competition in the market. Prepaid revenues declined$7.8 million , or 12%, in 2021 compared to 2020, primarily due to a 13% decline in the prepaid wireless subscriber base. The decline in prepaid revenues was also attributable to a decline in voice revenues due to lower voice traffic as a result of subscribers shifting from voice usage to data-based voice applications, which was accelerated by the impact of the COVID-19 pandemic. Total revenues declined$26.4 million , or 17%, in 2021 compared to 2020, primarily due to the decline in service revenues discussed above. Equipment sales, which also contributed to the decline in total revenues, declined$4.1 million , or 93%, due to the decline in the number of handsets sold during the period.
For the year ended
• Cost of service declined
decrease in interconnection costs as a result of lower voice traffic
terminating outside of NuevaTel's network. Additionally, NuevaTel implemented
workforce reductions in the fourth quarter of 2020 with related cost reductions
continuing through 2021. Transaction fees were also impacted by the decline in
revenue and subscribers in 2021 compared to 2020;
• Cost of equipment sales declined
decline in the number of handsets sold during the period;
• Sales and marketing declined
cost control measures, including a decrease in salaries and wages as a result
of workforce reductions which occurred during the fourth quarter of 2020. These
declines were partially offset by an increase in advertising expense;
• General and administrative costs declined
primarily due to lower bad debt expense as a result of societal restrictions
related to the COVID-19 pandemic which impacted collections in the periods in
2020. The decline was also attributable to a decrease in salaries and wages and
outsourcing costs associated with continued cost controls implemented in
response to the COVID-19 pandemic;
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• Depreciation, amortization and accretion declined
2021, primarily due to a lower asset base during the year being depreciated as
a result of the impairment charge recognized in the third quarter of 2021;
• Impairment of long-lived assets was
31, 2021 as a result of the charge recorded in the third quarter of 2021. There
was no impairment recorded in the year ended
Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies to the Consolidated Financial Statements for additional
information; and
• Loss on disposal of assets and sale-leaseback transaction increased
million, or 107%, in 2021, primarily due to the timing of the gains recognized
in connection with the closings of the tower sale-leaseback transaction in
2020.
Segment Adjusted EBITDA declined
Capital expenditures declined$0.5 million , or 4%, to$11.8 million , in 2021 compared to 2020, mainly due to the timing of spending and as a result of NuevaTel's continuing efforts to preserve cash resources. Capital expenditures of$11.8 million in 2021 were primarily related to investment in the LTE network, including additional 4G LTE sites.
Selected Financial Information
The following tables set forth our summary consolidated financial data for the periods ended and as of the dates indicated below.
The summary consolidated financial data is derived from the Consolidated Financial Statements for each of the periods indicated in the following tables.
Differences between amounts set forth in the following tables and corresponding
amounts in the Consolidated Financial Statements and related notes which
accompany this MD&A are a result of rounding. Amounts for subtotals, totals and
percentage variances presented in the following tables may not sum or calculate
using the numbers as they appear in the tables as a result of rounding.
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Selected annual financial information
The following table shows selected consolidated financial information of the Company for the years endedDecember 31, 2022 , 2021 and 2020, prepared in accordance withU.S. GAAP. The Company discusses the factors that caused results to vary over the past three years throughout this MD&A.
Consolidated Income Statement Data
For the Year Ended December 31,
(in millions, except per share amounts) 2022 2021 2020
Service revenues $ 200.4 $ 540.7 $ 504.0
Equipment sales 38.1 112.9 106.3
Total revenues 238.5 653.6 610.3
Operating expenses 225.9 (773.4 ) (615.7 )
Operating income (loss) 464.4 (119.9 ) (5.4 )
Interest expense (22.9 ) (53.7 ) (46.5 )
Change in fair value of warrant liability 0.1 0.1 -
Debt extinguishment, modification and issuance costs (8.5 ) (7.0 ) -
Other, net 15.4 (3.3 ) (4.6 )
Income (loss) before income taxes 448.5 (183.8 ) (56.6 )
Income tax expense (11.5 ) (10.5 ) (23.1 )
Net income (loss) 437.0 (194.4 ) (79.7 )
Net (income) loss attributable to noncontrolling interests (3.6 ) 49.7 31.9
Net income (loss) attributable to TIP Inc. $ 433.5 Net income (loss) attributable toTIP Inc. per share: Basic$ 4.93 $ (2.15 ) $ (0.83 ) Diluted$ 4.90 $ (2.15 ) $ (0.83 ) 22
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Selected balance sheet information
The table below shows selected consolidated financial information for the Company's financial position as ofDecember 31, 2022 and 2021. The table below provides information related to the cause of the changes in financial position by financial statement line item for the period compared.
Consolidated Balance Sheet Data
As of December 31, As of December 31,
(in millions, except as noted) 2022 2021 Change includes:
Cash, cash equivalents and restricted cash Decline is primarily due to $421.5 million of payments
of debt and EIP receivables financing obligation, net of
proceeds, $115.8 million of return of capital
distributions to shareholders, and $32.4 million of
purchases of property and equipment. These declines were
$ 25.1 $ 55.0 largely offset by $552.2 million of proceeds from the
% Change sale of operations, inclusive of proceeds from forward
exchange contract, net of $51.1 million of cash sold.
For additional information on the sale of operations,
see Note 2 - Sale of Operations to the Consolidated
Financial Statements.
(54 %)
Other current assets Decline is due to the closing of the 2degrees Sale and
the NuevaTel Transaction in May 2022. Approximately
15.6 145.8 $14.1 million of the balance as of December 31, 2022
% Change represents the consideration from the 2degrees Sale held
in escrow.
(89 %)
Property, equipment and intangibles, net - 368.5 Decline is due to the closing of the 2degrees Sale and % Change
(100 %) the NuevaTel Transaction in May 2022.
Other non-current assets - 234.6 Decline is due to the closing of the 2degrees Sale and
% Change (100 %) the NuevaTel Transaction in May 2022.
Total assets $ 40.6 $ 803.9
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As of December 31, As of December 31,
(in millions, except as noted) 2022 2021 Change includes:
Current portion of long-term Decline is due to the closing of the 2degrees Sale and the
debt and financing lease NuevaTel Transaction in May 2022.
liabilities $ - $ 31.6
% Change (100 %)
All other current liabilities Decline is primarily due to the closing of the 2degrees
7.2 194.0 Sale and the NuevaTel Transaction in May 2022, partially
% Change offset by the $5.1 million balance of accrued severance
(96 %) costs as of December 31, 2022 at corporate headquarters.
Long-term debt and financing lease liabilities Decline is due to the prepayment of the TISP 8.875% Notes
- 631.7 and the TISP 10.0% Notes and the closing of the 2degrees
% Change Sale and the NuevaTel Transaction in May 2022.
(100 %)
All other non-current liabilities - 192.6 Decline is due to the closing of the 2degrees Sale and the
% Change (100 %) NuevaTel Transaction in May 2022.
Total shareholders' equity (deficit) Increase in shareholders' equity is mainly due to net
income for the year ended December 31, 2022, partially
33.5 (246.0 ) offset by the return of capital to shareholders, the
% Change change in noncontrolling interests and the impact of
foreign currency translation adjustments.
114 %
Total liabilities and
shareholders' equity (deficit) $ 40.6 $ 803.9
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Selected quarterly financial information
The following table shows selected quarterly financial information prepared in
accordance with
For the Year Ended
2022 2021
(in millions, except per share amounts) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Service revenues $ - $ - $ 69.2 $ 131.2 $ 133.8 $ 134.4 $ 134.2 $ 138.2
Equipment sales - - 14.0 24.1 35.3 23.1 23.4 31.1
Total revenues - - 83.2 155.4 169.1 157.5 157.6 169.3
Operating expenses (1.9 ) (3.4 ) 380.3 (149.1 ) (170.7 ) (275.0 ) (161.6 ) (166.1 )
Operating (loss) income (1.9 ) (3.4 ) 463.5 6.2 (1.6 ) (117.5 ) (4.1 ) 3.3
Interest expense - - (8.6 ) (14.3 ) (13.8 ) (13.4 ) (13.2 ) (13.3 )
Change in fair value of warrant
liability - - - 0.1 (0.1 ) - 0.1 0.1
Debt extinguishment, modification and
issuance costs - - (8.5 ) - - - (7.0 ) -
Other, net 1.8 (2.0 ) 30.2 (14.6 ) (7.7 ) 2.2 0.4 1.8
(Loss) income before income taxes (0.1 ) (5.4 ) 476.6 (22.6 ) (23.2 ) (128.7 ) (23.8 ) (8.2 ) Income tax (expense) benefit
(0.1 ) - (5.2 ) (6.2 ) (5.3 ) 1.0 (2.7 ) (3.6 )
Net (loss) income (0.2 ) (5.4 ) 471.5 (28.8 ) (28.5 ) (127.7 ) (26.5 ) (11.7 )
Net (income) loss attributable to
noncontrolling interests - - (2.5 ) (1.1 ) 0.3 37.1 9.3 3.0
Net (loss) income attributable to TIP
Inc. $ (0.2 ) $ (5.4 ) $
468.9
Net (loss) income attributable toTIP Inc. per share: Basic $ -$ (0.06 ) $ 5.36 $ (0.34 ) $ (0.33 ) $ (1.37 ) $ (0.29 ) $ (0.15 ) Diluted $ -$ (0.06 ) $ 5.31 $ (0.34 ) $ (0.33 ) $ (1.37 ) $ (0.29 ) $ (0.15 ) Q4 2022 Recap
? Cash and cash equivalents totaled
exclusive of our share of the purchase price escrow established in connection
with the 2degrees Sale.
? In the fourth quarter of 2022, the Company entered into forward exchange
contracts to sell an aggregate of
million USD on
mitigate exposure to fluctuations in the NZD to USD exchange rate in respect of
substantially all of the
held in escrow.
Quarterly Trends and Seasonality
The Company's operating results varied from quarter to quarter because of
changes in general economic conditions and seasonal fluctuations, among other
things, in each of the Company's operations and business segments. Different
products and subscribers had unique seasonal and behavioral features.
Accordingly, one quarter's results were not predictive of future performance.
Fluctuations in net income from quarter to quarter resulted from events that
were unique or that occurred irregularly, such as losses on the refinance of
debt, foreign exchange gains or losses, changes in the fair value of warrant
liability and derivative instruments, impairment or sale of assets and
operations, changes in income taxes, and impact of the COVID-19 pandemic.
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Prior to the closing of the 2degrees Sale and the NuevaTel Transaction trends inNew Zealand's andBolivia's service revenues and overall operating performance were affected by:
• Lower prepaid subscribers due to a shift in focus to postpaid sales;
• Higher usage of wireless data due to the migration from 3G to 4G LTE in
• Increased competition and changes in the market leading to larger data bundles
offered for prices which impacted data ARPU;
• Stable postpaid churn in
reflection of the Company's heightened focus on high-value subscribers, bundled
service offerings, and the Company's enhanced subscriber service efforts;
• Decreasing voice revenue as rate plans increasingly incorporated more monthly
minutes and calling features, such as long distance;
• Lower roaming revenue due to mobility restrictions associated with the COVID-19
pandemic;
• Varying handset subsidies as more consumers shifted toward smartphones with the
latest technologies;
• Varying handset costs related to advancement of technologies and reduced
supplier rebates or discounts on highly-sought devices;
• Seasonal promotions which were typically more significant in periods closer to
year-end;
• Subscribers activating and suspending service to take advantage of promotions
by the Company or its competitors;
• Higher voice and data costs related to the increasing number of subscribers,
or, alternatively, a decline in costs associated with a decline in voice usage;
• Higher costs associated with the retention of high-value subscribers; and
• Decline in gross subscriber additions due to decreased commercial activity
resulting from COVID-related societal restrictions and economic contraction.
Trends in
• Higher internet subscription fees as subscribers increasingly upgraded to
higher-tier speed plans, including those with unlimited usage;
• Subscribers bundling their service plans at a discount;
• Fluctuations in retail broadband pricing and operating costs influenced by
government-regulated copper wire services pricing and changing consumer and
competitive demands;
• Availability of fiber services in a particular area or general network
coverage; and
• Individuals swapping technologies as fiber became available in their connection
area.
Liquidity and Capital Resources Measures
As ofDecember 31, 2022 , the Company had$25.1 million in cash and cash equivalents, exclusive of our share of the purchase price escrow established in connection with the 2degrees Sale inmid-May 2022 . The$25.1 million in cash and cash equivalents includes$7.3 million CAD for future distributions and ongoing costs denominated in that currency. As ofDecember 31, 2021 , the Company had$55.0 million in cash, cash equivalents and restricted cash, of which$36.8 million was held by 2degrees,$17.5 million was held by NuevaTel, and$0.7 million was held at corporate and others. OnMay 19, 2022 , the 2degrees Sale closed for an equity purchase price for 100% of 2degrees of$1.315 billion NZD, based on an implied enterprise value of$1.7 billion NZD inclusive of lease liabilities. The Company's share of the total consideration was$930 million NZD (approximately$601 million based on the exchange rate on the date the consideration was received), net of$33 million NZD ($21 million ) for closing adjustments, including transaction advisory fees, along with payments to satisfy the outstanding 2degrees option pool. The Company received$587 million ($908 million NZD) of the consideration inMay 2022 . Approximately$22 million NZD of the consideration paid by Voyage Digital for the Company's 2degrees shares is being held in escrow as recourse for potential indemnification claims that may arise under the Purchase Agreement. The amount in escrow represents a consideration receivable and is included in Sale proceeds held in escrow within current assets in the Company's Consolidated Balance Sheet as it is currently considered to be probable that the amount will be received in full upon completion of the escrow period. The escrowed proceeds are scheduled to be released inMay 2023 . The amount of escrow proceeds that will ultimately be received will depend upon whether any indemnification obligations arise under the Purchase Agreement, and the receivable will be monitored for potential impairment over time as facts and circumstances evolve. 26
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In connection with the closing of the 2degrees Sale, in the second quarter of 2022, the Company settled its forward exchange contract related to a portion of the sale proceeds. The forward exchange contract was settled at a gain of$16.6 million and the related cash proceeds were included in investing activities in the Consolidated Statement of Cash Flows. See Note 9 - Derivative Financial Instruments to the Consolidated Financial Statements for additional information. Upon closing of the 2degrees Sale, the Company also used a portion of the proceeds to prepay approximately$450 million in aggregate outstanding indebtedness and accrued interest under the TISP 8.875% Notes, the TISP 10.0% Notes and the Company's 13.5% bridge loans due 2023 (the "Bridge Loans"). As a result of these prepayments, the Company had no remaining indebtedness outstanding as ofDecember 31, 2022 . See Note 8 - Debt to the Consolidated Financial Statements for additional information on the prepayments of debt. The remaining amount of proceeds received by the Company from the 2degrees Sale, after prepayment of debt obligations and payment of certain corporate working capital obligations accrued through the date of the transaction, was converted to USD and CAD in the amounts expected to be used for distributions to shareholders and corporate use. These amounts were used to fund the initial shareholder distribution made inJune 2022 in the aggregate amount of$150 million CAD ($116 million ) and to provide a cash reserve. The Company's cash reserve also includes its share of the escrow balance in the amount of$22 million NZD retained from the proceeds of the 2degrees Sale. In connection with the Company's plan of liquidation adopted onJune 10, 2022 , the cash reserve will be utilized for costs related to the eventual dissolution of the Company, including costs related to continued financial reporting, and headquarters costs through mid-year 2023 along with payment of the$7.1 million balance of Other current liabilities and accrued expenses as ofDecember 31, 2022 as presented in the Company's Consolidated Balance Sheet (including$5.1 million of remaining expected severance payments to be made in connection with the Company's wind-down process). The cash reserve will also be utilized for the payment of indemnification claims, if any, that may arise from the transaction but are not funded by the warranty insurance policy purchased in connection with the 2degrees Sale or by the aforementioned purchase price escrow. Furthermore, based on the Company's current estimates, the Company expects to make a distribution in mid-2023 in a range of$15 million to$20 million . However, as previously disclosed, the amount and timing of future shareholder distributions is subject to certain factors, including the amount and timing of the release to the Company of funds held in escrow to secure payment of certain indemnification obligations under the Purchase Agreement (the escrow period is scheduled to terminate inMay 2023 ), fluctuations in foreign currency exchange rates and costs associated with the dissolution of the Company.
In the fourth quarter of 2022, the Company entered into forward exchange
contracts to sell an aggregate of
The Company expects that it will be required to comply with Canadian andU.S. public company reporting obligations through the six year indemnification period following the closing of the 2degrees Sale. During the period in which the Company continues to report publicly, we will be responsible for maintaining appropriate processes and controls around financial reporting. However, given the significantly reduced risk profile of the Company following the 2degrees Sale and NuevaTel Transaction, we have reduced the cost structure of our corporate function, with a significant portion of the workforce having ceased employment with the Company inSeptember 2022 , and we have retained only a limited number of resources to ensure compliance with ongoing regulatory and audit requirements. The Company has also negotiated with service providers to ensure a significant reduction in costs going forward. It is also the Company's expectation that following the escrow release inMay 2023 , the Company will endeavor to further adjust its cost structure commensurate with the risk profile of the Company. Accordingly, management believes that our working capital will be adequate to meet the Company's requirements for the next twelve months following the date of this MD&A. With the sale of our operations, the Company no longer has material cash requirements to fund capital expenditures or significant contractual obligations. 27
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Selected cash flows information
The following table summarizes the Consolidated Statement of Cash Flows for the periods indicated:
For the Year Ended December 31, % Variance
(in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020
Net cash (used in) provided by
Operating activities $ (8.6 ) $ 48.7 $ 40.9 (118 %) 19 %
Investing activities 519.1 (93.8 ) (86.4 ) 653 % (9 %)
Financing activities (537.3 ) (0.5 ) 67.8 n/ m (101 %)
Net (decrease) increase in cash, cash equivalents and restricted cash $ (26.8 ) $ (45.6 ) $ 22.3 41 % (304 %)
n/m - not meaningful
Cash flow (used in) provided by operating activities
Cash flow used in operating activities increased
Cash flow provided by operating activities increased$7.8 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . This change reflects various offsetting changes in working capital in 2021 compared to 2020, including, among other changes, lease incentives received in the third quarter of 2021, partially offset by$7.0 million of fees paid to third parties in connection with the exchange inJune 2021 of theTrilogy LLC 2022 Notes and a$6.2 million increase in interest paid, net of capitalized interest, primarily due to an increase in interest expense related to the issuance of the TISP 10.0% Notes during the fourth quarter of 2020. See Note 8 - Debt to the Consolidated Financial Statements for further information.
Cash flow provided by (used in) investing activities
Cash flow provided by investing activities increased$612.9 million for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , primarily due to the$552.2 million proceeds from the sales of operations, inclusive of proceeds from forward exchange contract of$16.6 million , net of cash sold of$51.1 million , see Note 2 - Sale of Operations to the Consolidated Financial Statements for further information. The increase was also due to a$60.4 million decrease in capital expenditures. Cash flow used in investing activities increased$7.4 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , due to a$15.5 million increase in capital expenditures and aggregate payments of$6.7 million for spectrum licenses in 2021, including renewal of 2degrees' 1800 and 2100 MHz spectrum holdings, and the receipt in 2020 of$5.8 million in cash proceeds from the fourth and final closing of the NuevaTel tower sale-leaseback transaction. These changes were partially offset by$10.0 million of purchases of short-term investments in 2020 and related$10.0 million in maturities and sales of short-term investments in 2021.
Cash flow used in financing activities
Cash flow used in financing activities increased$536.8 million for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , primarily driven by a$396.3 million increase in payment of debt, net of proceeds, and a$115.8 million return of capital distribution to shareholders. The increase was also due to a$32.6 million reduction in proceeds from the EIP receivable financing obligation. Cash flow used in financing activities increased$68.3 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . This change was primarily due to a$76.8 million reduction in proceeds from debt, net of payments, including proceeds in 2020 from the issuance of$50 million of senior secured notes by TISP and proceeds of$35.1 million from theNew Zealand 2023 Senior Facilities Agreement. These changes were partially offset by a$6.0 million decline in dividends paid to noncontrolling interests in 2021 compared to 2020. Contractual obligations
As a result of the sale of operations in the second quarter of 2022, the Company
no longer has any significant contractual obligations as of
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Effect of inflation The Company's management believes inflation has not had a material effect on its financial condition or results of operations in recent years.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that would have a
material effect on the financial statements as of
Critical Accounting Estimates
The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted inthe United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. The estimates, discussed below, are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The Company generally bases its judgments on its historical experience and on various other assumptions that the Company believes are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. See Note 1 - Description of Business, Basis of Presentation and Summary of Significant Accounting Policies to the Consolidated Financial Statements for additional information.
Revenue Recognition
Prior to the sale of our operations, the Company derived its revenues primarily from wireless services, fixed broadband services and equipment sales. Of these, we considered the most critical of our revenue recognition policies to be those related to contracts with more than one product or service (or performance obligation). Determining whether products and services were considered distinct performance obligations that should have been accounted for separately versus together required significant judgment. Judgement was required to determine the stand-alone price for each product or service (or performance obligation). In instances where the stand-alone price was not directly observable, such as when we did not sell the product or service separately, we determined the stand-alone price using information that may have included market conditions and other observable inputs. When we capitalized permissible contract costs (costs to obtain or fulfill a contract), we made judgments in determining the anticipated period of benefit, or amortization period. For example, when we paid commissions to sales personnel and agents, we applied judgement in estimating the useful life of the asset, including assumptions about the likelihood of customer renewals which was generally based on historical experience and market conditions. Our products were generally sold with a right of return, and we provided other credits or incentives in some circumstances, which were accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits were estimated at contract inception and updated at the end of each reporting period if additional information became available. Changes to our estimated variable consideration were not material for the periods presented.
Income Taxes
The Company accounts for income taxes pursuant to the asset and liability method
of Accounting Standards Codification ("ASC") 740 "Income Taxes" ("ASC 740"),
which require us to recognize current tax liabilities or receivables for the
amount of taxes we estimate are payable or refundable for the current year, and
deferred tax assets and liabilities for the expected future tax consequences
attributable to temporary differences between the financial statement carrying
amounts and their respective tax bases of assets and liabilities and the
expected benefits of net operating loss and credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period enacted. A
valuation allowance is provided when it is more likely than not that a portion
or all of a deferred tax asset will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
and the reversal of deferred tax liabilities during the period in which related
temporary differences become deductible.
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The Company follows the provisions of ASC 740 to record uncertain tax positions under the use of the two-step process. We review and adjust our liability for unrecognized tax benefits based on our best judgment given the facts, circumstances and information available at each reporting date. To the extent that the final outcome of these tax positions is different than the amounts recorded, such differences may impact income tax expense and actual tax payments. We recognize any interest and penalties accrued related to unrecognized tax benefits in income tax expense. Actual tax payments may materially differ from estimated liabilities as a result of changes in tax laws as well as unanticipated transactions impacting related income tax balances. The income tax effect of the financial statement gains realized from the 2degrees Sale and NuevaTel Transaction were entirely offset by the reversal of the deductible outside basis difference attributable to the Company's investments in 2degrees and NuevaTel. Given that the deferred tax assets were historically offset with a full valuation allowance, there was no net income tax impact. Proceeds received in the transactions did not exceed the Company's tax basis in its investments in 2degrees and NuevaTel, resulting in no current tax payable. As ofDecember 31, 2022 , the Company's deferred tax assets principally consisted of capital and operating loss carryforwards, which are significant, offset by a full valuation allowance.
Recent Accounting Pronouncements
The effects of recently issued accounting standards are discussed in Note 1 - Description of Business, Basis of Presentation and Summary of Significant Accounting Policies to the Consolidated Financial Statements.
Changes in Accounting Policies Including Initial Adoption
Other than the adoption of new accounting standards, as discussed in the Notes to the Consolidated Financial Statements, there have been no changes in the Company's accounting policies.
Financial Instruments and Other Instruments
The Company considers the management of financial risks to be an important part of its overall corporate risk management policy. The Company uses derivative financial instruments to manage existing exposures, irrespective of whether such relationships are formally documented as hedges in accordance with hedge accounting requirements. This is further described in the Consolidated Financial Statements. See Note 9 - Derivative Financial Instruments to the Consolidated Financial Statements.
Definitions and Reconciliations of Non-GAAP Measures
The Company reports certain non-U.S. GAAP measures that are used to evaluate the performance of the Company and to manage its capital structure. Non-U.S. GAAP measures do not have any standardized meaning underU.S. GAAP and therefore may not be comparable to similar measures presented by other issuers. Securities regulations require such measures to be clearly defined and reconciled with their most directly comparableU.S. GAAP measure.
Consolidated Adjusted EBITDA and Adjusted EBITDA Margin
Consolidated Adjusted EBITDA ("Adjusted EBITDA") represents Net income (loss)
(the most directly comparable U.S. GAAP measure) excluding amounts for: income
tax expense; interest expense; depreciation, amortization and accretion;
equity-based compensation (recorded as a component of General and administrative
expense); (gain) on sale of operations and loss (gain) on disposal of assets and
sale-leaseback transaction; and all other non-operating income and expenses. Net
income (loss) margin is calculated as Net income (loss) divided by service
revenues. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by
service revenues. Adjusted EBITDA and Adjusted EBITDA Margin are common measures
of operating performance in the telecommunications industry. The Company's
management believes Adjusted EBITDA and Adjusted EBITDA Margin are helpful
measures because they allow management to evaluate the Company's performance by
removing from its operating results items that do not relate to core operating
performance. The Company's management believes that certain investors and
analysts use Adjusted EBITDA to value companies in the telecommunications
industry. The Company's management believes that certain investors and analysts
also use Adjusted EBITDA and Adjusted EBITDA Margin to evaluate the performance
of the Company's business. Adjusted EBITDA and Adjusted EBITDA Margin have no
directly comparable U.S. GAAP measure. The following table provides a
reconciliation of Adjusted EBITDA to the most comparable financial measure
reported under U.S. GAAP, Net income (loss).
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Consolidated Adjusted EBITDA
For the Year Ended December 31,
(in millions) 2022 2021 2020
Net income (loss) $ 437.0 $ (194.4 ) $ (79.7 )
Interest expense 22.9 53.7 46.5
Depreciation, amortization and accretion 18.4 107.2 107.0
Debt extinguishment, modification and issuance costs 8.5 7.0
-
Change in fair value of warrant liability (0.1 ) (0.1 ) - Income tax expense 11.5 10.5 23.1 Other, net (15.4 ) 3.3 4.6 Equity-based compensation 3.6 3.4 5.6 Impairment of long-lived assets - 113.8
-
(Gain) on sale of operations and loss (gain) on disposal of assets and sale-leaseback transaction
(457.6 ) 1.1 (2.5 )
Transaction and other nonrecurring costs(1) 10.6 9.4 2.4
Consolidated Adjusted EBITDA(2) $ 39.4$ 115.1 $
107.0
Net income (loss) margin (Net income (loss) divided by service revenues)
218.1 % (36.0 %) (15.8 %)
Consolidated Adjusted EBITDA Margin 19.7 % 21.3 % 21.2 %
(Consolidated Adjusted EBITDA divided by service revenues)
(1)2022 includes $7.1 million costs recorded at corporate headquarters of which
$6.5 million are related to severance costs. 2022 also includes $2.1 million of
costs incurred in connection with the 2degrees Sale and $1.3 million of costs
related to the NuevaTel Transaction for the year ended December 31, 2022 . See
Note 2 - Sale of Operations to the Consolidated Financial Statements for further
information. 2021 includes $6.4 million of costs related to the Company's
preparation for a planned public listing and equity issuance in New Zealand .
2021 also includes $1.7 million of costs in connection with the 2degrees Sale.
2020 includes $1.6 million of workforce reduction restructuring costs in
response to the impact of the COVID-19 pandemic.
(2)In July 2013 , Trilogy LLC sold to Salamanca Holding Company ("SHC"), a
Delaware limited liability company, 80% of its interest in its wholly owned
subsidiary, Salamanca Solutions International LLC ("SSI"). Although Trilogy LLC
held a 20% equity interest in SSI, due to the fact that NuevaTel was SSI's
primary customer, Trilogy LLC was considered SSI's primary beneficiary and, as
such, the Company consolidated 100% of SSI's net (losses) income. In April 2022 ,
the Company surrendered its 20% ownership interest in SSI. Prior to the
Company's surrender of its SSI ownership interest, the impact on the Company's
consolidated results of the 80% that Trilogy LLC did not own decreased Adjusted
EBITDA by $0.1 million for each of the years ended December 31, 2022 , 2021 and
2020.
Consolidated Equipment Subsidy
Equipment subsidy ("Equipment Subsidy") is the cost of devices in excess of the
revenue generated from equipment sales and is calculated by subtracting Cost of
equipment sales from Equipment sales. Management used Equipment Subsidy on a
consolidated level to evaluate the net loss that was incurred in connection with
the sale of equipment or devices in order to acquire and retain subscribers.
Equipment Subsidy included devices acquired and sold for fixed broadband
subscribers. Consolidated Equipment Subsidy is used in computing Equipment
subsidy per gross addition. A reconciliation of Equipment Subsidy to Equipment
sales and Cost of equipment sales, both U.S. GAAP measures, is presented below:
Equipment Subsidy
For the Year Ended December 31,
(in millions) 2022 2021 2020
Cost of equipment sales $ 39.2 $ 120.9 $ 115.8
Less: Equipment sales (38.1 ) (112.9 ) (106.3 )
Equipment Subsidy $ 1.1 $ 8.0 $ 9.5
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Key Industry Performance Measures - Definitions
The following measures are industry metrics that management historically found useful in assessing the operating performance of the Company, and are often used in the wireless telecommunications industry, but do not have a standardized meaning underU.S. GAAP:
• Monthly average revenues per wireless user ("ARPU") is calculated by dividing
average monthly wireless service revenues during the relevant period by the
average number of wireless subscribers during such period.
• Wireless data revenues ("data revenues") is a component of wireless service
revenues that includes the use of web navigation, multimedia messaging service
and value-added services by subscribers over the wireless network through their
devices.
• Wireless service revenues ("wireless service revenues") is a component of total
revenues that excludes fixed broadband revenues, equipment sales and
non-subscriber international long distance revenues; it captures wireless
performance and is the basis for the blended wireless ARPU calculations.
• Wireless data average revenue per wireless user ("data ARPU") is calculated by
dividing monthly data revenues during the relevant period by the average number
of wireless subscribers during the period.
• Service revenues ("service revenues") is a component of total revenues that
excludes equipment sales.
• Churn ("churn") is the rate at which existing subscribers cancel their
services, or are suspended from accessing the network, or have no revenue
generating event within the most recent 90 days, expressed as a percentage.
Subscribers that subsequently have their service restored within a certain
period of time are presented net of disconnections which may result in a
negative churn percentage in certain periods. Churn is calculated by dividing
the number of subscribers disconnected by the average subscriber base. It is a
measure of monthly subscriber turnover.
• Capital intensity ("capital intensity") represents purchases of property and
equipment divided by total service revenues. The Company's capital expenditures
do not include expenditures on spectrum licenses. Capital intensity allows the
Company to compare the level of the Company's additions to property and
equipment to those of other companies within the same industry.
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