Liberty Latin America Ltd - Earnings Call - Q3 2020

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 Vivek Kemka, Chief Technology and Product Officer of Liberty Latin America.

Speaker 1

Good morning and welcome to Liberty Latin America's Third Quarter twenty twenty 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 k and Form 10 Q for the quarter ended 03/31/2020. 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 such statement is based. 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 Vivek and welcome everybody to our third quarter results presentation. Firstly, I hope you and your families are safe and in good health. For today's running order, I'll begin by providing an update on our operations. In particular, the recovery we have started to see and the investments we are making in our products and networks to establish a foundation for future growth. Chris Moy, our CFO, will then follow with a review of our financial performance.

After that, we will get straight to your questions. As always, I am joined by my executive team from across the region and I will get them involved as needed during the Q and A following our prepared remarks. As a point of housekeeping, we will both be working from slides which you can find on our website at www.lla.com. I'll start on Slide four with our key highlights. Following a challenging second quarter, we delivered improved financial and operating performance in Q3 as most of our markets begin to recover from the impacts of COVID-nineteen.

Operationally, we had excellent results in Cable and Wireless and Liberty Puerto Rico where in both cases we delivered record quarterly additions with over 100,000 RGUs added across the two segments. Mobile ads also recovered as we gained 69,000 subscribers in Q3. Financially, we grew revenues and adjusted OIBDA sequentially with our cost management efforts making a significant impact in driving adjusted OIBDA close to our Q1 pre COVID level. Therefore, our adjusted OIBDA margins also improved. And we completed the acquisition of AT and T's Puerto Rico and U.

S. Virgin Island assets on October 31. We are very excited about the opportunity to further strengthen our consumer offering in one of our best performing markets while also generating significant synergies. I will cover our prospects there in greater detail later in the deck. Finally, we were informed earlier this week of preliminary awards made by the FCC under the Uniendo Puerto Rico Fund.

Following a competitive process, we are elated to have won funding to improve broadband speeds in 43 municipalities out of 78 across the island, including San Juan and the other key metro areas. Moving to slide five and an update on the impacts we are seeing from COVID nineteen in our key markets. Mobility restrictions have generally eased across the region, helping to drive improvements in our operations. However, some markets have experienced more severe impacts than others as can be seen in the chart on the slide. Of our key markets, our operations in Puerto Rico, Jamaica and Costa Rica were the least impacted by mobility restrictions in Q2 and showed improved year over year revenue growth in Q3 as restrictions were eased.

Jamaica in particular recovered well with 4% rebased revenue growth in the third quarter driven by strong broadband performance and stability in mobile. Panama and Chile are more severely impacted markets, but towards the lower left of the chart. In both cases, mobility restrictions are easing. But for much of Q2 and Q3, very strict lockdown measures were enforced and restrictions on a relative basis remain more stringent than in other markets. Overall, all our key markets are moving in a positive direction in terms of increased mobility.

However, we remain watchful given the unpredictable nature of the virus. Turning to slide six and our fixed subscriber performance by reporting segment. Starting with Cable and Wireless on the left of the slide, we achieved record quarterly growth of 66,000 RGUs driven by Panama where we added 45,000 subscribers in Q3. As successful collection initiatives reduced churn, We see a significant longer term growth opportunity in this market and have continued to invest in our networks and products. Jamaica was the other highlight in cable and wireless as we had another strong quarter, adding 19,000 RGUs and taking us to 65,000 additions year to date, three times the amount we added in the same period last year.

Moving to VTR and Cavletica, we flagged some challenges in Chile on our last call and have since reported subscriber losses in Q3. Chile is our most competitive fixed market, and we also experienced some network related disruptions there following the significant spike in bandwidth demand and vandalism due to social unrest. We have responded to this targeted network and customer service investments, working with the government and service initiatives which have resulted in improving market performance for the segment as shown in the chart. Cabletica continued to grow its RGU base, however, at a slightly lower rate versus prior quarters as there was some impact from COVID-nineteen restrictions. Finally, to Puerto Rico where we achieved yet another record quarter adding 43,000 RGUs and beating the previous record we set in Q2 this year.

This is a truly remarkable performance from our team on the island, and we are excited by the prospects of combining our business with AT and T's leading operations and networks. At a group level, this resulted in 35,000 net adds in Q3. The numbers were again impacted by the removal of RGUs primarily in Panama who are receiving services but not counted due to nonpayment. Moving to Slide seven and mobile and B2B where we have seen the greatest negative impact from the pandemic. Encouragingly, both products showed improved performance during Q3.

First, the mobile and the chart on the left of the slide. Looking at performance over a longer period, we made important operational improvements to our mobile business in 2018, which led to stabilization of our subscriber base in 2019. COVID-nineteen then drove significant prepaid subscriber losses in H1 twenty twenty due primarily to mobility restrictions limiting the ability of customers to access services and reduced demand for top ups generally given the time customers spent in their homes. In Q3, these mobility restrictions were eased across our markets and we returned to net adds with 69,000 subscribers added across the group. Our third quarter performance was driven by 54,000 adds in Panama as the country begins to reopen and 19,000 in Jamaica following successful subscriber acquisition campaigns.

In Chile, subscribers declined by 11,000 in Q3 due to store closures related to lockdowns and promotional activity from competitors. Moving to B2B on the right, our B2B business reported sequential revenue growth of 6% in Q3 with improvements across all product segments as markets began to recover from the initial impact of the pandemic. On the far right of this slide, we have split our B2B business by customer segment, showing the revenue size and relative sequential growth for each. We saw the strongest growth in our government customer segment driven by an ongoing project in Panama and sales across other markets in The Caribbean. Wholesale and SMB were the next best performance as bandwidth demand drove capacity requirements, and the small medium business segments benefited from markets beginning to reopen.

Our enterprise and hospitality segments stabilized in the third quarter, signs of recovery. We expect future improvement to be tied to general economic recovery for enterprise and the return of tourism for the hospitality segment. Turning to Slide eight, where we highlight some of the innovative products we have launched during COVID-nineteen and our continued network expansion investments. Starting with our consumer product launches on the left hand side, the upper section refers to our next gen TV product which shows us a video content aggregator with access to apps, OTT content, and traditional broadcast video with a personalized recommendation engine and Google Voice Assistant. Puerto Rico was the first market to launch this product and has seen NPS up by over 35%.

We have also launched more recently in Panama where this differentiates us versus our competitor and are already seeing about half of our customers use the voice search capability in DOE. Below entertainment innovation, we have highlighted our adaptive Wi Fi product. We recognize in home connectivity as a key aspect of a leading broadband offering and have now rolled out our optimized Wi Fi product in nine markets, covering over 80% of all our modems and touching 60,000,000 connected devices. Moving to the center of the slide and our new b to b product designed to address the needs of business customers as their employees increasingly work from remote locations. Through our product, businesses can ensure their employees have the best connectivity through dedicated network access, security protocols controlled by company policies, and all within a service that can be implemented remotely with ongoing business class support.

Finally, on the right of the slide, despite the pandemic, we are continuing to lean into our thesis of growing broadband penetration in the region we upgraded or built an additional 79,000 home spas in the quarter. Note that close to 90% of this activity was through fiber to the home, and this is the primary technology we are using for network expansion. As mobility improves in Q4, we expect to release another 100,000 homes passed, of which about half will be in Chile, reigniting our business there. In addition, as I mentioned earlier, we were successfully awarded funds under Uniando and Puerto Rico, which will enable us to upgrade and expand our footprint, bringing access to more people and narrowing the digital divide. We were allocated approximately three quarters of the homes available under the program in Puerto Rico and are excited to continue raising the bar for our customers with the latest, most reliable broadband offering and innovative products.

Moving to slide nine and our operational focus areas. Starting with cable wireless on the left hand side. A key focus from the outset of the pandemic has been to maintain our collections. And as part of that, to also increase the use of our digital channels. As shown in the chart, our collections dipped in April, but have recovered and have been stable throughout the month since, returning to pre COVID levels.

Our digital channel payments at cable and wireless are still relatively low at 25%, but they have increased seven percentage points since March, and we are working to improve this percentage further. Note that digital payments for VTR, Kavli Tika are approximately 75% and Liberty Port Authority Pro, they represent about 85% of collections. Our network strength is vital to our operations, and we have invested in fixed capacity increases of 6932% in Jamaica and Panama, respectively, since March 1. We have also increased our cash in capacity by 37%. Moving to VTR in the center of the slide.

As I mentioned previously, there has been some pressures in Chile following the spike in bandwidth demand earlier this year and subsequent impact on our network. The chart here shows the benefit of the investments I mentioned to address those network challenges as our monthly technical related customer savings costs have decreased by nearly 50% from April to September. This has correlated on a lag basis to improve monthly subscriber performance. We carried out approximately 30% more technical field activities across the network in Q3, have increased capacity by 30 since March 1, and expanded caching and interconnect by over 35%. Finally, to the right of the slide in Puerto Rico, our focus in this market is to maintain our leadership through innovative products such as Hub TV and offering the best broadband speeds.

And we are proud to have once again been awarded the OOPLUS Speedtest Award for Puerto Rico in 2020. As with the rest of our businesses, we have invested in additional capacity in Puerto Rico with a 35% increase since March 1, and all our network expansion is through FTTH. Finally for my section, the slide 10, and the recently completed acquisition of AT and T's assets in Puerto Rico and The U. S. Virgin Islands.

On the left of the slide I wanted to refresh some of the highlights of the combination. Note that AT and T's predominantly postpaid operations have been relatively stable through the pandemic with revenue broadly flat year over year in H1 twenty twenty. Through the transaction, we will create an integrated operator with leading fixed and mobile propositions. We expect that this will enable us to deliver convergent product offerings for our customers, benefiting from cross selling opportunities and the use chain. The AT and T business also brings robust infrastructure with a well invested five gs ready mobile network and island wide wireline fiber assets.

We are creating a more resilient network and platform to deliver telecommunication services. As with any in market combination, we anticipate the transaction will generate significant synergies and our expectations have not materially changed from when we agreed to the transaction. Finally, we have long dated financing in place to fund the acquisition and importantly, our increasing U. S. Dollar cash flows for the LLA Group through this deal.

On the right of the slide, we list our immediate focus areas. First, we want to integrate and grow into one new company as quickly as we can. Second, we plan to excite our customers with new fixed mobile propositions. Third, and crucially, we need to ensure service continuity as we migrate to our platforms. Fourth, we want to build and enhance our reputation as the leading full service communications provider for consumers and businesses.

And lastly, we want to innovate, leading with touchless, digital sales, and service channels. We are still early in our integration given we closed the acquisition only a few days ago. However, we have been preparing for some time and are raring to go. We will have a lot more to say about the business when we report our year end results in February. With that, I'll now pass you over to Chris Noyes, our Chief Financial Officer, who will take you through our financial performance.

Chris?

Speaker 3

Thanks, Val. Starting on Slide 12, I will summarize our Q3 results on both a year over year and sequential basis. We reported $888,000,000 in revenue, a roughly $80,000,000 decrease from last year. This decrease was principally related to the negative effects of COVID, foreign exchange translation, especially the 10% appreciation of the U. S.

Dollar against the Chilean peso and our Q4 twenty nineteen disposal of our Seychelles business. In terms of rebates growth, our Q3 result reflects a 4% year over year decline, much improved versus the 8% decline we reported last quarter, led by strong growth in Puerto Rico and significant improvement at C and W, while our VTR Cabletica segment delivered rebased results consistent with the second quarter. From a product perspective, our fixed residential business, which accounts for more than 50% of our total Q3 revenue, delivered flat year over year rebased growth with strong underlying growth in broadband, largely offset by declines in telephony and video. Both mobile and B2B remain challenged across much of our footprint, as Balan highlighted, but we did realize higher revenue in both categories in Q3 as compared to Q2. Turning to the upper right, we delivered $360,000,000 of adjusted OIBDA, only a one percent rebased decline over Q3 twenty nineteen.

Our quarterly rebased result was vastly improved to the rate we posted for Q2, which was negative 8%. And as seen by the quarterly chart, our adjusted OIBDA is basically back to pre COVID Q1 levels. Note that on a year over year basis, we will face a tough comp in Q4 on rebased growth, as our adjusted OIBDA in Q4 twenty nineteen benefited from approximately $15,000,000 in one off items. Our P and E additions in the bottom left of the slide were $157,000,000 in Q3, reflecting 18% of revenue. As compared to last year's third quarter, our Q3 result was lower in both dollar terms and as a percentage of revenue.

Our additions in the quarter were concentrated in CPE and in construction relating to network capacity and new build. Finally, moving to the bottom right, we reported negative $22,000,000 of adjusted free cash flow in Q3, which was modestly better than what we had anticipated for the quarter. Recall, Q1 and Q3 tend to have higher cash interest payments due to the semiannual nature of many of our debt instruments, and Q4 tends to be a seasonally strong cash quarter for us. From a year to date perspective, we have generated $59,000,000 of adjusted free cash flow, well on our way to deliver positive free cash flow for 2020, which was the adjusted target we set when we reported Q1. Slide 13 looks at our Q3 segment performance and adjusted OIBDA margin evolution.

Beginning with C and W, we generated $539,000,000 of revenue and $220,000,000 of adjusted OIBDA. Relative to Q2, revenue increased $24,000,000 and adjusted OIBDA increased $16,000,000 Revenue declined year over year by 6% on a rebased basis, but significantly better than the 12% decline we reported last quarter. Our Q3 rebased revenue decline was driven by a 14% decline in mobile and a 4% decline in B2B. Fixed residential was broadly flat at 1% lower than the prior year. Q3 adjusted OIBDA fell by only 3% in rebased terms as compared to 10% in Q2.

C and W's focus on both direct costs and other operating costs continues to compensate for our revenue decline as our OIBDA margin neared 41% in the quarter. Similar to Q2, C and W's P and E additions were $82,000,000 or 15% of revenue and included 47,000 newer upgraded homes during the quarter. Turning to VTR in Chile and Cabletica in Costa Rica. We posted Q3 revenue of $237,000,000 reflecting a year over year rebased decline of 3%. Cabletica continues to deliver positive rebased growth, largely on the back of subscriber gains.

But this growth is more than offset by a rebased decline at VTR, due in part to lower ARPU associated with the cancellation of live soccer matches, broadcast and our premium programming. In terms of adjusted OIBDA, this operating segment generated $93,000,000 or a rebased decline of 6% over last year's Q3. This result compares favorably to a 10% rebased decline we reported in Q2. Factors contributing to our year over year performance in the third quarter include the previously mentioned revenue decline and higher other operating costs in Chile, as we invested to enhance customer experience following COVID related network challenges. Additionally, our Q3 results continue to be impacted by the strong U.

S. Dollar. Combined with the FX rates at which our nonfunctional U. S. Dollar costs are hedged, this factor led to a $5,000,000 adverse impact of ETR's adjusted OIBDA on a year over year basis.

Our P and E additions were $49,000,000 or 21% of revenue, including new builds of 27,000. Finishing with Liberty Puerto Rico, where we delivered particularly strong quarterly results. We delivered $114,000,000 of revenue in Q3 or 10% rebased growth. Our robust top line performance is driven by the positive impact of approximately 100,000 RGU additions over the last twelve months, as well as modest growth in our B2B business. We reported adjusted OIBDA of $58,000,000 or 14% rebased growth.

Finally, we reported $19,000,000 of P and E additions or 17% of revenue as we continue to invest in new build, adding 5,000 homes in the quarter as well as in CPE to accommodate our record RGU growth. Moving to the far right of the slide, I thought it was worth highlighting our adjusted OIBDA margin evolution. Our Q3 margin of 40.6% reflects a 140 basis point improvement over Q2 and a 130 basis point improvement over Q3 twenty nineteen. As compared to last year, declines in our direct and our other operating costs, both as measured as a percentage of revenue, contributed to our margin improvement. Slide 14 summarizes our financing activity, our liquidity position and our credit profile.

During Q3, we completed our $350,000,000 rights offering with overwhelming shareholder support. In fact, we received basic subscriptions totaling 97 percent of the aggregate raise, leaving just 3% for the oversubscription option, which was fully taken up. A portion of the rights proceeds are earmarked for use in funding the acquisition of Telefonica Costa Rica, which is expected to close next year. Additionally, we are in the final stages of closing our local in market financing for this transaction and expect to have debt commitments on the asset of roughly $275,000,000 a sizable increase from our initial expectations. Subsequent to Q3, we repaid the remaining $100,000,000 outstanding under our primary C and W credit line and funded the $1,900,000,000 AT and T acquisition with a combination of roughly $1,350,000,000 in restricted cash and approximately $550,000,000 in corporate cash.

Turning to the bottom left, we finished Q3 with $3,000,000,000 of cash and restricted cash and $1,100,000,000 in undrawn lines. Adjusting for both the C and W RCF pay down and the funding of the AT and T acquisition as noted previously, we would have had $900,000,000 in cash on hand and $1,200,000,000 in undrawn revolving credit lines. Moving to the upper right, our covenant leverage ratios for our three primary credit files, which are based on analyzed results for the last two quarters, are all in a good spot with ample covenant cushion. On a reported basis for Q3, the group finished the quarter with net leverage at 4.1 times, a modest decline as compared to Q2. If we were to adjust our leverage accounting for our non wholly owned subsidiaries, our proportionate leverage would be modestly higher in the mid-4s.

Finally, we finished Q3 with $8,600,000,000 of gross debt. And as seen in the maturity schedule in the bottom right, we have minimal debt maturities through 2025, providing a nice runway for investment and growth. Moving to Slide 15, I will wrap up our prepared remarks. As seen by our Q3 results today, we demonstrated consolidated recovery across both our fixed and mobile KPIs, as well as our revenue and adjusted OIBDA figures as compared to the challenged second quarter. No doubt we and other telecom operators are not out of the woods, but fundamentally, we are providing essential services that consumers, businesses and governments need to conduct their everyday operations.

We are focused on investing in our products and networks to continue to provide our customers with market leading services and to ensure we participate in a global recovery when it occurs. Even with moderate revenue compression year over year, we've been able to significantly improve margin. With our adjusted free cash flow of $59,000,000 year to date and assuming we continue our path of seasonally strong Q4 free cash flow, we are well on our way to deliver positive free cash flow in 2020 as we had indicated in Q1 when in the midst of the initial COVID fallout. With about four days under our belt owning the AT and T Puerto Rico and USVI assets, our teams on the ground are enthused and focused. As seen today, our fixed business in Puerto Rico is performing exceptionally well.

And by adding a leading mobile operator on the island, we are in a great position to provide customers with fully integrated consumer value propositions and continue to grow our business. We'll have a lot more to say about the underlying performance of these new assets and our integration plans when we report our 2020 results in February. With that operator, we are ready to take questions.

Speaker 0

And the question and answer session will be conducted electronically. If you would like to ask a question regarding the company's operations, 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 ask only one question with one follow-up if needed. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to give everyone an opportunity to signal for questions.

And we will take our first question from Sumit Dutta with New Street Research. Please go ahead.

Speaker 4

Hi there. Two questions, please, if I could. One on CWC and then one on on the Chile. CWC, so revenues, to have stabilized, in fact, improved sequentially into q three. So if we were to assume, a kind of worst case scenario, COVID persists into 2021, maybe no real return of tourism for the sake of hypothesis.

Do you think CWC revenues will kind of remain, broadly speaking, stable, or is there room to increase, or maybe there are some other risks which, which which I'm not kind of thinking about? That's the the first question, please. And then secondly, on on Chile, I guess, just a little surprised by the subscriber losses. You know, there there's been some network issues, you know, obviously, COVID impacted. At the same time, we're seeing quite a large number of FTTH, deployments happening.

So this is really just simply a case of, you know, new competition coming into the market, and why would we, not simply assume market share declines for VTL going forward, therefore? Thank you.

Speaker 5

Thanks, Sumit. I'll give you some color and of course, I'll ask Guillermo on the Chile side to be ready as well as Inger on the Cable and Wireless side. I think on the question of revenues, we have seen revenue improvement. It's really driven by recovery in the B2B areas sequentially as well as our prepaid mobile business coming back as mobility improves. If I look at 2021, my expectation would be this is definitely stabilized with continuing improvement in our revenue profile.

Our broadband product is also starting to take off. And I think, as you can see clearly, our largest business in Cable and Wireless is Panama, which the mobility, even after all the restrictions removal, we're still kinda like where things are at with Puerto Rico when we started COVID. So we'll continue to see improvements there and we already are on both the fixed and our mobile business there. So I think sequentially as we go on, we'll continue to see steady improvement in the revenue profile. Inge, do you want to maybe add something before I jump to Chile?

Speaker 6

Yes. Thank you, Belen. We've been really in Q3 being focused on really further penetrating all the fiber builds we've done in all of our markets, mainly Panama, Jamaica. And this is clearly a consumer segment, which is still rising. So we continue to really push that forward and we see good trends there, like you said, Valem.

So we are on the on the whole broadband, we really think we will be able to to continue to to grow. And also on mobile, we've learned a lot, and we've planned for everything because we've learned really for from the last month, and that's what we've been so also there, we will see continue to recover bit by bit as well as in b two b.

Speaker 5

Thanks, Inge. And also our subsea network is improving as well, mostly because our wholesale business, all of the carriers writing on the network have also demanded or asked for more capacity. We feel pretty good about it. On the Chile front, you know, I think when we started the COVID, the the restrictions were so significant. There were three things that happened.

The restrictions were very significant. The capacity demand jumped through the roof. Essentially a whole year's worth of demand came in within a week. And then thirdly, we were making a big migration on our call centers from centralized structure to a very distributed work from home model. So if you had a combination of things that happened in the beginning that drove a couple of things, one, our sales channel, our primary and most effective sales channel is door to door that came to a screeching halt that that turned down the the gross ads.

And then churn went up as well because of some of the initial capacity issues that we had. And it took us about thirty days or so to get over that. And you can clearly see two things happening. One, as you look at the net adds declining, it's a combination of gross adds increasing and churn reduction. But you can but the other number that you should look at as well is the service calls coming into our call centers are are dropping, and that shows a lot of the work that we're doing on our network and our services is improving.

I I feel good about it, but, you know, I'm gonna ask Guillermo to also provide you some local color because we also had, in addition to COVID, the social unrest that was going on, the the uncertainty with the constitutional reforms and and all that, and vandalism on our network as well. Guillermo?

Speaker 7

Yeah. Thank you, Valen, and good morning, Sumit. As Valen pointed out, the subscriber losses are mostly driven by those two factors, a decrease on the gross adds driven by by the flip flops and then the increasing churn by the disruption created on on on this period of time in which we received this tremendous surge in in in capacity demand that that took us, you know, some weeks to to resolve and arrange. Net network capacity is now normal. Service calls have been decreasing.

And it is undeniable that we created customer disruption during that period, and and we are now focused and have been focused over the last several weeks, and we'll continue to do that in elevating our service standards and customer experience to take them not only where they were before, but higher, you know, in testament to to the VTR history, which has been of leadership and and and and provide a good service in the country. As Balan pointed out, this is has not only COVID related, you know, the the social unrest and the implications have has brought also a quite amount of vandalism over the networks, not only the VTR network, also your operators network. We've been working with the government in order to address the problem and provide more security to our network. Of course, that that have added to the to the customer disruption. You also asked about competition, Sumit, and I would like to address that question as well.

We have been facing, you know, tremendous competition over a long period of time. You know, fiber competition from our main competitor and also price competition from from from others. And and and we have managed to, you know, sustain our leadership and and and and and, you know, be leaders in in broadband with more than half a million subscriber ahead of of of of the competitor that is second in the market. We have issues on the third quarter that we cannot deny. And as Balan pointed out, we are recovering from them both on the churn side and also on the growth upside when where we see us lockdown restrictions is off in Chile.

We have our sales force coming back into play, and and and we see the improvement in results. Also, I would like to point out that there was also a slight slowdown in in in the new building in the period as we shifted part of the technical crews that we were in charge of that to support a faster and and and more effective deployment of the capacity improvements that that is also done already. So forces are back to the new program, and and that should, you know, continue fuel fueling our gross up performance over the next weeks and months.

Speaker 5

Thanks, Guillermo. Yes, Sumit. So our fiber to the home new builds, we're releasing quite a bit in the fourth quarter, pretty good size. We're launching the Google Hub TV in the fourth quarter in Chile. We've improved our WiFi.

We've launched a new WiFi product. Our technology and product team has introduced that as well. So yes, we look at that business. We're still very bullish on Chile, notwithstanding all the macro events there. And as you know, the currencies are starting to improve there as well.

Speaker 4

Okay. Thank you.

Speaker 0

And our next question comes from Diego Aragao with Goldman Sachs. Please go ahead.

Speaker 8

Yes. Good morning. Thank you for taking my question. The first is actually just a follow-up on Chile. You mentioned now that the competition with cyber players, you know, can can you just provide a little bit more details about it?

I mean, are you seeing a growing number of cyber projects in the country, or it remains more, let's say, concentrated among existing players having those, you know, those players expanding more quickly than after? I just want to understand that. Thank you.

Speaker 5

Sure. Yeah. You know, our existing players there, Claro, Intel, and Telefonica, they've always been overbuilding us since, you know, seven, eight years ago. I mean, Claro has pretty much overbuilt us in Santiago, like, six by six six years ago, they've pretty much overbuilt us. And so we've we've really been dealing with competition as Guillermo said for a long time.

I think, there's a couple of smaller new entry entrants as well in fiber to the home, couple of other brand names that's come in, they're targeting the C and D market. And certainly there's some another one that's come in with using price as a leading offering. And we feel like, certainly there's more competitors than we normally had. But I think the challenges that we had were challenges that whether there was competition or not, we would have had it. Guillermo said, we can't deny the fact that in the third quarter, especially in the beginning June, July, we had those network issues and that was really the primary driver.

Other than that, we are used to competitors and we'll continue to compete. All our new builds are fiber to the home and our HFC plan, I must say this, our HFC plan are all DOCSIS 3.1. We're gonna go to DOCSIS 3.1 in our HFC plan. And so we feel competitively our network can compete. But we will win not just on the network, we will win because of our service and because we provide value with very, very a very good pricing model.

And that's really going to be the difference.

Speaker 8

Okay. Thank you. And maybe just a follow-up. How do you see or how important it will be for you to, okay, you'll strengthen your mobile capability in Chile, right? Now you are operating as an MVNO in the country, but would you see, let's say, the biomass for being important for your strategy in the long term?

Thank you.

Speaker 5

You know, our mobile product has been working really well until COVID hit. We've been consistently growing that product quarter over quarter. The challenge during COVID period was because of our channels primarily. We were we are mostly a retail sales. And by retail, I mean shops, not kiosks.

And when all the malls closed and our retail shops could not open and we still not fully open yet in Chile across the across the city, that has really challenges on the gross add side. But we are happy with the MVNO. If there's an opportunity to do something, of course, are very opportunistic as a company. But we're quite happy with the MVNO. We struck a very good plan with Telefonica.

And and I think once COVID releases, you know, I mean, and all the shops start opening, I I I think, you know, we'll start posting the same same kind of numbers we used to for years.

Speaker 8

Okay. That's helpful. Thank you.

Speaker 0

And next, we will hear from James Ratcliffe with Evercore ISI. Please go ahead.

Speaker 6

Hi. Thanks for taking the question. Two, if I could, both on Puerto Rico. First of all, regarding the acquisition, you said you talked more about the opportunity in January. But can you help us think about sort of the relative sources of CNGs, revenue versus OpEx?

And any sense, for example, what level of overlap you already have between the AT and T wireless customers and your the fixed customers? And second, regarding the the funding you received, can you talk about also I know Carl received funding as well. And is any of that going to overbuild you? Or does that limit your footprint expansion opportunities? Thanks.

Speaker 5

Sure. And I'll ask both Najee and John to also think for some answers here and give more color. I tell you, we are really excited about the AT and T transaction. And we look at it if you look at it from a Venn diagram standpoint, we have overlaps between our customer and AT and T customers. We have a bunch of our customers that don't have AT and T Mobile, and we have a bunch of AT and T Mobile customers that don't have a broadband.

So we see the opportunities quite significant there. And then of course, the synergies come from all the usual standpoint, even though labor is not one of the high point on synergies, but there will be synergies across the board in the business, both on the cost side and certainly as I described with the Venn diagram on the revenue side. And before we jump to Uniendo, let's just maybe ask Naji to also comment on the commercial side and synergy opportunities.

Speaker 9

Yes, morning. Thank you, Balan. Yes, I mean, James, you know, the the also one of the pieces behind this acquisition is you're joining two premium brands, two premium networks, you know, the the best fixed networks on the island, joins the best mobile network. So in terms of the, you know, the attach rate or sort of fixed mobile convergence, that's obviously, as, you know, Barron has mentioned, we're looking into it. You know, we are literally on on day four of the acquisition, so we need a bit more time to put all the numbers together, but definitely a a focus cross selling each other, not only on the broadband, but also on on on the video as well as we believe the attach rate also could potentially increase.

So I'm really excited about about the opportunity. And so far, on day five things are going really well.

Speaker 5

Thanks, Najee. And James, you can clearly see in Puerto Rico numbers, I mean, this management team is still ready for this work, this integration as well as inducing the commercial front there. On the Uni Endo, like I said, we are quite elated by the response. And I can't say much about it because of all the restrictions. I'm gonna have John, our General Counsel and he he has worked really hard on this together with Naji and the team and on on that, you know, that bidding process with the FCC, and he'll know what I what we can say and what we can't say.

But I'll I'll ask John to give us some a little bit more clarity on that.

Speaker 10

Yeah. Thanks, Colin. So James, it was in the in the announcement from the FCC, but we we did get awarded in the phase two, you know, the 43 counties there and some of the top counties there to really strengthen our network in in the market. And, you know, we have the the over $70,000,000 of funds there over the ten

Speaker 8

year

Speaker 10

period to do that. We can't say much more about the technology and everything involved right now. We will have more when they finalize. All the paperwork has to be done in the next month. But, you know, like, said, really excited.

The team did a great job. Madison team did a great job in turning the application together. The FCC did a fantastic job in making that available after after the hurricane and really setting, Puerto Rico up for connecting people who are not currently connected, but also, more importantly, creating redundant and resilient networks. Yep. Thanks, John.

Speaker 6

Great. Thank you.

Speaker 0

As a reminder, everyone, if you would like to ask a question, you can do so by pressing the star or asterisk key followed by the digit one on your touch tone telephone. And up next, we will hear from Matthew Harrigan with Benchmark. Please go ahead.

Speaker 11

Thank you. Really, two questions here. One, I know you've been a little sidetracked by all the activity this year, you know, exogenous as well as internal. But I was curious if you could give us an update on your plans or better segmentation on the prepaid product side using the cloud and and all that. I mean, you've got a big opportunity there.

I know there are a lot of distractions this year. And then secondly, I noticed having just done the rights offering, I know there's a lot of cognitive dissonance on doing buybacks right now. But with your stock price still at a very low level, how would you rate that versus more M and A and the passing opportunities when you're looking in some instances, I guess, using aerial expanded sub-one $100 per home pass levels? It feels like you've got a lot of opportunities to deploy capital on an accretive basis.

Speaker 5

Hey, Matthew. Your first question was you broke up a little bit there, so I didn't fully hear it. But I think you were asking a question about products and how we move to the cloud. Is that what I we heard?

Speaker 11

Yeah. Just using the enterprise risk management on the cloud and just doing better product better segmentation on a prepaid product side to address kind of the CD market opportunity, if you will.

Speaker 7

Yeah.

Speaker 5

I think we've brought in quite a number of technologies on the back end of our side to one, do better CBM based management. We certainly have also, as you know, upgraded our back office as well on the ERP side. On the product front side, our commercial team now has better visibility of data. I'll tell you, if you look at it two years ago and where we are today, it's like night and day difference. And in our product team, and I'm gonna ask Vivek to jump in here.

On the b to b side as well, we've been building some quite quite a few innovative products. So, Vivek?

Speaker 6

Sure. You know, on on

Speaker 1

the product side, for our b to b customers, we definitely are migrating to the cloud, whether that's a lot of the traditional products moving from hosted voice unified communication type products. But our real focus right now is offering managed cloud services to our b to b customers. And and then, of course, a a lot of opportunity in the distributed workforce space. I think Valen talked about it earlier on in his presentation. And most of those will be cloud based products.

I hope that's answering the question you asked.

Speaker 7

Yes. Thank you.

Speaker 5

And your second question on capital allocation and new builds. You're absolutely right, Matthew. We see new bills as a great opportunity for us. And in Chile, I'll tell you the roadmap for us and new bills is actually very positive. And the fact that we've been able to get our cost per home passed on very, very low, suddenly opens up as to like a lot of this D and D neighborhood that I think we had a question earlier on from James, I believe that was asking me, I can't remember who asked, someone had asked this, maybe Sumit that, what are we doing on fiber to the home in Chile?

And I'll tell you with the lower costs, we've been able to expand it and we think the opportunity is good. On the right offering buybacks, we've announced our buyback back in the first quarter. And so we have that option, but right now, that's really a capital allocation against all the other opportunities in front of us. And as far as raising funds, I'll pass it on to Chris. We don't see that much in the near future here,

Speaker 10

but Yes.

Speaker 3

Mean, I'll just add on the rights offering on the $350,000,000 a portion of that is earmarked for the Telefonica Costa Rica transaction. As you may recall, it's a $500,000,000 purchase. We expect to close it in the first half of next year. We are currently near completion, as I mentioned on the call, around $275 odd million on the asset. And then the remainder is, call it, cash from corporate, which would include some of the monies we just raised from the rights offering.

Speaker 7

Great. Thank you. That

Speaker 0

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

Speaker 5

Thank you, operator. Let

Speaker 1

me just say

Speaker 5

that we feel really good about the third quarter, the sequential growth, but more importantly, how we see the rest of the year playing out. And our focus on free cash flow. I think you'll be pleased with the way we've been approaching that. We feel good about the rest of the year. We're working on our budgets for 2021.

And I think we'll continue to see sequential improvement throughout next year. We're ahead of our plans when we look at this COVID thing back in March. Think when we look at that back then and where we sit today, I can tell you back in March, I did not anticipate us sitting the way we are today here in November. So we feel good about that and and quite optimistic about the future as well in our region. I want to thank all of you for your support and your time this morning.

Have a great day.

Speaker 0

Ladies and gentlemen, this concludes Liberty Latin America's third quarter twenty twenty 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 materials. We thank you for your participation. You may now disconnect.