Trilogy International Partners Inc. - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Condensed Consolidated Balance Sheets	F-1
Condensed Consolidated Statements of Operations and Comprehensive Loss	F-2
Condensed Consolidated Statements of Changes in Shareholders’ (Deficit) Equity	F-3
Condensed Consolidated Statements of Cash Flows	F-4
Notes to the Consolidated Financial Statements	F-5

TRILOGY INTERNATIONAL PARTNERS INC.

Condensed Consolidated Balance Sheets

(US dollars in thousands, except share amounts)

(unaudited)

TRILOGY INTERNATIONAL PARTNERS INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(US dollars in thousands, except share and per share amounts)

(unaudited)

TRILOGY INTERNATIONAL PARTNERS INC.

Condensed Consolidated Statements of Changes in Shareholders’ (Deficit) Equity

(US dollars in thousands, except shares)

(unaudited)

TRILOGY INTERNATIONAL PARTNERS INC.

Condensed Consolidated Statements of Cash Flows

(US dollars in thousands)

(unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business and Basis of Presentation

 

The accompanying unaudited interim Condensed Consolidated Financial Statements include the accounts of Trilogy International Partners Inc. (“TIP Inc.” and together with its consolidated subsidiaries referred to as the “Company”). All intercompany transactions and accounts have been eliminated. The Condensed Consolidated Balance Sheet as of December 31, 2022 is derived from the Company’s audited financial statements at that date, which should be read in conjunction with these Condensed Consolidated Financial Statements. Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the interim financial information includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The interim results of operations and cash flows are not necessarily indicative of those results and cash flows expected for the full year. All dollar amounts are in U.S. dollars (“USD”), unless otherwise stated.

 

The Company historically had two reportable segments, New Zealand and Bolivia. During the second quarter of 2022, the Company completed the sales of its operations in New Zealand and Bolivia, which represented substantially all of the operating activities of the Company’s 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 for New Zealand and Bolivia has been retained.

 

Unallocated corporate operating expenses, which pertain primarily to corporate administrative functions that supported the segments but were not specifically attributable to or managed by any segment, are presented as a reconciling item between total segment results and consolidated financial results. Additional information relating to our historical reportable segments is included in Note 12 – Segment Information.

 

See Note 2 – Sale of Operations for additional information regarding the sales of Two Degrees Mobile Limited (“2degrees”), in New Zealand, and Empresa de Telecomunicaciones NuevaTel (PCS de Bolivia), S.A. (“NuevaTel”), in Bolivia.

Summary of Significant Accounting Policies

 

Use of Estimates:

The preparation of the unaudited interim Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the amounts of revenues and expenses reported for the periods presented. Certain estimates require difficult, subjective and complex judgments about matters that are inherently uncertain. Actual results could differ from those estimates.

 

Property and Equipment:

Depreciation expense was insignificant for the three months ended March 31, 2023 and $15.9 million for the three months ended March 31, 2022.

License Costs and Other Intangible Assets:

There were no license costs and other intangible assets balances remaining as of March 31, 2023 or December 31, 2022 due to the sale of operations in May 2022.

There was no amortization expense of license costs and other intangible assets for the three months ended March 31, 2023.  Amortization expense of license costs and other intangible assets was $1.9 million for the three months ended March 31, 2022.

Interest Cost Incurred:

There was no interest cost incurred or expensed for the three months ended March 31, 2023. Consolidated interest cost incurred and expensed, prior to capitalization of interest, was $14.4 million for the three months ended March 31, 2022.

Supplemental Cash Flow Disclosure:

Prior to the sale of our operations in May 2022, the Company acquired property and equipment using current and long-term construction accounts payable. The net change in current and long-term construction accounts payable resulted in additions to Purchase of property and equipment in the Condensed Consolidated Statements of Cash Flows of $10.5 million for the three months ended March 31, 2022.

 

There was no interest paid, net of capitalized interest, for the three months ended March 31, 2023. Interest paid, net of capitalized interest, was $2.4 million for the three months ended March 31, 2022.

 

Recently Adopted Accounting Standards:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13 related to the measurement of credit losses on financial instruments and has since modified the standard with several ASUs (collectively, the “credit loss standard”). The credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The credit loss standard took effect for public entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As amended in ASU 2019-10, for companies that file under private company guidelines or are eligible to report as a “smaller reporting company”, the credit loss standard took effect for fiscal years beginning after December 15, 2022, and for interim periods within those fiscal years. Early adoption was permitted for all entities for fiscal years beginning after December 15, 2018. Effective January 1, 2023, the Company adopted the credit loss standard as it became applicable to the Company as a “smaller reporting company”. Adoption of this credit loss standard did not have a material impact on our consolidated financial statements as the Company did not have any receivables in its portfolio during the three months ended March 31, 2023.

 

NOTE 2 – SALE OF OPERATIONS

 

2degrees – New Zealand Segment

 

On December 31, 2021, the shareholders of 2degrees, including the Company, entered into a purchase agreement (the “Purchase Agreement”) with Voyage Digital (NZ) Limited (“Voyage Digital”) to sell all of their equity interests in 2degrees (the “2degrees Sale”). On a cash free debt free basis, the purchase price for 100% of the 2degrees shares (including employee options that converted into shares in connection with the sale) represented an equity value of $1.315 billion New Zealand dollars (“NZD”), subject to adjustments at closing for specific costs or payments by 2degrees between signing and closing. The Company’s ownership interest in 2degrees was 73.2%. On March 15, 2022, the Company determined that the 2degrees business met the criteria to be classified as held for sale. Therefore, the Company ceased recording depreciation and amortization on the applicable and relevant 2degrees non-current tangible and intangible assets on such date, in accordance with Accounting Standards Codification (“ASC”) 360-10, Impairment and Disposal of Long-Lived Assets (“ASC 360-10”).

 

On May 19, 2022, the Company completed the sale of its 73.2% interest in 2degrees. For its ownership interest in 2degrees, 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) of closing adjustments, including transaction advisory fees, along with payments to satisfy the outstanding 2degrees option pool. 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 Condensed Consolidated Balance Sheet as it is currently considered to be probable that the amount will be received in full at the conclusion of the escrow period. The escrowed proceeds are scheduled to be released in late May 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. Upon closing of the 2degrees Sale, the Company recognized a net gain of $443.3 million, inclusive of changes in the NZD to USD foreign currency exchange rate between the funding and settlement of sale proceeds.

 

Additionally, the amount in escrow is denominated in NZD and the change in such amount to $14.0 million as of March 31, 2023 as compared to $14.1 million as of December 31, 2022 is primarily due to a change in the exchange rate at the end of the period. This change was immaterial and included in Other, net in our Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

The table below presents a computation of the gain on sale of 2degrees based on the derecognition of 2degrees’s net assets:

 

As of May 19, 2022, the Company deconsolidated the net assets of 2degrees and recorded the related gain on sale. Income before income taxes for the New Zealand segment was $17.4 million for the three months ended March 31, 2022. New Zealand segment income before income taxes attributable to TIP Inc. was $12.7 million for the three months ended March 31, 2022.

 

In connection with the closing of the 2degrees Sale, the Company settled its forward exchange contract related to a portion of the sale proceeds. See Note 6 – Derivative Financial Instruments 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 its subsidiary’s 8.875% senior secured notes due 2023 and 10% promissory notes due 2023, as well as the Company’s 13.5% bridge loans due 2023. As a result of these prepayments, the Company had no remaining indebtedness outstanding. The remaining amount of proceeds was used to fund a shareholder cash distribution made in June 2022 and provide a cash reserve for remaining Company operations.

 

NuevaTel – Bolivia Segment

 

On March 28, 2022, the Company entered into a purchase agreement with Balesia Technologies, Inc. (“Balesia”) to sell its 71.5% equity interest in NuevaTel (the “NuevaTel Transaction”). As of March 28, 2022, the Company also determined that the NuevaTel business met the criteria to be classified as held for sale. Therefore, the Company ceased recording depreciation and amortization on the applicable and relevant NuevaTel non-current tangible and intangible assets on such date, in accordance with ASC 360-10.

 

On May 14, 2022, the NuevaTel Transaction closed. Proceeds received related to the NuevaTel Transaction were of a nominal amount, and the Company recorded a net gain of $14.5 million in the second quarter of 2022.

 

The table below presents a computation of the gain on sale of NuevaTel based on the derecognition of NuevaTel’s net assets:

 

As of May 14, 2022, the Company deconsolidated the net assets of NuevaTel. Loss before income taxes for the Bolivia segment was $6.2 million for the three months ended March 31, 2022. Bolivia segment loss before income taxes attributable to TIP Inc. was $4.5 million for the three months ended March 31, 2022.

 

Accrued Severance Costs

 

As a result of the sale of operations in the second quarter of 2022 and a plan of liquidation adopted in June 2022, the Company recorded severance benefits for its employees and officers in 2022. Accrued severance costs were $4.5 million as of March 31, 2023, and substantially all of such amount was paid in April 2023.

NOTE 3 – EIP RECEIVABLES

 

Prior to the sale of our operations in the second quarter of 2022, 2degrees and NuevaTel offered certain wireless subscribers the option to pay for their handsets in installments over a period of up to 36 months using an EIP. There were no unbilled EIP receivables as of March 31, 2023 or December 31, 2022.

 

Sales of EIP Receivables: 

2degrees was party to a mobile handset receivables sales agreement with a third party New Zealand financial institution.

 

The following table summarizes the impact of the sales of the EIP receivables in the three months ended March 31, 2022. There were no sales of EIP receivables in the three months ended March 31, 2023.

 

NOTE 4 – OTHER CURRENT LIABILITIES AND ACCRUED EXPENSES

NOTE 5 – FAIR VALUE MEASUREMENTS

The accounting guidance for fair value establishes a framework for measuring fair value that uses a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability at the measurement date. The three levels are defined as follows:

 

There were no assets measured at fair value on a recurring basis as of March 31, 2023 or December 31, 2022. The following table presents liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

The fair value of forward exchange contracts was based on the differential between the contract price and the foreign currency exchange rate as of the balance sheet date.

 

There were no transfers between levels within the fair value hierarchy during the three months ended March 31, 2023 or 2022.

 

Cash and cash equivalents, deposits, accounts payable and accrued expenses were carried at cost, which approximates fair value given their short-term nature.

 

For the three months ended March 31, 2023 and 2022, we did not record any material other-than-temporary impairments on financial assets required to be measured at fair value on a nonrecurring basis.

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Swaps:

 

Forward Exchange Contracts:

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. These contracts were entered into in order to mitigate exposure to fluctuations in the NZD to USD exchange rate for substantially all of the proceeds from the 2degrees Sale held in escrow. These derivative instruments were not designated for hedge accounting; thus changes in the fair value are recognized in earnings in the period incurred. The foreign exchange gains or losses relating to these forward exchange contracts were recognized in Other, net and were not material for the three months ended March 31, 2023. The estimated settlements under these forward exchange contracts were not material as of March 31, 2023 and were recorded in Other current liabilities and accrued expenses in the Condensed Consolidated Balance Sheets.

 

In March 2022, the Company entered into a forward exchange contract 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 foreign exchange contract secured an NZD foreign exchange rate based on a sliding scale which included rates of 0.6688 at May 31, 2022 and 0.6677 at the June 30, 2022 long-stop date for $450 million USD ($674 million NZD), which approximated the amount of the USD denominated debt that was paid upon the closing of the 2degrees Sale. A loss of $15.9 million was recognized in Other, net during the three months ended March 31, 2022, which reflected the differential between the contract price and the foreign exchange rate as of the balance sheet date, March 31, 2022. The forward exchange contract was settled in May 2022 in connection with the 2degrees Sale.

 

Prior to the 2degrees Sale, 2degrees had short-term forward exchange contracts to manage exposure to fluctuations in foreign currency exchange rates. There were no forward exchange contract balances remaining as of March 31, 2023 and December 31, 2022. These derivative instruments were not designated for hedge accounting; thus changes in the fair value were recognized in earnings in the period incurred. Gains or losses resulting from these contracts were immaterial for the three months ended March 31, 2022.

 

NOTE 7 – EQUITY

 

TIP Inc.’s authorized share structure consists of two classes of shares, common shares, no par value (the “Common Shares”), and a special voting share (the “Special Voting Share”). The Special Voting Share was surrendered in October 2021. Consequently, as of March 31, 2023, there were no Special Voting Shares outstanding.

 

TIP Inc. Common Shares:

TIP Inc. is authorized to issue an unlimited number of Common Shares. As of March 31, 2023, TIP Inc. had 88,627,593 Common Shares outstanding. Holders of Common Shares are entitled to one vote for each share held on matters submitted to a vote of shareholders.

 

Holders of Common Shares are entitled to receive dividends as and when declared by the Board of Directors of the Company (the “Board”). In 2021, the Board determined that it was in the best interests of TIP Inc. not to pay an annual dividend. In the event of the dissolution, liquidation or winding-up of TIP Inc., whether voluntary or involuntary, or any other distribution of assets of TIP Inc. among its shareholders for the purpose of winding up its affairs, the holders of Common Shares are entitled to receive the remaining property and assets of TIP Inc. after satisfaction of all liabilities and obligations to creditors of TIP Inc.

 

Cash Distributions:

There were no distributions or dividend payments made in the three months ended March 31, 2023 or 2022.

Any future additional return of capital distributions will depend on the Company’s corporate expenses, capital requirements, financial condition and other factors as determined by the Board.

 

On February 7, 2017, Trilogy International Partners LLC (“Trilogy LLC”), a Washington limited liability company, and Alignvest Acquisition Corporation completed a court approved plan of arrangement (the “Arrangement”) pursuant to an arrangement agreement dated November 1, 2016 (as amended December 20, 2016, the “Arrangement Agreement”). As a result of the Arrangement, TIP Inc. obtained a controlling interest in and began consolidating Trilogy LLC. As of March 31, 2023, TIP Inc. held a 100% economic ownership interest in Trilogy LLC through its wholly owned subsidiary, Trilogy International Partners Intermediate Holdings Inc. (“Trilogy Intermediate Holdings”).

 

The equity interests in Trilogy LLC historically consisted of three classes of units; however, as of March 31, 2023, only Class B Units (as defined below) were outstanding, all of which were owned indirectly by TIP Inc.

 

Class B Units:

TIP Inc. indirectly holds the Class B Units of Trilogy LLC (the “Class B Units”) through Trilogy Intermediate Holdings. The Class B Units represented TIP Inc.’s indirect economic interest in Trilogy LLC under the Trilogy LLC amended and restated Limited Liability Company Agreement. As of March 31, 2023, there were 88,627,593 Class B Units outstanding.

NOTE 8 – REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Disaggregation of Revenue:

Prior to the sale of our operations in the second quarter of 2022, we operated and managed our business in two reportable segments based on geographic region: New Zealand and Bolivia. We disaggregated revenue into categories to depict how the nature, amount, timing and uncertainty of revenue and cash flows were affected by economic factors, including the type of product offering provided, the type of customer and the expected timing of payment for goods and services. See Note 12 – Segment Information for additional information on revenue by segment.

 

 

Contract Balances:

The timing of revenue recognition may have differed from the time of billing to our customers. Receivables represented an unconditional right to consideration. Contract balances represented amounts from an arrangement when either the Company had performed, by providing goods or services to the customer in advance of receiving all or partial consideration for such goods and services from the customer, or the customer had made payment to us in advance of obtaining control of the goods and/or services promised to the customer in the contract.

 

Contract assets were primarily related to our rights to consideration for goods or services provided to the customers but for which we did not have an unconditional right at the reporting date. Under a fixed-term plan, the total contract revenue was allocated between wireless services and equipment revenues. In conjunction with these arrangements, a contract asset may have been created, which represented the difference between the amount of equipment revenue recognized upon sale and the amount of consideration received from the customer. The contract asset was reclassified as an account receivable as wireless services were provided and amounts were billed to the customer. We had the right to bill the customer as service was provided over time, which resulted in our right to the payment being unconditional. We assessed our contract assets for impairment on a quarterly basis and recognized an impairment charge to the extent their carrying amount was not recoverable. There were no contract assets for three months ended March 31, 2023, thus no impairment charges were recognized. For the three months ended March 31, 2022, the impairment charges related to contract assets were insignificant.

 

The following table represents changes in the contract assets balance for the three months ended March 31, 2022:

 

Deferred revenue arose when we billed our customers and received consideration in advance of providing the goods or services promised in the contract. For prepaid wireless services and fixed broadband services, we typically received consideration in advance of providing the services, which was the most significant component of the contract liability deferred revenue balance. Deferred revenue was recognized as revenue when services were provided to the customer.

 

 

Contract Costs:

Revenue from Contracts with Customers (“Topic 606”) requires the recognition of an asset for incremental costs to obtain a customer contract. These costs are then amortized to expense over the respective periods of expected benefit. We recognized an asset for direct and incremental commission expenses paid to external and certain internal sales personnel and agents in conjunction with obtaining customer contracts. These costs were amortized and recorded ratably as commission expense over the expected period of benefit, which typically ranged from 1 to 3 years. Further, we elected to apply the practical expedient available under Topic 606 that permitted us to expense incremental costs immediately for costs with an estimated amortization period of less than one year. As a result of the sale of operations in the second quarter of 2022, there were no contract costs balances as of March 31, 2023 or December 31, 2022.

 

Capitalized contract costs were assessed for impairment on a periodic basis. There were no impairment losses recognized on capitalized contract costs for the three months ended March 31, 2023 or 2022.

 

 

NOTE 9 – EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing net earnings by the basic weighted average Common Shares outstanding. Diluted earnings per share is calculated by dividing net earnings by the weighted average number of Common Shares plus the effect of potential dilutive Common Shares outstanding during the period using the treasury stock method.

 

In calculating diluted net loss per share, if the change in fair value of any warrant liability was dilutive, the numerator and denominator were adjusted for such change and the number of potentially dilutive Common Shares assumed to be outstanding during the period was calculated using the treasury stock method. No adjustments were made when warrants were out of the money. The Company’s warrants expired on February 7, 2022.

 

For the three months ended March 31, 2022, the Company’s warrants were out of the money and no adjustment was made to exclude the gain recognized by TIP Inc. for the change in fair value of the warrant liability. There were no warrants outstanding as of March 31, 2023.

 

The components of basic and diluted earnings per share were as follows:

 

The following table indicates the weighted average dilutive effect of Common Shares that could have subsequently been issued. These Common Shares were not included in the computation of diluted earnings per share for the three months ended March 31, 2022 because the effect was either anti-dilutive or the conditions for vesting were not met. No amounts are shown for the three months ended March 31, 2023 for warrants and forfeitable founders shares as such warrants expired and the forfeitable founders shares were cancelled in the first quarter of 2022:

 

NOTE 10 – LEASES

Prior to the sale of our operations in the second quarter of 2022, we leased cell sites, retail stores, offices, vehicles, equipment and other assets from third parties under operating and finance leases. Our typical lease arrangement included a non-cancellable term with renewal options for varying terms depending on the nature of the lease. We included the renewal options that were reasonably certain to be exercised as part of the lease term, and this assessment was an area of judgment. For cell site locations, optional renewals were included in the lease term based on the date the sites were placed in service and to the extent that renewals were reasonably certain based on the age and duration of the sites. For other leases, renewal options were typically not considered to be reasonably certain to be exercised.

 

The components of total lease cost, net consisted of the following:

 

Sublease income was not significant for the periods presented.

 

The cash flow information for leases for the three months ended March 31, 2023 was not significant. The following table presents cash flow information for leases for the three months ended March 31, 2022:

 

ROU assets obtained in exchange for new lease liabilities were not significant for the periods presented.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Commitments: 

Following the sales of operations during the second quarter of 2022, there were no remaining outstanding commitments as of March 31, 2023.

 

Contingencies: 

The financial statements reflect certain assumptions based on telecommunications laws, regulations and customary practices currently in effect in the countries in which the Company’s subsidiaries operated prior to disposal. As a result of the sales of operations in the second quarter of 2022, the Company is no longer subject to the potential outcome of contingencies previously reported for the historical New Zealand and Bolivia segments which were subject to the telecommunications laws and regulations of these locations.

 

The Company’s former subsidiaries are party to various lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. Although the Company no longer owns an interest in these subsidiaries, it may have liability with respect to the outcomes of certain lawsuits, regulatory proceedings or claims against the former subsidiaries to the extent specified in indemnification provisions of the share sale agreements to which the Company is a party, including the six year indemnification period following the closing of the 2degrees Sale. Management believes that although the outcomes of these proceedings are uncertain, any liability ultimately arising from these actions should not have a material adverse impact on the Company’s financial condition, results of operations or cash flows. The Company has previously accrued for any material contingencies where the Company’s management believed the loss was probable and estimable. Following the sales of operations during the second quarter of 2022, there are no material contingencies accrued as March 31, 2023.

 

NOTE 12 – SEGMENT INFORMATION

 

We determined our reportable segments based on the manner in which our Chief Executive Officer, considered to be the chief operating decision maker (“CODM”), would regularly review our operations and performance. Segment information was prepared on the same basis that our CODM managed the segments, evaluated financial results, allocated resources, and made key operating decisions.

 

The Company historically had two reportable segments, New Zealand and Bolivia. However, as a result of the closing of the 2degrees Sale and NuevaTel Transaction in the second quarter of 2022, the Company no longer holds ownership interests in the business that historically comprised the New Zealand and Bolivia segments. See Note 2 – Sale of Operations for additional information regarding the 2degrees Sale and NuevaTel Transaction. Since presentation of discontinued operations is not applicable, as discussed therein, the presentation of segment information for New Zealand and Bolivia has been retained.

 

The table below presents financial information for our reportable segments through the date of their dispositions and reconciles total Segment Adjusted EBITDA to Loss before income taxes:

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

•

the timing of the liquidation and dissolution of the Company following its adoption of a plan of liquidation on June 10, 2022;

•

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 in late May 2023;

•

the timing and amount of any distribution to shareholders;

•

expenses associated with the Company losing its foreign private issuer status under U.S. federal securities laws;

•

the ability of U.S. persons to sell their common shares of TIP Inc. (the “Common Shares”);

•

the Board’s expectation that the financial resources available to the Company following the cash distributions to shareholders will be adequate to fund the Company’s outstanding indemnification obligations (beyond those for which funds have been placed in escrow) and ongoing costs of operating the Company prior to its liquidation and dissolution; and

•

the possibility of changes in the securities regulations of Canada and the United States that could affect the ability of investors to trade their Common Shares.

•

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 in late May 2023; and

•

taxes payable.

•

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 in late May 2023;

•

risks related to anti-corruption compliance;

•

reliance on limited management resources;

•

tax related risks;

•

risks related to being a publicly traded company, including, but not limited to, compliance and costs associated with the U.S. Sarbanes-Oxley Act of 2002 (to the extent applicable);

•

an increase in costs and demands on management resources as a result of the Company ceasing to qualify as an “emerging growth company” on December 31, 2022 under the U.S. Jumpstart Our Business Startups Act of 2012;

•

additional expenses in connection with the Company losing its foreign private issuer status under U.S. federal securities laws;

•

the determination to not pay dividends;

•

risks related to the liquidity of the market for the Common Shares;

•

risks related to litigation, including class actions and regulatory matters;

•

risks that the market price and trading volume of the Common Shares may materially decrease or experience increased fluctuation;

•

foreign exchange rate and associated risks;

•

risks related to currency controls and withholding taxes;

•

risks related to the impact of new laws and regulations;

•

risks associated with the Company’s internal controls over financial reporting; and

•

the costs associated with the dissolution of the Company.

		March 31, 2023				December 31, 2022				% Change
End of period NZD to USD exchange rate(1)			0.626				0.635				(1	%)

(1)

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. Accordingly, 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.

		March 31, 2023				December 31, 2022				% Change
End of period CAD to USD exchange rate			0.74				0.74				0	%
		Three Months Ended March 31,
		2023				2022				% Change
Average CAD to USD exchange rate			0.74				0.79				(6	%)

		Three Months Ended March 31,								% Variance
		2023				2022				3 mo. vs 3 mo.
(in millions, unless otherwise noted)
Service revenues		$	-			$	131.2				(100	%)
Total revenues		$	-			$	155.4				(100	%)
Net loss		$	1.6			$	28.8				(94	%)
Net loss margin(1)			-	%			21.9	%		(21.9		) pts
Consolidated Adjusted EBITDA(2)		$	(1.8	)		$	27.8				(107	%)
Consolidated Adjusted EBITDA Margin(2)			-	%			21.2	%		(21.2		) pts
Capital expenditures(3)		$	-			$	26.3				(100	%)

		Three Months Ended March 31,
(in millions)		2023				2022
Revenues:
Wireless service revenues		$	-			$	101.5
Fixed broadband service revenues			-				27.7
Equipment sales			-				24.1
Non-subscriber international long distance and other revenues			-				2.1
Total revenues		$	-			$	155.4

		Three Months Ended March 31,								% Variance
(in millions)		2023				2022				3 mo. vs 3 mo.
Operating expenses:
Cost of service, exclusive of depreciation, amortization and accretion shown separately		$	-			$	54.2				(100	%)
Cost of equipment sales			-				24.8				(100	%)
Sales and marketing			-				20.5				(100	%)
General and administrative			1.8				31.0				(94	%)
Depreciation, amortization and accretion			-				18.1				(100	%)
Loss on disposal of assets			-				0.5				(100	%)
Total operating expenses		$	1.8			$	149.1				(99	%)

		Three Months Ended March 31,								% Variance
(in millions)		2023				2022				3 mo. vs 3 mo.
Interest expense		$	-			$	14.3				(100	%)
Change in fair value of warrant liability			-				(0.1	)			100	%
Other, net			(0.2	)			14.6				(102	%)

		Three Months Ended March 31,								% Variance
(in millions)		2023				2022				3 mo. vs 3 mo.
Income tax expense		$	-			$	6.2				(99	%)

		Three Months Ended March 31,								% Variance
(in millions, unless otherwise noted)		2023				2022				3 mo. vs 3 mo.
Service revenues		$	-			$	104.6				(100	%)
Total revenues		$	-			$	128.7				(100	%)
Segment Adjusted EBITDA		$	-			$	32.8				(100	%)
Segment Adjusted EBITDA Margin(1)			-	%			31.4	%		(31.4		) pts
Capital expenditures(2)		$	-			$	24.9				(100	%)
Capital intensity			-	%			23.8	%		(23.8		) pts

		Three Months Ended March 31,								% Variance
(in millions, unless otherwise noted)		2023				2022				3 mo. vs 3 mo.
Service revenues		$	-			$	26.6				(100	%)
Total revenues		$	-			$	26.6				(100	%)
Segment Adjusted EBITDA		$	-			$	(0.5	)			100	%
Segment Adjusted EBITDA Margin(1)			-	%			(1.7	%)		1.7		pts
Capital expenditures(2)		$	-			$	1.5				(100	%)
Capital intensity			-	%			5.5	%		(5.5		) pts

Consolidated Balance Sheet Data
		As of March 31,				As of December 31,
(in millions, except as noted)		2023				2022			Change includes:
Cash and cash equivalents		$	21.7			$	25.1		Decline is due to $3.3 million of cash used to fund headquarters operating activities.
% Change			(13	%)
Other current assets			14.6				14.7
% Change			(1	%)
Other non-current assets			1.3				1.4
% Change			(7	%)
Total assets		$	37.7			$	41.2
Total current liabilities		$	5.5			$	7.4		Decline is primarily due to payment of accrued employee benefits of $1.2 million and accrued severance of $0.6 million.
% Change			(25	%)
Other non-current liabilities			0.3				0.3
% Change			(8	%)
Total shareholders’ equity			31.8				33.5		Decline is due to the net loss during the three months ended March 31, 2023.
% Change			(5	%)
Total liabilities and shareholders’ equity		$	37.7			$	41.2

		2023				2022																2021
(in millions, except per share amounts)		Q1				Q4				Q3				Q2				Q1				Q4				Q3				Q2
Service revenues		$	-			$	-			$	-			$	69.2			$	131.2			$	133.8			$	134.4			$	134.2
Equipment sales			-				-				-				14.0				24.1				35.3				23.1				23.4
Total revenues			-				-				-				83.2				155.4				169.1				157.5				157.6
Operating expenses			(1.8	)			(1.9	)			(3.4	)			380.3				(149.1	)			(170.7	)			(275.0	)			(161.6	)
Operating (loss) income			(1.8	)			(1.9	)			(3.4	)			463.5				6.2				(1.6	)			(117.5	)			(4.1	)
Interest expense			-				-				-				(8.6	)			(14.3	)			(13.8	)			(13.4	)			(13.2	)
Change in fair value of warrant liability			-				-				-				-				0.1				(0.1	)			-				0.1
Debt extinguishment, modification and issuance costs			-				-				-				(8.5	)			-				-				-				(7.0	)
Other, net			0.2				1.8				(2.0	)			30.2				(14.6	)			(7.7	)			2.2				0.4
(Loss) income before income taxes			(1.6	)			(0.1	)			(5.4	)			476.6				(22.6	)			(23.2	)			(128.7	)			(23.8	)
Income tax (expense) benefit			-				(0.1	)			-				(5.2	)			(6.2	)			(5.3	)			1.0				(2.7	)
Net (loss) income			(1.6	)			(0.2	)			(5.4	)			471.5				(28.8	)			(28.5	)			(127.7	)			(26.5	)
Net (income) loss attributable to noncontrolling interests			-				-				-				(2.5	)			(1.1	)			0.3				37.1				9.3
Net (loss) income attributable to TIP Inc.		$	(1.6	)		$	(0.2	)		$	(5.4	)		$	468.9			$	(29.8	)		$	(28.2	)		$	(90.6	)		$	(17.2	)
Net (loss) income attributable to TIP Inc. per share:
Basic		$	(0.02	)		$	-			$	(0.06	)		$	5.36			$	(0.34	)		$	(0.33	)		$	(1.37	)		$	(0.29	)
Diluted		$	(0.02	)		$	-			$	(0.06	)		$	5.31			$	(0.34	)		$	(0.33	)		$	(1.37	)		$	(0.29	)

•

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 Long Term Evolution in Bolivia;

•

Increased competition and changes in the market leading to larger data bundles offered for prices which impacted data ARPU;

•

Stable postpaid churn in New Zealand, which the Company believes was a 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.

•

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.

		Three Months Ended March 31,								% Variance
(in millions)		2023				2022				2022 vs 2021
Net cash (used in) provided by
Operating activities		$	(3.3	)		$	19.7				(117	%)
Investing activities			-				(27.0	)			100	%
Financing activities			-				7.7				(100	%)
Net (decrease) increase in cash, cash equivalents and restricted cash		$	(3.3	)		$	0.4				n/	m

Consolidated Adjusted EBITDA
		Three Months Ended March 31,
(in millions)		2023				2022
Net loss		$	(1.6	)		$	(28.8	)
Interest expense			-				14.3
Depreciation, amortization and accretion			-				18.1
Change in fair value of warrant liability			-				(0.1	)
Income tax expense			-				6.2
Other, net			(0.2	)			14.6
Equity-based compensation			-				0.5
Loss on disposal of assets			-				0.5
Transaction and other nonrecurring costs(1)			-				2.5
Consolidated Adjusted EBITDA		$	(1.8	)		$	27.8
Net loss margin (Net loss divided by service revenues)			-	%			(21.9	%)
Consolidated Adjusted EBITDA Margin			-	%			21.2	%
(Consolidated Adjusted EBITDA divided by service revenues)

•

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.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Item 4.

Controls and Procedures.

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3.

Defaults Upon Senior Securities.

Item 4.

Mine Safety Disclosures.

Item 5.

Other Information.

Item 6.

Exhibits.

		TRILOGY INTERNATIONAL PARTNERS INC.
Date:	May 11, 2023	By:	/s/ Erik Mickels
		Title:	Senior Vice President and
			Chief Financial Officer