Q1 2020 Earnings Call
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Good morning, ladies and gentlemen, thank you for standing by today's call is being recorded I'll now turn the call over time, that's well connects Stein Chief operating officer of Liberty Latin America.
Good morning, welcome to Liberty, Latin America's first quarter Twentytwenty Investor call.
At this time all participants are in listen only mode todays formal presentation materials can be found under the Investor Relations section of human to Latin Americas website at Www dot elderly those call.
Following todays formal presentation instructions will be even for the question answer session. As a reminder, this call is being recorded.
Today's remarks may include forward looking statements, including the company's expectations, we suspect to give outlook and future growth prospects and other information statement that have not these sort of go sex.
Actual results may differ materially from those expressed or implied by these statements additional information on factors or risks that could cause results to be fair is available to you wouldn't be Latin America's most recently filed forms 10-K and form 10-Q.
50, 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 whose based.
Question on these calls we will refer to certain non-GAAP financial measures, we checked coincides with the most comparable GAAP financial measures, which can be found in the appendices did this presentation and on our Investor Relations website.
I would now like to turn the call over two hours CEO Mr. button there.
Thank you best Hello, and welcome everybody to our first quarter results presentation.
Firstly, I hope you and your family so safe and in good health during these challenging times.
We decided to chess I'll, usually reporting format. This water given the unprecedented uncertainties stemming from the quoted thinking pandemic.
I hope you have the opportunity to read my letter to shareholders published yesterday with our earnings release.
In the latter I wanted to share with you some of my thoughts on the situation and impact of up business as well. It gives you confidence that we focus adapting and taking proactive measures to weather the storm.
For today's running order I'll start by briefly taken you through the highlights of our first quarter before adding some color to areas I highlighted in my letter Chris noise about CFO will then follow me that review financial performance run through the course 19 impacts enough business in more detail and provide an overview.
Of our capital structure management.
After that we will get straight to your questions as always I joined by my senior leadership team from across the region and I will get them involve that's needed during the Q any following their prepared remarks.
Point of housekeeping, we will both be working from slides, which you can find although website at www Dot Ellie dotcom.
I'll start on slide four key highlights for the quarter.
Following the positive momentum reported in Q4 operationally, we had a strong start to the year in Q1, but 60000 net adds including a record performance in cable and wireless our financial performance was solid.
Growing revenue by 2% and most yet by focusing on a rebase basis, all of our reporting segments contributing.
And in line with that investment pieces, we just let change we continue to expand on high speed fixed footprint, adding while upgrading an additional 80000 homes across our markets.
We feel really good about the progress we are making.
My team is executing on all cylinders.
Looking forward as I've said in my letter we know the next three quarters flown looks like the first.
Today's still uncertainty regarding the final impact of Corbett 19 re expect our results would be adversely impacted.
There are many unknowns so it isn't unwise to give any guidance.
I suspect sometime in the second half the year, we should be better positioned to discuss possible outcomes that the situation.
We are ready for the challenge.
And last various scenarios and determine what we need to do in response.
Hi, I'm very confident enough business over the long term no ability to manage to disappeared and emerged stronger.
And finally, we are happy with the upcoming acquisition of 18 keys assets in Puerto Rico and to U.S. Virgin Islands, which we expect to complete into second half of this year.
Moving to slide five and starting with cable and wireless under left.
Given the why does continue to drive operational execution, you know fix that but as we added a record 10000 customers and delivered the best Q, what ours you additions since acquiring the business between 16.
In mobile coupons subscriber additions that typically softer from a seasonal perspective some of the additions in the Christmas period tend to cheer enough.
Jamaica continues to be a bright spot with double digit rebased revenue growth year over year. Despite some impact from Corbett into second half of March.
Turning to VTR uncovered can you kind of center.
We saw good performance in Chile, despite some residual impact from social unrest in the market.
In particular broadband Archie you ads for over 10% higher compared to the first quarter last year.
The mobile luck in Chile continues to grow steadily but this remains a small part of our VTR business roughly 90% of revenues come from fixed residential services.
Finally to Puerto Rico under Rightside business line up preparations to integrate 18 keys assets are moving forward that steady pace.
And this business continues to deliver another growth quanta, adding 9000, Archie news driven by broadband additions over the meeting high speed.
We delivered on these numbers, even with the Greek that hit the island in January.
We are used to adversity and always come up stroke.
Turning to slide six.
I outlined might eat focus areas and I wanted to build on some of these points.
For each of these initiatives ponder good one of my executive team members to drive results.
Do you find a very distributed decision, making process that is both effective and edge out when the crisis started our primary focus was on the safety and well being of our employees. We then quickly took on the second and third point lenders networks and customers.
Working hard to keep on communities connected when they needed most in the next few slides I'll run through these tree areas in more detail.
So let me now starting point for government affairs in which our partner with John Winter General Counsel in head of regulatory this has been a significant focus for US we have reached out to all of our government's stake holders at various levels. We are partnering with them to make sure that de novo here to provide critical services today.
Countries now and into future.
We are working together with government partners, we worked on gaining access to additional spectrum, enabling technicians and starters keep our networks up and running protect network to consensus vandalism and to keep individuals and businesses connected.
Governments are asking us to keep customers, who can pay as a result, the crisis connected and we agreed to that and supporting these requests including by adopting special lifeline plants with limited Pges, all going to its maintaining a strong relationships with our customers.
We accept our responsibility as the provider of critical infrastructure to stay we are also working closely with our communities to provide the necessary infrastructure and tools to enable distance learning and provide free access to key educational an informational website.
Turning to 0.5.
A key staff that we took early on was to create a special task force led by rig Collins, our head of strategy at M&A with colleagues across our operations and functions to drive truly primary items, one reviewing macro economic case studies working with experts stress test.
And this and scenario player.
To identify areas in which we should reduce costs and areas in which we should continue to invest.
And tree.
Innovate and prepare our company for pause Corona fires world.
We have taken some swift action in terms of cost reduction to manage through this period should which Chris will get into in most cases. This accelerates plans, we already had and will be a positive as we emerged from the current prices.
We see this opportunity medium to long term positive things to ensure we are able to it kept today.
Next is our balance sheet and liquidity in 0.6 working closely with Chris We took quick action to preserve our liquidity position in anticipation of Sofia global recession.
And to retain the equity portion of the transaction fee for the ATM transaction.
Chris will cover this in more detail, including the continued strength of our balance sheet.
Thanks to the work we've done over the past couple of years, we could position, enabling us to continue allocating capital prudently such as our new build program.
In terms of M&A reaches a point number seven analysis.
Our near term focus is to complete the acquisition of 80, Aunties, Puerto Rico and use those United assets. So we can move over to its integrating the business.
This will benefit is from what we anticipate to be any creative deal on a free cash flow per share basis. This transaction also increases our U.S dollar earnings in the group.
Yes, good capital Allocators, we are also under lookup opportunities to create value in consolidation asset swaps or just general market dislocation situations.
Finally, 2.8 and covenants as I mentioned in the letter we are fortunate to have a board with deep experience and knowledge of our industry.
Keeping them well informed and leaning on their perspectives to ensure we optimize our approach at this time.
Moving to slide seven and the first point on our focus less people and safety.
Here at point of it can be Scott Chief people officer.
Keeping up people save engaged and able to work virtually has been our priority.
We acted swiftly implementing all appropriate measures right at the beginning.
We estimate that above 75% of our employees work from home since the locked up again.
And 90% of our costs and agents are working from home as well, which is a great achievement in such a short time.
Commitment from all across the business, especially my frontline colleagues to keep our customers to think connected is very high.
Our culture has never been stronger.
In one way or another everyone's impacted by the virus. Unfortunately helped by the proactive measures of the covenants in our markets. We only had a small number of our employees infected by Corbett 19, and all of them have recovered on the road to recovery.
You can seem to charge based on googles analytics and mobility data that our larger markets and force stay at home or measures.
Earlier and more aggressively than the United States.
Earlier. This week you may seem that re launch our employee fund.
The funds ceded by the financial contribution so far board members by leadership team in many of my colleagues.
To support our employees and their families.
We're experiencing financial hardship at this time and from now while we are taking many cost measures.
All our people remain employed committed working together to support each other and able to contribute to their communities and local economies.
Turning to slide eight and the core of our operations the network.
Partnering with the Khemka Chief Technology Officer, our networks strong flexible and will provide ample capacity for this current situation and more for the future.
Our fixed and mobile networks enables social interactions education for children connectivity forward.
Access to information.
Platforms for government to reach citizens and now submarine cables connect decent or to the global Internet.
In essence, we are critical to a functioning society.
As you can seem to incentive to slide.
Since the beginning of March we are seeing double digit percentage peak traffic increases in our mobile networks, roughly 40% increase in a fixed network and close to 50% growth in a sub sea network peak throughout usage.
Just on traffic.
In addition, we also grew capacity to handle traffic Paul wholesale customers, adding 280 gigabytes of capacity for them.
Our network team has maintained quality and capacity every aspect of an epic such that we handle the debt increased traffic and provide great service.
Our investments in the network, including increasing sub sea capacity and in the home and connect box advance Wi Fi.
Paying off our customers. Many key vendors work with is to increase capacity in internal applications broadband networks, our mobile networks in the subsea books companies like Commscope Ericsson walk away, Microsoft Anixter, and more have been really help.
In addition partners like Netflix and Google have been very helpful. As well as we manage this traffic with reduced bid rates and flexibility in cashing content locally for us.
The grass shortages, where traffic would useful peak levels content provided adjusted the streaming quality to live the pressure on networks.
We've seen strong sales over the past 60 days some of our operations and our install crews have been working very hard we have provided them repair crews with the necessary baby gear and safety protocols. We saw proud of the commitment of frontline team had and made to cut.
Thomas and our company.
And I'd tell you we are leaning into pieces are continuing to invest in our products and planning to further expand on high speed fixed footprint to the recipe.
Finally for my section to slide nine commercial actions partnering with better connect Stein, Chief operating officer, and the Ceos in each of our market.
The biggest mid year more potency NRG Curry, we are moving fast to react and be proactive.
Go to market activities, our focus has been to keep our customers and communities connected when they needed. Most there have been many challenges. We feel starts have had to close falling lockdowns impacting sales and collection.
Call Center, Traffics and increase at the same time, we've needed to enable agents to work from home.
Capacity utilization is at its peak and a BBB customers face macro pressures, particularly towards exposed to the hospitality industry in some of cable <unk> wireless as markets.
Our commercial teams have stepped up and delivered innovative solutions, we've created virtual stores and expanded self install processes. We enable call center colleagues to work from home introduce a new and introducing new Wozzeck channel for customers to service their conference we created new connectivity focused.
It is facing economic hardships and we put in new ways for customers to peers, we roving cash collection bands in the Caribbean and promotions about digital channels. These initiatives are showing results. We've had some of our highest broadband Davy sales in the last four to five weeks in Puerto Rico and in Chile.
In Panama.
As another example, with now over 50% of interactions via Whatsapp compared to less than 5% in early March.
Overall.
We had good first quarter.
We noted challenges ahead of us I'm not going to be easy we are taking the proactive steps, we believe necessary to run a business effectively and to come out even stronger.
This crisis Salivated, many things that we were planning on doing.
And we feel good about that.
We are not deviating from our strategy, while we must address the current challenges.
Still managing for success over the long term.
Everybody in Latin America and across the Caribbean once broadband.
Everybody wants to be connected everybody wants great service and everybody once inquiry network.
We intend to provide all that good value everywhere, we operate and I couldn't be prouder of all my colleagues Impella Alley.
This is not a first rodeo in dealing with a crisis.
We are running this like a hurricane Jeff yes.
Unlike a hurricane.
I have nothing to rebuild at the end of this now we are realistic about the challenges to be phase and we will stay ahead of it that is why we are confident about the future.
With that.
Ill now pass you over the Chris noise, and Chief Financial Officer.
We will talk you through financial performance before we take your questions Chris.
Thanks balance and to everyone on the call I Hope you and your families are safe and well I will begin on slide 11, and will quickly summarize our Q1 results, we delivered $931 million in revenue, representing 2% Rebased growth our U.S. dollar reported.
Revenue was 1% lower as the rebates growth combined with a modest 17 million dollar contribution from M&A was more than offset by $47 million. It net foreign currency impacts principally that 21% average appreciation of the U.S. dollar against the Chilean peso.
Importantly, each of our operating segments reported Rebased revenue growth as I will highlight on the next slide moving to LCM, we posted $364 million in Q1 2020, a similar reported results in Q1 2019, consistent with our revenue trends for.
Currency weighed on our reported as CF result, our consolidated Rebased OCF growth rate with a solid 4% peony additions totaled $133 million in Q1, or 14% of revenue, reflecting a reduction as compared to $139 million or 15% of revenue last year.
During the quarter, we continue to invest in our footprint as bound pointed out finally, we reported negative $49 million that adjusted free cash flow in Q1 as I mentioned on our Q4 call in February. Our Q1, 2020 result was impacted by trade working capital unwind stabbing apart from our.
Strong Q4 collection activity. This compares to $48 million in Q1, 2019. However, last year's result was positively impacted by $67 million insurance recovery proceeds.
Moving to slide 12, where we present, our Q1 segment results starting with CNW, we reported $589 million of revenue for 2%, we base quarterly growth outperformance was driven by 5% rebate, increasing residential fixed and a 4% rebate increase indeed.
The while residential mobile experience a 6% we base decline in terms of individual markets can make a continued to show strong year over year Rebased growth of 8% on the strength of its volume gains over the last year Q1, LCF rebates performance was 6% as we generated two.
$33 million in Hosea. This growth was supported by the aforementioned revenue growth as well the benefit from reduced sports content costs.
CNW PV additions were $71 million, a 12% of revenue and included approximately 40000 newer upgrade homes during the quarter.
Moving to VTR in Chile, and probably keep getting Costa Rica, we reported revenue of $240 million up 1% year over year on a rebate spaces and LCF $93 million, representing 2% we base grow.
Our LCF growth was partially muted by non functional FX exposure in Chile, as the Chilean peso as weakened significantly to the U.S. dollar over the last year.
Our key any additions were $45 million in Q1, reflecting a year over year decreased 19% revenue from 20% last year's Q1.
During the quarter, we added approximately 30000 newer upgraded homes.
Finishing on the right Liberty, Puerto Rico continued its strong track record of delivering growth and generated $105 million of revenue or 3% Rebased growth as compared to Q1 2019. This solid result was helped by 34000 subscribers added over the last year and partially tempered by 2 million.
Our credit provided to customers following that January 2020 earthquakes.
Highlighting the operational leverage we posted LCF of $51 million, reflecting rebased growth of 4% in the quarter.
Finally, we reported $13 million appealing additions for 13% of revenue in Q1, as we added over 5000, new homes to our footprint.
Building upon balance earlier statements. We thought it was helpful to frame key elements of our business that we are particularly focused on in this uncertain environment and how our business may be impacted across our diverse set of geographies starting on the left part of the slide first traveler and stay at home Lockdown restrictions.
I've had a profound impact on our markets. Both in terms of curtailing economic activity, but importantly, slowing down the infection rate going forward the timing phasing and success ship associated with the release of these restrictions will be critical to economic recoveries. We are seeing some good signs as across our more.
Than 20 consumer markets in aggregate the rate of doubling in reported cases and approaching three weeks. Thanks, the proactive measures from our government.
Second as it pertains to our business. We currently expect residential fixed residential mobile MBT will be impacted differently and us based on product composition with each operating segment, we will experience a different outcome.
Third our operating businesses aren't different stages of digital evolution. The degree of digitalization combined with the need for face to face interactions one fluids, our level of sales and collections customer service and install activity for the reasons, which I just flag, we expect that our traditional cable businesses such as VTR and.
LPR will be much more resilient in the face of coal that 19.
Touching upon each of our operating segments, beginning that CNW, the operating segment, which provides consumer b to b and subsea services across the Caribbean and portions of Latin America.
Our consumer markets have various restrictions and locked out in place with several of our largest markets such as Panama, Bahamas, Barbados, having quite aggressive plans.
Across the endeavor you many of our islands are highly depended upon tourism and hospitality and a lack of such over the coming months will impact us directly and indirectly for example, we estimate pre Kobe that we generated about $15 million in quarterly revenue from businesses in the hospitality sector.
We also expect that business is in government that largely financially impacted by the lack of tourism and economies in our markets will suffer.
Our residential customers will continue to reduce prepaid wireless usage and top up less as they remain at home.
With roughly 50% of our revenue derived from non subsidy to be and prepaid wireless we expect to see significant near term pressure on these revenue screens.
On the flip side fixed residential postpaid mobile and our subsea businesses account for the remaining 50% and we expect these services to be far more resilient as network connectivity as in high demand.
Rounded out CNW, the creating is still predominantly a cash society and face to face interactions remain important way for us to seller services and collect on dose.
Due to lock down only about 65% of our stores are currently open and we are working hard to increasing usage of digital payment channels as restrictions, let our ability to further secure team that will be much improved.
Even in the last 10 days collections have meaningfully improved versus the first few weeks in April when the shutdowns were taken effect.
Moving to our cable operations in Chile, and Costa Rica, both countries had controlled lot downs in March, including Rolling locked down to cross Chile commercially the majority of our stores are open across both countries importantly, our largest single operations BTR has a significant proportion of collapse.
Since flowing through its digital channels from a business perspective fixed subscription revenue in postpaid subscription revenue account for over 95% of our total revenue in these two markets, which is interesting positive.
Turning to Puerto Rico, the island aggressively locked down relatively early and as control the rate of infection.
Even with many of our stores close we have continued to see demand for residential products and collections have remained consistent with nearly 90% of our business and Liberty, Puerto Rico tied to residential consumers our broadband product our most popular the bundle and predominantly digital collection channels, we remain cautiously.
The optimistic about our near term prospects.
Moving to the last column and the financial and operational applications of coal that 19, although our overall business held up well. During Q1, we are withdrawing our 2020 guidance given the substantial uncertainty that we face within our markets. We expect to see a far more pronounced revenue and cash flow financial impact beginning in Q.
Q, especially at CN Debbie.
We are monitoring macroeconomic conditions across all of our markets, including movements in foreign currencies and the health of balance sheets of the government's within our footprint.
Operationally our commercial teams have began rolling out lifeline products for customers in need and are generally not just connecting customers for non payment at the time.
Collections will remain difficult, particularly in markets with commercial lockdowns in place and markets that are challenged economical.
A lagging collections were adversely pressure near term trade working capital. However, we are revising new methods to correct and our monitoring and managing our operating cash flow as closely.
As valid discussed we are inactive $150 million at fixed operating cost and Capex reductions split about evenly between both categories into a large extent that reductions will be concentrated at seen Debbie.
We expect that our variable cost such as Cogs activity related cost and Capex will also decline with reductions in revenue.
We have additional actions identified sell they needed to preserve financial flexibility and liquidity if conditions across our markets were to deteriorate more than we expect.
All said, we remain focused as a company to deliver positive free cash flow this year.
On slide 14, I wanted to cover our balance sheet and liquidity situation in some detail starting with the hexagon. Nonetheless, we ended Q1 $6.1 billion and net debt and with a net leverage ratio at L.A. of 3.8 times for Q1, two things to note our purchase of the 18th the assets and.
Puerto Rico, and USPI will total $1.95 billion the debt financing for which has already been completed we borrowed 50% of our US dollar RC absent March totaling $467 million across our three primary credit silos and this cash resides on our balance sheet today.
This was principally at precautionary moved to preserve financial flexibility and ensure access to capital as well to fund a portion of the ATM T. acquisition.
Excluding the restricted cash balance we have total liquidity at $2.2 billion, consisting of $1.6 billion of cash on hand, and approximately $650 million in undrawn available liquidity under our revolving credit lines, our weighted average maturity exceeds six years as depicted in the bottom light at the slide and we have mint.
I'm all debt due over the next few years are fully swapped borrowing costs have fallen by 20 basis points to 6.4% as compared to Q4 as the $1.6 billion January refinancing reduced our term loan costs at CNW by 100 basis points to LIBOR, plus 225 basis points in important element.
Of our risk mitigation strategy is that we match our borrowing to our underlying LCF generation and as a result, approximately 85% of our debt is hedged to our underlying functional currency.
Given the situation I wanted to highlight the ample cushion we have with respect to our maintenance covenants at each of our key credit silos that Q1 as the chart on the far right of the slide illustrates at CNW. Our maintenance test is based on five times proportionate net senior secured debt we were roughly 2.1.
Times at Q1, this covenant falls away when we have less than one third drawn on our 625 million dollar RCM at DTR. Our maintenance test is based on three times net secured debt at the Chilean operating company level and we were at zero point to be tied secured at the end of Q1.
LPR, we have a maintenance test at five times net secured debt and finished Q1 at 4.4 times. Following the closing of the ATM T. transaction, we expect headroom to improve within this credit.
Beyond our debt liquidity, we put in place at two year 100 million dollar stock repurchase program in mid March by having an authorized program we have additional flexibility to capitalize on valuation dislocations in sharing we remain focused on efficient capital allocation and obviously it will be high protective of our.
Liquidity, given the uncertain outlook for Calvin 19.
Within the quarter, we repurchased a small amount of equity and have continued this activity into the second quarter.
Moving to slide 15, I will wrap up our prepared remarks, our first quarter results highlight that we're on the right track and that our underlying operating strategy is working our focus remains on fulfilling our customers' needs to occur activity and network superiority and also achieving operating efficiencies no doubt.
Find ourselves in a rapidly changing and difficult environment, the impacting duration of covered 19 highly uncertain and as a company. We believe it will change how we interact with customers. We expressed in our earnings materials and on our call today that our business like that of other telecom operators in our region will face financial and.
Operational challenges driven in part by the financial health of our customers any overall economies in which we operate as valid pointed out we have management operational experience dealing with adversity, we have well developed processes to quickly make decisions, allowing us to support our employees and customers and this time of need.
Cash flow generation remains at the core how we run this company, where occasion constant capex reductions across our business to assist in our drive to maintain positive free cash flow this year and offset expected declines in revenue to the extent needed we have additional levers at our disposal to improve our cash flow and financial flexibility.
Turning to our acquisition of 18 these assets in Puerto Rico, and US Virgin Islands, we have the funding in place to complete the transaction and we remain confident that it will significantly enhance our US dollar cash flows in the coming years, we will maintain ample financial flexibility and will be disciplined and how we either.
Wise any excess capital to drive returns for our shareholders with that operator, we're ready to take questions.
Thank you a question and answer session will be conducted electronically.
I'd like to ask a question regarding the company's operations. Please do so by pressing the star or asterisk T cells as it did you want on your touched on telecom.
In order to accommodate everyone. We request that you only ask one question with one follow up if needed.
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Oh paused for a moment chicken, everyone an opportunity to signal for questions.
Well take our first question James Ratcliffe with Evercore ISI.
Good morning, Thanks for taking question not to the first of all on the cost savings plan can you talk more about the operation side or the sort of short term emergency measures or more sustainable cost reductions in the comments.
Jordan.
Thank you don't expand on.
And on the Capex side, what sort of Capex.
We will be looking for what we'll see the spending money on.
Secondly regarding the effort to keep people connected during the pandemic.
Can you just talked about how that affecting customer so far with for example, how many customers would you have connected by unhealthy worked for Berry and indication customer activity that start thinking.
Thanks James.
Sure in on the cost of living side.
We've been quite prudent about it.
Not something that fits extremely aggressive and weve looked at both our Capex and Opex. So an example on the Capex.
I would be something would be like powers, we've already expanded all up L.D. migration, let me say, what the probably 10 $20 that we decided we probably don't need to build this year.
And probably in the year to be May go back that.
On the Opex side, it's usually a lot of this same things we look at some of the third party car.
Salting constantly look at some of the external labor cost for a number of things that we've taken out and I see a chunk of it a cost that we permanently to kind of so it's quite a positive on the pandemic at some of the.
Right now if you know as we pointed out book, Chris its comment in mind that not a lot of be customers that cannot afford to pay we've decided to keep them on we've moved them to do a Louis b product. So the disconnect between has dropped.
Naturally, but I think that.
It probably would look about to see maybe a bit higher.
If you have to disconnect depot at this point.
Great. Thank you.
Well take our next question Soomit Datta with new streak research.
Thanks to the answer the questions.
Okay, a couple of possible. Please just only.
I guess, we'll try to get it you sense as to why revenues are going when you were guiding to cash flow of 150 million U.S., we allow sort of hoping for grows.
Which is adults with maybe $150 million and then you're looking at some savings from Capex and Opex of $150 million. So let me write using that.
Perhaps the worst case scenario there was a 300 million dollar revenue hit or my so we're trying to be a bit too cute about not thinking.
And then and then just to follow on subsea cable obviously the.
The volumes are going to be strong you factor in the presentation is not one of the businesses, perhaps where you can monetize.
More recently the higher data volumes, just the pricing model allows for that.
Very much.
Sure cement and maybe let Chris still to think about an answer yet but what.
No.
I think everybody's going to try to do the back with math to get their revenue.
Numbers, we've modeled quite a few things and I think it's not going to be that simple to model. It back one because we really don't know how it's been a play out.
We have email and I'll tell you generally we have what we think it's going to play out with good condition. We are because people with good condition and we stress tests, our balance sheet many different ways.
And Chris has done a really good job with that.
But suffice to say that we are going to run this business both positive free cash flow.
Chris and I, both committed to admit full management team is committed to that and and I don't think it would be a stretch for do that on the sub sea side.
We're not taking price increases, we're taking a lot more volume on subsea.
A lot of customers need the additional capacity and it may not.
You're not being greedy nor are we trying to take advantage. This region might note that people meet that additional capacity big needed fast lot of our wholesale customers are dependent on it.
And any time for us to step up in and provide the capacity for them, but you want to give a little bit more color on there yeah I would say just on on the on the revenue component America, a key variable at least in the near near term. It's just the the status of the locked down in a number of the markets. They are starting.
We're starting to see them release, but that is that the key variable in terms of now how revenue will play out over the next next few months.
So that's one it's obviously outside of our control because with the government, but as that changes then we're able to extend it was the extend longer than we are able to take more cost out of the business.
To deliver what boundless speaking about around positive free cash flow profile.
Okay, great. Thank you.
Our next question comes from Michael Rollins with Citi.
Hi, good morning, Thanks for taking the questions.
Curious if you can kind of go back to the history that you've seen across your businesses how.
Does the unemployment rates.
In different countries like SEC businesses and payment.
Hi, those customers.
For your products, maybe just to get a sense of the sensitivity to the economies.
Relative to.
The behavior.
And then the second question I had is with the cost cutting.
On the cost cutting variable the revenue so if we're through the crisis and your revenues recovering do those expenses come back or is this simply accelerating some of the cost efficiencies you've been wanting to bring to the big huge you've articulated in the past such that.
The operating leverage on a recovery might look different than maybe over the past couple of years. Thanks.
Sure Michael.
No I'm. Your first question on then unemployment rate of course unemployment will affect.
Buying power, but here's how I would be looked at it.
We know the business, it's probably more sensitive to that is our prepaid business and in prepaid it is.
Not a huge bought about revenue stream, but it's about two thirds of our mobile revenue stream rigids about.
Lets them that's been a part of our total revenue. So so there's an impact on prepaid bit unemployment, but the way I would look at it if you look at our lines of business and what's really exposed view.
As Chris pointed out before.
For the first couple of months of the quoted experience, but the big challenge was it really to the markdowns lock down.
Put people at home store at the close and that challenging and by the way that coming out I would say that as of today and in this coming week, we would probably have more than two thirds about stores coming back online and thats going to be positive.
So that so that's one part then the second part you look at you clearly, it's a no brainer that the hospitality business is going to be challenge.
And and given that we operate in lot of deep islands, where the primary.
Source of a local revenue, it's the hospitality and tourism business, there will be somewhat challenging that BBB business, the we'd be feeling to raise the b to b business, which he puts out on a direct customers there will be close to a few months and today will happen impact and that that by the way you know toward a BBB revenue. This is.
A small part of it it's not even 5% of our total b to B revenue now the second part.
But a lot of the hotels employ our customers and Thats, where your question around unemployment hit that and most of these customers are usually on prepaid customers and so people are going to be to conserve the while it's been Latin prepaid, but this will come back and I think it's a combination of Dan I'm, losing their jobs.
And being at home.
They'll put the Parisian prepaid initially, but it seems the locked out that done when people start going up they'll want their mobile devices. The wonder services as well and then you'll start seeing the top up happening again.
But clearly our exposure, it's really in that the those materials.
Oh, Hey, your second question on the cost Yeah, I stood at two parts to cost if you point out the fixed costs into variable cost what.
We discussed earlier, what Chris and I talked about it it's the fixed cost Isa cost that we would take out no variable bull consulate cogs, but content costs and all that will naturally go down if activity drops.
Installation costs and all that will go down that's not in a 150 million 150 million of fixed costs.
Into does that mean under recovery that you could see better incremental margin.
Group, because you're taking out fixed cost and presumably.
To what you're describing the may not come back.
Yeah, you absolutely the right Michael that's how I see it gets a few things that I think it's positive one some of this cost goes up to.
Going forward, we are going even more deeply into self installations.
And that's a whole bunch of labor costs and supply chain cost that also goes out you know at we come out of this we had no interest in the low single digits. So once we get into double digits into high double digits, which is what my team is focused on.
You'll see when we come out of because a lot of an install cost which are mostly contractors by the rate lot of that comes out as well in the future you'd see a movement. The digitization a lot of the channel cost is going to change I'll tell you a call centers, it's re pointed out.
Almost 90% of a paulson agents are now working from home.
The whole concept of Paulson Oh.
A year from now it's going to be so different than what he was just three months ago.
The world changing around this and the cost structures are going to change for that as well and more than just the cost it brings us more flexibility in the way we serve our customers when our agents can work from home now they can pick a shift that 10 P.M. do one am if they want you. It's a lot of thinks that change quite positively.
Company like ours coming on at this.
Thanks very much.
Our next question comes from Matthew Harrigan with benchmark.
Thank you.
<unk>.
You also aggressively to deal, making DNA, what's sort of your most well known shareholder.
Good.
Even right now you're seeing dislocation from some of the Blue chip public companies bigger holds the telecom routes to market, what Mexico over that stock prices are not even at the baidu rushing prices level or 2008, I mean, you've got to go back to the early 90, 90 degrees 19, eighties and I could some of those.
These are probably intend on some so so to a restructured process at some.
Brian I know you've got a lot on your point do only was due to the suit use it in your markets, but do you still feel that you have latitude to be.
Opportunistic given all the dislocations in the market and then secondly, I know the difficult questions, but once you usually get.
Good morning to.
People out of your whether you're going to be the carnival cruise lines around maybe you could have issues of canal drop or it could and pay out of all in all of our deferred.
Trade patterns reduce if there's anything that you're right now clearly the market you're still seeing great to be up your products that you pick there's something that you could you get two or three years out there there's a permanent.
Happened there on the economic activity up and some of these markets are accountable structural changes and world economy. I mean, you were talking to them and see where it was well I know these are kind of croissant theological question, It's still love to get your feedback on what's your why don't you don't warrants.
Sure Matthew.
Quite a few questions in the let me let me start with the.
The b.
M&A side, you know of course, we are under look out for any dislocation any opportunity.
Ray Collins with closely with me Oh, I worked closely with it the Tim.
We are on the look odd and we talk to everybody and I think anybody that has a good idea Nordic they can always reach out to them and if you can imagine many have now I would say.
We always say to be a buyer you have to epicel and its.
You may be a dislocation right now, but may be sellers may not think dislocated yet.
But time will tell then I think any business that already struggling in month. One of quoted 19, it's probably not a business that we would be interested in anyways.
You know, we're looking for good quality companies.
And in areas that be interested in expanding our business and so I think as time goes on.
The pipeline will get richer and richer, but we'll be very very discipline on this one.
On the Carbonite in the impact the larger macro you know my team and I've spent time with adjacent industries, but not do the folks that kind of.
No my executive been given what is engaged shipping talking to all the hotels Atlanta is sandoz do we get a good sense of what those guys are doing and you probably saw the announcement from carnival that be think you know in August some of your ships are going to be out.
Even if they're just they're going to be out.
Out of Miami, Florida.
By October they'll have to more ships.
This is not going to be easy, it's not going to be fast, but things are going to start coming back. The there's a lot of money on in Hollywood adjacent businesses, there needs to get the wood.
And if you look at our islands enough in where we operate the hotel. The one is one that we want to reopen and.
Strip malls want to reopen people are going to get creative and they're going to figure things out any which way you looked at this outlets services I still necessary for them even in a hotel disclosed by the way they still keep our services because you need security cameras.
Your reservations that needs to still be open be the handle cancellation for new orders. Some activity is still happening it's not happening as much as we would like but it's happening and I think.
You know my senses and this is just a personal opinion on over the next 12 months, you're going to see a lot more things coming back people want to travel they want to go down to these islands and these islands, taking all the necessary measures to protect.
Yes, livelihood, which means you know all the tourists coming into the islands.
You can see how aggressive they've been.
With the lock down some bit controlling and flattening the curve.
They are very serious about this and that's very good news warrants.
No, but considering the.
Yeah [laughter].
Maybe if you're interested I can ask Jim will provide you an opinion under [laughter].
No I have my questions are little bit maybe see park standard-bearer. She can't keep up the very long term economic impact versus the short term impact. It sounds like you saw very confident on growth sector for the two region.
Thanks, Paul and I appreciate you taking my question.
Good Thanks Matthew.
Our next question comes from Kevin Ralph with ROE equity research.
Thank you good morning.
Governing throughout your footprint, that's taking different approaches to maintain a.
Mobile fixed service for those impacted by Cobot, you mentioned lifeline your prepared remarks payment concessions.
It seems there could be further regulatory or or legislative actions in certain of your market.
Could you discuss this topic generally and what markets you're monitoring for potential incremental.
Regulatory or legislative action.
Sure John linked to my General Counsel, it's really gets about though maybe asking to comment in the second.
He's done by the way a great job in managing will always be all these relationships and expectations that governments.
And and I think we've we've refined.
We've been very clear to them that we had to support them, we feel for the economy, we feel for their citizens and we understand what your interest at two I mean, they want to do what's right for yet community and we want to support them.
On that now that the one exposure we may have a is in Panama, which John it would be one very closely it's public right now that I've been trying to make them changes into law and we are working closely with the government due to.
Minimize the impact and I think I think we're getting there. So John you want to make a comment Oh, yeah sure I mean, Palomar they government sign a law present did earlier this week for working closely with his advisors and the other members of the industry to make sure that the impact of that law balances like we.
Doing all countries, both the need of citizens in the country with also just the need to provide services and and remind them. The government that where people can pay they should be paying and people need to be responsible during this time and we're doing that in Panama surely we're focused on Bahamas in Jamaica, you know those are somewhat.
Primary primary markets and Puerto Rico, we work with the government there, but that's that's fine on the model that people see us with the keep America connected.
Pledge, so and then moving on we'll work with the governments to help them get out of this crisis themselves.
Great. Thanks, John Yeah, I think we feel really good but the relationship we've built and how cooperative lot of deep government now with the because they realize real one of the largest employees on the irrespective countries and they also want to make sure that we see helping keep all of my employees.
Employed.
Thank you.
My last question comes from retailer Tommy <unk> with Goldman Sachs.
Hi, Good morning, all and thanks for taking my question. So my question is on the difficulty mention how do you see there competitions response to describe.
Markets, and especially the tiny and I mentioned acre, which were cited in the earnings release as markets where competition has the next factoring that that thank you.
Sure.
Last bets allows the also think drew and answer for that but so far I think you know competition has been very rational.
Cross the board.
You pointed Jamaica, we compete with the detailed and did you sell I you know they've been very rational they do they go into some.
Some of their debt issues right now, but they didnt.
I think they'll get it all solved and they've been actually good competitor on to us in Panama.
We've always had a challenging family for mobile operators, but even then right now that's really not the issue for it's a it's mostly been locked down that's really the issue in Panama. That's allowed you have to why you would you like this.
Provides more insight.
Thank you, but I know I think that is as you said, we don't see any significant change in the competitive picture related to call. It maybe the other way wrong, we are cooperating with the without world competitors. When we are discussing a measures that or corporation to help government into different markets. So I don't see any any signal.
And changing the competitive landscape because of profit.
Okay, and I would personally I would I would add on a on the fixed side in both Jamaica, and Panama and you can see in our first quarter results. We continued to drive really nice growth in that area.
The key for us as we move forward here is continuing to.
Push in that area.
Yeah. Thanks, good deck, that's a lot.
That said Alaska.
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Okay, well Jays question and answer session I'd like to turn the call back to about one there for any additional for closing remarks.
Thank you operator, so that you know maybe a you know I should say couple of things one it's really unfortunately, what we all going through right now and.
For a company to come out stronger out. It is you really need a few things you want you need a management team with deep experience and knowledge about the business a management team thats on top of that but also deep into reads, making sure. They know the numbers we knew what the.
Second you need to accompany that has a strong balance sheet.
And the company to generating positive free cash flow.
Good you need a company that has a product that people want them to a product of people need.
And if you look at how does right now we are following three.
I think the my management team is ready for the third we didnt ready for this and they've been doing an amazing job then of course, I would say that but you know I've looked at many teams in the the team is doing really well and our balance sheet and Chris is on top of it in our balance sheet is strong and this team will deliver positive positive free cash flow and the power.
Not that we have.
It's not only what people one this is a product that's necessary in this moment, even when you're running to troubled unique mobile phone you need a broadband you meet the connectivity that we provide you need the entertainment services that we provide and that's why we've had great sales.
In Puerto Rico in Chile in Jamaica, So I think we made good but on the flip side, we we realize it's going to be done bridged pointed up.
The the lock down that had an impact but the markdowns are going to end.
And this team realize its and you don't take this might be that this is the challenging period.
But we are ready for it and we feel really confident they really eating into that business. The now and the future. So thank you so much for your support and have a great day.
Ladies and gentlemen, this concludes Liberty Latin America's first quarter 2020, Investor call. As a reminder, every play of the call will be available and the Investor Relations section of Liberty Latin Americas website at Www Dot L.A. Dot com. There you can also find a copy of today's presentation.
Materials.
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