Q1 2021 Liberty Latin America Ltd Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by today's call is being recorded I'll now turn the call over to John Winter, Chief Legal Officer of Liberty Latin America.
Yeah.
Good morning, and welcome to Liberty Latin America's first quarter 2021 Investor call.
At this time, all participants are in listen only mode.
Days formal presentation materials can be found under the Investor Relations section of Liberty Latin America's website at Www Dot dot.
Dot com.
On 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 on Liberty Latin America's most recently filed form 10-K and form 10-Q.
Latin America disclaims any obligation to update any of these forward looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.
In addition on this call we will refer to certain non-GAAP financial measures, which are reconciled to the most comparable GAAP financial measures, which can be found in the appendices to this presentation and on our Investor Relations website.
I would now like to turn the call over to our CEO Mr. Balin Nair.
Thank you John and welcome everybody to Liberty Latin America's first quarter of results presentation.
I'll begin by taking you through our group highlights and operating results before handing over to Chris Noyes, Our CFO, who will follow with a review of Mike.
Financial items.
After that we will get straight to your questions.
So all of these.
Joined by my executive team from across the region and I'll get them involved as needed during the Q&A Paul.
Knowing our prepared remarks.
It's a point of housekeeping.
Just be working from slides, which you can find on our website at www Dot LLE dotcom.
Well, let's start on slide four.
Highlights for the quarter.
Overall, our markets are steadily recovering from the impacts of the pandemic. However.
However, our operating environment remains quite challenging in the first quarter with reduced tourism in general and restrictions still in place across a number of on markets.
Against this backdrop Doe vs.
<unk> had a strong start to the year.
We had a record Q1 <unk> additions of 76000.
The group's performance was led by cable and wireless and Puerto Rico, and we were pleased to deliver growth across all of our operating segments in the quarter on.
Financial performance was also solid EBITDA.
3% Rebased adjusted EBITDA growth.
This was driven by another strong quarter from Liberty, Puerto Rico, and we continue to be excited about the value we plan to create that as we integrate of fixed and mobile operations.
We previously outlined of Bill upgraded approximately 600000 homes in 2021 of 50.
15% increase on 2020, and we delivered 130000 homes in the first quarter net.
98% of which will fiber to the home.
Bringing high speed connectivity to more households in the region continues to be of coal or because of our company.
Finally, I am happy to say debt also reported very strong first quarter free cash flow result, positioning as well Paul guidance of approximately 200 million.
Moving to slide five of one.
One of the cover the first.
First quarter highlights across our key markets before running true up performance by product category in the flow.
Slides.
And with Jamaica, which was the largest contributor of fixed and mobile ads in cable and wireless.
We are continuing to investigate momentum here and added or upgraded over 10005 of the whole homes in the quarter.
We have also successfully launched converged customer value propositions, driving a strong mobile performance.
Moving to the Bahamas tourism is starting to return with major of hotels now open in a more meaningful rebound is anticipated in the second half of this year.
We've invested in our fixed net.
Fiber upgrades and launched converged propositions to drive broadband adds and postpaid mobile games.
Thinking close that eco next this continues to be of strong fixed market place and we are constantly looking to innovate and refresh on customer propositions, focusing on increasing speeds and value to gain and retain subscribers.
The upcoming acquisition of Telefonica is mobile assets should provide an opportunity to develop attractive converged propositions for our customers and reinforce our strong position.
Most of all of my best managers Chemo once day to have oversight of Costa Rica, and the integration of these businesses.
Turning to Puerto Rico, our focus is on integrating the quiet AT&T operations effectively and quickly to debt and.
In addition to our initial welcome off of we have now launch of co branded all of those less campaign.
Campaign as a first step towards creating a single brand in the market.
Next to pile on the lower left of the slide where we saw strict lockdowns last year and some in the beginning of the year. However.
However, this market is going to be strong price as we start a recovery in growth for the year.
I recently moved one of them it was true.
The executives that's allowed can excite to put us on you run the business and he is already making progress.
We grew both on fixed and mobile subscriber basis in the first quarter and expect to have a good year day.
The launch of unlimited total diesel blend drove strong mobile additions in March.
Finally, <unk> Chile debt.
Continued to be locked down during the first quarter, despite the country being one of the global leaders in vaccination methods.
Recent operating and financial performance have been challenge driven by the intense competition environment in Chile.
We are committed to improving performance of ETR and I would highlight the following.
Yes.
We need to start growing our subscriber base again.
We turned the corner here in Q1 recording 7000 net adds of 116000 losses in the second half last year.
True our sales, but the rollout of hub TV significant fiber footprint expansion plans.
And improve customer service objectives.
Aiming to build momentum in the business and drive meaningful subscriber growth overtime.
Second we are focused on managing price to regain customers and recalibrating of cost structure through targeted efficiency initiatives.
Third we have added a new perspective of Etfs management team that Vivek Hemker, our former CTO of taking a lot of the general manager's role.
Vivek has extensive experience across the industry and a deep knowledge of technology, which will be valuable in a market well infrastructure expansion plans.
Key aspect of our strategy.
It will take time.
Believe the business can get back to growth and debt. The steps. We are taking today will also position us well as the market evolves.
Turning to slide six and on operating performance by product.
Starting with fixed subscriber additions.
As mentioned.
All of our operating segments reported net adds this quarter.
Taking aegean debt.
Plus cable and wireless Caribbean of notebooks shown in the upper left reported.
Reported 12% higher Q1 additions year over year, driven by continued momentum in Jamaica, where we added 22000 <unk>.
In Panama, We added 10000 do you use and expect to continue on growth throughout the year.
Liberty, Puerto Rico in the upper corner.
All of its momentum from 2020 by adding 25000, Archie used in Q1, which was more than double the prior year period.
In Chile as mentioned, we tend to subscriber growth.
This is an improvement.
However, the market remains very competitive additional uncertainty related to depend on me and elections into near debt.
All of last segment, Costa Rica, shortening of the upper right.
<unk> continued its steady progression Q1, net adds 9% higher than the prior year led by broadband demand.
Rolling These results of the group, we delivered record Q1 performance.
Year over year improvements in net adds driven by Puerto Rico.
A group of our coupe of customer at $50 was up 1% year over year on an FX neutral basis in Q1 led by Puerto Rico and Costa Rica.
Moving to slide seven and our record Q1 mobile performance in what is typically a seasonally weak quarter.
Starting again with cable and wireless Caribbean of Netflix in the upper left where we added 2000 subscribers in the quarter, which was 30000 more than the prior year period.
Across cable and wireless markets, Jamaica added 10000 subscribers, including 3000 postpaid additions, which was highest in Jamaica as postpaid ads for the whole of 2020.
Next to Panama, which generated the most adds in the quarter growing its base by 61000 net RG use this was driven by the launch of unlimited data total total player.
Liberty mobile maintain a relatively flat subscriber base of just over a million subscribers. Although a small net loss was recorded in Q1. It is worth noting that within the mix we saw growth in postpaid subscribers offset by prepaid losses.
Finally, <unk> loss 6000 mobile subscribers in the quarter.
We operate as I said <unk> in Chile.
Dominantly, providing postpaid services to existing fixed subscribers and a small player in the market with just over 270000 subscribers.
Taking this all together.
55000 mobile subscribers in the quarter.
Blended our pool of $20 across the group.
The increase of 55% year over year is driven by the inclusion of Liberty mobile in Q1, 2021.
Next to slide eight and of <unk> and subsea operations.
Starting with performance on the left side.
The upper graph shows the stability in our Latam <unk> and subsea businesses over the past year.
This is driven by all of tack of competitive positions in Latam <unk> markets and the resilience of the subsea business, which I'll come on to.
In contrast, our incumbent Caribbean in Panamanian BTB operations have faced challenges related to reduced tourism and the associated impact on local economies you operate.
As a result performance has steadily improved since the trough last year.
However, we have yet to return to pre COVID-19 levels.
On the right of the slide we wanted to highlight some of the key attributes of our subsea business.
Firstly at over 50000 kilometers of cable unmet like is the most extensive in the region.
<unk> also included a map of baked on routes, including terrestrial fiber in Colombia, and part of Central America.
Secondly, we are of unique mesh networks or trunk submarine cable systems.
This extensive network of differentiates our ability to provide more resilient solutions.
Bruce I'll economics.
Thirdly, we utilized approximately 10% of potential capacity across our networks. So there is ample room to grow.
And lastly, I'll cables provide an important route to the United States with over 90% of our traffic Wang from the Caribbean and Central America to the U S.
Demand for this connectivity is expected to continue.
Finally to slightly.
And then overview of what we've achieved since the pandemic began.
While we remain optimistic about the future.
Starting with last year.
We were quick to assess the potential impacts on our business from COVID-19.
Decisive action, primarily to reduce costs, so that we manage the business through a potentially prolonged period of financial headwinds.
As a result of the actions we took all of our operational flexibility and some better market conditions, we achieved improving operating and financial performance of Q2, 2020, including generating positive free cash flow in 'twenty three.
A clear focus.
We also closed the acquisition of At&t's operations, Puerto Rico, and U S. Virgin Islands and debt business is performing ahead of our expectations.
Chris will take you two of the strong financial performance. This operation is delivery.
Moving to the center of the slide and where we are today.
We created operating momentum in the first quarter and our focus on maintaining and building up on it.
Related to this we will continue to lean into our thesis spending of footprint and launching new products.
We focus on delighting, our customers with zero touch and frictionless experience.
And as announced earlier this week.
CEO Lorenzo will join us.
As our chief customer officer.
But we are still cautious loading that Chile, and part of the Caribbean experience locked out in the first quarter.
Finally, as we look further ahead.
Im very optimistic.
We expect vaccinations for 8% of global recovery and facilitate more tourism to our region.
Improving the economic backdrop and many of those countries.
We have adapted our ways of working recognizing new normal created by COVID-19, and our workforce remains engaged and committed.
We remain focused on product innovation and are rolling out new products as we expand on Netflix.
And Inorganically, we have a tremendous conversion opportunity in Puerto Rico and are working hard to integrate the operations, we acquired from AT&T quickly and effectively.
And we are looking to close the acquisition of Telefonica Costa Rica assets in the summer.
With that ill.
Pass you over to Chris Noyes, our Chief Financial Officer.
We'll talk to you through all of financial performance before we take your questions Chris.
Chris.
Thanks Pallet beginning on slide 11, two housekeeping items. Our Q1 2021 results include Liberty mobile for the entire quarter.
Given our recent executive management changes, we are now presenting <unk> as a separate segment for <unk>.
Q1, we delivered 1.1 dollars $6 billion in revenue with a year over year increase fueled primarily by the contribution from Liberty Global.
We achieved flat rebased growth year over year, which is a solid result, given many of our markets are still experiencing COVID-19 related restrictions and suffering from compressed economic activity in terms of products, we achieved rebased growth in both fixed and mobile residential revenue, which was offset entirely by continued softness of <unk>.
Which has not fully recovered to pre COVID-19 levels.
Moving to adjusted OIBDA, we posted $449 million for the quarter reported rebased growth of 3%. Our best result in the last four quarters.
<unk> additions totaled $152 million in Q1, or 13% of revenue, reflecting a modest dollar of increase as compared to the respect of prior year period.
Our target is for 18% of revenue in 2021, hence our spend will increase significantly in the following quarters as we accelerate our fiber builds and integration of Liberty mobile on Puerto Rico.
In terms of FCS, we reported $58 million of adjusted free cash flow for the quarter. This was L. L. A strongest first quarter in free cash flow and was fueled by Puerto Rico and improved results in cable and wireless Caribbean of networks for the next three quarters, we expect our adjusted FCS to be primarily cod.
Trade it in Q4.
Moving to slide 12, our Q1 result reflects our highest reported quarterly revenue and adjusted OIBDA for L. L. A to date and the chart depicts our continued recovery from Q2 2020 as highlighted on our 2020 year end call. We would generally had a step down from Q4 to Q1 day.
Seasonality factors. However, we were able to effectively manage two of those factors and obviously benefited from a full quarter of Liberty mobile, which continues to outperform our expectations importantly, excluding the impact of Liberty mobile our Q1, adjusted OIBDA of $363 million was comparable to <unk>.
Results in the prior year pre COVID-19 Q1 period.
Turning to slide 13, we present, our Q1 results by segment and include a year over year comparison of revenue for each segment in the bottom half of the slide.
Starting on the left with C. N W. Caribbean of networks, we posted $430 million of revenue and $181 million of adjusted OIBDA, which was in line with our seasonally strong Q4 results compared to pre COVID-19 Q1, 2020, Rebased revenue declined by 4% and adjusted weighted.
<unk> decreased by 2% on the way.
Rebased revenue side, we experienced an 8% decline in residential mobile and of 4% decline of BBB two areas most impacted by the pandemic. However, we achieved roughly flat rebased growth in residential fixed helped by underlying strength in our broadband products.
One market you'd call out of his Jamaica, our Jamaican business accounts for more than 20% of the segment's revenue and is continuing to post year over year Rebased gains growing 6% this quarter.
Helped by lower direct operating costs year over year, we were able to achieve an adjusted EBITDA margin of 42% this quarter and gain incremental operating leverage.
Any additions were $50 million of 12% of revenue, including over 20000 homes built or upgraded in the quarter.
Moving to cable and wireless Panama Q1 revenue of $122 million and adjusted EBITDA of $44 million were 11% and 3% lower on a rebased basis, respectively, and peony editions were $11 million of 9% of revenue, including over 20000 homes built or upgraded.
Two key points to highlight first C. W. P is mitigated much of the COVID-19 impacted revenue declined two day, reducing both its direct and operating costs year over year and second as of year continues we are poised to deliver much improved performance.
Turning to the middle of the Slide Liberty, Puerto Rico was once again, our strongest segment, we generated $361 million of revenue were 14% rebased growth as compared to Q1 2020.
Our historical cable business delivered rebased revenue growth of roughly 20% year over year as we have increased our total RG use base by an impressive 17% over the last 12 months.
Turning to our newly acquired business from AT&T. This business contributed $240 million of revenue in Q1, delivering rebased revenue growth of 11%. This growth was fueled in large part by strong equipment sales and to a lesser extent improved service revenue.
For Q1 hour of adjusted OIBDA was $150 million, an increase of about $100 million over what we reported in last year's Q1 our.
Q1 result reflects rebased adjusted OIBDA growth of 26%.
Accordingly, as we flagged on the Q4 call, we expect to incur sizeable integration cost from 2021 that will adversely impact our adjusted weighted down. These costs were minimal in Q1, and I expect it to ramp substantially in the next three quarters.
In terms of <unk> additions, we reported $34 million of 9% of revenue in Q1, we expect that our spend will significantly increase throughout the rest of 2021 due in large part of the timing of our integration projects and new builds.
T R. As highlighted in the fourth column, we reported Q1 revenue of $210 million on adjusted EBITDA of $71 million, reflecting rebased declined to 8% and 20% respectively.
Key drivers of full year of carryover impact from the subscriber losses, we experienced particularly in the second half of last year, which will impact our comparables in 2021.
Additionally, the intense competitive landscape is negatively impacting RP levels. Besides of the flow through of impact of revenue declines certain of our costs remain elevated due to high levels of customer activity.
However, we continue to work on reducing our fixed costs and address the labor component to of restructuring late in Q1.
Peony additions were $47 million of 22% of revenue, including over 75000, new homes, an increase of 160% over last year's Q1.
Finishing with Cabo Teekay Costa Rica, obviously post completion of the Telefonica acquisition. This business will be much larger but on a standalone basis call boutique of reported revenue of $36 million and adjusted OIBDA of $40 million with both metrics, reflecting year over year rebased growth in the mid teens.
Our <unk> additions were 20% of revenue and included over 5000, new fiber homes constructed.
This next slide will discuss the current status of our balance sheet and liquidity in Q1, we reported $8 9 billion of total debt $1 $3 billion of cash and $1 $2 billion of availability under our revolving credit lines.
We anticipate using approximately $200 million of our cash to fund our share of the equity component of the Telefonica Costa Rica purchase later this summer.
Terms of leverage we had consolidated gross leverage of five times and net leverage of four three times, we were extremely active during March and successfully tapped the capital markets in two transactions.
Which further strengthened our balance sheet and reduced our borrowing costs.
First we issued $410 million a year.
4.3, 75% senior secured notes at ETR. The proceeds were primarily used to repay ETR of 2023 term loans and repay a portion of the Trs.
On the 8% notes.
Second we raised $1 $3 billion of debt in Puerto Rico, and repaid out of our existing $1 billion term loans.
Issued $820 million of eight year senior secured notes at five 8% over 150 basis points better than our funding for the acquisition 18 months ago.
And we issued a new $500 million term loan at LIBOR, plus 375, which was 125 basis points of tighter than how repay term loans.
As part of this refinancing we raised $250 million of incremental capital. Furthermore, as a result of these two opportunistic refis are average debt tenor improved with over 80% of our debt now due in 2027 or later as the bottom right chart highlights wrapping up on slide 15, our consol.
<unk> L. L. A results were ahead of our own expectations for the quarter.
No doubt, Chile will remain challenging for us for the foreseeable future as Alan discussed, but our other markets, especially of Puerto Rico are picking up the slack is.
As seen by our remarks today the region of which we operate will continue to be adversely impacted by the global pandemic and we expect economic recovery across many of our markets to take well beyond 2021. However, our strategy remains clear we are investing now in our businesses, especially in fiber technology and capacity.
Driving fixed and mobile subscriber growth.
Focusing on digital transformation cost control and business process efficiencies and working methodically on the Liberty mobile integration.
All of these actions will position us to capitalize on improving market conditions, and we remain confident in our ability to deliver positive year over year revenue on adjusted EBITDA Rebased growth and meet out of Capex and free cash flow guidance targets with that operator, we are ready to take questions.
Thank you 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 Astra key followed by the day trip one on your Touchtone telephone.
In order to accommodate everyone.
We request that you only ask one question with one follow up if needed.
If youre using a speaker phone. Please make sure you're on mute function is turned off to allow your signal to retiring equipment.
Well pause for just a moment to give everyone an opportunity to signal for questions.
We'll take our first question from Sumit <unk> New Street research.
Uh huh.
Please go ahead your line is open.
Okay.
Oh, sorry, I think I was on mute.
Yeah, two or three quick questions. Please just on subsea cable first of all.
Instead of an update of toll on on a monetization process you suggested U S. We're beginning to look into that but the full year's I just wondered if there was any kind of.
Update there please.
Secondly, could you just refresh thinking on the.
The potential buyback, obviously, you'll you'll still looking to stay.
<unk> $200 million of equity free cash flow. This year I just wanted to get a quick update on your thinking about cash returns. Please and then just finally on I guess this might take a little bit longer.
On Chile.
I was just you know how big of a look at some of the price points in the market.
Some of the peers or kind of quite cheap and I think <unk> you mentioned that in the in the remarks I just wondered really what really can you do when you have some very kind of aggressive cheap competition coming in how can you differentiate yourselves.
You know it's difficult for us to kind of didn't cumbent, operator to defend against that but I'd love to hear a little bit more about what you can do against some of those very aggressive price points. Thank you.
Good morning Simeon.
Thanks.
So let me address your three questions subsea.
Subsea cable we've been doing a lot of work in the last couple of months couple of three months.
And you know separating that business out.
True up both legally financially the accounts and trying to reallocate the costs of mixture of that we have a clear line of sight did that as a standalone business.
And my sense is that you know will be going through a bunch of different deliberations internally in our company on that but clearly from a sum of the parts perspective.
This asset is actually quite an amazing asset.
And we will come back to you in the larger investment community over the next few months.
On any strategic direction.
That's different than what we've kind of hinted at in the past.
On the buybacks as you know the board has approved a buyback.
Process.
And we did do some buybacks back in 2020 and will be kind of opportunistic in this matter.
When we see you know.
If the equity trades of Watson the jump in but we are we.
We remain opportunistic on that front.
And on Sealy I think you read it right that you know this is a highly competitive market I mean, we've been in this market for a long time and we've always had it very competitive.
We used to go up against collateral modest.
And I think I've said it before of many years ago of couple of years ago debt we.
We compete very fiercely against these other three folks now in the in the.
In the last six to nine months and you've got more entrants coming into the market and you saw that even though wholesale regime.
Pricing has been disrupted in that marketplace and the way we look at this as you look at your front book on your acquisition pricing and then you look at what you have on your back book.
And Vivek who's the general manager of them, that's been very actively looking at both and trying to normalize the front book back book, because clearly when you look at the front book when you look at their gross debt I mean, our price and is working.
Now we do have some parts of.
Oh, Oh, Oh based debt still on some legacy pricing that we would.
Eventually have to adjust.
And then we're not afraid to do that.
So there's a lot of analysis, that's going into pricing right now.
I think we have a very competitive product like I said of front book is working really well.
No since you asked the question on Chile, I'm going to ask.
Our new general manager in Chile, Vivek who's been on the you know on the job here for the last.
A few months now and maybe you can shed some of his perspectives on that.
Yes, thanks balance.
Thanks, So much of the question, yes, I would say as.
Sensitive to the back of the trunk book differential is it is it kind of somewhat of extreme or was it just need a bit of tweaking.
It's not extreme at all of this as a matter of fact, I'd say you know just sort of on one number of <unk>, but more than 60% of the of back book has already closed on front book and then the remaining one is big gap, it's actually not that wide.
Okay. That's great. Thank you.
As a reminder of star one if you would like to ask a question.
We'll take our next question from James Ratcliff Evercore ISI.
Alright, Thanks for taking the question on too if I could.
First of all of the follow up on Chilly can you just talk about the status of the P. T. R brand at this point and.
What degree of COVID-19 experience of impact of that in your relative brand deficient vs either providers and how you rebuild that advantage and secondly, any thoughts regarding the restructuring of Televisa and the potential appeal of the Mexican market, knowing that you're chairman system of Televisa Board.
So I'm just curious how that that could that market could potentially stick into your thinking about footprint expansion. Thanks.
Sure Let me, let me and said Televisa when president of I'll pass. It on you are moving on the on the VCR brand Uhm.
Really as of Televisa primary of Big Reclosable of course too.
<unk> group, Televisa and Alfonso Who's the C U of that sits on on board.
And.
But they did a really amazing.
Promotional deal of themselves and and then what's in the future I think.
Lots of speculation, but right now our focus is running a business and and that's how how are we looking at it. So vivek you on to answer the BTR brain yeah.
Of course had a very good brand in Chile over the years, we did have a little bit of a brand impediment last year, given our network issues, but when I look at relative brand impairment compared to do all of the other providers I think we of roughly still on the same boat.
As an industry and we all have work to do to improve our brand so.
We have to reposition our brand and I think we'll do that with our product in our service and I don't think it's insurmountable to get back to Ah brand position that we had before.
[music].