Q1 2022 Liberty Latin America Ltd Earnings Call
In additions and added 9000 broadband subs in Q1, 50% higher year over year.
Moving to the lower left and PNW, Panama, we had a strong quarter with 9000 broadband adds 80% up on the prior year period, we have continued to invest in our fiber networks in Panama and it was our second largest market for newbuild and upgrade activity behind Chile in the quarter.
Finally, ctr saw a reduced level of broadband losses in Q1 sequentially. That's all commercial activities had some positive impacts however, the market continues to be intensely competitive.
We remain focused on stabilizing our subscriber base in Chile now covered our strategy in more depth later in the presentation overall the group generated broadband adds improving on Q4 levels.
Moving to slide six and our mobile performance.
We have highlighted postpaid adds as this is our focus and a driver of growth in recurring revenue.
Starting in the top left of the slide and CSW.
Our distribution channel initiatives have continued to drive strong performance with 50% growth and adds year over year and 25% growth sequentially.
We expect this momentum to continue through the rest of the year.
Turning to Puerto Rico, we had a particularly strong first quarter.
Adding 39000 postpaid customers.
This was driven by a government initiative Incentivising mobile data access for teachers and students.
Excluding this impact conditions, we were broadly in line with prior quarters.
Moving to the right of the slide in Costa Rica. This is our largest mobile operation in terms of subscribers and was a quiet during the third quarter last year.
In Q1, we added 44000 postpaid subs here.
As we continue to grow our overall customer base and migrate subscribers from prepaid.
On the bottom left of the slide we present, Panama mobile subscriber performance.
Building on our strong performance in Q4, we added 28000 postpaid subscribers in the first quarter driving 25% year over year postpaid revenue growth.
In aggregate, we are building momentum and delivered a record quarter for postpaid adds adding 121000 subscribers, which was nearly double our Q4 performance.
Improving our postpaid prepaid mix.
Growing our recurring mobile revenue.
Next to slide seven and our <unk> operations, starting on the left of the slide we delivered 4% revenue growth in Q1.
This was driven by growth in <unk> service revenue, particularly in <unk> won some significant contracts as well as delivering growth in fixed and mobile subscription services.
And the rest of the slide we have outlined some of the products we offer across our <unk> customers starting with SMB in the center. This is a segment, which currently represents less than 20% of <unk> revenue, but where we've identified that we are underway and can generate increased penetration.
As with all our customers, we aim to combine leading products with fantastic service in this case 24 by seven support.
And from a product perspective, we have created packages that leverage our full service communications capabilities with smart solutions layered on top according to customer needs.
On the right of the slide we present the solutions, we deliver to satisfy the needs of large enterprises and governments customers ranging from our central connectivity security collaboration and it infrastructure products.
Finally to slide eight.
We provided updates on the Chilean market as well as important integrations, taking place in Puerto Rico and Costa Rica.
Starting on the left of the slide with Chile.
As mentioned previously this is an extremely competitive market with multiple operators.
Our focus here is to compete aggressively to win and retain customers.
And with this approach relaunch a new range of plants called Phoenix and March are key months of the year, including back to school campaigns.
<unk> planned to be introduced significantly lower price points for our products with a focus on our broadband offering which carried the lead discount.
As a result, we recorded our highest ever number of gross adds in March adding 100000 RG use.
Even though I must say churn remain a challenge given the competitive intensity.
We also saw strong traction across our HFC footprint with the office further highlighting that price is a key decision factor for customers.
I'm, an inorganic perspective, we are progressing with the approvals for the JV with collateral in Chile, and anticipate closing the transaction in the second half.
The combination is expected to drive significant annual synergies of over $180 million.
Well as consolidation in the market.
On the right of the slide.
Wanted to provide an update on the integration activity in Puerto Rico, and Costa Rica. The key takeaway here is that both on track.
In Puerto Rico, we are entering an important phase as we look to start migrating customers to our new mobile call towards the end of the year.
We anticipate cost completing all aspects of the integration at the end of next year and so we will see the full benefit of over $70 million in synergies during 2024.
And of course that AECOM, we are progressing similar work streams. However.
However, a slightly early in the process given the acquisition completed more recently.
Again, we anticipate seeing the full benefit of over $15 million in synergies during 2024.
Across both transactions, we expect to deliver somewhere in the region of $90 million of synergies once integration activity is completed.
Overall, <unk> had a steady start to the year and anticipate building operational and financial momentum through 2022.
Our inorganic moves should drive additional growth in the coming years.
Particularly for free cash flow of synergies achieved.
With that I'll pass you over to Chris Noyes, Our Chief Financial Officer, who will talk you through our financial performance before we take your questions Chris.
Chris.
Thanks balance in the first quarter, our revenue was $1 2 billion.
Reflecting a $54 million a year over year increase this was driven by the acquisition of the Telefonica asset in Costa Rica, and organic growth. These two factors were countered by adverse currency movements, especially with respect to the Chilean peso, which impacted our U S. Dollar reported results as bound highly.
<unk>, we delivered modest rebased growth of 1% for the quarter led by <unk> and slightly positive rebased growth across both residential and mobile subscription revenue.
In terms of our operating unit, Costa Rica, and <unk>, Caribbean and networks, where our best Rebased performers in the quarter.
Turning to adjusted OIBDA, we delivered $440 million in Q1, reflecting a rebased decline of 2% of which a roughly percentage point of the decline is attributable to the impact of integration costs similar to revenue Costa Rica, and CSW Caribbean networks posted strong rebased growth on the back as <unk>.
Scriber volume gains over the last 12 months, which was more than offset by declines in Chile, Panama and Puerto Rico.
In the third section our <unk> additions were $175 million in Q1 or 14% of revenue nearly 80% of our quarterly spend was directed to CPE newbuild upgrade and capacity.
<unk>, we expanded our newbuild and upgrade by over 30% in the quarter as compared to Q1 last year, reaching 167000 homes. This build as virtually all fiber based and across each of our operating segments, we incurred about $8 million of integration capex in the quarter and expect to incur.
$40 million in Puerto Rico, and Costa Rica for 2022.
In the last chart and consistent with the statement we made on our Q4 call we delivered negative $57 million of adjusted FCS in the quarter. As a reminder, our first quarter is typically negative due in part to phasing of interest and tax payments.
Last year's Q1 result was particularly helped by favorable working capital from our newly acquired mobile business in Puerto Rico.
Slide 11 highlights our revenue and adjusted OIBDA results by segment for Q1.
Beginning with <unk> Caribbean and networks, we generated $445 million of revenue or 5% rebased growth and $193 million of adjusted OIBDA or 8% Rebased growth once again, our team, making business led with double digit rebased revenue growth and nearly all of our <unk>.
<unk> markets delivered positive rebased growth.
Each of our key product revenue categories remained steady as we posted 8% rebased growth in mobile, 5% in fixed residential and 4% in <unk>.
With respect to our subsea business, which is within the <unk> category. Our growth was adversely impacted by a $4 million headwind relating to iron acceleration, which largely occurred in Q1 2021.
Adjusted OIBDA was propelled by double digit rebased increases in the Bahamas, and Jamaica, and our margin increased year over year by over 100 basis points to exceed 43%.
Moving to cable and wireless Panama.
WP contributed $127 million of revenue and $41 million of adjusted OIBDA in Q1, reflecting flat rebased revenue growth and a decline of 8% and Rebased adjusted OIBDA.
Our results moved lower in Q1 from Q4 due in large part to the seasonally strong Q4, we experienced can be to be particularly around project revenue.
With that being said our residential fixed revenue continued to build with 9% Rebased growth, reflecting 75000 are to use we have gained in the last 12 months residential mobile revenue declined 3% from Q1 2021, primarily as a result of lower prepaid recharging activity, which more.
Than offset strong growth in postpaid revenue.
Adjusted OIBDA compressed year over year due in large part to an increase in costs to support higher levels of sales.
In terms of Liberty, Puerto Rico, I will cover it in detail on the next slide.
Next of ETR, we reported $171 million of revenue and $47 million of adjusted OIBDA, reflecting rebased declines of 9% and 26% respectively. As expected Q1 was a tough quarter financially as the annualized nation impact of lower <unk> and RP pressure flow through the results.
Additionally, with our new pricing plans in March we experienced tremendous sales activity and movements within our base, which impacted March results and will roll through the remainder of the year.
Our adjusted OIBDA result was impacted largely by the decline in revenue and higher programming and commercial costs, including a settlement on our programming contract and marketing costs related to our music festival that had been delayed due to Covid fin.
Finishing with Costa Rica.
Led principally by continued strong performance in our newly acquired mobile business, we reported revenue of $107 million or Rebased revenue growth of 9%, we delivered adjusted OIBDA of $30 million, which represents a double digit rebased increase over last year's Q1, we incurred integration expense of $2 million in the quarter.
And are currently projecting integration costs of around $10 million for 2022.
Next to slide 12, I wanted to spend a few extra minutes on Puerto Rico.
This is our first full quarterly comparison with mobile under our ownership, we reported revenue of $369 million accounting for 1% Rebased growth. The two charts on the left highlight our revenue components with the Upper chart for Q1 2022, and the bottom chart for Q1 2021.
First our residential fixed business continues to be fueled by broadband growth as we reported $121 million of revenue in the quarter second residential mobile service revenue of $117 million has remained flat over the year, which is a good result, given competition and our rebranding from AT&T.
The roughly $10 million decline, we experienced in the total mobile category is attributable to lower equipment and inbound roaming revenue.
Finally on <unk> and other were principally growing our mobile related services, including equipment as the island continues to recover and we are benefiting from increases in FCC funding.
Turning to adjusted OIBDA, we delivered $144 million for a rebased decline of 4% year over year, which was in line with our own internal expectations in the bridge work. The principle drivers of our highlighted we benefited from the positive impact of increased services revenue, which was more than offset by a combination of a higher.
Negative equipment margin, a lower net roaming margin and net incremental integration costs as.
<unk> discussed our integration is moving well ahead for 2022, we are targeting roughly $50 million of integration spend split roughly 35% indirect operating costs and 65% and capex.
Both components of the integration spend are higher year over year and will begin to decline, particularly capex in 2023.
Turning to slide 13, and Q1, including BTR, which is held as an asset for sale on our balance sheet, we had $9 2 billion of total debt.
$9 billion of cash and $1 $2 billion of availability under our revolving credit lines.
We had gross leverage of five one times and net leverage of four six times, our weighted average life is just under six years and our fully swapped borrowing rate is under 6% as well.
In the current FX and interest rate environment, our hedges are significantly valuable and in the money.
Our debt maturity is largely termed out with only two maturities of note before 2027, our term loans in Costa Rica, and our LLS convert both of which are due in 2024 as.
As we highlighted on our year end call, we accelerated our equity repurchases. In fact, we bought five 4 million shares for $56 million in Q1, our largest quarterly repurchased to date since quarter end, we have continued repurchasing at a healthy clip.
Moving to the final slide 2022 is clearly a transition year for <unk> with significant focus on integrations in Puerto Rico, and Costa Rica, and completing the Panama and Chilean transactions, especially in Puerto Rico will be turning the corner as we exit 2022 with integration spend decreasing and synergies ramping in 2023.
As we drop off the TSA with AT&T by the fall of next year.
Besides our core fixed residential recurring revenue, we continue to drive enhancements in our mobile business across the Caribbean and Central America as highlighted by balanced today.
These regions have always been reliant on prepaid mobile, but we are starting to move the needle on postpaid adoption very important to us to change the status quo and enhance the reliability and sustainability of the mobile revenue stream.
Investing in our network remains a key strategic goal, we are shrinking our legacy copper footprint in our incumbent telco businesses upgrading and expanding our fiber footprint across our largest operating businesses and adding mobile capacity all within a disciplined approach to capital spend.
<unk> Capex and M&A. We are also investing in our business through our buyback program and believe its unique opportunity at today's prices given our medium term growth in free cash flow outlook.
With that operator, if you can open up for questions.
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Your first question comes from the line of Matthew <unk>.
With Barclays. Your line is open.
Yes, good morning, and thank you.
I had a question about Chile.
Some may be read across.
Robert geography so.
Your business in Chile, the cable business historically as I understand it.
Hi, Lee.
<unk> product great content, Great service.
Pumping.
Our per levels, obviously over the past few years.
Things have changed.
I understand dependent.
But I was trying to understand part.
Part of the change was explained by besides maybe the plant with some tough competitive when.
Compared to fiber.
Which has been developing in Chile.
First part of the question, but the second part.
Is there any other geographies, where you feel that maybe.
It could be increased competition from fiber based.
Competition.
Fewer exposed or Triple network may not be.
Is robust.
I was just harder product. Thank you.
Good morning.
It's a good question and one that we've been thinking about it.
We've analyzed.
Pretty significantly give you here's how we think about this.
In Chile as you recall, we've grown this business dramatically in a four player market.
And two of the other players in the fourth layer market with fiber providers for the longest time and we want every day of the week every.
Every week of the month.
Something changed since then and what change really has been be there with two additional <unk>.
Repetitive that came to the market. So a four player market went to six player market and by the way today to seven player market.
And what happens in the market is that you have a lot of stranded capacity, meaning.
Meaning you have a lot of folks that either built fiber build infrastructure.
And running pretty close to MTN network that have to fill it and therefore their contribution margin for those infrastructure is extremely.
But whatever level.
You charge for it.
And so the challenge we have in Chile is not so much in infrastructure technology issue <unk> 500 Megabits.
On broadband and video products.
Probably the best in class, we even have HBO and that basic lineup that we have.
Football League, we have all the great programming.
The challenge of course is really on pricing and we experimented with this in the month of March where we took our pricing that we didn't even go to the lowest price in the market. We just took it down to the third lowest price in the market.
As I indicated earlier, we added about 100000 argues in one month.
Month ever which goes to show that and most of that came in the HFC network.
So.
So it's really a question of pricing, which is why we are so excited about the transaction between <unk> and collateral.
Consolidation in the market as necessary.
Some structural repair and clearly the synergies between this combination.
Helps.
A lot of things for us going forward I think both plateau.
Likeminded in that and we think this could be the start up a lot more consolidation in the market.
Second question around this the contagion that Bret elsewhere.
We've looked at every one of our other markets and we don't see.
Anywhere else going to a 6% to seven player market.
On the fixed side.
And certainly we've learned a couple of things as well.
To be ahead of the game before it becomes a 67 player market and any other location.
So if you look at Costa Rica.
The Rico.
4 million type population incentives Costa Rica, slightly north of that about $5 million, Puerto Rico, but $3 million to $4 million, Panama 4 million. These are smaller geographies that wouldn't attract 6% to seven players.
<unk>, so we feel relatively confident and then finally and with also one thing in those markets. We are also now very aggressively upgrading to fiber.
In Panama, we hope to get.
Of all of our twisted pair copper so it'll be primarily a fiber mostly fiber HFC.
The Rico, all our bills all in fiber.
The recall as you know.
We won the Union <unk> funding, which we are upgrading network with that funding to fiber.
So we feel really good going forward and we don't think what happened in Chile would be replicated anywhere.
Hopefully that's helpful.
It's very helpful. Thank you very much.
Your next question comes from the line of Sumit Datta with New Street Research. Your line is open.
Yes, hi.
<unk>.
One question.
To start with please just on.
Postpaid wireless.
Speech about quite heavily in the and the earnings slide.
I was just curious what.
Sort of uplift are you seeing.
It's all too when you're migrating from prepaid to postpaid.
You've got you've got different market with different levels of postpaid penetration.
Puerto Rico's high Caribbean is low.
When might we see some of those penetration numbers.
Whether lower kind of leaving.
And then just color finally.
It's five G relevant.
On any sort of near term horizon in any of these markets that would be.
The first question please.
Sure Sumit.
We are actually quite excited about our postpaid growth.
The reasons as you pointed out the ARPA is high and it's quite a bit higher than prepaid, but more importantly, it's very predictable and stable cash flow and finally actually my general Counsel reminded me as well earlier. This week that in addition to that we get better visibility of our customers with postpaid over the pre.
Cards, so we get better visibility of our customers. It's more stable, it's very predictable cash flow and it is a high ARPA, having said that.
This region is mostly a prepaid region. It has taken us a few years to really pushed for.
This migration to postpaid and a lot of our managers you have deep experience in FMC and review status as a way to get people to move but we are also incentivize and played with our prepaid pricing to make it more attractive for someone who talks up every month to go move.
The postpaid.
Product.
We're actually quite happy with that migration.
But we are in early days and I suspect.
There is a cap to that its probably will never get to like in the western countries have like 70 ish percent postpaid.
Certainly south of 50%.
Not really sure whether number at hand, but we're hoping we can get through even 30, 40% postpaid we'd be sitting pretty good.
On <unk> as you know, we've launched <unk> in Puerto Rico.
And.
We are doing pretty well there handset.
Readily available.
It's a product.
We have that.
<unk> best in class on the island.
And as I look at the rest of our region.
Dale Wagging, the dog I guess.
I'm not too terribly sure if we would be investing a lot in <unk> handsets are not readily available it is expensive.
If you recall when we first.
Started this journey.
It just needed people to get the <unk> and even then <unk> penetration is still not anywhere close to western countries.
<unk>.
So we're still focusing a lot on capacity pushing more <unk> handsets out there and we may do a few five droughts in some cities in metro areas, but.
Modern drugs, but launching into metro areas, but we don't see any any of other operations where vehicle countrywide five G.
I'll wait until the handsets available.
You would not be good capital spend to be ahead of the game on this one.
Okay. That's great. Thank you.
Just a quick follow up then.
On wireless still but just looking at Panama.
<unk>.
Interested to get your thoughts on.
The announcements that you sell.
Looking to exit the market.
<unk>.
I suppose one thing with curious as we're still seeing kind of subscriber losses.
We're still seeing revenues down a little bit more.
I think there was a restaurant as to maybe the the sort of external environment do you mind.
Putting putting all of that into context would be would be really helpful. Thanks.
Sure.
Guillermo.
General manager for that region to be ready to answer the second question as well on digital.
I'll tell you this.
With our announcement of the Plateau acquisition, we've moved from a four player market to a three player market and that was necessary in Panama.
And.
Yes. So yes. It has moved from a four player market to a three player market and we feel Thats just <unk>.
Just right for that market and vis vis <unk>.
We probably shouldnt comment on what's going on with them.
The auctions.
Yes.
Guillermo to jump in on the under.
Prepaid to postpaid revenue on the mobile side.
Yes. Thank you good.
Sumit.
In Panama, we see.
Hey.
Slightly decline in the total revenue mix when you compare Q1 last year with Q1 this year.
They look to stories and that number one the <unk>.
Prepaid revenues have been.
Somewhat impacted by.
Very intense competition, but it's somewhat impacting the re charge activity and this is what we see when we when we compare year to year on the flip side, we see very strong postpaid additions to your earlier question. Our strategy has been focused on getting stronger in postpaid too.
Get all the benefits that volume depicted.
Stable revenue stream I would add one more additional.
Value of the postpaid migration, which is the ability to do FMC the ability to cross sell.
A known customer on the postpaid side with fixed services.
Our strategy that we are pushing in Panama with very good results, having settled that we.
We do see over the last few.
Months.
Stabilization.
Of the of the prepay activity.
Measured by the call it the amount of cannibalization diagnosing the market once all competitors are going very aggressively and self cannibalizing the recharge.
Hopefully.
That was helpful for you.
That's great maybe just a follow up just on that yourself.
If they sold assets for sale I am not sure how it all works, but if they do exit spectrum and towers, I guess and maybe some infrastructure is that sort of something you'd be interested in looking at.
Submitted at this point, we are just focused on closing our transaction with Claro and <unk>.
We really haven't paid much attention to what's going on with Digicel.
Okay.
Going into the future.
We will look at that but right now.
Alright, thanks very much.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad again by pressing star our aster risky followed by the digit one on your telephone keypad or touch tone telephone.
Next question comes from the line of Matthew Harrigan with benchmark. Your line is open.
Thank you I was curious if you had any thoughts on the video evolution in your markets given everything that's happening in the U S with all IP, Comcast and charter and dish.
More in Mexico, and the U S.
Televisa launching <unk> as.
Well, so now slot basis.
What are the implications for your broadband business.
Well I think at one point, you've been talking about having more flexibility for a more modest income demographic.
Demographic off.
For the IP.
Video offering if I'm not mistaken thank you.
Thanks, Matt.
On the video front interestingly enough.
Men by charter and Comcast and the flex box.
We've actually launched a similar product.
A year and half ago.
But we did not use the <unk> platform, which is what Comcast and charter are doing.
Absolute sense for them.
What we did was we went down the Android.
And we launched this non Puerto Rico, and Costa Rica, Panama and will soon launch this in.
A couple of the other islands, Trinidad Jamaica, it's an all IP box very similar to the flex box.
It doesn't pick up any of our club.
Signals.
And we feel really good about it and the prices have come down quite a bit as well on that and of course they've been.
Also experimenting with putting that same because it's all IP and the same technology on other devices like plastic and chrome.
Come dongles, so we lay down that path now we've also looked recently at our video strategy and we've come to the conclusion that.
While the video product will it's not a huge growth driver, but it is a necessary product for.
For us to continue to be a leader in broadband.
So you sell your broadband product you ship out the cheap IP box that goes with it whether it's a box that reshape ourselves. So they can bring a fire stick to it and but you have.
Video associated product together with that broadband and it seems to resonate with a lot of our customers not all of our customers.
We'll sell a lot of solo broadband product, but there is a subset of customers that would buy broadband from us only if we have the video product so the oriented.
Innovating on those technologies.
We feel pretty good in the past.
I have a follow up on that what are your thoughts on the volume versus sales fall in Latin America, I mean networks actually.
He was very sluggish in Latam last.
Last quarter.
All of these is obviously very excited about.
VIX product I mean, do you think it's going to evolve.
It's more of an <unk> centric market.
In the U S or do you think the jury is still it's still out.
Yeah.
Sure My personal opinion.
At least in our region I mentioned speak for any other region.
It was not an easy product to develop.
And I think.
Which is why a lot of the big West Coast companies expect to the <unk> story.
And I think it's similar in our region for sure.
I think for companies that are in the advertising business.
That really well I think they can make a go at it.
But certainly not businesses like ours.
Perfectly happy with and Thats why product associated with device and if somebody wants to add and able to do it.
The way we develop.
Our Android platform, we can put almost anybody on it even in the service on it.
Thank you jogging my memory on what's your already good.
Months ago will embarrass, but didn't recall that immediately thanks Paul.
Sure. Thanks, Matt Thank you.
That will conclude today's question and answer session I would like to hand back to about a name for any additional or closing remarks.
Thank you.
I'd say the first quarter, we felt we started of well not as great as previous quarters.
Yes.
We can explain I think if you go to our numbers you can see the puts and takes there.
Underlying business is robust it's still good strong.
We expect the rest of the year to continue to be strong we continue to monitor Chile, Chile is unique and I wanted to reiterate I think the rationale for us to do what we did in Chile, what we announced last year between plateau and as I think for both of our companies. It continues to make sense actually even more sense.
I think once we get consolidation going in Chile things get better we still remain bullish in that market even though.
If you look at it now you scratch your head on it but I think over the next couple of three years with consolidation and rationality in that market things will get better as well.
But if you did.
Chile of it you look at our underlying business.
We've got a good thing going here. So thank you everybody for your support and we'll talk to you again next quarter.
Ladies and gentlemen, this concludes Liberty Latin America's first quarter 2022, 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 Dot L.
L Inc. Dot com. There you can also find a copy of today's presentation materials.
Thank you for your participation you may now disconnect.