Q2 2022 Liberty Latin America Ltd Earnings Call
Better performance.
Our Q2 performance was driven by 6% year over year Rebased growth in <unk> in Panama, and Liberty, Costa Rica, which was up 10% year over year on a rebased basis.
Our fixed Internet subscriber base grew by 9000 in the second quarter as we reported record ads in Costa Rica, and important returned to growth in <unk> driven by Jamaica.
In mobile we continue to see exciting results from our commercial focus on postpaid and Q2 was the second consecutive quarter, which we delivered more than 100000 net postpaid additions.
On July 1st we completed our acquisition of collateral Panama.
We are encouraged by our initial steps in integrating the business.
<unk> will only combine our commercial activities early next year.
Having said that we are confident we can achieve our plan for the combined operations in the market.
Finally, we further accelerated our buyback activity with $63 million.
Of shares repurchased in the second quarter.
This is our most active quarter yet.
Representing over 10% more purchases than in Q1.
We will also pleased to release, our 2021 ESG report in July where we demonstrated significant progress in measuring and highlighting new goals with respect to our energy consumption data privacy and security efforts and strengthening our commitment to positive change.
Moving to slide five.
Our focus on our Internet product is the lead component of our fixed consumer proposition and here, we show our broadband adds by market.
Starting with cable <unk> wireless in the upper left of the slide.
As anticipated we returned to growth in the quarter.
This was driven by Jamaica, where we added 4000 Internet and <unk> use as we focus our sales effort and integrated new converged offerings with existing bundled propositions.
Moving across to the center of the slide and Liberty, Puerto Rico as you can see from the chart. We have delivered steady sequential growth year for a number of quarters and discontinued during Q2.
For this right on the top row to Costa Rica.
This is a market where we have consistently delivered net ads in the second quarter, we set a new record.
11000 subscribers more than 70% higher year over year.
As we penetrated are expanding F dth footprint and drove converged bundles.
Moving to the lower left and <unk>, Panama, where we deliver a similar number of in net adds as the prior year quarter, we now have fiber or HFC across over 90% of our network footprint in Panama, and we see a clear opportunity to increase penetration from the roughly 25% level we have.
To be finally, BTR saw broadband losses of 18000 in the second quarter of <unk>.
Just over 1% of the subscriber base as we move to more normalized pricing. Following a time limited Phoenix office in March and April .
Our commercial focus in Chile is to maintain our broadband market share and we achieved that in this quarter overall the group continued to deliver broadband adds with particularly robust results in Costa Rica, and Puerto Rico.
Turning to slide six and our mobile performance. We have highlighted postpaid adds as this is a driver of growth in recurring revenue, which is our focus postpaid ARPA was over three times prepaid output, which is why we are focused on this growth.
Starting in the top left of slide <unk>.
We delivered another strong quarter of postpaid adds nearly doubling the level of net adds in the prior year period and building nicely on a sequential basis, Jamaica drove the majority of Q2 performance with 9000 adds up more than 50% sequentially and over 100% year over year.
Turning to Puerto Rico, as we <unk>, we generated significantly more postpaid ads than the prior year quarter.
Sequentially, we continued to benefit although to a lesser extent from a government initiative Incentivising mobile data access for teachers and students.
Moving to the right of the slide in Costa Rica.
Largest mobile operations in terms of subscribers. We added 30000 postpaid subscribers in the second quarter and will confirm that the number one mobile player in the market by the regulator in their latest report, which is a testament to our service levels and propositions in the market on.
On the bottom left of slide we present Panamax performance.
We added 28000 postpaid subscribers in the second quarter sustaining our strong Q1 numbers and taking our postpaid adds in the last four quarters to 86000.
Postpaid subscription revenue continues to grow strongly and was up by nearly 40% as compared to the prior year period.
Lastly, in Chile, our ads were driven by the competitive Phoenix plant. We first launched in March overall, we were pleased to deliver a postpaid subscriber growth across all our reporting segments and another quarter of 100000 ads in aggregate.
Next to slide seven and our <unk> operations.
Starting on the left of slide we delivered another strong quarter in <unk> as our markets continue to recover from the impacts of COVID-19, our.
Our revenue was 8% higher overall in Q2 with growth across <unk> services, and our networks and Latam businesses with MTN W.
In <unk> services, we grew our fixed internet and mobile subscription revenue and had a strong quarter for project awards, particularly in Panama.
Networks in Latam had another solid quarter with underlying growth in recurring revenue year over year.
Both the chart, we have highlighted the gross revenue generated by our networks in Latam operations.
This is the sum of the reported totals in the bars for the respective periods.
Intercompany eliminations that are removed in our consolidated financials.
Can see that total revenue increased by about $75 million in 2021 and $40 million in the first half of this year when looking at our networks in Latam business through this lens.
I wanted to take a moment here to also update you on our strategic review for the networks in Latam business, which includes our subsea networks and <unk> operations in markets, where we don't have a consumer facing product such as Colombia.
As discussed on previous calls we believe that these assets are not accurately reflected in our public valuation.
We can confirm that we tested the market and received strong indicators responses.
This was the right track, but given recent market conditions, including the financial markets and macro uncertainty, we have decided to put things on hold for now.
We are excited about this business and from our strategic review, we will continue to invest in growth is highly cash generative infrastructure base business.
On the right of the slide we've outlined some of the key products and solutions to re offer to our <unk> customers ranging from connectivity solutions to security collaboration and infrastructure products.
Finally to slide eight maybe you want to share some updates on our inorganic activities.
We expect these transactions will drive significant stakeholder value through free cash flow growth.
Starting on the left up to slight without closed deals which include Panama is the first of July .
In aggregate. These deals are expected to drive over $150 million of synergy value to the group, which will include a significant uplift to our scf in the coming years.
We are in the early stages in Panama, but we are excited about the potential of our combined business.
As I mentioned before we will be combining the commercial activities at the start of next year due to regulatory requirements.
However, we have been free to combine the network and back office from the day, we close.
Most acquisitions there are dis synergies in the initial phase post close and Chris will pick up on the short term financial impacts in his section.
Once we get through this period, we anticipate significant upside with $70 million of free cash flow benefiting synergies across cost and capex.
In Puerto Rico, and Costa Rica, we continue to be on track with our plans.
Both operations Costa Rica were rebranded to Liberty name in June this year, coinciding with the nation's qualifications for the FIFA 2022 football World Cup.
Rich we have exclusive mobile streaming rights.
The vehicle is benefiting from converged bundle offers with all stores now selling both fixed and mobile products and we have also begun to deliver FMC for our customers in Costa Rica.
Finally, we passed a significant milestone in Puerto Rico, with our new mobile core becoming operational.
We'll continue to test the platform ahead of customer migration as we move into 2023.
Moving to the right of the slide.
I'm confident that we will complete our 50 50 joint venture with cloud or Chile. This year.
Chile is an extremely competitive environment with multiple operators. However, we expect good long term prospects of that market.
This transaction should facilitate market repay in addition to generating significant synergy value in excess of $180 million.
The synergies will help fund and grow the combined business.
Overall, we believe that through our operational and inorganic progress we are set to deliver meaningful adjusted free cash flow growth in the coming years.
Particularly as synergies are achieved.
It is hard to contemplate any M&A with better risk adjusted returns than the current opportunity to repurchase our own securities.
With that I'll pass you over to Chris Noyes, Our Chief Financial Officer will talk you through our financial performance before we take your questions Chris.
Chris.
Thanks, Alan similar to the first quarter, we generated revenue of one point to $2 billion rich.
Reflecting an approximately $45 million increase or 4% reported growth as compared to one $1 $7 billion of revenue for the Q2 2021 period.
Positive contributions from Costa Rica, including the impact from the Telefonica acquisition and strong organic growth in <unk>, Caribbean and networks and CFW, Panama helped to fuel our revenue expansion year over year.
Partially offsetting this growth foreign currency depreciation versus the U S dollar in the quarter reduced our reported revenue by over $30 million with the largest impact attributable to the weakening Chilean peso as the average rate fell by roughly 18% quarter over quarter.
And an organic top line reduction in Chile stemming from continuing high competitive intensity.
On a rebased basis for the quarter, we once again delivered modest rebased growth of 1%.
Moving to adjusted OIBDA, we improved sequentially from $440 million in Q1, 2000 $22 million to $464 million in Q2, which was comparable to last year's reported figure.
Our Q2 result reflects a rebased decline of 2% over Q2 2021, as our double digit rebased, increasing CFW Caribbean and networks and 4% growth in Costa Rica was more than offset by declines in Chile, Puerto Rico and Panama.
Integration costs totaled $7 million across <unk> and negatively impacted our rebased growth rate by about one percentage point on a year over year basis.
Turning to the third quadrant, our <unk> additions were $192 million in Q2, or 16% of revenue as compared to $215 million or 18% of revenue last year about half of our quarterly spend was attributable to CPE and Newbuild and upgrade in particular, we added 162000 new build.
<unk> upgraded homes in Q2, bringing our year to date total to nearly 330000, we incurred about $10 million of integration capex in the quarter and including Claro, Panama for <unk>, we expect to incur a total integration capex of about $50 million in 2022.
The finished the slide we posted $73 million and adjusted free cash flow in Q2, a doubling over Q2 2021 levels, we expect each to mcf to ramp significantly due in large part to higher adjusted OIBDA and substantially better working capital in the second half in terms of phasing we expect.
Our Fcs and <unk> to be substantially generated in Q4.
Slide 11 highlights our financial results by segment for Q2.
Starting with C and W. Caribbean and networks, we produced $455 million of revenue or 6% Rebased growth, we had steady revenue performance across both fixed and mobile in Q2 benefiting from higher volumes gained over the last year and a very strong <unk> performance with 9% Rebased growth.
<unk> result was due to growth in fixed internet and mobile subscription services across the region and we also were helped from IR <unk> acceleration in our subsea segment for the various <unk> market segments, our strongest revenue performance in the quarter, where our networks in Latam business and the markets of Jamaica, Barbados in Cayman, We did.
Levered adjusted OIBDA of $210 million or 12% Rebased growth in the quarter. This performance was driven largely by our revenue growth and lower operating costs as compared to last year, resulting in a 46% adjusted OIBDA margin.
Turning to cable and wireless Panama CWT increased revenue from Q1 by roughly $15 million to produce Q2 revenue of $142 million, resulting in 6% Rebased revenue growth over last year's Q2, our rebased growth was driven by 13% growth in <unk> and 10% growth in residential fixed wireless.
Residential mobile decreased modestly by 2% as our strong postpaid result was not able to fully offset declines in prepaid revenue.
Adjusted OIBDA improved sequentially from the last quarter moving from $41 million from Q1 to $44 million in Q2 as compared to last year's adjusted OIBDA of $46 million. In Q2 2021. Our Q2 result reflects a rebase decrease of 3% and a margin decrease of 300 basis points.
31%. This decline is a function of several factors, including higher equipment costs related to increased mobile handset sales and additional VW projects and higher bad debt provisions as well as integration costs related to the acquisition of Clara Panama.
Next to Liberty, Puerto Rico in the middle of the Slide we reported revenue of $364 million accounting for flat quarterly Rebased growth, our fixed residential business grew 4% rebased with broadband driving the result.
During the quarter, we were also adversely impacted by $2 million in credits to our customers due to a power outage on the island.
<unk> also expanded in the quarter, while our residential mobile business declined due principally to lower subscribers and <unk> in our prepaid segment.
Moving to adjusted OIBDA, we posted a $149 million for a rebased decline of 8% the decline in the quarter was impacted primarily by higher negative equipment sales margin as well as lower net rounding margin and net incremental integration costs, while the year over year decline was impacted by a tough comparison to last year, we ripped.
<unk> is a sequential improvement from Q1, and we expect continued improvement in the second half of the year.
Next of ETR, we reported $150 million of revenue and $38 million of adjusted OIBDA, reflecting rebased declines of 16% and 35% respectfully our.
Q2 revenue and adjusted OIBDA results reflect the annualized <unk> impact of lower <unk>, and <unk>, which was heightened by a more aggressive pricing plans that we launch beginning in March.
Finally to Costa Rica, we delivered $108 million in revenue for 10% Rebased growth and $36 million and adjusted OIBDA for 4% Rebased growth in Q2.
Subscriber growth on mobile and fixed propelled our top line results as we have added 275000 mobile subscribers and 63006 <unk> over the last year, our Rebased adjusted OIBDA growth was slower than revenue growth in part due to roughly $2 million of integration expense in the quarter and three.
Million of nonfunctional currency impact as the Colonus has depreciated by 9% on average quarter over quarter.
Moving to slide 12 at Q2, including BTR, which is held as an asset for sale on our balance sheet. We had $9 4 billion of total debt $1 $1 billion of cash and $1 $2 billion of availability under our revolving credit lines gross leverage was similar to Q1 levels at <unk>.
Five one times and improved slightly on a net basis to four five times as a reminder, substantially all of our debt is siloed and tied to specific operations with the exception of our $400 million convertible.
Convertible bond the primary development in Q2 with respect to the capital structure is that we borrowed roughly $172 million, including $160 million in 4.25% term loans at the end of the quarter in cable and wireless Panama in.
In anticipation of funding the acquisition of Claro Panama in July .
The maturity of our debt is quite extended with 88% due in 2027 or beyond so we don't face pressure to refinance in the near term.
As Alan mentioned, we repurchased our largest quarterly amount of equity in Q2 and are tracking significantly ahead of our planned pacing.
We repurchased roughly 7 million shares during Q2 and as of June 30, we had $107 million remaining in our authorization of $200 million that we put in place in February of this year.
With respect to our financial guidance targets for <unk> as a percent of revenue and adjusted Mcf that we presented in our 2021 earnings call. We remain on track to deliver those targets based on the footprint that we had at the beginning of the year we.
We have worked hard to compensate for headwinds related to such items as currencies inflation in Chile performance, but there is some risk exasperated by the current macro environment, especially around the timing of large customer payments from Panamanian government accounts in certain <unk> accounts and <unk> that are expected to be received late in the year.
Additionally, we indicated on our year end call that our guidance does not include pending acquisitions, such as Claro Panama.
Including integration spend our preliminary view is that we expect this business in <unk> to deliver negative $10 million plus or minus in adjusted OIBDA and generate upwards of negative $30 million in free cash flow adjust.
Adjusting our guidance for the estimated Claro, Panama impact in <unk> to our adjusted FCS target would be approximately $220 million and <unk> as a percent of revenue would remain at approximately 18%.
In summary, we are executing our strategy one quarter at a time, whilst managing through macro and political volatility within our markets first we believe our closed transactions in Puerto Rico, Costa Rica, Panama will be significantly value accretive and upon completion of integration of resources of both adjusted OIBDA and free cash.
Cash flow expansion as balan highlighted the quantum of synergies and a roll off of integration spend will provide a nice tailwind to our future results. Besides integration of acquisitions closing the Chilean JV transaction is a primary focus for us and we look forward to updating investors later this fall on status.
Second our operating teams are driving fixed broadband and mobile postpaid across our b to C. Footprints and are capitalizing on improved <unk> market conditions post pandemic, we're maintaining cost discipline and striving for operational and business process efficiencies to help counter any upward pressure from inflationary effects and are weakening.
Currencies.
Third we continue to hold to our capital allocation framework and apply excess capital to highest return activities, obviously with equity prices under pressure, we have been extremely active in repurchasing our stock as noted by the prior slide and see it as a sensible allocation of capital.
In this environment, it's hard to see any new acquisitions on a risk adjusted basis, providing returns exceeding those of buying our own stock at these levels.
We will continue to be opportunistic across our capital structure and finally this management team is excited about the growth in free cash flow potential of <unk> as we look out to 2023 and beyond many of the operational initiatives that we have been working on are starting to take shape and should enable us to better serve our customers and simultaneously reduce our cost base.
<unk> and increase the reliability and sustainability of our revenue streams with that operator. Please open the line for questions.
A question and answer session will be conducted electronically.
I would like to ask a question regarding the company's operations. Please do so by pressing style Astro key followed by the digit one on your Touchtone telephone.
Wanted to accommodate everyone. We request that you ask only one question with one follow up if needed.
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So just a moment to give everyone an opportunity to signal for questions.
The first question comes from Sumit Datta from New Street Research. Please go ahead.
Hi, guys. Thanks for taking the question.
First of all just please on.
Free cash flow from clarity upon them also.
I'd like to hit the impact this year could you give us a kind of sense as to the direction of travel there over the next year or two.
You've talked about reaching synergies I think.
Full run rate in 2024.
But I just wanted to check was that kind of at the end of the beginning of the.
How will that sort of.
<unk> drag.
It was a mix.
A year or two would be helpful. That's the first.
First question please.
Sure Good morning, Amit.
Yes.
Mentioned.
Synergy should drop in in 2020 for probably the second part of screening for.
A number of things that we are working on them.
Alright, and I indicated the commercial integration happened early next year.
A lot of network consolidation rehab.
Each of us have significant amount of towers that we are going to consolidate youre going to consolidate spectrum, we're going to reallocate the spectrum stores closing that's a lot of activity the usual stuff that we would do after we make an acquisition.
Synergy numbers that we have with the transaction.
Mid low single digit and we are committed to that.
But there is some costs that were going to incur.
Incurred this year.
It needs some part of next year as well to integrate the businesses.
But the team is.
It's an experienced team we've done this many times and we will do it again here.
Okay. That's great. Thanks, maybe a quick follow up please.
You talked about the buyback.
The run rate has been.
<unk> been pretty significant in the first half and in Q2.
I think you've got it.
7 million less vulnerable to organization how are you thinking about.
The pacing into the second half of the year.
Well.
We are very opportunistic we have a grid that we that we have.
Very disciplined.
On a buyback.
A number of things I think Chris and I would like to see in the second half of the year, how the economy goes.
Some of the macro impacts we're going to be very disciplined very prudent.
And very.
Capital with our cash.
But we do have a grid, we are buying and we will continue to buy.
But we will also balance that against how the economy is growing.
What the landscape.
Okay.
Okay, great. Thanks.
Okay.
The next question comes from Kevin ROE from ROE Equity Research. Please go ahead Kevin.
Thank you good morning.
A couple of questions on <unk> Please Berlin.
Jamaica was nice to see that returning to broadband.
Subscriber growth could you give us some more color on the drivers of.
Of positive sub growth in Internet, maybe an update on the competitive landscape and do you expect this.
Positive trend to continue in H, two and second CDW question is more general.
On the health of the consumer sort of a real time snapshot given inflationary pressures everywhere are you seeing any any changes in bad debt prepaid top ups.
<unk> outstanding on billing et cetera. Thank you.
Sure Good morning, Kevin.
And I'll ask.
To jump in here in a second as well Jamaica.
The first quarter and maybe even a couple of months.
Second quarter, we had some headwinds.
It's really a tale of three markets in Jamaica rehab, our copper network by HFC network, and we have our new fiber to the home network on the fixed side.
And clearly we've been growing the fiber network.
And then we have some leakage on the copper network.
HFC, which has been had been a reliable growth.
Well Dennis.
Got it in the first quarter.
And the team revamped our commercial offerings and we're starting to see and you can see in our numbers.
Mostly driven.
The second part of the second quarter.
By the way seeing that same trend already coming through the third quarter. So the trend is positive in Jamaica.
It's a duopoly market a very good competitive re up again.
But nevertheless.
We're doing really well there.
On the.
In general in the islands.
Affordability.
We just did a study and did a lot of really detailed analytical work on our consumers.
We don't see at this point an affordability issue.
For our customers.
But we.
Constantly monitoring that inflation is up unemployment is also up in these markets, where we sell a product that everybody wants.
We've done some surveys and it's one of the last things people wouldn't give up so we feel pretty good about that.
And maybe I'll ask.
A little bit more color.
And looked at it.
Yes, good morning, well to make ethylene <unk> I think.
The trend towards our propositions, which are really catered towards the right segments on the right network and that is starting to really look for Robyn as balanced set we continue the trend.
From a competitive point of view, we are competitive both on the mobile side as well up on the fixed side. So I do expect that.
With the new propositions and the way we run the business and we will be able to really continue the results.
And then overall cable and wireless.
<unk>.
Balanced set it's a matter of having the right proposition.
Which we are heavy.
Really upgrades across the whole Caribbean region.
Great with our speed, making sure that everybody has the right product at the right speed.
Yes.
Okay.
So we do believe that.
With the right propositions.
Our speeds and these will continue to deliver on the consumer.
Consumer.
Okay. Thank you both.
The next question comes from Matthew Herring Harrigan from benchmark. Please go ahead.
Thank you.
Better than anyone else can.
Overlay developed markets.
Emerging markets, but theres, just a positive refrain from the U S and Europe on low move.
Move activity and how it is really a factor in the growth on.
On broadband.
Other businesses <unk> got very favorable churn.
You comment on whether youre seeing that in any of the markets. We do think we will get.
Our spring back or is it largely irrelevant, but most of the markets like Puerto Rico call. It has in the U S.
And then secondly.
So much.
Critical change across the region over the last year or is there anything you buy disconcerting or are you just very.
I know youre very local.
Able to micro mills.
Move along I know you've got some exposure.
Certainly.
Waiting to see what happens with <unk>.
The deal approval.
Hey, Matthew Matt.
Good question.
On the moves.
Impacting churn, unlike Europe , and the United States in our case voluntary churn is less driven by moves and mostly driven by pricing.
People do jump around a shop with the best deals.
That's why we have kind of an elevated churn I mean, one of the things about the region that we've been working pretty hard on because you have high gross adds and then you have you kind of like recycling customers between you and your competitor.
So there are a number of initiatives we've put in place. We started work on this early this year, we will start to see some of the fruits of that labor probably in the fourth quarter to first quarter next year.
Kind of.
That's it down a little bit.
We tried that in Chile, as well, we tried the forever pricing to help with our Gen rethought some positive.
Sponsored by.
But churn activity in our region is very different than North America.
Europe and it is slightly more elevated.
Then those other regions.
Political front, we keep very close track it does impact that but not significantly perhaps if we were doing a transaction.
Political durations.
On the buyer and the seller side you'd look at that very closely but from a day to day operations.
Okay.
Our teams are completely focused on the customer.
And while we monitor.
All the regulatory issues in front of us.
At this point, we don't see any headwinds from a regulatory standpoint, and Thats a testament to the team that we have year under our general counsel.
Our regulatory teams they are completely on top a bit they spent a lot of time.
With regulators with government officials quite proactive our local general managers, we encourage and co op them into also spending time with regulators and with government officials.
And I can say.
<unk> confidence across the board we.
We do have very good relationships.
It's a very transparent honest.
Relationship with government officials and we provide a service.
They value as well.
And we do it in a way I think.
That's very friendly to communities.
So.
I think we're going to be fine on that front.
Regardless of all the recent election outcomes.
Thanks, Paul.
Yeah.
This concludes today's question and answer session I would like to hand back to bill on that for any additional or closing remarks.
Thank you operator, and thank you to everybody on the call.
In our second quarter numbers of quick quarter numbers, the first half.
Yeah.
Okay.
And if you look at the guidance reiterated by Chris.
The second half as big a halfway as the.
The whole team is committed to that with a lot of good things don't happen in the fourth quarter on the working capital front on the commercial front and.
And the team is really committed to it and but I think if I look at our business.
The growth is in the future free cash flow story committed to that from the beginning we said this business is run on free cash flow and.
And as Chris pointed out in his.
Closing remarks, as well that.
The free cash flow story for this company over the next few years, it's going to be quite positive.
And some of the math, we can clearly do it just from even just the integration.
So we feel really good we thank you for your support and we'll be talking to you again in 90 days.
Okay.
Ladies and gentlemen, this concludes Liberty Latin America's second 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.
Hey, Tom.
There you can also find a copy of today's presentation materials.
Okay.