Q2 2019 Earnings Call
Please wait for the tone than say your phone number, including your area code or country code and press the pound or hash key.
Please wait for the tone than say your company name or affiliation and press the pound or hash key.
Thank you.
Good day, everyone, you're holding for the Liberty Latin America's second quarter 2019 investors call. Thank you for your patience Investor go will begin and approximately two minutes.
Please standby.
Good morning, ladies and gentlemen, and thank you for standing by today's call is being recorded I will now turn the call over to Oscar noise, MD capital allocation and business control.
Good morning, and welcome to Liberty Latin Americas second quarter 2019, Investor call. At this time, all participants are in listen only mode.
Todays formal presentation materials can be found on the Investor Relations section of Liberty Latin America's Web site at Www Dot com.
Following today's formal presentation instructions will be given for a question and answer session.
As a reminder, this call is being recorded.
Today's remarks May include forward looking statements, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact actual results may differ materially from those expressed or implied by these statements additional information or factors or risks that could cause results to differ is available in Liberty Latin America's most recently filed Form 10-K and Form 10-Q leveraged in Latin America disclaims any obligation to update any of these 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 Liberty Latin America's CEO Mr. Paul on there.
Thank you Oscar and welcome everybody.
Our Q2 results presentation.
As always I am joined by my senior leadership team.
From across the region, well get them in both as needed during the Q any.
The structure of this call will be familiar to you.
Im going to start by taking you through highlights for the second quarter, providing some greater detail on progress we are making each of our product areas before wrapping up with a strategic update for the group.
Chris noise, our Chief Financial Officer will then follow up with some prepared remarks, reviewing our financial performance and touching upon our 29 keen financial guidance after that we will get straight to your questions.
As a point of housekeeping.
We will both be working from slides, which you can find on our website at www allele dotcom.
Beginning on slide four with our key highlights for the second quarter.
Building on the good start we made to the year.
We continue to drive solid operational momentum in the second quarter, adding over 100, and towels and fixed and mobile subscribers.
In fact in fixed 60 debt 7000 additions represented our best Q2 performance.
Over a decade.
And in mobile cable and wireless continued its improving trend contributing to have 44000 net adds.
We also delivered robust financial results as we saw a year over year Rebased revenue and also you have growth of 3% and 8% respectively.
Thirdly, we continue to drive innovation by providing leading broadband speeds as well as enhancing our video platforms.
We have an exciting pipeline of product launches for customer coming up in the future as well.
And we continue to upgrade and expand our fixed networks, having added 330000 homes last year, we pass or upgraded 160000 homes in the second quarter.
Taking our year to date activity to roughly 240000 homes.
As I've mentioned previously these investments deliver great returns for us and should drive topline growth as we progress through the year.
Finally, we previously talked about our focus on cash flow and following a good first half of the year.
I am pleased to confirm that we are raising our 2019 guidance for adjusted free cash flow by 20% or 25 million to approximately 150 million.
In the next few slides.
Ill provide an update on our fixed mobile and DDB businesses.
Turning to slide five and our fixed business starting on the left with RG you additions.
We saw an improved first half performance, adding 140000 net adds which was 45000 more than in the first half of 2018 and included additions from each of our reporting segments from a product perspective broadband was once again the largest driver of growth as we added 95000 odds you used in the first half.
This success continues to be driven by a leading networks and speeds in Chile, where we added 31000 broadband RG use in the first half we were recently recognized as having the fastest broadband speeds in South America by study, including operated from Argentina, Brazil, Colombia among others.
Our video and voice subscribers grew as we were successful in bundling of products, particularly in the cable and wireless markets of Panama, Jamaica and Trinidad.
And Puerto Rico continues to perform well with second quarter additions at 5000, reflecting a more stable rate of growth following our excellent recovery from the Hurricanes in 2017.
On the right hand side of the slide we highlight the increasing rate at which we are upgrading and expanding our fixed footprint.
A key driver of growth for us.
In the first half of 2019, we added or upgraded 80000 more homes than in the same period last year. This has resulted in a total of 240000 additional homes passed or upgraded in the first half and we are on track with our previously provided outlook of at least 400000 homes for the year.
Penetration rates in our markets remain relatively low and expanding the reach of our leading networks strengthens our competitive position to provide customers with increased value and drive more market share.
And finally, we see high demand for fixed connectivity across the region, which creates an opportunity for us to continue to grow our footprint beyond 2019, which underpins our growth prospects moving to mobile on slide six you can see our improving trend as we continue to offer leading speed and expanding ltd. Starting with subscriber performance on the left in the second quarter. The group added 44000 net adds driven by an impressive 76000 mobile subscribers in Jamaica, following up gain Jamaica Blue campaign, which we launch in early April .
We also see an opportunity for us to expand ARPU in Jamaica in the second half and into 2020 as we continue to increase our value proposition.
In Panama, we saw more challenging second quarter in our net adds with increased competitive intensity. However, the net add churn that we saw was in the low end base, while we focus on more profitable mid and higher segment customers.
As a result for the first time in a long time, we saw a sequential mobile revenue increase in Panama.
We have been very focused in the Bahamas, and although we saw net losses again in the second quarter. We are confident that we have the right plan management team and priorities that we expect will lead to improved performance as we move to 2020.
Importantly, we achieved a significant milestone in the second quarter sequential mobile revenue stability at cable and wireless and are looking to build on this platform in coming quarters as we sharpened our focus to its customers with higher ARPU and more profitable economics.
Moving to the right hand side of the slide and wonderful focus areas driving LT penetration in our customer base.
As shown in the chart, our LT base has grown by over 40% over the last 12 months and stands at 42% of all residential customers at the end of the second quarter.
This has been helped by a strong mobile networks, where we are speed leaders in key markets. We are also focused on expanding our LTE coverage and are now at a little over 75% on a population basis across our markets.
Increasing the penetration of high speed mobile connectivity is important to improve the quality and breadth of services our customers can enjoy an intern should drive increased data consumption and our views.
Turning to slide seven and our BTB operations.
Starting on the left our beat to be revenue was up 5% on a rebased basis in the first half to nearly $600 million a third of LLS total revenue.
This growth represents increasing data demand, partly offset by the legacy product headwinds.
As the markets we operate in evolve we have developed a unified approach and common roadmap to leverage our products and capabilities effectively across LLS and deliver best in class solutions tailored to our customers' needs.
Moving to the center of the Slide you can see the breakdown of our B to B businesses.
Cable and wireless has the largest operation generating over 90% of the groups to be to be revenue.
Within this.
Two areas to highlight.
Firstly services provided in cable and wireless as consumer markets.
BGB here is growing steadily however days typically less of a market share opportunity as we are the incumbent.
Here there are opportunities to grow as we migrate customers to more advanced products and entered new segments.
Secondly, cable and wireless network, and Latam segment, which can be split into two parts, our subsea business, which underpins our operations, while also providing connectivity to other operators in the region.
We own a unique asset in the region, which will continue to be driven by increasing bandwidth demand.
And there is plenty of opportunity expand into newer geographies.
And CNW VTB only markets, which represent the fastest growth area.
These are new markets for the group, where we are in the taca with relatively low market share and can leverage our product and network capabilities as well as our product development center in Colombia to support to support our growth.
Puerto Rico, Nvidia, while smaller contributors to the group overall has been growing strongly and were up over 30% in the first half of 2019 on a combined rebased basis.
Although we have historically targeted small businesses. We believe there is ample opportunity to expand our service offerings to larger businesses indoors markets.
On slide eight on the left side you can see the strategic priorities I shared with you last quarter.
These are the five strategic priorities, we are focused on and we'll continue to focus on through the rest of the year.
On the right I wanted to wrap up by outlining some of our key focus areas within days for the second half of 2019.
First we will continue to drive innovation and offer leading propositions in our markets will revitalize office focused on our customers first and foremost.
These new products will apply across all of our businesses in fixed mobile and VTB.
Second we will continue to expand the rich reach and capabilities of our networks for fixed we have.
Our target of upgrading or adding at least 400000 homes in 2019, and we will continue working to it's just in the second half of the year.
And in mobile we will further expand our LT coverage population coverage target of 90% by the end of 2019.
We are committed to transforming our business to improve our customer experience, providing moments that matter to our customers.
Drew a frictionless experience, we are confident that we will drive efficiencies for our business overtime.
We are making good progress with this priority.
Since June we have created a single technology and innovation team, which will drive efficiency improvements as well as deliver an exciting roadmap of new products.
And in July we welcomed our first employees at our new Panama Operations Center.
We will be growing our capabilities during the second half and Panama will be the heart of our operations and at the center of optimization plans to drive scale leverage comment technologies and balance our shared and local expertise.
Last we are focused on integrating our recent acquisition as soon as possible and further building on the strong initial contribution to the group.
In crews so we have a unique position as a national champion and we intend to do good things for the market and consumers. For example, our recent mobile data upgrades two years and flow customers.
Couple of Deca, which we acquired last year has integrated well and is performing strongly.
And with that I'll now pass you over to Chris noise, Our Chief Financial Officer, who will take you through our financial performance Chris.
Thank you Bob I will begin on slide 10, with a high level snapshot of our second quarter financial results.
We reported $983 million on revenue at $387 million, an mcf, reflecting rebased growth of 3% and 8% respectively.
Our Q2 2019 reported results benefited from the inclusion of probably Teekay MGTS with respect to LCF, our margin improved to 39.4% up 110 basis points from Q2 2018, as we drive operating leverage across our business. Our p. any additions totaled $166 million in Q2 or 17% of revenue.
This result reflects much lower capital intensity as compared to $280 million or 24% of revenue in last year's Q2.
Which included $42 million of Hurricane restoration spend.
Moving to adjusted free cash flow, we delivered $68 million on Q2 significantly above the prior year period, driven primarily by lower cash capex.
On slide 11, I will summarize our Q2 performance for each of our three reportable segments.
Starting on the left CNW delivered $607 million of revenue down less than 1% on a rebased basis, which reflects an improvement over Q1 Rebased results.
As in prior quarters mobile revenue remained challenging year over year, especially in Panama and the Bahamas, although sequentially from Q1, we saw signs of revenue stabilization, reflecting the positive impact of our commercial offers.
Largely offsetting the mobile decline, we continued to deliver rebased growth in B to B helped in part by increases in managed services revenue and Rebased growth in our fixed residential business driven by the strength of broadband.
Reporting $235 million in Lcs that CNW posted 3% Rebased growth, which was supported by a net decrease in operating costs as CNW improved its scf margin to nearly 39% for the quarter P. any additions were $82 million or 14% of revenue and included over 95000, new or upgraded Hobbs.
Moving to our DTR, probably take a segment, we posted rebased growth of 3% in revenue and 6% in scf, bringing revenue to $275 million and Lcs to $112 million.
Topline growth was supported by volume increases across fixed b to B and mobile while LCF growth was also helped by decreases in the interconnect and mobile access costs.
Our p. any additions were $63 million or 23% of revenue, which is consistent with the prior year and included over 55000, new homes passed.
And lastly, Devry, Puerto Rico generated significant year over year, Rebased growth with revenue of $104 million in Lcs $52 million and incurred p. any additions of $19 million or 19% of revenue that business has clearly recovered and as the inset chart depicts we are fast approaching pre hurricane levels.
Moving to slide 12, we are highlighting the improvement in the Rebased OCF growth on a sequential basis CNW moving from a 2% drag on AOCF in Q1, two 3% growth in Q2, and BTR cowardly teekay doubling the rebased growth from 3% in Q1 to 6% in Q2 as VTR returned to growth.
Additionally, we show the quarterly progression on AOCF over the last six quarters.
Important to note that we all face a difficult comparison, the H Q2 018 from a rebased growth perspective, as Q3 2018 benefited from $11 million in FCC funding and Q4 2018 benefited from $64 million in insurance settlements.
Turning to slide 13, we provide an update on key key efficiency metrics that we are focused upon opex and AOCF last penny additions both measured as a percentage of revenue we have reduced our opex to revenue by 110 basis points to 37.3% for each one and 2019 as compared to 38.4% for each one 2018, driven by improvements in both Puerto Rico and CNW.
We also improved our AOCF less t. any additions metric in the first half to 23.3% of revenue, reflecting a combination of an increase in our scf margin and significantly lower capital intensity.
The takeaway from this slide is that we are tracking to deliver our medium term targets that we laid out on our 2018 year end earnings call.
Moving to slide 14, we have remained active in the capital markets in the last four months, we have issued over $900 million of attractively priced debt at CNW and while fully retired CNW is 2022 legacy nodes. This month.
As a result, CMBS maturity profile will be substantially weighted to 2026 and beyond.
Additionally, in June we generated roughly $350 million in that proceeds from issuing a 2% convertible bond ally and purchasing catcalls to reduced potential dilution.
The hexagon Nonetheless, you tell relevant items of our debt and liquidity at June 30.
Of note. We finished June with a total liquidity position of $2 billion, consisting of over $900 million of cash and nearly $1.1 billion on available Undrawn Rcs.
As depicted on the right. We're reconfirming, our 2019 LCF of greater than $1.525 billion at the FX rates provided on February Twentyth 2019, which includes CLP at 670.
And our 2019 peony target of approximately 19% of revenue as Barry mentioned earlier, we are raising our adjusted free cash flow target in 2018 from approximately $125 million to approximately $150 million. Following our strong result in each one.
The following items are important to note with respect to our 2019 guidance first while FX volatility may impact our reported MTF. We have reaffirmed the statement. We made on our 2018 year end earnings call that our 2019 Mcf guidance implies low to mid single digits Rebased OCF growth second our capital intensity was 16% for each one 2019, and we expect much higher spend in h. too as implied by our guidance target.
Third we expect our adjusted free cash flow in H., two will be substantially weighted to Q4, given the timing of our interest payments, which are concentrated in Q3.
Finally, moving to slide 15, we feel very good about our operational progress to date and the results are starting to come through both CNW and VTR returned to Rebased OCF growth in Q2, capitalizing on revitalized customer value propositions and strong commercial selling efforts as each posted solid fixed and mobile subscriber growth.
Our age two Mcf performance will be supported by not only our strong first half subscriber gains, but also our continued focus on improving cost and driving operational leverage and lastly, we are increasing our 2019 adjusted free cash flow target by 20% and Reconfirming. Our other 2018 guidance targets with that operator, we are ready to take questions.
A 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 the asterisks key followed by the digit one on your Touchtone phone.
In order to accommodate everyone. We request that you ask only one question with one follow up if needed.
If you are using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our.
We'll pause for just a moment to give everyone an opportunity to signal for questions. One moment. Please.
Our first question comes from James Ratcliffe from Evercore. Please go ahead.
Good morning, Thanks for taking the question I had two if I could.
One on operation from one source on strategy on the operation side on a Puerto Rico's margins are back to almost 50%.
And you can see here in the past that sort of the level.
The leading up a benchmark there how much upside opportunity is there at Chile, and cable and wireless and how much of the operational benefits you've been putting in place if we seem thus far.
And secondly, you mentioned the 1 billion nine in liquidity and your neighbors in the building just got a very large check can you talk about what the M&A landscape looks like and also your views on potential collaboration with Liberty global Thanks.
Thank you James good morning, and.
So the first question on the operations.
We focus on operational efficiencies and.
Structurally different market.
We did just different.
In the cable and wireless you have.
Numerous islands that somewhat fragmented data.
I'll now be straight up, but I doubt, we'll ever get to those kinds of margins in some of those islands that we operate in but.
Chris and I feel very strongly and my management team as well.
Thats at least quite a few points that we can gain.
On the Opex efficiencies to get US a number that I think you will like.
No.
On the second question on the liquidity.
Well, we don't comment on M&A and.
And but we feel that the pipeline in our region is strong.
Quite a number of assets that.
With the very attractive to us but.
You know we are quite patient and as you can see from 2018.
We.
There were a lot of deals there were rumors that we were.
Engaged in it didn't come to play and it's mostly because we know.
I'll do the math and it will be very disciplined in on the M&A front.
As the Liberty Global that's really up to them, you'll probably hear more from them tomorrow.
And just add you know James on the on the AOCF.
Margins I mean, a key target that we have is that opex efficiency to the low thirtys as a group.
So as you saw in the slides, we were kind of upper Thirtys as a company. So we have a number of points to continue to get at which a decent amount of that yes. This within the cable and wireless sphere.
Great. Thank you.
Our next question comes from Matthew Harrigan from Benchmark. Please go ahead.
Oh. Thank you two questions one of your operations have been more than satisfactory and I'm sure you're surprised about where your stock price is going to grow as a function of the emerging market macro and and all that you don't have an authorization in place for buybacks on larger predecessor company, given where your stock price is is there an imperative to get something going there and then secondly on the technology side I think when you first came out of the blocks the money or talk about a lot of commonalities with Liberty.
Your technology strategy, and how it's kind of diverging a little bit from from Liberty Global as as a indicator what what markets you operate in thank you.
Sure.
The first question on the.
Yes.
Currently sits yes, we certainly do think it's tremendously undervalued, but kind of self serving to say that.
But you know we know LMP, we know Atlanta and.
We see the upside coming at us.
As to the buybacks, we do not have a board authorized buyback plan at this point.
And.
If we needed to put one in we can put one in very quickly.
But.
As we look at our capital allocation, it's back to buyback Sydney is one of the three things we would look at.
We have tremendous internal projects that deliver great IR select a new bills and as well as the inorganic opportunities in our region.
And like I think I said that in the last call as well.
We will evaluate all of them against our Standalone plan and.
And if.
To start getting to a point, where the ARR is a lot better than a standalone plan and some of the other alternative.
We can get an authorization in very quickly and move quickly on that.
On the technology front I think.
We have.
A slightly.
Different road map, the Liberty global in some areas, but for the most part we try to keep together with Liberty global because of the combined scale.
So buying DOCSIS modems, you, but I mean, the combined skilled mix a lot of sense.
Rely more heavily on mobile so there's a lot of things that we do on mobile that.
That some of our sister companies do not do so we will.
We'll continue to innovate in that front I think you'll hear some really interesting things really positive things in the next quarter call keeping it ourselves for now.
And on the video front, we are on the same roadmap as Liberty Globals, we were going to launch the iOS blocks in Chile.
But some other areas, where we are quite fragmented.
We are looking at other options as well that.
I think in the next call or the call after that I think will be ready to announce those.
But.
My Chief Technology Officer, Vivek Khemka is very busy he also runs our product teams and.
And he's got a lot cooking up.
Excellent.
Great. Thanks, Paul I appreciate it.
Our final question comes from Kevin ROE from ROE equity Research. Please go ahead.
Thank you good morning.
Alan in Panama.
Could you update us on the consumer broadband or competitive dynamic and your go to market strategy. There. Thank you.
Thanks, Kevin.
In Panama so.
Adam as the deals do stories, the fixed network in the mobile network.
In our fixed network, we are in attacking the market in the mobile network. We have we are the incumbent in lot of cases rytary the highs our boost.
And.
And as you know and I've talked about this before as well that support labor market. When it's one blade due to many more tied to consolidation will come and we think rational mobile.
Rationality will come back into the mobile market place, but our management team is focused on the high end of mobile in Japan in Panama.
You will see the net EPS fluctuate back and forth.
And most of the net adds move in Panama, it's mostly the low end prepaid.
And us lots of low end prepaid these days.
Because of.
What.
Some of the.
Competitors are doing the marketplace. So if you're chasing net adds a very quick way to change in Panama has just offer one buck for seven days unlimited and you'll get a lot of net adds but its really do very low end that just turning back and forth.
On the fixed side I think we an attacker and.
It's a positive story and.
For the longest time competitor there has been cherry picking our customers and our management team is fighting back and.
And we are seeing the early results.
We have cable guys and we fixed guys in many ways and this is our bread and butter and.
We know that business in and out we know how to price. It we know how to go for it and.
And you're starting to see that.
In place and as well as other markets as well, it's not unique to Panama, it's across our operations, but in all of these operations. We have good competitors, we learn from them, we compete with them effectively and and we are very rational in these markets.
Okay.
That will conclude todays question and answer session I'd like to hand back to bill on there for additional or closing remarks.
Well. Thank you so much operator, and thank you everybody for taking the time to join US. This morning, you'll see clearly from our results today.
We're making progress.
Does this this is a very exciting journey from for me and my management team and.
And I think a lot of other good things will come along as well we are really looking forward to the second half of this year.
Have a great day and thanks again for your support.
Ladies and gentlemen, this concludes Liberty Latin America's second quarter 2019 Investor call.
As a reminder, a replay for the call will be available on the Investor Relations section of Liberty Latin Latin Americas website at Triple W. without L.L.A. Dot com.
There you can also find a copy of today's presentation materials.