Liberty Latin America Ltd - Earnings Call - Q1 2021

Transcript

Speaker 0

Good morning, ladies and gentlemen, and thank you for standing by. Today's call is being recorded. I'll now turn the call over to John Winter, Chief Legal Officer of Liberty Latin America.

Speaker 1

Good morning, and welcome to Liberty Latin America's First Quarter twenty twenty one Investor Call. At this time, all participants are in listen only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Latin America's website at www.lla.com. Following today's formal presentation, instructions will be given for a question and answer session. As a reminder, this call is being recorded.

Today's remarks may include forward looking statements, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact. Actual results may differ materially from those expressed or implied by these statements. Additional information on factors or risks that could cause results to differ is available in Liberty Latin America's most recently filed Form 10 ks and Form 10 Q. Liberty Latin America disclaims any obligation to update any of these forward looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. In addition, on this call, we will refer to certain non GAAP financial measures, which are reconciled to the most comparable GAAP financial measures, which can be found in the appendices to this presentation and on our Investor Relations website.

I would now like to turn the call over to our CEO, Mr. Balan Nair.

Speaker 2

Thank you, John, and welcome, everybody, to Liberty Latin America's first quarter results presentation. I'll begin by taking you through our group highlights and operating results before handing over to Chris Noyes, our CFO, who will follow with a review of the company's financial performance. After that, we will get straight to your questions. As always, I'm joined by my executive team from across the region, and I'll get them involved as needed during the Q and A following our prepared remarks. The point of housekeeping, we will both be working from slides, which you can find on our website at www.lla.com.

Well, let's start on Slide four and our highlights for the quarter. Overall, our markets are steadily recovering from the worst impact of the pandemic. However, our operating environment remains quite challenging in the first quarter with reduced tourism in general and restrictions still in place across a number of our markets. Against this backdrop though, we had a strong start to the year with a record q one RGU additions of 76,000. The group's performance was led by Cable and Wireless and Puerto Rico and we were pleased to deliver growth across all of our operating segments in the quarter.

Our financial performance was also solid with a 3% rebased on adjusted OIBDA growth. This was driven by another strong quarter for Liberty Puerto Rico and we continue to be excited about the value we plan to create there as we integrate our fixed and mobile operations. We previously outlined our plan to build or upgrade approximately 600,000 homes in 2021, a 50% increase on 2020, and we delivered 130,000 homes in the first quarter, 98% of which were private to the home. Bringing high speed connectivity to more households in the region continues to be a core focus of our company. Finally, I am happy to say that we also reported a very strong first quarter free cash flow result, positioning us well for our full year guidance of approximately $200,000,000 Moving to Slide five.

I wanted to cover the first quarter highlights across our key markets before running through our performance by product category in the following slides. Starting with Jamaica, which was the largest contributor of fixed and mobile ads in Cable and Wireless. We are continuing to invest with momentum here and added or upgraded over 10,500 home homes in the quarter. We have also successfully launched converged customer value propositions driving a strong mobile performance. Moving to The Bahamas, tourism is starting to return with major hotels now open and a more meaningful rebound is anticipated in the second half of this year.

We've invested in our fixed network, the fiber upgrades and launch converged propositions to drive broadband ads and postpaid mobile games. Taking Costa Rica next, this continues to be a strong fixed market for us and we are constantly looking to innovate and refresh our customer propositions, focusing on increasing speeds and value to gain and retain subscribers. The upcoming acquisition of Telefonica's mobile assets should provide an opportunity to develop attractive converged propositions for our customers and reinforce our strong position. I've moved one of my best managers, Guillermo Ponce to have oversight of Costa Rica and the integration of these businesses. Turning to Puerto Rico, our focus is on integrating the acquired AT and T operations effectively and quickly.

To that end, in addition to our initial welcome offer, we have now launched our core branded Uptos Mas campaign as a first step towards creating a single brand in the market. Next to Panama on the lower left of the slide where we saw strict lockdowns last year and some in the beginning of the year. However, this market is going to be strong for us as we start our recovery and growth for the year. I recently moved one of my most trusted executives, Betzal Al Koenigstein to personally run the business and he is already making progress. We grew both our fixed and mobile subscriber basis in the first quarter and expect to have a good year there.

The launch of our unlimited Toto Todito plant drove strong mobile additions in March. Finally, to VTR in Chile, where there continued to be lockdowns during the first quarter despite the country being one of the global leaders in vaccination efforts. Our recent operating and financial performance have been challenged, driven by the intense competition environment in Chile. We are committed to improving performance at VTR, and I would highlight the following. First, we need to start growing our subscriber base again.

We turned the corner here in Q1, recording 7,000 net adds following 116,000 losses in the second half last year. Through our sales efforts, the rollout of Hub TV, significant fiber footprint expansion plans and improved customer service objectives, We are aiming to build momentum in the business and drive meaningful subscriber growth over time. Second, we are focused on managing price to retain customers and recalibrating our cost structure through targeted efficiency initiatives. Third, we have added a new perspective to VTR's management team with Vivek Hemker, our former CTO, taking on the general manager's role. Vivek has extensive experience across the industry and a deep knowledge of technology, which will be valuable in a market where our infrastructure expansion plans are a key aspect of our strategy.

It will take time, but we believe the business can get back to growth and that the steps we are taking today will also position us well as the market evolves. Turning to Slide six and our operating performance by product, starting with fixed subscriber addition. As mentioned, all our operating segments recorded net adds this quarter. Taking each in turn, first Cable and Wireless Caribbean and Networks shown in the upper left reported 12% higher Q1 additions year over year, driven by continued momentum in Jamaica where we added 22,000 RGUs. In Panama, we added 10,000 RGUs and expect to continue across throughout the year.

Liberty Puerto Rico in the upper corner carried over its momentum from 2020 by adding 25,000 RGUs in Q1, which was more than double the prior year period. In Chile, as mentioned, we returned to subscriber growth. This is an improvement. However, the market remains very competitive with additional uncertainty related to the pandemic and elections in the near term. Our last segment Costa Rica shown in the upper right continued its steady progression with Q1 net at 9% higher than the prior year led by broadband demand.

Rolling these results up for the group, we delivered record Q1 performance with year over year improvements in net adds driven by Puerto Rico. Our group ARPU per customer at $50 was up 1% year over year on an FX neutral basis in Q1 led by Puerto Rico and Costa Rica. Moving to Slide seven and a record Q1 mobile performance in what is typically a seasonally weak quarter. Starting again with Cable and Wireless Caribbean and Networks in the upper left where we added 2,000 subscribers in the quarter, which was 30,000 more than prior year period. Across Cable and Wireless's markets, Jamaica added 10,000 subscribers, including 3,000 postpaid additions, which was higher than Jamaica's postpaid adds for full of 2020.

Next to Panama, which generated the most ads in the quarter, growing its base by 61,000 net RGUs. This was driven by the launch of our unlimited data, Toto Rito plan. Liberty Mobile maintained a relatively flat subscriber base of just over a million subscribers. Although a small net loss was recorded in Q1, it is worth noting that within the mix, we saw growth in postpaid subscribers offset by prepaid losses. Finally, VTR lost 6,000 mobile subscribers in the quarter.

We operate as an MVNO in Chile, predominantly providing postpaid services to existing fixed subscribers and are a small player in the market with just over two and seven thousand subscribers. Taking this all together, we added 55,000 mobile subscribers in the quarter with a blended ARPU of $20 across the group. The increase of 55% year over year is driven by the inclusion of Liberty Mobile in Q1 twenty twenty one. Next is Slade and our B2B and Subsea operation. Starting with performance on the left side.

The upper graph shows the stability in our LatAm B2B and subsea businesses over the past year. This is driven by our attacker competitive position in LatAm B2B markets and the resilience of the subsea business, which I'll comment In contrast, our incumbent Caribbean and Panamanian B2B operations have faced challenges related to reduced tourism and the associated impact on local economies where we operate. As a result, performance has steadily improved since the trough last year. However, we are yet to return to pre COVID level. On the right of the slide, we wanted to highlight some of the key attributes of our subsea business.

Firstly, at over 50,000 kilometers of cable, our network is the most extensive in the region. We've also included a map to depict our routes, including terrestrial fiber in Colombia and part of Central America. Secondly, we have a unique mesh extensive network differentiates our ability to provide more resilient solutions and improves our economics. Thirdly, we utilize approximately 10% of potential capacity across our network, so there is ample room to grow. And lastly, our cables provide an important route to United States with over 90% of our traffic going from The Caribbean and Central America to The US.

Demand for this connectivity is discontinued. Finally, to slide nine, and an overview of what we've achieved since the pandemic began and why we remain optimistic about the future. Starting with last year, we will quickly assess the potential impacts on our business from COVID-nineteen, and we took decisive action, primarily to reduce costs so that we could manage the business through a potentially prolonged period of financial headwinds. As a result of the actions we took, our operational flexibility and some better market conditions, we achieved improving operating and financial performance from Q2 twenty twenty, including generating positive free cash flow in 2020, a clear focus. We also closed the acquisition of AT and T's operations for Puerto Rico and U.

S. Virgin Islands, and that business is performing ahead of our expectations. Chris will take you through the strong financial performance this operation is delivering. Moving to the center of the site and where we are today. We created operating momentum in the first quarter and are focused on maintaining and building upon it.

Related to this, we will continue to lean into our thesis, expanding our footprint and launching new products. We focused on delighting our customers with zero touch and frictionless experience. And as announced earlier this week, our CEO Lorenzo will join us as our Chief Customer Officer. But we are still cautious noting that Chile and part of The Caribbean experienced lockdown in the first quarter. Finally, as we look further ahead, we are very optimistic.

We expect vaccinations will aid in a global recovery and facilitate more tourism to our region, in turn improving the economic backdrop in many of our countries. We've adopted our ways of working, recognizing new normal created by COVID nineteen, and our workforce remains engaged and committed. We remain focused on product innovation and are rolling out our new products as we expand our networks. And inorganically, we have a tremendous converged opportunity in Puerto Rico and are working hard to integrate the operations we acquired from AT and T quickly and effectively. And we are looking to close the acquisition of Telefonica's Costa Rica assets in the summer.

With that, I'll pass you over to Chris Noyes, our Chief Financial Officer, who will talk you through our financial performance before we take your questions. Chris?

Speaker 3

Thanks, Valen. Beginning on Slide eleven, two housekeeping items. Our Q1 twenty twenty one results include Liberty Mobile for the entire quarter. And given our recent executive management changes, we are now presenting Kabli Teka as a separate segment. For Q1, we delivered $1,160,000,000 in revenue with a year over year increase fueled primarily by the contribution from Liberty Mobile.

We achieved flat rebased growth year over year, which is a solid result given many of our markets are still experiencing COVID related restrictions and suffering from compressed economic activity. In terms products, we achieved rebased growth in both fixed and mobile residential revenue, which was offset entirely by continued softness in B2B, which has not fully recovered to pre COVID levels. Moving to adjusted OIBDA, we posted $449,000,000 for the quarter, reporting rebased growth of 3%, our best result in the last four quarters. P and E additions totaled $152,000,000 in Q1 or 13% revenue, reflecting a modest dollar increase as compared to the respective prior year period. Recall our target is for $0.18 of revenue in 2021.

Hence, our spend will increase significantly in the following quarters as we accelerate our fiber builds and integration of Liberty Mobile in Puerto Rico. In terms of FCF, we reported $58,000,000 of adjusted cash flow over the quarter. This was LLA's strongest first quarter in free cash flow and was fueled by Puerto Rico and improved results in Cable and Wireless Caribbean Networks. For the next three quarters, we expect our adjusted FCF to be primarily concentrated in Q4. Moving to Slide 12, our Q1 result reflects our highest reported quarterly revenue and adjusted OIBDA for LLA to date.

And the chart depicts our continued recovery from Q2 twenty twenty. As highlighted on our twenty twenty year end call, we would generally have a step down from Q4 to Q1 due to seasonality factors. However, we were able to effectively manage through those factors and obviously benefited from a full quarter of Liberty Mobile, which continues to outperform our expectations. Importantly, excluding the impact of Liberty Mobile, our Q1 adjusted OIBDA of $363,000,000 was comparable to results in the prior year pre COVID Q1 period. Turning to Slide 13, we present our Q1 results by segment and include a year over year comparison of revenue for each segment in the bottom half of the slide.

Starting on the left with B and W Caribbean and Networks. We posted $430,000,000 of revenue and $181,000,000 of adjusted OIBDA, which was in line with our seasonally strong Q4 results. Compared to pre COVID Q1 twenty twenty, rebased revenue declined by 4% and adjusted OIBDA decreased by 2%. On the rebased revenue side, we experienced an 8% decline in residential mobile and a 4% decline in B2B, the two areas most impacted by the pandemic. However, we achieved roughly flat rebased growth in residential fixed, helped by underlying strength in our broadband product.

One market to call out is Jamaica. Our Jamaican business accounts for more than 20% of this segment's revenue and is continuing to post year over year rebased gains, growing 6% this quarter. Helps by lower direct and operating costs year over year, we were able to achieve an adjusted OIBDA margin of 42% this quarter and gain incremental operating leverage. P and E additions were $50,000,000 or 12% of revenue, including over 20,000 homes built or upgraded in the quarter. Moving to Cable and Wireless Panama.

Q1 revenue of $122,000,000 and adjusted OIBDA of $44,000,000 were 113% lower on a rebased basis, respectively. P and E additions were $11,000,000 or $09 of revenue, including over 20,000 homes built or upgraded. Two key points to highlight. First, CWP has mitigated much of the COVID impacted revenue decline, reducing both its direct and operating costs year over year. And second, as the year continues, we are poised to deliver much improved performance.

Turning to the middle of the slide. Liberty Puerto Rico is once again our strongest segment. We generated $261,000,000 of revenue or 14% rebased growth as compared to Q1 twenty twenty. Our historical cable business delivered rebased revenue growth of roughly 20% year over year as we have increased our total RGU base by an impressive 17% over the last twelve months. Turning to our newly acquired business from AT and T.

This business contributed $240,000,000 of revenue in Q1, delivering rebased revenue growth of 11%. This growth was fueled in large part by stronger than sales and to a lesser extent improved service revenue. For Q1, our adjusted OIBDA was $150,000,000 an increase of about $100,000,000 over what we reported in last year's Q1. Our Q1 result reflects rebased adjusted OIBDA growth of 26%. Importantly, as we flagged on the Q4 call, we expect to incur sizable integration costs in 2021 that will adversely impact our adjusted OIBDA.

These costs were minimal in Q1 and are expected to ramp substantially in the next three quarters. In terms of P and E addition, we reported $34,000,000 or 9% of revenue in Q1. We expect that our spend will significantly increase throughout the rest of 2021 due in large part to timing of our integration projects and new builds. VTR is highlighted in the fourth column. We reported Q1 revenue of $210,000,000 and adjusted OIBDA of $71,000,000 reflecting rebased declines of 820% respectively.

A key driver is the full year carryover impact from subscriber losses we experienced, particularly in the second half of last year, which will impact our comparables in 2021. Additionally, the intense competitive landscape is negatively impacting ARPU level. Besides the flow through impact of revenue declines, certain of our costs remain elevated due to high levels of customer activity. However, we continue to work on reducing our fixed costs and address the labor component through a restructuring late in Q1. P and E additions were $47,000,000 or 22% of revenue, including over 75,000 new homes, an increase of 160% over last year's Q1.

Finishing with Cabletica in Costa Rica. Obviously, post completion of the Telefonica acquisition, this business was much larger. But on a stand alone basis, Cabletica reported revenue of $36,000,000 and adjusted OIBDA of $14,000,000 with both metrics reflecting year over year rebased growth in the mid teens. Our P and E additions were 20% of revenue and included over 5,000 new fiber homes constructed. This next slide will discuss the current status of our balance sheet and liquidity.

At Q1, we reported 8,900,000,000 of total debt, 1,300,000,000.0 of cash and $1,200,000,000 of availability under our ripping credit line. We anticipate using approximately $200,000,000 of our cash to fund our share of the equity component of the Telefonica Costa Rica purchase later this summer. In terms of leverage, we had consolidated gross leverage of five times and net leverage of 4.3 times. We were extremely active during March and successfully tapped the capital markets in two transactions, which further strengthened our balance sheet and reduced our borrowing costs. First, we issued $410,000,000 of eight year 4.375% senior secured notes at VTR.

The proceeds were primarily used to repay VTR's twenty twenty three term loans and repay a portion of VTR's 5.8% notes. Second, we raised 1,300,000,000 of debt in Puerto Rico and repaid our existing $1,000,000,000 term loan. We issued $820,000,000 of eight year senior secured notes at 5.8%, over 150 basis points better than our funding for the acquisition eighteen months ago. And we issued a new $500,000,000 term loan at LIBOR plus 3.75%, which was 125 basis points tighter than our repaid term loan. As part of this refinancing, we raised $250,000,000 of incremental capital.

Furthermore, as a result of these two opportunistic refi, our average debt tenure improved with over 80% of our debt now due in 2027 or later as the bottom right chart highlights. Wrapping up on Slide 15, our consolidated LLA results were ahead of our own expectations for the quarter. No doubt Chile will remain challenging for us for the foreseeable future as Balan discussed, but our other markets, especially Puerto Rico are picking up the slack. As seen by our remarks today, the region in which we operate will continue to be adversely impacted by the global pandemic and we expect economic recovery across many of our markets to take well beyond 2021. However, our strategy remains clear.

We are now in our businesses, especially in fiber technology and capacity, fixed and mobile subscriber growth, focusing on digital transformation, cost control and business process efficiency, and working methodically on the Liberty Mobile integration. All of these actions will position us to capitalize on improving market conditions, and we remain confident in our ability to deliver positive year over year revenue and adjusted OIBDA rebased growth and meet our CapEx and free cash flow guidance targets. With that operator, we are ready to take questions.

Speaker 0

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question regarding the company's operation, please do so by pressing the star or asterisk key followed by the digit one on your touch tone telephone. In order to accommodate everyone, we request that you only ask one question with one follow-up if needed. We'll take our first question from Sumit Bhatta, New Street Research.

Please go ahead. Your line is open.

Speaker 4

Oh, hi there. Sorry. I think I was on mute. Yeah. Two or three quick questions, please.

Just on subsea cable, first of all, is there an update at all on a monetization process? You suggested you were sort of beginning to look into that. But the full year, I just wondered if there was any kind of update there, please. Secondly, could you just refresh thinking on the potential buyback? Obviously, you're still looking to do $200,000,000 of equity free cash flow this year.

I just wanted to get a quick update on your thinking about cash returns, please. And then just finally, and I guess this might take a little bit longer, just on Chile, I was just having a look at some of the price points in the market. And obviously, some of the peers are kind of quite cheap, I think you mentioned that in the remarks. I just wondered really what really can you do when you have some very kind of aggressive cheap competition coming in? How can you differentiate yourself?

It's difficult as the kind of incumbent operator to defend against that, but I'd love to hear a little bit more about know, what you can do against some of those very aggressive price points. Thank you.

Speaker 2

Good morning, Sumit. Thanks. So let let me address your three questions. Subsea cable, we've been doing a lot of work in the last couple of months, couple, three months in, you know, separating that business out throughout both legally, financially, the accounts, and trying to reallocate the cost and make sure that we have a clear line of sight into that as a stand alone business. And my sense is that, you know, we'll be going through a bunch of different deliberations internally in our company on that.

But clearly, from a sum of the parts perspective, this asset is actually quite an amazing asset. And we'll come back to you and and the large investment community over the next few months on any strategic direction that's different than what we've kinda hinted at in the past. On the buybacks, as you know, the board has approved our buyback process. And and we did do some buybacks back in 2020. And we'll be kinda opportunistic in in in this matter if when we see, you know, if the if the equity trades off, we'll certainly jump in.

But we we we remain optimistic on that front. And on Chile, I think, you read it right that, you know, this is a highly competitive market. I mean, we've been in this market for a long time, and we've always had it very competitive. We used to go up against Platto, Movita, Intel. And I I think I've said it before many years ago, a couple of years ago that we we we compete very clearly against these other three folks.

Now in the in the, in the last six to nine months, we've got more entrants coming to the market and you saw that sales that even a wholesale regime. And I think has been disrupted in that marketplace. And the way we look at this is, you know, you look at your front book and your acquisition pricing, and then you look at what you have in your back book. And Vivek, who's the general manager then, has been very actively looking at both and trying to normalize the front book and back book. But clearly, when you look at the front book and you look at their gross adds, I mean, our pricing is working.

Now we do have some parts of our base that's still on some legacy pricing that we would eventually have to adjust. And and I and we're not afraid to do that. So there's a lot of analysis that's going into pricing right now. I think we have a very competitive product. Like I said, our front book is working really well.

Now since you asked the question on Chile, I'm gonna ask a new general manager in Chile, Vivek, who's been on the, you know, on the job here for the last few months now. And maybe you can share some of his perspective on that.

Speaker 5

Yeah, thanks Balan. Thanks Sumit for the question. Yeah, I would say, as Balan pointed out from a pricing standpoint, our 2021 has been a really good gross add. So there's clear demand for our product. There's definitely market continues to grow and that pricing is working.

I think we just need to adjust some of the back book pricing and manage churn. I think you also asked how do we expect to compete in a market where pricing is so low. And I think the focus will be on product, whether it is our network, our customer experience, our video product, our speed, that's basically the focus on how we're gonna continue to compete in this market. And we do believe we have a very compelling product and an offering, a great footprint, and we pass more homes than any of our competitors do. So I think combined we combine all of that to continue to compete in this market in a really good way.

Thanks, David.

Speaker 4

Sorry. On a quick that's super helpful. Thank you. Very quick follow-up. Maybe sensitive, but can you give any sense as to the back book front book differential?

Is it is it kind of somewhat extreme or is it just need a bit of tweaking?

Speaker 2

It's not extreme at all. As a matter of fact, I'd say, you know, I'll just draw one number. More more than 60 of the back book is already close to our front book. And then the remaining one is the gap is actually not that wide.

Speaker 4

Okay, that's great. Thank you.

Speaker 0

We'll take our next question from James Radcliffe with Evercore ISI.

Speaker 6

Great. Thanks for taking the question. Two if I could. First of all, follow-up on Chile, can you just talk about the status of the VTR brand at this point? And to what degree the COVID experience has impacted that and your relative brand position versus other providers and how you rebuild that advantage?

And secondly, any thoughts regarding the restructuring at Televisa and the potential appeal of the Mexican market? You know, I'm your Chairman of Televisa Board. I'm curious how that could that market could potentially stick into your thinking about footprint expansion. Thanks.

Speaker 2

Sure. Let me answer the Visa one first and then I'll pass it on to Vivek on VCR brand. Really on Televisa front, we're very big, big, big group, Televisa and Alfonso, who is CEO that is on our board. And but, you know, they did a really amazing transformation of those themselves. And and then what's in the future, I think, there's there's lots of speculation.

But right now, our focus is our business, and and that's how how we look at it. So, Vivek, you wanna answer the VTR brand?

Speaker 5

Yeah. You know, first, we had a very good brand in Chile over the years. We did have a little bit of brand impairment last year given our network issues. But I when I look at relative brand impairment compared to all of the other providers, you know, I think we are roughly still in the same boat as an industry, and we all have work to do to improve our brand. So I I I we had to reposition our brand, and I think we'll do that with our product and our service.

And I don't think it's insurmountable to get back to our brand position that we had before.

Speaker 6

Great, thank you.

Speaker 0

Thank you. That will conclude today's question and answer session. I'd like to hand back to for any additional or closing remarks.

Speaker 2

Well, let me end by saying this. One, we feel really good about this year. We realized the challenge in Chile and, but we're not afraid of it, and, and we're gonna take it on, straight on. And, if I look at the rest of our business, I feel really optimistic about the rest of the business and and even more optimistic about the combination of mobile and fixed in Costa Rica. So, it is gonna be a very good year, And, and I do thank all of you for your support.

Speaker 0

Ladies and gentlemen, this concludes the Liberty Latin America's first quarter twenty twenty one investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Latin America's website at www.lla.com. There you can also find a copy of today's presentation.