Liberty Latin America Ltd.

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.

Good morning, and welcome to Liberty Latin America's first quarter 2021 investor call. At this time, all participants are in listen-only mode. Today's formal presentation materials can be found under the investor relations section of Liberty Latin America's website at www.lla.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 on 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. Liberty 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. Balan Nair.

Thank you, John, and welcome everybody to Liberty Latin America's first quarter 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 the company's financial performance. After that, we will get straight to your questions. As always, I'm joined by my executive team from across the region, and I'll get them involved as needed during the Q&A following our prepared remarks. To point of housekeeping, we will both be working from slides, which you can find on our website at www.lla.com. Well, let's start at slide four and our highlights for the quarter. Overall, all markets are steadily recovering from the worst impacts of the pandemic. 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 our markets. Against this backdrop, though, we had a strong start to the year with a record Q1 RGU additions of 76,000. The group's performance was led by Cable & Wireless and Puerto Rico, and we were pleased to deliver growth across all of our operating segments in the quarter. Our financial performance was also solid with a 3% rebase of adjusted OEBDA growth. This was driven by another strong quarter for Liberty Puerto Rico, and we continue to be excited about the value we plan to create there as we integrate our fixed and mobile operations. We previously outlined our plans to build or upgrade approximately 600,000 homes in 2021, a 50% increase on 2020, And we delivered 130,000 homes in the first quarter, 98% of which were fiber to the home. Bringing high-speed connectivity to more households in the region continues to be a core focus of our company. Finally, I am happy to say that we also reported a very strong first quarter free cash flow result, positioning us well for a full year guidance of approximately $200 million. Moving to slide five, I wanted to cover the first quarter highlights across our key markets before running through our performance by product category in the following slides. Starting with Jamaica, which was the largest contributor of fixed and mobile ads in cable and wireless. We are continuing to invest with momentum here and added or upgraded over 10,000 fiber to the home 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 hotels now open, and a more meaningful rebound is anticipated in the second half of this year. We've invested in a fixed network with fiber upgrades and launched converged propositions to drive broadband ads and post-paid mobile gains. Taking Costa Rica next, This continues to be a strong fixed market for us, and we are constantly looking to innovate and refresh our customer propositions, focusing on increasing speeds and value to gain and retain subscribers. The upcoming acquisition of Telefonica's mobile assets should provide an opportunity to develop attractive converged propositions for our customers and reinforce our strong positions. I've moved one of my best managers, Guillermo Ponce, to have oversight of Costa Rica and the integration of these businesses. Turning to Puerto Rico, our focus is on integrating the acquired AT&T operations effectively and quickly. To that end, in addition to our initial welcome offer, we have now launched our co-branded Juntos Mas campaign as a first step towards creating a single brand in the market. next to Panama on the lower left of the slide where we saw strict lockdowns last year and some in the beginning of the year. However, this market is going to be strong for us as we start our recovery and growth for the year. I recently moved one of my most trusted executives, Batsalal Kinnikstein, to personally run the business, and he is already making progress. We grew both our fixed and mobile subscriber basis in the first quarter and expect to have a good year there. The launch of our unlimited Todo Torito plan drove strong mobile additions in March. Finally, to VTR in Chile, where there continued to be lockdowns during the first quarter despite the country being one of the global leaders in vaccination efforts. Our recent operating and financial performance have been challenged. driven by the intense competition environment in Chile. We are committed to improving performance at VTR, and I would highlight the following. First, we need to start growing our subscriber base again. We turned the corner here in Q1, recording 7,000 net ads following 116,000 losses in the second half last year. Through our sales efforts, the rollout of Hub TV, significant fiber footprint expansion plans, and improve customer service objectives. We are aiming to build momentum in the business and drive meaningful subscriber growth over time. Second, we are focused on managing price to retain customers and recalibrating our cost structure to targeted efficiency initiatives. Third, we have added a new perspective to VTR's management team with Vivek Hemkar, our former CTO, taking on 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 where our infrastructure expansion plans are a key aspect of our strategy. It will take time, but we believe the business can get back to growth and that the steps we are taking today will also position us well as the market evolves. Turning to slide six and our operating performance by product. starting with fixed subscriber additions. As mentioned, all our operating segments recorded net ads this quarter, taking each in turn. First, cable and wireless Caribbean and networks, shown in the upper left, reported 12% higher Q1 additions year over year, driven by continued momentum in Jamaica, where we added 22,000 RGUs. In Panama, we added 10,000 RGUs and expect to continue our growth throughout the year. Liberty Puerto Rico, in the upper corner, carried over its momentum from 2020 by adding 25,000 RGUs in Q1, which was more than double the prior year period. In Chile, as mentioned, we returned to subscriber growth. This is an improvement. However, the market remains very competitive with additional uncertainty related to the pandemic and elections in the near term. Our last segment, Costa Rica, shown in the upper right, continued its steady progression with Q1 net ads 9% higher than the prior year, led by broadband demand. Rolling these results up for the group, we delivered record Q1 performance with year-over-year improvements in net ads driven by Puerto Rico. Our group ARPU per 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 a record Q1 mobile performance in what is typically a seasonally weak quarter. Starting again with cable and wireless Caribbean and networks in the upper left where we added 2,000 subscribers in the quarter, which was 30,000 more than the prior year period. Across cable and wireless' markets, Jamaica added 10,000 subscribers including 3,000 postpaid additions, which was higher than Jamaica's postpaid ads for the whole of 2020. Next to Panama, which generated the most ads in the quarter, growing its base by 61,000 net RGUs. This was driven by the launch of our unlimited data, Todo Torito plan. Liberty Mobile maintained 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, VTR lost 6,000 mobile subscribers in the quarter. We operate as an MVNO in Chile, predominantly providing postpaid services to existing fixed subscribers and are a small player in the market with just over 270,000 subscribers. Sticking this all together, we added 55,000 mobile subscribers in the quarter with a blended ARPU of $20 across the group. The increase of 55% year-over-year is driven by the inclusion of Liberty Mobile in Q1 2021. Next is slide 8 in our B2B and sub-C operations, starting with performance on the left side. The upper graph shows the stability in our Latin B2B and subsea businesses over the past year. This is driven by our attacker competitive positions in Latin B2B markets and the resilience of the subsea business, which I'll come on to. In contrast, our incumbent Caribbean and Panamanian B2B operations have faced challenges related to reduced tourism and the associated impact on local economies where we operate. As a result, performance has steadily improved since the trough last year. However, we are yet to return to pre-COVID levels. On the right of the slide, we wanted to highlight some of the key attributes of our subsea business. Firstly, at over 50,000 kilometers of cable, our network is the most extensive in the region. We've also included a map here to depict our routes, including terrestrial fiber in Colombia and part of Central America. Secondly, we have a unique mesh network with four-trunk submarine cable systems. This extensive network differentiates our ability to provide more resilient solutions and improves our economics. Thirdly, we utilize approximately 10% of potential capacity across our network, so there is ample room to grow. And lastly, our cables provide an important route to the United States with over 90% of our traffic going from the Caribbean and Central America to the U.S. Demand for this connectivity is expected to continue. Finally, to slide nine, and an overview of what we've achieved since the pandemic began and why we remain optimistic about the future. Starting with last year, we were quick to assess the potential impacts on our business from COVID-19, and we took decisive action, primarily to reduce costs so that we could manage the business through a potentially prolonged period of financial headwinds. As a result of the actions we took, our operational flexibility and some better market conditions, we achieved improving operating and financial performance from Q2 2020, including generating positive free cash flow in 2020, a clear focus. We also closed the acquisition of AT&T's operations in Puerto Rico and US Virgin Islands, and that business is performing ahead of our expectations. Chris will take you through the strong financial performance this operation is delivering. 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 upon it. Related to this, we will continue to lean into our thesis bending our footprint, and launching new products. We focused on delighting our customers with zero-touch and frictionless experience. And as announced earlier this week, our CEO, Lorenzo, will join us as our Chief Customer Officer. But we are still cautious, noting that Chile and part of the Caribbean experience locked down in the first quarter. Finally, as we look further ahead, we are very optimistic. We expect vaccinations will aid in the global recovery and facilitate more tourism to our region, in turn improving the economic backdrop in many of our countries. We've adopted 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 our new products as we expand our networks. 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's Costa Rica assets in the summer. 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.

Thanks, Fallon. Beginning on slide 11, two housekeeping items. Our Q1 2021 results include Liberty Mobile for the entire quarter, and given our recent executive management changes, we are now presenting Cable Tica as a separate segment. For Q1, we delivered $1.16 billion in revenue, with a year-over-year increase fueled primarily by the contribution from Liberty Mobile. We achieved flat rebase growth year-over-year, which is a solid result given many of our markets are still experiencing COVID-related restrictions and suffering from compressed economic activity. In terms of products, we achieved rebase growth in both fixed and mobile residential revenue, which was offset entirely by continued softness in B2B, which has not fully recovered to pre-COVID levels. Moving to adjusted EBITDA, we posted $449 million for the quarter, reporting rebase growth of 3%, our best result in the last four quarters. P&E additions totaled $152 million in Q1, or 13% of revenue, reflecting a modest dollar increase as compared to the respective prior year period. Recall 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 in Puerto Rico. In terms of FCF, we reported $58 million of adjusted free cash flow for the quarter. This was LLA's strongest first quarter in free cash flow and was fueled by Puerto Rico and improved results in cable and wireless Caribbean networks. For the next three quarters, we expect our adjusted FCF to be primarily concentrated in Q4. Moving to slide 12. Our Q1 result reflects our highest reported quarterly revenue and adjusted OEBDA for LLA to date, and the chart depicts our continued recovery from Q2 2020. As highlighted on our 2020 year-end call, we would generally have a step down from Q4 to Q1 due to seasonality factors. However, we were able to effectively manage through 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 EBITDA of $363 million was comparable to results in the prior year pre-COVID 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 the NW Caribbean and Network. We posted $430 million of revenue and $181 million of adjusted EBITDA, which was in line with our seasonally strong Q4 results. Compared to pre-COVID Q1 2020, rebase revenue declined by 4% and adjusted EBITDA decreased by 2%. On the rebase revenue side, we experienced an 8% decline in residential mobile and a 4% decline in B2B, the two areas most impacted by the pandemic. However, we achieved roughly flat rebase growth in residential six, helped by underlying strength in our broadband product. One market to call out is Jamaica. Our Jamaican business accounts for more than 20% of this segment's revenue and is continuing to post year-over-year rebase gains, growing 6% this quarter. Helped by lower direct and operating costs year-over-year, we were able to achieve an adjusted OIVDA margin of 42% this quarter and gain incremental operating leverage. P&E additions were $50 million of 12% of revenue, including over 20,000 homes built or upgraded in the quarter. Moving to Cable & Wireless Panama, Q1 revenue of $122 million and adjusted OIVDA of $44 million were 11% and 3% lower on a rebase basis, respectively. And P&E additions were $11 million, or 9% of revenue, including over 20,000 homes built or upgraded. Two key points to highlight. First, CWP has mitigated much of the COVID-impacted revenue decline through reducing both its direct and operating costs year over year. And second, as the year continues, we are poised to deliver much improved performance. Turning to the middle of the slide, Liberty Puerto Rico is once again our strongest segment. we generated $361 million of revenue or 14% rebase growth as compared to Q1 2020. Our historical cable business delivered rebase revenue growth of roughly 20% year-over-year as we have increased our total RGU 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 rebase 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, our adjusted EBITDA was $150 million, an increase of about $100 million over what we reported in last year's Q1. Our Q1 result reflects rebase adjusted EBITDA growth of 26%. Importantly, as we flagged on the Q4 call, We expect to incur sizable integration costs in 2021 that will adversely impact our adjusted EBITDA. These costs were minimal in Q1 and are expected to ramp substantially in the next three quarters. In terms of P&E additions, we reported $34 million or 9% of revenue in Q1. We expect that our spend will significantly increase throughout the rest of 2021 due in large part to timing of our integration projects and new builds. VTR is highlighted in the fourth column. We reported Q1 revenue of $210 million and adjusted OIBDA of $71 million, reflecting rebase declines of 8% and 20%, respectively. A key driver is the full-year 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 ARPUO, Besides the flow-through 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 through restructuring late in Q1. P&E additions were $47 million, or 22% of revenue, including over 75,000 new homes, an increase of 160% over last year's Q1. Finishing with Caviteca in Costa Rica. Obviously, post-completion of the Telefonica acquisition, this business will be much larger. But on a standalone basis, Cable Tica reported revenue of $36 million and adjusted OIBADA of $14 million, with both metrics reflecting year-over-year rebase growth in the mid-teens. Our P&E additions were 20% of revenue and included over 5,000 new fiber homes constructed. This next slide will discuss the current status of our balance sheet and liquidity. At Q1, we reported $8.9 billion of total debt, $1.3 billion of cash, and $1.2 billion of availability under our revolving credit line. 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. In terms of leverage, we had consolidated gross leverage of five times and net leverage of 4.3 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 of eight-year 4.375% seniors secured notes at VTR. The proceeds were primarily used to repay VTR's 2023 term loans and repay a portion of VTR's 5.8% notes. Second, we raised $1.3 billion of debt in Puerto Rico and repaid our existing $1 billion term loan. We issued $820 million of eight-year senior secured notes at 5.8%, 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 tighter than our repaid term loan. As part of this refinancing, we raised $250 million of incremental capital. Furthermore, as a result of these two opportunistic refis, our 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 consolidated LLA results were ahead of our own expectations for the quarter. No doubt Chile will remain challenging for us for the foreseeable future, as Valen discussed. but our other markets, especially Puerto Rico, are picking up the slack. As seen by our remarks today, the region in 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 in our businesses, especially in fiber technology and capacity, driving fixed and mobile subscriber growth, focusing on digital transformation, cost control, and business process efficiency, 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 and adjusted EBITDA rebase growth and meet our 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 operation, please do so by pressing the star or asterisk key followed by the digit 1 on your touchtone telephone. In order to accommodate everyone, we request that you only ask 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 equipment. We'll pause for just a moment to give everyone an opportunity to signal for questions. We'll take our first question from Sumit Bhatta, New Street Research. Please go ahead, your line is open.

Oh, hi there. Sorry, I think I was on mute. Yeah, two or three quick questions, please. Just on subsea cable, first of all, is there an update at all on a monetization process? You suggested you were beginning to look into that. But the full years, I just wondered if there was any kind of update there, please. Secondly, could you just refresh thinking on the potential buyback? Obviously, you're still looking to do $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, and I guess this might take a little bit longer, but just on Chile, I was just having a look at some of the price points in the market, and obviously some of the peers are kind of quite cheap, and I think you mentioned that 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 yourself You know, it's difficult as the kind of incumbent operator to defend against that, but I'd love to hear a little bit more about, you know, what you can do against some of those very aggressive price points. Thank you.

Morning, Sumit. Thanks. So let me address your three questions. Subsea Cable, we've been doing a lot of work in the last couple of months, couple three months, in, you know, separating that business out. through both legally, financially, the accounts, and trying to reallocate the cost and make sure that we have a clear line of sight into that as a standalone business. And my sense is that, you know, we'll 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'll come back to you and 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 our buyback process. And we did do some buybacks back in 2020. And we'll be kind of opportunistic in this matter. When we see, you know, if the equity trades off, we'll certainly jump in. But we remain opportunistic on that front. And on Chile, 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 Claro, Movistar, Intel. And I think I've said it before many years ago, a couple of years ago, that we compete very fiercely against these other three folks. Now, in the last six to nine months, we've got more entrants coming to the market, and you saw that there's even a wholesale regime. And pricing has been disrupted in that marketplace. And the way we look at this is, you know, you look at your front book and your acquisition pricing, and then you look at what you have in your back book. And Vivek, who's a general manager there, has been very actively looking at both and trying to normalize the front book and back book. But clearly, when you look at the front book and you look at your gross ad, I mean, our pricing is working. Now, we do have some parts of our base that's still on some legacy pricing that we would eventually have to adjust. And 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, our front book is working really well. Now, since you asked the question on Chile, I'm going to ask a new general manager in Chile, Vivek, who's been on the job here for the last few months now, and maybe he can share some of his perspective on that.

Yeah, thanks, Valen. Thanks, Sumit, for the question. Yeah, I would say, as Balan pointed out, from a pricing standpoint, you know, our Q1 of 2021 has been a really good gross ad. So there's clear demand for our product. There's definitely market continues to grow, and that pricing is working. I think we just need to adjust some of the back book pricing and manage churn. I think you also asked how do we expect to compete in a market where pricing is so low. And I think the focus will be on product, whether it is our network, our customer experience, our video product, our speed. That's basically the focus on how we're going to continue to compete in this market. And we do believe we have a very compelling product and an offering, a great footprint, and we pass more homes than any of our competitors do. So I think we combine all of that to continue to compete in this market in a really good way.

Thanks, Vivek.

Sorry, on a quick, that's super helpful, thank you. Very quick follow-up. It may be sensitive, but can you give any sense to the back book, front book differential?

Is it kind of somewhat extreme, or does it just need a bit of tweaking? It's not extreme at all. As a matter of fact, I'd say, you know, I'll just throw out one number. More than 60% of the back book is already close to our front book, and then the remaining one is the gap is actually not that wide. Okay, that's great. Thank you.

As a reminder, star one if you would like to ask a question. We'll take our next question from James Radcliffe with Evercore ISI.

Great. Thanks for taking the question. Two if I could. First of all, to follow up on Chile, can you just talk about the status of the BTR brand at this point and to what degree the COVID experience has impacted that in your relative brand position versus other providers and how you rebuild that advantage? And secondly, any thoughts regarding the restructuring at Televisa and the potential appeal of the Mexican market, knowing that your chairman sits on the Televisa board. I'm curious how that market could potentially fit into your thinking about footprint expansion. Thanks.

Sure. Let me answer the Televisa one first, and then I'll pass it on to Vivek on the VTR branch. Really, on the Televisa front, we're close, of course, to the group Televisa. And Alfonso, who's the CEO that sits on our board. But, you know, they did a really amazing transformational deal themselves. And then what's in the future, I think there's lots of speculation. But right now, our focus is running our business. And that's how we're looking at it. So, Vivek, you want to answer the VTR brand?

Yeah, you know, of course, VTR has had a very good brand in Chile over the years. We did have a little bit of a brand impairment last year, given our network issues. But when I look at relative brand impairment compared to all of the other providers, you know, I think we are roughly still in 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 and our service. And I don't think it's insurmountable to get back to a brand position that we had before.

Great. Thank you.

Thank you. That will conclude today's question and answer session. I'd like to hand back to Balan Nair for any additional or closing remarks.

Well, let me end by saying this. We feel really good about this year. We realize the challenge in Chile, but we're not afraid of it, and we're going to take it straight on. And if I look at the rest of our business, I feel really optimistic about the rest of the business and even more optimistic about the combination of mobile and fixed in Costa Rica. So it is going to be a very good year, and I do thank all of you for your support.

Ladies and gentlemen, this concludes Liberty Latin America's first quarter 2021 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.lla.com. There you can also find a copy of today's presentation.